##### Table of Contents

---

UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





---




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 June 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)





---




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 August 5, 2002, there were 76,563,012 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.





---



---

##### Table of Contents

UNITED RENTALS, INC.


UNITED
RENTALS (NORTH AMERICA), INC.





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





INDEX





PagePART I

FINANCIAL INFORMATIONItem 1

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

4United Rentals, Inc. Consolidated Statements of Operations for the Six and Three Months Ended June 30, 2002 and 2001 (unaudited)

5United Rentals, Inc. Consolidated Statement of Stockholders Equity for the Six Months Ended June 30, 2002 (unaudited)

6United Rentals, Inc. Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001 (unaudited)

7United Rentals (North America), Inc. Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 (unaudited)

8United Rentals (North America), Inc. Consolidated Statements of Operations for the Six and Three Months Ended June 30, 2002 and 2001 (unaudited)

9United Rentals (North America), Inc. Consolidated Statement of Stockholders Equity for the Six Months Ended June 30, 2002 (unaudited)

10United Rentals (North America), Inc. Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001 (unaudited)

11Notes to Unaudited Consolidated Financial Statements

12Item 2

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

26Item 3

Quantitative and Qualitative Disclosures about Market Risk

38PART II

OTHER INFORMATIONItem 1

Legal Proceedings

39Item 4

Submission of Matters to a Vote of Security Holders

39Item 6

Exhibits and Reports on Form 8-K

39Signatures

41




---

##### Table of Contents




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. Our customers include construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others. In 2001, we
served more than 1.4 million customers and generated revenues of $2.9 billion.





Our fleet of rental equipment, the
largest in the world, includes over 500,000 units having an original purchase price of approximately $3.6 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




1




---

##### Table of Contents

and other functions requiring the periodic use of equipment. The market for rental equipment is also benefiting from increased government funding for infrastructure projects.





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 second quarter of 2002, the sharing of equipment among branches accounted for
approximately 11.9%, or $66 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.




2




---

##### Table of Contents




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 61 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.




3




---

##### Table of Contents

UNITED RENTALS, INC.





CONSOLIDATED BALANCE SHEETS


(Unaudited)





June 30 2002


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

$
23,952


$
27,326Accounts receivable, net of allowance for doubtful accounts of $47,937 in 2002and $47,744 in 2001



499,482



450,273Inventory


107,071



85,764Prepaid expenses and other assets


160,621



133,217Rental equipment, net


1,868,775



1,747,182Property and equipment, net


415,302



410,053Goodwill


1,964,815



2,199,774Other intangible assets, net


7,816



7,927$
5,047,834


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

$
252,655


$
204,773Debt


2,653,075



2,459,522Deferred taxes


255,662



297,024Accrued expenses and other liabilities


134,274



174,687Total liabilities


3,295,666



3,136,006Commitments and contingenciesCompany-obligated mandatorily redeemable convertible preferred securities ofa 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 liquidationpreference, 300,000 shares issued and
outstanding


3



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


2



2Common stock$.01 par value, 500,000,000 shares authorized, 76,531,071 shares issued and outstanding in 2002 and
73,361,407 in 2001


765



734Additional paid-in capital


1,309,804



1,243,586Deferred compensation


(58,906
)


(55,794
)Retained earnings


237,465



467,106Accumulated other comprehensive loss


(20,215
)


(30,127
)Total stockholders equity


1,468,918



1,625,510$
5,047,834


$
5,061,516





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




4




---

##### Table of Contents

UNITED RENTALS, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





Six Months Ended June
30

Three Months Ended June
302002


2001

2002


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

$
997,881


$
1,043,750

$
551,593


$
582,368Sales of rental equipment


93,773



72,239


54,643



33,117Sales of equipment and merchandise and other revenues


252,070



271,128


138,523



152,528Total revenues


1,343,724



1,387,117


744,759



768,013Cost of revenues:Cost of equipment rentals, excluding depreciation


510,388



500,136


274,826



270,103Depreciation of rental equipment


158,610



158,354


80,560



81,553Cost of rental equipment sales


60,984



42,381


35,852



19,305Cost of equipment and merchandise sales and other operating costs


181,272



197,616


100,259



110,989Total cost of revenues


911,254



898,487


491,497



481,950Gross profit


432,470



488,630


253,262



286,063Selling, general and administrative expenses


205,020



221,715


106,525



112,822Restructuring charge






28,922






28,922Non-rental depreciation and amortization


27,738



53,238


13,854



27,131Operating income


199,712



184,755


132,883



117,188Interest expense


97,515



114,589


47,532



57,059Preferred dividends of a subsidiary trust


9,299



9,750


4,605



4,875Other (income) expense, net


(3,328
)


6,935


(3,048
)


7,605Income before provision for income taxes, extraordinary item and cumulative effect of change in accounting
principle


96,226



53,481


83,794



47,649Provision for income taxes


37,528



25,134


32,680



22,714Income before extraordinary item and cumulative effect of change in accounting principle


58,698



28,347


51,114



24,935Extraordinary item, net of tax benefit of $6,759






11,317






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


(288,339
)Net income

$
(229,641
)

$
17,030

$
51,114


$
13,618Earnings per sharebasic:Income before extraordinary item and cumulative effect of change in accounting principle

$
0.78


$
0.40

$
0.67


$
0.35Extraordinary item, net






0.16






0.16Cumulative effect of change in accounting principle, net


(3.84
)Net income

$
(3.06
)

$
0.24

$
0.67


$
0.19Earnings per sharediluted:Income before extraordinary item and cumulative effect of change in accounting principle

$
0.59


$
0.31

$
0.51


$
0.26Extraordinary item, net






0.13






0.12Cumulative effect of change in accounting principle, net


(2.92
)Net income

$
(2.33
)

$
0.18

$
0.51


$
0.14





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




5




---

##### Table of Contents

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























(229,641
)

$
(229,641
)Other comprehensive income:Foreign currency translation adjustments



























9,788



9,788Derivatives qualifying as hedges, net of tax



























124



124Comprehensive loss


























$
(219,729
)Issuance of common stock under deferred compensation plans







339



3



8,634



(8,637
)Amortization of deferred compensation



















5,525Exercise of common stock options







3,740



37



76,351Common stock repurchasedand 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, June 30, 2002

$
3

$
2

76,531


$
765


$
1,309,804


$
(58,906
)

$
237,465






$
(20,215
)








