聯合設備租賃 (URI) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the United Rentals fourth quarter and full year 2007 investor conference call. Please be advised that this call is being recorded and is copyrighted by United Rentals.

Before we begin, the Company has asked me to remind you that many of the comments made on today's call and some of the responses to your questions will contain forward-looking statements. United Rentals' business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control, and consequently, actual results may differ materially from those projected by any such forward-looking statements. A summary of these uncertainties is included in the Safe Harbor statement contained in the Company's fourth quarter and full year 2007 earnings release. For a fuller description of these and other possible uncertainties, please refer to the Company's annual report on Form 10-K for the year ended December 31, 2007, as well as through the subsequent filings with the SEC. You can access the Company's press releases as well as its SEC filings on the company's website at www.UnitedRentals.com, using the link captioned access investor relations. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.

During the conference call, references will be made to free cash flow and to EBITDA, each of which is a non-GAAP term.

Speaking today for United Rentals is Michael Kneeland, Chief Executive Officer, and Marty Welch, Chief Financial Officer. I will now turn the call over to Mr. Kneeland. Mr. Kneeland, you may begin.

Thank you, operator. Good morning, everyone, and thank you for joining us today. With me is Marty Welch, our Chief Financial Officer, and other members of senior management team.

Now I want to open the call today with two words, focus and plan. These two words are the heart of our message. They are the driving force behind the solid numbers we reported last night. Marty will go over the results with you in a minute, but first I would like to pull back the curtain and give you a full look at the powerful plan behind the results. Our strategy gets equal billing with our results today, because we believe our record EPS for 2007 and our record EBITDA are just the beginning of what we can achieve.

Last month on our guidance call, I spoke briefly about the strategic plan we initiated last June. Essentially, we did a complete recalibration of the business to take the emphasis off topline growth in replace it with an overriding objective of achieving profitable growth. It really was a fresh start for our company. Our new strategy calls for stringent cost controls, more profitable management of our equipment fleet and our refocus on our core equipment rental business. This is absolutely the right strategy for our company. Equipment rental is what we do best. It is and always has been a high-margin business for us. It is where we have numerous competitive advantages, including serving more than 900,000 customers each year.

This is an important point, because we are in a repeat business, where customer retention is key. Our employees note that they have to earn the business every day and show our customers why we are a better option on every rental. In 2007, 93% of our rental revenues came from existing customers.

This year, I think it is fair to say that we are cautiously optimistic about our end markets. We use a number of external sources for forecasting and they largely predict flat to modest growth in nonresidential construction spending in 2008. We have our ear to the ground and we are hearing the same kind of thing from our customers and our branch managers. That is on a national level. Regionally we're seeing some sizable variations between markets. Demand for construction equipment in the Southeast and Southwest regions remained soft throughout 2007 and it looks like it will stay that way for at least the first half of 2008. South Florida and California are particularly weak. We're deliberately reducing our fleet levels in these areas.

By contrast, our Rocky Mountain region and both aerial regions realized the greatest year-over-year improvement in time utilization and the highest percentage of OEC on rent. We have good project diversity right now in aerial, including long-term jobs in energy, infrastructure and the entertainment sectors.

Our Gulf region is other area where demand improved in 2007, and so far the Gulf seems to be on track for more of the same this year.

Canada as a whole continues to be a success story for us. Our Canadian business accounted for 11% of our rental revenues in 2007, which equates to a 14% growth rate for the year on a constant currency basis. Western Canada is particularly strong, which contributes to the performance of our Rocky Mountain and our Northwest regions. If we see the market begin to soften in 2008, we will make adjustments, but right now, all signs point toward continued strong demand in western Canada.

Now I want to mention residential construction since the subject always comes up on these calls. When homebuilding is down, as it is now, we feel it most sharply in California and in our trench safety business. That was the case in 2007 and continues to be the case in our current quarter. But overall, residential construction accounts for only 10% of our business, so the effect is marginalized in most of our regions. Looking at our trench safety pump and power segment, we achieved a 2.8 percentage increase in revenues and a 25.6% operating margin. Some of that came from cold starts, but the bigger picture is that our trench business, which gets most of its revenue from infrastructure projects, was able to tap into more of this business in 2007. We are expecting another year of moderate growth in this segment.

When I look at the full scope of our business, we're simply not seeing any signs of broad-based slowdown yet. That said, we are watching the situation very closely, but everything we have heard and experienced up to this point, tells us that construction experts are correct. We believe, like they do, that nonresidential construction will continue to show flat to moderate growth in 2008. And if it doesn't, we are prepared to deal with that. We spent the last six months establishing an excellent platform from which to pursue profitable business in any market environment.

