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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-Q





(Mark One)





| | x |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - |  | ---------------------------------------------------------------------------------




| |  |  | For the quarterly period ended September 30, 2002
| |  |  | -------------------------------------------------




| |  ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - |  | ----------------------------------------------------------------------------------------




| |  |  | For the transition period from                      to
| |  |  | ------------------------------------------------------




Commission File No. 1-14387





United Rentals, Inc.





Commission File No. 1-13663





United Rentals (North America), Inc.


(Exact names of registrants as specified in their charters)





Delaware

06-1522496Delaware

06-1493538


(State or other jurisdictionof incorporation or organization)

(I.R.S. EmployerIdentification Nos.)Five Greenwich Office Park,Greenwich, Connecticut

06830(Address of principal executive offices)

(Zip Code)





(203) 622-3131


(Registrants telephone number, including area code)





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Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.





x  Yes  ̈ No





As of November
4, 2002, there were 76,559,208 shares of the United Rentals, Inc. common stock, $.01 par value, outstanding. There is no market for the common stock of United Rentals (North America), Inc., all outstanding shares of which are owned by United
Rentals, Inc.





This combined Form 10-Q is separately filed by (i) United Rentals, Inc. and (ii) United Rentals
(North America), Inc. (which is a wholly owned subsidiary of United Rentals, Inc.). United Rentals (North America), Inc. meets the conditions set forth in general instruction H(1) (a) and (b) of Form 10-Q and is therefore filing this form with the
reduced disclosure format permitted by such instruction.





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UNITED RENTALS, INC.





UNITED RENTALS (NORTH AMERICA), INC.





FORM 10-Q FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002





INDEX





PagePART I

FINANCIAL INFORMATIONItem 1

Unaudited Consolidated Financial StatementsUnited Rentals, Inc. Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 (unaudited)

6United Rentals, Inc. Consolidated Statements of Operations for the Nine and Three Months Ended September 30, 2002 and 2001 (unaudited)

7United Rentals, Inc. Consolidated Statement of Stockholders Equity for the Nine Months Ended September 30, 2002 (unaudited)

8United Rentals, Inc. Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 (unaudited)

9United Rentals (North America), Inc. Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 (unaudited)

10United Rentals (North America), Inc. Consolidated Statements of Operations for the Nine and Three Months Ended September 30, 2002 and 2001 (unaudited)

11United Rentals (North America), Inc. Consolidated Statement of Stockholders Equity for the Nine Months Ended September 30, 2002 (unaudited)

12United Rentals (North America), Inc. Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 (unaudited)

13Notes to Unaudited Consolidated Financial Statements

14Item 2

Managements Discussion and Analysis of Financial Condition and Results of Operations

28Item 3

Quantitative and Qualitative Disclosures about Market Risk

40Item 4

Controls and Procedures

40PART II

OTHER INFORMATIONItem 1

Legal Proceedings

41Item 6

Exhibits and Reports on Form 8-K

41Signatures

43




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Certain statements contained in this Report are forward-looking in nature. Such statements can be identified by the use
of forward-looking terminology such as believe, expect, forecast, may, will, should, seek, on-track, plan, intend,
project or anticipate, or the negative thereof or comparable terminology, or by discussions of strategy. You are cautioned that our business and operations are subject to a variety of risks and uncertainties and,
consequently, our actual results may materially differ from those projected by any forward-looking statements. Certain of these factors are discussed in Item 2 of Part I of this Report under the caption Factors that May Influence Future
Results and Results Anticipated by Forward-Looking Statements. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made.





UNITED RENTALS





United Rentals is the largest equipment rental company in the world. We offer for rent over 600 types of equipmenteverything from heavy machines to hand toolsthrough our network of more than 750 rental locations
in the United States, Canada and Mexico. We currently serve more than 1.6 million customers, including construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others.





Our fleet of rental equipment, the largest in the world, includes over 500,000 units having an original purchase price of approximately
$3.7 billion. The fleet includes:





| |  |  | General construction and industrial equipment, such as backhoes, skid-steer loaders, forklifts, earth moving equipment, material handling equipment,
compressors, pumps and generators;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Aerial work platforms, such as scissor lifts and boom lifts;
| | - |  | ------------------------------------------------------------




| |  |  | Tools and light equipment, such as power washers, water pumps, heaters and hand tools;
| | - |  | --------------------------------------------------------------------------------------




| |  |  | Traffic control equipment, such as barricades, cones, warning lights, message boards and pavement marking systems; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------




| |  |  | Trench safety equipment for below ground work, such as trench shields, aluminum hydraulic shoring systems, slide rails, crossing plates, construction
lasers and line testing equipment.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




In addition to renting equipment, we sell used rental
equipment, act as a dealer for new equipment and sell related merchandise, parts and service.





Industry Background





We estimate that the U.S. equipment rental industry has grown from approximately $6.5 billion in annual rental revenues in 1990
to about $25 billion in 2001, representing a compound annual growth rate of approximately 12.9%. We believe that long-term industry growth, in addition to reflecting general economic expansion, is being driven by the increasing recognition by
equipment users of the many advantages that equipment rental may offer compared with ownership. They recognize that by renting they can:





| |  |  | avoid the large capital investment required for equipment purchases;
| | - |  | --------------------------------------------------------------------




| |  |  | access a broad selection of equipment and select the equipment best suited for each particular job;
| | - |  | ---------------------------------------------------------------------------------------------------




| |  |  | reduce storage and maintenance costs; and
| | - |  | -----------------------------------------




| |  |  | access the latest technology without investing in new equipment.
| | - |  | ----------------------------------------------------------------




While the construction industry has to date been the principal user of rental equipment, industrial companies, utilities and others are increasingly using rental equipment
for plant maintenance, plant turnarounds and other functions requiring the periodic use of equipment.




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Competitive Advantages





We believe that we benefit from the following competitive advantages:





Large and Diverse Rental Fleet.    Our rental fleet is the largest and most comprehensive in the industry, which allows us to:





| |  |  | attract customers by providing one-stop shopping;
| | - |  | ---------------------------------------------------




| |  |  | serve a diverse customer base and reduce our dependence on any particular customer or group of customers; and
| | - |  | -------------------------------------------------------------------------------------------------------------




| |  |  | serve customers that require substantial quantities and/or wide varieties of equipment.
| | - |  | ---------------------------------------------------------------------------------------




Significant Purchasing Power.    We purchase large amounts of equipment, merchandise and other items, which enables us to negotiate
favorable pricing, warranty and other terms with our vendors.





Operating
Efficiencies.    We benefit from the following operating efficiencies:





Equipment Sharing Among Branches.    We generally group our branches into clusters of 10 to 30 locations that are in the same geographic area. Each branch within a cluster can access all available
equipment in the cluster area. This increases equipment utilization because equipment that is idle at one branch can be marketed and rented through other branches. In the third quarter of 2002, the sharing of equipment among branches accounted for
approximately 11.8%, or $73 million, of our total rental revenue.





Ability to Transfer
Equipment to Other Branches.    The size of our branch network gives us the ability to take advantage of strength at a particular branch or in a particular region by permanently transferring underutilized equipment from
weaker to stronger areas.





Consolidation of Common Functions.    We
reduce costs through the consolidation of functions that are common to our more than 750 branches, such as payroll, accounts payable and credit and collection, into 17 credit offices and three service centers.





State-of-the-Art Information Technology Systems.    We have state-of-the-art information technology
systems that facilitate our ability to make rapid and informed decisions, respond quickly to changing market conditions, and share equipment among branches. We have an in-house team of approximately 100 information technology specialists that
supports our systems.





National Account Program.    Our National Account sales
force is dedicated to establishing and expanding relationships with large companies, particularly those with a national or multi-regional presence. We offer our National Account customers the benefits of a consistent level of service across North
America, a wide selection of equipment and a single point of contact for all their equipment needs. Our National Account team serves approximately 1,700 National Account customers.





Geographic and Customer Diversity.    We have more than 750 branches in 47 states, seven Canadian provinces and Mexico and serve customers
that range from Fortune 500 companies to small companies and homeowners. In 2001, we served more than 1.4 million customers and our top ten customers accounted for less than 3% of our revenues. We believe that our geographic and customer diversity
provide us with many advantages including: (1) enabling us to better serve National Account customers with multiple locations, (2) helping us achieve favorable resale prices for used equipment by giving us access to resale markets across North
America and by allowing us to market used equipment directly to end-user customers, (3) reducing our dependence on any particular customer and (4) reducing the impact that fluctuations in regional economic conditions have on our overall financial
performance.




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Risk Management and Safety Programs.    We
believe that we have one of the most comprehensive risk management and safety programs in the industry. Our risk management department is staffed by 41 experienced professionals and is responsible for implementing our safety programs and procedures,
developing our employee and customer training programs and managing any claims against us.





Strong and
Motivated Branch Management.    Each of our branches has a full-time branch manager who is supervised by one of our 56 district managers and nine regional vice presidents. We believe that our managers are among the most
knowledgeable and experienced in the industry, and we empower themwithin budgetary guidelinesto make day-to-day decisions concerning branch matters. Senior management closely tracks branch, district and regional performance with
extensive systems and controls, including performance benchmarks and detailed monthly operating reviews. The compensation of branch managers and other branch personnel is linked to their branchs financial performance and return on assets. This
incentivizes branch personnel to control costs, optimize pricing, share equipment with other branches and manage their fleet efficiently.




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UNITED RENTALS, INC.





CONSOLIDATED BALANCE SHEETS


(Unaudited)





September 30 2002


December 31 2001(In thousands, except share
data)ASSETSCash and cash equivalents

$
23,926


$
27,326Accounts receivable, net of allowance for doubtful accounts of $43,032 in 2002 and $47,744 in 2001


541,538



450,273Inventory


93,190



85,764Prepaid expenses and other assets


146,183



133,217Rental equipment, net


1,920,309



1,747,182Property and equipment, net


414,471



410,053Goodwill


1,956,444



2,199,774Other intangible assets, net


6,959



7,927$
5,103,020


$
5,061,516LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Accounts payable

$
269,491


$
204,773Debt


2,607,336



2,459,522Deferred taxes


278,328



297,024Accrued expenses and other liabilities


161,885



174,687Total liabilities


3,317,040



3,136,006Commitments and contingenciesCompany-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust


283,250



300,000Stockholders equity:Preferred stock$.01 par value, 5,000,000 shares authorized:Series C perpetual convertible preferred stock$300,000 liquidation preference, 300,000 shares issued and
outstanding


3



3Series D perpetual convertible preferred stock$150,000 liquidation preference, 150,000 shares issued and
outstanding


2



2Common stock$.01 par value, 500,000,000 shares authorized, 76,555,755 shares issued and outstanding in 2002 and
73,361,407 in 2001


765



734Additional paid-in capital


1,309,800



1,243,586Deferred compensation


(55,947
)


(55,794
)Retained earnings


278,232



467,106Accumulated other comprehensive loss


(30,125
)


(30,127
)Total stockholders equity


1,502,730



1,625,510$
5,103,020


$
5,061,516





The accompanying notes are an integral part of these consolidated financial
statements.




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UNITED RENTALS, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





Nine Months Ended September
30

Three Months Ended September
302002


2001

2002


2001(In thousands, except per share data)Revenues:Equipment rentals

$
1,613,365


$
1,670,036

$
615,484


$
626,286Sales of rental equipment


133,184



107,681


39,411



35,442Sales of equipment and merchandise and other revenues


380,278



404,883


128,208



133,755Total revenues


2,126,827



2,182,600


783,103



795,483Cost of revenues:Cost of equipment rentals, excluding depreciation


843,160



790,234


332,772



290,098Depreciation of rental equipment


242,816



239,862


84,206



81,508Cost of rental equipment sales


87,287



63,744


26,303



21,363Cost of equipment and merchandise sales and other operating costs


275,347



294,888


94,075



97,272Total cost of revenues


1,448,610



1,388,728


537,356



490,241Gross profit


678,217



793,872


245,747



305,242Selling, general and administrative expenses


315,939



332,671


110,919



110,956Restructuring charge






28,922Non-rental depreciation and amortization


42,703



80,289


14,965



27,051Operating income


319,575



351,990


119,863



167,235Interest expense


146,206



171,315


48,691



56,726Preferred dividends of a subsidiary trust


13,904



14,625


4,605



4,875Other (income) expense, net


(3,549
)


6,497


(221
)


(438
)Income before provision for income taxes, extraordinary item and cumulative effect of change in accounting
principle


163,014



159,553


66,788



106,072Provision for income taxes


63,549



69,154


26,021



44,020Income before extraordinary item and cumulative effect of change in accounting principle


99,465



90,399


40,767



62,052Extraordinary item, net of tax benefit of $6,759






11,317Cumulative effect of change in accounting principle, net of tax benefit of $60,529


(288,339
)Net income (loss)

$
(188,874
)

$
79,082

$
40,767


$
62,052Earnings per sharebasic:Income before extraordinary item and cumulative effect of change in accounting principle

$
1.32


$
1.26

$
0.53


$
0.85Extraordinary item, net






0.16Cumulative effect of change in accounting principle, net


(3.82
)Net income (loss)

$
(2.50
)

$
1.10

$
0.53


$
0.85Earnings per sharediluted:Income before extraordinary item and cumulative effect of change in accounting principle

$
1.02


$
0.96

$
0.43


$
0.63Extraordinary item, net






0.12Cumulative effect of change in accounting principle, net


(2.96
)Net income (loss)

$
(1.94
)

$
0.84

$
0.43


$
0.63





The accompanying notes are an integral part of these consolidated financial
statements.




