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Executives

Michael Kneeland - Executive Vice President and Chief Executive Officer

Marty Welch - Executive Vice President and Chief Financial Officer

Analysts

Analyst – Banc of America Securities

David Bleustein – UBS Securities

Joel Tiss – Lehman Brothers

Philip Volpicelli- Goldman Sachs

Christina Woo – Morgan Stanley

United Rentals, Inc. (URI) 2008 Guidance Call January 11, 2008 8:30 AM ET

Operator

Good morning, ladies and gentlemen, and welcome to the United Rentals investor update 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 by those projected by any such forward-looking statements. 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, 2006 as well as subsequent filings with the SEC including its form 8-K filed this morning.

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 publically 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 EBIDA, 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.

Michael Kneeland

Thank you, operator, good morning everyone. I want to thank everyone for joining us here today. But before I start, I just want to remind or announce to everybody that we have our investor presentation that is listed on our website that has a lot more information. So please feel free to go to our website and pull that investor presentation.

With me today is Marty Welch, our Chief Financial Officer, and other key members of our management team. And this is my first opportunity to address you as CEO since assuming the role in June. And I am very pleased to be leading this call today and addressing you directly. As you know, we suspended our calls when we signed the merger agreement with Cerberus in early July. And that was the right decision at the time, but it left a gap in our communications.

Our goal this morning is to answer as many questions as we can, so Marty and I will make some brief comments up front, and then we will open the call for Q&A about our operations. I want to remind everyone that this is a guidance call, so the level of detail and the time allotted for Q&A will be somewhat shorter than our earnings call, and we will provide more detail at the end of February.

Let me say up front that no one here is happy with our stock performance, especially given that we expect to deliver a record annual EBIDA of $1.15 billion. We saw our third quarter results; our EBIDA set a third quarter record of $342 million. And now you have seen our guidance for 2007 and 2008, and we believe that our stock is seriously undervalued by the market. Obviously our board and management are keenly aware of this, and you can be sure that the issue of the enhancing shareholder value is on everyone’s agenda.

However, it would be premature at this point to speculate how we may address the situation. The purpose of this call is to reestablish communication with you about the state of our business and our strategic direction. We will not be commenting any further on board activities, or potential value enhancement strategies on this call. So please keep that in mind when you ask your questions.

Now I want to begin by bringing you up to speed on the major shift in strategy that we implemented last year. In June, we put a new strategy in place and began a process of recalibrating our entire company to pursue profitable growth. This replaced the emphasis on top-line growth that had guided our company through much of the last decade. Our new strategy has three main components.

First, we are now focused on our core business of equipment rental. That’s where we are making the best margins now and on average where we also see the most opportunity. Under this umbrella, we are realigned our contract of supplies program to concentrate on higher margin items.

Second, we increased our emphasis on fleet management. We have over $4 billion of fleet out there in the hands of our greatest managers, and as a result we have $200 million more of fleet out on rent on average more than a year ago. And we have charged these people to do an even better job of getting equipment out on rent in 2008.

A part of the improvement comes from the fact that we have become more responsive to changes in demand. This is high-growth, high-return market is training toward a certain type of equipment, and we can move fleet to get a jump on demand. This has helped us increase our time utilization by 2.5 percentage points to expected 64% in 2007.

And third, we have become very proactive about cost containment. Let me just say that this more than just a paper strategy. We have already made a number of moves that were necessary to get the results. And I will talk more about that in a minute.

On one level, our strategy is back to basics. But I can tell you that it is actually much more than that. It is essentially a complete recalibration of our business to position us to capitalize in any market environment, good or bad. We read the papers just like you, and we are watching what seems to be a weakening economy. Although we haven’t seen that affect in our industry yet, I think it’s to our credit that we took the bull by the horns and put the necessary strategy in place ahead of the curve.

As we anticipated, the last six months of the year were a transitional period. As you saw from our release, we were reporting good numbers in 2007. At the same time, we expect our strategy will have its most significant impact in 2008.

And I quickly want to do some additional highlights in 2007. Our strategic sourcing team realized about a $20 million of savings on non-fleet purchases. We believe that there is a lot of value being mined from our sourcing initiative.

