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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

(Mark One)

For the fiscal year ended December 31, 2003.

For the transition period from                      to                     

Commission File Number 1-14387

United Rentals, Inc.

Commission File Number 1-13663

United Rentals (North America), Inc.

(Exact Names of Registrants as Specified in Their Charters)

Registrants’ telephone number, including area code: (203) 622-3131

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨   No

Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). x Yes     ¨ No

        As of June 30, 2003, there were 76,942,735 shares of United Rentals, Inc. common stock outstanding. The aggregate market value of such common stock held by non-affiliates of the registrant at June 30, 2003 was approximately $1,068.7 million. Such aggregate market value was calculated by using the closing price of such common stock as of such date on the New York Stock Exchange of $13.89.

As of March 9, 2004, there were 77,349,461 shares of United Rentals, Inc. common stock 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.

Documents incorporated by reference: Certain sections of the Proxy Statement of United Rentals, Inc. to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days after the end of the registrant’s fiscal year are incorporated by reference into Part III of this Form 10-K.

This combined Form 10-K 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 (I)(1) (a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format permitted by such instruction.

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FORM 10-K REPORT INDEX

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Certain statements contained in this Report are forward-looking in nature. Such statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “on-track,” “plan,” “intend” 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 such risks and uncertainties are discussed below under Item 7—“Management’s Discussion and Analysis of Financial Condition and Result of Operations—Factors that May Influence Future Results and Accuracy of 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.

We file reports and other information with the Securities and Exchange Commission (“SEC”) pursuant to the information requirements of the Securities Exchange Act of 1934. Readers may read and copy any document we file at the SEC’s public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our filings are also available to the public from commercial document retrieval services and at the SEC’s website at www.sec.gov.

We make available on our internet website free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports as soon as practicable after we electronically file such reports with the SEC. Our website address is www.unitedrentals.com. The information contained in our website is not incorporated by reference in this Report.

PART I

Unless otherwise indicated, the information under Items 1 and 2 is as of March 1, 2004.

General

United Rentals is the largest equipment rental company in North America. We offer for rent over 600 types of equipment—everything from heavy machines to hand tools—through our network of more than 730 rental locations in the United States, Canada and Mexico. Our customers include construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others. In 2003, we added 200,000 new customers, increasing our total customer base to 1.9 million, and generated revenues of approximately $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 $3.5 billion. The fleet includes:

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

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Industry Overview

Based on industry sources, we estimate that the U.S. equipment rental industry has grown from approximately $6.6 billion in annual rental revenues in 1990 to about $23.5 billion in 2003. This represents a compound annual growth rate of approximately 10.3%, although in the past two years industry rental revenues decreased by about $1.3 billion. The recent downturn in industry revenues is a reflection of the significant slowdown in private non-residential construction activity. This activity declined 5.2% in 2003 and 13.2% in 2002 according to Department of Commerce data. Our industry is particularly sensitive to changes in non-residential construction activity because to date the principal end market for rental equipment has been non-residential construction. When non-residential construction activity eventually rebounds, we would expect to see our industry resume its long-term growth trend.

We believe that long-term industry growth, in addition to reflecting general economic expansion, is driven by an end-user market that increasingly recognizes the many advantages of renting equipment rather than owning. Customers recognize that by renting they can:

While the construction industry has to date been the principal user of rental equipment, industrial companies, utilities and others are increasingly using rental equipment for plant maintenance, plant turnarounds and other operations requiring the periodic use of equipment. We believe that over the long term, increasing rentals by the industrial sector could become a more significant factor in driving our industry’s growth.

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:

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 2003, the sharing of equipment among branches accounted for approximately 11.5%, or $250 million, of our total rental revenue.

Ability to Transfer Equipment Among 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.

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Consolidation of Common Functions. We reduce costs through the consolidation of functions that are common to our more than 730 branches, such as payroll, accounts payable, benefits and risk management, information technology and credit and collection.

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 information technology specialists that supports our systems.

Strong Brand Recognition. We have strong brand recognition, which helps us to attract new customers and build customer loyalty.

Geographic and Customer Diversity. We have more than 730 branches in 47 states, seven Canadian provinces and Mexico and serve customers that range from Fortune 500 companies to small companies and homeowners. In 2003, we served more than 1.9 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 by allowing us to access used equipment resale markets across the country, (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.

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. We currently serve more than 1,700 National Account customers. As the number of our National Account customers has grown, our revenues from these customers have increased to $470 million in 2003 from $245 million in 2000.

Strong and Motivated Branch Management. Each of our branches has a full-time branch manager who is supervised by a district manager from one of our 55 districts and a vice president from one of our nine regions. 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 certain 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 fleet efficiently.

Employee Training Programs. We have ongoing programs for training our employees in sales and service skills and on methods for maximizing the value of each transaction. In 2003, our employees enhanced their skills through 166,000 total hours of internal training.

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 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.

Products and Services

Our principal products and services are described below. For financial information concerning our foreign and domestic operations, see note 17 of our notes to consolidated financial statements included elsewhere in this Report.

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Equipment Rental. We offer for rent over 600 different types of equipment on a daily, weekly or monthly basis. The types of equipment that we offer include general construction and industrial equipment; aerial work platforms; traffic control equipment; trench safety equipment; and general tools and light equipment.

Our fleet of rental equipment is the largest in the world and includes over 500,000 units having an original purchase price of approximately $3.5 billion. We estimate that each of the following categories accounted for 10% or more of our equipment rental revenues in 2003: (i) aerial lift equipment (approximately 27%), (ii) earth moving equipment (approximately 12%) and (iii) forklifts (approximately 10%). We believe that our fleet is one of the newest and best maintained in the industry. The weighted average age of our fleet is approximately 40 months.

Used Equipment Sales. We routinely sell used rental equipment and invest in new equipment in order to manage the age, composition and size of our fleet. We also sell used equipment in response to customer demand for this equipment. The rate at which we replace used equipment with new equipment depends on a number of factors, including changing general economic conditions, growth opportunities, the need to adjust fleet composition to meet customer requirements and local demand, and the age of the fleet.

We principally sell used equipment through our national sales force, which can access many resale markets across North America. We also sell used equipment through our website (www.unitedrentals.com), which includes an online database of used equipment available for sale.

New Equipment Sales. We sell equipment for many leading equipment manufacturers. The manufacturers that we represent and the brands that we carry include: Genie and JLG (aerial lifts); Multiquip, Wacker, Bomag, and Honda USA (compaction equipment, generators, and pumps); Sullair (compressors); Skytrak and Lull (rough terrain reach forklifts); Thomas and Takeuchi (skid-steer loaders and mini-excavators); and Terex (off-road dump trucks and telehandlers). The type of new equipment that we sell varies by location.

Related Merchandise and Contractor Supplies, Parts and Other Services. At most of our branches, we sell a variety of supplies and merchandise such as saw blades, fasteners, drill bits, hard hats, gloves and other safety equipment. We also offer repair and maintenance services and sell parts for equipment that is owned by our customers.

In 2002, we launched an initiative to increase merchandise and contractor supplies sales across our network by building on the best practices of our strongest retail locations. As part of this continuing initiative, we are (1) upgrading merchandise displays, (2) adding merchandise sales representatives, and (3) offering the merchandise to our customers through our sales force and catalogues. In 2003, we experienced growth in merchandise sales of approximately 15%. Our goal is to grow our merchandise sales by 20% to 30% per year over the next five years.

Our Rentalman^™ Software. We have a subsidiary that develops and markets software for use by equipment rental companies in managing and operating multiple branch locations. The Rentalman^TM software package developed by this subsidiary is used by many of the largest equipment rental companies.

Customers

Our customer base is highly diversified and ranges from Fortune 500 companies to small businesses and homeowners. Our largest customer accounted for less than 1% of our revenues in 2003 and our top 10 customers accounted for less than 3% of our revenues in 2003.

Our customer base varies by branch and is determined by several factors, including the equipment mix and marketing focus of the particular branch and the business composition of the local economy. Our customers include:

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Sales and Marketing

We market our products and services through multiple channels as described below.

Sales Force. We have 2,443 salespeople, including 1,143 store-based sales coordinators and 1,300 field-based salespeople. Our sales force calls on existing and potential customers and assists our customers in planning for their equipment needs. We have ongoing programs for training our employees in sales and service skills and on methods for maximizing the value of each transaction.

National Account Program. Our National Account sales force is dedicated to establishing and expanding relationships with large customers, particularly those with a national or multi-regional presence. The National Account team closely coordinates its efforts with the local sales force in each area. Our National Account team currently includes 35 sales professionals.

