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Slow Fourth Quarter Demand Flattens RSC’s 2008 Results

RSC Equipment Rental posted $1.567 billion in rental revenue in 2008, a 1.6-percent increase compared with 2007, however fourth-quarter rental revenues suffered a 6.9-percent year-over-year decline to $371 million, compared with $399 million for the fourth quarter of 2007. Total revenues for 2008 were $1.765 billion, essentially flat compared with $1.769 billion for 2007. However, fourth-quarter total revenues declined 6.7 percent from $458 million in the fourth quarter of 2007 to $427 million for Q408.

“When the U.S. economy and our end markets deteriorated late in the fourth quarter, RSC responded aggressively by reducing headcount, store locations, fleet size and capital expenditures,” said Erik Olsson, president and CEO. “As a result we generated a strong $78 million of free cash flow in the fourth quarter. Overall, our results re-affirmed our business model of maximizing free cash flow in times of difficult markets.”

The company said it experienced a drop in equipment rental activity during the latter part of the fourth quarter in excess of the normal seasonal drop off because of the prevailing business environment across the U.S. economy. Rental rates declined 1.7 percent on a sequential basis from the third quarter and 2.1 percent on a year-over-year basis. Same-store rental revenues declined 6.1 percent in the fourth quarter.

RSC’s industrial/non-construction revenues only declined 1 percent in the fourth quarter compared to the same period in 2007, and surpassed 50 percent of total rental revenues.

Fleet utilization dropped to 67.8 percent in the fourth quarter, compared with 72.3 percent in the third quarter of 2008 and 72 percent in the fourth quarter of 2007. Sales of used equipment in the fourth quarter were $39 million, $10 million higher than in the third quarter because of a drop in rental demand.

RSC closed 14 locations and reduced headcount by 315 employees in the fourth quarter. RSC also opened eight new stores during the fourth quarter in areas that presented industrial growth opportunities.

“We experienced a non-seasonal drop in rental revenues late in the fourth quarter,” added Olsson. “The company responded quickly to these unusual market conditions. We succeeded in limiting our sequential rental rate decline to 1.7 percent and sold $49 million in used equipment at a margin of 23 percent. Additionally, we delivered an adjusted EBITDA margin above 40 percent and kept utilization at nearly 68 percent. Our priorities and business model remains the same: deliver strong cash flows, sustain rental rates, keep utilization high, and maintain high profit margins.”

For the full year, same-store rental revenue growth was 2.4 percent and industrial revenue jumped 7 percent, while construction revenues declined. Industrial/non-construction revenues accounted for about 50 percent of total rental revenues for 2008 as the company increased its business in petrochemical, mining, food processing and entertainment markets. RSC opened 27 new stores in 2008, concentrating on industrial locations.

Rental rates only declined 1.1 percent year-over-year. Fleet utilization for the year dropped from 72.8 percent in 2008 to 70.1 percent last year. Net capital expenditures for the year were $142 million, compared with $444 million in 2007.

Full-year adjusted operating income was $398 million, 22.5 percent of total revenues, compared with $475 million, or 26.8 percent of total revenues in 2007.

RSC declined to provide annual earnings guidance because of the uncertainty of the 2009 economic outlook, but said it expects rental revenue to drop about 20 percent in the first quarter of 2009. It said it would continue to reduce its fleet to optimize return on assets. It predicted rental revenues in the range of $285 million to $295 million for the first quarter, with total revenues somewhere in the range of $345 million to $355 million.

Olsson added RSC will continue its growing emphasis on industrial markets in 2009.

Based in Scottsdale, Ariz., RSC Equipment Rental is No. 2 on the RER 100.

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