We took a hard look at our labor structure and we made some prudent work force reductions in the second half of the year. It was not a superficial gesture. On December 31, our headcount was down 1100 compared to a year ago, that’s almost 10% of our workforce. In doing so we were very careful to minimize any impact on customer service.

And we armed our districts and branches with new tools to help them with fleet management decisions regarding transfers, CAPEX, and equipment sharing. All of these activities benefit time utilization, which is a key driver for our business. I have litmus test these actions and in fact our entire strategy is our vision of profitable growth.

Our employees understand the implicit value in our financial metrics and we are all on the same page working towards the same goals. We set an objective in generating $500 million in annual incremental EBIDA within the next three to five years while generating significant free cash flow in any operating environment. United Rentals is entering 2008 as a more efficient, more productive, and more focused organization than ever before.

The merger process could have been a distraction for us, but it wasn’t. We were determined to carry on running the business according to our new plan and that is exactly what we did. We have seen from our guidance that we think that 2008 is going to be a solid year for our company. And we are doing it with the majority of the industry experts who expect that growth in non-residential construction spending will expand somewhat in 2008, although at a lower rate.

Construction spending, as you know, has wide variations based on geography and other factors. And we are still seeing weakness in parts of the Southeast and Southwest, which affects both our general rentals and our trans-safety business in those regions. Our plan assumes continued softness in these markets.

On the plus side, we have become more adept to managing our profit opportunities by region, by district, and in many cases by drilling down to local markets. And that is a huge benefit for our national footprint and our informational technology. And we will put more detail on the regional picture on our earnings call.

For today, I want to emphasize that as a company we are committed to continuing the strategic groundwork that we put in place in 2007. We took giant steps forward in just a few short months, and we are in a better place when it comes to capitalizing on our strength and staying resilient to shifts in the market.

I want to end my comments on a personal note with something that I feel very strongly about. I’ve been at United Rentals for ten years now and in all that time there wasn’t a day that I didn’t feel passionate about this company and its opportunities. It was a great organization in 1998, and it has even more potential today. I am mentally proud of this company and particularly the employees for demonstrating once again why we are the leader in our industry.

We know how to manage change and we are energized at every opportunity to improve this business. And I am confident by these qualities, together with our strategy, will drive our performance in 2008. And with that I am now going to ask Marty to review the guidance with you, and then we will take some questions, Marty.

Marty Welch

Thank you, Michael, and good morning everyone. I want to spend the next few minutes giving you some context to the guidance we released yesterday afternoon. As Michael explained, both our 2007 guidance and our preliminary 2008 outlook reflect the benefit of a new strategy that we put in place last year. This strategy has several key attributes.

One, an intense focus on our core business of equipment rentals coupled with a repositioning of contractor supplies; two, proactive management of our rental fleet for better returns; and three, continued execution of our cost containment initiative.

Although our strategy had to partial year prove itself in 2007, we are very pleased to see the impact that it had on our performance. Our outlook EPS range for 2007 is $2.55 to $2.60 per share. Although this range is lower than the guidance we initially provided in February of last year, the shortfall is the result of repositioning our contractor supplies business which will realize about $30 million less gross profit than our original guidance contemplated. Even with this repositioning though, the lowest end of our range still represents an increase of 12% over our 2006 earnings per share.

We also realized an estimated benefit of $0.50 per share which is incremental to our outlook range. This benefit relates to the $100 million break-up fee we received from Cerberus, less the impact of approximately $7 million of related transaction costs. Please note that consistent with our outlook release all performance measures that I refer to such as EBIDA and free cash flow exclude the impact of this mass termination fee.

Our guidance for 2007 also anticipates EBIDA of $1.15 billion, or 30.9% of total revenues. That is a 110 basis point improvement in our EBIDA margin on total revenues of $3.73 billion. EBIDA and EBIDA margin are obviously high on our radar. We know what the drivers are for EBIDA in our business and we saw measureable improvement in most of these metrics during 2007.