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UNITED RENTALS, INC.





CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY


(Unaudited)





Series C Perpetual Convertible Preferred Stock

Series D Perpetual Convertible Preferred Stock

Common Stock


Additional Paid-in Capital


Deferred Compensation


Retained Earnings


Comprehensive Loss


Accumulated Other Comprehensive LossNumber of Shares


Amount(In thousands)Balance, December 31, 2001

$
3

$
2

73,361


$
734


$
1,243,586


$
(55,794
)

$
467,106






$
(30,127
)Comprehensive income:Net loss























(188,874
)

$
(188,874
)Other comprehensive income:Foreign currency translation adjustments



























310



310Derivatives qualifying as hedges, net of tax



























(308
)


(308
)Comprehensive loss


























$
(188,872
)Issuance of common stock under deferred compensation plans







360



3



8,634



(8,637
)Amortization of deferred compensation



















8,484Exercise of common stock options







3,744



37



76,347Common stock repurchased and retired







(1,066
)


(11
)


(26,715
)Convertible debt converted to common stock







157



2



2,678Liquidation preference in excess of amounts paid for Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust















5,270Balance, September 30, 2002

$
3

$
2

76,556


$
765


$
1,309,800


$
(55,947
)

$
278,232






$
(30,125
)








The accompanying notes are an
integral part of these consolidated financial statements.




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UNITED RENTALS, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


Nine Months Ended September 302002


2001(In thousands)Cash Flows From Operating Activities:Net income (loss)

$
(188,874
)

$
79,082Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization


285,519



320,151Gain on sales of rental equipment


(45,897
)


(43,937
)Deferred taxes


54,462



54,724Amortization of deferred compensation


8,484



3,675Extraordinary item






18,076Restructuring charge






10,893Cumulative effect of change in accounting principle


288,339Changes in operating assets and liabilities:Accounts receivable


(89,940
)


(66,549
)Inventory


99



39,897Prepaid expenses and other assets


(2,901
)


(31,291
)Accounts payable


64,705



(9,986
)Accrued expenses and other liabilities


(16,949
)


60,139Net cash provided by operating activities


357,047



434,874Cash Flows From Investing Activities:Purchases of rental equipment


(461,699
)


(395,027
)Purchases of property and equipment


(32,604
)


(42,237
)Proceeds from sales of rental equipment


133,184



107,681In-process acquisition costs






(2,570
)Deposits on rental equipment purchases


(8,018
)Purchases of other companies


(163,260
)


(45,200
)Net cash used in investing activities


(532,397
)


(377,353
)Cash Flows From Financing Activities:Proceeds from debt


304,151



2,008,655Payments of debt


(160,589
)


(2,017,087
)Payments of financing costs


(3,052
)


(27,946
)Proceeds from the exercise of common stock options


63,755



8,778Shares repurchased and retired


(26,726
)


(24,758
)Company-obligated mandatorily redeemable convertible preferred securities of a
subsidiary trust repurchased and retired


(11,480
)Net cash provided by (used in) financing activities


166,059



(52,358
)Effect of foreign exchange rates


5,891



(9,031
)Net decrease in cash and cash equivalents


(3,400
)


(3,868
)Cash and cash equivalents at beginning of period


27,326



34,384Cash and cash equivalents at end of period

$
23,926


$
30,516Supplemental disclosure of cash flow information:Cash paid for interest

$
150,294


$
168,488Cash paid for income taxes, net of refunds

$
2,710


$
1,535Supplemental disclosure of non-cash investing and financing activities:The Company acquired the net assets and assumed certain liabilities of other companies as follows:Assets, net of cash acquired

$
173,079


$
12,692Liabilities assumed


(11,418
)


(4,767
)Less: Amounts paid through issuance of debt






(600
)161,661



7,325Due to seller and other payments


1,599



37,875Net cash paid

$
163,260


$
45,200





The accompanying notes are an integral part of these consolidated financial
statements.




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UNITED RENTALS (NORTH AMERICA), INC.





CONSOLIDATED BALANCE SHEETS


(Unaudited)





September 30 2002


December 31 2001(In thousands,except share data)ASSETSCash and cash equivalents

$
23,926


$
27,326Accounts receivable, net of allowance for doubtful accounts of $43,032 in 2002 and $47,744 in 2001


541,538



450,273Inventory


93,190



85,764Prepaid expenses and other assets


137,614



124,398Rental equipment, net


1,920,309



1,747,182Property and equipment, net


388,105



383,260Goodwill


1,956,444



2,199,774Other intangible assets, net


6,959



7,927$
5,068,085


$
5,025,904LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Accounts payable

$
269,491


$
204,773Debt


2,607,336



2,459,522Deferred taxes


278,328



297,024Accrued expenses and other liabilities


179,202



166,154Total liabilities


3,334,357



3,127,473Commitments and contingenciesStockholders equity:Common stock$.01 par value, 3,000 shares authorized, 1,000 shares issued and outstandingAdditional paid-in capital


1,581,833



1,518,078Retained earnings


182,020



410,480Accumulated other comprehensive loss


(30,125
)


(30,127
)Total stockholders equity


1,733,728



1,898,431$
5,068,085


$
5,025,904





The accompanying notes are an integral part of these consolidated financial
statements.




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##### Table of Contents

UNITED RENTALS (NORTH AMERICA), INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





Nine Months Ended September
30

Three Months Ended September
302002


2001

2002


2001(In thousands)Revenues:Equipment rentals

$
1,613,365


$
1,670,036

$
615,484


$
626,286Sales of rental equipment


133,184



107,681


39,411



35,442Sales of equipment and merchandise and other revenues


380,278



404,883


128,208



133,755Total revenues


2,126,827



2,182,600


783,103



795,483Cost of revenues:Cost of equipment rentals, excluding depreciation


843,160



790,234


332,772



290,098Depreciation of rental equipment


242,816



239,862


84,206



81,508Cost of rental equipment sales


87,287



63,744


26,303



21,363Cost of equipment and merchandise sales and other operating costs


275,347



294,888


94,075



97,272Total cost of revenues


1,448,610



1,388,728


537,356



490,241Gross profit


678,217



793,872


245,747



305,242Selling, general and administrative expenses


315,939



332,671


110,919



110,956Restructuring charge






28,922Non-rental depreciation and amortization


36,076



74,035


12,667



25,083Operating income


326,202



358,244


122,161



169,203Interest expense


146,206



171,315


48,691



56,726Other (income) expense, net


(3,549
)


6,497


(221
)


(438
)Income before provision for income taxes andextraordinary item


183,545



180,432


73,691



112,915Provision for income taxes


71,556



78,693


28,713



47,289Income before extraordinary item


111,989



101,739


44,978



65,626Extraordinary item, net of tax benefit of $6,759






11,317Cumulative effect of change in accounting principle, net of tax benefit of $60,529


(288,339
)Net income (loss)

$
(176,350
)

$
90,422

$
44,978


$
65,626





The accompanying notes are an integral part of these consolidated financial
statements.




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UNITED RENTALS (NORTH AMERICA), INC.





CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY


(Unaudited)





Common Stock

Additional Paid-In Capital

Retained Earnings


Comprehensive Loss


Accumulated Other Comprehensive LossNumber of Shares

Amount(In thousands, except share data)Balance, December 31, 2001

1,000



$
1,518,078

$
410,480






$
(30,127
)Comprehensive income:Net loss









(176,350
)

$
(176,350
)Other comprehensive income:Foreign currency translation adjustments













310



310Derivatives qualifying as hedges, net of tax













(308
)


(308
)Comprehensive loss












$
(176,348
)Contributed capital from parent






63,755Dividend distributions to parent









(52,110
)Balance, September 30, 2002

1,000



$
1,581,833

$
182,020






$
(30,125
)








The accompanying notes are an
integral part of these consolidated financial statements.




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UNITED RENTALS (NORTH AMERICA), INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Nine Months Ended September 302002


2001(In thousands)Cash Flows From Operating Activities:Net income (loss)

$
(176,350
)

$
90,422Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization


278,892



313,897Gain on sales of rental equipment


(45,897
)


(43,937
)Deferred taxes


54,462



54,724Extraordinary item






18,076Restructuring charge






10,893Cumulative effect of change in accounting principle


288,339Changes in operating assets and liabilities:Accounts receivable


(89,940
)


(66,549
)Inventory


99



39,897Prepaid expenses and other assets


(879
)


(31,023
)Accounts payable


64,705



(9,986
)Accrued expenses and other liabilities


(6,408
)


65,626Net cash provided by operating activities


367,023



442,040Cash Flows From Investing Activities:Purchases of rental equipment


(461,699
)


(395,027
)Purchases of property and equipment


(28,676
)


(37,348
)Proceeds from sales of rental equipment


133,184



107,681Deposits on rental equipment purchases


(8,018
)Purchases of other companies


(163,260
)


(45,200
)Net cash used in investing activities


(528,469
)


(369,894
)Cash Flows From Financing Activities:Proceeds from debt


304,151



2,008,655Payments of debt


(160,589
)


(2,017,087
)Payments of financing costs


(3,052
)


(27,946
)Capital contributions by parent


63,755



8,778Dividend distributions to parent


(52,110
)


(39,383
)Net cash provided by (used in) financing activities


152,155



(66,983
)Effect of foreign exchange rates


5,891



(9,031
)Net decrease in cash and cash equivalents


(3,400
)


(3,868
)Cash and cash equivalents at beginning of period


27,326



34,384Cash and cash equivalents at end of period

$
23,926


$
30,516Supplemental disclosure of cash flow information:Cash paid for interest

$
136,390


$
153,863Cash paid for income taxes, net of refunds

$
2,710


$
1,535Supplemental disclosure of non-cash investing and financing activities:The Company acquired the net assets and assumed certain liabilities of other companies as follows:Assets, net of cash acquired

$
173,079


$
12,692Liabilities assumed


(11,418
)


(4,767
)Less: Amounts paid through issuance of debt






(600
)161,661



7,325Due to seller and other payments


1,599



37,875Net cash paid

$
163,260


$
45,200





The accompanying notes are an integral part of these consolidated financial
statements.




13




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##### Table of Contents

UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





1.    Basis of Presentation





General





United Rentals, Inc., is principally a holding company (Holdings or the Company) and conducts its operations primarily through its wholly owned subsidiary United Rentals (North America), Inc.
(URI) and subsidiaries of URI. Separate footnote information is not presented for the financial statements of URI and subsidiaries as that information is substantially equivalent to that presented below. Earnings per share data is not
provided for the operating results of URI and its subsidiaries as they are wholly owned subsidiaries of Holdings.





The Consolidated Financial Statements of the Company included herein are unaudited and, in the opinion of management, such financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the results of the interim periods presented. Interim financial statements do not require all disclosures normally presented in year-end financial statements, and, accordingly, certain disclosures have been omitted. Results of
operations for the nine and three month periods ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. The Consolidated Financial Statements included herein should be read
in conjunction with the Companys Consolidated Financial Statements and related Notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2001.





Impact of Recently Issued Accounting Standards





The Company adopted the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002. This standard addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. Under this standard, goodwill and intangible
assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests on a reporting unit level. Other intangible assets are being amortized over their estimated useful lives. The reporting units for the Company
are its reporting branches. Upon adoption, the Company performed a transitional impairment test on its reporting units. As a result of this transitional impairment test, the Company recorded an impairment charge of approximately $288.3 million, net
of tax benefit, as a cumulative effect of change in accounting principle in the first quarter of 2002. See Note 3 for further information.





In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This standard addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 did not have
an impact on the Companys consolidated financial position or results of operations.