E-Rental Store^™. Our customers can rent or buy equipment online 24 hours a day, seven days a week, at our E-Rental Store^®, which is part of our website. Our customers can also use our URdata^® application to access up-to-the-minute reports on their business activity with us.

Advertising. We promote our business through local and national advertising in various media, including trade publications, yellow pages, the Internet, radio and direct mail. We also regularly participate in industry trade shows and conferences and sponsor a variety of local promotional events.

Suppliers

We have been making ongoing efforts to consolidate our vendor base in order to further increase our purchasing power. We estimate that our largest supplier accounted for approximately 19% of our 2003 purchases of equipment for rental or resale, and that our top 10 largest suppliers accounted for approximately 64% of such purchases. We believe that we have alternative sources of supply for each of our material equipment categories.

Information Technology Systems

We have advanced information technology systems, which facilitate rapid and informed decision-making and enable us to respond quickly to changing market conditions. Each branch is equipped with one or more workstations that are electronically linked to our other locations and to our AS/400 system located at our data center. All rental transactions are entered at these workstations and processed on a real-time basis. Management and branch personnel can access the systems 24 hours a day.

These systems:

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Our information technology systems and our website are supported by our in-house group of information technology specialists. This group trains our branch personnel; upgrades and customizes our systems; provides hardware and technology support; operates a support desk to assist branch personnel in the day-to-day use of the systems; extends the systems to newly acquired locations; and manages our website.

We have a back-up facility designed to enable business continuity in the event that our main computer facility becomes inoperative. This backup facility also allows us to perform system upgrades and maintenance without interfering with the normal ongoing operation of our information technology systems.

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 believe that, in general, large companies enjoy significant competitive advantages compared to smaller operators, including greater purchasing power, a lower cost of capital, the ability to provide customers with a broader range of equipment and services and with newer and better maintained equipment, and greater flexibility to transfer equipment among locations in response to customer demand. For additional information, see “—Competitive Advantages.”

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, and 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 operating results could be adversely affected depending on the magnitude of the cost.

Employees

We have 12,516 employees. Of these employees, 3,723 are salaried personnel and 8,793 are hourly personnel. Collective bargaining agreements relating to 84 separate locations cover 1,189 of our employees. We consider our relationship with our employees to be satisfactory.

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We currently operate 735 locations. Of these locations, 651 are in the United States, 83 are in Canada and one is in Mexico. The number of locations in each state or province is shown below.

United States

Our branch locations generally include facilities for displaying equipment and, depending on the location, may include separate areas for equipment service, storage and displaying contractor supplies.

We own 110 of our rental locations and lease the other locations. We also lease premises for other purposes such as district and regional offices and service centers. Our leases provide for varying terms and include 42 leases that are on a month-to-month basis and 30 leases that provide for a remaining term of less than one year and do not provide a renewal option. We are currently negotiating renewals for most of the leases that provide for a remaining term of less than one year.

We maintain a fleet of approximately 8,900 vehicles. These vehicles are used for delivery, maintenance and sales functions. We own a portion of this fleet and lease a portion.

Our corporate headquarters are located in Greenwich, Connecticut, where we occupy approximately 40,000 square feet under a lease that extends until 2013.

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We are party to various litigation matters, in most cases involving ordinary and routine claims incidental to our business. We cannot estimate with certainty our ultimate legal and financial liability with respect to such pending litigation matters. However, we believe, based on our examination of such matters, that our ultimate liability will not have a material adverse effect on our financial position, results of operations or cash flows.

During the fourth quarter of 2003, no matter was submitted to a vote of our security holders.

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PART II

Price Range of Common Stock

Our common stock trades on the New York Stock Exchange under the symbol “URI.” The following table sets forth, for the periods indicated, the high and low sale prices for our common stock, as reported by the New York Stock Exchange.

As of March 1, 2004, there were approximately 541 holders of record of our common stock. We believe that the number of beneficial owners is substantially greater than the number of record holders, because a large portion of our common stock is held of record in broker “street names.”

Dividend Policy

We intend to retain all earnings for the foreseeable future for use in the operation and expansion of our business and, accordingly, we currently have no plans to pay dividends on our common stock. The payment of any future dividends will be determined by the Board of Directors in light of conditions then existing, including our earnings, financial condition and capital requirements, restrictions in financing agreements, business conditions and other factors. Under the terms of certain agreements governing our outstanding indebtedness, we are prohibited or restricted from paying dividends on our common stock. In addition, under Delaware law, we are prohibited from paying any dividends unless we have capital surplus or net profits available for this purpose.

Sales of Certain Unregistered Securities During the Fourth Quarter of 2003

During the fourth quarter of 2003, we issued an aggregate of $143,750,000 aggregate principal amount of our 1 ⁷/8% Convertible Senior Subordinated Notes due October 15, 2023. Of these notes, $125,000,000 principal amount were issued on October 31, 2003 and $18,750,000 were issued on December 2, 2003. These notes were issued by United Rentals (North America), Inc., a wholly owned subsidiary of United Rentals, Inc., and guaranteed by United Rentals, Inc. We received aggregate net proceeds from the sale of these notes of approximately $140.2 million after deducting the initial purchasers’ discount and estimated offering expenses.

These notes were issued without registration under the Securities Act of 1933 in reliance on the exemption provided by Rule 144A under such Act. The initial purchasers of these notes were Goldman, Sachs & Co. and Banc of America Securities LLC.

These notes, at the option of the holder, may be converted into our common stock if (i) the price of our common stock reaches specified thresholds, (ii) the notes are called for redemption, (iii) specified corporate

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transactions occur or (iv) the trading price of the notes fall below certain thresholds. The conversion rate is 38.9520 shares per each $1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to a conversion price of approximately $25.67 per share. The foregoing is a general description of the conversion terms. For additional information, see the indenture governing these notes, which is filed as an exhibit to this Report.

You should read the following data together with our Consolidated Financial Statements and related Notes included elsewhere in this Report and Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We completed a number of acquisitions during the periods presented below. We accounted for these acquisitions as purchases. This means that the results of operations of the acquired company are included in our financial statements only from the date of acquisition. We believe that our results for the periods presented below are not directly comparable because of the impact of the acquisitions accounted for as purchases. For additional information, see note 3 of our notes to consolidated financial statements included elsewhere in this Report.

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General

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

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 0% to 10% of cost.

Selling, general and administrative expenses primarily include sales force compensation, bad debt expense, 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 other intangible assets. Our other intangible assets consist of non-compete agreements. As described below, effective January 1, 2002, we no longer amortize goodwill.

We completed acquisitions in each of 2001, 2002 and 2003. See note 3 to our notes to consolidated financial statements included elsewhere in this Report. In view of the fact that our operating results for these years were affected by acquisitions, we believe that our results for these periods are not directly comparable.

Goodwill and Other Intangible Assets

Prior to January 1, 2002, we amortized our goodwill over a 40-year period in accordance with accounting standards then in effect. Our goodwill amortization in 2001 amounted to approximately $58.4 million.

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, we no longer amortize our goodwill over a fixed period. Instead, 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, calculated 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 as an operating expense.

This new standard only impacts our goodwill. We continue to amortize our other intangible assets over their estimated useful lives. As of December 31, 2003, we had other net intangible assets of approximately $3.2 million.

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We completed our initial impairment analysis in the first quarter of 2002 and recorded a non-cash charge of approximately $348.9 million ($288.3 million, net of tax). The charge associated with the initial impairment analysis is reflected on our statement of operations as a “Cumulative Effect of Change in Accounting Principle.” We completed subsequent impairment analyses in the fourth quarter of 2002 and fourth quarter of 2003 and recorded additional non-cash impairment charges. The additional charge in the fourth quarter of 2002 was approximately $247.9 million ($198.8 million, net of tax), and the additional charge in the fourth quarter of 2003 was approximately $296.9 million ($238.9 million, net of tax). These charges are reflected on our statement of operations as “goodwill impairment.”

The number of branches at which there was some impairment in 2003 represented approximately 25% of our total branches. However, a substantial part of the total impairment charge in 2003 (approximately 85%) reflected impairment at approximately 11% of our total branches.

