聯合設備租賃 (URI) 2008 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the United Rentals fourth quarter and full year 2008 Investor Conference Call. Please be advised that this call is being recorded and is copyrighted by United Rentals, Inc. 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 businesses 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 2008 earnings release. For a fuller description of these and other possible uncertainties, please refer to the Company's Annual Report on the form 10-K for the year-end December 31st, 2008, which has just been filed with the SEC. You can access the Company's press release, as well as all of its SEC filings, on the Company's website at www.ur.com using the link Captions, 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 pre-cash flow, pro forma, EPS, EBITDA, and pro forma EBITDA. Each of which is a non-GAAP term. Speaking today for United Rentals is Michael Kneeland, Chief Executive Officer, and William Plummer, 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 Bill Plummer, our Chief Financial Officer, and other members of our Senior Management Team. As you know, Bill joined us in December following an Executive position with Dow Jones, Alcoa, and GE and want to take this opportunity to officially welcome him in front of the investment community. Bill is a very strong addition to our Executive Team and we are extremely pleased to have him on board. He'll review our results with you later in the call. I also want to welcome Jonathan Gottsegen who's with us here today as our new General Counsel. Jonathan is the most recent addition to our Leadership Team, following the appoint of three new Directors to our board in January, they are Jose Alvarez, Bobby Griffin, and Filippo Passerini. And like Jonathan, they are highly seasoned Executives who's expertise will be instrumental in helping us to obtain our strategic goals.

I want to use my time today to address three topics -- the current construction environment, and our perspective of 2009, and our long-term goals for the business. But before I begin, I want to be clear about something, some aspects of our 2008 performance were disappointing to the Company, and to me personally. We did what we could do to forecast results in a very challenging economy, but nevertheless we end up missing the mark. As it turned out, there was almost no visibility as we progressed through the fourth quarter, and there appears to be even less in 2009. Consequently, we have chosen not to provide a formal outlook. We will rather focus on giving you meaningful information about our strategy and markets and our financial position. We have an excellent plan in place, one that keeps our priorities firmly on cash generation, liquidity, cost control, and customer service. We are executing that plan in every area of our business that is within our control. As a result, there are a number of accomplishments that we can point to for 2008.

We generated $3.3 billion of revenue and over $1 billion of EBITDA despite a construction market that became substantially weaker in the second half of the year. Our rental revenue increased to 76% of total revenue reflecting our strategic re-focus on our core business of equipment rental. Our gross margin on contractor supplies improved 460 basis points to 23.6% for the year, as we continued to retool our merchandise range. And we held time utilization nearly constant year over year at 63.6. However we lost some ground on rates in the process. And I want to talk more about that in a minute. We closed or consolidated 43 branches in the fourth quarter, that's 13 more than we had originally estimated. In total, we reduced our branch count by 75 locations in 2008, without exiting any state or province. As we reduced our head count -- and we reduced our head count by approximately 1,000 employees. Bear in mind, we'd already reduced our workforce by about 1,100 in 2007, so the total over two years comes to more 2,100 employees. Bill will discuss some additional improvements, including free cash flow when he reviews our results.

All of this was accomplished with an operating environment that deteriorated as the year progressed. Commercial and industrial construction took an unprecedented double hit from the economy and the credit crisis. This contributed to a rapid decline in non-residential construction starts in the fourth quarter. Our customers can't get jobs financed. It has a domino effect on equipment demand for months to come. When the banks stopped lending, jobs started to dry up. Now that we're in 2009, and with two months under our belt, I can tell you that that scenario we saw in the fourth quarter is still playing out. The weakness that we saw in Southwest, Southeast, and Northwest regions last year, has now extended to all of our Operating Regions, in varying degrees. California and Florida remain our weakest markets. 20% of the branches we closed or consolidated in 2008 were in those two states alone.

There are still some bright spots out there. These tend to be based on a size of the project, or the type of construction, rather than on geography. The construction of warehouses, hotels, and retail stores slowed down considerably in January, while some energy projects and manufacturing plants are moving ahead. As two examples, we have the lions share of assets on rent at a wind turbine plant in Colorado and a power plant in Nebraska. Unfortunately, for every project that has a green light, I could probably name several that have been postponed or canceled. The immediate climate for commercial building is still very weak, but there will be a recovery, but at this time it's still off everyone's radar. In 2009, we're prepared for a year over decline in non-residential construction spending somewhere in the upper teens and possibly more to follow in 2010.

