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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes    þ  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ¨  Yes    þ  No

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.    ¨  Yes    þ  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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    þ  No

As of June 30, 2005, there were 78,011,621 shares of United Rentals, Inc. common stock outstanding. The aggregate market value of common stock held by non-affiliates at June 30, 2005 was approximately $1.49 billion, calculated by using the closing price of the common stock on such date on the New York Stock Exchange of $20.21.

As of March 1, 2006, there were 77,520,680 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.

This 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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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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 1A – Risk Factors. 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.

EXPLANATORY NOTE ABOUT THIS REPORT

Contemporaneous with the filing of this annual report on Form 10-K for the fiscal year ended December 31, 2005, we are filing our annual report on Form 10-K for the fiscal year ended December 31, 2004 (the “2004 Annual Report”). Our 2004 Annual Report includes restated consolidated financial statements for the fiscal years ended December 31, 2003 and 2002, which corrected accounting errors related to the recognition of equipment rental revenue, self-insurance reserves, customer relationships and the provision for income taxes, and the accounting for certain short-term sale-leaseback transactions that constituted irregularities, (the “Restatement”). In addition, our 2004 Annual Report provides supplemental information regarding matters for which we did not restate, including certain trade package transactions that constituted irregularities and certain of our historical purchase accounting practices. Because this annual report is being filed contemporaneously with our 2004 Annual Report, this annual report includes substantially all of the information included in our 2004 Annual Report, including a full discussion of the Restatement.

The Restatement had the effect of increasing our net loss and net loss per diluted share for 2002 by $8 million and $.10, respectively, and decreasing our net loss and net loss per diluted share for 2003 by $5 million and $.06 per share, respectively. The impact of the Restatement on periods prior to January 1, 2002 is reflected as a decrease of $65 million to beginning retained earnings as of January 1, 2002.

As a result of the previously announced SEC inquiry and related review by a Special Committee of our board of directors and the Restatement for minor sale-leaseback transactions and for items unrelated to the Special Committee’s review, we were unable to timely file our 2004 Annual Report or our quarterly reports on Form 10-Q for the periods ended March 31, 2005, June 30, 2005 and September 30, 2005 with the SEC. We are working expeditiously to file our quarterly reports for 2005 as soon as practicable.

We have not amended our annual reports on Form 10-K or quarterly reports on Form 10-Q for periods affected by the Restatement that ended on or prior to September 30, 2004, and the financial statements and related financial information contained in those reports should not be relied upon.

All amounts referenced in this annual report for prior periods and prior period comparisons reflect the effects of the Restatement.

PART I

United Rentals, Inc. is principally a holding company. We primarily conduct our operations through our wholly owned subsidiary United Rentals (North America), Inc. and its subsidiaries. As used in this report, the term “Holdings” refers to United Rentals, Inc., the term “URI” refers to United Rentals (North America), Inc., and the terms the “Company,” “United Rentals,” “we,” “us,” and “our” refer to United Rentals, Inc. and its subsidiaries, in each case unless otherwise indicated.

Unless otherwise indicated, the information under Items 1, 1A and 2 is as of March 1, 2006.

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General

United Rentals is the largest equipment rental company in the world. The Company was incorporated in Delaware in 1997. As of March 31, 2006, our network consists of 751 rental locations in the United States, Canada and Mexico, and as of December 31, 2004, our network consisted of 716 rental locations. We offer for rent over 20,000 classes of rental equipment, including heavy machines and hand tools, to customers that include construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others. In 2005 and 2004, we generated revenues of approximately $3.6 billion and $3.1 billion, respectively.

As of December 31, 2005, our fleet of rental equipment included over 260,000 units having an original purchase price (based on initial consideration paid) of $3.9 billion. The fleet includes:

In addition to renting equipment, we sell new and used rental equipment as well as related contractor supplies, parts and service.

The Company has grown through a combination of acquisitions and, more recently, organic growth. We seek to capitalize on opportunities in and around our existing operating regions to improve penetration in areas where market conditions such as the level of expected construction activity are favorable. Our strategy for improving growth is to expand our branch network, consolidate and integrate operations under current management, improve operating efficiencies, provide high levels of customer service, market to new customers, capitalize on revenue opportunities and maintain strict cost controls. In addition, we may selectively consider acquisition, consolidation or sale opportunities.

Securities and Exchange Commission Inquiry and Special Committee Review

In August 2004, we received notice from the Securities and Exchange Commission (“SEC”) that it was conducting a non-public, fact-finding inquiry of the Company. The notice was accompanied by a subpoena requesting the production of documents relating to certain of our accounting records, but did not otherwise specify the scope or specific purpose of the inquiry. As previously reported, the SEC inquiry appears to relate to a broad range of the Company’s accounting practices and is not confined to a specific period.

In March 2005, our board of directors formed a special committee of independent directors to review matters related to the SEC inquiry (the “Special Committee”). Our board of directors received and acted upon findings of the Special Committee in January 2006. The Special Committee’s report to the board included findings, among others, related to:

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The actions that we took with respect to the Special Committee’s findings related to the minor sale-leaseback transactions and the trade packages are discussed below in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) – Restatement and Reclassification of Previously Issued Consolidated Financial Statements, Certain Findings of the Special Committee and Related Matters and summarized in our press release and related report on Form 8-K dated January 26, 2006.

With respect to accounting for purchase business combinations, the primary focus of the Special Committee’s inquiry was our historical practices concerning the valuation of rental equipment acquired in purchase business combinations and the practice of recognizing profit on sales of this equipment within one year of its acquisition. These practices are further discussed in Item 7 – MD&A – Restatement and Reclassification of Previously Issued Consolidated Financial Statements, Certain Findings of the Special Committee and Related Matters.

As previously reported, based upon recommendations by the Special Committee, our board of directors directed the Company to take a number of specific actions to address the issues identified by the Special Committee, including, among other things, the removal of certain finance and accounting officers from their positions, as well as the dismissal and/or reprimanding of certain other employees.

The SEC inquiry is ongoing and we are continuing to cooperate fully with the SEC.

Industry Overview

Based on industry sources, we estimate that the U.S. equipment rental industry had total revenues of approximately $31 billion in 2005. This represents a compound annual growth rate of over 9 percent since 1990.

In 2002 and 2003, industry rental revenues decreased by over $1.0 billion from the level reached in 2001. This decrease reflected significant weakness in private non-residential construction activity, which declined by 13.2 percent in 2002 and by an additional 5.1 percent in 2003 according to U.S. Department of Commerce data. According to U.S. Department of Commerce data, private non-residential construction activity increased 4.2 percent in 2004 compared with 2003 and increased 5.0 percent in 2005 compared to 2004. Our industry is particularly sensitive to changes in non-residential construction activity because, to date, this has been our principal end market for rental equipment. We expect that with a sustained rebound in private non-residential construction, our industry will continue 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

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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, contractor supplies 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:

Information Technology Systems. We have information technology systems which support our operations. This information technology infrastructure facilitates our ability to make rapid and informed decisions, respond quickly to changing market conditions, and share rental 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. As of March 31, 2006, we have 751 rental branches in 48 states, ten Canadian provinces and Mexico and serve customers that range from Fortune 500 companies to small businesses and homeowners. In each of 2005 and 2004, our top ten customers accounted for less than 2 percent 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 North America, (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

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of equipment and a single point of contact for all their equipment needs. We currently serve approximately 1,500 National Account customers as well as approximately 750 agencies within the United States government. Revenues from National Account customers have increased to over $650 million in 2005 from approximately $550 million in 2004 and approximately $470 million in 2003, reflecting the growth and success of this program.

Strong and Motivated Branch Management. Each of our full service branches has a branch manager who is supervised by a district manager from one of our 63 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. Management monitors 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 provides an incentive for branch personnel to control costs, optimize pricing and manage fleet efficiently.

Employee Training Programs. We are dedicated to providing training and development to our employees. In 2005 and 2004, our employees enhanced their skills through over 300,000 and 200,000 hours of training, respectively. Many employees participated in one of twenty week-long programs held in 2005 at our new training facility located at our corporate headquarters. In addition to these training sessions, our employees are provided eLearning courses on-line covering a variety of subjects.

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.

Segment Information

Our reportable segments are general rentals; traffic control (also referred to as the highway technologies group); and trench safety, pump and power. Segment financial information is presented in note 19 to our consolidated financial statements. The general rentals segment includes the rental of construction, aerial, industrial and homeowner equipment and related services and activities. The general rentals segment’s customers include construction and industrial companies, manufacturers, utilities, municipalities and homeowners. The general rentals segment operates throughout the United States and Canada and has one location in Mexico. The traffic control segment includes the rental of equipment for controlling traffic and related services and activities. The traffic control segment’s customers include construction companies involved in infrastructure projects and municipalities. The traffic control segment operates in the United States. The trench safety, pump and power segment includes the rental of specialty construction products and related services. The trench safety, pump and power segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment operates in the United States and has one location in Canada. For financial information concerning our foreign and domestic operations, see note 19 to our consolidated financial statements.

Products and Services

Our principal products and services are described below.

Equipment Rental. We offer for rent over 20,000 classes of rental equipment on an hourly, 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.

We estimate that each of the following categories accounted for 4 percent or more of our equipment rental revenues in 2005 and 2004: (i) aerial lift equipment (approximately 38 percent), (ii) earth moving equipment

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(approximately 18 percent and 19 percent, respectively), (iii) forklifts (approximately 14 percent and 13 percent, respectively) and (iv) trench (approximately 5 percent and 4 percent, respectively). We believe that our fleet is one of the newest and best maintained in the industry. The weighted average age of our fleet was approximately 40 months at December 31, 2005 and December 31, 2004.