Now I would like to take the next few minutes to give you some insights into our strategic process. It started early last year. That is when we took a hard look at our business and decided we could you better. As you know, United Rentals had an explosive first decade and a rapid rise to the top of our industry. Our primary focus was on driving growth and creating critical mass. Over the last several years, we tried our hand at some revenue building initiatives, like contractor supplies, and became somewhat distracted from our core business. Our business model simply was not operating at full potential.

To remedy that, we put our entire operation under a microscope. Nothing was off the table. When it was over, we knew exactly what had to be done to accelerate our earning power. We communicated back to our employees and gave them a target they could put their hands around -- $500 million of incremental annual EBITDA within five years. We wanted our employees to see cost control and fleet management and a rental business focus as a means to this end. This entire process involved some very difficult, but necessary, decisions. We reduced our headcount by 1100 employees, which is about 9% of our workforce.

Were in a service business and we don't take workforce reductions lightly. We made the cuts with the full involvement of our fleet operators and our corporate managers, the people most knowledgeable about our customer expectations. As a result, the process was largely invisible to our customers. Service levels remained high and internally, we maintained our standards for safety and quality of work. In fact, in 2007, was the safest year on record for our company with the lowest recordable rate in our history.

We also undertook a 360-degree optimization of our branch network. We evaluated all of our branches every year, but this time our yardstick was reconfigured to EBITDA, among other benchmarks. We will close 19 branches by the end of March and put most of those assets to more profitable use and we will continue to watch for chronically weak links in our network.

Our branch managers understand our goals. Last month we introduce new compensation plans that align management incentives more closely with building shareholder value. These new comp plans are an important reinforcement for the strategy that is already in place.

In effect, we are tearing down the walls that constrain fleet utilization. Our rental fleet will be managed as one pool of assets available to drive all branches and serve all customers. Branch managers are looking now beyond therefore walls to share equipment. Our salespeople are no longer diverted to selling contractor supplies. Instead, they are focused on growing our equipment rental business.

Our goal is to make these rentals as profitable as possible. We expect to lose about one point of rate this year as the construction environment tightens. Proper time utilization should more than offset any rate declined, as it did this last year. In 2007, time utilization on our larger fleet increased 2.5 percentage points to 64% for the year, while rates declined by 1.1%.

Let me tell you some of the actions we took to achieve these results. First, we leveraged our technology and developed new analytics related to our fleet. This helped our districts and branches allocate implement to areas where it can work or harder for us. In 2007, on average, we transferred 58% more fleet per quarter to branches in high demand and areas where we have high margins. For our current quarter, we are on pace to double our equipment transfers compared to 2007. Second, we are very focused on turning equipment or around more quickly when it comes off rent. We're not clearly as productive as we could be on this, but we have made strides in certain areas. Our PM currency rate, which measures how much of our fleet is in compliance with required maintenance task, improved significantly and we are now running over 90%.

A third way we are managing our fleet is through CapEx allocations. We play plan to buy about $630 million of fleet this year. This includes $100 million of growth capital for our strongest markets, balanced by 100 -- by $85 million of the defleeting in markets that don't justify their asset levels. In the past, our branch managers have submitted CapEx requests on a yearly basis. For 2008, we have moved to a quarterly system to allow us to respond more quickly to market opportunities. All of these activities are taking place in the field right now with district oversight and corporate support.

Internally, we have got dedicated teams focused on driving efficiencies throughout the business. Our SG&A ratio is under intense scrutiny. Our sourcing initiatives, which Marty Welch about will talk about in a minute, has significantly brought down the price of non-fleet purchases over the past 16 months and is on track for an estimated $23 million of incremental savings this year.

We have made great moves, but this is just the beginning. Many of the gains we made in 2007 came late in the year when we had a lot on our plate with the service deal. Nevertheless, we remained focused on our plan and we delivered one initiative after another. We emerged from 2007 as a stronger, more energized company with renewed emphasis on operations. We're running a more efficient, more profitable business today. We are managing our fleet better. We're listening to our customers and we are responding to their needs. I can assure you that we will continue to execute this plan from this platform of strength for the foreseeable future.

Now before I ask Marty to review our financials, let me mention a couple things. Our Board of Directors is currently fulfilling its fiduciary responsibility on two fronts. First, as noted in our earnings release, the Board has engaged in outside firm to perform a search for the CEO. This is clearly the right time to identify the best possible executive to lead United Rentals. I am pleased to be among the candidates under consideration at the Board's requests.