You've heard me say many times that we went into this downturn with our eyes wide open to the challenges ahead. And as you will hear from us today, we are continuing to confront the situation head on, aggressively, realistically and with discipline. We're being realistic about the fact that there's very little clarity in our operating environment at this time. Internally, however, we have extreme clarity into the business. And as I mentioned earlier, we are very disciplined -- disciplined planned in place that follows -- that allows us to navigate through a softening market in 2009 and 2010. One that keeps our priorities firmly on cash generation, liquidity, cost control, and customer service. I want to touch on some of these key levers of that plan.

First, I can confirm our earlier estimate that net rental CapEx will be roughly $100 million in 2009. Now, we expect this result, with an average age of our fleet about 43 months, which is still within our optimum range. Our intention is to continue to de-fleet, by reducing under performing categories in older units. We took an aggressive stance with de-fleeting in the last three months of 2008, selling off $209 million of OEC, at lower than historical margins, although these sales are still profitable for us. Our primary goal for used equipment sales in this, or any environment, is to properly manage the size and age of our fleet and our free cash flow. I also want to put some detail on SG&A, rates and fleet management. As reported last night, we achieved a significant decrease of $84 million in SG&A expense in 2008. In 2009 we want to drive down our SG&A number by another $40 million to $50 million. Our commitment to cost control is not a temporary reaction to the economy. It is a cornerstone of the strategy that we put in place nearly two years ago. Our strategy defines United Rentals first and foremost an equipment rental company. It mandates that we are continuously improved our cost structure and our fleet management. We've made great strides in rationalizing our cost structure, but there's still a lot more that we can do.

This year, we're looking at a number of ways to control cost, including business process improvements, new efficiencies in our IT Infrastructure and Sales Force productivity tools. We are continued to negotiate new supplier agreements through our strategic sourcing initiative. This saved us another $22 million in 2008. And while the incremental benefit of strategic sourcing will lessen over time, we expect to realize at least $15 million in additional savings this year. Rates are a more complicated issue. Our rates ended down 3.1% year over year. Which included a 6.4% drop in the fourth quarter. Some of that decline comes from competitive pressure in the marketplace. Our sales -- our salespeople are focused on our most profitable customers, rather than chasing every rock bottom deal that's out there, but there's still a large area of business that falls in the middle ground and no one in our industry is immune from rate pressure.

In addition, some of the decline is attributable to our emphasis on National Account agreements. National Accounts typically transact at lower rates but higher volumes and are more efficient to service. As a result, they tend to be more profitable over time. In 2008, the majority of our new National Account agreements were added in the second half of the year which impacted rates without the benefit of volume. One of our goals in managing rates is to grow our market share with large accounts and industrial companies. We also want to serve our local customer base as profitably as possible, even though our branches are seeing a lot of pressure on pricing. Given the severity and duration of the recession, we expect rates to continue to be challenging this year. As I've noted before, rates and time utilization are a complex balancing act, one that is directly related to the positioning of our fleet. In the fourth quarter of 2008, we transferred a record $1.4 billion of fleet among our branches. That's more than 30% of our total investment in fleet,. redeployed to areas where we saw potential for greater demand.

As we continue to de-fleet in 2009, we see transfers play an important roll in asset management. Fleet transfers are just one example of how the size of our branch footprint gives us a lot of room to leverage our leadership position. We also have the advantage of size when pursuing National Accounts and industrial rentals. These two sectors will help make our business less sensitive to commercial construction cycles in the future. Our renewed emphasis on National Accounts, while still less than a year old, has all the hallmarks of a home run. In 2008, we put more than 50 new agreements in place, with customers that are strong, well respected companies in their own right, and our branches understand the importance of earning their loyalty. This group also includes government sales program, where we increased our rental revenues by more than 11% in the fourth quarter.