With respect to our core business of equipment rentals, our 2007 guidance anticipates a 3.9% increase to a record $2.63 billion. Within our rental business, we were able to more than offset a 1.1% decline in rental rates with a 2.5% improvement in time utilization on a larger fleet. Fleet management and time utilization in particular remains a key objective for us. As Michael mentioned, we substantially improved our fleet management for better returns in 2007 and expect to continue that trend in 2008.

As we have discussed, we have also began the process of refocusing our contractor supplies program during 2007. This delivered a double benefit. First, to free up our sales force and branch service teams to concentrate on rental customers; and second, although it had the effect of moderating our top-line and EPS growth rates, it improved our EBIDA margin rate.

And finally for 2007, our guidance anticipates an improvement of just under 1 percentage point in our SG&A expense ratio to 15.9% of revenues. It’s a step in the right direction but we know that we can do much better.

Many of the measures we took in 2007, including the stream-lining of our workforce, should deliver further results in 2008. For instance, we also reduced our professional fees and are continuing to accumulate a cost savings benefit savings from our strategic sourcing initiative. We estimate that the cumulative impact of strategic sourcing should be somewhere in the area of $43 million by year end 2008. Our audit will be complete by the end of February, and we will report final numbers at that point.

I want to spend a few minutes on the 2008 guidance we issued yesterday. 2007 is a strong story, but 2008 really is the payoff in a lot of ways. Our outlook range for diluted earnings per share for 2008 is $2.80 to $3.00 per share. Consistent with our strategy, we expect rental revenue growth of about 3%, to $2.71 billion. This rental revenue growth reflects improved time utilization, the repositioning of our supplies business, and virtually no growth capital.

However, we will be providing about $100 million of incremental fleet in key markets, more than offsetting the de-fleeting that is expected in weaker geographies. We also expect an improvement in our EBIDA margin of about 280 basis points to about 33.7% of total revenues for 2008. That’s about $40 million of incremental EBIDA toward our goal of over $500 million of incremental annual run rate EBIDA within the next three to five years. We also expect to generate between $325 million and $375 million of free cash flow this year after total capital expenditures of about $715 million.

I’d like to remind you that the 2008 numbers are a preliminary outlook and we’ll provide more detailed guidance when we report our final 2007 results in February. Now before we begin the Q’s & A’s, let me summarize our expectations in 2008.

We expect that 280 basis point improvement in our EBIDA margin to 33.7% with a record $1.19 billion in EBIDA for the year. Strong EPS growth of 8-18%; free cash flow of $325 million to $375 million, due in part to prudent CAPEX planning and operational efficiencies; a 3% increase in rental revenue, led by gains in regions where construction and industrial demand is strong for our core business; and a further reduction of about 60 basis points in our SG&A expense ratio, with $23 million in savings coming from our strategic sourcing program.

That summarizes our outlook for 2008 and now if I could ask the operator to open up the call and begin the question and answer period, operator.

Question-and-Answer Session

Operator

Thank you sir, yes sir. (Operator instructions) Our first question or comment comes from the line of Lionel [inaudible] with Bank of America. Your line is open.

Analyst – Banc of America Securities

Thank you. Good morning, first of all you gave us a few details on the cost savings of going into ’08 and ’09, but if I remember at the time of your [inaudible] show you were looking for $200 million of cost savings by year end ’09. Where are you in terms of these cost savings? Are you still on track? Have you some information on cost savings? Can you give us a little bit more granularity and a slightly better sense of when these savings are going to come in?

Michael Kneeland

This is Michael. Yes, we are completely on track. That $200 million is really broken down in several buckets. One of which is the SSI initiative which roughly is about $70 million. And we are on track to deliver that. As Marty mentioned, we realized $20 million of savings last year, or in ’07, projected to have an incremental $23 million in ’08. We are on track to achieve that.

The other area was in cost of goods sold. Actually that is ahead of schedule, we originally when we first looked at our strategic plan and were looking at something to implement in the first quarter of ’08. As I mentioned on my call on opening comments, that’s completed. And that is roughly cost of goods sold of around $50 million.

And then we have about 120 line items and there is no one specific line item that jumps out in big magnitude. But basically it, we are definitely on track. We are going to meet that $200 million. We’ve got last year and this year all in and it is $100 million in total savings, so we are completely on track.