On a more fundamental issue of shareholder value, our company just came off an excellent year with -- in a very good position. Nevertheless, our stock continues to be seriously undervalued by the market and the Board is considering all viable means of enhancing shareholder value. Regardless of any conclusions the Board may reach, the strategic focus of United Rentals we remain on our equipment rental business. We are all on the same page on this.

That being said, we don't intend to comment further on the Board activities on this call, so please keep that in mind when you ask your questions. With that, I will now turn the microphone ever to Marty for the financial review and then we will take some questions. Marty?

Thank you, Michael, and good morning, everyone. Michael has discussed some of our highlights for this year as well as the new strategy we put in place. This strategy, which includes an intense focus on our core business of equipment rentals, more profitable management of our rental fleet and continued execution of our cost containment initiatives, contributed to our record fourth quarter and full year EPS and EBITDA performance in 2007. Looking forward to 2008, we expect the continued execution of the strategy to deliver another strong year.

Now I will discuss our results for the quarter and full year and review our outlook for 2008. Before I get into the details, let me say that my remarks this morning exclude the benefit related to the $100 million we received following the recent termination of our merger agreement with Cerberus. We were pleased with our progress on several fronts which are focus areas for our business and yardsticks we used to objectively assess our effectiveness at executing our new strategy and delivering on our target to generate $500 million in incremental annual EBITDA within five years. First, equipment rentals. Rental revenue increased 4.1% for the fourth quarter and 4% for the full year 2007 as improved time utilization on a larger fleet more than offset rental rate declines. For the full year, time utilization improved 250 basis points to a record 64%. Additionally, same store rental revenues increased 3.7% for the fourth quarter and 3.1% for the full year. Looking forward to 2008, we expect time utilization to improve another 200 basis points, again, more than offsetting an expected 1% decline in rental rates.

Second, SG&A. Our SG&A rate improved 80 basis points to 16.2% for the fourth quarter and 90 basis points to 15.9% for the full year 2007. I will talk more about this in a moment, but our targeted SG&A rate, which we think is achievable within five years, is about 13%.

Third, EBITDA. EBITDA increased 9.3% to a record $318 million for the fourth quarter and increased 8% to a record $1.17 billion for the full year. Additionally, our EBITDA margins improved 320 basis points to 34.2% for the fourth quarter and 160 basis points to 31.4% for the full year. We expect continued expansion of our full year EBITDA margin in 2008 as we further improve time utilization and continue to focus on rationalizing our cost structure.

Now looking at consolidated profitability, full year equipment rental gross margins of 38.7% decreased 20 basis points compared to the prior year as the impact of increased rental costs and lower rates were only partially offset by improved time utilization. Looking forward to 2008, we expect our rental gross margins to improve about 70 basis points compared to 2007.

Contractor supplies gross margins were 19% on the year, down 260 basis points compared to the prior year. The year-over-year decline reflects pricing pressure as well as a shift in mix as we sold a higher proportion of lower-margin, commodity-type products in 2007 in line with our strategy to reduce our inventory levels. Year-over-year, we reduced our inventory levels by $37 million, or 38%. For 2008, even though we expect total contractor supplies sales to decrease by about 40%, our actual gross profit dollars will decline only modestly. This is because we expect our gross margins in this business to increase as we focus on higher margin products that are complementary to our core equipment rental business and further consolidated -- and also that we further consolidate our distribution network.

Turning to used equipment sales, our used equipment sales were down about 5% year-over-year and our gross margins declined by 300 basis points. The decline in gross margins primarily reflects the sale of certain distressed and underutilized assets in the fourth quarter. For 2008, as we improve our fleet management, focus on maximizing cash flows over the life of an asset and more efficiently manage our CapEx budget, we expect used equipment sales to decline by about one-third.

SG&A of $595 million was 15.9% of revenue for the year, an improvement of 90 basis points compared to 2006. On an absolute dollar basis, SG&A expenses actually decreased $18 million, reflecting reduced professional fees, the initial benefits of our cost savings initiatives and reduced incentive compensation. During the fourth quarter, SG&A of $151 million was 16.2% of revenue, an improvement of 80 basis points year-over-year. And on absolute dollar basis, expenses declined by $9 million for the quarter.