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, which includes an online database of used equipment available for sale. During 2005, we launched United Rentals Certified Auctions on eBay to provide customers with another convenient online tool for purchasing used equipment.

New Equipment Sales. We sell equipment for many leading equipment manufacturers. The manufacturers that we represent and the brands that we carry include: Genie, JLG and Skyjack (aerial lifts); Multiquip, Wacker, 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); Terex (telehandlers); and DeWalt (generators). The type of new equipment that we sell varies by location.

Contractor Supplies Sales. We sell a variety of contractor supplies including construction consumables, tools, small equipment and safety supplies. In 2002, we launched an initiative to increase contractor supplies sales across our network by building on the best practices of our strongest retail locations. Currently, we market contractor supplies and merchandise through several channels including our sales representatives, rental branches, and United States and Canadian product catalogs. In 2005 and 2004, we opened six and three distribution centers, respectively. These distribution centers are strategically located throughout the United States and Canada to enable 1-2 day delivery of products to most customers. Revenue from our contractor supplies business has grown to $324 million in 2005 as compared to $225 million in 2004 and $184 million in 2003.

Service and Other Revenue. We also offer repair and maintenance services and sell parts for equipment that is owned by our customers.

Our RENTALMAN^® and INFOMANAGER^® Software. We have two subsidiaries that are involved in the development and marketing of software. One of the subsidiaries develops and markets our RENTALMAN^® software package which is an enterprise resource planning application used by several of the largest equipment rental companies. The other subsidiary develops and markets our INFOMANAGER^® software which provides a complete solution for creating an advanced business intelligence system. INFOMANAGER^® helps with extracting raw data from transactional applications, cleansing it, transforming it into meaningful information and saving it into a database that is specifically optimized for analytical use.

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 one percent of our revenues in each of 2005 and 2004 and our top 10 customers accounted for less than two percent of our revenues in each of 2005 and 2004.

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

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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 traffic control equipment for rent. Branches that rent a significant amount of this type of equipment tend to generate most of their revenues in the second and third calendar quarters of the calendar year.

Sales and Marketing

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

Sales Force. We have over 2,700 sales people including 1,300 outside sales representatives and 1,400 inside sales people who are responsible for calling on existing and potential customers as well as assisting 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. Our National Account team, which includes 50 sales professionals, closely coordinates its efforts with the local sales force in each area.

E-Rentals. Our customers can rent or buy equipment online 24 hours a day, seven days a week, at our E-Rentals portal, which can be found at unitedrentals.com. Our customers can also use our URdata^® application to access real-time 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, direct mail and sports sponsorships. We also regularly participate in industry trade shows and conferences and sponsor a variety of local promotional events.

Suppliers

Our strategic approach with respect to our suppliers is to maintain the minimum number of suppliers per category of equipment that can satisfy our anticipated volume and business requirements. This approach ensures the terms we negotiate are competitive and that there is sufficient product available to meet anticipated customer demand. We utilize a comprehensive selection process to determine our equipment vendors. We consider product capabilities and industry position, product liability history and financial strength.

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 28 percent of our 2005 purchases of equipment for rental or resale (approximately 22 percent in 2004), and that our 10 largest suppliers accounted for approximately 79 percent of such purchases (approximately 63 percent in 2004). We believe we have sufficient alternative sources of supply available for each of our major equipment categories.

Information Technology Systems

In support of our rental business, 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

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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. 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:

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 and other 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 that operate nationally or internationally; 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, 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, and in anticipation of, 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, storm water, solid and hazardous wastes and materials, and air quality. Our operations generally do not raise significant environmental risks, but we use and store hazardous materials as part of maintaining our rental equipment fleet and the overall operations of our business, 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. Under the environmental and safety 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. As of December 31, 2005 and December 31, 2004 we were not, and currently we are not, aware of any such matters, and we believe that we currently conduct our activities and operations in substantial compliance with applicable environmental and safety laws.

Employees

We have approximately 13,400 employees. Of these, approximately 3,900 are salaried personnel and approximately 9,500 are hourly personnel. Collective bargaining agreements relating to 81 separate locations

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cover approximately 1,000 of our employees. As of December 31, 2004, we had approximately 12,600 employees. Of those employees, approximately 3,700 were salaried personnel and approximately 8,900 were hourly personnel. As of December 31, 2004, collective bargaining agreements related to 82 separate locations and covered approximately 1,100 of our employees. We consider our relationship with our employees to be good.

Available Information

We file reports and other information with the SEC pursuant to the information requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 sec.gov.

We make available on our Internet website, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, as well as other SEC filings, as soon as practicable after they are electronically filed with or furnished to the SEC. Our website address is unitedrentals.com. The information contained in our website is not incorporated by reference in this document.

The certifications of our Chief Executive Officer and Chief Financial Officer required pursuant to Sections 302 of the Sarbanes-Oxley Act of 2002 are included as Exhibits to this Annual Report. Our Chief Executive Officer certified to the New York Stock Exchange (“NYSE”) on December 22, 2005, pursuant to Section 303A.12 of the NYSE’s listing standards, that he was not aware of any violation by the Company of the NYSE’s corporate governance listing standards as of that date, other than the following: (i) the Company had not filed its 2004 Annual Report, (ii) the Company had not held an annual meeting in 2005 or filed a proxy statement in 2005 and (iii) the Company had not distributed to shareholders in 2005 an annual report in accordance with the NYSE Listed Company Manual (and therefore the Company had not made certain disclosures required by Section 303A of the Listed Company Manual).

Our results of operations and financial condition are subject to numerous risks and uncertainties. You should carefully consider the following risk factors in conjunction with the other information contained in this report. Should any of these risks materialize, our business, financial condition and future prospects could be negatively impacted.

Decreases in North American construction and industrial activities could adversely affect our revenues and operating results by decreasing the demand for our equipment or the prices that we can charge.

Our general rental and trench safety, pump and power 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 causing our revenues and gross profit margins to be reduced.

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

Our operating results may fluctuate, which could affect the trading value of our securities.

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, which could adversely affect the trading value of our securities. These factors include:

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We are highly leveraged, which subjects us to various risks.

At both December 31, 2005 and 2004, our total indebtedness was approximately $3.2 billion, including approximately $222 million of subordinated convertible debentures (also referred to as QUIPs securities). Our substantial indebtedness has the potential to affect us adversely in a number of ways. For example, it will or could:

Further, if we are unable to service our indebtedness and fund our operations, 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 operations.

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, 2005, including the effect of our interest rate swap and cap agreements, we had

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approximately $1.3 billion of indebtedness that bears interest at variable rates. This $1.3 billion represents approximately 45 percent of our total indebtedness, excluding our QUIPs securities. See Item 7A – Quantitative and Qualitative Disclosure About Market Risk.

We will be unable to file our delinquent quarterly reports on Form 10-Q by the end of the extension period granted by holders of our bonds, which will give our bondholders the right to declare an event of default.

We are party to various indentures under which an aggregate of approximately $2.3 billion of securities (the “Notes”) were outstanding at December 31, 2005. These instruments require us to timely file required annual and other periodic reports. Holders of the requisite majorities of our Notes previously agreed to amendments to allow us until March 31, 2006 to file our annual report on Form 10-K for 2004 and our quarterly reports on Form 10-Q for 2005 interim periods.

We are currently preparing our reports on Form 10-Q for 2005 interim periods. Although we will not be in a position to file these reports by March 31, 2006, we expect to file these reports within the next 30 days. The failure to file these reports will not automatically result in an event of default under our Note indentures. However, either the trustee or the holders of not less than 25 percent of the principal amount of the Notes issued under each indenture will have the right to notify the Company of its nonperformance and declare an event of default. If a notice of default satisfying the requirements of the applicable indenture were to be duly delivered, the Company would have no less than 30 days to cure the default. If the Company does not cure the default within the applicable period, then either the trustee or the holders of not less than 25 percent of the principal amount of the Notes issued under such indenture would have the right to declare the principal amount and all accrued interest under such securities due and payable, unless a waiver is obtained from holders of at least a majority of the principal amount of such securities.

We have obtained an amendment to our senior secured credit facility, which, among other things, waives any default from the delay in filing certain SEC reports and allows us until April 28, 2006 to file our annual report on Form 10-K for 2004 and our quarterly reports on Form 10-Q for 2005 interim periods. If the Company were not to file such reports by April 28, 2006, the Company would be required to obtain an additional extension or be in immediate default under the senior secured credit facility. If our bondholders (from whom we have not sought any waiver or amendment) declare an event of default, the waiver will nevertheless continue until April 28, 2006. In addition, the amendment to our Senior Credit Facility limits our ability to make borrowings under the facility to amounts necessary to fund obligations to be paid in the ordinary course during the one-week period following the applicable borrowing.

If the events described above were to occur, we might be unable to refinance our debt, whether through the capital markets or otherwise, on commercially reasonable terms, or at all. If we could not refinance our debt, we may be unable to meet our payment obligations unless we engage in an extraordinary transaction, including an asset sale, and any such transaction might have a material adverse effect on our business and financial condition. Further, if we are unable to repay or refinance our debt, as it becomes due, we could be forced to restructure our obligations or seek protection under applicable bankruptcy laws, or an involuntary bankruptcy proceeding may be brought against us.