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




6




---

##### Table of Contents

UNITED RENTALS, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Six Months EndedJune 302002


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

$
(229,641
)

$
17,030Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization


186,348



211,592Gain on sales of rental equipment


(32,789
)


(29,858
)Deferred taxes


31,796



17,427Amortization of deferred compensation


5,525



1,394Extraordinary item






18,076Restructuring charge






10,893Cumulative effect of change in accounting principle


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


(47,884
)


(20,853
)Inventory


(13,131
)


19,355Prepaid expenses and other assets


(14,629
)


(50,663
)Accounts payable


47,869



51,567Accrued expenses and other liabilities


(52,427
)


52,495Net cash provided by operating activities


169,376



298,455Cash Flows From Investing Activities:Purchases of rental equipment


(303,892
)


(303,281
)Purchases of property and equipment


(21,564
)


(31,426
)Proceeds from sales of rental equipment


93,773



72,239Deposits on rental equipment purchases


(14,375
)In-process acquisition costs


(554
)


(2,140
)Purchases of other companies


(160,307
)


(37,801
)Net cash used in investing activities


(406,919
)


(302,409
)Cash Flows From Financing Activities:Proceeds from debt


240,437



1,979,155Payments of debt


(41,085
)


(1,926,282
)Payments of financing costs


(524
)


(27,118
)Proceeds from the exercise of common stock options


63,759



8,156Common shares repurchased and retired


(26,726
)


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


(11,480
)Net cash provided by financing activities


224,381



9,153Effect of foreign exchange rates


9,788



(3,448
)Net increase (decrease) in cash and cash equivalents


(3,374
)


1,751Cash and cash equivalents at beginning of period


27,326



34,384Cash and cash equivalents at end of period

$
23,952


$
36,135Supplemental disclosure of cash flow information:Cash paid for interest

$
107,649


$
110,023Cash paid for income taxes, net of refunds

$
1,899


$
719Supplemental 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

$
168,758


$
5,457Liabilities assumed


(10,032
)


(1,036
)Less:Amounts paid through issuance of debt






(600
)158,726



3,821Due to seller payments


1,581



33,980Net cash paid

$
160,307


$
37,801





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




7




---

##### Table of Contents

UNITED RENTALS (NORTH AMERICA), INC.





CONSOLIDATED BALANCE SHEETS


(Unaudited)





June 302002


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

$
23,952


$
27,326Accounts receivable, net of allowance for doubtful accounts of $47,937 in 2002 and $47,744 in 2001


499,482



450,273Inventory


107,071



85,764Prepaid expenses and other assets


151,968



124,398Rental equipment, net


1,868,775



1,747,182Property and equipment, net


386,935



383,260Goodwill


1,964,815



2,199,774Other intangible assets, net


7,816



7,927$
5,010,814


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

$
252,655


$
204,773Debt


2,653,075



2,459,522Deferred taxes


255,662



297,024Accrued expenses and other liabilities


146,153



166,154Total liabilities


3,307,545



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


1,581,837



1,518,078Retained earnings


141,647



410,480Accumulated other comprehensive loss


(20,215
)


(30,127
)Total stockholders equity


1,703,269



1,898,431$
5,010,814


$
5,025,904





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




8




---

##### Table of Contents

UNITED RENTALS (NORTH AMERICA), INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





Six Months Ended June
30

Three Months Ended June
302002


2001

2002


2001(In thousands)Revenues:Equipment rentals

$
997,881


$
1,043,750

$
551,593


$
582,368Sales of rental equipment


93,773



72,239


54,643



33,117Sales of equipment and merchandise and other revenues


252,070



271,128


138,523



152,528Total revenues


1,343,724



1,387,117


744,759



768,013Cost of revenues:Cost of equipment rentals, excluding depreciation


510,388



500,136


274,826



270,103Depreciation of rental equipment


158,610



158,354


80,560



81,553Cost of rental equipment sales


60,984



42,381


35,852



19,305Cost of equipment and merchandise sales and other operating costs


181,272



197,616


100,259



110,989Total cost of revenues


911,254



898,487


491,497



481,950Gross profit


432,470



488,630


253,262



286,063Selling, general and administrative expenses


205,020



221,715


106,525



112,822Restructuring charge






28,922






28,922Non-rental depreciation and amortization


23,409



48,952


11,654



24,909Operating income


204,041



189,041


135,083



119,410Interest expense


97,515



114,589


47,532



57,059Other (income) expense, net


(3,328
)


6,935


(3,048
)


7,605Income before provision for income taxes, extraordinary item and cumulative effect of change in accounting principle


109,854



67,517


90,599



54,746Provision for income taxes


42,843



31,404


35,334



26,104Income before extraordinary item and cumulative effect of change in accounting principle


67,011



36,113


55,265



28,642Extraordinary item, net of tax benefit of $6,759






11,317






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


(288,339
)Net income

$
(221,328
)

$
24,796

$
55,265


$
17,325





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




9




---

##### Table of Contents

UNITED RENTALS (NORTH AMERICA), INC.





CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY


(Unaudited)





Common StockNumber of Shares

Amount

Additional Paid-In Capital

Retained Earnings


Comprehensive Loss


Accumulated Other Comprehensive Loss(In thousands, except share data)Balance, December 31, 2001

1,000



$
1,518,078

$
410,480






$
(30,127
)Comprehensive income:Net loss









(221,328
)

$
(221,328
)Other comprehensive income:Foreign currency translation adjustments













9,788



9,788Derivatives qualifying as hedges, net of tax













124



124Comprehensive loss












$
(211,416
)Contributed capital from parent






63,759Dividend distributions to parent









(47,505
)Balance, June 30, 2002

1,000



$
1,581,837

$
141,647






$
(20,215
)








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




10




---

##### Table of Contents

UNITED RENTALS (NORTH AMERICA), INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Six Months Ended June
302002


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

$
(221,328
)

$
24,796Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization


182,019



207,306Gain on sales of rental equipment


(32,789
)


(29,858
)Deferred taxes


31,796



17,427Extraordinary item






18,076Restructuring charge






10,893Cumulative effect of change in accounting principle


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


(47,884
)


(20,853
)Inventory


(13,131
)


19,355Prepaid expenses and other assets


(11,100
)


(43,429
)Accounts payable


47,869



51,567Accrued expenses and other liabilities


(47,324
)