Industrial revenues -- another promising target. The industrial market generates an estimated $12 billion of rental activity annually, and we serve about 4% of that right now, and we can handle a lot more. Industrial rental is a highly profitable business for us, and over time, will make a strategic shift in the number of branches tailored to serve industrial customers and add more of these companies to our National Account program. Externally, the new economic stimulus package should benefit our US operations, although not until the second half of the year at the earliest. There is simpler legislation on a drawing board in Canada. The stimulus package includes a total of $135 billion of new infrastructure spending, which is good news to most of our end markets. A lot of it is earmarked for projects that will require underground construction, such as $7.2 billion to expand broadband networks and $4 billion for sewer work. And as a leading trench safety rental company in North America, we could expect to benefit at the leading edge of these expenditures. Every lever I just described to you, the branch network, head count, CapEx, cost control, fleet management, and customer mix has the ability to be a stabilizing force in these turbulent times, as well as a trigger for future growth.

We are definitely focused on navigating the recession with every lever at our disposal. But we're also focused on our longer term objectives of EBITDA growth, market share, and customer service leadership. I'm happy to say, that there's huge energy around customer service this year at United Rentals. We recently launched Operation United, a massive company wide program designed to earn and retain customer loyalty. Independent research shows that no equipment rental company in North America has succeeded in differentiating itself on the basis of customer service. And we are committed to capturing that advantage. Our branches have adopted a no excuses attitude toward each transaction. They understand that this opportunity is entirely within their control. Customers are going to experience a higher level of service, and greater consistency of service, whether they rent from us from Miami or Vancouver. Now as part of Operation United, we are changing our sales compensation system, our account service structure, and benchmarking to reflect our goals. We have a plan in place to leverage our scale, win new accounts, increase our share of wallet with existing accounts and, intrench our brand as the first choice for equipment rental. This is an exciting mission and it received an incredible reaction from our branch managers in January. They are really fired up. And to see that kind of enthusiasm for customer service made me very proud to be part of this Company.

Now before I hand over the microphone to Bill, I want to make you aware of a new investor presentation that can be downloaded from our website. It covers many of the topics you'll hear today from us, and provides further detail about our strategy and business model. Now, in closing, I want to return to the statement I made earlier on this call. We are continued to confront an extremely challenging situation head on. Aggressively, realistically, and with discipline. There are no rose colored glasses here. We know what we're up against and we're advancing through it with a strong well formulated plan of action. We have ample liquidity, as Bill will review with you in a moment. We expect to generate significant free cash flow, in a challenging year just as we did in 2008. And we're continuing to bring down our costs. And we have a clearly defined strategy for long-term growth. Furthermore, our Company is guided by a leadership team that brings a powerful mix of rental industry experience and business expertise to every strategic decision we make. We will continue to build on this dynamic, bringing the best people on board to make sure that United Rentals continue to capitalize on every opportunity. And with that I'll ask Bill review our Balance Sheet and our 2008 results and then we'll go to Q and A and take your questions. Bill.

Thank you Michael. And good morning to everyone. Michael has provided an overview of our 2008 performance, the current construction market, and our long-term goals for the business. I plan on reviewing our 2008 performance in greater detail, including the progress that we're making on cost savings initiatives. I'll also give some more detail to our objectives for 2009. But first, I'd like to take a few minutes to focus on our liquidity and capital structure. Before I joined the Company last December, I spent a good deal of time analyzing the Company's strength and its capacity to weather this economic downturn. I looked at the Company's free cash flow, liquidity, debt structure, and financial covenants. After this review, I asked myself one simple question -- Can this company survive a prolonged economic downturn? Obviously my answer was yes, and here's why.

First, the Company generates significant free cash flow. Over the past two years for example, we've generated about $575 million of free cash flow, including $335 million in 2008. And looking ahead to 2009, we, we expect to generate another roughly $300 million of free cash flow. That means that over a three-year period, we would expect to generate just under $1 billion of free cash flow. This is not surprising, because this business is counter cyclical from a cash perspective. Second, the Company is in a strong liquidity position. At the end of December, we had over $600 million of liquidity, including availability under our ABL, and our Accounts Receivable facilities. The third factor I considered was the Company's financial flexibility. Regarding our covenants, the most restrictive covenants we face are in our ABL. There we have two financial covenants, a fixed charge coverage ratio and a senior secured leverage ratio. At the end of the year, our fixed charge coverage ratio was at 2.62 times and that's significantly more than the minimum threshold ratio of 1.1 times. Meanwhile the senior leverage ratio was at 0.95 times at the end of the year and that's significantly less than the maximum threshold ratio of 1.75 times.