As Michael mentioned earlier, we put our operations under a microscope in 2007 and I am proud to say we emerged from that process with very specific plans to reduce our cost levels. I would like to spend a little time here to discuss those initiatives. We have a strategic sourcing initiative, which will lower our non-equipment related spend, a headcount reduction program and other discrete projects, all of which are designed to reduce our costs. First, let me discuss SSI. We realized about $22 million of cumulative savings in 2007 and expect to realize an additional $23 million in 2008 and another $27 million in 2009. Let me give you an example. We recently renegotiated our network and long distance rates and consolidated them with one vendor. As part of this new plan, we will be upgrading our T1 lines and still realize annual companywide savings of about $2 million. Another example, we have implemented a new wireless program with our carrier, where we now pool all of our minutes and save about $24 per month on each of our thousands of wireless devices. Another example is our shipping spend. Our small package volume is over 600,000 packages a year. By consolidating this spend with one vendor, we were able to negotiate better rates and save about $6 on each and every package, representing about $3.6 million in the aggregate. And we also have better controls. Now when our parts suppliers send packages to our branches, we will insist that they use our preferred vendor.

I can go on, but the point is we are focused and recognize there is opportunity to leverage our non equipment spend the way we have already leveraged or equipment spend. Of the $70 million of total SSI savings, about two-thirds relates to cost of goods sold and the balance relates to SG&A.

In terms of headcount reductions, as Michael noted, we conducted an exhaustive review of our operations and reduced our workforce by 9%, or about 1100 people, and just as importantly, we eliminated these costs without impacting customer service. We expect this reduction to contribute about 55 to $59 million of annual savings. Of this figure, approximately 20% relates to SG&A and the balance will be reflected in cost of goods sold.

In terms of the other cost savings initiatives, we have identified about 120 individual projects. In the aggregate, we expect these projects to deliver about $70 million in savings over the next three-years. For each of these items, we have identified a project owner, who is accountable for delivering the savings, and a number of these actions have already taken place. For instance, in 2007, we eliminated our corporate jet fleet, contributing over $2 million in annual savings. Other items include the in-sourcing of our SOX compliance work, eliminating our NHL sponsorship and reducing our T&E spend by implementing better controls and spending limits. Of these initiatives, approximately 90% relate to SG&A and the balance to cost of goods sold.

Looking forward to 2008, we expect both our SG&A rate and our absolute level of SG&A spend to continue to decline. Our forecast for 2008 reflects a reduction of over $50 million in the absolute level of SG&A spend and an SG&A rate of about 15.3%, as we realize further savings from these cost-cutting initiatives. Beyond next year, we are driving toward continued improvement in this area with a target SG&A rate of about 13%.

Our continuing operations diluted earnings per share for the year was $2.76 on a share count of about 114 million shares, compared with to $2.28 on the same share count in 2006. These earnings, which exclude the $0.50 per share merger benefit, represent an improvement of 21% versus 2006. We believe the strategy we outlined will further drive EPS expansion in 2008.

Looking at our consolidated cash flow for the year, our 2007 cash flow from operations, which includes the $91 million merger termination benefit, was $859 million, compared with $834 million in 2006. Excluding this item, our year-over-year decline is largely the result of a $67 million increase in cash taxes paid as we burn through our federal NOLs.

Turning to capital expenditures for the year, we invested $870 million in our rental fleet compared with $873 million in 2006. Our non-rental CapEx for the year was $120 million, a $32 million increase versus last year. Excluding the merger benefit, free cash flow for the year was $151 million as compared to $235 million last year. The decline largely relates to the increase in cash taxes paid.

In addition to achieving strong free cash flow during the year, our EBITDA margins also improved. Our EBITDA margin of 31.4% for the year represents a 160 basis point improvement versus 2006.

Now let's take a moment to review the balance sheet. Total assets were $5.8 billion, including the net book value of our rental equipment of $2.8 billion. Our total debt, including the subordinated convertible debentures, at year end 2007 was $2.7 billion, essentially unchanged from the prior year end. Our net debt, however, decreased by $248 million, or about 10%, reflecting our strong liquidity position. Our current borrowing capacity under our revolver and accounts receivable securitization facility is about $810 million.

Now before we open up the call for Q&A, let me summarize our expectations for 2008. Our EPS range is to $2.80 to $3.00 per share. This is based on an anticipated full-year diluted share count of the same 114 million shares. This range does not reflect any provision relating to regulatory issues and related matters. Our revenue, EBITDA and free cash flow guidance is as follows -- rental revenue growth of 3% to $2.71 billion and total revenue of $3.53 billion. Our rental revenue expectations reflect an improvement in time utilization, partially offset by a 1% rate decline, virtually no growth capital and modest growth in our end markets. EBITDA of 1.17 to $1.21 billion, representing an EBITDA margin of about 33.7%. We're forecasting a tax rate of 38% and approximately 325 to $375 million of free cash flow after investing about $715 million in CapEx.

In terms of our free cash flow guidance, we are in the process of reviewing the potential opportunity associated with the bonus depreciation provisions of the recently-passed federal stimulus package and we will update you on that matter during our first quarter call.