46,583Net cash provided by operating activities


176,467



301,863Cash Flows From Investing Activities:Purchases of rental equipment


(303,892
)


(303,281
)Purchases of property and equipment


(19,910
)


(27,224
)Proceeds from sales of rental equipment


93,773



72,239Deposits on rental equipment purchases


(14,375
)Purchases of other companies


(160,307
)


(37,801
)Net cash used in investing activities


(404,711
)


(296,067
)Cash Flows From Financing Activities:Proceeds from debt


240,437



1,979,155Payments of debt


(41,085
)


(1,926,282
)Payments of financing costs


(524
)


(27,118
)Capital contributions by parent


63,759



8,156Dividend distributions to parent


(47,505
)


(34,508
)Net cash provided by (used in) financing activities


215,082



(597
)Effect of foreign exchange rates


9,788



(3,448
)Net increase (decrease) in cash and cash equivalents


(3,374
)


1,751Cash and cash equivalents at beginning of period


27,326



34,384Cash and cash equivalents at end of period

$
23,952


$
36,135Supplemental disclosure of cash flow information:Cash paid for interest

$
98,350


$
100,273Cash paid for income taxes, net of refunds

$
1,899


$
719Supplemental 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

$
168,758


$
5,457Liabilities assumed


(10,032
)


(1,036
)Less:Amounts paid through issuance of debt






(600
)158,726



3,821Due to seller payments


1,581



33,980Net cash paid

$
160,307


$
37,801





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




11




---

##### 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 six and three month periods ended June 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 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. 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 detail on the Companys 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. 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




12




---

##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




quarter of 2001 to income from continuing operations. 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 six months ended June 30, 2002 and the year ended December 31, 2001, the Company completed two acquisitions 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.





The following table summarizes, on an unaudited pro forma basis, the
results of operations of the Company for the six and three months ended June 30, 2002 and 2001 as though each acquisition which was consummated during the period January 1, 2001 to June 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):




13




---

##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Six Months Ended June 30

Three Months Ended June 302002


2001

2002

2001Revenues

$
1,374,588


$
1,448,175

$
756,886

$
799,887Income before extraordinary item and cumulative effect of change in accounting principle

$
59,083


$
28,302

$
50,894

$
25,554Net income (loss)

$
(229,256
)

$
16,985

$
50,894

$
14,237Basic earnings per share before extraordinary item and cumulative effect of change in accounting principle

$
0.79


$
0.40

$
0.67

$
0.36Basic earnings (loss) per share

$
(3.06
)

$
0.24

$
0.67

$
0.20Diluted earnings per share before extraordinary item and cumulative effect of change in accounting
principle

$
0.60


$
0.30

$
0.51

$
0.27Diluted earnings (loss) per share

$
(2.32
)

$
0.18

$
0.51

$
0.15





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 six 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


7,776Goodwill related to acquisitions


106,133Balance at June 30, 2002

$
1,964,815





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 some or all of
the following: an increase in competition; being situated in markets where general economic activity or construction activity softened; and operational weakness. The fair values of the Companys reporting units were based upon valuation
techniques using multiples of earnings and revenues.





The Company is required to continue to review its goodwill
for impairment at least annually. The next review, as required by SFAS No. 142, will take place in the fourth quarter of 2002. The fair value of the Companys goodwill may be negatively affected by a number of factors, including: (i) the
decline in the valuation of branch locations, (ii) continued weakness in construction activity, (iii) operational weakness at some branches and (iv) increased competition for some branches. As a result, the Company may be required to write off
additional goodwill during the fourth quarter of 2002. The magnitude of any future write-off will depend on conditions at the time the next impairment analysis is conducted and may be significant.




14




---

##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







Any future write-off of goodwill would be a non-cash expense that
would be recorded as goodwill impairment expense on the Companys statements of operations. The Companys operating income, net income and stockholders equity would be reduced by the amount of any such write-off and,
consequently, a significant write-off would have a material adverse affect on the Companys results of operations and stockholders equity.





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):





Six MonthsEnded June 30

Three MonthsEnded June 302002


2001

2002

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

$
58,698


$
28,347

$
51,114

$
24,935Goodwill amortization expense, net of tax






21,809





12,486Adjusted income before extraordinary item and cumulative effect of change in accounting principle

$
58,698


$
50,156

$
51,114

$
37,421Net income (loss)

$
(229,641
)

$
17,030

$
51,114

$
13,618Goodwill amortization expense, net of tax






21,809





12,486Adjusted net income (loss)

$
(229,641
)

$
38,839

$
51,114

$
26,104Earnings per sharebasic:Income before extraordinary item and cumulative effect of change in accounting principle

$
0.78


$
0.40

$
0.67

$
0.35Goodwill amortization expense, net of tax






0.39





0.21Adjusted income before extraordinary item and cumulative effect of change in accounting principle

$
0.78


$
0.79

$
0.67

$
0.56Net income (loss)

$
(3.06
)

$
0.24

$
0.67

$
0.19Goodwill amortization expense, net of tax






0.39





0.21Adjusted net income (loss)

$
(3.06
)

$
0.63

$
0.67

$
0.40Earnings per sharediluted:Income before extraordinary item and cumulative effect of change in accounting principle

$
0.59


$
0.31

$
0.51

$
0.26Goodwill amortization expense, net of tax






0.23





0.14Adjusted income before extraordinary item and cumulative effect of change in accounting principle

$
0.59


$
0.54

$
0.51

$
0.40Net income (loss)

$
(2.33
)

$
0.18

$
0.51

$
0.14Goodwill amortization expense, net of tax






0.24





0.14Adjusted net income (loss)

$
(2.33
)

$
0.42

$
0.51

$
0.28





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 June 30, 2002 were $17.3 million and $9.5 million, respectively. Amortization expense of other intangible
assets was $1.6 million for the first six months of 2002.




15




---

##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







As of June 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

$
1,6762003


3,1402004


1,6852005


6322006


3832007


193Thereafter


107$
7,816





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 six months of 2002 were approximately $3.4 million. Of the remaining $3.6 million of this charge as of June 30, 2002, the Company estimates approximately $2.0 million will be paid by
December 31, 2002 and approximately $1.6 million will be paid in future periods.