If we are unable to satisfy the financial and other covenants in our debt agreements, our lenders could elect to terminate the agreements and require us to repay the outstanding borrowings.

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 our senior secured credit facility and/or other agreements governing our debt and require us to repay outstanding borrowings. In such event, unless we were able to refinance the indebtedness coming due and replace our senior secured credit facility and/or the other agreements governing our debt, we would likely not have sufficient liquidity for our business needs and we

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would 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 operations.

In addition to financial covenants, we are subject to various other covenants in our senior secured credit facility as well as in the other agreements governing our debt, such as a requirement to file our periodic reports with the SEC in a timely manner. In September 2005, we completed a consent solicitation of our outstanding notes and convertible securities in which we amended the indentures governing these securities to waive any defaults related to the delay in filing our annual and quarterly reports for periods ended after September 30, 2004 with the SEC and allow the Company until March 31, 2006 to file the late SEC filings. In addition, in 2005 we amended our senior secured credit facility to waive any defaults related to the delay in making certain SEC filings and allow the Company until March 31, 2006 to file the late SEC filings, and in March 2006 we amended our senior secured credit facility again to waive any defaults related to the delay in making those SEC filings and allow the Company until April 28, 2006 to file the late SEC filings. As described above, we have not filed our quarterly reports on Form 10-Q for quarters ending in 2005 with the SEC.

Our inability to comply with any covenants could require us to solicit consents to another amendment to the indentures governing our outstanding notes and convertible securities and/or amend our senior secured credit facility again. Otherwise, as described above, our bondholders could declare an event of default, and following the expiration of any grace or cure period for such event of default, the waiver under our senior secured credit facility would terminate and our senior lenders could declare an event of default.

In addition to the risks described above with respect to non-compliance with covenants in agreements governing our debt, compliance with covenants may restrict our ability to conduct our operations. For instance, 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.

If we are unable to obtain additional capital as required, we may be unable to fund the capital outlays required for the success of our business.

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.

We may not have successfully remediated previously identified material weaknesses in our internal controls and we may identify additional material weaknesses in the future.

As described below under Item 9A, we have in the past had material weaknesses in our internal control over financial reporting and as of December 31, 2005 have a material weakness in our financial close process. We have taken actions to remediate all material weaknesses that we previously identified and we believe that we have successfully remediated all material weaknesses other than the weakness in our financial close process. However, there can be no assurance that the measures we have taken and will take to remediate previously identified weaknesses will be sufficient or that we will not identify additional weaknesses in the future. Additionally, even if we believe we have effective control over financial reporting, the process for assessing the effectiveness of internal control over financial reporting requires subjective judgments and the application of standards that are relatively new and subject to questions of interpretation. Accordingly, we cannot be certain that our auditors will agree with our assessment. If either we or our auditors ultimately conclude that our internal control over financial reporting is not effective, the perception of our company may be adversely affected, which could in turn adversely affect the price of our securities, our access to the capital markets and/or our borrowing costs.

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We are subject to an ongoing inquiry by the SEC.

As previously reported, the Company is the subject of a non-public, fact-finding inquiry by the SEC that appears to relate to a broad range of the Company’s accounting practices and does not seem to be confined to a specific time period. In August 2004, we issued a press release and filed a Form 8-K disclosing the existence of the SEC inquiry. In March 2005, our board of directors formed the Special Committee of independent directors to review matters related to the SEC inquiry. Our board of directors received and acted upon findings of the Special Committee in January 2006.

We are cooperating with the SEC in its ongoing inquiry. However, we cannot predict the outcome of the SEC inquiry, whether the SEC will bring any proceeding relating to the Company or when this matter might be resolved. This matter has the potential to adversely affect us in a number of ways, including the following:

If we are ultimately required to pay significant amounts and/or take significant corrective actions, our results and liquidity could be materially adversely affected. In addition, regardless of the outcome, the publicity surrounding the inquiry and the potential risks associated with the inquiry could negatively impact the perception of our company by investors and others, which could adversely affect the price of our securities, our access to the capital markets and/or our borrowing costs.

Our senior management is required to devote significant time and attention to matters arising from the SEC inquiry.

Our senior management has devoted a significant amount of time to restating our financial statements, reviewing and improving our internal controls and procedures and responding to the SEC inquiry and review by the Special Committee of our board of directors discussed above and elsewhere in this report. If our senior management is unable to devote sufficient time in the future toward managing our existing business operations and developing and executing our growth strategy, we may not be able to remain competitive and our revenues and gross margins may decline.

We are subject to certain ongoing class action lawsuits.

Three class action lawsuits have been filed against the Company, as described in greater detail under Item 3 – Legal Proceedings. All three of the complaints allege, among other things, that (i) certain of the Company’s SEC filings and other public statements contained false and misleading statements which resulted in damages to the plaintiffs and the members of the purported class when they purchased the Company’s securities and (ii) the conduct in connection therewith violated Section 10(b) of the Exchange Act, SEC Rule 10b-5 and, in the case of the individual defendants, Section 20(a) of the Exchange Act. The complaints seek unspecified compensatory damages, costs and expenses.

We intend to defend against these actions vigorously. However, we do not know what the outcome of these proceedings will be and, if we do not prevail, we may be required to pay substantial damages or settlement amounts. Further, regardless of the outcome, we may incur significant defense costs, and the time and attention of our management may be diverted from normal business operations. If we are ultimately required to pay

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significant defense costs, damages or settlement amounts, such payments could materially and adversely affect our liquidity and results of operations.

We have received a comment letter from the SEC that contains comments that are unresolved.

As described below in Item 1B, Unresolved Staff Comments, we received comments from the SEC to our annual report on Form 10-K for the fiscal year ended December 31, 2003 and our quarterly reports on Form 10-Q for the quarterly periods in 2004. These comments are unresolved because we have been focused on (1) cooperating with the ongoing SEC inquiry and review of the Special Committee, (2) reviewing and restating our financial statements and (3) preparing our annual report for 2004, our quarterly reports for 2005 and this annual report. However, our restatements for customer relationships and equipment revenue recognition as well as the reclassification of the buy-out of an operating lease reflected in our consolidated financial statements included elsewhere in this report reflect these comments. We will continue to work with the SEC to resolve these comments and, while we do not currently anticipate any additional restatements will result from the resolution of these comments, we cannot assure you that this will be the case.

We have made numerous acquisitions, which entail certain risks.

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

The making of acquisitions entails certain risks, including:

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.

Goodwill related to acquisitions represents a substantial portion of our total assets. If the fair value of the goodwill should drop below the recorded value, we would be required to write-off the excess goodwill.

On December 31, 2005 and 2004, we had on our balance sheet goodwill of $1.3 billion, which represented approximately 25 percent and 26 percent, respectively, of our total assets at each 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. Of the goodwill recorded on our balance sheet at December 31, 2005, 93 percent is associated with our general rentals segment and 7 percent is associated with our trench safety, pump and power segment. 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 operating expense.

Our results in 2004 were adversely affected by the write-off of approximately $139 million of goodwill related to our traffic control segment as described below in this report, and our results in the preceding two years

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were also adversely affected by significant goodwill write-offs. Based on the current performance of our general rentals and trench safety, pump and power segments, as well as current market conditions, we do not currently foresee any additional goodwill write-offs; however, we cannot be certain that a future downturn in the business or changes in market conditions will not necessitate additional write-offs in future periods.

Our industry is highly competitive, and competitive pressures could lead to a decrease in our market share or in the prices that we can charge.

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.

Disruptions in our information technology systems could adversely affect our operating results by limiting our capacity to effectively monitor and control our operations.

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.

We are exposed to various possible claims relating to our business and our insurance may not fully protect us.

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 vehicles and our employees and (3) employment related claims. Further, as described elsewhere in this report, a small number of shareholder derivative and class action lawsuits have been filed against us. Currently, 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 liquidity and operating results could be materially adversely affected. It is possible that our insurance carrier may disclaim coverage for the class action and derivative lawsuits against us. It is also 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 not available at all.

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We are subject to numerous environmental and safety regulations. If we are required to incur compliance or remediation costs that are not currently anticipated, our operating results could be adversely affected.

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 and contamination at our sites as well as sites to which we sent hazardous wastes for disposal or treatment regardless of fault and (2) fines and penalties for non-compliance. Our operations generally do not raise significant environmental risks, but we use hazardous materials to clean and maintain equipment, dispose of solid and hazardous waste and wastewater from equipment washing, and store and dispense petroleum products from underground and above-ground storage tanks located at certain of our locations.

Based on conditions currently known to us, we do not believe that any pending or likely remediation and compliance effort 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, our liquidity and operating results could be adversely affected depending on the magnitude of the cost.

Labor disputes could disrupt our ability to serve our customers and/or lead to higher labor costs.

We currently have approximately 1,000 employees that are represented by unions and covered by collective bargaining agreements and approximately 12,400 employees that are not represented by unions; however, various unions periodically seek to organize certain of our nonunion employees. Union organizing efforts or collective bargaining negotiations could potentially lead to work stoppages and/or slowdowns or strikes by certain of our employees, which could adversely affect our ability to serve our customers. In addition, these efforts could negatively affect our relationship with certain customers. Further, our labor costs could increase as a result of the settlement of actual or threatened labor disputes or an increase in the number of our employees covered by collective bargaining agreements.

We have operations outside the United States. As a result, we may incur losses from currency conversions and have higher costs than we otherwise would have due to the need to comply with foreign laws.

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.