In April 2002, the FASB
issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This Standard rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt,
and an amendment of that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Standard also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers. This Standard
amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency related to the required accounting for sale-leaseback transactions and certain lease modifications. This Standard also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Upon the adoption of this Standard, effective for fiscal years beginning after May 15, 2002, the Company will be
required to reclassify a pre-tax extraordinary loss of approximately $18.1 million recognized during the second




14




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##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




quarter of 2001 to operating income. The adoption of the remaining provisions of SFAS No. 145 is not expected to have a material effect on the Companys consolidated financial position or
results of operations.





In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This Standard addresses financial accounting and reporting for costs associated with exit or disposal activities and requires companies to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan. This Standard nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). This Standard is effective for exit or disposal activities initiated after December 31, 2002.





Reclassifications





Certain prior year balances have been reclassified to conform to the
2002 presentation.





2.    Acquisitions





During the nine months ended September 30, 2002 and the year ended December 31, 2001, the Company completed two acquisitions, one of which is further described below, and
three acquisitions, respectively, that were accounted for as purchases. The results of operations of the businesses acquired in these acquisitions have been included in the Companys results of operations from their respective acquisition
dates.





On June 30, 2002, the Company acquired 35 rental locations from National Equipment Services, Inc. for
approximately $110.6 million in cash, which was determined based primarily on the number of locations acquired and their financial performance. The acquisition of these rental locations was made to complement the Companys existing network of
rental locations. The results of operations of the acquisition are included in the Companys statement of operations as of the date of acquisition.





The purchase prices for such acquisitions have been allocated to the assets acquired and liabilities assumed based on their respective fair values at their respective acquisition dates. However, the
Company has not completed its valuation of all of its purchases and, accordingly, the purchase price allocations are subject to change when additional information concerning asset and liability valuations are completed. The preliminary purchase
price allocations that are subject to change primarily consist of rental and non-rental equipment valuations. These allocations are finalized within 12 months of the acquisition date and are not expected to result in significant differences between
the preliminary and final allocations.




15




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##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







The following table summarizes, on an unaudited pro forma basis, the
results of operations of the Company for the nine and three months ended September 30, 2002 and 2001 as though each acquisition which was consummated during the period January 1, 2001 to September 30, 2002 as mentioned above and in Note 3 to the
Notes to Consolidated Financial Statements included in the Companys 2001 Annual Report on Form 10-K was made on January 1, 2001 (in thousands, except per share data):








Nine Months EndedSeptember 30

Three Months EndedSeptember 302002


2001

2002

2001Revenues

$
2,157,691


$
2,270,597

$
783,103

$
822,422Income before extraordinary item and cumulative effect of change in accounting principle

$
100,044


$
94,326

$
40,767

$
64,799Net income (loss)

$
(188,295
)

$
83,009

$
40,767

$
64,799Basic earnings per share before extraordinary item and cumulative effect of change in accounting principle

$
1.33


$
1.32

$
0.53

$
0.89Basic earnings (loss) per share

$
(2.49
)

$
1.16

$
0.53

$
0.89Diluted earnings per share before extraordinary item and cumulative effect of change in accounting
principle

$
1.03


$
1.00

$
0.43

$
0.65Diluted earnings (loss) per share

$
(1.93
)

$
0.88

$
0.43

$
0.65





The unaudited pro forma results are based upon certain assumptions
and estimates which are subject to change. These results are not necessarily indicative of the actual results of operations that might have occurred, nor are they necessarily indicative of expected results in the future.





|3. |  | Goodwill and Other Intangible Assets
|-- |  | ------------------------------------




Changes in the Companys carrying amount of goodwill for the first nine months of 2002 are as follows (in thousands):





Balance at December 31, 2001

$
2,199,774Transitional impairment loss


(348,868
)Foreign currency translation and other adjustments


3,161Goodwill related to acquisitions


102,377Balance at September 30, 2002

$
1,956,444





The Companys reporting units are its reporting branches. The
transitional impairment loss recorded during the first quarter of 2002 upon the adoption of SFAS No. 142 related to certain branches that decreased in value. The factors that negatively affected the values of these branches included the following:
(i) continued weakness in non-residential construction spending which negatively affects the Companys earnings and (ii) to a lesser extent, operational weakness at some branches and increased competition for some branches. The fair values of
the Companys reporting units were based upon valuation techniques using multiples of earnings and revenues.





The Company is currently performing the annual impairment test as required under SFAS No. 142 and estimates that it will record a pre-tax impairment charge in the range of $220 million to $270 million during the fourth quarter of
2002. This non-cash impairment charge will be recorded on the income statement and will reduce operating income by a corresponding amount. We expect that this charge will be required principally due to the factors described above.




16




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##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




The reconciliation of previously reported net income and earnings per share to adjusted net income and
earnings per share excluding goodwill amortization is as follows (in thousands, except per share data):





Nine MonthsEnded September 30

Three MonthsEnded September 302002


2001

2002

2001Income before extraordinary item and cumulative effect of change in accounting principle

$
99,465


$
90,399

$
40,767

$
62,052Goodwill amortization expense, net of tax






35,151





13,342Adjusted income before extraordinary item and cumulative effect of change in accounting principle

$
99,465


$
125,550

$
40,767

$
75,394Net income (loss)

$
(188,874
)

$
79,082

$
40,767

$
62,052Goodwill amortization expense, net of tax






35,151





13,342Adjusted net income (loss)

$
(188,874
)

$
114,233

$
40,767

$
75,394Earnings per sharebasic:Income before extraordinary item and cumulative effect of change in accounting principle

$
1.32


$
1.26

$
0.53

$
0.85Goodwill amortization expense, net of tax






0.57





0.22Adjusted income before extraordinary item and cumulative effect of change in accounting principle

$
1.32


$
1.83

$
0.53

$
1.07Net income (loss)

$
(2.50
)

$
1.10

$
0.53

$
0.85Goodwill amortization expense, net of tax






0.57





0.22Adjusted net income (loss)

$
(2.50
)

$
1.67

$
0.53

$
1.07Earnings per sharediluted:Income before extraordinary item and cumulative effect of change in accounting principle

$
1.02


$
0.96

$
0.43

$
0.63Goodwill amortization expense, net of tax






0.37





0.13Adjusted income before extraordinary item and cumulative effect of change in accounting principle

$
1.02


$
1.33

$
0.43

$
0.76Net income (loss)

$
(1.94
)

$
0.84

$
0.43

$
0.63Goodwill amortization expense, net of tax






0.38





0.13Adjusted net income (loss)

$
(1.94
)

$
1.22

$
0.43

$
0.76





Other intangible assets consist of non-compete agreements and are
amortized over periods ranging from three to eight years. The cost of other intangible assets and the related accumulated amortization as of September 30, 2002 were $17.3 million and $10.3 million, respectively. Amortization expense of other
intangible assets was $2.6 million for the first nine months of 2002.




17




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UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







As of September 30, 2002, estimated amortization expense of other
intangible assets for the remainder of 2002 and for each of the next five years is as follows (in thousands):





Remainder of 2002

$
8192003


3,1402004


1,6852005


6322006


3832007


193Thereafter


107$
6,959





|4. |  | Restructuring Charge
|-- |  | --------------------




During the second quarter of 2001, the Company recorded a restructuring charge of approximately $28.9 million. The charge primarily relates to the closure or consolidation of 31 underperforming branches and five
administrative offices, a reduction in the Companys workforce by 489 and the abandonment of certain information technology projects. Of the remaining $7.0 million of this charge as of December 31, 2001, amounts paid in the first nine months of
2002 were approximately $3.9 million. Of the remaining $3.1 million of this charge as of September 30, 2002, the Company estimates approximately $0.8 million will be paid by December 31, 2002 and approximately $2.3 million will be paid in
future periods.





Components of the restructuring charge are as follows:





Balance December 31 2001

Activity in 2002

Balance September 30 2002(In thousands)Costs to vacate facilities

$
3,538

$
1,980

$
1,558Workforce reduction costs


2,055


1,317


738Information technology costs


1,417


646


771$
7,010

$
3,943

$
3,067




18




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##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







5.     Earnings Per Share





The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):


Nine Months Ended September 30

Three Months Ended September 302002


2001

2002

2001Numerator:Income before extraordinary item and cumulative effect of change in accounting principle

$
99,465


$
90,399

$
40,767

$
62,052Plus: preferred dividends of a subsidiary trust, net of taxes












2,841Income available to common stockholders

$
99,465


$
$90,399

$
40,767

$
64,893Denominator:Denominator for basic earnings per share weighted-average shares


75,489



71,745


76,539


73,233Effect of dilutive securities:Employee stock options


1,113



1,522


307


2,379Warrants


3,952



3,723


1,861


4,027Series C perpetual convertible preferred stock


12,000



12,000


12,000


12,000Series D perpetual convertible preferred stock


5,000



5,000


5,000


5,000Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust












6,876Denominator for diluted earnings per share adjusted weighted-average shares


97,554



93,990


95,707


103,515Earnings per sharebasic:Income before extraordinary item and cumulative effect of change in accounting principle

$
1.32


$
1.26

$
0.53

$
0.85Extraordinary item, net






0.16Cumulative effect of change in accounting principle, net


(3.82
)Net income (loss)

$
(2.50
)

$
1.10

$
0.53

$
0.85Earnings per sharediluted:Income before extraordinary item and cumulative effect of change in accounting principle

$
1.02


$
0.96

$
0.43

$
0.63Extraordinary item, net






0.12Cumulative effect of change in accounting principle, net


(2.96
)Net income (loss)

$
(1.94
)

$
0.84

$
0.43

$
0.63





6.    Comprehensive Income





The following table sets forth the Companys comprehensive income (loss) (in thousands):





Nine Months Ended September 30


Three Months Ended September 302002


2001


2002


2001Net income (loss)

$
(188,874
)

$
79,082


$
40,767


$
62,052Other comprehensive income (loss):Foreign currency translation adjustment


310



(9,031
)


(9,478
)


(5,583
)Cumulative effect on equity of adopting SFAS No. 133, net of tax






(2,516
)Derivatives qualifying as hedges, net of tax


(308
)


(5,299
)


(432
)


(3,486
)Comprehensive income (loss)

$
(188,872
)

$
62,236


$
30,857


$
52,983





7.    Amendment to Credit Agreement





Effective September 30, 2002 the Company entered into an amendment to the agreement governing its revolving credit facility and term loan.
This amendment, among other things, (i) increased the aggregate amount




19




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##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




of the credit facility that is available in the form of letters of credit, (ii) reduced the minimum interest coverage ratio that the Company is required to maintain for the period July 1, 2002
through December 31, 2003 and (iii) changed certain definitions for purposes of measuring the Companys compliance with its financial covenants under the credit agreement.





8.    Condensed Consolidating Financial Information of Guarantor Subsidiaries





Certain indebtedness of URI, a wholly owned subsidiary of Holdings (the Parent), is guaranteed by URIs United States subsidiaries (the guarantor subsidiaries) and, in
certain cases, also by Parent. However, this indebtedness is not guaranteed by URIs foreign subsidiaries (the non-guarantor subsidiaries). The guarantor subsidiaries are all wholly-owned and the guarantees are made on a joint and
several basis and are full and unconditional (subject to subordination provisions and subject to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed
without making the guarantee void under fraudulent conveyance laws). Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such information would not be material to
investors. However, condensed consolidating financial information as of September 30, 2002 and December 31, 2001, and for the nine and three months ended September 30, 2002 and 2001, are presented. The condensed consolidating financial information
of the Company and its subsidiaries are as follows:





CONDENSED CONSOLIDATING BALANCE SHEET


September 30, 2002





Parent


URI


Guarantor Subsidiaries


Non-Guarantor Subsidiaries


Other and Eliminations


Consolidated Total(In thousands)ASSETSCash and cash equivalents









$
18,764


$
5,162






$
23,926Accounts receivable, net





$
75,967



432,021



33,550







541,538Intercompany receivable (payable)






688,053



(505,307
)


(182,746
)Inventory






34,634



53,989



4,567







93,190Prepaid expenses and other assets






61,787



74,630



1,197


$
8,569



146,183Rental equipment, net






1,063,346



723,177



133,786







1,920,309Property and equipment, net

$
26,366



136,649



235,845



15,611







414,471Investment in subsidiaries


1,759,614



2,371,846











(4,131,460
)Intangible assets, net






493,077



1,348,364



121,962







1,963,403$
1,785,980


$
4,925,359


$
2,381,483


$
133,089


$
(4,122,891
)

$
5,103,020LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Accounts payable





$
216,957


$
35,904


$
16,630






$
269,491Debt

$
283,250



2,547,637



980



58,719


$
(283,250
)


2,607,336Deferred taxes






278,278



50











278,328Accrued expenses and other liabilities






145,409



22,065



11,728



(17,317
)


161,885Total liabilities


283,250



3,188,281



58,999



87,077



(300,567
)


3,317,040Commitments and contingenciesCompany-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust


