Components of the restructuring
charge are as follows:





Balance December 31 2001

Activity in 2002

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

$
3,538

$
1,707

$
1,831Workforce reduction costs


2,055


1,178


877Information technology costs


1,417


539


878$
7,010

$
3,424

$
3,586




16




---

##### 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):





Six Months EndedJune 30

Three Months EndedJune 302002


2001

2002

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

$
58,698


$
28,347

$
51,114

$
24,935Denominator:Denominator for basic earnings per shareweighted-average shares


74,978



71,026


76,417


71,318Effect of dilutive securities:Employee stock options


2,307



1,850


2,117


2,404Warrants


4,390



3,056


4,461


3,433Series A perpetual convertible preferred stock






12,000





12,000Series B perpetual convertible preferred stock






5,000





5,000Series C perpetual convertible preferred stock


12,000






12,000Series D perpetual convertible preferred stock


5,000






5,000Denominator for diluted earnings per shareadjusted weighted-average shares


98,675



92,932


99,995


94,155Earnings per sharebasic:Income before extraordinary item and cumulative effect of change in accounting principle

$
0.78


$
0.40

$
0.67

$
0.35Extraordinary item, net






0.16





0.16Cumulative effect of change in accounting principle, net


(3.84
)Net income (loss)

$
(3.06
)

$
0.24

$
0.67

$
0.19Earnings per sharediluted:Income before extraordinary item and cumulative effect of change in accounting principle

$
0.59


$
0.31

$
0.51

$
0.26Extraordinary item, net






0.13





0.12Cumulative effect of change in accounting principle, net


(2.92
)Net income (loss)

$
(2.33
)

$
0.18

$
0.51

$
0.14





6.    Comprehensive Income





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





Six Months Ended June
30


Three Months Ended June 302002


2001


2002


2001Net income (loss)

$
(229,641
)

$
17,030


$
51,114


$
13,618Other comprehensive income (loss):Foreign currency translation adjustment


9,788



(3,448
)


10,214



8,565Cumulative effect on equity of adopting SFAS No. 133,net of tax






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


124



(1,813
)


(1,042
)


627Comprehensive income (loss)

$
(219,729
)

$
9,253


$
60,286


$
22,810




17




---

##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







7.    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 June 30, 2002 and December 31, 2001, and for the six and three
months ended June 30, 2002 and 2001, are presented. The condensed consolidating financial information of the Company and its subsidiaries are as follows:





CONDENSED CONSOLIDATING BALANCE SHEET





June 30, 2002





Parent


URI


Guarantor Subsidiaries


Non-Guarantor Subsidiaries


Other and Eliminations


Consolidated Total(In thousands)ASSETSCash and cash equivalents









$
19,902


$
4,050






$
23,952Accounts receivable, net





$
28,605



440,995



29,882







499,482Intercompany receivable (payable)






371,639



(199,703
)


(171,936
)Inventory






43,639



58,376



5,056







107,071Prepaid expenses and other assets






57,206



93,479



1,283


$
8,653



160,621Rental equipment, net






990,291



745,971



132,513







1,868,775Property and equipment, net

$
28,367



136,113



233,873



16,949







415,302Investment in subsidiaries


1,723,801



2,332,231











(4,056,032
)Intangible assets, net






523,044



1,322,045



127,542







1,972,631$
1,752,168


$
4,482,768


$
2,714,938


$
145,339


$
(4,047,379
)

$
5,047,834LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Accounts payable





$
69,042


$
164,972


$
18,641






$
252,655Debt

$
283,250



2,379,290



211,084



62,701


$
(283,250
)


2,653,075Deferred taxes






255,612



50











255,662Accrued expenses and other liabilities






81,683



51,118



13,352



(11,879
)


134,274Total liabilities


283,250



2,785,627



427,224



94,694



(295,129
)


3,295,666Commitments 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


1,309,804



1,562,414



1,901,940



68,394



(3,532,748
)


1,309,804Deferred compensation


(58,906
)


















(58,906
)Retained earnings


237,465



141,647



385,774



(4,454
)


(522,967
)


237,465Accumulated other comprehensive loss


(20,215
)


(6,920
)






(13,295
)


20,215



(20,215
)Total stockholders equity


1,468,918



1,697,141



2,287,714



50,645


$
(4,035,500
)


1,468,918$
1,752,168


$
4,482,768


$
2,714,938


$
145,339


$
(4,047,379
)

$
5,047,834




18




---

##### 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




19




---

##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS





For the Six Months Ended June 30, 2002Parent


URI


Guarantor Subsidiaries


Non- Guarantor Subsidiaries


Other and Eliminations


Consolidated Total(In thousands)Revenues:Equipment rentals





$
427,839


$
521,964


$
48,078






$
997,881Sales of rental equipment






57,031



27,861



8,881







93,773Sales of equipment and merchandise and other revenues






121,587



116,528



13,955







252,070Total revenues






606,457



666,353



70,914







1,343,724Cost of revenues:Cost of equipment rentals, excluding depreciation






196,905



288,408



25,075







510,388Depreciation of rental equipment






73,368



75,077



10,165







158,610Cost of rental equipment sales






36,474



18,962



5,548







60,984Cost of equipment and merchandise sales and other operating costs






90,128



80,928



10,216







181,272Total cost of revenues






396,875



463,375



51,004







911,254Gross profit






209,582



202,978



19,910







432,470Selling, general and administrative expenses






90,538



101,896



12,586







205,020Non-rental depreciation and amortization

$
4,329



11,771



10,287



1,351







27,738Operating income (loss)


(4,329
)


107,273



90,795



5,973







199,712Interest expense


9,299



87,591



7,534



2,390


$
(9,299
)


97,515Preferred dividends of a subsidiary trust


















9,299



9,299Other (income) expense, net






813



(4,838
)


697







(3,328
)Income (loss) before provision (benefit) for income taxes and cumulative effect of change in accounting principle


(13,628
)


18,869



88,099



2,886







96,226Provision (benefit) for income taxes


(5,315
)


7,360



34,188



1,295







37,528Income (loss) before cumulative effect of change in accounting principle and equity in net earnings of
subsidiaries


(8,313
)


11,509



53,911



1,591







58,698Cumulative effect of change in accounting principle






(86,598
)


(168,078
)


(33,663
)






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


(8,313
)


(75,089
)


(114,167
)


(32,072
)






(229,641
)Equity in net earnings of subsidiaries


(221,328
)


(146,239
)










367,567Net loss

$
(229,641
)

$
(221,328
)

$
(114,167
)

$
(32,072
)