In January 2005, we received a comment letter from the SEC relating to our annual report on Form 10-K for the year ended December 31, 2003 and quarterly reports on Form 10-Q for the periods in 2004. We responded to these comments in February and March 2005 and on March 25, 2005, received a letter from the SEC with follow-up comments. These comments addressed accounting and disclosure matters including: (1) our use of the non-GAAP performance measure “adjusted income”; (2) the calculation of the minimum amounts paid by customers for each day’s usage as it pertains to our reported revenues; (3) our fixed price contracts and the accounting for those contracts using the percentage-of-completion method; (4) the valuation of rental equipment to be sold; (5) third-party appraisals of rental equipment acquired in purchase acquisitions; (6) the valuation of non-compete agreements, customer-related intangibles and existing leases in purchase acquisitions; (7) our assumptions to determine goodwill impairments; (8) the Company’s change in reportable segments and its effect on reporting information; (9) the assessment of success of the Company’s restructuring activities and calculation

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of any net cost savings; (10) the classification of the buy-out of equipment operating leases and write-downs of notes receivable as non-operating expenses; (11) the effectiveness of the Company’s disclosure controls and procedures and the disclosure of any deficiencies; (12) the allocation of goodwill upon the adoption of SFAS 142 and any subsequent adjustments to such allocation; and (13) the determination of insurance reserves.

We have responded to all of these comments other than the comments relating to the valuation of existing leases in purchase acquisitions and adjustments to goodwill subsequent to its initial allocation upon the adoption of SFAS 142, which required additional review, because we have been focused on (1) cooperating with the on-going SEC inquiry and the review of the Special Committee, (2) reviewing and restating our financial statements; and (3) preparing our 2004 Annual Report, our quarterly reports on Form 10-Q for quarters ended in 2005 and this annual report for filing. Accordingly, the staff of the SEC has not yet indicated whether it will have further comment regarding these matters. However, our restatements for customer relationships and equipment rental revenue recognition as well as the reclassification of the buy-out of an operating lease reflected in our consolidated financial statements included elsewhere in this report reflect these comments. We will continue to work with the SEC to resolve any outstanding comments and we do not currently anticipate any additional restatements will result from the resolution of these comments, although there can be no assurance this will be the case.

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As of March 31, 2006, we operate 751 rental locations. Of these locations, 650 are in the United States, 100 are in Canada and one is in Mexico. The number of locations in each state or province is shown in the table below, as well as the number of locations that are general rentals (GR), traffic control (TC) and trench safety, pump and power (TPP). On December 31, 2004, we operated 716 rental locations. Of these locations, 610 were in the United States, 105 were in Canada and one was in Mexico.

United States

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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 119 of our rental locations (121 as of December 31, 2004) 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 56 leases that are on a month-to-month basis (65 as of December 31, 2004) and 43 leases that provide for a remaining term of less than one year and do not provide a renewal option (50 as of December 31, 2004). 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 11,400 vehicles (10,100 as of December 31, 2004). 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 51,000 square feet under a lease that expires in 2013.

SEC Non-Public Fact Finding Inquiry and Special Committee Review

As previously announced, on August 25, 2004, the Company received a letter from the SEC in which the SEC referred to an inquiry of the Company. The letter transmitted a subpoena requesting certain of the Company’s documents. The letter and the subpoena referred to an SEC investigation entitled In the Matter of United Rentals, Inc. The notice from the SEC states that the inquiry does not mean that the SEC has concluded that the Company or anyone else has broken the law or that the SEC has a negative opinion of any person, entity or security. As previously announced, the inquiry appears to relate to a broad range of our accounting practices and is not confined to a specific period or the matters discussed in this report.

The Company has since received additional document subpoenas from the SEC. As previously announced, in March 2005, the Company’s board of directors formed the Special Committee to review matters related to the SEC inquiry. The Special Committee retained independent counsel. The board of directors received and acted upon findings of the Special Committee on January 26, 2006. The conclusions and recommendations of the Special Committee are discussed in MD&A and in Item 1 above and summarized in the Company’s press release and the related current report on Form 8-K dated January 26, 2006.

The Company has provided documents in response to the SEC subpoenas to the SEC or to the Special Committee, which has, in turn, provided documents to the SEC. The Company is cooperating fully with the SEC in complying with the subpoenas. The Company is also responding to the SEC’s informal requests for information.

Shareholder Class Action Lawsuits and Derivative Litigation

As previously announced, following our public announcement of the SEC inquiry referred to above, three purported class action lawsuits were filed against us in the United States District Court for the District of Connecticut. The plaintiff in each of the lawsuits seeks to sue on behalf of a purported class comprised of purchasers of our securities from October 23, 2003 to August 30, 2004. The lawsuits name as the defendants our company, our chairman, our vice chairman and chief executive officer, our former president and chief financial officer, and our former corporate controller. The complaints allege, among other things, that certain of our SEC filings and other public statements contained false and misleading statements which resulted in damages to the plaintiffs and the members of the purported class when they purchased our securities. On the basis of those allegations, plaintiffs in each action assert claims (a) against all defendants under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and (b) against one or more of the individual defendants under Section 20(a) of such Act. The complaints seek unspecified compensatory damages, costs and expenses. On February 1, 2005, the Court entered an order consolidating the three actions. On November 8, 2005, the Court

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appointed City of Pontiac Policeman’s and Fireman’s Retirement System as lead plaintiff for the purported class. The consolidated action is now entitled In re United Rentals, Inc. Securities Litigation. The court has directed the parties to submit, by April 17, 2006, a proposed schedule for the filing of a consolidated amended complaint and responses to any amended pleading. We intend to defend against these actions vigorously.

In January 2005, an alleged shareholder filed an action in Connecticut State Superior Court, Judicial District of Norwalk/Stamford at Stamford, purportedly suing derivatively on our behalf. The action, entitled Gregory Riegel v. John N. Milne, et al., names as defendants certain of our current and/or former directors and/or officers, and us as a nominal defendant. The complaint asserts, among other things, that the defendants breached their fiduciary duties to us by causing or allowing us to disseminate misleading and inaccurate information to shareholders and the market and by failing to establish and maintain adequate accounting controls, thus exposing us to damages. The complaint seeks unspecified compensatory damages, costs and expenses against the defendants. The parties to the Riegel action have agreed that the proceedings in this action will be stayed pending the resolution of the anticipated motions to dismiss in the purported shareholder class actions.

In November 2004, we received a letter from counsel for an alleged shareholder, raising allegations similar to the ones set forth in the derivative complaint described above and demanding that we take action in response to those allegations against certain of our current and/or former directors and/or officers. Following receipt of the letter, the board of directors formed a special committee of the board to consider the letter. In August 2005, this alleged shareholder commenced an action in Connecticut State Superior Court, Judicial District of Norwalk/Stamford at Stamford, purporting to sue derivatively on our behalf. The action, entitled Nathan Brundridge v. Leon D. Black, et al., names as defendants certain of our current and/or former directors and/or officers, and names us as a nominal defendant. The complaint in this action asserts, among other things, that all of the defendants breached fiduciary obligations to us by causing or allowing us to disseminate misleading and inaccurate information to shareholders and the market, and by failing to establish and maintain adequate accounting controls, thus exposing us to damages. The complaint in this action also asserts a claim for unjust enrichment against our chairman, our vice chairman and chief executive officer, and our former president and chief financial officer. The complaint seeks unspecified compensatory damages, equitable relief, costs and expenses against all of the defendants. The complaint also seeks an order, in connection with plaintiff’s unjust enrichment claim, directing the defendants against whom that claim is asserted to disgorge certain compensation they received from us with respect to fiscal years 2001, 2002 and 2003. The parties have agreed to submit to the court, by April 17, 2006, a proposed schedule for the filing of any amended complaint and responses to the operative complaint in the action. The parties’ agreement further provides that the time by which all defendants must answer, move or otherwise respond to the complaint shall be adjourned pending the parties’ submission of the aforementioned schedule.

In August 2005, another alleged shareholder filed an action in the United States District Court for the District of Connecticut, purporting to sue derivatively on our behalf. The action, entitled Natalie Gordon v. Wayland R. Hicks, et al., names as defendants certain of our current and/or former directors and/or officers, and names us as a nominal defendant. The complaint in this action asserts claims against each of the defendants for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment. Each of these claims is premised on, among other things, the theory that the individual defendants caused or permitted us to disseminate misleading and inaccurate information to shareholders and to the market, and failed to establish and maintain adequate accounting controls, thus exposing us to damages. The complaint also asserts (a) a claim that a former director breached fiduciary obligations by selling shares of our common stock while in possession of material, non-public information, and (b) a claim against our chairman, our vice chairman and chief executive officer, and our former president and chief financial officer for recovery of certain incentive-based compensation under section 304 of the Sarbanes-Oxley Act. The complaint seeks unspecified compensatory damages, equitable relief, restitution, costs and expenses against all of the defendants. The complaint also seeks an order declaring that the defendants against whom the section 304 claim is directed are liable under the Sarbanes-Oxley Act and directing them to reimburse us for all bonuses or other incentive-based or equity-based compensation they received for the fiscal years 1999 through 2004. The court has directed the

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parties to submit, on or before April 17, 2006, a proposed schedule for the filing of any amended complaint and responses to the operative complaint in the action. Pending the submission and approval of the aforementioned schedule, the court has adjourned the time by which all defendants must answer, move, or otherwise respond to the complaint in this action.

We are also a party to various other 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.