283,250



283,250Stockholders equity:Preferred stock


5



















5Common stock


765



















765Additional paid-in capital


1,309,800



1,562,410



1,901,936



68,395



(3,532,741
)


1,309,800Deferred compensation


(55,947
)


















(55,947
)Retained earnings


278,232



182,020



420,548



390



(602,958
)


278,232Accumulated other comprehensive loss


(30,125
)


(7,352
)






(22,773
)


30,125



(30,125
)Total stockholders equity


1,502,730



1,737,078



2,322,484



46,012


$
(4,105,574
)


1,502,730$
1,785,980


$
4,925,359


$
2,381,483


$
133,089


$
(4,122,891
)

$
5,103,020




20




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##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




CONDENSED CONSOLIDATING BALANCE SHEET





December 31, 2001





Parent


URI


Guarantor Subsidiaries

Non-Guarantor Subsidiaries


Other and Eliminations


Consolidated Total(In thousands)ASSETSCash and cash equivalents





$
6,385


$
19,798

$
1,143






$
27,326Accounts receivable, net






7,142



418,260


24,871







450,273Intercompany receivable (payable)






89,612



39,548


(129,160
)Inventory






36,335



46,410


3,019







85,764Prepaid expenses and other assets






57,764



64,699


1,935


$
8,819



133,217Rental equipment, net






885,442



744,969


116,771







1,747,182Property and equipment, net

$
26,793



135,240



231,508


16,512







410,053Investment in subsidiaries


1,904,000



2,414,710










(4,318,710
)Intangible assets, net






855,360



1,231,121


121,220







2,207,701$
1,930,793


$
4,487,990


$
2,796,313

$
156,311


$
(4,309,891
)

$
5,061,516LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Accounts payable





$
38,436


$
155,029

$
11,308






$
204,773Debt

$
300,000



2,193,380



203,896


62,246


$
(300,000
)


2,459,522Deferred income taxes






296,974



50










297,024Accrued expenses and other liabilities


5,283



57,108



96,793


12,253



3,250



174,687Total liabilities


305,283



2,585,898



455,768


85,807



(296,750
)


3,136,006Commitments and contingenciesCompany-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust

















300,000



300,000Stockholders equity:Preferred stock


5


















5Common stock


734


















734Additional paid-in capital


1,243,586



1,498,655



1,840,604


65,970



(3,405,229
)


1,243,586Deferred compensation


(55,794
)

















(55,794
)Retained earnings


467,106



410,480



499,941


27,618



(938,039
)


467,106Accumulated other comprehensive loss


(30,127
)


(7,043
)





(23,084
)


30,127



(30,127
)Total stockholders equity


1,625,510



1,902,092



2,340,545


70,504



(4,313,141
)


1,625,510$
1,930,793


$
4,487,990


$
2,796,313

$
156,311


$
(4,309,891
)

$
5,061,516




21




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UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS





For the Nine Months Ended September 30, 2002Parent


URI


Guarantor Subsidiaries


Non-Guarantor Subsidiaries


Other and Eliminations


Consolidated Total(In thousands)Revenues:Equipment rentals





$
676,996


$
853,976


$
82,393






$
1,613,365Sales of rental equipment






75,293



45,641



12,250







133,184Sales of equipment and merchandise and other revenues






181,206



177,180



21,892







380,278Total revenues






933,495



1,076,797



116,535







2,126,827Cost of revenues:Cost of equipment rentals, excluding depreciation






311,566



491,116



40,478







843,160Depreciation of rental equipment






112.334



114,541



15,941







242,816Cost of rental equipment sales






48,313



31,454



7,520







87,287Cost of equipment and merchandise sales and other operating costs






134,638



124,598



16,111







275,347Total cost of revenues






606,851



761,709



80,050







1,448,610Gross profit






326,644



315,088



36,485







678,217Selling, general and administrative expenses






141,749



155,252



18,938







315,939Non-rental depreciation and amortization

$
6,627



18,325



15,707



2,044







42,703Operating income (loss)


(6,627
)


166,570



144,129



15,503







319,575Interest expense


13,904



135,163



7,552



3,491


$
(13,904
)


146,206Preferred dividends of a subsidiary trust


















13,904



13,904Other (income) expense, net






3,751



(8,529
)


1,229







(3,549
)Income (loss) before provision (benefit) for income taxes and cumulative effect of change in accounting
principle


(20,531
)


27,656



145,106



10,783







163,014Provision (benefit) for income taxes


(8,007
)


10,787



56,421



4,348







63,549Income (loss) before cumulative effect of change in accounting principle and equity in net earnings of
subsidiaries


(12,524
)


16,869



88,685



6,435







99,465Cumulative effect of change in accounting principle






(86,598
)


(168,078
)


(33,663
)






(288,339
)Loss before equity in net earnings of subsidiaries


(12,524
)


(69,729
)


(79,393
)


(27,228
)






(188,874
)Equity in net earnings of subsidiaries


(176,350
)


(106,621
)










282,971Net loss

$
(188,874
)

$
(176,350
)

$
(79,393
)

$
(27,228
)

$
282,971


$
(188,874
)




22




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##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS





For the Nine Months Ended September 30, 2001Parent


URI


Guarantor Subsidiaries


Non-Guarantor Subsidiaries

Other and Eliminations


Consolidated Total(In thousands)Revenues:Equipment rentals





$
694,531


$
897,985


$
77,520





$
1,670,036Sales of rental equipment






56,160



41,263



10,258






107,681Sales of equipment and merchandise and other revenues






188,287



194,607



21,989






404,883Total revenues






938,978



1,133,855



109,767






2,182,600Cost of revenues:Cost of equipment rentals, excluding depreciation






293,186



459,141



37,907






790,234Depreciation of rental equipment






116,552



107,965



15,345






239,862Cost of rental equipment sales






35,235



22,286



6,223






63,744Cost of equipment and merchandise sales and other operating costs






141,240



137,504



16,144






294,888Total cost of revenues






586,213



726,896



75,619






1,388,728Gross profit






352,765



406,959



34,148






793,872Selling, general and administrative expenses






142,788



171,641



18,242






332,671Restructuring charge






28,922














28,922Non-rental depreciation and amortization

$
6,254



31,066



38,567



4,402






80,289Operating income (loss)


(6,254
)


149,989



196,751



11,504






351,990Interest expense


14,625



161,341



8,790



1,184

$
(14,625
)


171,315Preferred dividends of a subsidiary trust

















14,625



14,625Other (income) expense, net






18,205



(13,414
)


1,706






6,497Income (loss) before provision (benefit) for income taxes and extraordinary item


(20,879
)


(29,557
)


201,375



8,614






159,553Provision (benefit) for income taxes


(9,539
)


(8,829
)


83,921



3,601






69,154Income (loss) before extraordinary item and equity in net earnings of subsidiaries


(11,340
)


(20,728
)


117,454



5,013






90,399Extraordinary item






11,317














11,317Income (loss) before equity in net earnings of subsidiaries


(11,340
)


(32,045
)


117,454



5,013






79,082Equity in net earnings of subsidiaries


90,422



122,467










(212,889
)Net income

$
79,082


$
90,422


$
117,454


$
5,013

$
(212,889
)

$
79,082




23




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##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS





For the Three Months Ended September 30, 2002Parent


URI

Guarantor Subsidiaries


Non-Guarantor Subsidiaries

Other and Eliminations


Consolidated Total(In thousands)Revenues:Equipment rentals





$
249,157

$
332,012


$
31,315





$
615,484Sales of rental equipment






18,262


17,780



3,369






39,411Sales of equipment and merchandise and other revenues






59,619


60,652



7,937






128,208Total revenues






327,038


410,444



45,621






783,103Cost of revenues:Cost of equipment rentals, excluding depreciation






114,661


202,708



15,403






332,772Depreciation of rental equipment






38,966


39,464



5,776






84,206Cost of rental equipment sales






11,839


12,492



1,972






26,303Cost of equipment and merchandise sales and other operating costs






44,510


43,670



5,895






94,075Total cost of revenues






209,976


298,334



29,046






537,356Gross profit






117,062


112,110



16,575






245,747Selling, general and administrative expenses






51,211


53,356



6,352






110,919Non-rental depreciation and amortization

$
2,298



6,554


5,420



693






14,965Operating income (loss)


(2,298
)


59,297


53,334



9,530






119,863Interest expense


4,605



47,572


18



1,101

$
(4,605
)


48,691Preferred dividends of a subsidiary trust
















4,605



4,605Other (income) expense, net






2,938


(3,691
)


532






(221
)Income (loss) before provision (benefit) for income taxes


(6,903
)


8,787


57,007



7,897






66,788Provision (benefit) for income taxes


(2,692
)


3,427


22,233



3,053






26,021Income (loss) before equity in net earnings of subsidiaries


(4,211
)


5,360


34,774



4,844






40,767Equity in net earnings of subsidiaries


44,978



39,618









(84,596
)Net income

$
40,767


$
44,978

$
34,774


$
4,844

$
(84,596
)

$
40,767




24




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##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS





For the Three Months Ended September 30, 2001Parent


URI

Guarantor Subsidiaries


Non-Guarantor Subsidiaries

Other and Eliminations


Consolidated Total(In thousands)Revenues:Equipment rentals





$
247,536

$
348,035


$
30,715





$
626,286Sales of rental equipment






22,438


9,159



3,845






35,442Sales of equipment and merchandise and other revenues






60,338


66,513



6,904






133,755Total revenues






330,312


423,707



41,464






795,483Cost of revenues:Cost of equipment rentals, excluding depreciation






101,778


174,686



13,634






290,098Depreciation of rental equipment






38,682


37,628



5,198






81,508Cost of rental equipment sales






14,045


4,899



2,419






21,363Cost of equipment and merchandise sales and other operating costs






45,535


46,685



5,052






97,272Total cost of revenues






200,040


263,898



26,303






490,241Gross profit






130,272


159,809



15,161






305,242Selling, general and administrative expenses






48,331


56,755



5,870






110,956Non-rental depreciation and amortization

$
1,968



10,775


12,842



1,466






27,051Operating income


(1,968
)


71,166


90,212



7,825






167,235Interest expense


4,875



53,516


2,744



466

$
(4,875
)


56,726Preferred dividends of a subsidiary trust
















4,875



4,875Other (income) expense, net






3,480


(4,561
)


643






(438
)Income (loss) before provision for income


(6,843
)


14,170


92,029



6,716






106,072Provision (benefit) for income taxes


(3,269
)


5,934


38,542



2,813






44,020Income (loss) before equity in net earnings of subsidiaries


(3,574
)


8,236


53,487



3,903






62,052Equity in net earnings of subsidiaries


65,626



57,390









(123,016
)Net income

$
62,052


$
65,626

$
53,487


$
3,903

$
(123,016
)

$
62,052




25




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##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)





CONDENSED CONSOLIDATING CASH FLOW INFORMATION







For the Nine Months Ended September 30, 2002Parent


URI


Guarantor Subsidiaries


Non- Guarantor
Subsidiaries


Other and Eliminations


Consolidated(In thousands)Net cash provided by (used in) operating activities

$
(21,457
)

$
229,677


$
112,276


$
25,071


$
11,480


$
357,047Cash flows from investing activities:Purchases of rental equipment






(289,507
)


(137,562
)


(34,630
)






(461,699
)Purchases of property and equipment


(3,927
)


(7,603
)


(20,037
)


(1,037
)






(32,604
)Proceeds from sales of rental equipment






75,293



45,641



12,250







133,184Capital contributed to subsidiary


(63,755
)














63,755Purchases of other companies






(163,260
)














(163,260
)Deposits on rental equipment purchases






(8,018
)














(8,018
)Net cash used in investing activities


(67,682
)


(393,095
)


(111,958
)


(23,417
)


63,755



(532,397
)Cash flows from financing activities:Proceeds from debt






301,773



82



2,296







304,151Payments of debt






(153,333
)


(1,434
)


(5,822
)






(160,589
)Payments of financing costs






(3,052
)














(3,052
)Capital contributions by parent






63,755











(63,755
)Proceeds from the exercise of common stock options


63,755



















63,755Dividend distributions to parent






(52,110
)










52,110Common shares repurchased and retired


(26,726
)


















(26,726
)Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust repurchased and
retired


















(11,480
)


(11,480
)Proceeds from dividends from subsidiary


52,110















(52,110
)Net cash provided by (used in) financing activities


89,139



157,033



(1,352
)


(3,526
)


(75,235
)


166,059Effect of foreign exchange rates














5,891







5,891Net increase (decrease) in cash and cash equivalents






(6,385
)


(1,034
)