$
367,567


$
(229,641
)




20




---

##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS





For the Six Months Ended June 30, 2001Parent


URI


Guarantor Subsidiaries


Non- Guarantor Subsidiaries

Other and Eliminations


Consolidated Total(In thousands)Revenues:Equipment rentals





$
446,995


$
549,950


$
46,805





$
1,043,750Sales of rental equipment






33,722



32,104



6,413






72,239Sales of equipment and merchandise and other revenues






127,949



128,094



15,085






271,128Total revenues






608,666



710,148



68,303






1,387,117Cost of revenues:Cost of equipment rentals, excluding depreciation






191,408



284,455



24,273






500,136Depreciation of rental equipment






77,870



70,337



10,147






158,354Cost of rental equipment sales






21,190



17,387



3,804






42,381Cost of equipment and merchandise sales and other operating costs






95,705



90,819



11,092






197,616Total cost of revenues






386,173



462,998



49,316






898,487Gross profit






222,493



247,150



18,987






488,630Selling, general and administrative expenses






94,457



114,886



12,372






221,715Restructuring charge






28,922














28,922Non-rental depreciation and amortization

$
4,286



20,291



25,725



2,936






53,238Operating income (loss)


(4,286
)


78,823



106,539



3,679






184,755Interest expense


9,750



107,825



6,046



718

$
(9,750
)


114,589Preferred dividends of a subsidiary trust

















9,750



9,750Other (income) expense, net






14,725



(8,853
)


1,063






6,935Income (loss) before provision (benefit) for income taxes and extraordinary item


(14,036
)


(43,727
)


109,346



1,898






53,481Provision (benefit) for income taxes


(6,270
)


(14,763
)


45,379



788






25,134Income before extraordinary item and equity in net earnings of subsidiaries


(7,766
)


(28,964
)


63,967



1,110






28,347Extraordinary item






11,317














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


(7,766
)


(40,281
)


63,967



1,110






17,030Equity in net earnings of subsidiaries


24,796



65,077










(89,873
)Net income

$
17,030


$
24,796


$
63,967


$
1,110

$
(89,873
)

$
17,030




21




---

##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS





For the Three Months Ended June 30, 2002Parent


URI


Guarantor Subsidiaries


Non-Guarantor Subsidiaries

Other and Eliminations


Consolidated Total(In thousands)Revenues:Equipment rentals





$
231,986


$
291,476


$
28,131





$
551,593Sales of rental equipment






27,750



22,502



4,391






54,643Sales of equipment and merchandise and other revenues






64,439



65,862



8,222






138,523Total revenues






324,175



379,840



40,744






744,759Cost of revenues:Cost of equipment rentals, excluding depreciation






101,062



160,193



13,571






274,826Depreciation of rental equipment






37,924



37,399



5,237






80,560Cost of rental equipment sales






17,950



15,152



2,750






35,852Cost of equipment and merchandise sales and other operating costs






48,290



45,882



6,087






100,259Total cost of revenues






205,226



258,626



27,645






491,497Gross profit






118,949



121,214



13,099






253,262Selling, general and administrative expenses






46,673



53,158



6,694






106,525Non-rental depreciation and amortization

$
2,200



5,878



5,085



691






13,854Operating income (loss)


(2,200
)


66,398



62,971



5,714






132,883Interest expense


4,605



42,570



3,803



1,159

$
(4,605
)


47,532Preferred dividends of a subsidiary trust

















4,605



4,605Other (income) expense, net






(1,635
)


(1,728
)


315






(3,048
)Income (loss) before provision (benefit) for income taxes


(6,805
)


25,463



60,896



4,240






83,794Provision (benefit) for income taxes


(2,654
)


9,931



23,495



1,908






32,680Income (loss) before equity in net earnings of subsidiaries


(4,151
)


15,532



37,401



2,332






51,114Equity in net earnings of subsidiaries


55,265



39,733










(94,998
)Net income

$
51,114


$
55,265


$
37,401


$
2,332

$
(94,998
)

$
51,114




22




---

##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)







CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS





For the Three Months Ended June 30, 2001Parent


URI


Guarantor Subsidiaries


Non-Guarantor Subsidiaries

Eliminations


Consolidated Total(In thousands)Revenues:Equipment rentals





$
239,522


$
316,596


$
26,250





$
582,368Sales of rental equipment






5,527



24,045



3,545






33,117Sales of equipment and merchandise and other revenues






71,408



73,444



7,676






152,528Total revenues






316,457



414,085



37,471






768,013Cost of revenues:Cost of equipment rentals, excluding depreciation






92,597



164,780



12,726






270,103Depreciation of rental equipment






40,459



36,041



5,053






81,553Cost of rental equipment sales






4,606



12,485



2,214






19,305Cost of equipment and merchandise sales and other operating costs






53,033



52,311



5,645






110,989Total cost of revenues






190,695



265,617



25,638






481,950Gross profit






125,762



148,468



11,833






286,063Selling, general and administrative expenses






46,208



60,278



6,336






112,822Restructuring charge






28,922














28,922Non-rental depreciation and amortization

$
2,222



9,454



13,969



1,486






27,131Operating income


(2,222
)


41,178



74,221



4,011






117,188Interest expense


4,875



50,978



5,610



471

$
(4,875
)


57,059Preferred dividends of a subsidiary trust

















4,875



4,875Other (income) expense, net






8,525



(1,468
)


548






7,605Income (loss) before provision (benefit) for income taxes and extraordinary item


(7,097
)


(18,325
)


70,079



2,992






47,649Provision (benefit) for income taxes


(3,390
)


(4,221
)


29,083



1,242






22,714Income (loss) before extraordinary item and equity in net earnings of subsidiaries


(3,707
)


(14,104
)


40,996



1,750






24,935Extraordinary item






11,317














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


(3,707
)


(25,421
)


40,996



1,750






13,618Equity in net earnings of subsidiaries


17,325



42,746










(60,071
)Net income

$
13,618


$
17,325


$
40,996


$
1,750

$
(60,071
)

$
13,618




23




---

##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




CONDENSED CONSOLIDATING CASH FLOW INFORMATION





For the Six Months Ended June 30, 2002Parent


URI


Guarantor Subsidiaries


Non- Guarantor
Subsidiaries


Other and Eliminations


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

$
(19,126
)

$
85,203


$
83,823


$
7,442


$
12,034


$
169,376Cash flows from investing activities:Purchases of rental equipment






(185,237
)