So that summarizes our outlook. And now I would like to turn it back to the operator. Chris, if you could begin the Q&A session?

Thank you very much, sir. (OPERATOR INSTRUCTIONS). Christina Woo with Morgan Stanley.

Thanks. Thanks so much for adding the color that you did on the call. I was wondering, with regard to pricing, you're expecting pricing to be down 1% year-over-year. Why take the pricing decline instead of just adjusting your fleet mix to tighten the fleet a bit more and keep pricing at least constant, if not up a bit?

Christina, this as Michael. We take -- we do our budgets from the ground up throughout all of our branches. In fact, we are taking and we are defleeting in specific market areas, the ones I outlined as week, and we are shifting the capital around and -- but it is built up from the ground up. Keep in mind we are also looking at going from -- more to a monthly mix -- a larger monthly mix, expanding that and as you do that, you actually get some price compression.

Actually, can you give me a little more color on why you get the price compression shifting it to the monthly mix?

Because when you go for longer term contracts, if you can imagine larger projects --

Right, so some of the industrials clients, for example?

Yes, industrial clients as well as larger projects, you will get some pricing pressure on that, but it's the right thing for the Company. The contracts are out longer, there is less touch points, so there is less cost control -- less costs associated.

Right, so what would you estimate then -- I know your revenue mix now is about 10% residential, maybe, what, 20% in the infrastructure/industrial type of work?

Right now, the way in which we measure industrial and we measure industrial by SIC code, so if we are actually doing business with a plant directly, not building a plant or doing maintenance -- or doing construction inside that plant, is running at 12% industrial, 10% is residential and the remainder would be related to nonresidential construction.

So for 2008, what do you see that revenue mix shifting to?

Well, it is really hard to predict, but we are going to be focusing more on industrial customers because of our broad footprints. We think we see that as an opportunity for us and really just going after our still our larger accounts. We have got a national accounts program out there and a lot of our larger accounts are still seeing '08 equal to '07 and we are -- we want to go after more on their share of the wallet.

Okay, what sort of estimates -- what do your estimates assume in terms of the number of store locations for next year, or 2008 versus '07? Are you growing or shrinking locations?

Well, we will be down on a year-over-year basis. We just announced that we were taking 19 stores out of the first quarter. We have not announced any cold starts. In our plan we have no cold starts estimated. It is not part of our strategy. That is not to say if there is an opportunity, we may do one our two, but the net number will come down.

Okay, but you are not comfortable giving us any sense for the full year, then, what we can expect to see?

It is too early to tell. As we go through the year, we will keep everybody updated.

Okay, and then --

Thank you.

Thanks.

Joel Tiss with Lehman Brothers.

Hi, it's Scott, I'm standing in for Joel. He had to step out, I apologize. Just quickly on the quarterly run rate for the pricing. How did that progress through the year?

It went from the third quarter, I believe it was 2.1, then it went to 2.2 -- if you hang on one second, I will pull the numbers up.

Hi, this as Chris Brown, just responding to the reach question there. So, they were down 1.7% -- they were up 1.7% in the first quarter, down 1.2% in the second quarter, down 2% in the third quarter and as we disclosed in our earnings release for the fourth quarter, our rental rates were down 2.1%. As Michael mentioned earlier, we're forecasting them to be down 1% in '08.

Okay, great. Then as far as the SG&A margins, I know the longer term goal is to get those to 13% and it looks like you were at about 16% in 2007. Are you kind of on a year-to-year progression? Do you think this year is closer to 15 or is it 13.5%.? How do we get to that 13% margin over the next five years? If you could just outlined that for us?

Yes, I think we said we expect '08 to be about 15.3%. You know, the 13% I think is a longer term goal and it will require us to have growth in our topline and it is unclear when there may be a downturn here, so I would be uncomfortable saying exactly when that is going to happen. But I definitely do think that we can see our way clear to that, as I said, over the next five years.

Okay, great. And then just lastly on the end markets, are you looking for those to slow throughout the year or you kind of think they will hang in there throughout the whole year?

We agree with the experts. I mean, we had double-digit growth throughout 2007. No one is projecting the end market to grow. In fact, they are actually seen it come down and we are going to -- we are estimating somewhere between 3% to 4%.

Thanks a lot.

Matt [Vitorioso] with Barclays Capital.

Good morning. I was wondering if you could give us some color on the used equipment market. I think you said you expected the sale of equipment for you guys to be down 35% in '08? Does that assume any deterioration in the prices for used equipment that you guys are getting?