Marty Welch

Lionel, it’s Marty. We’ve got to remind everybody that each one of these categories of savings that we have talked about has us split between cost of good sold and SG&A. Certain of the SSI programs impact cost of goods sold, about two-thirds of them. About one-third of the SSI impacts SG&A. In the headcount side, the vast majority of it effects cost of goods sold, maybe 10% or 15% of that effects SG&A. So, it just depends.

The geography on the income statement sometimes, I think that we get a little bit confused on where this stuff is falling. But in total, the cost of programs are as Michael described them.

Analyst – Banc of America Securities

Okay, and then let me understand it. You don’t necessarily want to go into the details of the strategic initiatives that you might have in place, but you generated a lot of free cash from the fall quarter. You are getting $100 million from Cerberus you also have some cash reserves very strong going into ’08. Roughly stating like how do you think about free cash flow at this point? And how to you think about using your cash, because historically you have been reinvesting a lot of the cash in the fleet? It seems that at this point it does not make that much sense any more. Should we expect a little bit more depth pay down or are you going to stop returning any of this cash to productivity to shareholders?

Michael Kneeland

That is really a board option. And yes, you are right. We are going to generate free cash flow. And we have been able to generate free cash flow and that is our mantra in any business environment, to continue to generate free cash flow. It provides options for our board, but we are not here to speak specifically about what options.

As I mentioned earlier, we are looking. We are very much aware of where our stock is and we want to enhance shareholder value. But we are not prepared to talk about this. Today’s call is really about the operations.

Marty Welch

Yes, Lionel, the $715 million of CAPEX for ’08 really was determined by a ground up analysis of where we think that it is prudent to deploy capital in 2008. It wasn’t set with a target free cash flow number in mind. And the free cash flow that we are forecasting is the result of that grounds up CAPEX analysis.

Analyst – Banc of America Securities

Perfect and then just the last thing for me, what is your assumption for rental rate in 2008?

Michael Kneeland

Our assumption for rental rate next year is going down by another point.

Analyst – Banc of America Securities

Okay, great, thanks a lot.

Michael Kneeland

Thank you.

Operator

Our next question or comment comes from the line of David Bleustein with UBS. Your line is open.

David Bleustein – UBS Securities

Good morning.

Michael Kneeland

Good morning, David.

David Bleustein – UBS Securities

A couple of questions, one, has there been any senior management turnover throughout this whole process? And can you walk through the tenure of the senior operating management?

Michael Kneeland

Sure, David. As we went through this process, we had some turnover in senior management. And during the agreement that we had with Cerberus, we were restricted to replace those individuals. We are now going through that process and we will fill those positions rather quickly.

With regards to the tenure and the site to field, the regional vice presidents, we have 11 regions. They have a combined experience on average of 12 years. And then we have 88 district managers, who have a span of control of somewhere around eight branches. And they have a combined experience of nine years.

David Bleustein – UBS Securities

Perfect, and then the follow-up is how did you remove 1100 people without impacting customer service? Where in the operations were you that bloated?

Michael Kneeland

It wasn’t a question of bloated. If you recall our strategy is to repurpose ourselves and focus on our core business of rental. We went through a rigorous process. It’s a labor tool and we looked at transactions. We looked at deliveries. We looked at hours of operations. We looked at returns. It was a rigorous process that we went through in detail, all the way down to the field level to identify each individual headcount.

And in fact, there are some areas where that we could combine some resources. And we went through that and we have implemented that and our fields embraced it.

Marty Welch

And David, even though it sounds like a lot, when you have to remember that we have 700 locations. And it is really only about an average of 1.5 people per branch. So the impact on any one branch really wasn’t all that major.

David Bleustein – UBS Securities

All right, and then let me come up at a free cash flow question in a different way. What level of debt do you think is appropriate for a company earning about a $1.2 billion of EBIDA and with maintenance CAPEX needs of about $700 million?

Marty Welch

David, our leverage at year end that you will see on the doc that we posted online is about 2.35% times EBIDA. That is exceptionally low. And this company certainly could and I would support a higher leverage level. However, that again falls into the category of choices that our board has to make.

