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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2011
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 333-144625-01
333-144625
 RSC Holdings III, LLC
 RSC Equipment Rental, Inc.
  Delaware 
Arizona
    
    41-2218971
86-0933835(State or other jurisdiction of
    
    (I.R.S. Employer Identification Number)incorporation or organization)6929 E. Greenway Pkwy. 
Scottsdale, Arizona
    
    85254(Address of principal executive offices)
    
    (Zip code)
 (480) 905-3300  (Registrants telephone number,
including area code)
 N/A  (Former name, former address and former fiscal year, if changed since
last report)
 The Registrants meet the conditions set forth in General Instructions H (1) (a) and (b) of
Form 10Q and are therefore filing this Form with the reduced disclosure format as permitted.
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




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Table of Contents
 Cautionary Note for Forward-Looking Statements
    
    
    1PART I.Financial Information
    
    
    3ITEM 1.Financial Statements (unaudited)
    
    
    3Condensed Consolidated Balance Sheets at March 31, 2011 and December 31, 2010
    
    
    3Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and March 31, 2010
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and March 31, 2010
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    7ITEM 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15ITEM 3.Quantitative and Qualitative Disclosures about Market Risk
    
    
    27ITEM 4.Controls and Procedures
    
    
    27PART II.Other Information
    
    
    28ITEM 1.Legal Proceedings
    
    
    28ITEM 1A.Risk Factors
    
    
    28ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28ITEM 3.Defaults Upon Senior Securities
    
    
    28ITEM 4.Reserved
    
    
    28ITEM 5.Other Information
    
    
    28ITEM 6.Exhibits
    
    
    29SIGNATURES
    
    
    30EX-10.2EX-31.1EX-31.2EX-32.1
  i




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Introductory Note
  
 Cautionary Note for Forward-Looking Statements
    
    
    the effect of an economic downturn or other factors resulting in a decline in
non-residential construction, non-construction maintenance, capital improvements and
capital investment;
    
    intense rental rate price pressure from competitors, some of whom are heavily
indebted and may significantly reduce their prices to generate cash to meet debt
covenants; from contractor customers some of whom are bidding contracts at cost or below
to secure work for their remaining best employees; from industrial customers who
generally are experiencing profitability shortfalls in the current economic climate and
in return are asking all of their most significant suppliers for price reductions and
cost reduction ideas;
    
    the rental industrys ability to continue to sell used equipment through both the
retail and auction markets at prices sufficient to enable us to maintain orderly
liquidation values that support our borrowing base to meet our minimum availability and
to avoid covenant compliance requirements for leverage and fixed charge coverage
contained in our New Senior ABL Revolving Facility;
    
    our ability to comply with our debt covenants;
    
    risks related to the credit markets willingness to continue to lend to borrowers with a B rating;
    
    our ability to generate cash and/or incur additional indebtedness to finance
equipment purchases;
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
    
    exposure to claims for personal injury, death and property damage resulting from the
use of equipment rented or sold by us;
    
    the effect of changes in laws and regulations, including those relating to employment
legislation, the environment and customer privacy, among others;
    
    fluctuations in fuel and, or supply costs;
    
    heavy reliance on centralized information technology systems;
    
    claims that the software products and information systems on which we rely infringe
on the intellectual property rights of others; and
    
    the other factors described in Part II, Item 1A of this Quarterly Report on Form 10-Q
under the caption Risk Factors.
  2




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PART I. Financial Information
 
 Item 1. Financial Statements
 RSC HOLDINGS III, LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share data)
(Unaudited)
 March 31,
    
    
    December 31,2011
    
    
    2010AssetsCash and cash equivalents
    
    $
    32,153
    
    
    $
    3,510Accounts receivable, net of allowance for doubtful accounts of $7,717 and
$7,009 at March 31, 2011 and December 31, 2010, respectively
    
    
    237,163
    
    
    
    228,532Inventory
    
    
    14,994
    
    
    
    14,171Deferred tax assets, net
    
    
    10,494
    
    
    
    17,912Prepaid expense and other current assets
    
    
    12,349
    
    
    
    13,798Total current assets
    
    
    307,153
    
    
    
    277,923Rental equipment, net of accumulated depreciation of $1,097,946 and
$1,089,843 at March 31, 2011 and December 31, 2010, respectively
    
    
    1,394,632
    
    
    
    1,336,424Property and equipment, net of accumulated depreciation of $213,797
and $208,495 at March 31, 2011 and December 31, 2010, respectively
    
    
    108,904
    
    
    
    110,779Goodwill and other intangibles, net
    
    
    939,112
    
    
    
    939,302Deferred financing costs
    
    
    58,309
    
    
    
    44,205Other long-term assets
    
    
    9,336
    
    
    
    9,342Total assets
    
    $
    2,817,446
    
    
    $
    2,717,975Liabilities and Stockholders DeficitAccounts payable
    
    $
    246,660
    
    
    $
    193,819Accrued expenses and other current liabilities
    
    
    106,528
    
    
    