Indemnification

The Company indemnifies its officers and directors pursuant to indemnification agreements and may in addition indemnify these individuals as permitted by Delaware law. Accordingly, in connection with the purported class action lawsuit, three purported shareholder derivative lawsuits and the SEC inquiry and related review of the Special Committee described above and in note 17—Commitments and Contingencies, to our consolidated financial statements included in this report, the Company has advanced counsel fees and other reasonable fees and expenses, actually and necessarily incurred by the present and former directors and officers who are involved, in an aggregate amount of approximately $2,566,190. Each of the individuals is required to execute an undertaking to repay such expenses if he or she is finally found not to be entitled to indemnification.

During the fourth quarters of 2004 and 2005, no matters were submitted to a vote of our security holders.

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.

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As of March 1, 2006 and March 1, 2005, there were approximately 428 and 479 holders of record of our common stock, respectively. 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 have not paid dividends in the last three years and intend to retain all earnings for the foreseeable future for use in the operation and expansion of our business. 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 Unregistered Securities

Between May and August 2005, we issued to four employees an aggregate of 20,000 shares of restricted common stock pursuant to the terms of our 2001 Senior Stock Plan. With respect to three of the four grants, the restricted stock will vest upon the earlier of the third anniversary of the date of grant or the date of the employee’s death, retirement or disability while still employed. With respect to the fourth grant, the restricted stock will vest in three equal annual installments starting on the first anniversary of the date of grant; provided that all of the restricted stock will vest immediately upon the occurrence of the date of the employee’s death, retirement or disability while still employed or the termination of the employee pursuant to the terms of his employment agreement with the Company. The issuance of these shares was not required to be registered under the Securities Act because the issuance did not constitute a sale within the meaning of Section 2(3) thereof.

Options to purchase an aggregate of 110,000 shares of the Company’s common stock were granted to employees between May and December 2005. The grant of these options was not required to be registered under the Securities Act because the issuance did not constitute a sale within the meaning of Section 2(3) thereof.

Purchases of Equity Securities by the Issuer

The following table provides information about purchases of the Company’s common stock by the Company during the fourth quarter of 2005:

Equity Compensation Plans

For information regarding equity compensation plans, see Item 12 of this annual report on Form 10-K.

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The following selected financial data reflects the results of operations and balance sheet data for the years ended 2002 to 2005. The data below should be read in conjunction with, and is qualified by reference to, MD&A and our consolidated financial statements and notes thereto. The financial information presented may not be indicative of our future performance.

The following selected consolidated financial data for 2003 and 2002 has been restated to reflect adjustments resulting from matters discussed in Item 7 – MD&A and in note 3 to our consolidated financial statements (the “Restatement Note”). We have not restated our previously reported consolidated financial statements for the fiscal years ended December 31, 2001 and 2000, and we have not presented any financial data from those periods below. In light of the systems and records presently available to us, it is not possible for us to reconstruct detailed financial data for 2001 and prior periods with any amount of effort or expense due to the current state of historical records used to prepare the financial statements for such periods. The selected financial data for 2001 and 2000 would not have a material impact on a reader’s understanding of the Company’s financial results and condition as disclosed in this report. Previously published financial information for 2001 and earlier periods should not be relied upon. We encourage you to read MD&A and the Restatement Note for further discussion of the restatement adjustments.

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The following management discussion and analysis gives effect to the restatement discussed below and in the Restatement Note.

Executive Overview

We are the largest equipment rental company in the world with an integrated network of 751 rental locations in the United States, Canada and Mexico. Although the equipment rental industry is highly fragmented and diverse, we believe we are well positioned to take advantage of this environment because larger companies often have significant competitive advantages over smaller competitors. These advantages include greater purchasing power, the ability to provide customers with a broader range of equipment and services as well as with newer and better maintained equipment, and greater flexibility to transfer equipment among branches.

We offer for rent over 20,000 classes of rental equipment, including construction equipment, industrial and heavy machinery, aerial work platforms, traffic control equipment, trench safety equipment and homeowner items. Our revenues are derived from the following sources: equipment rentals, sales of rental (used) equipment, sales of new equipment, contractor supplies sales and service and other. Rental equipment revenues have historically accounted for more than 70 percent of our total revenues and we expect this trend to continue.

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In August 2004, we received notice from the SEC that it was conducting a non-public, fact-finding inquiry of the Company. The SEC inquiry appears to relate to a broad range of the Company’s accounting practices and is not confined to a specific period. In March 2005, our board of directors formed a Special Committee of independent directors to review matters related to the SEC inquiry. Our board of directors received and acted upon findings of the Special Committee in January 2006. The actions that we took with respect to the Special Committee’s findings relating to the minor sale-leaseback transactions and the trade packages, as well as some other accounting matters, are discussed below. With respect to the accounting for purchase business combinations, the primary focus of the Special Committee’s inquiry was our historical practices concerning the valuation of rental equipment acquired in purchase business combinations and the practice of recognizing profit on sales of this equipment within one year of its acquisition. These practices are further discussed below.

The SEC inquiry is ongoing and we are continuing to cooperate fully with the SEC.

Restatement and Reclassification of Previously Issued Consolidated Financial Statements, Certain Findings of the Special Committee and Related Matters

Subsequent to the filing of our Form 10-K for the year ended December 31, 2003, which included our consolidated financial statements for the years ended December 31, 2003 and 2002, it was determined that the Company’s originally issued financial statements for those periods required restatement to correct the accounting for (i) the recognition of equipment rental revenue; (ii) irregularities identified by the Special Committee with respect to six short-term, or minor, equipment sale-leaseback transactions; (iii) self-insurance reserves; (iv) customer relationships; and (v) the provision for income taxes. In addition, we identified other matters for which we are not restating but for which we have determined additional disclosure would be useful.

Restatement of Financial Statements

The effects of the restatement adjustments on our originally reported results of operations for the years ended December 31, 2003 and 2002 and on our originally reported retained earnings at December 31, 2001, are summarized below.

Below is a summary of the nature and amount of the adjustments reflected in the restatement (all amounts are presented on a pre-tax basis unless otherwise noted). As discussed above in Item 6, in light of the systems and records presently available to us, it is not possible for us to reconstruct detailed financial data for 2001 and prior periods with any amount of effort or expense. Accordingly, we do not have the ability to restate, and we have not

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restated, our previously reported consolidated financial statements for the fiscal years ended December 31, 2001 and 2000. However, we have provided below the impact on originally reported pre-tax and/or net income for 2001 and 2000 of certain of the items for which we are restating, as information for these discrete items is available to us and we believe this information is useful.

(a) Recognition of equipment rental revenues. Our originally reported results reflected the recognition of equipment rental revenues based on the minimum amounts which became due and payable under the terms of our applicable rental contracts. We have determined that equipment rental revenues should be recognized on a straight-line basis and have restated our previously reported results to reflect this correction of an error. Our restatement had the impact of increasing/(decreasing) originally reported pre-tax income for 2001, 2000 and for periods prior to 2000 by $6, $4, and $(27), respectively.

(b) Sale-leaseback transactions. In 2002, 2001, and 2000 we previously recognized gross profits of $1, $20 and $12, respectively, in conjunction with six minor sale-leaseback transactions. It has been determined that the accounting for these transactions involved irregularities, and we are restating our financial statements to properly reflect the accounting for these six transactions. At the dates of the original minor sale-leaseback transactions, we recognized a premium (excess profit above fair value) on these transactions. In exchange for receiving this profit premium, we agreed to disburse cash in later periods as well as pay premiums for subsequent equipment purchases (“subsequent purchases”). Our restatement for the sale-leaseback transactions had the impact of increasing/(decreasing) originally reported pre-tax income for 2003, 2002, 2001 and 2000 by $20, $2, $(21), and $(12), respectively. These restatement adjustments reflect the elimination of the premium originally received in the minor sale-leaseback transactions as well as the deferral of any profit until all of our obligations associated with the originally received premiums were settled. Additionally, the adjustments reflect a reduction in previously recorded depreciation expense because this expense reflected capitalized equipment costs for subsequent purchases that were overstated.

(c) Self-insurance reserves. We self-insure for certain types of claims associated with our business, including (i) workers compensation claims and (ii) claims by third parties for injury or property damage caused by our equipment or personnel. These types of claims may take a substantial amount of time to resolve and, accordingly, the ultimate liability associated with a particular claim may not be known for an extended period of time. Our prior methodology for developing self-insurance reserves was based on management estimates of ultimate liability which were developed without obtaining actuarial valuations. In 2004, management adopted an estimation approach based on third party actuarial calculations that properly reflects and incorporates actuarial assumptions. Based on actuarial calculations performed by our third party actuaries in late 2004 and 2005, we concluded that the estimation process we previously used did not adequately take into account certain factors and that, as a result, a restatement was required. The factors that were not adequately addressed by our historical estimation process included future changes in the cost of known claims over time, cost inflation and incurred but not reported claims. Our restatement for the self-insurance reserves had the impact of increasing/(decreasing) originally reported pre-tax income for 2003, 2002, 2001, 2000 and for periods prior to 2000 by $8, $(13), $(11), $(18) and $(12), respectively.

(d) Customer relationships. In 2001, the FASB issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”), which required the use of the purchase method of accounting for business combinations and prohibited the use of the pooling of interests method. SFAS No. 141 also changed the definition of intangible assets acquired in a purchase business combination, providing specific criteria for the initial recognition and measurement of intangible assets apart from goodwill. SFAS 141 applied to all business combinations accounted for using the purchase method for which the acquisition date is July 1, 2001 or later.