And maybe just to answer another question that frequently comes up in this area, people ask our restricted payment basket, how big is it? At this point, we estimate, although the audit is not complete, that is going to be a little bit north of $970 million at year end.

David Bleustein – UBS Securities

Perfect, thank you.

Michael Kneeland

Thank you, David.

Operator

Thank you, Mr. Bleustein. Our next question or comment comes from the line of Joel Tiss with Lehman Brothers. Your line is open, sir.

Michael Kneeland

Hi, Joel.

Joel Tiss – Lehman Brothers

Hello, how are you doing?

Michael Kneeland

I’m doing well, thank you.

Joel Tiss – Lehman Brothers

I guess that we got part of our answer. I think that you had 730 branches, roughly at the beginning of the year. Is that right? And you are about 700 now?

Michael Kneeland

Actually we are just a little over 690, just shy of 700. Every year we open locations and we close. And we actually only opened 15 locations this year as opposed to the 30 or 35 we have done historically. And we continue to look at and consolidate and close underperforming locations. And that is the number that we have today.

Marty Welch

And in the ’08 plan, Joel, there are not any cold starts planned at this point in the numbers that we have put out.

Joel Tiss – Lehman Brothers

And so is there any sort of, maybe if I was just thinking out loud, 650 branches is kind of a target for year end ’08. Would that be at least directionally a reasonable way to think about it?

Michael Kneeland

We have no target. Obviously, Joel, we want them all to perform exceptionally well to the extent that we can get them there, we will. But we have no definitive number that we are trying to manage to.

Joel Tiss – Lehman Brothers

Okay and just to make it fast I will glue two questions together. Can you, you didn’t talk at all about the age of the fleet, I don’t know if you target that or not. But you guys are cited as having an older, relative fleet, and I know that it has to do with your business mix, and you didn’t address that. And also the rate outlook in 2008, it obviously has implications on the operations of the company. Thank you.

Michael Kneeland

Let me just say that we will finish out 2007 at 38 months and our 2008 outlook brings us out to about 40 months. We’ve always said that we are very comfortable between 35 and 45 months. And keep in mind, we also do refurbishments and in our arial fleet and we don’t re-clock the time on those. So, we keep the age exactly at the age that we acquired it. Our arial fleet is capable of aging much older as opposed to our dirt fleet. And again 40 months, we are very comfortable with that going forward.

And the other part of your question was what, Joel? I didn’t quite?

Joel Tiss – Lehman Brothers

If you would just give us any sense of rates the price increases for 2008 or decreases. Just even directionally it doesn’t have to be exact numbers.

Michael Kneeland

I mentioned earlier that we are about a point decline in our plan.

Joel Tiss – Lehman Brothers

Okay, thank you.

Michael Kneeland

Thank you.

Operator

Thank you, Mr. Tiss. Our next question or comment comes from the line of Philip Volpicelli with Goldman Sachs. Your line is open, sir.

Philip Volpicelli- Goldman Sachs

Thank you very much. When you look at your 2008 guidance range, what is the item that you are most concerned about? Would it be rental rates coming in below expectations, or would it be utilization not reaching your targets? What are you most concerned about there?

Michael Kneeland

For 2008, obviously I think what is on everybody’s minds is what happens in the market, and the credit market. And what we see today, we’ve got a good view based on our customers. But our plan is solid. We’ve built, as Marty mentioned earlier, we’ve built this from the ground up, Marty, myself, and other senior members of management went out and met with district managers, branch managers, and regional vice presidents. And we are very comfortable that this plan is something that we can execute.

So it is the things beyond our control that we have to worry about and which is the market.

Philip Volpicelli- Goldman Sachs

Yes, and when you look at the free cash flow, let’s say that the market is weaker next year whether or not we go into recession. Would you adjust your capital spending to keep that level of free cash flow, or would let the free cash flow come down a little bit if EBIDA didn’t reach your target? What’s your thinking there?

Michael Kneeland

Well, it all depends on what the market and you have to take a look at the market and say, “Is the market declining? Is it going to be a short term decline, or is it going to be a longer term decline on the horizon?”