We will be required to review our goodwill for further impairment at least annually. We test for goodwill impairment on a branch-by-branch basis rather than on an aggregate basis. This means that a goodwill write-off is required even if only one or a limited number of our branches has impairment as of the annual testing date or at any other date when an indicator of impairment may exist and even if there is no impairment for all our branches on an aggregate basis. In addition, we assess impairment solely on the basis of recent historical performance and without reference to expected future performance. This means that, if the historical data for a branch indicates impairment, a goodwill write-off is required even when we believe that branch’s future performance will be significantly better. The fact that we test for impairment on a branch-by-branch basis and use only historical financial data in assessing impairment increases the likelihood that we will be required to take additional non-cash goodwill write-offs in the future, although we cannot quantify at this time the magnitude of any future write-offs. Future goodwill write-offs, if required, may have a material adverse effect on our results.

Critical Accounting Policies

We prepare our financial statements in accordance with accounting principles generally accepted in the United States. A summary of our significant accounting policies is contained in note 2 to our notes to consolidated financial statements included elsewhere in this Report. In applying many accounting principles, we need to make assumptions, estimates and/or judgments. These assumptions, estimates and judgments are often subjective and may change based on changing circumstances or changes in our analysis. Material changes in these assumptions, estimates and judgments have the potential to materially alter our results of operations. We have identified below those of our accounting policies that we believe could potentially produce materially different results were we to change underlying assumptions, estimates and judgments.

Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts. These allowances reflect our estimate of the amount of our receivables that we will be unable to collect. We make such estimate based upon a combination of an analysis of our accounts receivable on a specific accounts basis and historical write-off experience. Our estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance.

Useful Lives of Rental Equipment and Property and Equipment. We depreciate rental equipment and property and equipment over their estimated useful lives, after giving effect to an estimated salvage value of 0% to 10% of cost. The useful life of an asset is determined based on our estimate of the period the asset will generate revenues, and the salvage value is determined based on our estimate of the minimum value we will realize from the asset after such period. We may be required to change these estimates based on changes in our industry or other changing circumstances. If these estimates change in the future, we may be required to recognize increased or decreased depreciation expense for these assets.

Impairment of Goodwill. As described above, we must periodically determine whether the fair value of our goodwill is at least equal to the recorded value shown on our balance sheet. See “—Goodwill and Other Intangible Assets.” We must make estimates and assumptions in evaluating the fair value of goodwill. We may

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be required to change these estimates and assumptions based on changes in economic conditions, changes in our business prospects or other changing circumstances. If these estimates change in the future, we may be required to record additional impairment charges for goodwill.

Impairment of Long-Lived Assets. We review the valuation of our long-lived assets on an ongoing basis and assess the carrying value of such assets if facts and circumstances suggest they may be impaired. If this review indicates that the carrying value of these assets may not be recoverable, then the carrying value is reduced to its estimated fair value. The determination of recoverability is based upon a nondiscounted cash flow analysis over the asset’s remaining useful life. We must make estimates and assumptions when applying the nondiscounted cash flow analysis. These estimates and assumptions may prove to be inaccurate due to factors such as changes in economic conditions, changes in our business prospects or other changing circumstances. If these estimates change in the future, we may be required to recognize write-downs on our long-lived assets.

Deferred Income Taxes. We have not provided a valuation allowance related to our deferred tax assets because we believe such assets will be recovered during the carryforward period. If sufficient evidence becomes apparent that it is more likely than not that our deferred tax assets will not be utilized, we may be required to record a valuation allowance for such assets resulting in additional income tax expense.

Reserves for Claims. We are exposed to various claims relating to our business. These may include claims relating to (i) personal injury or death caused by equipment rented or sold by us, (ii) motor vehicle accidents involving our delivery and service personnel and (iii) employment related claims. We establish reserves for reported claims that are asserted against us and for claims that we believe have been incurred but not reported. These reserves reflect our estimate of the amounts that we will be required to pay in connection with these claims net of expected insurance recoveries. Our estimate of reserves is based upon our judgment as to the probability of losses and our historical payment experience related to claims settlements. These estimates may change based on, among other things, changes in our claims history or receipt of additional information relevant to assessing the claims. Furthermore, these estimates may prove to be inaccurate due to factors such as adverse judicial determinations or settlements at higher than estimated amounts. Accordingly, we may be required to increase or decrease our reserves.

Restructuring. During 2002 and 2001, we recorded reserves in connection with the restructuring plans described below. These reserves include estimates pertaining to workforce reduction costs and costs of vacating facilities and related settlements of contractual obligations. Although we do not anticipate significant changes, the actual costs may differ from these estimates and we may be required to record additional expense not previously recorded.

Restructuring Plans in 2001 and 2002

We adopted a restructuring plan in April 2001 and a second restructuring plan in October 2002 as described below. These plans were adopted in response to adverse changes in economic conditions and in branch performance in certain of our markets. In connection with these plans, we recorded a restructuring charge of $28.9 million in 2001 (including a non-cash component of approximately $10.9 million) and $28.3 million in the fourth quarter of 2002 (including a non-cash component of approximately $2.5 million).

The 2001 plan involved the following principal elements: (i) 31 underperforming branches and five administrative offices were closed or consolidated with other locations, (ii) the reduction of our workforce by 489 through the termination of branch and administrative personnel, and (iii) certain information technology hardware and software was no longer used.

The 2002 plan involved the following principal elements: (i) 40 underperforming branches and five administrative offices were closed or consolidated with other locations, (ii) the reduction of our workforce by 412 through the termination of branch and administrative personnel, and (iii) a certain information technology project was abandoned.

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The aggregate annual revenues from the 40 branches that were eliminated as part of the 2002 restructuring amounted to approximately $80 million. The portion of these revenues that we were able to retain was significantly less than we had originally anticipated primarily because continued weakness in our end markets limited the amount of equipment from the closed branches that we were able to redeploy to other branches.

The table below provides certain information concerning our restructuring charges. For additional information, see note 5 to our notes to consolidated financial statements included elsewhere herein.

As indicated in the table above, the aggregate balance of the 2001 and 2002 charges was $17.3 million as of December 31, 2003. We estimate that approximately $6.8 million of the remaining 2001 and 2002 charges will be paid by December 31, 2004 and approximately $10.5 million in future periods. These payments will not affect our future earnings because the charges associated with these payments have already been recorded in our 2002 or 2001 results. We expect to make these payments with cash from our operations.

Charges Related to Debt Refinancings, Lease Buy-Outs and Notes Write-Off

Transactions in 2001. We refinanced an aggregate of $1,695.7 million of indebtedness and other obligations in April 2001. In connection with this transaction, we recorded the following charges: (i) a pre-tax charge of $18.1 million ($11.3 million, net of tax) that relates to the refinancing of indebtedness and primarily reflects the write-off of deferred financing fees attributable to the debt that was refinanced and (ii) a pre-tax charge of $7.8 million ($5.2 million, net of tax) that relates to the refinancing of a synthetic lease. When the foregoing charges were originally recorded, we recorded the $18.1 million charge as an extraordinary item and the other charge as other (income) expense, net. However, upon adoption of SFAS No. 145 on January 1, 2003, we reclassified the $18.1 charge to other (income) expense, net. See “—Impact of Recently Issued Accounting Standards.”

Transactions in 2002. We refinanced approximately $199.4 million of indebtedness in December 2002. In connection with this transaction, we recorded a $1.6 million charge ($0.9 million, net of tax) for the write-off of deferred financing fees attributable to the debt that was refinanced. This charge is recorded in other (income) expense, net.

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Transactions in 2003. During the fourth quarter of 2003, we sold new notes and used the proceeds to redeem $405.0 million face amount of previously issued senior subordinated notes and buy out existing equipment leases. See “—Liquidity and Capital Resources—Recent Financing Transactions.” We recorded a pre-tax charge of $28.9 million ($17.1 million, net of tax) in connection with such redemption of notes and a pre-tax charge of $95.1 million ($57.7 million, net of tax) in connection with such buy-out of equipment leases. The charge related to the redemption of notes primarily reflects the redemption price premium and the write-off of previously capitalized financing costs relating to such notes. The charge relating to the buy-out of equipment leases primarily reflects the excess of the buy-out price over the fair value of the equipment purchased, early termination fees and the write-off of previously capitalized financing costs related to such leases. All such charges are recorded in other (income) expense, net.

During the fourth quarter of 2003, we wrote-off notes receivable that were deemed to be impaired. We received these notes as consideration for non-core assets that we disposed of in prior years. In connection with these write-offs, we recorded a pre-tax charge of $11.1 million ($6.6 million, net of tax) in other (income) expense, net.

Expected Charges in First Quarter of 2004

During the first quarter of 2004, we refinanced approximately $2.1 billion of our debt. See “—Liquidity and Capital Resources—Recent Financing Transactions.” In connection with the foregoing, we estimate that we will incur aggregate pre-tax charges in 2004 of approximately $175 million to approximately $185 million attributable to (i) the redemption premium for notes redeemed as part of the refinancing and (ii) the write-off of previously capitalized costs relating to the debt refinanced. These charges will be recorded in other (income) expense, net.