No, it is not. That is really just our fleet management and our lifecycle process, identifying the assets that we want to sell for the business, so that has nothing to do with the market. Relative to the market, over the last four months, prices did -- have come down. However, having said that, the most recent report published by [Ross] Associates actually saw a slight uptick and the results that we have seen from the most recent auctions in Florida have suggested that prices were actually better than expected.

So then if utilization doesn't trend exactly how you would like throughout the year, you could probably continue to kind of lower the size of the fleet by selling into that market?

Sure, that is one of the levers we have in this business is if we see the market go down significantly, one of the levers we can pull is sell our fleet. But as we stand right now in our projections, we're very comfortable with our fleet sales.

Okay, great. And just to hit the pricing again, it clearly looks like it is trending down throughout '07. Your assumption of a 1% decline in '08, I guess that means you are expecting it to turn positive maybe in the second half? Or what is the expectation there?

Well, we don't give quarterly guidance on rates, but what I can tell you is there's markets where there's opportunity and we are going to expand in that area. And we are going to defleet in the markets where we are seeing softness.

Okay, and lastly, just on the contractor supply business, it looks like you're going to be down to four distribution centers by of the second half of '08. I mean, what's -- longer term, is this business just -- are you going to keep those four distribution centers? Do you think this business will be around in a couple years or what do you expect there?

Well, we're going to go down to four distribution centers. We will recalibrate the business at that point. In fact, we will probably -- if we can drive some more efficiencies out of the business, we may take it down to one or two more, but our real driver for the organization is not on contractor supplies. Our driver for the organization is focusing on our rental fleet and focusing on the rental business. And, that is going to be our mainstay, that is what we're going to be focusing on as an organization and contractor supplies will be just add add-on and will not be a significant portion of our business.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS) Chris [Dougherty], Oppenheimer.

Hi. Marty?

Mike.

Oh, sorry, Michael. A question for Marty. I think you have already sort of spoke about this, you might have thrown a little kink in my question, but you mentioned deferred taxes and potentially depreciation from the stimulus plan. Given that you plan to keep the fleet where it is or grow it slightly, it actually seems to be down recently. What could we expect from the timing differences in depreciation? Do you expect to work through the deferred tax increase on the balance sheet in this last quarter?

No, what is happening is that we constantly have deferred taxes that are generated from new assets. Remember that even thought we are not increasing the size of the fleet in '08, we are going to spend $700 million in CapEx and so those new assets will qualify for the bonus depreciation provisions in the stimulus act, which will give us a larger than normal tax to book depreciation advantage, which will beef up deferred taxes in a way that we would not have otherwise expected.

All right, and then, Michael, a question for you, in terms of rental rates, I know your largest customer -- if you sort of aggregated all the government agencies together, would be your largest customer. To you have long-term rental rates with them or are those market-based?

They are market-based, but it is -- a contractual -- obviously we have a GSA contract with them. It is market-based, but we have a set formula that we work with them.

All right, that said. Thank you, gentlemen.

Oliver Liao with Citigroup.

Yes, hi, its actually David Raso here. Good morning. Quick question, in the channel, it seems -- and correct me if I'm wrong -- that you're backing away a little bit from some of your, at least within the mix of your historical fleet, your larger earthmoving equipment? Is that something I am picking up that is correct? I would think that might help alleviate some rental rate pressure for you if -- you are obviously running a big aerial fleet, but is there a conscious decision in '08 to move away from some of the larger earth moving, which might make your mix of rates better with how you're configuring the fleet?

Well, David, that is -- two things, one, we have on numerous calls been saying that we have been defleeting in that larger arena. Yes, there is a lot of rates pressure that associates with the larger earthmoving equipment. You know, we're going to be defleeting, but it's not going to do significantly. We did see about two percentage point decline in earthmoving, large earthmoving on a year-over-year basis. Earthmoving is still going to be part of our product mix that we will offer, but we are not going to offer the large product mix that we have had in the past. It will be more of the smaller items.

And when it comes to your rate projections, for '08, can you give us -- I know it is a big generalization between all of the portable compressors to earthmoving -- but aerials versus non-aerials when you look at your rate projection for the year?

We would expect to see aerial actually improve slightly on a year-over-year or basis, just due to the fact that the time utilization has been so high.

Yes, David, this is Marty. The 1% write down we're talking about is actually the sum of our eleven regions and we have certain areas where we are expecting three, 4% rate improvement and other areas where we are expecting more than a 1% rate decline and the 1% decline is the net of all that, as built-up from the ground up.

I will get back in queue. Thank you.

Scott Schneeberger with Oppenheimer.

Hey, good morning. Thanks. Could you guys talk a little bit about what you are seeing geography to geography? And I am kind of curious about Canada. We saw the positive benefit on currency. How are things up in the oilsands? How big is that now? And then if you could just touch on the regions and where things may be stronger or weaker? Thanks.