So as you can see, we had significant cushion in both these covenants at the year-end. Looking ahead, we expect these covenants to become even less restrictive since the terms of the facility allowed them to spring off in June of this year if we maintain availability in the facility of at least 20%. And that's a level we expect to easily exceed. Debt maturities also figure in our financial flexibility. The Company has no significant debt maturities until 2012, when our 6.5% senior notes mature. And even though investors have a put right where they could put up to $144 million of our 1.88% convertible debentures back to us in 2010, our capital structure provides us with a great deal of flexibility. Because of this flexibility, and because of our strong free cash flow generation, we were able to retire $125 million of the 14% HoldCo notes in the third quarter, and we are also able to re-purchase $130 million principal amount of our high yield notes in the fourth quarter. Looking at all these metric, and recognizing our ability to reduce CapEx, de- fleet, and optimize our branch network and head count, I'm very confident that we will weather these turbulent times. Having said that, and recognizing the current construction environment, and the seasonal nature of our business, we are expecting a net loss in the first quarter.

Now let's turn to your 2008 performance. First our revenues. Our rental revenue increased, excuse me, decreased 6% in 2008. And that reflects a 3.1% decline in rental rates. Although rates were down significantly, our time utilization of 63.6% was basically flat year over year reflecting our focus on fleet transfers, targeted used equipment sales, and a greater proportion of monthly rentals. In our contractor supplies business, although our revenues were down 44%, our gross margin improved 460 basis points versus the prior year. And that was in line with our strategy of repositioning the business.

Second, SG&A. In 2008, our SG&A decreased by $84 million as Michael mentioned. And our SG&A percent, as a percent of revenue, improved by 40 basis points. This improvement, which directly relates to head count actions, as Michael mentioned, as well as the success of our SSI strategic sourcing initiative includes $65 million of savings from salaries, benefits, and P&E. Third, EPS. Our pro forma EPS for the year was $2.62 on a share count of 85 million shares as compared to $2.67 on a share count of 114 million shares in 2007.

And finally, EBITDA. Our pro forma EBITDA margin increased by 120 basis points to 32.4%. Also reflecting the success of our cost initiatives. While we were especially pleased that we generated this margin expansion in the face of revenue being down 12%, we are now complacent. There's much more work to be done and savings to be realized. Now let's take a moment to review our objectives for 2009. As Michael mentioned, given our lack of visibility into the operating environment, we will not be providing a formal outlook.

Having said that, what I can talk about are certain aspects of our business that are firmly within our control. For example, with respect to SG&A. Although SG&A as a percent of revenue will be under pressure this year, we do expect to reduce the absolute level of SG&A spend by $40 million to $50 million. Looking at our CapEx, as Michael mentioned, we are forecasting net rental CapEx for 2009 of about $100 million. This represents a significant reduction versus the $360 million for 2008. And it illustrates the capacity of this business to generate significant free cash flow in challenging markets. And although reducing CapEx will cause our fleet to age in 2009, we believe it is the right decision for the business as it will lead to stronger free cash generation.

As I mentioned earlier, we expect to generate about $300 million in free cash flow for the year and if the environment continues to remain challenged, which we expect it will for -- at least for the balance of 2009, this cash will likely be used to further reduce our debt levels. In terms of whether we look at re-purchasing additional high yield debt, as we did in the fourth quarter, or retiring more of the 14% HoldCo notes as we did in the third quarter, or simply paying down the ABL. These are the decisions that we'll make throughout the course of the year in consultation with our board of directors. That summarizes my comments on 2009 objectives. Now I would like to turn it over to the Operator to begin the question and answers. Operator.

Certainly, ladies and gentlemen, (Operator Instructions). Our first question comes from [Manish Samia] from Citi.

Yes, hi, good morning guys. A couple questions. Michael, can you give us a sense for, the used equipment market. I think we've heard from a few sources that used equipment market was off about 5% to 8% in the fourth quarter, can you kind of give us a sense for where we are over the last 12 months, and where do you it see that going?