We incurred a pre-tax non-cash charge of approximately $7.0 million in the first quarter of 2004 due to the vesting of restricted shares granted to senior executives in 2001. This charge represents the unamortized portion of the deferred compensation charge associated with the award of such shares.

Results of Operations

Generally Accepted Accounting Principles (“GAAP”) Results and Adjusted Results

We had a net loss in 2003 of $258.6 million compared with a net loss of $397.8 million for 2002. The loss in 2003 reflects $330.5 million of charges, net of tax, relating to goodwill impairment, buy-out of equipment leases, debt refinancing, notes receivable write-off and vesting of restricted shares granted to executives in 2001. The loss in 2002 reflects $505.4 million of charges, net of tax, relating to goodwill impairment, restructuring costs, debt refinancing and a change in accounting principle relating to goodwill.

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Excluding the charges described above for each period, we would have had adjusted net income in 2003 of $71.8 million compared with adjusted net income of $107.6 million in 2002. We provide this adjusted data because we believe that this data may be useful to investors in analyzing the period-to-period changes in our results that are due to changes in business conditions and that are not due to the writeoff of goodwill or other assets. The table below reconciles the adjusted results with our results in accordance with GAAP.

Overview of 2003 As Adjusted Results

Our rental rates increased 2.1% in 2003, and same-store rental revenues increased 3.7%. The rate increases primarily occurred in the second half of the year as rental rates in the third quarter and fourth quarter of 2003 increased 3.4% and 5.6%, respectively, on a year-over-year basis. The increase in same-store rental revenues was partially offset by revenues lost due to branch closings and a reduction in the size of our rental fleet. The net effect was that our total revenues for the year increased by 1.6% to $2.87 billion.

Our ability to increase revenues was constrained by continued weakness in our principal end markets. According to Department of Commerce data, private non-residential construction activity declined 5.2% in 2003 following a decline of 13.2% in 2002. In addition, government spending on road and highway construction remained sluggish.

The 1.6% increase in our revenues in 2003 was more than offset by a 4.4% increase in our cost of revenues. This increase was attributable to higher costs in several categories, including insurance and claims, fleet repair and maintenance, fuel and delivery, and depreciation of rental equipment. The increase in cost of revenues, and in particular the cost of rental revenues, resulted in gross profits decreasing to $848.0 million, or 29.6% of revenues in 2003, from $886.3 million, or 31.4% of revenues in 2002.

We also had increases in non-rental depreciation and amortization and interest expense of $10.0 million and $9.8 million, respectively. The increase in non-rental depreciation and amortization was primarily attributable to upgrades to our delivery fleet and facilities. The increase in interest expense was primarily due to the additional interest expense attributable to the senior notes we issued in December 2002 and April 2003. As described below, in the first quarter of 2004 we refinanced these senior notes with lower interest rate notes.

The cost increases described above, net of taxes, were the primary reason that income, as adjusted, in 2003 decreased to $71.8 million from income, as adjusted, of $107.6 million in 2002.

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Years Ended December 31, 2003 and 2002

Revenues. We had total revenues of $2,867.2 million in 2003, representing an increase of 1.6% from total revenues of $2,821.0 million in 2002. The different components of our revenues are discussed below:

1. Equipment Rentals. Our revenues from equipment rentals were $2,177.5 million in 2003, representing an increase of 1.1% from $2,154.7 million in 2002. These revenues accounted for 75.9% of our total revenues in 2003 compared with 76.4% of our total revenues in 2002. Our equipment dollar utilization rate in 2003 was 57.1% compared to 57.0% in 2002. The 1.1% increase in rental revenues principally reflected the following:

2. Sales of Rental Equipment. Our revenues from the sale of rental equipment were $181.3 million in 2003, representing an increase of 2.9% from $176.2 million in 2002. These revenues accounted for 6.3% of our total revenues in 2003 compared with 6.2% of our total revenues in 2002. The increase in these revenues in 2003 reflected an increase in the volume of equipment sold as used equipment prices remained relatively flat.

3. Sales of Equipment and Merchandise and Other Revenues. Our revenues from “sale of equipment and merchandise and other revenues” were $508.5 million in 2003, representing an increase of 3.7% from $490.1 million in 2002. These revenues accounted for 17.7% of our total revenues in 2003 compared with 17.4% of our total revenues in 2002. The increase in these revenues in 2003 principally reflected an increase in the volume of merchandise and contractor supplies sold partially offset by a decrease in sales of new equipment.

Gross Profit. Gross profit decreased to $848.0 million in 2003 from $886.3 million in 2002. This decrease primarily reflected the decrease in gross profit margin described below from equipment rentals. 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 30.0% in 2003 and 32.1% in 2002. The decrease in 2003 principally reflected cost increases and the decrease in traffic equipment rentals described above. The cost increases were attributable to several factors including: (i) higher costs for insurance and claims, fleet repair and maintenance, and fuel and delivery, and (ii) an increase in depreciation expense.

2. Sales of Rental Equipment. Our gross profit margin from sales of rental equipment was 32.7% in 2003 and 33.7% in 2002. The decrease in 2003 primarily reflected a change in the mix of types of equipments sold.

3. Sales of Equipment and Merchandise and Other Revenues. Our gross profit margin from “sales of equipment and merchandise and other revenues” was 26.8% in 2003 and 27.6% in 2002. The decrease in gross profit margin in 2003 primarily reflected a change in the mix of types of new equipment sold and, to a lesser extent, the mix of types of merchandise and contractor supplies sold.

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Selling, General and Administrative Expenses. Selling, general and administrative expenses (“SG&A”) were $451.3 million, or 15.7% of total revenues, during 2003 and $438.9 million, or 15.6% of total revenues, during 2002. The increase in 2003 was primarily attributable to the accelerated vesting of restricted shares granted in 2001.

Goodwill Impairment. We recorded a goodwill impairment charge of $296.9 million in 2003 and $247.9 million in 2002. See “—Goodwill and Other Intangible Assets” for additional information.

Restructuring Charge. We recorded a restructuring charge of $28.3 million in 2002. See “—Restructuring Plans in 2002 and 2001” for additional information.

Non-rental Depreciation and Amortization. Non-rental depreciation and amortization was $69.3 million, or 2.4% of total revenues, in 2003 and $59.3 million, or 2.1% of total revenues, in 2002. The increase in 2003 was primarily attributable to an upgrade in transportation equipment and an increase in leasehold improvements in connection with branch upgrades.

Operating Income. We recorded operating income of $30.4 million in 2003 compared with operating income of $111.9 million in 2002. The principal reasons for the decrease in 2003 were the decline in gross profit, the higher goodwill impairment charge and the higher non-rental depreciation and amortization described above.

Interest Expense. Interest expense increased to $209.3 million in 2003 from $196.0 million in 2002. This increase primarily reflected higher interest costs related to the senior notes we issued in December 2002 and April 2003, partially offset by lower interest rates on our variable rate debt. As described below, in the first quarter of 2004 we refinanced these senior notes with lower interest rate notes.

Preferred Dividends of a Subsidiary Trust. Preferred dividends of a subsidiary trust were $14.6 million during 2003 as compared to $18.2 million during 2002. The decrease in 2003 reflects our repurchase of a portion of our outstanding trust preferred securities, primarily in the fourth quarter of 2002.

Other (Income) Expense. Other expense was $133.1 million in 2003 compared with other income of $0.9 million in 2002. The other expense in 2003 primarily reflects the charges described under “—Charges Related to Debt Refinancings, Lease Buy-outs and Notes Write-Off.” Excluding these charges, other income would have been $2.1 million in 2003 primarily reflecting gains related to the sale of non-rental assets. The other income in 2002 was primarily attributable to the favorable settlement of a lawsuit for net proceeds of $4.0 million, partially offset by other expenses including the write-off of $1.6 million of deferred financing fees described under “—Charges Related to Debt Refinancings, Lease Buy-outs and Notes Write-Off.”

Income Taxes. Income taxes were a benefit of $67.9 million in 2003 compared with a provision of $8.1 million in 2002. The effective tax rate during the two periods are not comparable because: (i) a portion of the goodwill impairment charge in each such period was not deductible for income tax purposes, (ii) certain expenses in 2003 associated with the amortization of deferred compensation expense attributable to restricted stock awards were not deductible for income tax purposes and (iii) the 2003 rate was impacted by the charges relating to the buy-out of equipment leases, debt refinancing, and notes receivables write-off and the 2002 rate was impacted by restructuring costs and charges associated with debt refinancing. Excluding the foregoing expenses and charges, our effective tax rate would have been approximately 39% in 2003 and 2002.