But what you don’t want to do is sell assets for the sake of selling assets, only to have to replace them, six months down the road. You are only going to get about 47-48% of OEC when you sell it and then you have to turn around and spend 100% of your dollars toward replacing it. So you have to take a look at that.

Obviously it’s a lever that we could pull, but in our CAPEX is, we are very comfortable. It’s basically flat on a year-over-year basis. And we don’t see any real changes. We are not looking to just manage just cash flow. We think over $300 million is an awful lot. So we are very comfortable with where we are at.

Philip Volpicelli- Goldman Sachs

And then in terms of your comments with regard to leverage, how high would you be comfortable taking that leverage up to and would you be willing to use the entire restricted payments not in the course of 2008?

Marty Welch

Those are issues that I think that the board needs to set for us and its directions on any actions that they might pursue. I am comfortable with significantly higher leverage than we have right now at 2.3 times.

Philip Volpicelli- Goldman Sachs

That’s the restricted payment is…

Marty Welch

The payment basket is. It’s certainly available to the board but it wouldn’t be appropriate for me to comment on what they might do.

Philip Volpicelli- Goldman Sachs

Okay, sorry to be, I guess nitpicky, but significantly higher? Are we talking with 4.5 or are we talking five, are we talking six?

Marty Welch

We are definitely not talking six. I really don’t think that I should get more specific.

Philip Volpicelli- Goldman Sachs

Okay, I appreciate it. Thank you.

Marty Welch

Thanks.

Operator

Thank you. Our next question or comment comes from the line of Christina Woo with Morgan Stanley. Your line is open.

Christina Woo – Morgan Stanley

Thanks. You’ve talked about time utilization and you have certainly improved on that metric. What’s your time utilization goal and when do you think that you will get there?

Michael Kneeland

That’s a good question, Christina. This is Mike. Our goal to lay out is we would like to get in around 68%. We think that’s a doable target for us and we are looking to get that target out in the foreseeable future in ’09. But for ’08 we are looking at 66%.

Christina Woo - Morgan Stanley

What’s your assumption then for time unavailable and time available? Maintenance and repairs, time between transit versus just available time when it’s not out on rent?

Michael Kneeland

Well the best in class is at 9% and we are obviously using that as a goal to march towards that. It’s really broken up in several different buckets because as you just mentioned, it’s delivery, it’s the amount in service, and we are working on that.

I am happy to report that our PM currency is up over 90%. So that is behind us and we’re moving forward.

Christina Woo - Morgan Stanley

You expect CapEx to be down pretty significantly in 2008 and I assume the bulk of that is coming from the equipment side. What areas or types of equipment will be down more and which will be down less?

Michael Kneeland

Let me answer the question as opposed to just telling you what we’re going to do in 2008. I can tell you from today we are enjoying good time utilization demand on aerial lifts, reach forklifts and other ancillary items. But the items that we’re seeing declines continue to be heavy dirt equipment and that’s been an area that we have deemphasized the organization over the last several years and we will not be going into that business for the foreseeable future.

Operator

Your next question comes from Jamie Cook - Credit Suisse.

Jamie Cook - Credit Suisse

Would it be fair to assume that when you think about CapEx spending for aerials, do you see that flat or do you see that up? I thought your comments on commercial construction were very interesting given concerns in the market. What gives you confidence that we’ll still see commercial construction grow in 2008? Why wouldn’t it follow the typical pattern of commercial construction declining after 12 to 18 months following residential?

Michael Kneeland

Well let me just go back to the first question. Yes, we’ll see aerial lifts actually increase on a year-over-year basis. As again, you’re seeing high demand. That’s the area that we want. Really where we spend our capital is driven by our customers and that’s how we’ll continue to focus.

On your second question, Marty and myself and other senior management, we just came back from St. Louis this week and we had all of our management team together. It was very exciting. They were very enthusiastic about our plan. In discussion about the markets, we have been listening to our customers, talking to them. Obviously geographically there is going to be pockets where you’re going to see weakness and there are going to be pockets where there’s strength.