(95,752
)


(22,903
)






(303,892
)Purchases of property and equipment


(1,653
)


(4,443
)


(14,712
)


(756
)






(21,564
)Proceeds from sales of rental equipment






57,031



27,861



8,881







93,773Capital contributed to subsidiary


(63,759
)














63,759Purchases of other companies






(160,307
)














(160,307
)Deposits on rental equipment purchases






(14,375
)














(14,375
)In-process acquisition costs


















(554
)


(554
)Net cash used in investing activities


(65,412
)


(307,331
)


(82,603
)


(14,778
)


63,205



(406,919
)Cash flows from financing activities:Proceeds from debt






238,141







2,296







240,437Payments of debt






(38,128
)


(1,116
)


(1,841
)






(41,085
)Payments of financing costs






(524
)














(524
)Capital contributions by parent






63,759











(63,759
)Dividend distributions to parent






(47,505
)










47,505Common 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 the exercise of common stock options


63,759



















63,759Proceeds from dividends from subsidiary


47,505















(47,505
)Net cash provided by (used in) financing activities


84,538



215,743



(1,116
)


455



(75,239
)


224,381Effect of foreign exchange rates














9,788







9,788Net increase (decrease) in cash and cash equivalents






(6,385
)


104



2,907







(3,374
)Cash and cash equivalents at beginning of period






6,385



19,798



1,143







27,326Cash and cash equivalents at end of period









$
19,902


$
4,050






$
23,952Supplemental disclosure of cash flow information:Cash paid for interest

$
9,478


$
88,130


$
7,933


$
2,108






$
107,649Cash paid for income taxes, net of refunds





$
563






$
1,336






$
1,899Supplemental 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





$
168,758














$
168,758Liabilities assumed






(10,032
)














(10,032
)158,726















158,726Due to seller and other payments






1,581















1,581Net cash paid





$
160,307














$
160,307




24




---

##### Table of Contents



UNITED RENTALS, INC.





NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS(Continued)




CONDENSED CONSOLIDATING CASH FLOW INFORMATION





For the Six Months Ended June 30, 2001Parent


URI


Guarantor Subsidiaries


Non- guarantor Subsidiaries


Other and Eliminations


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

$
(4,007
)

$
205,885


$
78,440


$
18,137






$
298,455Cash flows from investing activities:Purchases of rental equipment






(199,566
)


(89,546
)


(14,169
)






(303,281
)Purchases of property and equipment


(3,603
)


(6,627
)


(18,907
)


(2,289
)






(31,426
)Proceeds from sales of rental equipment






33,722



32,104



6,413







72,239Capital contributed to subsidiary


(8,155
)













$
8,155Purchases of other companies






(36,983
)






(818
)






(37,801
)In-process acquisition costs


(2,140
)


















(2,140
)Net cash used in investing activities


(13,898
)


(209,454
)


(76,349
)


(10,863
)


8,155



(302,409
)Cash flows from financing activities:Proceeds from debt






1,979,144



11











1,979,155Payments of debt






(1,922,168
)


(1,249
)


(2,865
)






(1,926,282
)Payments of financing costs






(27,055
)






(63
)






(27,118
)Capital contributions by parent






8,155











(8,155
)Dividend distributions to parent






(34,507
)










34,507Shares repurchased and retired


(24,758
)


















(24,758
)Proceeds from the exercise of commonstock options


8,156



















8,156Proceeds from the dividends from subsidiary


34,507















(34,507
)Net cash provided by (used in)financing activities


17,905



3,569



(1,238
)


(2,928
)


(8,155
)


9,153Effect of foreign exchange rates














(3,448
)






(3,448
)Net decrease in cash and cash equivalents










853



898







1,751Cash and cash equivalents at beginning of period










29,733



4,651







34,384Cash and cash equivalents at end ofperiod









$
30,586


$
5,549






$
36,135Supplemental disclosure of cash flowinformation:Cash paid for interest

$
9,750


$
94,892


$
4,562


$
819






$
110,023Cash paid for income taxes, net of refunds





$
1,584






$
(865
)





$
719Supplemental disclosure of non-cash investingand financing activities:The Company acquired the net assets andassumed certain liabilities of other companiesas follows:Assets, net of cash acquired





$
4,624






$
833






$
5,457Liabilities assumed






(842
)






(194
)






(1,036
)Less:Amounts paid through issuance ofdebt






(600
)














(600
)3,182







639







3,821Due to seller and other payments






33,801







179







33,980Net cash paid





$
36,983






$
818






$
37,801




25




---

##### 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 six and three months ended June 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, will no longer be amortized. Our approximately $17.3 million of other intangible assets, which consist of non-compete agreements, will continue to be amortized over their contractual 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




26




---

##### 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 required to continue to review our
goodwill for impairment at least annually. The next review, as required by SFAS No. 142, will take place in the fourth quarter of 2002. The fair value of our goodwill may be negatively affected by a number of factors, including: (i) the decline in
the valuation of our branch locations, (ii) continued weakness in construction activity which, as described above, negatively affects our earnings, (iii) operational weakness at some branches and (iv) increased competition for some branches. As a
result, we may be required to write off additional goodwill during the fourth quarter of 2002. The magnitude of any future write-off will depend on conditions at the time the next impairment analysis is conducted and may be significant.





Any future write-off of goodwill would be a non-cash expense that would be recorded as goodwill
impairment expense on our statements of operations. Our operating income, net income and stockholders equity would be reduced by the amount of any such write-off and, consequently, a significant write-off would have a material adverse
affect on our results of operations and stockholders equity. For additional information, see Notes 1 and 3 to our Unaudited Consolidated Financial Statements included elsewhere in this Report.