We have reviewed acquisitions we made since July 1, 2001 and have determined that a portion of the purchase price for these acquisitions previously allocated to goodwill should be recorded as a separate intangible asset—customer relationships. This restatement reflects the amortization expense associated with the reallocation

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of a portion of the purchase price from goodwill (which is not amortized) to customer relationships (which are amortized). This correction of an error had the impact of decreasing originally reported pre-tax income for 2003 and 2002 by $2 and $1, respectively.

(e) Income taxes. We have restated our income tax provision to (i) correctly reflect all book-to-tax temporary differences (primarily depreciation and nondeductible reserves and accruals); (ii) reflect appropriate tax benefits for net operating loss and alternative minimum tax credits; (iii) calculate deferred taxes at appropriate legal entity tax rates; and (iv) account for the settlement of an IRS audit examination. Our restatement for income taxes had the impact of increasing/(decreasing) originally reported net income for 2003, 2002, 2001, 2000 and for periods prior to 2000 by $(10), $1, $(3), $(2) and $(4), respectively.

Buy-out of operating lease. In addition to the restatement matters discussed above, we have determined that $88 of costs for the year ended December 31, 2003 previously classified below operating income should be reclassified to cost of equipment revenues and included in operating income. This amount primarily represents the amount in excess of the fair value related to the buy-out of equipment under operating leases. This reclassification, which has the effect of reducing gross profit and other expense (income), net by $88, has no impact on originally reported net income or earnings per share for the year ended December 31, 2003.

Trade packages. During the period from the fourth quarter of 2000 through 2002, the Company sold used equipment to certain suppliers (referred to as “trade packages”). In certain of the trade packages, prices may have included a premium above fair value. In order to induce these suppliers to buy used equipment at premium prices, the Company made commitments or concessions to the suppliers. It has been determined that the accounting for those transactions involved irregularities and that the Company improperly recognized revenue from the transactions involving the undisclosed inducements. However, because records were not created that would have permitted the linkage of the sales and inducements (as a result of instructions given by certain former employees of the Company), the Company is unable to determine the portion of the revenue and gross profit recognized in connection with trade packages with these suppliers between 2000 and 2002 that was improperly recognized. During this period, all sales of used equipment to these suppliers (which includes all trade package transactions) generated total revenues and gross profits of $38 and $9, respectively. Notwithstanding the lack of records relating to these transactions, the Company believes that its financial statements from and after 2002 are materially correct with respect to the effect of these transactions.

The Special Committee concluded that, based on the evidence it reviewed, the practices regarding certain trade packages and minor sale-leaseback transactions described above appear to have been directed by the Company’s two former chief financial officers. Both of these individuals, who are no longer with the Company, declined to cooperate with the Special Committee’s investigation. Based upon recommendations of the Special Committee, the Company’s board of directors directed the Company, among other things, to evaluate potential claims relating to certain former company personnel, including these individuals and compensation and benefits previously received by them described elsewhere in this report.

Purchase Accounting. The Company was formed and began operations in 1997 with the acquisition of six equipment rental companies. During the subsequent three year period, we grew rapidly and completed approximately 230 additional acquisitions. By the end of 1999, we were the largest equipment rental company in the world, with annual revenues of approximately $2.9 billion. With management’s focus now turned toward organic growth, the pace of our acquisitions significantly slowed and from September 2001 through the date of this report we completed only eight acquisitions. Substantially all of the business combinations that we have completed since the inception of the Company were accounted for as purchases, however, there were several significant business combinations accounted for in the earlier period that were accounted for as poolings.

Accounting standards applicable to purchase business combinations require the acquiring company to recognize the assets acquired and the liabilities assumed based on their fair values at the time of acquisition. Any excess between the cost of an acquired company and the sum of the fair values of tangible and identifiable intangible assets less liabilities assumed should be recognized as goodwill.

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In our historical accounting for these purchase business combinations, long-lived fixed assets (comprised primarily of rental equipment) and goodwill generally represented the largest components of our acquisitions. As a result, when we performed our purchase price allocation process, the purchase price was primarily allocated to these assets.

As discussed above, in March 2005, our Board of Directors formed a Special Committee of independent directors to review matters related to the SEC inquiry. The Special Committee made certain findings related to the Company’s historical practices concerning the valuation of rental equipment acquired in purchase business combinations. The committee concluded that certain of these practices were not adequate between 1997 and August 2000. These practices included, among other things, the use of inconsistent valuation methodologies, some of which were reflected in memoranda that were not provided to or reviewed by the Company’s auditors, suggestions contained in those memoranda that improper methods of valuation be used (although the committee did not find evidence that such improper methods were generally applied), inadequate supervision of personnel, inadequate coordination with providers of outside valuations and apparent confusion on the part of one of those providers. The Special Committee concluded that certain Company personnel (whom the committee was unable to identify) may have sought to manipulate opening balance sheet values for equipment acquired in purchase business combinations by causing them to be understated and that these opening balance sheet values may have been understated by an amount the committee was unable to determine.

Following our review of our historical practices and the findings of the Special Committee, the Company considered whether the effect of the deficiencies identified by the committee required a restatement of previously reported results. These deficiencies in our historical practices between 1997 and August 2000 may have resulted in inaccurate values being ascribed to rental equipment that we acquired in purchase business combinations, including in some cases values that may have been below fair value. However, we do not have the ability to revalue this equipment because we are unable to currently determine its historical physical condition and the records that currently exist for this equipment are not sufficient to establish the physical condition of the equipment at the time of its acquisition.

The equipment valuations performed at the time of the acquisition, some of which included a physical inspection, reflected an assessment of the condition of the equipment. While, as the Special Committee identified, there were various deficiencies in our historical valuation practices, it is not possible to accurately revalue this equipment to assess the reasonableness of specific valuations. Therefore, we believe the only feasible approach is to give effect to the valuations that were performed contemporaneously with these acquisitions. Accordingly, we have determined that restatement is not appropriate. However, we have also determined that it would be useful to illustrate what our historical results would have been had these equipment values been higher.

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The analysis below reflects the hypothetical impact on total gross profit (including gross profit on equipment rentals as well as sales of rental equipment) and net income (loss) for the years 2002 through 2005 had the rental equipment we acquired in purchase acquisitions during the period between 1997 and August 2000 been valued at an amount 10 percent and 20 percent higher than it was previously valued. The hypothetical impact on gross profit does not reflect costs and expenses that are considered operating expenses and are appropriately classified below gross profit.

Hypothetical impact of understatement of equipment values (1)(2)(3)

Any potential impact on gross profit and net income (loss) had this rental equipment acquired between 1997 and August 2000 been valued 10 percent or 20 percent higher than it was previously valued would not have a material impact on our reported results of operations for 2002 through 2005. Accordingly, notwithstanding deficiencies in the Company’s historical valuation process as it relates to purchase business combinations, the Company does not believe a restatement is required and believes that its financial statements from and after 2002 are materially correct with respect to the effect of equipment valuations.

In addition to the deficiencies identified by the Special Committee related to our historical practices described above, instances were identified where equipment acquired in purchase business combinations between 1997 and August 2000 was sold within a short time following the acquisition at gross margins that indicate the value initially ascribed to the equipment may have been too low. For the reasons described above, however, we are unable to assess the reasonableness of allocations of basis to specific acquired assets. Notwithstanding the

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impracticability associated with making this assessment, however, we believe it is useful to illustrate what our gross profit would have been for the period between 1998 and 2001 had our gross margin on sales of all rental equipment (including equipment acquired in connection with purchase acquisitions) been different. The analysis below reflects the hypothetical impact on previously reported gross margins and gross profits on sales of all rental equipment for the years 1998 through 2001 had these gross margins been 40 percent and 35 percent.

Hypothetical impact of reduced gross margins (1)

Any potentially overstated gross profit associated with these sales, the latest of which would have occurred in August 2001, would not have a material impact on our reported results of operations for 2002 through 2005. Accordingly, notwithstanding deficiencies in the Company’s historical valuation process as it relates to purchase business combinations, the Company does not believe a restatement is required and believes that its financial statements from and after 2002 are materially correct with respect to the effect of equipment valuations.

Financial Overview

Free Cash Flow GAAP Reconciliation

We define “free cash flow” as (i) net cash provided by operating activities less (ii) purchases of rental equipment, purchases of other property and equipment and buy-outs of equipment leases plus (iii) proceeds from sales of rental equipment, proceeds from sales of rental locations and proceeds from sales-leaseback transactions. Management believes free cash flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements. However, free cash flow is not a measure of financial performance or liquidity under Generally Accepted Accounting Principles (“GAAP”). Accordingly, free cash flow should not be considered an alternative to net income or cash flow from operating activities as indicators of operating performance or liquidity. The table below provides a reconciliation between net cash provided by operating activities and free cash flow.

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In 2005, we reported revenues and free cash flow of $3.6 billion and $130, respectively. Our 2005 revenue growth of 15.2 percent outpaced our primary end market, private non-residential construction, which grew 5.0 percent in 2005 according to Department of Commerce data. This revenue growth reflects increased rental rates of 6.0 percent and a 5.2 percentage point increase in dollar equipment utilization to 65.1 percent. (Dollar equipment utilization is calculated with consideration to our equipment rental revenue and the average original cost of equipment in our rental fleet.) In 2004, we reported revenues and free cash flow of $3.1 billion and $386, respectively. Our 2004 revenue growth of 7.4 percent outpaced our primary end market, private non-residential construction, which grew 4.2 percent in 2004 according to Department of Commerce data. This growth reflects increased rental rates of 7.5 percent and a 2.8 percentage point increase in dollar equipment utilization to 59.9 percent.

