---

---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

FORM 10-Q

|ý                                             |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|--------------------------------------------- |  | ----------------------------------------------------------------------------------------
|For the quarterly period ended March 31, 2002
|OR                                           
|o                                             |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|Commission File No. 001-14163                

---

National Equipment Services, Inc.(Exact name of registrant as specified in its charter)

DELAWARE(State or other Jurisdiction of
Incorporation or Organization)

36-4087016(I.R.S. Employer
Identification No.)


1603 Orrington Avenue, Suite 1600
Evanston, Illinois 60201(Address of principal executive offices)]
(Zip code)

(847) 733-1000(Registrant's telephone number, including area code)

---

Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  ý    No  o

There
were 21,151,163 shares of Common Stock ($.01 par value) outstanding as of May 7, 2002.

---

---

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NATIONAL EQUIPMENT SERVICES, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter ended March 31, 2002

INDEX

|PART I.           | FINANCIAL INFORMATION                                                                                |    | 2 
|----------------- | ---------------------------------------------------------------------------------------------------- | -- | --
|Item 1.           | Financial Statements                                                                                 |    | 2 
|                  | Consolidated Balance Sheets at March 31, 2002 (Unaudited) and December 31, 2001                      |    | 2 
|                  | Consolidated Statements of Operations for the three months ended March 31, 2002 and 2001 (Unaudited) |    | 3 
|                  | Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001 (Unaudited) |    | 4 
|                  | Notes to Consolidated Financial Statements (Unaudited)                                               |    | 5 
|Item 2.           | Management's Discussion and Analysis of Financial Condition and Results of Operations                |    | 10
|Item 3.           | Quantitative and Qualitative Disclosures About Market Risk                                           |    | 13
|PART II.          | OTHER INFORMATION                                                                                    |    | 14
|Item 1.           | Legal Proceedings                                                                                    |    | 14
|Item 2.           | Changes in Securities                                                                                |    | 14
|Item 3.           | Defaults upon Senior Securities                                                                      |    | 14
|Item 4.           | Submission of Matters to a Vote of Security Holders                                                  |    | 14
|Item 5.           | Other Information                                                                                    |    | 14
|Item 6.           | Exhibits and Reports on Form 8-K                                                                     |    | 14
|SIGNATURE         |                                                                                                      | 15
|Index of Exhibits |                                                                                                      | 16

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PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

NATIONAL EQUIPMENT SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

|                                                                         |                                                                                                | March 31,
2002 |                                            | December 31,
2001 |  
|------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------- | -------------- | ------------------------------------------ | ----------------- | -
|
|Assets                                                                   |                                                                                                |                |                                            |                   |  
|                                                                         | Cash and cash equivalents                                                                      |                | $                                          | 307               |  
|                                                                         | Accounts receivable, net of allowance for doubtful accounts of $6,654 and $6,251, respectively |                |                                            | 127,387           |  
|                                                                         | Inventory, net                                                                                 |                |                                            | 30,040            |  
|                                                                         | Rental equipment, net                                                                          |                |                                            | 581,249           |  
|                                                                         | Property and equipment, net                                                                    |                |                                            | 56,966            |  
|                                                                         | Intangible assets, net                                                                         |                |                                            | 358,732           |  
|                                                                         | Loan origination costs, net                                                                    |                |                                            | 9,894             |  
|                                                                         | Deferred income taxes                                                                          |                |                                            | 10,066            |  
|                                                                         | Prepaid expenses and other assets, net                                                         |                |                                            | 21,665            |  
|                                                                         |                                                                                                |                |                                            |                   |  
|                                                                         |                                                                                                |                | Total assets                               |                   | $
|                                                                         |                                                                                                |                |                                            |                   |  
|Liabilities                                                              |                                                                                                |                |                                            |                   |  
|                                                                         | Book overdraft                                                                                 |                | $                                          | 4,942             |  
|                                                                         | Accounts payable                                                                               |                |                                            | 16,457            |  
|                                                                         | Accrued interest                                                                               |                |                                            | 15,152            |  
|                                                                         | Deferred income taxes, net                                                                     |                |                                            | 35,662            |  
|                                                                         | Accrued expenses and other liabilities                                                         |                |                                            | 64,558            |  
|                                                                         | Debt                                                                                           |                |                                            | 868,957           |  
|                                                                         |                                                                                                |                |                                            |                   |  
|                                                                         |                                                                                                |                | Total liabilities                          |                   |  
|                                                                         |                                                                                                |                |                                            |                   |  
|                                                                         | Senior redeemable convertible preferred stock                                                  |                |                                            | 96,422            |  
|                                                                         | Commitments and contingencies                                                                  |                |                                            |                  |  
|Stockholders' equity:                                                    |                                                                                                |                |                                            |                   |  
|Common stock, $0.01 par, 100,000 shares authorized; 24,170 shares issued |                                                                                                |                | 241                                        |                   |  
|Additional paid-in capital                                               |                                                                                                |                | 123,887                                    |                   |  
|Retained earnings (accumulated deficit)                                  |                                                                                                |                | (3,397                                     | )                 |  
|Stock subscriptions receivable                                           |                                                                                                |                | (80                                        | )                 |  
|Treasury stock at cost, 3,019 shares                                     |                                                                                                |                | (19,062                                    | )                 |  
|Accumulated other comprehensive loss                                     |                                                                                                |                | (7,433                                     | )                 |  
|                                                                         |                                                                                                |                |                                            |                   |  
|                                                                         |                                                                                                |                | Total stockholders' equity                 |                   |  
|                                                                         |                                                                                                |                |                                            |                   |  
|                                                                         |                                                                                                |                | Total liabilities and stockholders' equity |                   | $
|                                                                         |                                                                                                |                |                                            |                   |  