4,019







(3,400
)Cash and cash equivalents at beginning of period






6,385



19,798



1,143







27,326Cash and cash equivalents at end of period









$
18,764


$
5,162






$
23,926Supplemental disclosure of cash flow information:Cash paid for interest

$
14,080


$
124,785


$
7,921


$
3,508






$
150,294Cash paid for income taxes, net of refunds





$
808






$
1,902






$
2,710Supplemental disclosure of non-cash investing and financing activities:The Company acquired the net assets and assumed certain liabilities of other companies as follows:Assets, net of cash acquired





$
173,079














$
173,079Liabilities assumed






(11,418
)














(11,418
)161,661















161,661Due to seller and other payments






1,599















1,599Net cash paid





$
163,260














$
163,260




26




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##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







CONDENSED CONSOLIDATING CASH FLOW INFORMATION





For the Nine Months Ended September 30, 2001Parent


URI


Guarantor Subsidiaries


Non- guarantor Subsidiaries


Other and Eliminations


Consolidated(In thousands)Net cash provided by (used in) operating activities

$
(7,765
)

$
289,050


$
125,996


$
27,593






$
434,874Cash flows from investing activities:Purchases of rental equipment






(228,579
)


(144,259
)


(22,189
)






(395,027
)Purchases of property and equipment


(4,290
)


(12,108
)


(22,948
)


(2,891
)






(42,237
)Proceeds from sales of rental equipment






56,160



41,263



10,258







107,681Capital contributed to subsidiary


(8,778
)













$
8,778Purchases of other companies






(44,301
)






(899
)






(45,200
)In-process acquisition costs


(2,570
)


















(2,570
)Net cash used in investing activities


(15,638
)


(228,828
)


(125,944
)


(15,721
)


8,778



(377,353
)Cash flows from financing activities:Proceeds from debt






2,008,644



11











2,008,655Payments of debt






(2,010,426
)


(1,546
)


(5,115
)






(2,017,087
)Payments of financing costs






(27,835
)






(111
)






(27,946
)Capital contributions by parent






8,778











(8,778
)Dividend distributions to parent






(39,383
)










39,383Shares repurchased and retired


(24,758
)


















(24,758
)Proceeds from the exercise of common stock options


8,778



















8,778Proceeds from dividends from subsidiary


39,383















(39,383
)Net cash provided by (used in) financing activities


23,403



(60,222
)


(1,535
)


(5,226
)


(8,778
)


(52,358
)Effect of foreign exchange rates














(9,031
)






(9,031
)Net decrease in cash and cash equivalents










(1,483
)


(2,385
)






(3,868
)Cash and cash equivalents at beginning of period










29,733



4,651







34,384Cash and cash equivalents at end of period









$
28,250


$
2,266






$
30,516Supplemental disclosure of cash flow information:Cash paid for interest

$
14,625


$
140,837


$
11,447


$
1,579






$
168,488Cash paid for income taxes, net of refunds





$
1,828






$
(293
)





$
1,535Supplemental disclosure of non-cash investing and financing activities:The Company acquired the net assets and assumed certain liabilities of other companies as follows:Assets, net of cash acquired





$
11,859






$
833






$
12,692Liabilities assumed






(4,573
)






(194
)






(4,767
)Less amounts paid through issuance of debt






(600
)














(600
)6,686







639







7,325Due to seller and other payments






37,615







260







37,875Net cash paid





$
44,301






$
899






$
45,200




27




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##### Table of Contents




Item 2.    
Managements Discussion and Analysis of Financial Condition and Results of Operations





The following discussion reviews our operations for the nine and three months ended September 30, 2002 and 2001 and should be read in conjunction with the Unaudited Consolidated Financial Statements and related Notes included herein
and the Consolidated Financial Statements and related Notes included in our 2001 Annual Report on Form 10-K.





General





We are the largest equipment rental company in the world. Our revenues are divided into three categories:





| |  |  | Equipment rentalsThis category includes our revenues from renting equipment. This category also includes related revenues such as the fees we
charge for equipment delivery, fuel, repair of rental equipment and damage waivers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Sales of rental equipmentThis category includes our revenues from the sale of used rental equipment.
| | - |  | -----------------------------------------------------------------------------------------------------




| |  |  | Sales of equipment and merchandise and other revenuesThis category principally includes our revenues from the following sources: (i) the sale of
new equipment, (ii) the sale of supplies and merchandise, (iii) repair services and the sale of parts for equipment owned by customers and (iv) the operations of our subsidiary that develops and markets software for use by equipment rental companies
in managing and operating multiple branch locations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Our cost of operations consists primarily
of: (i) depreciation costs relating to the rental equipment that we own and lease payments for the rental equipment that we hold under operating leases, (ii) the cost of repairing and maintaining rental equipment, (iii) the cost of the items that we
sell including new and used equipment and related parts, merchandise and supplies and (iv) personnel costs, occupancy costs and supply costs.





We record rental equipment expenditures at cost and depreciate equipment using the straight-line method over the estimated useful life (which ranges from two to ten years), after giving effect to an
estimated salvage value of zero to ten percent of cost.





Selling, general and administrative expenses primarily
include sales commissions, advertising and marketing expenses, management salaries, and clerical and administrative overhead.





Non-rental depreciation and amortization includes (i) depreciation expense associated with equipment that is not offered for rent (such as vehicles, computers and office equipment) and amortization expense associated with leasehold
improvements, (ii) the amortization of deferred financing costs and (iii) the amortization of goodwill and other intangible assets. Goodwill represents the excess of the purchase price of acquired companies over the estimated fair value of the net
assets acquired. As described below, effective January 1, 2002, we no longer amortize goodwill. Our other intangible assets are non-compete agreements.





Change in Accounting Treatment for Goodwill and Other Intangible Assets





Effective January
1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets issued by the Financial Accountants Standards Board (FASB). Under this Standard, our goodwill,
which we previously amortized over 40 years, is no longer being amortized. Our approximately $17.3 million of other intangible assets, which consist of non-compete agreements, continue to be amortized over their remaining useful lives. Under the new
accounting standard, we are required to periodically review our goodwill for impairment. In general, this means that we must determine whether the fair value of the goodwill, determined in accordance with applicable accounting standards, is at least
equal to the recorded value shown on our balance sheet. If the fair value of the goodwill is less than the recorded value, we are required to write off the excess goodwill and to treat this write-off as an expense. We completed our initial
impairment




28




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##### Table of Contents

analysis in the first quarter of 2002 and recorded a non-cash impairment charge, net of tax benefit, of $288.3 million. This charge is reflected on our consolidated statements of operations
as cumulative effect of change in accounting principle.





We are currently performing the annual
impairment test as required under SFAS No. 142 and estimate that we will record a pre-tax impairment charge in the range of $220 million to $270 million during the fourth quarter of 2002. This non-cash impairment charge will be recorded on the
income statement and will reduce our operating income by a corresponding amount. We expect that this charge will be required because some of our branches have decreased in value principally due to (i) continued weakness in non-residential
construction spending which, as described below, has negatively affected our earnings and (ii) to a lesser extent, operational weakness at some branches and increased competition for some branches.





Restructuring Plan for 2002





We adopted a restructuring plan during the fourth quarter of 2002. We expect the plan to involve the following principal elements: (i) approximately 35 to 40 underperforming branches will be closed or consolidated with other
locations; (ii) approximately three to five administrative offices will be closed or consolidated with other locations; (iii) our workforce will be reduced by approximately 450 to 475 through the termination of branch and administrative personnel;
and (iv) other restructuring related items.





We expect to record, in the fourth quarter of 2002, a restructuring
charge in the range of $25 million to $28 million for the restructuring plan described above. This charge is comprised primarily of cash outlays most of which will be made in periods subsequent to 2002. The restructuring charge will be recorded
on our income statement and will reduce our operating income by a corresponding amount.





Results of Operations





Nine Months Ended September 30, 2002 and 2001





Revenues.    We had total revenues of $2,126.8 million in the first nine months of 2002, representing a decrease of 2.6% from total revenues of
$2,182.6 million in the first nine months of 2001. The different components of our revenues are discussed below:





1.Equipment Rentals.    Our revenues from equipment rentals were $1,613.4 million in the first nine months of 2002, representing a decrease of 3.4% from $1,670.0 million in the first
nine months of 2001. These revenues accounted for 75.9% and 76.5% of our total revenues in 2002 and 2001, respectively. The decrease in rental revenues principally reflected the following:





| |  |  | Our rental revenues from locations open more than one year, or same store rental revenues, decreased by approximately 3.4%. This decrease reflected a 4.7%
decrease in rental rates, which was partially offset by an increase in the volume of rental transactions. The decrease in rental rates principally reflected continued weakness in non-residential construction spending.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | We also lost revenues because we closed or consolidated a number of underperforming branches during 2001. These lost revenues were offset by additional revenues
from start-ups and acquisitions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




2.Sales of Rental
Equipment.    Our revenues from the sale of rental equipment were $133.2 million in the first nine months of 2002, representing a 23.7% increase from $107.7 million in the first nine months of 2001. These revenues accounted
for 6.3% of our total revenues in the first nine months of 2002 compared with 4.9% in the first nine months of 2001. The increase in these revenues in 2002 primarily reflected our decision to dispose of certain assets that were being underutilized
principally due to the continued weakness in non-residential construction spending.





3.Sales of Equipment and Merchandise and Other Revenues.    Our revenues from sales of equipment and merchandise and other revenues were $380.3 million in the first nine
months of 2002, representing a decrease of 6.1% from $404.9 million in the first nine months of 2001. These revenues




29




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##### Table of Contents

accounted for 17.9% of our total revenues in the first nine months of 2002 compared with 18.6% of our total revenues in the first nine months of 2001. The decrease in these revenues in the first
nine months of 2002 principally reflected a decrease in the volume of transactions.





Gross
Profit.    Our gross profit decreased to $678.2 million in the first nine months of 2002 from $793.9 million in the first nine months of 2001. This decrease reflected the decrease in total revenues discussed above, as
well as the decrease in gross profit margin described below from equipment rentals and the sales of rental equipment. Information concerning our gross profit margin by source of revenue is set forth below:





1.Equipment Rentals.    Our gross profit margin from equipment rental
revenues was 32.7% in the first nine months of 2002 and 38.3% in the first nine months of 2001. The decrease in 2002 principally reflected the decrease in rental rates described above and, to a lesser extent, higher costs related to wages, employee
benefits and insurance.





2.Sales of Rental
Equipment.    Our gross profit margin from the sales of rental equipment was 34.5% in the first nine months of 2002 and 40.8% in the first nine months of 2001. The decrease in 2002 primarily reflected continued price weakness
in the used equipment market.





3.Sales of Equipment and Merchandise and
Other Revenues.    Our gross profit margin from sales of equipment and merchandise and other revenues was 27.6% in the first nine months of 2002 and 27.2% in the first nine months of 2001.





Selling, General and Administrative Expenses.    Selling, general and administrative expenses
(SG&A) were $315.9 million, or 14.9% of total revenues, during the first nine months of 2002 and $332.7 million, or 15.2% of total revenues, during the first nine months of 2001. The decrease in SG&A in 2002 primarily reflected
our ongoing efforts at cutting costs, including reducing the number of administrative personnel, reducing discretionary expenditures and consolidating certain credit and collection facilities.





Restructuring Charge.    We recorded a restructuring charge of $28.9 million in the second quarter of 2001 related to the adoption of a
restructuring plan. For additional information, see Note 4 to our Unaudited Consolidated Financial Statements included elsewhere in this Report.





Non-rental Depreciation and Amortization.    Non-rental depreciation and amortization decreased to $42.7 million, or 2.0% of total revenues, in the first nine months of
2002 from $80.3 million, or 3.7% of total revenues, in the first nine months of 2001. This decrease was primarily attributable to a new accounting standard (discussed above under Change in Accounting Treatment For Goodwill and Other
Intangible Assets) which eliminated the amortization of goodwill effective January 1, 2002.





Operating
Income.    Operating income was $319.6 million in the first nine months of 2002 compared to $352.0 million in the first nine months of 2001. The decrease in the first nine months of 2002 was attributable to the declines in
revenues and gross profit described above. The adverse effects of these factors were somewhat offset by the following: (i) the new accounting standard which eliminated the amortization of goodwill effective January 1, 2002 as discussed above and
(ii) our results in 2001 were depressed by the $28.9 million restructuring charge discussed above.





Interest
Expense.    Interest expense decreased to $146.2 million in the first nine months of 2002 from $171.3 million in the first nine months of 2001. This decrease primarily reflected lower interest rates on our variable rate debt
and lower debt outstanding due to the repayment of debt during 2001.





Preferred Dividends of a Subsidiary
Trust.    Preferred dividends of a subsidiary trust were $13.9 million in the first nine months of 2002, compared to $14.6 million during the first nine months of 2001. The decrease in 2002 reflects a decrease in the amount
of our outstanding trust preferred securities.