Okay. Manish, how are you, thanks for the question. The used prices, I mean, there's two dynamic, one of which is, what goes to auction and what goes to retail. What we do on a retail basis, where we have over 70% of our sales is retail, we're still seeing relatively healthy margins. However, in the auction, we have seen prices come down about 10% year over year, part of that is a mix Manish. I was just recently at the large auction in Orlando with Riche Brothers, both myself and other members of our management team, went through there, and I will tell you that some of the prices that I saw there were actually up slightly from what they -- the results that we saw in December.

And Michael, just as a follow-up to that question then, can you give us a sense for where earth moving is vis-a-vis aerials, what's the difference in used equipment prices?

Well, used equipment prices at that auction were specifically -- were actually down. They were down, again, probably in the vicinity of 15% to 20% on a year over year basis, but again it comes down to model year and brand and the amount that was in this auction. By the way this auction was the largest auction in the world, and it was up significantly on a year over year basis. With inside of aerial again it's product mix, booms doing better than scissors -- small scissors which are more related towards retail and that type of construction. We saw prices come down on the year over year basis.

Okay. So I guess if I recall -- I think in the last cycle we were off about 15 to 20 and we're just entering the downturn and we're off 15 to 20. So would you say that we are likely to reach the trends we saw in the last cycle for used equipment.

I think it's too early to tell Manish. The world today is far different than it was in the last downturn. I will tell you that at this auction I was impressed with the amount of foreign bidders coming in due to new channels that they have out there. So I think it's yet to be determined. My sense is that typically what you see happens out of this auction in Orlando kind of sets the base for the year, but, again, the year has to play out.

Okay. And then just one last thing, you know, on a similar topic, you know one of the things that we had seen in the last cycle was that some of the old retirees came back to the industry with the availability of secondary equipment. Are you seeing that this cycle, and obviously in the last cycle when the retirees came back, it had a pretty negative implication for pricing, so can you just give us a sense of what's going on on that front?

Well, I will tell you that I did see some old faces that I haven't seen for a long time at the auction. That being said, not all of them were buying. Some of them were just, you know, there as part of their DNA they want to see what's happening in the industry. But today's, today's industry is far different, again, than it was in the past, we're -- to get any kind of scale, customers demand, newer equipment. I shouldn't say newer equipment, but equipment that is useful, the life, and again, the changes that happened between people trying to enter into market today, is far different, and the services that we provide not only ourselves but other national account -- national companies are very hard to duplicate just by having someone entering into the marketplace.

Okay. Well thank you so much.

Thank you. Our next question comes from Henry Kirn from UBS.

Hi Henry.

Hi, guys. A quick question on utilization and pricing, is it possible to give a little more granularity either by equipment type or by geography?

Well, I can tell you more by equipment type, and by the way Henry and for everyone on the call, there's a lot of detail in our, our presentation that we put out there based on our type of equipment, and it's broken down into several categories, but you'll see that the aerial and also the rough terrain, or forklifts, material handling devices time for the full year was in the 70s. The one area that you saw time decrease was in earth moving, in particular, larger earth moving devices. Those, those are areas that, people aren't developing large tracks of lands any more and our trench and our other, was actually flat on a year over year basis, but it's a different type of business. It's more system oriented. High return business. Geography wise, it's a mix bag out there. Obviously as I mentioned, what we saw, continuation in Florida and California, we saw decreases there, as a result of that we moved fleet around outside of those regions.

That's helpful, and in terms of your cost cutting initiatives. How much further do you think you have in terms of being able to cut back before you could impact the operations?

Henry, it's Bill Plummer, I, I don't have a specific number that I can give you on that, what I would say is that I think everyone here feels, I certainly feel, that there is plenty more runway ahead of us on cost reductions. Across SG&A, across our branch activities, we can identify a number of initiatives yet to be played out, and we'll, we'll describe them as we go forward.

Okay. That's helpful. Thanks a lot.

Thank you. Our next question comes from Seth Weber from Banc of America.

Hi Seth.

Hey, thanks. Good morning everybody. Just first a quick clarification on the SG&A expense reduction -- is that based off of just the absolute '08 versus absolute '09 or is that using a fourth quarter as a run rate.

It's absolute year versus year.