The
accompanying notes are an integral part of the consolidated financial statements.

2

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NATIONAL EQUIPMENT SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)

|                                                            |                                | For the Three Months
Ended March 31, |        
|----------------------------------------------------------- | ------------------------------ | ------------------------------------ | -------
|
|Revenues                                                    |                                |                                      |        
|                                                            | Rental revenues                |                                      | $      
|                                                            | New equipment sales            |                                      |        
|                                                            | Rental equipment sales         |                                      |        
|                                                            | Parts, service and other       |                                      |        
|                                                            |                                |                                      |        
|                                                            |                                | Total revenues                       |        
|                                                            |                                |                                      |        
|Cost of revenues                                            |                                |                                      |        
|                                                            | Rental equipment depreciation  |                                      |        
|                                                            | Cost of new equipment sales    |                                      |        
|                                                            | Cost of rental equipment sales |                                      |        
|                                                            | Other operating expenses       |                                      |        
|                                                            |                                |                                      |        
|                                                            |                                | Total cost of revenues               |        
|                                                            |                                |                                      |        
|Gross profit                                                |                                |                                      | 43,938 
|Selling, general and administrative expenses                |                                |                                      | 39,498 
|Non-rental depreciation and amortization                    |                                |                                      | 2,902  
|                                                            |                                |                                      |        
|Operating income                                            |                                |                                      | 1,538  
|Other income, net                                           |                                |                                      | 463    
|Interest expense, net                                       |                                |                                      | 18,509 
|                                                            |                                |                                      |        
|Loss before income taxes                                    |                                |                                      | (16,508
|Income tax benefit                                          |                                |                                      | (6,768 
|                                                            |                                |                                      |        
|Net loss                                                    |                                | $                                    | (9,740 
|                                                            |                                |                                      |        
|Other comprehensive income                                  |                                |                                      | 3,668  
|                                                            |                                |                                      |        
|Comprehensive loss                                          |                                | $                                    | (6,072 
|                                                            |                                |                                      |        
|Basic loss per common share                                 |                                | $                                    | (0.47  
|                                                            |                                |                                      |        
|Average number of common shares used in basic calculation   |                                |                                      | 21,119 
|                                                            |                                |                                      |        
|Diluted loss per common share                               |                                | $                                    | (0.47  
|                                                            |                                |                                      |        
|Average number of common shares used in diluted calculation |                                |                                      | 21,119 
|                                                            |                                |                                      |        

The
accompanying notes are an integral part of the consolidated financial statements.