Other (Income) Expense.    Other income
was $3.5 million in the first nine months of 2002 compared with other expense of $6.5 million in the first nine months of 2001. The other income in 2002 was primarily attributable to the favorable settlement of a lawsuit for net proceeds of $4.0
million. The other expense in 2001 was primarily attributable to a $7.8 million charge related to the refinancing costs of a synthetic lease.




30




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##### Table of Contents




Income Taxes.    Income taxes were $63.5 million, or
an effective rate of 39.0%, in the first nine months of 2002 compared to $69.2 million, or an effective rate of 43.3%, in the first nine months of 2001. The decrease in the effective rate in the first nine months of 2002 primarily reflected (i) the
elimination for book purposes of non-tax deductible goodwill amortization upon the adoption of SFAS No. 142 as discussed above and (ii) that in 2001 certain costs in the restructuring charge were non-deductible for income tax purposes.





Income Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle.    Income
before extraordinary item and cumulative effect of change in accounting principle was $99.5 million in the first nine months of 2002 compared to $90.4 million in the first nine months of 2001. The increase in the first nine months of 2002
principally reflected the following factors discussed above: (i) amortization of goodwill was eliminated in 2002, (ii) 2001 results were depressed by a $28.9 million restructuring charge, (iii) interest expense was lower and other income higher in
2002 and (iv) the effective tax rate was lower in 2002. The positive impact of the foregoing factors was substantially, but not entirely, offset by the decline in gross profit described above.





Cumulative Effect of Change in Accounting Principle.    As described under Change in Accounting Treatment for Goodwill and Other
Intangible Assets, we recorded an amount of $288.3 million, net of tax, for impairment of goodwill as part of our transitional impairment test upon the adoption of SFAS No. 142.





Three Months Ended September 30, 2002 and 2001





Revenues.    We had total revenues of $783.1 million in the third quarter of 2002, representing a decrease of 1.6% from total revenues of $795.5 million in the third quarter of 2001. The different
components of our revenues are discussed below:





1.Equipment
Rentals.    Our revenues from equipment rentals were $615.5 million in the third quarter of 2002, representing a decrease of 1.7% from $626.3 million in the third quarter of 2001. These revenues accounted for 78.6% and 78.7%
of our total revenues in 2002 and 2001, respectively. The decrease in rental revenues principally reflected the net effect of the following factors:





| |  |  | Our rental revenues from locations open more than one year, or same store rental revenues, decreased by approximately 2.8%. This decrease reflected a 6.1%
decrease in rental rates partially offset by an increase in the volume of rental transactions. The decrease in rental rates principally reflected continued weakness in non-residential construction spending.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | The decrease in same store rental revenues was partially offset by additional revenues from start-ups and acquisitions, which exceeded revenues lost from
branches closed or consolidated.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




2.Sales of Rental
Equipment.    Our revenues from the sale of rental equipment were $39.4 million in the third quarter of 2002, representing a 11.2% increase from $35.4 million in the third quarter of 2001. These revenues accounted for 5.0% of
our total revenues in the third quarter of 2002 compared with 4.5% in the third quarter of 2001. The increase in these revenues in 2002 primarily reflected our decision to dispose of certain assets that were being underutilized principally due to
the continued weakness in non-residential construction spending.





3.Sales of Equipment and Merchandise and Other Revenues.    Our revenues from sales of equipment and merchandise and other revenues were $128.2 million in the third
quarter of 2002, representing a decrease of 4.1% from $133.8 million in the third quarter of 2001. These revenues accounted for 16.4% of our total revenues in the third quarter of 2002 compared with 16.8% of our total revenues in the third quarter
of 2001. The decrease in these revenues in the third quarter of 2002 principally reflected a decrease in the volume of transactions.





Gross Profit.    Our gross profit decreased to $245.7 million in the third quarter of 2002 from $305.2 million in the third quarter of 2001. This decrease reflected the decrease in total revenues
discussed above, as well as the




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decrease in gross profit margin described below. Information concerning our gross profit margin by source of revenue is set forth below:





1.Equipment Rentals.    Our gross profit margin from equipment rental revenues was 32.3% in the third
quarter of 2002 and 40.7% in the third quarter of 2001. The decrease in 2002 principally reflected the decrease in rental rates described above and, to a lesser extent, higher costs related to wages, employee benefits and insurance.





2.Sales of Rental Equipment.    Our gross profit margin from
the sales of rental equipment was 33.3% in the third quarter of 2002 and 39.7% in the third quarter of 2001. The decrease in 2002 primarily reflected continued price weakness in the used equipment market.





3.Sales of Equipment and Merchandise and Other Revenues.    Our gross
profit margin from sales of equipment and merchandise and other revenues was 26.6% in the third quarter of 2002 and 27.3% in the third quarter of 2001.





Selling, General and Administrative Expenses.    SG&A was $110.9 million, or 14.2% of total revenues, during the third quarter of 2002 and
$111.0 million, or 13.9% of total revenues, during the third quarter of 2001.





Non-rental Depreciation and
Amortization.    Non-rental depreciation and amortization decreased to $15.0 million, or 1.9% of total revenues, in the third quarter of 2002 from $27.1 million, or 3.4% of total revenues, in the third quarter of 2001.
This decrease was primarily attributable to a new accounting standard (discussed above under Change in Accounting Treatment For Goodwill and Other Intangible Assets) which eliminated the amortization of goodwill effective January
1, 2002.





Operating Income.    Operating income was $119.9 million in the third quarter
of 2002 compared to $167.2 million in the third quarter of 2001. The decrease in the third quarter of 2002 primarily reflected the decline in revenues and gross profit described above. The negative impact of these declines was partially offset
by the elimination of the amortization of goodwill effective January 1, 2002 as discussed above.





Interest
Expense.    Interest expense decreased to $48.7 million in the third quarter of 2002 from $56.7 million in the third quarter of 2001. This decrease primarily reflected lower interest rates on our variable rate debt and
lower debt outstanding due to our repayments of debt.





Preferred Dividends of a Subsidiary
Trust.    Preferred dividends of a subsidiary trust were $4.6 million in the third quarter of 2002, compared to $4.9 million during the third quarter of 2001. The decrease is due to the decrease in the amount of our
outstanding trust preferred securities.





Other (Income) Expense.    Other income was
$0.2 million in the third quarter of 2002 compared to $0.4 million in the third quarter of 2001.





Income
Taxes.    Income taxes were $26.0 million, or an effective rate of 39.0%, in the third quarter of 2002 compared to $44.0 million, or an effective rate of 41.5%, in the third quarter of 2001. The decrease in the effective rate
in the third quarter of 2002 primarily reflected the elimination for book purposes of non-tax deductible goodwill amortization upon the adoption of SFAS No. 142 as discussed above.





Income Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle.    Income before extraordinary item and cumulative
effect of change in accounting principle was $40.8 million in the third quarter of 2002 compared to $62.1 million in the third quarter of 2001. The decrease in the third quarter of 2002 principally reflected the decline in gross profit described
above. The negative impact of this decline was partially offset by the elimination of the amortization of goodwill effective January 1, 2002 as discussed above and lower interest expense in 2002.







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Liquidity and Capital Resources





Certain Balance Sheet Changes





The decreases in
goodwill and retained earnings at September 30, 2002 as compared to December 31, 2001 were attributable to the write-off of goodwill as a result of the transitional impairment test required upon the adoption of SFAS No. 142 as described under
Change in Accounting Treatment for Goodwill and Other Intangible Assets. The increase in debt at September 30, 2002 as compared to December 31, 2001 was primarily attributable to borrowings to fund an acquisition in the second
quarter of 2002. The decrease in deferred taxes at September 30, 2002 as compared to December 31, 2001 was attributable primarily to the tax effects of the goodwill write-off and the exercise of stock options during the first nine months of 2002.
The increase in additional paid-in capital at September 30, 2002 as compared to December 31, 2001 was attributable primarily to: (i) the issuance of additional shares upon the exercise of stock options and the award of restricted stock, partially
offset by common stock repurchased and retired, and (ii) the repurchase of 335,000 shares of our trust preferred securities at a price less than the liquidation preference of such shares.





Sources and Uses of Cash





During the first nine months of 2002, we (i) generated cash from operations of approximately $357.0 million, (ii) generated cash from the sale of rental equipment of approximately $133.2 million, (iii) obtained cash from the
exercise of stock options, net of common stock repurchased and retired, of approximately $37.0 million and (iv) obtained cash from borrowings, net of repayments, of approximately $143.6 million. We used cash during this period principally to
(i) pay consideration for acquisitions (approximately $163.3 million), (ii) purchase and pay deposits on rental equipment (approximately $469.7 million), (iii) purchase other property and equipment (approximately $32.6 million), (iv) repurchase and
retire trust preferred securities (approximately $11.5 million) and (v) pay financing costs (approximately $3.1 million).





Cash Requirements Related to Operations





Our principal existing sources of cash are
cash generated from operations and from the sale of used equipment and borrowings available under our revolving credit facility. As of November 7, 2002, we had $408.9 million of borrowing capacity available under our $750 million revolving credit
facility (reflecting outstanding loans of approximately $250.1 million and outstanding letters of credit in the amount of approximately $91.0 million). We believe that our existing sources of cash will be sufficient to support our existing
operations over the next 12 months.





We expect that our principal needs for cash relating to our existing
operations over the next 12 months will be to fund (i) operating activities and working capital, (ii) the purchase of rental equipment and inventory items offered for sale, (iii) payments due under operating leases and (iv) debt service. We plan to
fund such cash requirements relating to our existing operations from our existing sources of cash described above.





The amount of our future capital expenditures will depend on a number of factors, including general economic conditions and growth prospects. Based on current conditions, we estimate that capital expenditures for our existing
operations will be approximately $25 million for the fourth quarter of 2002 and in the range of $330 million to $360 million for all of 2003. These projected expenditures for 2003 are comprised of approximately (i) $290 million to $310 million
of expenditures to replace rental equipment sold and (ii) $40 million to $50 million of expenditures for the purchase of non-rental equipment. We expect that we will fund such expenditures from proceeds from the sale of used equipment, cash
generated from operations and, if required, borrowings available under our revolving credit facility.





We intend
to increase the weighted average age of our rental fleet, which is currently 33 months, to about 42 months in 2003, and eventually to 45 months. This plan reflects our belief that the optimum age of our fleet is




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higher than where it is today. In determining the optimum age of our fleet, we have taken into account a number of factors, including the relationship between age and reliability and maintenance
costs and the capital expenditures required to maintain the fleet at a particular age.





While emphasizing internal
growth, we may also continue to expand through a disciplined acquisition program. We will consider potential transactions of varying size and may, on a selective basis, pursue acquisition or consolidation opportunities involving other public
companies or large privately-held companies. We expect to pay for future acquisitions using cash, capital stock, notes and/or assumption of indebtedness. To the extent that our existing sources of cash described above are not sufficient to fund such
future acquisitions, we will require additional debt or equity financing and, consequently, our indebtedness may increase or the ownership of existing stockholders may be diluted as we implement our growth strategy.





Based on the scheduled maturities of our current indebtedness, we are required to make principal payments of approximately $243.6 million
over the next 12 months. These principal payments are comprised primarily of amounts outstanding under the receivables securitization facility. As described below, the annual renewal of the facility requires the lenders consent. If we do not
obtain this consent, then the facility will terminate in June 2003 and we will repay the borrowings thereunder. We may also, at our option, make additional principal payments.





Information Concerning Operating Leases





From time to time
we have entered into operating leases pursuant to which we lease, as lessee, equipment. Certain of these leases were entered into as part of sale and lease-back transactions. In the first nine months of 2002, we were the seller-lessee in
sale-leaseback transactions with unrelated third parties in which we sold equipment for aggregate proceeds of $3.4 million and agreed to lease back the equipment for a minor period of up to eight months. The related gains recognized from these
transactions were approximately $1.5 million.





Information Concerning Receivables Securitization





We have an accounts receivable securitization facility under which one of our subsidiaries can borrow up to $250 million against a
collateral pool of accounts receivable. The borrowings under the facility and the receivables in the collateral pool are included in the liabilities and assets, respectively, reflected on our consolidated balance sheets. Key terms of this facility
include:





| |  |  | borrowings may be made only to the extent that the face amount of the receivables in the collateral pool exceeds the outstanding loans by a specified amount;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the facility is structured so that the receivables in the collateral pool are the lenders only source of repayment;
| | - |  | --------------------------------------------------------------------------------------------------------------------




| |  |  | prior to expiration or early termination of the facility, amounts collected on the receivables may, subject to certain conditions, be retained by the borrower,
provided that the remaining receivables in the collateral pool are sufficient to secure the then outstanding borrowings; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | after expiration or early termination of the facility, we will repay the borrowings.
| | - |  | ------------------------------------------------------------------------------------




As of September 30, 2002, (i) the outstanding borrowings under the facility were approximately $230.0 million and (ii) the aggregate face amount of the
receivables in the collateral pool was approximately $375.9 million. The agreement governing this facility, which was amended in June 2001, contemplates that the term of the facility may extend for up to three years from the date of the amended
facility. However, on each anniversary of such date, the consent of the lenders is required for the facility to renew for the next year. The next anniversary date is in June 2003. The lenders may, at their option, terminate the facility in the event
that our long-term senior secured debt securities are at any time rated B+ or below by Standard & Poors Ratings Services or B1 or below by Moodys Investor Service.