Okay. Thank you. Can you talk about whether you're seeing any liquidity issues from any of your customers, or is anybody having -- making requests to extend payments or fulfilling contractual obligations or anything like that?

Seth, we don't, we don't have any specific liquidity issues from particular clients. Our overall portfolio as you might imagine has seen some extension of our receivables days over the last several months, it's not dramatic, but it's, it's in line with what you might expect given the challenges of the operating environment. We ended the year at a DSO of something like, just under 52 days, 51.6 days, and actually was fairly flat versus the prior year, so we, we have been focused on managing our exposure in receivables, we think we've got a lot of the right thing going on. We've been able to manage the metrics pretty well, but we're starting to feel a little bit of pressure in the early part of '09 and we're going to keep very close tabs on.

Seth, this is Mike, I just want to mention one other thing and that is a lot of our jobs we can lien, we have lien rights, so we feel very comfortable with what we have out there and as Bill mentioned, we keep a keen eye on our receivables, particularly in this environment.

Okay. Fair enough. Just going, going back to the, to the pricing question and kind of the discipline in the market, would you say that some of the more -- is it -- would you characterize the competitive pressures as coming more from, you know kind of the mom and pops, the local guys, or is it pretty much across the board at this point?

I would say that, that would be a fair assessment, obviously for smaller companies, they are somewhat land locked and they have no really -- any room to relocate their assets in any other given market. So we're seeing more of a competitive pressure in that arena, in that mid to lower size, and I think the rest of the industry is being responsive.

Okay. And then just one, one last, one last question, is there a, a number we should think about for interest expense for 2009?

It will be, it will be up from 2008, reflecting the higher debt balance that we'll carry through the full year. I'd rather not provide a specific number.

Okay. Thanks very much.

Thank you. Our next question comes from Emily Shanks from Barclays Capital.

Hi Emily.

Hi, how are you guys?

Good.

I wanted to ask off of the question on interest expense, can you give us a sense of what we should expect for cash taxes for '09 please?

Again, we're trying, trying not get into a lot of detail on the exact numbers, so why don't I hold off on responding to that. It will be comparable to, to 2008. I'll leave it at that.

That's, that works. Thank you. And then as we think about what the minimum cash balance is that you guys need to run the business, what is that -- is it around $50 million?

We, we have historically preserved something like $60 million as cash, so that's probably a fair balance to use.

Okay. Great. And then do you anticipate having to pay a dividend up to the HoldCo to pay the coupons during fiscal year '09 for the HoldCo note or do you have sufficient cash up there.

We have sufficient cash up there.

Okay. And then could you please let us know also what the remaining capacity is underneath you're baskets for future bond for purchases both by -- in the senior tranche as well as the sub tranche.

Sure. In fact maybe I'll, I'll expand a little bit on this topic. The RP basket currently is significantly negative. You could imagine after taking a $1.1 billion impairment charge that that would drive a negative, and it has. We do have cash up in the HoldCo sufficient to not only service its debt but also to retire issues at the HoldCo level if we chose. And we, as you might expect, also have various inter-company arrangement between HoldCo and [OptCo] that continue to flow, some levels of cash up to the HoldCo without having to flow through the RP basket calculation so we feel that we're well positioned to be able to manage to service all of the debt at the HoldCo level, as well as the debt at the [OptCo] level, and preserve some flexibility to how we might manage those debt balances as we go through the year.

Okay, and if I could, that's very helpful. One just quick follow-up question that -- in case I missed it -- what is the amount of cash sitting at HoldCo?

I don't know. Did we put anything in the -- take a look through the K and the guarantor statements. I don't know if it will explicitly describe it as cash, because we have inner company arrangements that HoldCo uses to, to then downstream its cash into the [OptCo] levels. So take a look through the guarantor statements in the 10-K.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from Chris Daugherty from Oppenheimer

Hi Chris,

Hi Mike and Bill. Bill just a quick question on the borrowing base, when was the last appraisal and when is the next appraisal?

It was in September, and it's, it's by, or excuse me, it's semi-annually so the next time it will come in is toward the end of March.

And just expanding on the previous statement, if we could get a little bit more clarity, when you talk -- you mention that theres (inaudible) a put on the one and seven eighths converts -- would you have enough cash -- I mean (inaudible) -- well, would you have enough cash right now at the HoldCo to take care of that given that RP basket is significantly negative?