    119,608Current portion of long-term debt
    
    
    25,603
    
    
    
    25,294Total current liabilities
    
    
    378,791
    
    
    
    338,721Long-term debt
    
    
    2,166,773
    
    
    
    2,043,887Deferred tax liabilities, net
    
    
    305,084
    
    
    
    330,862Other long-term liabilities
    
    
    29,037
    
    
    
    41,782Total liabilities
    
    
    2,879,685
    
    
    
    2,755,252Commitments and contingenciesCommon stock, no par value, (1,000 shares authorized, issued and
outstanding at March 31, 2011 and December 31, 2010)
    
    
    296,066
    
    
    
    293,462Accumulated deficit
    
    
    (383,263
    )
    
    
    (332,831
    )Accumulated other comprehensive income
    
    
    24,958
    
    
    
    2,092Total stockholders deficit
    
    
    (62,239
    )
    
    
    (37,277
    )Total liabilities and stockholders deficit
    
    $
    2,817,446
    
    
    $
    2,717,975
  3




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RSC HOLDINGS III, LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 Three Months EndedMarch 31,2011
    
    
    2010Revenues:Equipment rental revenue
    
    $
    271,775
    
    
    $
    222,213Sale of merchandise
    
    
    12,652
    
    
    
    11,421Sale of used rental equipment
    
    
    42,493
    
    
    
    27,106Total revenues
    
    
    326,920
    
    
    
    260,740Cost of revenues:Cost of equipment rentals, excluding depreciation
    
    
    148,976
    
    
    
    129,292Depreciation of rental equipment
    
    
    70,889
    
    
    
    66,645Cost of merchandise sales
    
    
    8,442
    
    
    
    8,074Cost of used rental equipment sales
    
    
    30,970
    
    
    
    24,637Total cost of revenues
    
    
    259,277
    
    
    
    228,648Gross profit
    
    
    67,643
    
    
    
    32,092Operating expenses:Selling, general and administrative
    
    
    41,718
    
    
    
    35,712Depreciation and amortization of
non-rental equipment and intangibles
    
    
    10,225
    
    
    
    10,057Other operating gains, net
    
    
    (719
    )
    
    
    (2,312
    )Total operating expenses, net
    
    
    51,224
    
    
    
    43,457Operating income (loss)
    
    
    16,419
    
    
    
    (11,365
    )Interest expense, net
    
    
    81,959
    
    
    
    49,793Loss on extinguishment of debt
    
    
    15,342
    
    
    
    Other income, net
    
    
    (337
    )
    
    
    (199
    )Loss before benefit for income taxes
    
    
    (80,545
    )
    
    
    (60,959
    )Benefit for income taxes
    
    
    30,113
    
    
    
    23,131Net loss
    
    $
    (50,432
    )
    
    $
    (37,828
    )Weighted average shares outstanding used in computing
net loss per common share:Basic and diluted
    
    
    1,000
    
    
    
    1,000Net loss per common share:Basic and diluted
    
    $
    (50.43
    )
    
    $
    (37.83
    )
  4




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RSC HOLDINGS III, LLC AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Three Months Ended March 31,2011
    
    
    2010Cash flows from operating activities:Net loss
    
    $
    (50,432
    )
    
    $
    (37,828
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    81,114
    
    
    
    76,702Amortization of deferred financing costs
    
    
    2,730
    
    
    
    3,173Amortization of original issue discount
    
    
    299
    
    
    
    268Share-based compensation expense
    
    
    1,274
    
    
    
    663Gain on sales of rental and non-rental property and equipment, net of
non-cash write-offs
    
    
    (12,041
    )
    
    
    (2,608
    )Deferred income taxes
    
    
    (31,180
    )
    
    
    (23,666
    )Gain on settlement of insurance property claims
    
    
    
    
    
    
    (1,736
    )Loss on extinguishment of debt
    
    
    15,342
    
    
    
    Interest
expense, net on ineffective hedge
    
    
    (104
    )
    
    
    85Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (7,986
    )
    
    
    7,372Inventory
    
    
    (798
    )
    
    
    485Other assets
    
    
    1,179
    
    
    
    160Accounts payable
    
    
    53,131
    
    
    
    35,382Accrued expenses and other liabilities
    
    
    6,656
    
    
    
    7,029Net cash provided by operating activities
    
    
    59,184
    
    
    
    65,481Cash flows from investing activities:Purchases of rental equipment
    
    
    (157,921
    )
    
    
    (44,906
    )Purchases of property and equipment
    
    
    (2,444
    )
    
    
    (331
    )Proceeds from sales of rental equipment
    
    
    42,493
    
    
    
    27,106Proceeds from sales of property and equipment
    
    
    1,594
    
    
    
    1,296Insurance proceeds from rental equipment and property claims
    
    
    
    
    
    
    1,736Net cash used in investing activities
    
    
    (116,278
    )
    