Loss Before Cumulative Effect of Change in Accounting Principle. We had a loss before cumulative effect of change in accounting principle of $258.6 million in 2003 compared with a loss before cumulative effect of change in accounting principle of $109.5 million in 2002. The higher loss in 2003 principally reflects the decrease in operating income and the charges reflected in other expense described above.

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Years Ended December 31, 2002 and 2001

Revenues. We had total revenues of $2,821.0 million in 2002, representing a decrease of 2.2% from total revenues of $2,886.6 million in 2001. The different components of our revenues are discussed below:

1. Equipment Rentals. Our revenues from equipment rentals were $2,154.7 million in 2002, representing a decrease of 2.6% from $2,212.9 million in 2001. These revenues accounted for 76.4% of our total revenues in 2002 compared with 76.7% of our total revenues in 2001. The decrease in rental revenues principally reflected the following:

2. Sales of Rental Equipment. Our revenues from the sale of rental equipment were $176.2 million in 2002, representing an increase of 19.8% from $147.1 million in 2001. These revenues accounted for 6.2% of our total revenues in 2002 compared with 5.1% of our total revenues in 2001. The increase in these revenues in 2002 reflected an increase in volume partially offset by weaker pricing.

3. Sales of Equipment and Merchandise and Other Revenues. Our revenues from “sale of equipment and merchandise and other revenues” were $490.1 million in 2002, representing a decrease of 6.9% from $526.6 million in 2001. These revenues accounted for 17.4% of our total revenues in 2002 compared with 18.2% of our total revenues in 2001. The decrease in these revenues in 2002 principally reflected a decrease in the volume of new equipment sales.

Gross Profit. Gross profit decreased to $886.3 million in 2002 from $1,039.5 million in 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 sale of rental equipment. Information concerning our gross profit margin by source of revenue is set forth below:

1. Equipment Rentals. Our gross profit margin from equipment rental revenues was 32.1% in 2002 and 37.9% in 2001. The decrease in 2002 principally reflected the decrease in rental rates described above and, to a lesser extent, higher costs related to employee benefits, fleet maintenance and delivery, and facilities.

2. Sales of Rental Equipment. Our gross profit margin from sales of rental equipment was 33.7% in 2002 and 39.7% in 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 2002 and 27.1% in 2001. The increase in the gross profit margin in 2002 primarily reflected better margins for our service revenue.

Selling, General and Administrative Expenses. SG&A was $438.9 million, or 15.6% of total revenues, during 2002 and $441.8 million, or 15.3% of total revenues, during 2001. Our bad debt expense, which is a component of SG&A, was approximately $9.5 million higher in 2002 than in 2001, primarily reflecting an increase in our allowance for doubtful accounts. Without this increase in bad debt expense, our SG&A as a percentage of revenues would have decreased to 15.2% of total revenues in 2002 from 15.6% in 2001. This

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decrease in SG&A, excluding the change in bad debt expense, 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.

Goodwill Impairment. We recorded a goodwill impairment charge of $247.9 million in the fourth quarter of 2002. See “—Goodwill and Other Intangible Assets” for additional information.

Restructuring Charge. We recorded a restructuring charge of $28.3 million in 2002 and $28.9 million in 2001. See “—Restructuring Plans in 2001 and 2002” for additional information.

Non-rental Depreciation and Amortization. Non-rental depreciation and amortization was $59.3 million, or 2.1% of total revenues, in 2002 and $106.8 million, or 3.7% of total revenues, in 2001. This decrease was primarily attributable to a new accounting standard (discussed above under “—Goodwill and Other Intangible Assets”) which eliminated the amortization of goodwill effective January 1, 2002. If goodwill amortization had been eliminated in 2001, then non-rental depreciation and amortization would have been $48.5 million, or 1.7% of total revenues, in 2001. The increase in non-rental depreciation and amortization in 2002 as compared to the amount in 2001, after eliminating goodwill amortization, primarily reflected an increase in our non-rental assets such as facilities and transportation equipment.

Operating Income. We recorded operating income of $111.9 million in 2002 compared with operating income of $462.0 million in 2001. The principal reason for the decrease in 2002 was the $247.9 million non-cash goodwill impairment charge that we recorded in 2002. However, after excluding that charge our operating income was still lower by approximately $102.2 million from the 2001 level. The principal reason for this decrease was the declines in revenues and gross profit described above. The adverse effects of these factors were partially offset by the decrease in non-rental depreciation and amortization described above.

Interest Expense. Interest expense decreased to $196.0 million in 2002 from $221.6 million in 2001. This decrease primarily reflected lower interest rates on our variable rate debt.

Preferred Dividends of a Subsidiary Trust. Preferred dividends of a subsidiary trust were $18.2 million during 2002 as compared to $19.5 million during 2001. The decrease in 2002 reflects our repurchase of a portion of our outstanding trust preferred securities.

Other (Income) Expense. Other income was $0.9 million in 2002 compared with other expense of $24.5 million in 2001. The other income in 2002 was primarily attributable to the favorable settlement of a lawsuit for net proceeds of $4.0 million, partially offset by other charges including the write-off of $1.6 million of deferred financing fees as described above. The other expense in 2001 was primarily attributable to $25.9 million of charges relating to debt and other indebtedness refinancings. See “—Charges Related to Debt Refinancings, Lease Buy-Outs and Notes Write-Off.”

Income Taxes. Income taxes were $8.1 million in 2002 compared with $85.2 million in 2001. Although we had a loss in 2002, we recorded income tax expense because a portion of our $247.9 million goodwill impairment charge was not deductible for federal income tax purposes. If you exclude the goodwill impairment charge in calculating our income, then our effective tax rate in 2002 would have been 39.0% compared with 43.4% in 2001. The decrease in such effective rate in 2002 reflects the elimination of goodwill amortization in 2002 and the non-deductibility for income tax purposes of certain costs included in the 2001 restructuring charge.

Loss Before Cumulative Effect of Change in Accounting Principle. We had a loss before cumulative effect of change in accounting principle of $109.5 million in 2002 compared with income before cumulative effect of change in accounting principle of $111.3 million in 2001. The loss in 2002 principally reflects the decrease in operating income described above.

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Cumulative Effect of Change in Accounting Principle. As described under “—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.

Liquidity and Capital Resources

Recent Financing Transactions

Transactions Completed in the Fourth Quarter of 2003

1 ⁷/8% Convertible Senior Subordinated Notes. In October and December 2003, we sold $143.8 million aggregate principal amount of 1 ⁷/8% Convertible Senior Subordinated Notes due October 15, 2023. We used substantially all of the net proceeds from the sale of these notes to buy out existing equipment leases. These notes were issued by United Rentals (North America), Inc. (“URI”), a wholly owned subsidiary of United Rentals, Inc. (“Holdings”), and guaranteed by Holdings.

7¾% Senior Subordinated Notes. In November 2003, we sold $525 million aggregate principal amount of 7¾% Senior Subordinated Notes due 2013. We used the net proceeds from the sale of these notes to (i) redeem or repurchase $205 million face amount of our outstanding 8.8% Senior Subordinated Notes due 2008, (ii) redeem or repurchase $200 million face amount of our outstanding 9½% Senior Subordinated Notes due 2008 and (iii) buy out existing equipment leases. These notes were issued by URI and guaranteed by Holdings and, subject to limited exceptions, our domestic subsidiaries.

Transactions Completed in 2004

In the first quarter of 2004, we refinanced approximately $2.1 billion of our debt. The purpose of this refinancing was to reduce our interest expense and extend the maturities on a substantial amount of our debt. As part of this refinancing, we:

The new notes described above were issued by URI and guaranteed by Holdings and, subject to limited exceptions, our domestic subsidiaries.

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The following table shows our actual debt at December 31, 2003 and such debt as adjusted for completion of the foregoing refinancing:

Certain Additional Information Concerning Our New Credit Facility

Our new senior secured credit facility includes (i) a $650 million revolving credit facility, (ii) a $150 million institutional letter of credit facility and (iii) a $750 million term loan. The revolving credit facility, institutional letter of credit facility and term loan are governed by the same credit agreement. Such credit agreement is included as an Exhibit to this Report on Form 10-K.

Set forth below is certain additional information concerning the revolving credit facility, institutional letter of credit facility and term loan.