3

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NATIONAL EQUIPMENT SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)

|                                                                                |                                              | For the Three Months
Ended March 31,   |        
|------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------- | -------
|
|Operating Activities:                                                           |                                              |                                        |        
|Net loss                                                                        |                                              | $                                      | (9,740 
|Adjustments to reconcile net loss to net cash provided by operating activities: |                                              |                                        |        
|                                                                                | Depreciation and amortization                |                                        |        
|                                                                                | Gain on sale of equipment                    |                                        |        
|                                                                                | Deferred income taxes                        |                                        |        
|                                                                                | Changes in operating assets and liabilities: |                                        |        
|                                                                                |                                              | Accounts receivable                    |        
|                                                                                |                                              | Inventory                              |        
|                                                                                |                                              | Prepaid expenses and other assets      |        
|                                                                                |                                              | Accounts payable                       |        
|                                                                                |                                              | Accrued expenses and other liabilities |        
|                                                                                |                                              |                                        |        
|Net cash provided by operating activities                                       |                                              |                                        | 5,929  
|                                                                                |                                              |                                        |        
|Investing Activities:                                                           |                                              |                                        |        
|Purchases of rental equipment                                                   |                                              |                                        | (13,068
|Proceeds from sale of rental equipment                                          |                                              |                                        | 7,765  
|Purchases of property and equipment                                             |                                              |                                        | (1,353 
|Proceeds from sale of property and equipment                                    |                                              |                                        | 416    
|                                                                                |                                              |                                        |        
|Net cash used in investing activities                                           |                                              |                                        | (6,240 
|                                                                                |                                              |                                        |        
|Financing Activities:                                                           |                                              |                                        |        
|Proceeds from long-term debt                                                    |                                              |                                        | 27,000 
|Payments on long-term debt and capital leases                                   |                                              |                                        | (27,256
|Book overdrafts                                                                 |                                              |                                        | (3,369 
|Proceeds from stock subscriptions receivable                                    |                                              |                                        | 22     
|                                                                                |                                              |                                        |        
|Net cash used in financing activities                                           |                                              |                                        | (3,603 
|                                                                                |                                              |                                        |        
|Net decrease in cash and cash equivalents                                       |                                              |                                        | (3,914 
|Cash and cash equivalents at beginning of period                                |                                              |                                        | 4,221  
|                                                                                |                                              |                                        |        
|Cash and cash equivalents at end of period                                      |                                              | $                                      | 307    
|                                                                                |                                              |                                        |        

The
accompanying notes are an integral part of the consolidated financial statements.

4

---

NATIONAL EQUIPMENT SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

1.    Organization

National Equipment Services, Inc. (the "Company") is principally a holding company organized on June 4, 1996 (date of inception) under the laws of
Delaware. The Company conducts its operations through its wholly owned subsidiaries acquired since the date of inception. The Company owns and operates equipment rental, sales and service facilities
primarily located throughout the United States. The Company rents various types of equipment to a diverse customer base, including construction, petro-chemical and other industrial users. The Company
also sells new and used rental equipment and related parts, and provides other services. The nature of the Company's business is such that short-term obligations are typically met by cash
flow generated from long-term assets. Consequently, consistent with industry practice, the accompanying balance sheets are presented on an unclassified basis.

2.    Basis of presentation

GeneralThe accompanying unaudited financial statements as of and for the quarters ended March 31, 2002 and 2001 have
been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. The December 31, 2001 consolidated balance sheet was derived from audited financial statements but does not include all of the information and footnotes
required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting only of
normal recurring adjustments, have been included. Results of operations for the interim periods are not necessarily indicative of the results that may be expected for
a full year. Due to the seasonality which impacts a significant portion of the Company's locations, the second and third quarters are typically the most active quarters for the Company.

Derivative InstrumentStatement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended, became effective as of January 1, 2001. Currently, the Company's only derivative is an interest rate swap used to hedge a portion of the
Company's debt and is designated as a cash flow hedging instrument. The Company's objective for holding the derivative is to minimize interest rate risks and stabilize cash flows. The derivative is
required to be recorded as an asset or liability on the consolidated balance sheet at fair value, with an offset to other comprehensive income to the extent the hedge is effective. Any ineffectiveness
in the hedge will be recorded as an adjustment to earnings. As of March 31, 2002, the derivative liability totaled $7,433 and was recorded as an accrued liability on the consolidated balance
sheet.

Comprehensive IncomeStatement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income",
which requires comprehensive income and its components to be disclosed in the financial statements for all periods presented became effective in 1999. The only item of other comprehensive income
applicable to the Company is a change in the fair value of a derivative instrument, totaling $3,668 of income during the three-month period ending March 31, 2002.