    
    (15,099
    )Cash flows from financing activities:Proceeds from Old Senior ABL Revolving Facility
    
    
    72,000
    
    
    
    35,000Proceeds from New Senior ABL Revolving Facility
    
    
    383,000
    
    
    
    Proceeds from issuance of 2021 Notes
    
    
    650,000
    
    
    
    Payments on Old Senior ABL Revolving Facility
    
    
    (376,195
    )
    
    
    (73,000
    )Payments on New Senior ABL Revolving Facility
    
    
    (9,000
    )
    
    
    Payments on 2014 Notes
    
    
    (117,000
    )
    
    
    Payments for call premium on 2014 Notes
    
    
    (5,562
    )
    
    
    Payments on Second Lien Term Facility
    
    
    (479,395
    )
    
    
    Payments on capital leases and other debt
    
    
    (6,916
    )
    
    
    (9,020
    )Payments for deferred financing costs
    
    
    (26,826
    )
    
    
    (624
    )Capital contributions from RSC Holdings
    
    
    1,330
    
    
    
    15Decrease in outstanding checks in excess of cash balances
    
    
    (440
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    84,996
    
    
    
    (47,629
    )Effect of foreign exchange rates on cash
    
    
    741
    
    
    
    574Net increase in cash and cash equivalents
    
    
    28,643
    
    
    
    3,327Cash and cash equivalents at beginning of period
    
    
    3,510
    
    
    
    4,535Cash and cash equivalents at end of period
    
    $
    32,153
    
    
    $
    7,862
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RSC HOLDINGS III, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (continued)
(In thousands)
(Unaudited)
 Three Months Ended March 31,2011
    
    
    2010Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    70,305
    
    
    $
    36,831Cash received for taxes, net
    
    
    66
    
    
    
    406Supplemental schedule of non-cash investing and financing activities:Purchase of assets under capital lease obligations
    
    $
    6,401
    
    
    $
    1,484Accrued deferred financing costs
    
    
    113
    
    
    
    260
  6




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RSC HOLDINGS III, LLC AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 (1) Organization
 Business and Basis of Presentation
 Description of Business
  Basis of Presentation
  Use of Estimates
  Recent Accounting Pronouncements
  7




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RSC HOLDINGS III, LLC AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
 (Unaudited)
  (2) Fair Value of Financial Instruments
    (3) Accumulated Other Comprehensive Income
  Foreign
    
    
    
    
    
    
    Accumulated OtherCurrency
    
    
    Fair Market Value
    
    
    ComprehensiveTranslation
    
    
    of Cash Flow Hedges
    
    
    Income(in 000s)Balance at December 31, 2010
    
    $
    21,722
    
    
    $
    (19,630
    )
    
    $
    2,092Foreign currency translation
    
    
    3,236
    
    
    
    
    
    
    
    3,236Change in fair value of cash flow hedges, net of tax
    
    
    
    
    
    
    19,630
    
    
    
    19,630Balance at March 31, 2011
    
    $
    24,958
    
    
    $
    
    
    
    $
    24,958
 8




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RSC HOLDINGS III, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
  Three Months EndedMarch 31,2011
    
    
    2010(in 000s)Net loss
    
    $
    (50,432
    )
    
    $
    (37,828
    )Currency translation adjustments
    
    
    3,236
    
    
    
    3,567Change in fair value of cash flow hedges, net of tax
    
    
    19,630
    
    
    
    134Comprehensive loss
    
    $
    (27,566
    )
    
    $
    (34,127
    )
 (4) Closed Location Charges
    Lease Exit      and
    
    
    Employee
    
    
    OtherOther Related Costs
    
    
    Termination Costs
    
    
    Exit(a)
    
    
    (b)
    
    
    Costs (c)
    
    
    TotalClosed location reserves at December 31, 2010
    
    $
    (4,265
    )
    
    $
    
    
    
    $
    
    
    
    $
    (4,265
    )Charges incurred to close locations
    
    
    (700
    )
    
    
    (59
    )
    
    
    (58
    )
    
    
    (817
    )Cash payments
    
    
    665
    
    
    
    32
    
    
    
    58
    
    
    
    755Adjustments to reserve
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    (21
    )Closed location reserves at March 31, 2011
    
    $
    (4,321
    )
    
    $
    (27
    )
    
    $
    
    
    
    $
    (4,348
    )
 
 (a)
    
    Lease exit and other related costs are included within cost of equipment rentals in the
condensed consolidated statements of operations. The lease exit portion of the closed
location reserves at March 31, 2011 are expected to be paid over the remaining contractual
term of the leases, which range from three to 84 months.(b)
    
    Employee termination costs primarily consist of severance payments and related benefits. For
the three months ended March 31, 2011, these costs are included within cost of equipment
rentals in the condensed consolidated statement of operations. 9




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RSC HOLDINGS III, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
 (c)
    
    Other exit costs include costs incurred primarily to transport fleet from closed
locations to other locations. These costs are included within cost of equipment rentals in
the condensed consolidated statements of operations.
  (5) Debt
  March 31,
    