Revolving Credit Facility. The revolving credit facility enables URI to borrow up to $650 million on a revolving basis and enables certain of our Canadian subsidiaries to borrow up to $150 million (provided that the aggregate borrowings of URI and the Canadian subsidiaries may not exceed $650 million). A portion of the revolving credit facility, up to $250 million, is available in the form of letters of credit. The revolving credit facility is scheduled to mature and terminate in February 2009.

Institutional Letter of Credit Facility (“ILCF”). The ILCF provides for up to $150 million in letters of credit. The ILCF is in addition to the letter of credit capacity under the revolving credit facility. The total combined letter of credit capacity under the revolving credit facility and the ILCF is $400 million. Subject to certain conditions, all or part of the ILCF may be converted into term loans. The ILCF is scheduled to terminate in February 2011.

Term Loan. The term loan will be obtained in two draws. An initial draw of $550 million was obtained upon the closing of the credit facility in February 2004, and an additional $200 million is expected to be obtained on April 1, 2004. Amounts repaid in respect of the term loan may not be reborrowed.

The term loan must be repaid in installments as follows: (i) during the period from and including June 30, 2004 to and including March 31, 2010, URI must repay on each March 31, June 30, September 30 and December 31 of each year an amount equal to one-fourth of 1% of the original aggregate principal amount of the term loan and (ii) URI must repay on each of June 30, 2010, September 30, 2010, December 31, 2010, and February 14, 2011 an amount equal to 23.5% of the original aggregate principal amount of the term loan.

Interest. As of February 17, 2004, borrowings by URI under the revolving credit facility accrue interest, at URI’s option, at either (A) the ABR rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5%

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and (ii) JPMorgan Chase Bank’s prime rate) plus a margin of 1.25%, or (B) an adjusted LIBOR rate plus a margin of 2.25%. The above interest rate margins are adjusted quarterly based on our Funded Debt to Cash Flow Ratio, up to the maximum margins described in the preceding sentence and down to minimum margins of 0.75% and 1.75% for revolving loans based on the ABR rate and the adjusted LIBOR rate, respectively.

As of February 17, 2004, Canadian dollar borrowings under the revolving credit facility accrue interest, at the borrower’s option, at either (A) the Canadian prime rate (which is equal to the greater of (i) the CDOR rate plus 1% and (ii) JPMorgan Chase Bank, Toronto Branch’s prime rate) plus a margin of 1.25%, or (B) the B/A rate (which is equal to JPMorgan Chase Bank, Toronto Branch’s B/A rate) plus a margin of 2.25%. These above interest rate margins are adjusted quarterly based on our Funded Debt to Cash Flow Ratio, up to the maximum margins described in the preceding sentence and down to minimum margins of 0.75% and 1.75% for revolving loans based on the Canadian prime rate and the B/A rate, respectively.

URI is also required to pay the lenders a commitment fee equal to 0.5% per annum in respect of undrawn commitments under the revolving credit facility.

As of February 17, 2004, borrowings under the term loan accrue interest, at URI’s option, at either (a) the ABR rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% and (ii) JPMorgan Chase Bank’s prime rate) plus a margin of 1.25%, or (b) an adjusted LIBOR rate plus a margin of 2.25% (which margins may be reduced to 1.00% and 2.00%, respectively, for certain periods based on our Funded Debt to Cash Flow Ratio).

If at any time an event of default under the credit agreement exists, the interest rate applicable to each revolving loan and term loan will be based on the highest margins described above plus 2%.

URI is also required to pay a fee at the rate of 0.10% per annum on the amount of the ILCF. In addition, URI is required to pay participation fees and fronting fees in respect of letters of credit. For letters of credit obtained under the ILCF, these fees accrue at the rate of 2.25% and 0.25% per annum, respectively.

Certain 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 this facility and the receivables in the collateral pool are included in the liabilities and assets, respectively, reflected on our consolidated balance sheet. However, such assets are only available to satisfy the obligations of the borrower subsidiary.

Key terms of this facility include:

Outstanding borrowings under the facility generally accrue interest at the commercial paper rate plus 1%. However, after expiration or early termination of the facility, outstanding borrowings will accrue interest at 0.5% plus the greater of (i) the prime rate and (ii) the Federal Funds Rate plus 0.5%. We are also required to pay a commitment fee of 0.45% per annum in respect of undrawn commitments under the facility. As of March 1, 2004 and December 31, 2003, there were no outstanding borrowings under this facility.

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The agreement governing this facility is scheduled to expire on September 30, 2006. However, the lenders under this facility, at their option, may terminate the facility earlier upon the occurrence of certain events, including: (i) the long-term senior secured debt rating of United Rentals (North America), Inc. or, subject to certain conditions, United Rentals, Inc., is downgraded to be at or below “B” by Standard & Poor’s Rating Services; (ii) the long-term senior unsecured debt rating of United Rentals (North America), Inc. or, subject to certain conditions, United Rentals, Inc., is downgraded to be at or below “CCC+” by Standard & Poor’s Rating Services; (iii) the long-term issuer rating of United Rentals (North America), Inc. or, subject to certain conditions, United Rentals, Inc., is downgraded to be at or below “Caa” by Moody’s Investors Service; (iv) the long-term senior implied rating of United Rentals (North America), Inc. or, subject to certain conditions, United Rentals, Inc., is downgraded to be at or below “B3” by Moody’s Investors Service; or (v) either Standard & Poor’s Rating Services or Moody’s Investors Service ceases to provide any such rating.

Certain Balance Sheet Changes

The increase in rental equipment at December 31, 2003 as compared to December 31, 2002 was primarily attributable to the buy-out of equipment leases in 2003. The decrease in goodwill at December 31, 2003 as compared to December 31, 2002 was attributable to the goodwill impairment recognized in 2003 as further described under “—Goodwill and Other Intangible Assets.” The increase in debt at December 31, 2003 as compared to December 31, 2002 was primarily attributable to the debt refinancings in the fourth quarter of 2003 as further described under “—Liquidity and Capital Resources-Recent Financing Transactions.” The increase in subordinated convertible debentures, and corresponding decrease in company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust, at December 31, 2003 as compared to December 31, 2002 was due to the deconsolidation of a subsidiary trust as further described under “—Impact of Recently Issued Accounting Standards.” The decrease in retained earnings and stockholders’ equity at December 31, 2003 as compared to December 31, 2002, primarily reflects our net loss in 2003.

Sources and Uses of Cash

During 2003, we (i) generated cash from operations of $342.3 million, (ii) generated cash from the sale of rental equipment of $181.3 million and (iii) obtained cash from borrowings, net of repayments and financing costs, of approximately $257.4 million. Our cash flow from operations during 2003 was reduced by $88.3 million of cash charges related to our buy-out of equipment leases. We used cash during this period principally to (i) purchase rental equipment of $335.9 million, (ii) buy-out equipment leases of $335.4 million (excluding the $88.3 million charge relating thereto described above) and (iii) purchase other property and equipment of $42.0 million.

Cash Requirements Related to Operations

Our principal existing sources of cash are cash generated from operations and from the sale of rental equipment and borrowings available under our revolving credit facility and receivables securitization facility. As of March 1, 2004, we had $516.6 million of borrowing capacity available under our $650 million revolving credit facility (reflecting outstanding loans of approximately $92.1 million and outstanding letters of credit in the amount of approximately $41.3 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, (iv) debt service, and (v) costs relating to our restructuring plans. We plan to fund such cash requirements relating to our existing operations from our existing sources of cash described above. In addition, we may seek additional financing through the securitization of some of our equipment or through the use of additional operating leases. For information on the scheduled principal payments coming due on our outstanding debt and on the payments coming due under our existing operating leases, see “—Certain Information Concerning Contractual Obligations.”

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The amount of our future capital expenditures will depend on a number of factors, including general economic conditions and growth prospects. Based on current conditions, we estimate that capital expenditures for the year 2004 will be approximately $575 million to $700 million for our existing operations. These expenditures are comprised of approximately (i) $425 million to $450 million of expenditures to replace rental equipment sold, (ii) $100 million to $200 million of discretionary expenditures to increase the size of our rental fleet and (iii) $50 million of expenditures for the purchase of property and 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 and receivables securitization 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.

Certain Information Concerning Contractual Obligations

The table below provides certain information concerning the payments coming due under certain categories of our existing contractual obligations. The information is as of December 31, 2003, as adjusted to give effect to the $2.1 billion refinancing that we completed in the first quarter of 2004 as described under “—Liquidity and Capital Resources—Recent Financing Transactions.”