One area that we are seeing that is driving a lot of demand in construction is the cost of oil at $100 a barrel. The energy-related projects are in big demand. There’s also projects related to the EPA standard for clean air with regard to coal-fired power plants that were required to be conforming to the EPA standard by 2010. They are not going to meet it and they’ll probably have to extend that beyond 2010.

In other areas, we are seeing foreign investment from just different manufacturing facilities. There are pockets and there’s also a lot of projects that have already started that the put in place projected by Dodge for next year is going to be up 2.7%.

Operator

Your next question comes from Scott Schneeberger - CIBC.

Scott Schneeberger - CIBC

Just following up on that, it sounds like from your comments about up oil you’ve given me part of the answer of what I’m about to ask. Could you speak of little bit more to geographically where you’re going to spend that incremental $100 million into the hot areas or the strong areas. Geographically, could you give us a bit more idea if it is Southeast or Southwest are weak spots?

Michael Kneeland

Scott, let me just say that I’m sure that all my competitors are hearing this call as well. So let me just tell you that obviously the Southwest and Southeast, particularly in Florida, we continue to see some weakness. Canada overall has a lot of strength to it and it’s related to energy projects all the way down to the Rocky Mountains and the Gulf area. The Midwest continues to show modest improvement -- not stellar, but modest improvement -- and that’s related around manufacturing and then the Northeast corridor all the way down to the mid-Atlantic is fueled by government spending as well as the commercial construction that you are seeing between New York and Philadelphia.

Scott Schneeberger - CIBC

Shifting gears a bit, contractor supply sales, it sounds like the margin wasn’t what you had hoped for 2007. Could you just take us a little deeper on that, please? Thanks.

Michael Kneeland

Yes, sure. Contractor supplies, we are focusing more on driving the higher margin business. The other thing about that is when we brought outside consultants when I took over back in June, we were going through and taking a look at how we were analyzing and spending our time. We realized that we were spending an enormous amount of time in our salesforce focused on 11% of our business at a lower margin. We wanted to repurpose that and focus on our higher margin business, our core business of rental.

Our customers responded to our improvement in time utilization. Keep in mind we had more than $200 million of more fleet on rent on average for 2007. So it was a prudent thing to do. We’re not getting out contractor supplies. It needs to be incremental and in line with our core business but it’s not something we’re going to go out there and source specialized projects or products or commodity items. It has to relate to our core customer base.

Scott Schneeberger - CIBC

Is there a target margin you are looking for in that area, anything you’d like to share?

Michael Kneeland

We haven’t put out a target on that. I think we’ll come back and give you more detail and more color on that in our fourth quarter call.

Operator

Your next question comes from Manish Somaiya - Citigroup.

Manish Somaiya – Citigroup

Can you talk about the used equipment market and particularly give some reference points on the earth moving and aerial work platforms as to what’s going on in terms of pricing?

Michael Kneeland

Sure, Manish. The [Rouste], which is a third-party service that we follow, they put out a report and they’re seeing a decline in margins on earth moving equipment. I think that is to be expected for several reasons. One of which is the residential market and two the seasonality of the business.

With regard to Aerial, Aerial seems to be holding its own in specific products, larger booms have actually seen an increase on a year-over-year basis.

Manish Somaiya – Citigroup

Going back to the non-res outlook, some of your peers are saying that we’re in the middle of a multi-year upturn in non-res construction. I just wanted to find out if you guys have a view?

Michael Kneeland

We don’t have a crystal ball. One thing I will tell you is that when you look at all of the services that are provided out there, I mentioned one with regard to McGraw-Hill Dodge which is widely used. They have put in place up 2.7. You’ve got Global Insight. Global Insight was actually commissioned through the American Rental Association and working with all of their members and they came back and are saying that 2008 -- actually the color they gave is they said the beginning of 2008 will be up, the back half of ‘08 will show declines. Full year 2008 is relatively flat, down just 0.2 percentage points.

You’ve got others such as Moody’s that came out and said it was going to be 3.7 and then you’ve got UBS that came out with their own report of 1.5. Everyone is not projecting large numbers or increases in 2008.

Manish Somaiya – Citigroup

Finally on your cost-savings initiatives, should we be expecting any restructuring charges?