    
    December 31,2011
    
    
    2010UnamortizedDeferredInterest Rate (a)
    
    
    Maturity Date
    
    
    Financing Costs
    
    
    Debt
    
    
    Debt(in 000s)New Senior ABL Revolving Facility
    
    
    2.75
    %
    
    Feb. 2016
    
    $
    21,942
    
    
    $
    374,000
    
    
    $
    Old Senior ABL Revolving
Facility
    
    
    n/a
    
    
    
    (b)
    
    
    
    
    
    
    
    
    
    
    
    304,195Second Lien Term Facility
    
    
    n/a
    
    
    
    (c)
    
    
    
    
    
    
    
    
    
    
    
    479,3952014 Notes
    
    
    9.50
    %
    
    Dec. 2014
    
    
    9,148
    
    
    
    503,000
    
    
    
    620,0002017 Notes
    
    
    10.50
    %
    
    Jul. 2017
    
    
    8,126
    
    
    
    400,000
    
    
    
    400,0002019 Notes
    
    
    10.50
    %
    
    Nov. 2019
    
    
    4,813
    
    
    
    200,000
    
    
    
    200,0002021 Notes
    
    
    8.25
    %
    
    Feb. 2021
    
    
    14,280
    
    
    
    650,000
    
    
    
    Capitalized lease obligations (d)
    
    
    1.59
    %
    
    Various
    
    
    
    
    
    
    77,274
    
    
    
    77,788Total
    
    
    
    
    
    
    
    
    
    $
    58,309
    
    
    
    2,204,274
    
    
    
    2,081,378Original issue discounts (e)
    
    
    n/a
    
    
    
    n/a
    
    
    
    
    
    
    
    (11,898
    )
    
    
    (12,197
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,192,376
    
    
    $
    2,069,181
 
 (a)
    
    Estimated interest rate presented is the effective interest rate as of March 31, 2011
including the effect of original issue discounts, where applicable, and excluding the
effects of deferred financing costs.(b)
    
    In February 2011, the Company repaid the outstanding balance of the Old Senior ABL
Revolving Facility and replaced it with the New Senior ABL Revolving Facility due February
2016. As a result, the Company classified the outstanding balance on the Old Senior ABL
Revolving Facility as long-term debt at December 31, 2010. Had the Company not entered
into the New Senior ABL Revolving Facility, $78.4 million of the outstanding balance on the
Old Senior ABL Revolving Facility at December 31, 2010 would have been due November 2011
with the remaining $225.8 million due August 2013. See New Senior ABL Revolving Facility
below for additional information.(c)
    
    In January 2011, the Company repaid the $479.4 million outstanding balance on the
Second Lien Term Facility using proceeds received from the sale of the 2021 Notes. See
$650.0 million Senior Unsecured Notes Offering below for additional information.(d)
    
    Capital leases include $25.6 million and $51.7 million of obligations that are
classified as current and long-term debt, respectively, at March 31, 2011.(e)
    
    The original issue discounts represent the unamortized difference between the $400.0
million aggregate principal amount of the 2017 Notes and the proceeds received upon
issuance and the unamortized difference between the $200.0 million aggregate principal
amount of the 2019 Notes and the proceeds received upon issuance.  10




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RSC HOLDINGS III, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
  Fair ValueNew Senior ABL Revolving Facility
    
    $
    374,0002014 Notes
    
    
    526,8932017 Notes
    
    
    454,0002019 Notes
    
    
    209,0002021 Notes
    
    
    677,625Capitalized lease obligations
    
    
    77,274Total
    
    $
    2,318,792
 $650.0 million Senior Unsecured Notes Offering
   New Senior ABL Revolving Facility
  11




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RSC HOLDINGS III, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
 Interest Rate Swaps
  (6) Derivative Instruments
    12




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RSC HOLDINGS III, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
  March 31, 2011
    
    
    December 31, 2010
    
    
    March 31, 2011
    
    
    December 31, 2010Fair
    
    
    Fair
    
    
    Loss in
    
    
    Loss inValue of
    
    
    Value of
    
    
    Accumulated OCIL
    
    
    Accumulated OCILDerivative Type
    
    Swap Liabilities
    
    
    Swap Liabilities
    
    
    (Net of Tax)(a)
    
    
    (Net of Tax)Interest rate
swaps designated as
hedges
    
    
    n/a
    
    
    $
    32,285
    
    
    
    n/a
    
    
    $
    19,630Interest rate swaps
not designated as
hedges
    
    
    n/a
    
    
    $
    1,388
    
    
    
    n/a
    
    
    
    n/a
 
 (a)
    
    The Company settled its interest rate swaps and reverse swaps in January 2011 and in
doing so reclassified all related losses in accumulated other comprehensive income (loss)
into earnings. See Note 5 for additional information.  Loss Reclassified
    