Recently Issued Accounting StandardsIn May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections." This Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that
Statement, FASB Statement No. 64,

5

---

"Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements." This Statement amends FASB Statement No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting
for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other
existing authoritative pronouncements to make various technical corrections, clarify meanings, or described their applicability under changed conditions. The provisions of this Statement related to
the recission of Statement No. 4 are effective beginning in 2003. All other provisions are effective after May 15, 2002. The Company is in the process of determining the impact of this standard on the
Company's financial results when effective.

In
October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This Statement supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and amends Accounting Principles Board (APB) No. 30, "Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." This Statement requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less
costs to sell. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. This Statement also retains APB No. 30's requirement that companies report discontinued operations separately from continuing operations. All provisions of
this
Statement were effective at the beginning of fiscal 2002. The adoption of this new standard did not have a significant impact on the Company's financial results.

In
June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets," that supersede Accounting Principles Board ("APB") Opinion No. 16, Business Combinations, and APB Opinion No. 17, Intangible Assets. These two statements modify the method of
accounting for business combinations and address the accounting and reporting for goodwill and intangible assets. SFAS No. 141 is effective for all business combinations initiated after
June 30, 2001 and all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. SFAS No. 142 is effective for fiscal
years beginning after December 15, 2001. Beginning in fiscal year 2002, the Company no longer amortizes goodwill. For the years ended December 31, 2001, 2000 and 1999, goodwill
amortization was $10,124, $10,155 and $7,567, respectively. In the second quarter of 2002, however, the Company will complete step one of its evaluation of goodwill for impairment pursuant to the
transition provisions of FAS 142. Based upon preliminary calculations of fair value pursuant to SFAS No. 142, it appears that the Company will record a charge upon adoption of SFAS
No. 142 in the range of $100,000 to $200,000 which would be recognized as a cumulative effect of a change in accounting as of the beginning of the year.

6

---

The
effect of adopting the new standards on net income and diluted earnings per share for the quarter ended March 31, 2001 is as follows:

March 31,
2001Reported net loss

$
(8,303
)Plus: Goodwill amortization


2,432Adjusted net loss

$
(5,871
)Diluted earnings per share:Reported net loss

$
(0.40
)Goodwill amortization

$
0.12Adjusted net loss

$
(0.28
)


ReclassificationsCertain reclassifications of prior year financial statement amounts have been made to
conform with the current year reporting.

3.    Earnings per share

The Company's earnings per share for the three months ended March 31, 2002 and 2001 are calculated as follows:

2002

2001Net loss

$
(9,740
)
$
(8,303
)Less accretion on preferred stock


(125
)

(125
)Net loss available to common stockholders

$
(9,865
)
$
(8,428
)Basic weighted average shares


21,119


20,859Effect of dilutive securitiesUnvested stock





Convertible preferred stock





Exercise of stock options





Diluted weighted average shares


21,119


20,859Basic loss per share

$
(0.47
)
$
(0.40
)Dilutive loss per share

$
(0.47
)
$
(0.40
)


The
effect of dilutive securities is omitted from the computation of earnings per share because inclusion would be anti-dilutive by reducing the loss per
share.

At
March 31, 2002 and 2001, approximately 2,800 stock options were excluded from the computation of the diluted earnings per share because the exercise prices were greater than the
average market price of the common shares.

4.    Acquisitions

In December 2001, the Company purchased Brambles Equipment Services, Inc. ("BESI"), an equipment rental company based in Taylor, MI. The following
unaudited financial information for the quarter ended March 31, 2001 represents the pro forma results of operations as if the BESI acquisition

7

---

had been completed on January 1, 2001, after giving effect to certain adjustments including increased depreciation of property and equipment, interest expense for acquisition debt and
amortization of related intangibles. These pro forma results and loss per share have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that
would have been achieved had this acquisition been completed as of January 1, 2001, nor are the results indicative of the Company's future results of operations.

2001Revenues

$
180,282Operating income


9,069Net loss


(7,203
)Net loss per share:Basic

$
(0.35
)Diluted

$
(0.35
)Weighed average shares outstandingBasic


20,859Diluted


20,859


5.    Inventory

Inventory, net consists of the following, at:

March 31,
2002

December 31,
2001New equipment

$
10,675

$
7,757Used equipment


4,309


4,512Contractor supplies


4,848


4,495Parts


15,638


17,16635,470


33,930Reserves for excess and obsolete inventory


(5,430
)

(4,767
)$
30,040

$
29,163


6.    Debt

The Company's Credit Facility provides for a term loan of $100,000 and a revolving loan of $550,000. Based upon the available borrowing base (which is based on
inventory, accounts receivable and rental equipment levels) at March 31, 2002, the Company had $3,658 available on the revolving Credit Facility loan. The Credit Facility is collateralized by
substantially all of the Company's assets.