We significantly improved our profitability in 2005 as compared to 2004. Our increased profitability was driven by a 6.0 percent growth in rental rates and a 44.0 percent increase in contractor supplies sales. The improved profitability also reflects a $122 reduction in goodwill impairment charges and a $101 reduction in refinancing charges. In addition to improving our profitability, we reported free cash flow of $130 in 2005, after investing approximately $839 in capital expenditures. Our rental fleet had an original equipment cost of $3.9 billion at December 31, 2005, as compared to $3.7 billion at December 31, 2004. We ended 2005 with a cash balance of approximately $316.

In 2004, we substantially reduced our net loss from 2003. This was accomplished through a 7.5 percent growth in rental rates, a 22.3 percent increase in contractor supplies sales, a 25.8 percent reduction in interest expense and the expansion of our rental fleet. The reduced net loss also reflects a $117 reduction in goodwill impairment charges, partially offset by increased refinancing costs of approximately $84. Our rental fleet had an original equipment cost of $3.7 billion at December 31, 2004 as compared to $3.5 billion at December 31, 2003. Additionally, we reported free cash flow of $386 in 2004, after investing $649 in capital expenditures. In 2004, we also refinanced approximately $2.1 billion of debt. This refinancing extended our debt maturities, reduced interest expense and provided the company with greater financial flexibility. As a result of our significantly improved operations and refinancing activity, we ended 2004 with a cash balance of $303.

In 2003, despite a weak non-residential construction market, we substantially reduced our net loss and increased our revenues 2.2 percent to $2.9 billion. The reduced net loss reflected increased rental rates of 2.0 percent. Additionally, the reduced net loss reflected the absence of a $288 charge associated with a cumulative effect of change in accounting principle as well as a $17 restructuring charge, partially offset by a $58 charge for the buy-out of equipment leases and a $17 charge for refinancing costs. In 2003, we generated $306 in cash flow from operations and our free cash flow was $(177).

We are committed to capitalizing on future growth opportunities. Our goal is to grow revenues by approximately 11 percent to approximately $4.0 billion in 2006. We are on track to achieve this objective and expect organic growth, prudent acquisitions and the expansion of complementary revenue streams such as contractor supplies to contribute to our growth.

Revenues for each of the four years in the period ended December 31, 2005 were as follows:

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Equipment rentals include our revenues from renting equipment, as well as related revenues such as the fees we charge for equipment delivery, fuel, repair of rental equipment and damage waivers. Sales of rental equipment include our revenues from the sale of used rental equipment. Contractor supplies sales include our sales of supplies utilized by contractors, which include construction consumables, tools, small equipment and safety supplies. Services and other includes our repair services (including parts sales) as well as the operations of our subsidiaries that develop and market software for use by equipment rental companies in managing and operating multiple branch locations.

2005 total revenues of $3.6 billion increased 15.2 percent compared with total revenues of $3.1 billion in 2004. The increase primarily results from a 12.8 percent increase in equipment rentals and a 44.0 percent increase in contractor supplies sales. The increase in equipment rentals reflects a 6.0 percent increase in rental rates and a 5.2 percentage point increase in dollar equipment utilization. The increase in contractor supplies sales reflects increased volume as we expanded our product offering. Equipment rentals represented approximately 72 percent and 74 percent of our revenues in 2005 and 2004, respectively.

2004 total revenues of $3.1 billion increased 7.4 percent compared with total revenues of $2.9 billion in 2003. The increase resulted primarily from a 5.2 percent increase in equipment rentals, an 18.0 percent increase in sales of rental equipment and a 22.3 percent increase in contractor supply sales. The increase in equipment rentals reflects a 7.5 percent increase in rental rates and a 2.8 percentage point increase in dollar equipment utilization. The increase in contractor supplies sales reflects increased sales volume. The increase in sales of rental equipment reflects increased volume. Equipment rentals represented approximately 74 percent and 76 percent of our revenues in 2004 and 2003, respectively. 2003 total revenues of $2.9 billion increased 2.2 percent compared with total revenues of $2.8 billion in 2002. The increase primarily relates to increased equipment rental revenues and increased contractor supplies sales. Equipment rentals represented approximately 76 percent of our revenues in 2003 and 2002.

Net income (loss) for each of the four years in the period ended December 31, 2005 was as follows:

2005 net income was $187 or $1.80 per diluted share.

2004 net loss of $84, or $1.07 per diluted share, included an after-tax charge of $122 ($139 pre-tax), or $1.57 per diluted share, relating to goodwill impairment and an after-tax charge of $101 ($171 pre-tax), or $1.30 per diluted share, related to refinancing costs.

2003 net loss of $254, or $3.29 per diluted share, included an after-tax charge of $239 ($297 pre-tax), or $3.10 per diluted share, relating to goodwill impairment, an after-tax charge of $58 ($95 pre-tax), or $0.75 per diluted share, relating to the buy-out of equipment leases, and an after-tax charge of $17 million ($29 pre-tax), or $0.22 per diluted share, related to refinancing costs.

2002 net loss of $406, or $4.88 per diluted share, included an after-tax charge of $288 as a cumulative effect of change in accounting principle, an after-tax charge of $199 ($248 pre-tax), or $2.62 per diluted share, relating to goodwill impairment, and an after-tax charge of $17 ($28 pre-tax), or $0.23 per diluted share, relating to a restructuring charge.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with U.S generally accepted accounting principles. A summary of our significant accounting policies is contained in note 2 to our consolidated financial statements. In applying many accounting principles, we make assumptions, estimates and/or judgments. These

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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 our accounting policies that we believe could potentially produce materially different results were we to change underlying assumptions, estimates and judgments. Although actual results may differ from those estimates, we believe the estimates are reasonable and appropriate.

Revenue Recognition. We recognize equipment rental revenue on a straight-line basis. Our rental contract periods are daily, weekly or monthly. By way of example, if a customer were to rent a piece of equipment and the daily, weekly and monthly rental rates for that particular piece were (in actual dollars) $100, $300 and $900, respectively, we would recognize revenue of $32.14 per day. The daily rate is calculated by dividing the monthly rate of $900 by 28 days, the monthly term. As part of this straight-line methodology, when the equipment is returned, we recognize as incremental revenue the excess, if any, between the amount the customer is contractually required to pay over the cumulative amount of revenue recognized to date.

Revenues from the sale of rental equipment and new equipment are recognized at the time of delivery to, or pick-up by, the customer and when collectibility is reasonably assured. Sales of contractor supplies are also recognized at the time of delivery to, or pick-up by, the customer. For construction-related contracts in our traffic control segment which comprise approximately 8 percent of our total revenues, revenues are recognized based on the percentage of work completed. Use of the percentage-of-completion method requires management to make estimates of the expected total revenues, total costs and the extent of progress toward completion.

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 base our estimate on 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 which ranges from 0 percent to 10 percent 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.

Purchase Price Allocation. We have made a significant number of acquisitions in the past and expect that we will continue to make acquisitions in the future. We allocate the cost of the acquired enterprise to the assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. With the exception of goodwill, long-lived fixed assets generally represent the largest component of our acquisitions. The long-lived fixed assets that we acquire are primarily rental equipment, transportation equipment and real estate. With limited exceptions, virtually all of the rental equipment that we have acquired through purchase business combinations has been classified as “To be Used,” rather than as “To be Sold.” Equipment that we acquire and classify as “To be Used” is recorded at fair value, as determined by replacement cost to the Company of such equipment. We use third party valuation experts to help calculate replacement cost.

In addition to long-lived fixed assets, we also acquire other assets and assume liabilities. These other assets and liabilities typically include, but are not limited to, parts inventory, accounts receivable, accounts payable and other working capital items. Because of their short-term nature, the fair values of these other assets and liabilities generally approximate the book values reflected on the acquired entities balance sheets. However, when appropriate, we adjust these book values for factors such as collectibility and existence. The intangible assets that

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we have acquired are primarily goodwill, customer-related intangibles (specifically customer relationships) and covenants not-to-compete. Goodwill is calculated as the excess of the cost of the acquired entity over the net of the amounts assigned to the assets acquired and the liabilities assumed. Customer relationships have been valued based on an excess earnings or income approach with consideration to projected cash flows. When specifically negotiated by the parties in the applicable purchase agreements, we have valued non-compete agreements based on the amounts assigned to them in the purchase agreements as these amounts represent the amounts negotiated in an arm’s length transaction. When not negotiated by the parties in the applicable purchase agreements, we estimated the fair value of non-compete agreements based on a percentage of the acquisition’s goodwill.

Impairment of Goodwill. We have made acquisitions in the past that included the recognition of a significant amount of goodwill. Commencing January 1, 2002, goodwill is no longer amortized, but instead is reviewed for impairment annually or more frequently as events occur that indicate a decline in fair value below its carrying value. 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 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.

Prior to January 1, 2004, we tested for goodwill impairment on a branch-by-branch basis. Accordingly, a goodwill write-off was required even if only one or a limited number of our branches had an impairment as of the testing date and even if there was no impairment for all our branches on an aggregate basis.

Commencing January 1, 2004, we began testing for goodwill impairment at a regional, rather than a branch, level. We began testing for impairment at this level because accounting standards require that goodwill impairment testing be performed at the reporting unit level. In 2004, following a reorganization of our reporting structure, our regions became our reporting units. This change in reporting units may impact future goodwill impairment analyses because there are substantially fewer regions (nine) than there are branches (in excess of 700).