Michael Kneeland

All the costs that we have talked about, I talked about, Marty talked about, we’ve put that through our P&L and as we’re talking about severances and we do closures on our branches as an ordinary course of business, the contractor supplies, the district warehouses, basically we don’t own those facilities and we are just winding those down.

Marty Welch

All the reductions, for the most part, took place in 2007 and any severance that we pay to employees is contemplated in the guidance that we’ve given.

Operator

Your next question comes from Emily Shanks - Lehman Brothers.

Emily Shanks - Lehman Brothers

Can you comment on what the status of Wayland Hicks is? Is he still on the board and also do you have a COO right now? And if not, are there plans to hire one?

Michael Kneeland

Wayland is on our board. He is actually the Vice Chairman of our company and we keep in contact with him. With regards to the COO, that has not been determined at this point.

Operator

Your next question comes from Matt Vitorioso – Goldman Sachs.

Matt Vitorioso – Goldman Sachs

Just on the back of some of these comments on the higher leverage, just so I understand this right, your RP basket is at $970 million, which represents less than one-third of the leverage, so even if you maxed out the entire RP basket, we’re really talking about maybe a possible another turn in leverage. Am I thinking about that correctly?

Marty Welch

Yes you are thinking about that correctly. Anything beyond that would require refinancing of the current high-yield debt that we have.

Matt Vitorioso – Goldman Sachs

You’d have to take out the existing notes. So 4 or 5 or 6 turns of leverage is really out of the realm of reason? Okay.

Marty Welch

That’s not my statement. My statement is that the board of directors is considering all of its alternatives.

Matt Vitorioso – Goldman Sachs

My other question revolved around pricing. Do you guys see relatively good discipline in pricing? I know you said you expected it to be down another point or so in ‘08. As things decline, or if volume declines, do you see people cutting prices or has the industry become a little bit more disciplined on that front?

Michael Kneeland

I think the industry is more disciplined. I think it’s more professional today than it has been in the past and we are just going out there. We have our own initiatives in place. I can’t speak on what they may or may not do, but we fully have looked at it from all of our districts and branches and we’ve come up with about a 1% decline.

Operator

Your next question comes from Yvonne Varano – Jefferies.

Yvonne Varano – Jefferies

With the D&A numbers, can you help me out with what’s going to be non-rental and rental in ‘07 and ‘08?

Marty Welch

As far as CapEx?

Yvonne Varano – Jefferies

D&A.

Marty Welch

I don’t have that handy. I think our expectations for ‘07 non-rental depreciation and amortization is $52 million. It should be flat year-over-year in ‘08.

Yvonne Varano – Jefferies

Flat. That would, I guess, imply an increase in the rental D&A in ‘08?

Marty Welch

Yes, probably because if the fleet stays flat and it grew throughout the year last year then you’d have some assets that had a prior year depreciation in ‘07. They’ll have a full year in ‘08. So conceptually that sounds right, Yvonne.

Yvonne Varano – Jefferies

Okay, so probably like $440 million?

Michael Kneeland

Yvonne, think what we’ll do is offline we’ll come back to you with exact numbers.

Operator

Your next question comes from [Khalid Zafar ABN Amro].

Khalid Zafar ABN Amro

Just one housekeeping question. I’m not sure if you mentioned this already, but what was your cash balance at the end of the year?

Marty Welch

Cash balance? Is that the question?

Khalid Zafar ABN Amro

That’s right.

Marty Welch

We have not said. It’s healthy. Among other things, we did get the $100 million from Cerberus before year end. We are also just closing out the year and we will come forward in our fourth quarter on that.

Michael Kneeland

The business is a bit seasonal and we always have a fairly healthy cash balance at year end because working capital needs are reduced.

Khalid Zafar ABN Amro

The $130 to $150 million free cash flow forecast for the year, does that include the $100 million termination fee?

Marty Welch

No. It does not. All of the stats we’ve been talking about are purely from operations.

Michael Kneeland

I think we’ll end the call here. I want to thank everybody for joining us today. We look forward to speaking with all of you again in February, giving you our fourth quarter and full year 2007 earnings call. Thank you very much.

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