    
    GainLoss Recognized in
    
    
    from Accumulated
    
    
    Recognized onAccumulated OCIL
    
    
    OCIL into Expense
    
    
    Ineffective PortionDerivative Type
    
    (Net of Tax)
    
    
    (Net of Tax)
    
    
    of  DerivativesInterest rate swaps
    
    $
    
    
    
    $
    19,630
    
    
    $
    104
  (7) Fair Value
 Measurements
  
    
    Level 1  Observable inputs such as quoted prices in active markets;
 
    
    Level 2  Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; and
 
    
    Level 3  Unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own assumptions.
  13




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RSC HOLDINGS III, LLC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
 (8) Income Tax
  14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Statements in this managements discussion and analysis regarding industry outlook, our
expectations regarding the performance of our business and other non-historical statements are
forward-looking statements. These forward-looking statements are subject to numerous risks and
uncertainties. See Cautionary Note for Forward-Looking Statements on page 1 of this Quarterly
Report on Form 10-Q . Our actual results may differ materially from those contained in, or implied
by, any forward-looking statements.
 The following discussion is intended to enhance the readers understanding of our business
operations and present business environment. It should be read in conjunction with our 2010 Form
10-K, the section entitled Risk Factors in Part II, Item 1A herein and our unaudited condensed
consolidated financial statements for the three months ended March 31, 2011 included in this
Quarterly Report on Form 10-Q .
 Overview
    Three Months EndedMarch 31,2011
    
    
    2010Total revenues
    
    $
    326,920
    
    
    $
    260,740Loss before benefit for income taxes
    
    
    (80,545
    )
    
    
    (60,959
    )Net loss
    
    
    (50,432
    )
    
    
    (37,828
    )
  Three Months EndedMarch 31,2011
    
    
    2010Adjusted EBITDA (in millions) (a)
    
    $
    98.8
    
    
    $
    66.0Fleet utilization (b)
    
    
    63.6
    %
    
    
    54.8
    %Average fleet age at period end (months) (c)
    
    
    43
    
    
    
    42Original equipment fleet cost at period end (in millions) (d)
    
    $
    2,408
    
    
    $
    2,301
 15




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##### Table of Contents



(a)
    
    Defined as consolidated net income (loss) before net interest expense, income taxes and
depreciation and amortization and before certain other items, including loss on
extinguishment of debt, share-based compensation and other (income) expense, net. Adjusted
EBITDA is not a recognized measure under GAAP. See reconciliation between net loss and
Adjusted EBITDA and reconciliation between net cash provided by operating activities and
Adjusted EBITDA under Liquidity and Capital Resources  Adjusted EBITDA.(b)
    
    Defined as the average aggregate dollar value of equipment rented by customers (based
on original equipment fleet cost or OEC) during the relevant period, divided by the
average aggregate dollar value of all equipment owned (based on OEC) during the relevant
period.(c)
    
    Defined as the number of months since an equipment unit was first placed in service,
weighted by multiplying individual equipment ages by their respective original costs and
dividing the sum of those individual calculations by the total original cost. Equipment
refurbished by the original equipment manufacturer is considered new.(d)
    
    Defined as the original dollar value of rental equipment purchased from the original
equipment manufacturer (OEM). Fleet purchased from non-OEM sources is assigned a
comparable OEC dollar value at the time of purchase.     Business Environment and Outlook
   16




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Factors Affecting Our Results of Operations
  17




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Results of Operations
 Revenues:
 
    
    Equipment rental revenue consists of fees charged to customers for use of equipment
owned by us over the term of the rental as well as other fees charged to customers for
items such as delivery and pickup, fuel and damage waivers.
    
    Sale of merchandise revenues represents sales of contractor supplies, replacement parts,
consumables and ancillary products and, to a lesser extent, new equipment.
    
    Sale of used rental equipment represents revenues derived from the sale of rental
equipment that has previously been included in our rental fleet.
 Cost of revenues:
 
    
    Cost of equipment rentals, excluding depreciation, consists primarily of wages and
benefits for employees involved in the delivery and maintenance of rental equipment, rental
location facility costs and rental equipment repair and maintenance expenses.
    
    Depreciation of rental equipment consists of straight-line depreciation of equipment
included in our rental fleet.
    
    Cost of merchandise sales represents the costs of acquiring those items.
    
    Cost of used rental equipment sales represents the net book value of rental equipment at
the date of sale.
    18




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Three Months Ended March 31, 2011, Compared to Three Months Ended March 31, 2010
  Percent of RevenueThree Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,
    
    
    Increase (Decrease)2011
    
    
    2010
    
    
    2011
    
    
    2010
    
    
    2011 versus 2010(unaudited)Revenues:Equipment rental revenue
    
    $
    271,775
    
    
    $
    222,213
    
    
    
    83.1
    %
    
    
    85.2
    %
    
    $
    49,562
    
    
    
    22.3
    %Sale of merchandise
    
    
    12,652
    
    
    
    11,421
    
    
    
    3.9
    
    
    
    4.4
    
    
    
    1,231
    
    
    
    10.8Sale of used rental equipment
    
    
    42,493
    
    
    
    27,106
    
    
    
    13.0
    
    
    
    10.4
    
    
    
    15,387
    
    
    
    56.8Total revenues
    
    
    326,920
    
    
    
    260,740
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    66,180
    
    
    
    25.4Cost of revenues:Cost of equipment rentals,
excluding depreciation
    
    
    148,976
    
    
    
    129,292
    
    
    
    45.6
    
    
    
    49.6
    
    
    
    19,684
    
    
    
    15.2Depreciation of rental equipment
    
    
    70,889
    
    
    
    66,645
    
    
    
    21.7
    
    
    
    25.6
    
    
    
    4,244
    
    
    
    6.4Cost of merchandise sales
    
    
    8,442
    
    
    
    8,074
    
    
    
    2.6
    
    
    
    3.1
    
    
    
    368
    
    
    
    4.6Cost of used rental equipment
sales
    
    
    30,970
    
    
    
    24,637
    
    
    
    9.5
    
    
    
    9.4
    
    
    
    6,333
    
    
    
    25.7Total cost of revenues
    
    
    259,277
    
    
    
    228,648
    
    
    
    79.3
    
    
    
    87.7
    
    
    
    30,629
    
    
    
    13.4Gross profit
    
    
    67,643
    
    
    
    32,092
    
    
    
    20.7
    
    
    
    12.3
    
    
    
    35,551
    
    
    
    110.8Operating expenses:Selling, general and
administrative
    
    
    41,718
    
    
    
    35,712
    
    
    
    12.8
    
    
    
    13.7
    
    
    
    6,006
    
    
    
    16.8Depreciation and amortization
of non-rental equipment and
intangibles
    
    
    10,225
    
    
    
    10,057
    
    
    
    3.1
    
    
    
    3.9
    
    
    
    168
    
    
    
    1.7Other operating gains, net
    
    
    (719
    )
    
    
    (2,312
    )
    
    
    (0.2
    )
    
    
    (0.9
    )
    
    
    1,593
    
    
    
    n/aTotal operating expenses, net
    
    
    51,224
    
    
    
    43,457
    
    
    
    15.7
    
    
    
    16.7
    
    
    
    7,767
    
    
    
    17.9Operating income (loss)
    
    
    16,419
    
    
    
    (11,365
    )
    
    
    5.0
    
    
    
    (4.4
    )
    
    
    27,784
    
    
    
    n/aInterest expense, net
    
    
    81,959
    
    
    
    49,793
    
    
    
    25.1
    
    
    
    19.1
    
    
    
    32,166
    
    
    
    64.6Loss on extinguishment of debt
    
    
    15,342
    
    
    
    
    
    
    
    4.7
    
    
    
    
    
    
    
    15,342
    
    
    
    n/aOther income, net
    
    
    (337
    )
    
    
    (199
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (138
    )
    
    
    n/aLoss before benefit for
income taxes
    
    
    (80,545
    )
    
    
    (60,959
    )
    
    
    (24.6
    )
    
    
    (23.4
    )
    
    
    (19,586
    )
    
    
    n/aBenefit for income taxes
    
    
    30,113
    
    
    
    23,131
    
    
    
    9.2
    
    
    
    8.9
    
    
    
    6,982
    
    
    
    n/aNet loss
    
    $
    (50,432
    )
    
    $
    (37,828
    )
    
    
    (15.4
    )%
    
    
    (14.5
    )%
    
    $
    (12,604
    )
    
    
    n/a
    19




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20




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Liquidity and Capital Resources
 Cash Flows and Liquidity
   Three Months EndedMarch 31,2011
    
    
    2010(in 000s)Net cash provided by operating activities
    
    $
    59,184
    
    
    $
    65,481Net cash used in investing activities
    
    
    (116,278
    )
    
    
    (15,099
    )Net cash provided by (used in) financing activities
    
    
    84,996
    
    
    
    (47,629
    )Effect of foreign exchange rates on cash
    
    
    741
    
    
    
    574Net increase in cash and cash equivalents
    
    $
    28,643
    
    
    $
    3,327
 21




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##### Table of Contents



Operating activities 
  Investing activities 
   Financing activities 
 $650.0 million Senior Unsecured Notes Offering
  22




---



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New Senior ABL Revolving Facility
    Indebtedness
   23




---



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Outlook
   Adjusted EBITDA
  24




---



##### Table of Contents



Three Months Ended March 31,2011
    
    
    2010(in 000s)Net loss
    
    $
    (50,432
    )
    
    $
    (37,828
    )Depreciation of rental equipment and
depreciation and amortization of non-rental
equipment and intangibles
    
    
    81,114
    
    
    
    76,702Interest expense, net
    
    
    81,959
    
    
    
    49,793Benefit for income taxes
    
    
    (30,113
    )
    
    
    (23,131
    )EBITDA
    
    $
    82,528
    
    
    $
    65,536Adjustments:Loss on extinguishment of debt
    
    
    15,342
    
    
    
    Share-based compensation
    
    
    1,274
    
    
    
    663Other income, net
    
    
    (337
    )
    
    
    (199
    )Adjusted EBITDA
    
    $
    98,807
    
    
    $
    66,000
  Three Months Ended March 31,2011
    
    
    2010(in 000s)Net cash provided by operating activities
    
    $
    59,184
    
    
    $
    65,481Gain on sales of rental and non-rental property
and equipment, net of non-cash write-offs
    
    
    12,041
    
    
    
    2,608Gain on settlement of insurance property claims
    
    
    
    
    
    
    1,736Cash paid for interest
    
    
    70,305
    
    
    
    36,831Cash received for taxes, net
    
    
    (66
    )
    
    
    (406
    )Other income, net
    
    
    (337
    )
    
    
    (199
    )Changes in other operating assets and liabilities
    
    
    (42,320
    )
    
    
    (40,051
    )Adjusted EBITDA
    
    $
    98,807
    
    
    $
    66,000
 Free Cash Flow
  25




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##### Table of Contents



Three Months Ended March 31,2011
    
    
    2010(in 000s)Net cash provided by operating activities
    
    $
    59,184
    
    
    $
    65,481Purchases of rental equipment
    
    
    (157,921
    )
    
    
    (44,906
    )Purchases of property and equipment
    
    
    (2,444
    )
    
    
    (331
    )Proceeds from sales of rental equipment
    
    
    42,493
    
    
    
    27,106Proceeds from sales of property and equipment
    
    
    1,594
    
    
    
    1,296Insurance proceeds from rental equipment and property claims
    
    
    
    
    
    
    1,736Net capital expenditures
    
    
    (116,278
    )
    
    
    (15,099
    )Free cash flow
    
    $
    (57,094
    )
    
    $
    50,382
 Critical Accounting Policies and Estimates
  Recent Accounting Pronouncements
   26




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Interest Rate Risk
    Currency Exchange Risk
  
 Item 4. Controls and Procedures
  Evaluation of Disclosure Controls and Procedures
  27




---



##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 PART II. Other Information
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Reserved
 
 Item 5. Other Information
  28




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##### Table of Contents



Item 6. Exhibits
 Exhibits and Financial Statement Schedules
 Incorporated By ReferenceExhibit
    
    
    
    
    
    
    
    
    
    
    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Exhibit
    
    Filing Date
    
    Herewith4.1
    
    Indenture, dated as
of January 19,
2011, by and among
RSC Equipment
Rental, Inc., RSC
Holdings III, LLC
and Wells Fargo
Bank, National
Association, as
Trustee
    
    8-K
    
    333-144625
    
    
    4.1
    
    
    1/20/20114.2
    
    Registration Rights
Agreement, dated as
of January 19,
2011, by and among
RSC Equipment
Rental, Inc., RSC
Holdings III, LLC
and Deutsche Bank
Securities Inc. and
the other initial
purchasers named
therein
    
    8-K
    
    333-144625
    
    
    4.2
    
    
    1/20/20114.3
    
    U.S. Guarantee and
Collateral
Agreement, dated as
of February 9,
2011, by and among
RSC Holdings II,
LLC, RSC Holdings
III, LLC, RSC
Equipment Rental,
Inc., and certain
domestic
subsidiaries of RSC
Holdings III, LLC
that may become
party thereto from
time to time,
Deutsche Bank AG
New York Branch, as
collateral agent
and administrative
agent
    
    8-K
    
    333-144625
    
    
    4.1
    
    
    2/14/20114.4
    
    Canadian Security
Agreement, dated as
of February 9,
2011, by and among
RSC Equipment
Rental of Canada
Ltd., Deutsche Bank
AG Canada Branch as
Canadian collateral
agent
    
    8-K
    
    333-144625
    
    
    4.2
    
    
    2/14/20114.5
    
    First Amendment to
First Lien
Intercreditor
Agreement, dated as
of February 9,
2011, by and among
RSC Holdings III,
LLC, RSC Equipment
Rental, Inc. and
Deutsche Bank AG
New York Branch, as
U.S. collateral
agent under the
Senior Loan
Documents (as
defined therein)
    
    8-K
    
    333-144625
    
    
    4.3
    
    
    2/14/201110.1
    
    Credit Agreement,
dated as of
February 9, 2011,
by and among RSC
Holdings II, LLC,
RSC Holdings III,
LLC, RSC Equipment
Rental, Inc., RSC
Equipment Rental of
Canada Ltd.,
Deutsche Bank AG
New York Branch,
Deutsche Bank AG
Canada Branch,
Wells Fargo Capital
Finance, LLC, Bank
of America, N.A.,
General Electric
Capital
Corporation, J.P.
Morgan Securities
LLC and Barclays
Capital
    
    8-K
    
    333-144625
    
    
    10.1
    
    
    2/14/201110.2
    
    Executive
Employment and
Noncompetition
Agreement by and
between Juan
Corsillo and RSC
Holdings Inc.
effective March 15,
2010
    