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 an undiscounted cash flow analysis over the asset’s remaining useful life. We must make estimates and assumptions when applying the undiscounted 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.

Income Taxes. We recognize deferred tax assets in accordance with applicable accounting standards and we record deferred tax assets based on current enacted tax rates and laws. The future realization of the deferred tax benefits and carryforwards are determined by considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. We generally evaluate projected taxable income for a five-year period to determine the recoverability of all deferred tax assets and, in addition, examine the length of the carryforward to ensure that the deferred tax assets are established at an amount that is more likely than not to be realized. We have not provided a valuation allowance related to our federal 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 would be required to record a valuation allowance for such assets, which would result in additional income tax expense. We have provided a valuation allowance related to certain state operating loss carryforwards.

We are subject to ongoing tax examinations and assessments in various jurisdictions. Accordingly, we may incur additional tax expense based on the probable outcomes of such matters. In addition, when applicable, we

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adjust the previously recorded tax expense to reflect examination results. Our ongoing assessments of the probable outcomes of the examinations and related tax positions require judgment and could increase or decrease our effective tax rate as well as impact our operating results.

Reserves for Claims. We are exposed to various claims relating to our business, including those for which we provide self-insurance. Claims for which we self-insure include (i) workers compensation claims and (ii) claims by third parties for injury or property damage caused by our equipment or personnel. These types of claims may take a substantial amount of time to resolve and, accordingly, the ultimate liability associated with a particular claim may not be known for an extended period of time. Our methodology for developing self-insurance reserves is based on management estimates which incorporate actuarial valuations that are periodically prepared by our third party actuaries. Our estimation process considers, among other matters, the cost of known claims over time, cost inflation and incurred but not reported claims. These estimates may change based on, among other things, changes in our claims history or receipt of additional information relevant to assessing the claims. Further, 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 reserve levels.

Legal Contingencies. We are involved in a variety of claims, lawsuits, investigations and proceedings, as described in “Item 3 – Legal Proceedings” and elsewhere in this report. We determine whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. We assess our potential liability by analyzing our litigation and regulatory matters using available information. We develop our views on estimated losses in consultation with outside counsel handling our defense in these matters, which involves an analysis of potential results, assuming a combination of litigation and settlement strategies. Should developments in any of these matters cause a change in our determination as to an unfavorable outcome and result in the need to recognize a material accrual, or should any of these matters result in a final adverse judgment or be settled for significant amounts, they could have a material adverse effect on our results of operations in the period or periods in which such change in determination, judgment or settlement occurs.

Results of Operations

As discussed in note 19 to the consolidated financial statements, our current reportable segments are general rentals, traffic control and trench safety, pump and power. Prior to 2004, we had one reportable segment: general rentals. In the first quarter of 2004, we began reporting information for two reporting segments: general rentals and traffic control. In 2005, we began reporting for an additional segment, trench safety, pump and power.

The general rentals segment includes the rental of construction, aerial, industrial and homeowner equipment and related services and activities. The general rentals segment’s customers include construction and industrial companies, manufacturers, utilities, municipalities and homeowners. The general rentals segment operates throughout the United States and Canada and has one location in Mexico. The traffic control segment includes the rental of equipment used in the management of traffic-related services and activities. The traffic control segment’s customers include construction companies involved in infrastructure projects and municipalities. The traffic control segment operates in the United States. The trench safety, pump and power segment includes the rental of specialty construction products and related services. The trench safety, pump and power segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment operates in the United States and has one location in Canada.

These segments align the Company’s external segment reporting to how management evaluates and allocates resources. The Company evaluates segment performance based on segment operating results.

We completed acquisitions in each of 2002, 2003, 2004 and 2005 which are discussed further in note 4 to the consolidated financial statements. 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, although there is no material impact from these acquisitions.

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Revenues by segment for each of the four years in the period ended December 31, 2005 were as follows:

Equipment rentals. Equipment rentals represent our revenues from renting equipment.

2005 equipment rentals of $2,583 increased $294, or 12.8 percent, reflecting a 6.0 percent increase in rental rates and a 5.2 percentage point increase in our dollar equipment utilization. Equipment rentals represented approximately 72 percent of total revenues in 2005. On a segment basis, equipment rentals represented approximately 71 percent, 78 percent and 89 percent of total revenues for general rentals, trench safety, pump and power and traffic control, respectively. General rentals equipment rentals increased $242 or 12.3 percent reflecting increased rental rates and a 10.6 percent increase in same-store rental revenues. Trench safety, pump and power equipment rentals increased $39, or 38.6 percent, reflecting a 22.8 percent increase in same-store rental revenues. Traffic control equipment rentals increased $13, or 5.7 percent, reflecting a 19.2 percent increase in same-store rental revenues, partially offset by reduced revenues associated with closed locations.

2004 equipment rentals of $2,289 increased $113, or 5.2 percent, reflecting a 7.5 percent increase in rental rates and a 2.8 percentage point increase in dollar equipment utilization, partially offset by reduced volume. Equipment rentals represented approximately 74 percent of total revenues in 2004. On a segment basis, equipment rentals represented approximately 72 percent, 78 percent and 89 percent of total revenues for general

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rentals, trench safety, pump and power and traffic control, respectively. General rentals equipment rentals increased $169, or 9.4 percent, reflecting increased rental rates and a 10.9 percent increase in same-store rental revenues. Trench safety, pump and power equipment rentals increased $16, or 18.8 percent, reflecting a 14 percent increase in same-store rental revenues. Traffic control equipment rentals decreased $72, or 24.1 percent, reflecting a reduction in the volume of rentals due to continued weakness in state spending for infrastructure projects.

2003 equipment rentals of $2,176 increased $24, or 1.1 percent, reflecting a 2.0 percent increase in rental rates. Equipment rentals represented approximately 76 percent of total revenues in 2003. On a segment basis, equipment rentals represented approximately 73 percent, 78 percent and 91 percent of total revenues for general rentals, trench safety, pump and power and traffic control, respectively. General rentals equipment rentals increased $31, or 1.8 percent. Trench safety, pump and power equipment rentals increased $14. Traffic control equipment rentals decreased $21, or 6.6 percent, reflecting a reduction in the volume of rentals due to continued weakness in state spending for infrastructure projects.

Sales of rental equipment. For each of the four years in the period ended December 31, 2005, sales of rental equipment have represented between 7 and 9 percent of our total revenues and our general rentals segment accounted for approximately 95 percent of these sales. Sales of rental equipment for traffic control and trench safety, pump and power have been insignificant.

2005 sales of rental equipment of $307 increased $32 or 11.6 percent as compared to 2004. The 11.6 percent increase as compared to 2004 reflected an increase in the volume of equipment sold. 2004 sales of rental equipment of $275 increased $42 or 18.0 percent as compared to 2003. This increase reflected an increase in the volume of equipment sold. 2003 sales of rental equipment of $233 increased $10 or 4.5 percent as compared to 2002. This increase as compared to 2002 reflected an increase in the volume of equipment sold, as used equipment prices remained relatively flat.

Sales of new equipment. For each of the four years in the period ended December 31, 2005, sales of new equipment represented approximately 6 percent of our total revenues. Our general rentals segment accounted for approximately 95 percent of these sales. Sales of new equipment for traffic control and trench safety, pump and power have been insignificant.

2005 sales of new equipment of $208 increased $30 or 16.9 percent as compared to 2004. The 16.9 percent increase as compared to 2004 reflected an increase in the number of units sold. 2004 sales of new equipment of $178 increased $8 or 4.7 percent as compared to 2003. The 4.7 percent increase as compared to 2003 reflected an increase in the volume of equipment sold. 2003 sales of new equipment of $170 was unchanged from 2002.

Sales of contractor supplies. Sales of contractor supplies represent our revenues associate with selling a variety of contractor supplies including construction consumables, tools, small equipment and safety supplies. Contractor supplies sales have increased from $160, or 5.7 percent of our total revenues, in 2002 to $324, or 9.1 percent of our total revenues, in 2005. Consistent with sales of rental and used equipment, general rentals accounts for substantially all of our contractor supplies sales. Between 2003 and 2005, general rentals accounted for approximately 85 percent of total sales of contractor supplies.

2005 sales of contractor supplies of $324 increased $99 or 44.0 percent as compared to 2004. The 44.0 percent increase as compared to 2004 reflected an increase in the volume of supplies sold. 2004 sales of contractor supplies of $225 increased $41 or 22.3 percent as compared to 2003. The 22.3 percent increase as compared to 2003 reflected an increase in the volume of supplies sold. 2003 sales of contractor supplies of $184 increased $24 or 15.0 percent as compared to 2002. The 15.0 percent increase as compared to 2002 reflected an increase in the volume of supplies sold.

Service and other. Service and other represent our revenues earned from providing services (including parts sales). Consistent with sales of rental and new equipment as well as sales of contractor supplies, general rentals

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accounts for substantially all of our service and other revenue. Between 2002 and 2005, general rentals accounted for approximately 97 percent of total service and other revenue. Service and other revenue increased 2.8 percent, 6.7 percent and 11.0 percent in 2003, 2004 and 2005, respectively.

Segment Operating Profit. Segment operating profit and operating margin for each of the four years in the period ended December 31, 2005 were as follows:

The following is a reconciliation of segment profit to total company operating income (loss):