The
Credit Facility contains certain covenants that, among other things, require the Company to satisfy certain financial tests, relating to (i) the ratio of senior debt to
earnings before interest, taxes, depreciation, and amortization ("EBITDA"), (ii) minimum interest coverage ratio and (iii) the ratio of funded debt to EBITDA. In addition, the Credit
Facility and the indentures for the Series B and Series D Notes contain certain covenants that set certain limitations on the granting of liens, asset sales, additional indebtedness,
transactions with affiliates, restricted payments, investments, issuances of stock and payment of dividends. The Company is currently in compliance with all covenants of the

8

---

Credit Facility and the indentures for the Series B and Series D Notes, and while the Company expects to be in compliance with the covenants and satisfy the financial ratios and tests
related to the Credit Facility in the future, it is possible that the Company may not meet such financial ratios and tests.

7.    Segment information

All operations are managed on a branch basis. The Company has two reporting segments, Traffic Safety and General Rental and Other. The Traffic Safety operations
have different contractual, regulatory and capital requirements than the General Rental and Other operations. Intersegment revenues are not material and the operating earnings of the segments do not
include interest expense (income) or income tax expense (benefit). The Company has no single customer that represents greater than 2% of the Company's consolidated revenues. Indentifiable assets are
those used in the Company's operations in each segment.

The
following table presents the information for the reported segments for the quarters ended March 31:

Traffic Safety

General Rental and Other

Consolidated2002:Total revenues

$
14,485

$
135,899

$
150,384Operating income (loss)


(3,767
)

5,305


1,538Identifiable assets


104,836


1,091,470


1,196,306Depreciation and amortization


2,971


29,137


32,108Capital expenditures


780


13,641


14,421Goodwill, net


39,645


315,743


355,3882001:Total revenues

$
13,569

$
125,213

$
138,782Operating income (loss)


(3,800
)

9,569


5,769Identifiable assets


114,173


1,090,367


1,204,540Depreciation and amortization


3,414


27,851


31,265Capital expenditures


795


7,340


8,135Goodwill, net


39,971


320,418


360,389


8.    Restructuring charge

During the fourth quarter of 2001, the Company recorded a non-recurring pre-tax restructuring charge of $1,700 related to the acquisition
of BESI. This charge consists primarily of a reserve for lease termination and severance costs. The Company also established a reserve of $8,000, which was recorded against goodwill, related to the
closure of certain BESI locations in conjunction with the purchase accounting for the acquisition (Note 4). Details of the restructuring reserve are as follows:

Balance at
December 31,
2001

Utilized

Balance at
March 31,
2002Lease termination costs and other facility closure costs

$
5,059

$
218

$
4,841Severance


4,641


671


3,970$
9,700

$
889

$
8,811


It
is expected that the restructuring activities will be substantially complete by the end of the year.

9

---



ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands)

The following table shows information derived from the Company's historical consolidated statements of operations as a percentage of total revenues.

Three Months Ended
March 31,2002

2001Rental revenues

76.1
%
77.4
%New equipment sales

7.5

8.9Rental equipment sales

5.2

5.1Parts, service and other

11.2

8.6Total revenues

100.0

100.0Cost of revenues

70.8

65.8Gross margin

29.2

34.2Selling, general and administrative expenses

26.3

26.2Non-rental depreciation and amortization

1.9

3.8Operating income

1.0

4.2Other income, net

0.3

0.2Interest expense, net

12.3

14.8Income (loss) before income taxes

(11.0
)
(10.4
)Income tax expense (benefit)

(4.5
)
(4.5
)Net income (loss)

(6.5
)%
(5.9
)%


Results of Operations

Quarter Ended March 31, 2002, Compared with the Quarter Ended March 31, 2001

Revenues.Total revenues increased to $150,384 in 2002 from $138,782 in 2001. Rental revenues increased 7% to 114,457 from
$107,328. These increases were the result of the acquisition of Brambles Equipment Services, Inc. ("BESI") in December 2001, partially offset by continued softness in the economy.