Well the answer is yes, we have enough cash to take care of that. I'd add that our view is that the put, execution of the put, is a scheduled payment and therefore is excluded from the RP basket calculation. So even if we didn't have the cash, we feel comfortable that we'd be able to address that put if it happened.

Thank you.

Next question operator?

Thank you. Our next question comes from Philip Volpicelli from Cantor Fitzgerald. Your question please.

Hi Philip.

Good morning, gentlemen, how are you?

Doing well.

Good. So, adding onto Chris's question, you could use the revolver to pay should put of the converts come true in March?

I'm sorry you were breaking up, can you repeat that?

Yes, I'm sorry. You could use the revolver to fund the put of the converts, the one and seven eighths convert at the HoldCo, if you wanted to because they're a scheduled payment?

Yes, we believe that we could use the, the [OptCo] facilities to service that put.

Great. And then when you look at what you plan to re-purchase this year, what's the decision matrix that you're using, is it the ability to buy debt at a discount, are you able to buy the 14% notes at a discount because I know they don't trade as often -- how do you guys think about what you might want to retire this year?

Sure, I'm an old treasury guy so my mind is pretty easy to read. It's about what's the cheapest debt that we can retire in the capital structure. So we look at current pricing for the 6.5s, the sevens, the seven and three quarters and compare those yields to each other and to the 14%s, to the 14% coupon that we're paying on the HoldCo notes. Our mechanism for retiring the HoldCo notes is a par call, and so that's, that's the yield there. We compare the yields of the other instruments and we make a call as to which one we find most attractive, and then from there, we overlay a decision about what kind of liquidity we can find in a given issue at the time that we're looking. So that's, that's sort of the mechanism that we go through, obviously, all of that flows from a decision to, to re-purchase, and, and that decision will depend on how things unfold through the year.

Okay. Great , that's very helpful. And then on the original cost of the fleet, I think in the presentation it mentioned at $4.1billion, are you guys willing to give us a little bit more granularity on that, maybe a couple more decimal

On the absolute level of OEC.

Yes.

So it's $4.118 billion.

Perfect. Great, thank you very much and good luck.

Thank you.

Thank you.

Thank you. Our next question comes from Christina Woo from Soleil Securities.

Hi Christina.

Hi. Michael you made a comment during the prepared remarks that there was a study which concluded that no equipment rental company had successfully differentiated itself in terms of customer service. I'm wondering if you could provide us with some background on the study like who conducted it, how many were surveyed, when it was conducted, and also what specifically the customers are seeking that you plan to provide?

Well I, I'm not going to give the information on who we, who we used because it's proprietary to that company. It is a national company that is very, that is very large in this space. They did an independent survey that we asked them to do or -- as part of this process for -- we consider Operation United -- and there's a lot of things that the customers came back and part of that is the way in which we're structuring ourselves. We look at one point of contact, and we also developed a compensation program to drive some of the levers, consistency of services, and we'll lay out those metrics. I don't want to give a lot of detail because that's competitive information. But I would -- it's safe to say that the information that came back was, was compelling.

Okay. Could you just let me know when that study was commissioned?

That study was commissioned, it started in April of last year. It was ongoing through the balance of 2008.

Okay. And turning to the slide presentation that you posted on-line, slide 12 gives us a fleet snapshot which is really helpful, I was hoping that you might give us a sense of how much you feel comfortable aging the equipment by the type, by the four categories that you've outlined?

Well obviously the larger booms you can always age out much farther. The aerial can go out far beyond 50 months if need-be or 60 months. Keep in mind that we do do a refurbishing program and we don't change the age of the asset. So you can get a four year additional useful life. You can do similar rebuilding to a larger forklifts. Earth moving is, is a different beast, so to say, because quite honestly it beats itself up. I mean, when you look about dealing with dirt, it has a very hazardous environment, so we would want to keep that within the range of where we have it today. Maybe up a few months. Overall when you blend everything together, we're very comfortable between 35 and 45 months, as I said, in my opening comment we'll come in about 43 months. We're very comfortable with that.

And approximately what percentage of your fleets is refurbished?