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Information Concerning Trust Preferred Securities





In August 1998, a subsidiary trust of United Rentals, Inc. sold six million shares of 61/2% Convertible Quarterly Income Preferred Securities for aggregate consideration of $300 million. During 2002, we repurchased 335,000 of these shares
(having an aggregate liquidation preference of approximately $16.8 million) for aggregate consideration of approximately $11.5 million. The liquidation preference amounts in excess of the amounts paid for the repurchase of these shares were
recognized as increases in additional paid-in capital. Our results of operations do not reflect any gain or loss from these transactions.





Information Concerning Certain Restricted Stock Awards





We have granted to employees other
than executive officers and directors approximately 800,000 shares of restricted stock that contain the following provisions. The shares vest in 2004 or 2005 or earlier upon a change in control of the Company, death, disability, retirement or
certain terminations of employment, and are subject to forfeiture prior to vesting on certain other terminations of employment, the violation of non-compete provisions and certain other events. The grants provide that we will pay to employees who
vest in their restricted stock, and who sell their restricted stock within five trading days after vesting, a maximum aggregate amount for all these employees of approximately $300,000 for each dollar by which the per share proceeds of these sales
are less than $27.26 but more than $15.17, and a maximum aggregate amount for all these employees of approximately $800,000 for each dollar by which the per share proceeds of these sales are less than $15.17.





Relationship Between Holdings and URI





United Rentals, Inc. (Holdings) is principally a holding company and primarily conducts its operations through its wholly owned subsidiary United Rentals (North America), Inc. (URI) and subsidiaries
of URI. Holdings provides certain services to URI in connection with its operations. These services principally include: (i) senior management services, (ii) finance related services and support, (iii) information technology systems and support and
(iv) acquisition related services. In addition, Holdings leases certain equipment and real property that are made available for use by URI and its subsidiaries. URI has made, and expects to continue to make, certain payments to Holdings in respect
of the services provided by Holdings to URI. The expenses relating to URIs payments to Holdings are reflected on URIs financial statements as selling, general and administrative expenses. In addition, although not legally obligated to do
so, URI has in the past, and expects that it will in the future, make distributions to Holdings to, among other things, enable Holdings to pay dividends on certain trust preferred securities that were issued by a subsidiary trust of Holdings in
August 1998.





The trust preferred securities are the obligation of a subsidiary trust of Holdings and are not the
obligation of URI. As a result, the dividends payable on these securities are reflected as an expense on the consolidated financial statements of Holdings, but are not reflected as an expense on the consolidated financial statements of URI. This is
the principal reason why the net income reported on the consolidated financial statements of URI is higher than the net income reported on the consolidated financial statements of Holdings.





Seasonality





Our business is seasonal with
demand for our rental equipment tending to be lower in the winter months. The seasonality of our business has been heightened by our acquisition of businesses that specialize in renting traffic control equipment. These businesses tend to generate
most of their revenues and profits in the second and third quarters of the year, slow down during the fourth quarter and operate at a loss during the first quarter.





Inflation





Although we cannot accurately anticipate the
effect of inflation on our operations, we believe that inflation has not had, and is not likely in the foreseeable future to have, a material impact on our results of operations.




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Impact of Recently Issued Accounting Standards





We adopted SFAS No. 142, Goodwill and Other Intangible Assets effective January 1, 2002. This Standard addresses financial
accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. Under this Standard, goodwill and other intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests on a reporting unit level. Other intangible assets are being amortized over their estimated useful lives. For additional information, see Change in Accounting Treatment For
Goodwill and Other Intangible Assets.





In August 2001, the FASB issued SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. This Standard addresses financial accounting and reporting for the impairment or disposal of Long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. We adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 did not have an impact on our consolidated financial position or results of operations.





In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. This Standard rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. This Standard also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers. This Standard amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency related to the required
accounting for sale-leaseback transactions and certain lease modifications. This Standard also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed
conditions. Upon the adoption of this Standard, effective for fiscal years beginning after May 15, 2002, we will be required to reclassify a pre-tax extraordinary loss of approximately $18.1 million recognized during the second quarter of 2001 to
operating income. The adoption of the remaining provisions of SFAS No. 145 is not expected to have a material effect on our consolidated financial position or results of operations.





In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Standard addresses financial accounting and
reporting for costs associated with exit or disposal activities and requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This
Standard nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This Standard is effective for exit or
disposal activities initiated after December 31, 2002.





Factors that May Influence Future Results and Results Anticipated by
Forward-Looking Statements





Sensitivity to Changes in Construction and Industrial Activities





Our equipment is principally used in connection with construction and industrial activities.
Consequently, decreases in construction or industrial activity due to a recession or other reasons may lead to a decrease in the demand for our equipment or the prices that we can charge. Any such decrease could adversely affect our revenues and
operating results. For example, the slow-down in the economy has caused construction activity to significantly decrease in 2002 compared to 2001 and, as a result, our revenues, pricing and operating income were all down in the first nine months of
2002 compared to the same period in 2001.





We have identified below certain factors that may cause a further
downturn in construction and industrial activity, either temporarily or long-term:





| |  |  | a continuation or a worsening of the current recessionary environment;
| | - |  | ----------------------------------------------------------------------




| |  |  | an increase in interest rates; or
| | - |  | ---------------------------------




| |  |  | adverse weather conditions which may temporarily affect a particular region.
| | - |  | ----------------------------------------------------------------------------



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In addition, demand for our equipment may not reach projected levels in the event
that funding for highway and other construction projects under government programs, such as the Transportation Equity Act for the 21st Century (TEA-21), does not reach expected levels. This could occur for, among other reasons,
reductions in government spending due to fiscal or other constraints. Additionally, due to shortfalls in tax revenues, many states have delayed or reduced the amount of funding for infrastructure projects.





Fluctuations of Operating Results





We expect that our revenues and operating results may fluctuate from quarter to quarter or over the longer term due to a number of factors. These factors include:





| |  |  | seasonal rental patterns of our customers, with rental activity tending to be lower in the winter;
| | - |  | --------------------------------------------------------------------------------------------------




| |  |  | completion of acquisitions;
| | - |  | ---------------------------




| |  |  | changes in the amount of revenue relating to renting traffic control equipment, since revenues from this equipment category tend to be more seasonal than the
rest of our business;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | changes in the size of our rental fleet or in the rate at which we sell our used equipment;
| | - |  | -------------------------------------------------------------------------------------------




| |  |  | changes in demand for our equipment or the prices thereof due to changes in economic conditions, competition or other factors;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------




| |  |  | changes in the interest rates applicable to our floating rate debt;
| | - |  | -------------------------------------------------------------------




| |  |  | if we determine that a potential acquisition will not be consummated, the need to charge against earnings any expenditures relating to such transaction (such as
financing commitment fees, merger and acquisition advisory fees and professional fees) previously capitalized; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | the possible need, from time to time, to take other write-offs or special charges due to a variety of occurrences, such as the adoption of new accounting
standards, impairment of goodwill, store consolidations or closings or the refinancing of existing indebtedness.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Substantial Indebtedness





At September 30, 2002, our total indebtedness was
approximately $2,607.3 million. Our substantial indebtedness has the potential to affect us adversely in a number of ways. For example, it will or could:





| |  |  | require us to devote a substantial portion of our cash flow to debt service, reducing the funds available for other purposes;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------




| |  |  | constrain our ability to obtain additional financing, particularly since substantially all of our assets are subject to security interests relating to existing
indebtedness; or
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | make it difficult for us to cope with a downturn in our business or a decrease in our cash flow.
| | - |  | ------------------------------------------------------------------------------------------------




Furthermore, if we are unable to service our indebtedness and fund our business, we will be forced to adopt an alternative strategy that
may include:





| |  |  | reducing or delaying capital expenditures;
| | - |  | ------------------------------------------




| |  |  | limiting our growth;
| | - |  | --------------------




| |  |  | seeking additional capital;
| | - |  | ---------------------------




| |  |  | selling assets; or
| | - |  | ------------------




| |  |  | restructuring or refinancing our indebtedness.
| | - |  | ----------------------------------------------




We cannot be sure that any of these strategies could be effected on favorable terms or at all.




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A portion of our indebtedness bears interest at variable rates that are linked to
changing market interest rates. As a result, an increase in market interest rates would increase our interest expense and our debt service obligations. At September 30, 2002, we had $1,171.2 million of variable rate indebtedness.





Need to Satisfy Financial and Other Covenants in Debt Agreements





Under the agreements governing our credit facility and our term loan, we are required to, among other things, satisfy certain financial
tests relating to: (a) minimum interest coverage ratio, (b) the ratio of funded debt to cash flow, (c) the ratio of senior debt to tangible assets and (d) the ratio of senior debt to cash flow. If we are unable to satisfy any of these covenants, the
lenders could elect to terminate the credit facility and require us to repay the outstanding borrowings under the credit facility and our term loan. In such event, unless we are able to refinance the indebtedness coming due and replace the revolving
credit facility, we would likely not have sufficient liquidity for our business needs and be forced to adopt an alternative strategy as described above. We cannot be sure that any alternative strategy could be effected on favorable terms or at all.





We are also subject to various other covenants under the agreements governing our credit facility, term loan and
other indebtedness. These covenants limit or prohibit, among other things, our ability to incur indebtedness, make prepayments of certain indebtedness, pay dividends, make investments, create liens, make acquisitions, sell assets and engage in
mergers and acquisitions. These covenants could adversely affect our business by significantly limiting our operating and financial flexibility.





Dependence on Additional Capital





If the cash that
we generate from our business, together with cash that we may borrow under our credit facility, is not sufficient to fund our capital requirements, we will require additional debt and/or equity financing. We cannot, however, be certain that any
additional financing will be available or, if available, will be available on terms that are satisfactory to us. If we are unable to obtain sufficient additional capital in the future, we may be unable to fund the capital outlays required for the
success of our business, including those relating to purchasing equipment, making acquisitions, opening new rental locations and repaying or refinancing existing indebtedness.





Certain Risks Relating to Acquisitions





We have grown in part through acquisitions and may continue to do so. The making of acquisitions entails certain risks, including:





| |  |  | unrecorded liabilities of acquired companies that we fail to discover during our due diligence investigations;
| | - |  | --------------------------------------------------------------------------------------------------------------




| |  |  | difficulty in assimilating the operations and personnel of the acquired company with our existing operations;
| | - |  | -------------------------------------------------------------------------------------------------------------




| |  |  | loss of key employees of the acquired company; and
| | - |  | --------------------------------------------------




| |  |  | difficulty in maintaining uniform standards, controls, procedures and policies.
| | - |  | -------------------------------------------------------------------------------




We cannot guarantee that we will realize the expected benefits from our acquisitions or that our existing operations will not be harmed as a result of acquisitions.





Substantial Goodwill





At September 30, 2002, we had on our balance sheet net goodwill in the amount of $1,956.4 million, which represented approximately 38.3% of our total assets at such date.
This goodwill is an intangible asset and represents the excess of the purchase price that we paid for acquired businesses over the estimated fair market




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value of the net assets of those businesses. We are required to periodically review our goodwill for impairment. In general, this means that we must determine whether the fair value of the
goodwill, determined in accordance with applicable accounting standards, is at least equal to the recorded value shown on our balance sheet. If the fair value of the goodwill is less than the recorded value, we are required to write off the excess
goodwill and to treat this write-off as an expense. We are currently in the process of reviewing our goodwill for impairment and estimate that we will be required to write off $220 million to $270 million of goodwill during the fourth quarter of
2002. For additional information, see Change in Accounting Treatment for Goodwill and Other Intangible Assets.





Dependence on Management





Our success is highly dependent on the experience and
skills of our senior management team. If we lose the services of any member of this team and are unable to find a suitable replacement, we may not have the depth of senior management resources required to efficiently manage our business and execute
our strategy. We do not maintain key man life insurance on the lives of members of senior management.