Okay, let me just start out with the weakest areas. Obviously in the Southeast and Southwest, it comes down to really two states, Florida and California, as I mentioned earlier on the call. When you take a look at the areas where you see pockets of strength, it is the Gulf, it is the Rocky Mountains, it is the Northwest. It is all of Canada. And then we are seeing improvements '10 and Midwest and also in the Northeast.

The Southeast, you have got -- our Southeast region goes all the way up to the Maryland border and all the way down to Florida and Florida is a large market.

But having said that and to answer your question, there is still significant upside in Canada and Canada as a whole was really a tale of two stories. Historically, you saw the western half much stronger and the east was not as strong. However, having said that, the energy related projects that we are seeing and the pickups, Canada will be strong for all of '08 and Alberta, talking about the tarsands project, there is still about 200 -- over $200 billion worth of work up there.

Okay, thanks, and then, just a metric -- I don't know how you track it -- fleet downtime, things that are coming off rent and the time it takes to get them back out on rent, do you track that? Could you just give us an idea of how you are tracking relative to your particular goals there? Thanks.

Well, historically -- last year we were at 11, we're now at 10.7. It is an improvement, but it's not where we want to be. We want to be at 9%. We are not there yet and we will march towards that.

All right, thanks a lot.

Philip Volpicelli with Goldman Sachs.

Just with regard to the CEO search, is there a time frame that that is supposed to be completed by?

I have no comment. I don't know how long it will take, Philip. This is Michael. We just announced it. Obviously it will take some time to go through the candidates, but that is really up to the Board.

Okay, and then with regard to the plan you guys laid out, which sounds very good and attractive, what has been the buy-in from each of the different district leaders and the managers of the branches?

The direction of the organization focusing on the rental business is -- culturally, it went over -- it's very positive. It is where all of us including myself -- I've been in the industry since 1978 -- rental was always our core business, it is what we focused on. And the other items of such as new sales and used sales was just an offshoot of our rental business, so it is really going back to our basics, it is going back to what we know and it has been received very positively throughout the field.

That's great. In terms of the restricted payment capacity, last call I think you mentioned it was 970 and you had about $150 million of net income, so are we at about a billion 50 now in terms of restricted payment capacity?

Yes, this is Marty. That is in the ballpark. I would have sent around $1 billion, probably slightly above that. And just to remind you that there are sub limits, there are threshold payment levels contained in the indentures for our C and D preferred, which would essentially limit payments to around $100 million.

Okay, meaning you would have to take those out before you could access the total 1050 -- or billion or --?

There would have to be some kind of an accommodation with the holders of the C and D preferred.

Okay, and have you begun conversations -- if I remember correctly, those are tightly held. Have you begun conversations with them or is that something that is in the plans?

That is something that is in the purview of our Board and I'm sure there are working as diligently as they can to increase shareholder value.

Understood. And then with regard to the class-action lawsuits that have been filed, can you give us any update on where we are in that process? I know you can't comment on the result, but have you guys started discovery? Have you started negotiations? Where do we stand on that?

Yes, you know, we really don't comment to the level of the stages. I think the cases are fairly new. And as events occur that we think warrant disclosure, we will certainly do it.

Okay, and then specifically, with -- I don't know if you're willing to do this or you want to do this, how bad the rate pressure was in your two weaker markets of Florida and California? You can either give it to us in numbers or just how much worse it was than with you saw -- what you recorded?

Well, we don't give that numbers out for one of our regions. We don't give that type of granularity our for various reasons, obviously there are some competitors on the phone call. We can take this off-line.

Okay, great. Thank you very much.

Matthew [Oronsky] with Citigroup.

My question was already answered. Thank you.

Joel Tiss.

Hey guys, how's it going?

Good.

Do you have any sort of target on your age fleet or anything that you can give us just to guide us in the direction, say, by the end of '08 or end of '09?

End of '08, Joel, we plan on being about 40 months. Historically we have always said that we are very comfortable between 35 and 45 and we don't -- we are not going to move from that. We are very comfortable within the range, so obviously if the market was to go down, we could age it out further. But 40 months is what we are projecting for '08.

Okay, and to follow-up on what David was asking about before, can you talk a little bit about what are the sources of strength in the area of work platform business? What are some of the end markets that you would highlight that are driving the strength in that business for the next twelve months?

Well, the energy sector is very active. Larger projects, the entertainment industry, casinos, stadiums, large projects, also some manufacturing. We have some manufacturing coming in from foreign investment. Those are the likely projects that -- the large projects that we are actively on.