Results of Operations





Six Months Ended June 30, 2002 and 2001





Revenues.    We
had total revenues of $1,343.7 million in the first six months of 2002, representing a decrease of 3.1% from total revenues of $1,387.1 million in the first six months of 2001. The different components of our revenues are discussed below:





1.Equipment Rentals.    Our revenues from
equipment rentals were $997.9 million in the first six months of 2002, representing a decrease of 4.4% from $1,043.8 million in the first six months of 2001. These revenues accounted for 74.3% and 75.2% 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 3.8%. This decrease reflected a 3.9%
decrease in rental rates, which was partially offset by a 0.1% 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 partially offset by
additional revenues from start-ups and acquisitions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




2.Sales of Rental Equipment.    Our revenues from the sale of rental equipment were $93.8 million in the first six months of 2002, representing a 29.9% increase from $72.2 million in
the first six months of 2001. These revenues accounted for 7.0% of our total revenues in the first six months of 2002 compared with 5.2% in the first six 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
$252.1 million in the first six months of 2002, representing a decrease of 7.0% from $271.1 million in the first six months of 2001. These revenues accounted for 18.8% of our total revenues in the first six months of 2002 compared with 19.5% of our
total revenues in the first six months of 2001. The decrease in these revenues in the first six months of 2002 principally reflected a decrease in the volume of transactions.




27




---

##### Table of Contents




Gross Profit.    Our gross profit decreased to $432.5
million in the first six months of 2002 from $488.6 million in the first six 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 33.0% in the first six months of 2002 and 36.9% in the first six
months of 2001. The decrease in 2002 principally reflected the decrease in rental rates described above.





2.Sales of Rental Equipment.    Our gross profit margin from the sales of rental equipment was 35.0% in the first six months of 2002 and 41.3% in the first six 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 28.1% in the first six
months of 2002 and 27.1% in the first six months of 2001. The increase in the gross profit margin in 2002 primarily reflected (i) a shift in mix which resulted in more of our sales being attributable to higher margin areas such as merchandise sales
and providing services and (ii) lower costs resulting from our ongoing efforts to consolidate our suppliers.





Selling, General and Administrative Expenses.    Selling, general and administrative expenses (SG&A) were $205.0 million, or 15.3% of total revenues, during the first six months of 2002 and
$221.7 million, or 16.0% of total revenues, during the first six 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 $27.7 million, or 2.0% of total revenues, in the first six months of 2002 from $53.2 million, or 3.8% of total revenues, in the first six 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 $199.7 million in the first
six months of 2002 compared to $184.8 million in the first six months of 2001. The increase in the first six months of 2002 is attributable to the following factors: (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 $97.5 million in the first six months of 2002 from $114.6 million in the first six 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 $9.3 million in the first six months of 2002, compared to $9.8 million during the first six 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 $3.3 million in the first six months of 2002 compared with other expense of $6.9 million in the first six 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.




28




---

##### Table of Contents




Income Taxes.    Income taxes were $37.5 million, or
an effective rate of 39.0%, in the first six months of 2002 compared to $25.1 million, or an effective rate of 47.0%, in the first six months of 2001. The decrease in the effective rate in the first six months 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 and to the fact 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 $58.7 million in the first six months of 2002 compared to $28.3 million in the first six months of 2001. The increase
in the first six 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.





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 June 30, 2002 and 2001





Revenues.    We had total revenues of $744.8
million in the second quarter of 2002, representing a decrease of 3.0% from total revenues of $768.0 million in the second quarter of 2001. The different components of our revenues are discussed below:





1.Equipment Rentals.    Our revenues from equipment rentals were $551.6
million in the second quarter of 2002, representing a decrease of 5.3% from $582.4 million in the second quarter of 2001. These revenues accounted for 74.1% and 75.8% 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 5.0%. This decrease reflected a 4.2%
decrease in rental rates and a 0.8% decrease 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 in 2001 and the first quarter of 2002. These lost revenues were
partially offset by additional revenues from start-ups and acquisitions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




2.Sales of Rental Equipment.    Our revenues from the sale of rental equipment were $54.6 million in the second quarter of 2002, representing a 65.0% increase from $33.1 million in
the second quarter of 2001. These revenues accounted for 7.3% of our total revenues in the second quarter of 2002 compared with 4.3% in the second 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
$138.5 million in the second quarter of 2002, representing a decrease of 9.2% from $152.5 million in the second quarter of 2001. These revenues accounted for 18.6% of our total revenues in the second quarter of 2002 compared with 19.9% of our total
revenues in the second quarter of 2001. The decrease in these revenues in the first six months of 2002 principally reflected a decrease in the volume of transactions.





Gross Profit.    Our gross profit decreased to $253.3 million in the second quarter of 2002 from $286.1 million in the second quarter of
2001. This decrease reflected the decrease in total revenues discussed




29




---

##### Table of Contents

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 35.6% in the second quarter of 2002 and 39.6% in the second quarter of 2001. The decrease in 2002 principally reflected the decrease in rental rates
described above.





2.Sales of Rental
Equipment.Our gross profit margin from the sales of rental equipment was 34.4% in the second quarter of 2002 and 41.7% in the second 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 27.6% in the second quarter of 2002 and 27.2% in the second quarter of 2001. The increase in the gross
profit margin in 2002 primarily reflected (i) a shift in mix which resulted in more of our sales being attributable to higher margin areas such as merchandise sales and providing services and (ii) lower costs resulting from our ongoing efforts to
consolidate our suppliers.





Selling, General and Administrative Expenses.    SG&A
was $106.5 million, or 14.3% of total revenues, during the second quarter of 2002 and $112.8 million, or 14.7% of total revenues, during the second quarter of 2001. The decrease in SG&A in 2002 primarily reflected our ongoing efforts at cutting
costs, including reducing the number of administrative personnel and reducing discretionary expenditures.





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 $13.9 million, or 1.9% of total revenues, in the second quarter of 2002 from $27.1 million, or 3.5% of total revenues, in the second 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 $132.9 million in the second
quarter of 2002 compared to $117.2 million in the second quarter of 2001. The increase in the second quarter of 2002 is attributable to the following factors: (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 $47.5 million in the second quarter of 2002 from $57.1 million in the second 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 during 2001.





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





Other (Income)
Expense.    Other income was $3.0 million in the second quarter of 2002 compared with other expense of $7.6 million in the second quarter of 2001. The other income in 2002 was primarily attributable to the favorable
settlement of a lawsuit for $4.0 million in net proceeds. The other expense in 2001 was primarily attributable to a $7.8 million charge related to the refinancing costs of a synthetic lease.





Income Taxes.    Income taxes were $32.7 million, or an effective rate of 39.0%, in the second quarter of 2002 compared to $22.7 million, or an
effective rate of 47.7%, in the second quarter of 2001. The decrease in the




30




---

##### Table of Contents

effective rate in the second 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
and to the fact 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 $51.1 million in the
second quarter of 2002 compared to $24.9 million in the second quarter of 2001. The increase in the second quarter 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.





Liquidity and Capital Resources





Certain Balance
Sheet Changes





The decreases in goodwill and retained earnings at June 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 June 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 June 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 six months of 2002. The increase in additional paid-in capital at June 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 six months of 2002, we (i) generated cash from operations of approximately
$169.4 million, (ii) generated cash from the sale of rental equipment of approximately $93.8 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 $199.4 million. We used cash during this period principally to (i) pay consideration for acquisitions (approximately $160.3 million), (ii) purchase and pay deposits on
rental equipment (approximately $318.3 million), (iii) purchase other property and equipment (approximately $21.6 million), and (iv) repurchase and retire trust preferred securities (approximately $11.5 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 August 6, 2002, we had $398.5 million of borrowing capacity available under our $750 million revolving credit facility (reflecting outstanding loans of approximately $285.1 million and outstanding letters of credit in the amount of
approximately $66.4 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.




31




---

##### Table of Contents




The amount of our capital expenditures during 2002 will depend on a number of
factors, including general economic conditions and growth prospects. Based on current conditions, we estimate that capital expenditures for the year 2002 will be approximately $425 million to $465 million for our existing operations. These
expenditures are comprised of approximately (i) $300 million to $320 million of expenditures to replace rental equipment sold, (ii) $95 million to $105 million of discretionary expenditures to increase the size of our rental fleet and (iii) $30
million to $40 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.





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 $226.6 million over the next 12 months. 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 six 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 June 30, 2002, (i) the outstanding borrowings under the facility were approximately $209.9 million and (ii) the aggregate face amount of the receivables in the
collateral pool was approximately $350.8 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 lender is required for the facility to renew for the next year. The next anniversary date is in June 2003.




32




---

##### Table of Contents




Information Concerning Trust Preferred Securities





In August 1998, a subsidiary trust of United Rentals, Inc. sold six million shares of 6% 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 815,912 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 $310,621 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 $815,912 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.




33




---

##### Table of Contents




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
income from continuing operations. 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 and industrial activity to decrease and, as a result, our revenues and pricing were both down in the first six 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.
| | - |  | ----------------------------------------------------------------------------



34




---

##### Table of Contents




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. For example, the federal government has proposed
cutting TEA-21 funding in 2002 by 13% to approximately $28 billion. 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 June 30, 2002, our total indebtedness was
approximately $2,653.1 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.




35




---

##### Table of Contents




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 June 30, 2002, we had $1,113.4 million of variable rate indebtedness.





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.





Restrictive Covenants





We are subject to various restrictive financial and operating covenants under the agreements governing our 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.





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 June 30, 2002, we had on our balance sheet net goodwill in the amount of $1,964.8 million, which represented approximately 38.9% 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 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.





In the first quarter of 2002, we recorded impairment of $288.3 million, net of tax, as described under  Change in Accounting Treatment for Goodwill and Other Intangible Assets. The next impairment
review, as required by SFAS No. 142, will take place in the fourth quarter of 2002. The fair value of our goodwill may be




36




---

##### Table of Contents

negatively affected by a number of factors, including: (i) the decline in the valuation of our branch locations, (ii) continued weakness in construction activity which, as described above,
negatively affects our earnings, (iii) operational weakness at some branches and (iv) increased competition for some branches. As a result, we may be required to write off additional goodwill during the fourth quarter of 2002. The magnitude of any
future write-off will depend on conditions at the time the next impairment analysis is conducted and may be significant. Any future write-off of goodwill would be a non-cash expense that would be recorded as goodwill impairment expense
on our statements of operations. Our operating income, net income and stockholders equity would be reduced by the amount of any such write-off and, consequently, a significant write-off would have a material adverse affect on our results of
operations, stockholders equity and forward looking statements.





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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



37




---

##### Table of Contents




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.





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 1,000 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.




38




---

##### Table of Contents

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 4.    Submission of Matters to a Vote of Security Holders





Our Companys Annual Meeting of Stockholders was held on June 5, 2002. The holders of 71,160,097 common shares, 300,000 Series C Perpetual Convertible Preferred Shares (Series C Preferred) and 105,252 Series D-1
Perpetual Convertible Preferred Shares (Series D-1 Preferred) were present either in person or by proxy. The following three matters were voted on and approved at such meeting.





| | 1. |  | The election of two members to the Board of Directors by the holders of our common stock and Series D-1 Preferred (where each share of Series D-1 Preferred is
entitled to 331/3votes).
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




FOR

WITHHELDWayland R. Hicks

73,037,120

1,631,377John S. McKinney

73,037,220

1,631,277





| | 2. |  | The election of two members to the Board of Directors by the holders of the Series C Preferred.
| | -- |  | -----------------------------------------------------------------------------------------------




FOR

WITHHELDLeon D. Black

300,000

0Michael S. Gross

300,000

0





| | 3. |  | The ratification of the appointment of Ernst & Young LLP as our Companys independent auditors for the fiscal year ending December 31, 2002 by the
holders of our common stock, Series D-1 Preferred (where each share of Series D-1 Preferred is entitled to 331/3 votes) and Series C Preferred (where each share of Series C Preferred is entitled to 40 votes).
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




FOR

AGAINST

ABSTAIN83,608,804

3,025,781

33,912





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).




39




---

##### Table of Contents

Exhibit Number

Description of Exhibit3(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).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 April 26, 2002 (earliest event reported April 24, 2002); Item 9 was reported.
| | -- |  | -----------------------------------------------------------------------------------------------




| | 2. |  | Form 8-K filed on July 1, 2002 (earliest event reported July 1, 2002); Item 9 was reported.
| | -- |  | -------------------------------------------------------------------------------------------

---

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



40




---

##### Table of Contents

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: August 14, 2002

UNITED RENTALS, INC.By:

/S/    MICHAEL J. NOLANMichael J. Nolan Chief
Financial Officer (Principal Financial Officer)Dated: August 14, 2002

UNITED RENTALS, INC.By:

/S/    JOSEPH B. SHERKJoseph B. Sherk Vice
President, Corporate Controller (Principal Accounting Officer)Dated: August 14, 2002

UNITED RENTALS (NORTH AMERICA),
INC.By:

/S/    MICHAEL J. NOLANMichael J. Nolan Chief
Financial Officer (Principal Financial Officer)Dated: August 14, 2002

UNITED RENTALS (NORTH AMERICA),
INC.By:

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




41