Gross Profit.Gross profit decreased to $43,938 in 2002 from $47,431 in 2001. Gross margin decreased to 29.2% in 2002 from
34.2% in 2001. The decrease in gross margin is primarily due to increased depreciation and direct operating costs as a result of the fleet and infrastructure acquired in conjunction with the BESI
transaction.

Selling, General and Administrative Expenses.Selling, general and administrative expenses increased to $39,498 in 2002 from
$36,410 in 2001. This increase results from the infrastructure acquired in conjunction with the BESI transaction. As a percentage of total revenues, however, selling, general and administrative
expenses remained a relatively constant 26.3% and 26.2% in 2002 and 2001, respectively.

Non-rental Depreciation and Amortization.Non-rental depreciation and amortization decreased to
$2,902 in 2002 from $5,252 in 2001 as a result of the Company recording no amortization expense in the first quarter of 2002 in connection with the adoption of SFAS No. 142, "Goodwill
and Other Intangible Assets," in the second quarter of 2002.

Interest Expense, Net.Interest expense, net, decreased to $18,509 in 2002 from $20,510 in 2001, due primarily to lower
interest rates on the Company's variable rate debt in the first quarter of 2002.

10

---

Income Tax Rate.The effective income tax rate declined to 41.0% in the first quarter of 2002 from 42.9% in the first quarter
of 2001.

Liquidity and Capital Resources

The Company's primary capital requirements are for the purchasing of new rental equipment. The Company's other capital expenditures include buying vehicles used
for delivery and maintenance, and for property, plant and equipment. The Company purchases rental equipment throughout the year to replace equipment that has been sold as well as to maintain adequate
levels of equipment to meet existing and new customer needs. Rental fleet purchases for the Company were $13,068 and $6,735 in the first three months of 2002 and 2001, respectively. The Company's
expenditures for rental fleet are expected to be approximately $35,000 in 2002 compared to $23,000 in 2001.

For
the three months ended March 31, 2002 and 2001, the Company's net cash provided by operations was $5,929 and $11,492, respectively. The decrease in 2002 was due primarily to
an increase in accounts receivable. For the three months ended March 31, 2002 and 2001, the Company's net cash used in investing activities was $6,240 and $834, respectively. Net cash used for
investing activities consists primarily of purchases of rental equipment and property and equipment, and the increase in 2002 was attributable to increased purchases of rental equipment as compared to
the same period in the previous year. For the three months ended March 31, 2002 and 2001, the Company's net cash used in financing activities was $3,603 and $11,390, respectively. Net cash used
in financing activities consists primarily of repayments of indebtedness under the Company's credit facility. The decrease in 2002 is the result of the Company's need to fund the working capital
requirements for BESI immediately following the acquisition with cash flow generated by operations.

The
Company's credit facility provides for a $100,000 term loan and a revolving credit facility up to a maximum of $550,000 (subject to availability based on certain financial tests
including a borrowing base) to meet acquisition needs, as well as seasonal working capital and general corporate
requirements. As of March 31, 2002, $592,000 was outstanding under the credit facility. Based upon the available borrowing base (which is based on inventory, accounts receivable and rental
equipment levels) at March 31, 2002, the Company had $3,658 available on the revolving credit facility loan. The credit facility contains certain covenants that require the Company to, among
other things, satisfy certain financial tests relating to 1) the ratio of senior debt to EBITDA, 2) minimum interest coverage ratio and 3) the ratio of funded debt to EBITDA. The
credit facility also contains various other covenants that restrict the Company's ability to, among other things, 1) incur additional indebtedness, 2) permit liens to attach to its
assets, 3) pay dividends or make other restricted payments on its common stock and certain other securities and 4) make acquisitions unless certain financial conditions are satisfied.
The Company is currently in compliance with all covenants governing the credit facility. While the Company expects to be in compliance with the covenants and satisfy the financial ratios and tests
related to the credit facility in the future, there can be no assurance that the Company will meet such financial ratios and tests.

During
1997, the Company issued $100,000 of Senior Subordinated Notes due 2004 (the "Series A Notes") at a discount netting proceeds of $98,767. During 1998, the Company completed
its exchange of $100,000 of Senior Subordinated Notes due 2004, Series B (the "Series B Notes"), which have been registered for public trading, for the Series A Notes.

Also
during 1998, the Company issued $125,000 of Senior Subordinated Notes due 2004, Series C (the "Series C Notes") at a discount netting proceeds of $122,288. During
1999, the Company issued $50,000 of additional Series C Notes, at a discount netting proceeds of $49,000. Later during 1999, the Company completed its exchange of $175,000 of Senior
Subordinated Notes due 2004, Series D (the "Series D Notes"), which have been registered for public trading, for the Series C Notes.