Are you seeing any trend changes on the municipal side? It seems that the municipalities are having a little bit more difficulty raising funds and maybe collecting as high a level of taxes as they were recently? Are you seeing any trends there that you can talk about?

No, we haven't seen any. The latest report I saw from the government was projecting the infrastructure spending in that space to be up about 2.8 percentage points.

Okay, and last, can you just give us maybe like body language, I would say, on the CapEx, because now you have added in this flexibility, maybe you are going to monthly ordering or quarterly ordering. And can you just give us any sense, are you leaning toward beating your CapEx budget, spending more or spending less than where you are? More -- not asking for forecast, just sort of like body language a little bit, flexing with what is happening in the end market? Thank you.

Yes, I think, you know, what Marty said on the rates also goes back to the comment on CapEx. We build it from the ground up and it's with all of the branches. They are projecting the anticipated work levels. We will probably see movement with inside the Company, but we are not quite to see significant movement off of our CapEx number that we projected.

Okay, thank you very much.

Phil Gresh with JPMorgan.

Hey guys. A quick question on the used equipment sales, you talked about sale of distressed assets in the fourth quarter, so there is a pretty low margin there. How much did that affect the quarter and what are you looking at for your margin in that business in '08?

Sure. The decline in the fourth quarter year-over-year was entirely due to our stepping up to some distressed assets that we had. If you were to strip those sales out, we would have had a used margin rate that was comparable to our trendline. And as Michael mentioned, we don't expect to see deterioration in that margin. We are moving forward to manage our fleet in accordance with our age and condition requirements.

Okay, so you think you are pretty much through that sale of the distressed asset at this point?

You know, we continuously look at our fleet, but I think we were doing kind of a special effort there at year end.

Okay, and just in terms of the $500 million in incremental EBITDA over five years, you know, it's -- I appreciate the additional color on the cost side, but then in '08 looks like it's only going to be $20 million or so incremental, according to your guidance. So I'm wondering if you could talk a little bit about maybe the trajectory of that and how much of that is based on cost-cutting versus revenue growth, etc.?

Yes, I think it is more than $20 million in '08. That the labor savings and loan is worth $50 million, but the point is there is other price increases that we constantly face that are netted against that. I think directionally of the $500 million, roughly half of that we would view as under our control. Specific cost-cutting initiatives that we have and the remainder of it is going to require some topline growth, which we would then continue to maintain our costs at a controlled level and realize a reduction in rate as a result.

Okay, that's helpful. Thanks.

Ana Recinos with UBS.

Hi, good morning. One last question, I guess, on the CapEx, just wondering what types of price increases or declines are you expecting to pay on your new equipment purchases this year?

Each year, our fleet management team negotiates vigorously with our vendors. We are projecting this year our prices to be flat on a year-over-year basis.

And what was the number last year?

It was up about two points.

Okay, thank you.

Seth Weber with Banc of America.

Thanks, good morning, everybody. Just real quick, on the used equipment market, going back to that, have you guys started to explore the opportunity of selling used equipment oversees or into some of the emerging markets and if not, is that something you think could hit the radar this year?

Seth, this is Mike. You know, we participate in that arena through the auction houses. They are clearly setup for that. They do advertising across all of the other markets that you just mentioned. And that was a result of -- we saw the activity at the Ritchie Auction and the (inaudible) auction, the large auction down in Florida, where there was a tremendous amount of foreign investment and foreign buyers, so we really leave it up to them. That is their strength and I will go back to say what I said earlier, we are a rental company and we really need to focus on our rental and there's experts who can sell equipment and that is what they are -- we're going to leave it up to them to do.

Okay, and would you say just on balance that there is more tolerance to take older equipment in those markets, if you have a view on it?

Well, what I can tell you is the results we have seen out of the most recent auction was where we anticipated the prices actually came in much better than we anticipated and the large impact of that was the influx of foreign buyers.

Okay, thanks very much.

Thank you very much. I would like to turn the presentation back over to Mr. Kneeland for any closing remarks.

Thank you, operator. Before we close, I want to leave you with this thought. In my ten years at United Rentals, I have seen firsthand how this Company can do anything it sets its mind too. We have great people in place at our branches and we have a powerful plan guiding our progress. We know we can capitalize on substantial upsides to our business in any market environment by making continued improvements in our cost structure and by harnessing the full earning power of the largest equipment rental fleet in North America. As we stand here today, we have excellent momentum and the results to show for it. You can expect to hear more good news from us as the year progresses. So I want to close off by saying thank you for participating on this call.

Ladies and gentlemen, this does conclude today's conference. We again thank you for your participation. You may all disconnect at this time. Good day.