Certain Information Concerning Off-Balance Sheet Arrangements

Restricted Stock. We have granted to employees other than executive officers and directors approximately 1,200,000 shares of restricted stock that contain the following provisions. The shares vest in 2004, 2005 or 2006 or earlier upon a change in control of the Company, death, disability, retirement or certain terminations of

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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. If a holder of restricted stock sells his stock and receives sales proceeds that are less than a specified guaranteed amount set forth in the grant instrument, we have agreed to pay the holder the shortfall between the amount received and such specified amount. However, the foregoing only applies to sales that are made within five trading days of the vesting date. The specified guaranteed amount is (i) $15.17 per share with respect to approximately 500,000 shares scheduled to vest in 2004, (ii) $27.26 per share with respect to approximately 300,000 shares scheduled to vest in 2005 and (iii) $9.18 per share with respect to approximately 400,000 shares scheduled to vest in 2006.

Operating Leases. We lease real estate, rental equipment and non-rental equipment under operating leases as a regular business activity. As part of many of our equipment operating leases, we guarantee that the value of the equipment at the end of the term will not be less than a specified projected residual value. The use of these guarantees helps to lower our monthly operating lease payments. We do not know at this time the extent to which the actual residual values may be less than the guaranteed residual values and, accordingly, cannot quantify the amount that we ultimately will be required to pay, if any, under these guarantees. However, under current circumstances we do not anticipate paying significant amounts under these guarantees in the future. If the actual residual value for all equipment subject to such guarantees were to be zero, then our maximum potential liability under these guarantees would be approximately $36.5 million. This potential liability was not reflected on our balance sheet as of December 31, 2003 or any prior date. For additional information concerning lease payment obligations under our operating leases, see “—Certain Information Concerning Contractual Obligations” above.

Certain Information Concerning Subordinated Convertible Debentures

In August 1998, a subsidiary trust of United Rentals, Inc. sold six million shares of 6½% Convertible Quarterly Income Preferred Securities (“Trust Preferred Securities”) for aggregate consideration of $300 million. The trust used the proceeds from the sale of the Trust Preferred Securities to purchase 6 ¹/2% subordinated convertible debentures due 2028 from Holdings which resulted in Holdings receiving all of the net proceeds of the sale. Upon the adoption as of December 31, 2003 of a recently issued accounting standard, we deconsolidated the subsidiary trust that had issued the Trust Preferred Securities. As a result of such deconsolidation, (i) the Trust Preferred Securities were removed from our consolidated balance sheets at December 31, 2003 and (ii) the subordinated convertible debentures that we issued to the subsidiary trust, which previously had been eliminated in our consolidated balance sheets, were no longer eliminated in our consolidated balance sheets at December 31, 2003. However, the subordinated convertible debentures are reflected as a component of liabilities on the consolidated balance sheets at December 31, 2003, whereas the Trust Preferred Securities were reflected as a separate category prior to December 31, 2003. See “—Impact of Recently Issued Accounting Standards” and note 11 to our notes to consolidated financial statements included elsewhere in this Report. During 2003, the trust repurchased 100,000 of these shares for aggregate consideration of approximately $3.6 million, which represents a discount of approximately 29% relative to the aggregate liquidation preference of approximately $5.0 million. During 2002, the trust repurchased 1,469,000 of these shares for aggregate consideration of approximately $38.1 million, which represents a discount of approximately 48% relative to the aggregate liquidation preference of approximately $73.5 million.

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 and tax related services and support, (iii) information technology systems and support, (iv) acquisition related services, (v) legal services, and (vi) human resource support. 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

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obligated to do so, URI has in the past made, and expects that it will in the future make, distributions to Holdings to, among other things, enable Holdings to pay interest on the convertible debentures that were issued to a subsidiary trust of Holdings as described above.

The Trust Preferred Securities are the obligation of a subsidiary trust of Holdings and are not the obligation of URI. Historically, the dividends payable on these securities were reflected as an expense on the consolidated financial statements of Holdings, but were not reflected as an expense on the consolidated financial statements of URI. This is the principal reason for the difference in the historical net income (loss) reported on the consolidated financial statements of URI and the net income (loss) reported on the consolidated financial statements of Holdings.

Fluctuations in Operating Results

We expect that our revenues and operating results may fluctuate from quarter to quarter or over the longer term. Certain of the general factors that may cause such fluctuations are discussed under “—Factors that May Influence Future Results and Accuracy of Forward Looking Statements—Fluctuations of Operating Results.”

Accounting For Certain Expenses Relating to Potential Acquisitions

In accordance with accounting principles generally accepted in the United States, we capitalize certain direct out-of-pocket expenditures (such as legal and accounting fees) relating to potential or pending acquisitions. Indirect acquisition costs, such as executive salaries, general corporate overhead, public affairs and other corporate services, are expensed as incurred. Our policy is to charge against earnings any capitalized expenditures relating to any potential or pending acquisition that we determine will not be consummated. There can be no assurance that in future periods we will not be required to incur a charge against earnings in accordance with such policy, which charge, depending upon the magnitude thereof, could adversely affect our results of operations.

Seasonality

Our business is seasonal with demand for our rental equipment tending to be lower in the winter months. The seasonality of our business is heightened because we offer for rent traffic control equipment. Branches that rent a significant amount of this type of equipment 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. However, as described above, cost increases have, from time to time, impacted our results.

Impact of Recently Issued Accounting Standards

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. We adopted this standard on January 1, 2003, and reclassified a pre-tax extraordinary loss of approximately $18.1

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million recognized during the second quarter of 2001 to operating income. The adoption of the remaining provisions of SFAS No. 145 did not have a material effect on our consolidated financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”. This standard provides alternative methods of transition to the fair value method of accounting for stock-based employee compensation under SFAS No. 123, “Accounting for Stock-Based Compensation,” but does not require us to use the fair value method. This standard also amends certain disclosure requirements related to stock-based employee compensation. We adopted the disclosure portion of this standard as of December 31, 2002 and such adoption is reflected in note 2 to our consolidated financial statements included elsewhere in this Report.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”, revised December 2003), “Consolidation of Variable Interest Entities,” which addresses consolidation of variable interest entities (“VIEs”). FIN 46 requires a VIE to be consolidated by a parent company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. A VIE is a corporation, partnership, trust or any other legal structure used for business purposes that either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. The consolidation requirements of FIN 46 apply immediately to VIEs created after January 31, 2003. For entities created prior to February 1, 2003, the effective date of these requirements, which originally was July 1, 2003, had been deferred so as not to apply until the first period ending after December 15, 2003. Upon adoption of this standard, as of December 31, 2003, we deconsolidated a subsidiary trust that had issued Trust Preferred Securities as described above. As a result of such deconsolidation, (i) the Trust Preferred Securities issued by our subsidiary trust, which had previously been reflected on our consolidated balance sheets, were removed from our consolidated balance sheets at December 31, 2003 and (ii) the subordinated convertible debentures that we issued to the subsidiary trust, which previously had been eliminated in our consolidated balance sheets, were no longer eliminated in our consolidated balance sheets at December 31, 2003. The carrying amount of the Trust Preferred Securities removed from the consolidated balance sheets was the same as the carrying amount of the subordinated convertible debentures added to the consolidated balance sheets. However, the subordinated convertible debentures are reflected as a component of liabilities on the consolidated balance sheets at December 31, 2003, whereas the Trust Preferred Securities were reflected as a separate category prior to December 31, 2003. See note 11 to our consolidated financial statements included elsewhere in this Report. The adoption of this standard did not otherwise have a material effect on our statements of financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. This standard amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. This standard is effective for contracts entered into or modified after June 30, 2003, except as stated below, and for hedging relationships designated after June 30, 2003. The provisions of this standard that relate to SFAS No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. The adoption of this standard regarding the provisions effective after June 30, 2003 did not have a material effect on our statements of financial position or operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This standard requires that financial instruments falling within the scope of this standard be classified as liabilities. This standard is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective with the first interim period beginning after June 15, 2003. The adoption of this standard did not have a material effect on our statements of financial position or results of operations.

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Factors that May Influence Future Results and Accuracy of Forward-Looking Statements

Sensitivity to Changes in Construction and Industrial Activities

Our general rental equipment is principally used in connection with construction and industrial activities and our traffic control equipment is principally used in connection with the construction or repair of roads and bridges and similar infrastructure projects. Weakness in our end markets, such as a decline in construction or industrial activity or a reduction in infrastructure projects, 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 operating results by decreasing revenues and gross profit margins. For example, there have been significant declines in non-residential construction activity in 2002 and 2003 and reductions in government spending on infrastructure projects in several key states. This weakness in our end markets adversely affected our results in 2002 and 2003 as described above.