Competition





The equipment rental industry is highly fragmented and competitive. Our
competitors primarily include small, independent businesses with one or two rental locations, regional competitors which operate in one or more states, public companies or divisions of public companies, and equipment vendors and dealers who both
sell and rent equipment directly to customers. We may in the future encounter increased competition from our existing competitors or from new companies. In addition, equipment manufacturers may commence or increase their existing efforts relating to
renting and selling equipment directly to our customers or potential customers. Competitive pressures could adversely affect our revenues and operating results by decreasing our market share or depressing the prices that we can charge.





Dependence on Information Technology Systems





Our information technology systems facilitate our ability to monitor and control our operations and adjust to changing market conditions. Any disruptions in these systems
or the failure of these systems to operate as expected could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively monitor and control our operations and adjust to changing market
conditions.





Liability and Insurance





We are exposed to various possible claims relating to our business. These possible claims include those relating to (1) personal injury or death caused by equipment rented
or sold by us, (2) motor vehicle accidents involving our delivery and service personnel and (3) employment related claims. We carry a broad range of insurance for the protection of our assets and operations. However, such insurance may not fully
protect us for a number of reasons, including:





| |  |  | our coverage is subject to a deductible of $1.0 million and limited to a maximum of $98.0 million per occurrence;
| | - |  | -----------------------------------------------------------------------------------------------------------------




| |  |  | we do not maintain coverage for environmental liability (other than legally required fuel storage tank coverage); and
| | - |  | ---------------------------------------------------------------------------------------------------------------------




| |  |  | certain types of claims, such as claims for punitive damages or for damages arising from intentional misconduct, which are often alleged in third party
lawsuits, might not be covered by our insurance.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




If we are found liable for any significant
claims that are not covered by insurance, our operating results could be adversely affected. We cannot be certain that insurance will continue to be available to us on economically reasonable terms, if at all.




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Environmental and Safety Regulations





Our operations are subject to numerous laws governing environmental protection and occupational health and safety matters. These laws
regulate such issues as wastewater, stormwater, solid and hazardous wastes and materials, and air quality. Under these laws, we may be liable for, among other things, (1) the costs of investigating and remediating contamination at our sites as well
as sites to which we sent hazardous wastes for disposal or treatment regardless of fault and (2) fines and penalties for non-compliance. Our operations generally do not raise significant environmental risks, but we use hazardous materials to clean
and maintain equipment, dispose of solid and hazardous waste and wastewater from equipment washing, and store and dispense petroleum products from underground and above-ground storage tanks located at certain of our locations.





Based on the conditions currently known to us, we do not believe that any pending or likely remediation and compliance costs
will have a material adverse effect on our business. We cannot be certain, however, as to the potential financial impact on our business if new adverse environmental conditions are discovered or environmental and safety requirements become more
stringent. If we are required to incur environmental compliance or remediation costs that are not currently anticipated by us, our business could be adversely affected depending on the magnitude of the cost.





Labor Matters





We have approximately 1,100 employees that are represented by unions and are covered by collective bargaining agreements. If we should experience a prolonged labor dispute involving a significant number of our employees, our
ability to serve our customers could be adversely affected. Furthermore, our labor costs could increase as a result of the settlement of actual or threatened labor disputes.





Operations Outside the United States





Our operations outside the United States are subject to the risks normally associated with international operations. These include (1) the need to convert currencies, which could result in a gain or loss depending on fluctuations in
exchange rates, (2) the need to comply with foreign laws and (3) the possibility of political or economic instability in foreign countries.





Item 3.    
Quantitative and Qualitative Disclosures about Market Risk





Market risks relating to
changes in interest rates and foreign currency exchanges rates were reported in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2001. There has been no material change in these market risks since the end of the fiscal
year 2001.





Item 4.    
Controls and Procedures





(a)  Evaluation of Disclosure Controls and
Procedures.





An evaluation has been carried out under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and the operation of our disclosure controls and procedures (as such term is defined in Rules 13a-14(c) under the
Securities Exchange Act of 1934). This evaluation took place as of a date within 90 days prior to the filing date of this quarterly report (Evaluation Date). Based on such evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of the Evaluation Date, the disclosure controls and procedures are reasonably designed and effective to ensure that (i) information required to be disclosed by us in the reports we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and (ii) such information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.





(b)  Changes in Internal Controls.





Since the Evaluation Date, there have not been any
significant changes in our internal controls or in other factors that could significantly affect such controls.




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PART II    OTHER INFORMATION





Item 1.    
Legal Proceedings





We and our subsidiaries are parties to various litigation matters
involving ordinary and routine claims incidental to our business. Our ultimate legal and financial liability with respect to such pending litigation cannot be estimated with certainty but we believe, based on our examination of such matters, that
such ultimate liability will not have a material adverse effect on our consolidated financial position or results of operations.





Item
6.    
Exhibits and Reports on Form 8-K





(a)  Exhibits:





Exhibit   Number

Description of Exhibit3(a)

Amended and Restated Certificate of Incorporation of United Rentals, Inc., in effect as of the date hereof
(incorporated by reference to exhibit 3.1 of United Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).3(b)

Certificate of Amendment to the United Rentals, Inc. Certificate of Incorporation dated September 29, 1998
(incorporated by reference to Exhibit 4.2 to the United Rentals, Inc. Registration Statement on Form S-3, No. 333-70151).3(c)

By-laws of United Rentals, Inc., in effect as of the date hereof (incorporated by reference to exhibit 3.2 of United
Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).3(d)

Form of Certificate of Designation for Series C Perpetual Convertible Preferred Stock (incorporated by reference to
exhibit 3(f) of United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2001).3(e)

Form of Certificate of Designation for Series D Perpetual Convertible Preferred Stock (incorporated by reference to
exhibit 3(g) of United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2001).3(f)

Form of Certificate of Designation for Series E Junior Participating Preferred Stock (incorporated by reference to
Exhibit A of Exhibit 4 of the United Rentals, Inc. Current report on Form 8-K filed October 5, 2001).3(g)

Rights Agreement dated September 28, 2001 between United Rentals, Inc. and American Stock Transfer & Trust Co.,
as Rights Agent (incorporated by reference to Exhibit 4 to the United Rentals, Inc. Report on Form 8-K filed on October 5, 2001).3(h)

Amended and Restated Certificate of Incorporation of United Rentals (North America), Inc., in effect as of the date
hereof (incorporated by reference to Exhibit 3.3 of the United Rentals (North America), Inc. Report on Form 10-Q for the quarter ended June 30, 1998).3(i)

By-laws of United Rentals (North America), Inc., in effect as of the date hereof (incorporated by reference to
Exhibit 3.4 of the United Rentals (North America), Inc. Report on Form 10-Q for the quarter ended June 30, 1998).10(a)

Second Amendment, dated as of September 30, 2002, to the Amended and Restated Credit Agreement dated as of April 20,
2001, among United Rentals, Inc., United Rentals (North America), Inc., United Rentals of Canada, Inc., United Rentals of Nova Scotia (No. 1), ULC, the lenders party thereto, JPMorgan Chase Bank, as U.S. administrative agent, and J.P. Morgan Bank
Canada, as Canadian administrative agent (incorporated by reference to Exhibit 99.1 of the United Rentals, Inc. and United Rentals (North America), Inc. Report on Form 8-K filed on October 1, 2002).




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##### Table of Contents

Exhibit Number


Description of Exhibit10(b)
*

Amended and Restated Receivables Purchase Agreement dated as of June 26, 2001 among United Rentals, Inc., as
collection agent, United Rentals Receivables LLC II, various financial institutions and Credit Lyonnais New York Branch, as agent.10(c)
*

Amendment No. 1 to Amended and Restated Receivables Purchase Agreement dated as of June 21, 2002 among United
Rentals, Inc., as collection agent, United Rentals Receivables LLC II, various financial institutions and Credit Lyonnais New York Branch, as agent.10(d)
*

Amendment No. 2 and Waiver to Amended and Restated Receivables Purchase Agreement dated as of October 29, 2002 among
United Rentals, Inc., as collection agent, United Rentals Receivables LLC II, various financial institutions and Credit Lyonnais New York Branch, as agent.10(e)
*

Purchase and Contribution Agreement dated as of December 21, 2000 among United Rentals (North America), Inc., various
subsidiaries of United Rentals (North America), Inc., United Rentals Receivables LLC I and United Rentals, Inc., as collection agent.10(f)
*

Amendment 1 to Purchase and Contribution Agreement dated as of January 9, 2001 among United Rentals (North America),
Inc., various subsidiaries of United Rentals (North America), Inc., United Rentals Receivables LLC I and United Rentals, Inc., as collection agent.10(g)
*

Amendment 2 to Purchase and Contribution Agreement dated as of June 26, 2001 among United Rentals (North America),
Inc., various subsidiaries of United Rentals (North America), Inc., United Rentals Receivables LLC I and United Rentals, Inc., as collection agent.10(h)
*

Purchase and Contribution Agreement dated as of December 21, 2000 among United Rentals Receivables LLC I, United
Rentals Receivables LLC II and United Rentals, Inc., as collection agent.10(i)
*

Amendment 1 to Purchase and Contribution Agreement dated as of January 9, 2001 among United Rentals Receivables LLC
I, United Rentals Receivables LLC II and United Rentals, Inc., as collection agent.10(j)
*

Amendment 2 to Purchase and Contribution Agreement dated as of June 26, 2001 among United Rentals Receivables LLC I,
United Rentals Receivables LLC II and United Rentals, Inc., as collection agent.10(k)
*

Parent Undertaking Agreement dated as of December 21, 2000 between United Rentals, Inc. and Credit Lyonnais New York
Branch, as agent.99(a)
*

Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.99(b)
*

Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.





(b)  Reports on Form 8-K:





| | 1. |  | Form 8-K filed on July 1, 2002 (earliest event reported July 1, 2002); Item 9 was reported.
| | -- |  | -------------------------------------------------------------------------------------------




| | 2. |  | Form 8-K filed on August 14, 2002 (earliest event reported August 14, 2002); Item 9 was reported.
| | -- |  | -------------------------------------------------------------------------------------------------




| | 3. |  | Form 8-K filed on October 1, 2002 (earliest event reported September 30, 2002); Item 5 was reported.
| | -- |  | ----------------------------------------------------------------------------------------------------

---

|* |  | Filed herewith
|- |  | --------------



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SIGNATURES





Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.





Dated: November 14, 2002



UNITED RENTALS, INC.By:

/s/    MICHAEL J. NOLANMichael J. Nolan Chief
Financial Officer (Principal Financial Officer)





Dated: November 14, 2002



UNITED RENTALS, INC.By:

/s/    JOSEPH B. SHERKJoseph B. Sherk Vice
President, Corporate Controller (Principal Accounting Officer)





Dated: November 14, 2002



UNITED RENTALS (NORTH AMERICA),
INC.By:

/s/    MICHAEL J. NOLANMichael J. Nolan Chief
Financial Officer (Principal Financial Officer)





Dated: November 14, 2002



UNITED RENTALS (NORTH AMERICA),
INC.By:

/s/    JOSEPH B. SHERKJoseph B. Sherk Vice
President, Corporate Controller (Principal Accounting Officer)




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##### Table of Contents

CERTIFICATIONS





I, Bradley S. Jacobs, certify that:





1.    I
have reviewed this quarterly report on Form 10-Q of United Rentals, Inc. and United Rentals (North America), Inc.;





2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this quarterly report;





3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrants as of, and for, the periods presented in this quarterly report;





4.    The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrants and we have:





a)  designed such disclosure controls and procedures to ensure
that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;





b)  evaluated the effectiveness of the registrants disclosure controls and procedures as of a
date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and





c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;





5.    The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to
the registrants auditors and the audit committee of registrants boards of directors (or persons performing the equivalent function):





a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial
data and have identified for the registrants auditors any material weaknesses in internal controls; and





b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and





6.    The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





November 14, 2002





/S/    BRADLEY S. JACOBSBradley S. JacobsChief Executive Officer




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CERTIFICATIONS





I, Michael J. Nolan, certify that:





1.    I
have reviewed this quarterly report on Form 10-Q of United Rentals, Inc. and United Rentals (North America), Inc.;





2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this quarterly report;





3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and
cash flows of the registrants as of, and for, the periods presented in this quarterly report;





4.    The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrants and we have:





a)  designed such disclosure controls and procedures to ensure
that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;





b)  evaluated the effectiveness of the registrants disclosure controls and procedures as of a
date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and





c)  presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;





5.    The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to
the registrants auditors and the audit committee of registrants boards of directors (or persons performing the equivalent function):





a)  all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial
data and have identified for the registrants auditors any material weaknesses in internal controls; and





b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and





6.    The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





November 14, 2002





/S/    MICHAEL J. NOLANMichael J. NolanChief Financial Officer







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