    
    
    
    
    
    
    
    
    
    
    X31.1
    
    Certification of
Chief Executive
Officer as required
by Rule 13a-14(a)
of the Securities
Exchange Act of
1934, as amended
    
    
    
    
    
    
    
    
    
    
    
    X31.2
    
    Certification of
Chief Financial
Officer as required
by Rule 13a-14(a)
of the Securities
Exchange Act of
1934, as amended
    
    
    
    
    
    
    
    
    
    
    
    X32.1
    
    Certifications of
Chief Executive
Officer and Chief
Financial Officer
as required by Rule
13a-14(b) of the
Securities Exchange
Act of 1934, as
amended
    
    
    
    
    
    
    
    
    
    
    
    X
 29




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##### Table of Contents



SIGNATURES
  RSC Holdings III, LLC  RSC EQUIPMENT RENTAL, INC.
 Signature
    
    Title
    
    Date/s/ Erik Olsson
    
    President,
    
    April 21, 2011Erik Olsson
    
    Chief Executive Officer and Director
(Principal Executive Officer)/s/ Patricia D. Chiodo
    
    Senior Vice President and
    
    April 21, 2011Patricia D. Chiodo
    
    Chief Financial Officer
(Principal Financial and Principal 
Accounting Officer)
 30




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##### Table of Contents



EXHIBIT INDEX
 Incorporated By ReferenceExhibit
    
    
    
    
    
    
    
    
    
    
    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Exhibit
    
    Filing Date
    
    Herewith4.1
    
    Indenture, dated as
of January 19,
2011, by and among
RSC Equipment
Rental, Inc., RSC
Holdings III, LLC
and Wells Fargo
Bank, National
Association, as
Trustee
    
    8-K
    
    333-144625
    
    
    4.1
    
    
    1/20/20114.2
    
    Registration Rights
Agreement, dated as
of January 19,
2011, by and among
RSC Equipment
Rental, Inc., RSC
Holdings III, LLC
and Deutsche Bank
Securities Inc. and
the other initial
purchasers named
therein
    
    8-K
    
    333-144625
    
    
    4.2
    
    
    1/20/20114.3
    
    U.S. Guarantee and
Collateral
Agreement, dated as
of February 9,
2011, by and among
RSC Holdings II,
LLC, RSC Holdings
III, LLC, RSC
Equipment Rental,
Inc., and certain
domestic
subsidiaries of RSC
Holdings III, LLC
that may become
party thereto from
time to time,
Deutsche Bank AG
New York Branch, as
collateral agent
and administrative
agent
    
    8-K
    
    333-144625
    
    
    4.1
    
    
    2/14/20114.4
    
    Canadian Security
Agreement, dated as
of February 9,
2011, by and among
RSC Equipment
Rental of Canada
Ltd., Deutsche Bank
AG Canada Branch as
Canadian collateral
agent
    
    8-K
    
    333-144625
    
    
    4.2
    
    
    2/14/20114.5
    
    First Amendment to
First Lien
Intercreditor
Agreement, dated as
of February 9,
2011, by and among
RSC Holdings III,
LLC, RSC Equipment
Rental, Inc. and
Deutsche Bank AG
New York Branch, as
U.S. collateral
agent under the
Senior Loan
Documents (as
defined therein)
    
    8-K
    
    333-144625
    
    
    4.3
    
    
    2/14/201110.1
    
    Credit Agreement,
dated as of
February 9, 2011,
by and among RSC
Holdings II, LLC,
RSC Holdings III,
LLC, RSC Equipment
Rental, Inc., RSC
Equipment Rental of
Canada Ltd.,
Deutsche Bank AG
New York Branch,
Deutsche Bank AG
Canada Branch,
Wells Fargo Capital
Finance, LLC, Bank
of America, N.A.,
General Electric
Capital
Corporation, J.P.
Morgan Securities
LLC and Barclays
Capital
    
    8-K
    
    333-144625
    
    
    10.1
    
    
    2/14/201110.2
    
    Executive
Employment and
Noncompetition
Agreement by and
between Juan
Corsillo and RSC
Holdings Inc.
effective March 15,
2010
    
    
    
    
    
    
    
    
    
    
    
    X31.1
    
    Certification of
Chief Executive
Officer as required
by Rule 13a-14(a)
of the Securities
Exchange Act of
1934, as amended
    
    
    
    
    
    
    
    
    
    
    
    X31.2
    
    Certification of
Chief Financial
Officer as required
by Rule 13a-14(a)
of the Securities
Exchange Act of
1934, as amended
    
    
    
    
    
    
    
    
    
    
    
    X32.1
    
    Certifications of
Chief Executive
Officer and Chief
Financial Officer
as required by Rule
13a-14(b) of the
Securities Exchange
Act of 1934, as
amended
    
    
    
    
    
    
    
    
    
    
    
    X
 31