We have identified below certain factors that may cause further weakness in our end markets, either temporarily or long-term:

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:

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Substantial Goodwill

At December 31, 2003, we had on our balance sheet net goodwill in the amount of $1,437.8 million, which represented approximately 30% 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 value of the net assets of those businesses. We are required to test our goodwill for impairment at least annually. In general, this means that we must determine whether the fair value of the goodwill, calculated 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 as an expense. Any write-off would reduce our total assets and shareholders’ equity and be a charge against income.

We test for goodwill impairment on a branch-by-branch basis rather than on an aggregate basis. This means that a goodwill write-off is required even if only one or a limited number of our branches has impairment as of the annual date of testing or at any other date when an indicator of impairment may exist and even if there is no impairment for all our branches on an aggregate basis. In addition, we assess impairment solely on the basis of recent historical performance and without reference to expected future performance. This means that, if the historical data for a branch indicates impairment, a goodwill write-off is required even when we believe that branch’s future performance will be significantly better. The fact that we test for impairment on a branch-by-branch basis and use only historical financial data in assessing impairment increases the likelihood that we will be required to take additional non-cash goodwill write-offs in the future.

Substantial Indebtedness

At December 31, 2003, our total indebtedness was approximately $3,038.6 million, which includes $221.6 million in subordinated convertible debentures. Our substantial indebtedness has the potential to affect us adversely in a number of ways. For example, it will or could:

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:

Even if we adopt an alternative strategy, the strategy may not be successful and we may continue to be unable to service our indebtedness and fund our business.

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 December 31, 2003, as adjusted to give effect to the $2.1 billion refinancing that we completed in the first quarter of 2004 as described under “—Liquidity and Capital Resources—Recent Financing Transactions,” and taking into account our interest rate swap agreements, we had $2,042.4 million of variable rate indebtedness.

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Need to Satisfy Financial and Other Covenants in Debt Agreements

Under the agreement governing our senior secured credit facility, we are required to, among other things, satisfy certain financial tests relating to: (a) the interest coverage ratio, (b) the ratio of funded debt to cash flow, (c) the ratio of senior secured debt to tangible assets and (d) the ratio of senior secured debt to cash flow. If we are unable to satisfy any of these covenants, the lenders could elect to terminate the credit facility and require us to repay the outstanding borrowings under the credit facility. In such event, unless we are able to refinance the indebtedness coming due and replace the credit facility, we would likely not have sufficient liquidity for our business needs and be forced to adopt an alternative strategy as described above. Even if we adopt an alternative strategy, the strategy may not be successful and we may not have sufficient liquidity for our business.

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

Dependence on Additional Capital

If the cash that we generate from our business, together with cash that we may borrow under our credit facility, is not sufficient to fund our capital requirements, we will require additional debt and/or equity financing. However, we may not succeed in obtaining the requisite additional financing on terms that are satisfactory to us or at all. 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 refinancing existing indebtedness.

Certain Risks Relating to Acquisitions

We have grown in part through acquisitions and may continue to do so. We will consider potential acquisitions of varying sizes and may, on a selective basis, pursue acquisitions 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 are not sufficient to fund future acquisitions, we will require additional debt or equity financing and consequently, our indebtedness may increase as we implement our growth strategy. The making of acquisitions entails certain risks, including:

It is possible that we will not realize the expected benefits from our acquisitions or that our existing operations will be harmed as a result of acquisitions.

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.

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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. Competitive pressures could adversely affect our revenues and operating results by decreasing our rental volumes 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:

If we are found liable for any significant claims that are not covered by insurance, our operating results could be adversely affected because our expenses related to claims would increase. It is possible that some or all of the insurance that is currently available to us will not be available in the future on economically reasonable terms or 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, and 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

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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 operating results could be adversely affected depending on the magnitude of the cost.

Labor Matters

We have 1,189 employees that are represented by unions and 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.

Age of our Fleet

In determining the optimal age for our fleet, we have made estimates concerning the relationship between the age of our fleet and required maintenance costs. If our estimates are wrong, our operating results could be adversely affected because our maintenance expenses may be higher than anticipated.

Operations Outside the United States

Our operations in Canada and Mexico 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.

Our exposure to market risk primarily consists of (1) interest rate risk associated with our variable rate debt and (2) foreign currency exchange rate risk primarily associated with our Canadian operations.

Interest Rate Risk. We periodically utilize interest rate swap agreements to manage our interest costs and exposure to changes in interest rates. At December 31, 2003, we had swap agreements with an aggregate notional amount of $1,160 million. The effect of these agreements was to convert $1,160 million of our fixed rate notes to floating rate instruments. The fixed rate notes being converted consisted of: (i) $300 million of our 9 ¹/4% senior subordinated notes through 2009, (ii) $210 million of our December 2002 issued 10 ³/4% senior notes through 2008, (iii) $200 million of our April 2003 issued 10 ³/4% senior notes through 2008, (iv) $200 million of our 9% senior subordinated notes through 2009, and (v) $250 million of our 7 ³/4% senior subordinated notes through 2013. At December 31, 2002, we had swap agreements with an aggregate notional amount of $500 million. The effect of some of these agreements was to limit the interest rate exposure to 9.5% on $200 million of our then outstanding term loan. The effect of the remainder of these agreements was to convert $300 million of our fixed rate 9 ¹/4% Notes to a floating rate instrument through 2009.

Subsequent to December 31, 2003, we refinanced a significant portion of our indebtedness as described under “—Liquidity and Capital Resources—Recent Financing Transactions.” In connection with this refinancing, we terminated certain of the swap agreements described above and entered into certain new swap agreements. As of March 1, 2004, we had swap agreements with an aggregate notional amount of $1,145 million. The effect of these agreements is to convert $1,145 million of our fixed rate notes to floating rate instruments. The fixed rate notes converted consist of: (i) $245 million of our 6 ¹/2% senior notes through 2012, (ii) $525 million of our 7 ³/4% senior subordinated notes through 2013 and (iii) $375 million of our 7% senior subordinated notes through 2014.

As of March 1, 2004, after giving effect to our interest rate swap agreements, we had an aggregate of $1,787.1 million of indebtedness that bears interest at variable rates. This debt includes, in addition to the $1,145.0 million of debt subject to the swap agreements described above, (i) all borrowings under our

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$650 million revolving credit facility ($92.1 million outstanding as of March 1, 2004), (ii) our term loan ($550.0 million outstanding as of March 1, 2004), and (iii) all borrowings under our $250 million accounts receivable securitization facility (none outstanding as of March 1, 2004). The weighted average interest rates applicable to our variable rate debt on March 1, 2004 were (i) 4.6% for the revolving credit facility (represents the Canadian rate since the amount outstanding was Canadian borrowings), (ii) 3.4% for the term loan and (iii) 3.9% for the debt subject to our swap agreements. As of March 1, 2004, based upon the amount of our variable rate debt outstanding, after giving effect to our interest rate swap agreements, our annual earnings would decrease by approximately $10.9 million for each one percentage point increase in the interest rates applicable to our variable rate debt. The amount of our variable rate indebtedness may fluctuate significantly as a result of changes in the amount of indebtedness outstanding under our revolving credit facility and receivables securitization facility from time to time. For additional information concerning the terms of our variable rate debt, see note 9 to our notes to consolidated financial statements included elsewhere in this Report.

Currency Exchange Risk. The functional currency for our Canadian operations is the Canadian dollar. As a result, our future earnings could be affected by fluctuations in the exchange rate between the U.S. and Canadian dollars. Based upon the level of our Canadian operations during 2003 relative to the company as a whole, a 10% change in this exchange rate would not have a material impact on our earnings. In addition, we periodically enter into foreign exchange contracts to hedge our transaction exposures. We had no outstanding foreign exchange contracts as of December 31, 2003 and 2002. We do not engage in purchasing forward exchange contracts for speculative purposes.

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REPORT OF INDEPENDENT AUDITORS

Board of Directors

United Rentals, Inc.

We have audited the accompanying consolidated balance sheets of United Rentals, Inc. as of December 31, 2003 and 2002 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2003. These consolidated financial statements are the responsibility of the management of United Rentals, Inc. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Rentals, Inc. at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States.

As discussed in Notes 2 and 4 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” effective January 1, 2002.

/s/    ERNST & YOUNG LLP

MetroPark, New Jersey

February 24, 2004

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UNITED RENTALS, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes.

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UNITED RENTALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS