URI United Rentals

United Rentals, Inc. (NYSE: URI) today announced record earnings per share from continuing operations for both the fourth quarter and full year 2007. For the fourth quarter, earnings per share of $0.84 increased 18.3% compared with $0.71 for the fourth quarter 2006. For the full year, earnings per share of $2.76 increased 21.1% compared with $2.28 for the full year 2006. 2007 fourth quarter and full year earnings per share are before the benefit the company realized from its receipt of $100 million following the recent termination of its merger agreement with affiliates of Cerberus, net of related costs and expenses. Including this one-time benefit, the company reported 2007 fourth quarter and full year GAAP earnings per share of $1.36 and $3.26, respectively, also a record. Fourth Quarter and Full Year 2007 Financial Highlights Compared with 2006 (excluding merger termination benefit) EBITDA increased 9.3% to a record $318 million for the fourth quarter and increased 8.0% to a record $1.17 billion for the full year. EBITDA margin improved 3.2 percentage points to 34.2% for the fourth quarter, and 1.6 percentage points to 31.4% for the full year. As discussed further below, the fourth quarter and full year EBITDA include a currency benefit of $17 million ($11 million after-tax). EBITDA is a non-GAAP measure. Rental revenue increased 4.1% for the fourth quarter and 4.0% for the full year. Same-store rental revenue increased 3.7% for the fourth quarter and 3.1% for the full year. Time utilization, on a larger fleet, increased 2.3 percentage points for the fourth quarter and 2.5 percentage points for the full year, more than offsetting rental rate declines of 2.1% and 1.1% for the fourth quarter and full year, respectively. SG&A expense as a percent of revenue improved 0.8 percentage points to 16.2% for the fourth quarter and 0.9 percentage points to 15.9% for the full year. Fourth quarter 2007 income from continuing operations of $94 million, excluding a $59 million after-tax impact of the merger termination benefit, increased 22.1% from $77 million for the fourth quarter 2006. Full year 2007 income from continuing operations of $306 million, excluding a $57 million after-tax impact of the merger termination benefit, increased 22.9% from $249 million for the full year 2006. Fourth quarter and full year 2007 income from continuing operations includes net foreign currency transaction gains of $11 million, or $0.10 per diluted share, primarily related to the company�s Canadian operations. Additionally, full year 2007 income from continuing operations includes non-cash reductions in interest expense of $6 million, or $0.05 per diluted share, related to the mark-to-market impact of certain interest rate swaps. Of this benefit, $4 million, or $0.04 per diluted share, was recognized in the fourth quarter. Total revenue from continuing operations was $930 million for the fourth quarter 2007, a decrease of 1.0% from the fourth quarter 2006, and $3.73 billion for the full year 2007, an increase of 2.5% from the full year 2006. The slight decline in fourth quarter total revenue reflects planned decreases in contractor supplies and used equipment sales of 20.6% and 12.6%, respectively, partially offset by a 4.1% increase in equipment rental revenue. Excluding the merger termination benefit, free cash flow for the full year 2007 was $151 million after total rental and non-rental capital expenditures of $990 million, compared with free cash flow of $235 million for the full year 2006 after total rental and non-rental capital expenditures of $951 million. The year-over-year reduction in free cash flow reflects an increase in cash taxes paid and working capital usage in 2007 as compared to working capital generation in the prior year. Free cash flow is a non-GAAP measure. The size of the rental fleet, measured by the original equipment cost, was $4.2 billion, and the average age of the fleet was 38 months at December 31, 2007, compared with $3.9 billion and 39 months at year-end 2006. Full Year 2008 Outlook The company reaffirmed its full year 2008 outlook for earnings per share of $2.80 to $3.00 based on anticipated rental revenue growth of 3.0% to $2.71 billion and total revenue of $3.53 billion. Rental revenue expectations reflect the following assumptions: an improvement in time utilization, virtually no growth capital and modest growth in non-residential construction activity. The company also expects to generate $1.17 to $1.21 billion of EBITDA, representing an expected full year EBITDA margin improvement to approximately 33.7% of revenues. Additionally, the company expects to generate $325 million to $375 million of free cash flow after planned total capital expenditures of approximately $715 million. CEO Comments Michael Kneeland, chief executive officer for United Rentals, said, "The record EPS and EBITDA we generated in 2007 were the direct result of a new strategic plan that is intensely focused on profitable growth. In mid-year, we put our operations under a microscope and returned our sales and service focus to our core equipment rental business, where we have numerous competitive advantages. This helped drive significant increases in time utilization and organic rental revenue growth. Additionally, we took action to improve our cost structure with a 9% headcount reduction, branch network optimization, and approximately $22 million in cumulative savings through better sourcing.� Mr. Kneeland continued, "In 2008, we expect to continue to improve our performance as we move forward with the disciplined execution of our plan. In the first quarter, we're on pace to double our equipment transfers compared with 2007. Our agility with fleet management and our ongoing cost containment initiatives should help drive a 33.7% EBITDA margin and strong free cash flow in 2008, given the current construction outlook. Our guidance is consistent with our goal of realizing $500 million in incremental annual EBITDA within five years." Return on Invested Capital (ROIC) Return on invested capital was 14.5% for the twelve months ended December 31, 2007, an improvement of 0.6 percentage points from September 30, 2007, and a decline of 0.2 percentage points from December 31, 2006. The company�s ROIC metric uses operating income for the trailing twelve months divided by the averages of stockholders� equity, debt and deferred taxes, net of average cash. The company reports ROIC to provide information on the company�s efficiency and effectiveness in deploying its capital and improving stockholder value. Additional Information on 2007 Results and Status of SEC Inquiry For additional information concerning the company�s 2007 fourth quarter and full year results, including segment performance for its general rentals and trench safety, pump and power businesses, as well as the status of the previously announced SEC inquiry of the company and related matters, please see the company�s 2007 Form 10-K filed today with the SEC. CEO Search The company also reported that its board of directors has retained the executive recruitment firm of Heidrick & Struggles to conduct a search for a permanent chief executive officer. In doing so, the board confirmed that Michael Kneeland, who currently serves as CEO on an interim basis, is a candidate for the position. The board also commended Mr. Kneeland on his leadership of the company since June 2007. Conference Call United Rentals will hold a conference call tomorrow, Friday, February 29th, at 11:00 a.m. Eastern Time. The conference will be available live by audio webcast at www.unitedrentals.com, where it will be archived until the company�s next call. About United Rentals United Rentals, Inc. is the largest equipment rental company in the world, with an integrated network of over 690 rental locations in 48 states, 10 Canadian provinces and Mexico. The company�s approximately 10,900 employees serve construction and industrial customers, utilities, municipalities, homeowners and others. The company offers for rent over 2,900 classes of rental equipment with a total original cost of $4.2 billion. United Rentals is a member of the Standard & Poor�s MidCap 400 Index and the Russell 2000 Index� and is headquartered in Greenwich, Conn. Additional information about United Rentals is available at www.unitedrentals.com. Forward Looking Statements Certain statements in this press release are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements can generally be identified by words such as "believes," "expects," "plans," "intends," "projects," "forecasts," "may," "will," "should," "on track" or "anticipates," or the negative thereof or comparable terminology, or by discussions of vision, strategy or outlook. Our businesses and operations are subject to a variety of risks and uncertainties, many of which are beyond our control, and, consequently, actual results may differ materially from those projected by any forward-looking statements. Factors that could cause actual results to differ from those projected include, but are not limited to, the following: (1) weaker or unfavorable economic or industry conditions can reduce demand and prices for our products and services, (2) non-residential construction spending, or governmental funding for infrastructure and other construction projects, may not reach expected levels, (3) we may not always have access to capital that our businesses or growth plans may require, (4) any companies we acquire could have undiscovered liabilities, may strain our management capabilities or may be difficult to integrate, (5) rates we can charge and time utilization we can achieve may be less than anticipated, (6) costs we incur may be more than anticipated, including by having expected savings not be realized in the amounts or time frames we have planned, (7) competition in our industry for talented employees is intense, which can affect our employee costs and retention rates, (8) we have (and the ability to incur additional) significant leverage, which requires us to use a substantial portion of our cash flow for debt service and can constrain our flexibility in responding to unanticipated or adverse business conditions, (9) we are subject to an ongoing inquiry by the SEC, and there can be no assurance as to its outcome, or any other potential consequences thereof for us, (10) we are subject to purported class action lawsuits and derivative actions filed in light of the SEC inquiry and additional purported class action lawsuits relating to the terminated merger transaction with Cerberus affiliates, and there can be no assurance as to their outcome or any other potential consequences thereof for us, and (11) we may incur additional significant costs and expenses (including indemnification obligations) in connection with the SEC inquiry, the purported class action lawsuits and derivative actions referenced above, the U.S. Attorney�s office inquiry, or other litigation, regulatory or investigatory matters, related to the foregoing or otherwise. For a fuller description of these and other possible uncertainties, please refer to our Annual Report on Form 10-K for the year ended December 31, 2007, as well as to our subsequent filings with the SEC. Our forward-looking statements contained herein speak only as of the date hereof, and we make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations. UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share data) � � � � � � Three Months Ended Twelve Months Ended December 31, December 31, 2007 2006 % Change 2007 2006 % Change � Revenues: Equipment rentals $ 683 $ 656 4.1 % $ 2,630 $ 2,530 4.0 % Sales of rental equipment 76 87 (12.6 %) 319 335 (4.8 %) New equipment sales 53 60 (11.7 %) 230 232 (0.9 %) Contractor supplies sales 77 97 (20.6 %) 378 385 (1.8 %) Service and other revenues � 41 � � 39 � 5.1 % � 174 � � 158 � 10.1 % Total revenues � 930 � � 939 � (1.0 %) � 3,731 � � 3,640 � 2.5 % � Cost of revenues: Cost of equipment rentals, excluding depreciation 294 287 2.4 % 1,179 1,137 3.7 % Depreciation of rental equipment 113 104 8.7 % 434 408 6.4 % Cost of rental equipment sales 61 65 (6.2 %) 235 237 (0.8 %) Cost of new equipment sales 43 50 (14.0 %) 190 191 (0.5 %) Cost of contractor supplies sales 61 68 (10.3 %) 306 302 1.3 % Cost of service and other revenue � 19 � � 18 � 5.6 % � 79 � � � 76 � 3.9 % Total cost of revenues � 591 � � 592 � (0.2 %) � 2,423 � � 2,351 � 3.1 % Gross profit 339 347 (2.3 %) 1,308 1,289 1.5 % � Selling, general and administrative expenses 151 160 (5.6 %) 595 613 (2.9 %) Non-rental depreciation and amortization � 16 � � 13 � 23.1 % � 54 � � 50 � 8.0 % Operating income 172 174 (1.1 %) 659 626 5.3 % Interest expense, net 41 51 187 208 Interest expense - subordinated convertible debentures 2 2 9 13 Other income � (111 ) � - � � (115 ) � - � � Income from continuing operations before provision for income taxes 240 121 98.3 % 578 405 42.7 % � Provision for income taxes � 87 � � 44 � � 215 � � 156 � Income from continuing operations 153 77 98.7 % 363 249 45.8 % � Loss from discontinued operation, net of taxes � - � � (24 ) � (1 ) � (25 ) � Net income $ 153 � $ 53 � 188.7 % $ 362 � $ 224 � 61.6 % Diluted earnings per share: Income from continuing operations $ 1.36 $ 0.71 91.5 % $ 3.26 $ 2.28 43.0 % Loss from discontinued operation � (0.01 ) � (0.22 ) � (0.01 ) � (0.22 ) Net income $ 1.35 � $ 0.49 � 175.5 % $ 3.25 � $ 2.06 � 57.8 % UNITED RENTALS, INC. CONSOLIDATED BALANCE SHEETS (In millions) � � December 31, 2007 2006 ASSETS Cash and cash equivalents $ 381 $ 119 Accounts receivable, net 519 502 Inventory 91 139 Assets of discontinued operation - 107 Prepaid expenses and other assets 57 56 Deferred taxes � 72 � 82 Total current assets 1,120 1,005 � Rental equipment, net 2,826 2,561 Property and equipment, net 440 359 Goodwill and other intangible assets, net 1,404 1,376 Other long-term assets � 52 � 65 Total assets $ 5,842 $ 5,366 LIABILITIES AND STOCKHOLDERS' EQUITY Current maturities of long-term debt $ 15 $ 37 Accounts payable 195 218 Accrued expenses and other liabilities 310 322 Liabilities related to discontinued operation � - � 22 Total current liabilities 520 599 � Long-term debt 2,555 2,519 Subordinated convertible debentures 146 146 Deferred taxes 539 463 Other long-term liabilities � 64 � � 101 � Total liabilities � 3,824 � 3,828 Common stock 1 1 Additional paid-in capital 1,494 1,421 Retained earnings 431 69 Accumulated other comprehensive income � 92 � 47 Total stockholders' equity � 2,018 � 1,538 � Total liabilities and stockholders' equity $ 5,842 $ 5,366 UNITED RENTALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) � � � � Three Months Ended Twelve Months Ended December 31, December 31, 2007 2006 2007 2006 Cash Flows From Operating Activities: Income from continuing operations $ 153 $ 77 $ 363 $ 249 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation and amortization 129 117 488 458 Amortization of deferred financing costs 2 2 9 10 Gain on sales of rental equipment (15 ) (22 ) (84 ) (98 ) Gain on sales of non-rental equipment - (2 ) (5 ) (4 ) Foreign currency transaction gain (17 ) - (17 ) - Non-cash adjustments to equipment 10 (1 ) 9 7 Stock compensation expense 3 5 15 16 Write-off deferred financing fees and unamortized premiums on interest rate caps - 1 - 9 Increase in deferred taxes 20 38 61 130 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 74 39 (5 ) 10 Decrease in inventory 35 12 51 16 (Increase) decrease in prepaid expenses and other assets (1 ) (1 ) - 5 (Decrease) increase in accounts payable (60 ) (31 ) (30 ) 9 Increase in accrued expenses and other liabilities � 42 � � 11 � � 4 � � 17 � Net cash provided by operating activities - continuing operations 375 245 859 834 Net cash provided by operating activities - discontinued operation � - � � 7 � � 9 � � 24 � Net cash provided by operating activities � 375 � � 252 � � 868 � � 858 � � Cash Flows From Investing Activities: Purchases of rental equipment (85 ) (86 ) (870 ) (873 ) Purchases of non-rental equipment (39 ) (28 ) (120 ) (78 ) Proceeds from sales of rental equipment 76 87 319 335 Proceeds from sales of non-rental equipment 3 4 23 17 Purchases of other companies � - � � - � � (23 ) � (39 ) Net cash used in investing activities - continuing operations (45 ) (23 ) (671 ) (638 ) Net cash provided by (used in) investing activities - discontinued operation � - � � 1 � � 67 � � (10 ) Net cash used in investing activities � (45 ) � (22 ) � (604 ) � (648 ) � Cash Flows From Financing Activities: Proceeds from debt 39 - 460 265 Payments on debt (111 ) (246 ) (531 ) (669 ) Proceeds from the exercise of common stock options 10 14 32 78 Shares repurchased and retired (1 ) (3 ) (5 ) (4 ) Excess tax benefits from share-based payment arrangements 3 - 31 - Proceeds received in conjunction with partial termination of interest rate caps - - - 3 Subordinated convertible debentures repurchased and retired � - � � (13 ) � - � � (77 ) � Net cash used in financing activities (60 ) (248 ) (13 ) (404 ) � Effect of foreign exchange rates � (1 ) � (3 ) � 11 � � (3 ) � Net increase (decrease) in cash and cash equivalents 269 (21 ) 262 (197 ) Cash and cash equivalents at beginning of period � 112 � � 140 � � 119 � � 316 � � Cash and cash equivalents at end of period $ 381 � $ 119 � $ 381 � $ 119 � UNITED RENTALS, INC. SEGMENT PERFORMANCE ($ in millions) � � � � � Three Months Ended Twelve Months Ended December 31, December 31, 2007 2006 % Change 2007 2006 % Change � General Rentals Total revenues $ 876 $ 888 (1.4 %) $ 3,508 $ 3,423 2.5 % Operating income 159 159 - 602 568 6.0 % Operating margin 18.2 % 17.9 % 0.3 pts 17.2 % 16.6 % 0.6 pts � Trench Safety, Pump and Power Total revenues 54 51 5.9 % 223 217 2.8 % Operating income 13 15 (13.3 %) 57 58 (1.7 %) Operating margin 24.1 % 29.4 % (5.3 pts) 25.6 % 26.7 % (1.1 pts) � Total United Rentals Total revenues $ 930 $ 939 (1.0 %) $ 3,731 $ 3,640 2.5 % Operating income 172 174 (1.1 %) 659 626 5.3 % Operating margin 18.5 % 18.5 % - 17.7 % 17.2 % 0.5 pts � � � DILUTED EARNINGS PER SHARE CALCULATION (In millions, except per share data) � � � Three Months Ended Twelve Months Ended December 31, December 31, 2007 2006 % Change 2007 2006 % Change � Income from continuing operations $ 153 $ 77 98.7 % $ 363 $ 249 45.8 % Loss from discontinued operation, net of taxes � - � � (24 ) � (1 ) � (25 ) Net income 153 53 188.7 % 362 224 61.6 % Convertible subordinated note interest - - 2 2 Subordinated convertible debentures interest � 2 � � 2 � � 5 � � 8 � Net income available to common stockholders $ 155 $ 55 181.8 % $ 369 $ 234 57.7 % � � Weighted average common shares 86.1 81.1 6.2 % 83.4 79.6 4.8 % Series C and D preferred shares 17.0 17.0 - 17.0 17.0 - Convertible subordinated notes 6.5 6.5 - 6.5 6.5 - Stock options, warrants, restricted stock units and phantom shares 1.8 4.7 (61.7 %) 3.5 6.0 (41.7 %) Subordinated convertible debentures � 3.3 � � 3.5 � (5.7 %) � 3.3 � � 4.7 � (29.8 %) Total weighted average diluted shares 114.7 112.8 1.7 % 113.7 113.8 (0.1 %) � Diluted earnings available to common stockholders: Income from continuing operations $ 1.36 $ 0.71 91.5 % $ 3.26 $ 2.28 43.0 % Loss from discontinued operation � (0.01 ) � (0.22 ) � (0.01 ) � (0.22 ) Net income $ 1.35 � $ 0.49 � 175.5 % $ 3.25 � $ 2.06 � 57.8 % UNITED RENTALS, INC. FREE CASH FLOW GAAP RECONCILIATION (In millions) We define �free cash flow� as (i) net cash provided by operating activities � continuing operations less (ii) purchases of rental and non-rental equipment plus (iii) proceeds from sales of rental and non-rental equipment and excess tax benefits from share-based payment arrangements. Management believes free cash flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements. However, free cash flow is not a measure of financial performance or liquidity under Generally Accepted Accounting Principles (�GAAP�). Accordingly, free cash flow should not be considered an alternative to net income or cash flow from operating activities as indicators of operating performance or liquidity. Information reconciling forward-looking free cash flow expectations to a GAAP financial measure is unavailable to the company without unreasonable effort. The table below provides a reconciliation between net cash provided by operating activities � continuing operations and free cash flow. � Three Months Ended � Twelve Months Ended December 31, December 31, 2007 � 2006 2007 � 2006 � Net cash provided by operating activities - continuing operations $ 375 $ 245 $ 859 $ 834 Purchases of rental equipment (85 ) (86 ) (870 ) (873 ) Purchases of non-rental equipment (39 ) (28 ) (120 ) (78 ) Proceeds from sales of rental equipment 76 87 319 335 Proceeds from sales of non-rental equipment 3 4 23 17 Excess tax benefits from share-based payment arrangements � 3 � � - � � 31 � � - � Free Cash Flow (1) $ 333 � $ 222 � $ 242 � $ 235 � � � (1) Fourth quarter and full year 2007 free cash flow includes $94 and $91, respectively, related to the merger termination benefit. UNITED RENTALS, INC. EBITDA GAAP RECONCILIATION (In millions) "EBITDA" represents the sum of income from continuing operations before provision for income taxes, interest expense, net, interest expense-subordinated convertible debentures, depreciation-rental equipment and non-rental depreciation and amortization. Management believes EBITDA provides useful information about operating performance and period-over-period growth. However, EBITDA is not a measure of financial performance or liquidity under GAAP and accordingly should not be considered an alternative to net income or cash flow from operating activities as an indicator of operating performance or liquidity. The table below provides a reconciliation between income from continuing operations before provision for income taxes and EBITDA. � Three Months Ended � Twelve Months Ended December 31, December 31, 2007 � 2006 2007 � 2006 � Income from continuing operations before provision for income taxes $ 240 $ 121 $ 578 $ 405 Interest expense, net 41 51 187 208 Interest expense - subordinated convertible debentures 2 2 9 13 Depreciation - rental equipment 113 104 434 408 Non-rental depreciation and amortization � 16 � 13 � 54 � 50 EBITDA (1) $ 412 $ 291 $ 1,262 $ 1,084 � � (1) Fourth quarter and full year 2007 EBITDA includes a merger termination benefit of $94 and $91, respectively.