It's a small amount. If you recall going back two years ago, we started doing a refurbishing program in 2007, waited for the results, we expanded it in 2008. And a good portion of our capital that we'll be spending this year will go toward refurbishing.

Okay. So it's low single digits percentage --

Yes.

-- of the fleet? Okay. Perfect. Thanks so much.

Oh, thank you.

Thank you. Our next question comes from [Yomar Abay] from JPMorgan.

Hi Yomar.

Thank you, good morning. If you look at the volume trends in the last couple months in 2008, with I guess in volume trends in the first couple of months this year, where are you seeing -- what's volume doing -- flat, up, down?

Well, I think that if you take a look at our fourth quarter our volume came down in the back half of the year, most significantly in the fourth quarter. We haven't given any kind of volume guidance as to what volume will do in 2009, other than the fact that we're in a challenging environment, and that our primary end market of non-res, we expect to be in the higher teens as far as down on a year over year basis.

Can you say as you started 2009, generally is the environment getting worse than kind of how 2008 ended or no material differences.

I would say that the trend that we saw in, in the fourth quarter of 2008 is continuing in 2009.

Thank you. That's it for me.

Thank you.

Thank you. Our next question is a follow-up question from Seth Weber from Banc of America.

Seth.

Hey, sorry just real quick back on the interest expense question. Is that, is, was your response based on the $15 million number for the fourth quarter or, or should we add back the 45 and use 60 to get the year over year, when you're talking about '09 being up from '08 is that --

Seth, it's Bill, add back the, the gain that we flowed through interest expense, so I think when you add it back, the interest expense in '08 was 228, after the ad back. It will be, it will be a little higher than that in '09.

Okay. Perfect. Thanks very much.

Okay.

Thank you. Our next question comes from Scott Schneeberge from Oppenheimer.

Hi Scott.

Hi, this is actually [Alegee] for Scott. You mentioned that you expect to occur loss in 1Q '09. I just wonder, at this point what do you anticipate for the seasonal to pick up as we move through 2009 -- just any colors on there?

I wouldn't want to offer a lot more. The seasonal connectors are certainly driving our comments about 1Q of '09, and the seasonal factors should help as we get later in the year, whether or not and adding any more specifics to what that looks like - I'd, I'd hold off. What we tried to do was to give you, sitting here nearly two months into the year for '09, a sense of what we're seeing in the first quarter, but we still face the same challenge that we, we faced in thinking about an outlook for the full year. Visibility is, is, is just very difficult for us to have right now. And so we're very reluctant to add much more texture to what we said.

Okay thank you. Just another question now on your, your plan to up (inaudible) cash flow to pay down the debit -- just, just, how aggressive do you plan to work on that and do you plan to pay down like in terms of the absolute amount, would that be higher than 2008 or would that be at the same level of 2008? Thanks.

Again, we'll make that decision as we go through the year, but, I think it's fair to say that managing our capital structure through this difficult period is a key objective, and, and that means making sure that we've got the debt balances commensurate with the amount of cash flow that we're able to generate. But that also means position ourselves for the future. It means making sure that we've got facilities available to us when the turn comes that we can use to to make more investments in the capital structure. So we'll those decisions and balance them as we go through the year. I, I think it's fair to say, though that we're very focused on making sure that we manage the capital structure aggressively.

Thank you.

Thank you.

Thank you. Our final question comes from James [Reagan] from (inaudible).

Yes good morning. Just a quick question regarding the, the debt coverage ratios given the outlook for a loss in Q1, could you say what the range might be as of March 31st for your fixed charged and senior leverage ratios.

I'll, I'll hold off on adding any more detail. We can talk to you about it in April. How's that?

Okay. Thank you.

Okay Operator, I think this is a good time to wrap up the Q and A. I want to thank all of you for joining us today. Our goal has been to give you some meaning insights into our operation in 2009 as a way of combatting the unprecedented lack of visibility in our marketplace and as you heard here today our plan is our compass. No matter how mirky things get, we have the ability to stay firmly on track as we move toward our strategic goals. We main excited and energized, by the long-term prospects for our company, and for the equipment rental market in general. Our industry has a lot of growth ahead of it, and we want to be on the forefront of that opportunity, and will be. This concludes our remarks for today, and operator you can now end the call. Thank you.

Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program, you may now disconnect. Good day.