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The
Company accretes the original issue discount of the Series B Notes and Series D Notes over the term of the notes using the effective interest rate method. The
indentures for the Series B and Series D notes contain a number of covenants that, among other things, set certain limitations on the granting of liens, asset sales, additional
indebtedness, transactions with affiliates, restricted payments, investments, issuances of stock and payment of dividends. The Company is currently in compliance with all such covenants under the
indentures.

The
Company believes that its credit facility, together with funds generated by operations and related activities, will provide the Company with sufficient liquidity and capital
resources in the near-term to finance its operations and pursue its business strategy. Over the long term, the Company will need to refinance its credit facility, its Series B Notes
and its Series D Notes since the credit facility becomes due and payable in July 2003 and its Series B Notes and Series D Notes become due and payable in
November 2004. There can be no assurance that the Company will be able to raise the necessary capital on favorable terms, which would have a material effect on the Company's future financial
condition and results of operations.

General Economic Conditions, Inflation and Seasonality

The Company's operating results may be adversely affected by 1) changes in general economic conditions, including changes in construction and industrial
activity, or increases in interest rates, or 2) adverse weather conditions that may temporarily decrease construction and industrial activity in a particular geographic area. Although the
Company cannot accurately anticipate the effect of inflation on its operations, management believes that inflation has not had a material impact on the Company's results of operations and is not
likely to in the foreseeable future.

The
Company's revenues and operating results fluctuate due to the seasonal nature of the industry in which the Company operates, with rental activity tending to be lower in winter.

Recently Issued Accounting Pronouncements

In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." This
Statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that Statement, FASB Statement No. 64, "Extinguishment of Debt Made to Satisfy
Sinking-Fund Requirements." This Statement amends FASB Statement No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements
to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this Statement related to the rescission of Statement No. 4 are
effective beginning in 2003. All other provisions are effective after May 15, 2002. The Company is in the process of determining the impact of this standard on the Company's financial results when
effective.

In
October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal or Long-Lived Assets." This Statement supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and amends Accounting Principles Board (APB) No. 30, "Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." This Statement requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less
costs to sell. SFAS No. 144 retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. This Statement also retains APB No. 30's requirement that companies report discontinued operations separately from continuing operations. All

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provisions of this Statement were effective at the beginning of fiscal 2002. The adoption of this new standard did not have a significant impact on the Company's financial results.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's credit facility, as amended, provides the Company with a $100,000 term loan and permits the Company to borrow up to an additional $550,000 of
revolving loans provided that certain conditions and financial tests are met, subject to a borrowing base. Borrowings under the credit facility bear interest, at the Company's option, at a specified
base rate or Eurodollar rate plus the applicable borrowing margin. At May 7, 2002, the Company had total borrowings under the credit facility of $594,000, $194,000 of which was subject to
interest rate risk. Each 100 basis point increase in interest rates on the variable rate debt would decrease pretax earnings by approximately $1,940.

The
Company may, from time to time, use interest rate swap contracts to hedge the impact of interest rate fluctuations on certain variable rate debt. The Company does not hold or issue
derivative financial instruments for trading or speculative purposes. Effective April 18, 2001 the Company entered into an interest rate swap contract, which fixes the interest rate at 4.71% on
$400,000 of variable rate debt through April 17, 2003. The interest differential is paid or received on a monthly basis and recognized currently as a component of interest expense. The
counterparty to the swap is a major financial institution and management believes that the risk of incurring credit losses is remote.

Forward Looking Statements

Note: This document contains forward-looking statements as encouraged by the Private Securities Litigation Reform Act of 1995. All statements contained in this document, other
than historical information, are forward-looking statements. These statements represent management's current judgement on what the future holds. A variety of factors could cause business conditions
and the Company's actual results to differ materially from those expected by the Company or expressed in the Company's forward-looking statements. These factors include, without limitation, the
Company's ability to successfully integrate acquired businesses; changes in market price or market demand; loss of business from customers; unanticipated expenses; changes in financial markets; and
other factors discussed in the Company's filings with the Securities and Exchange Commission.

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PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Not applicable.

ITEM 2.    CHANGES IN SECURITIES

Not applicable.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5.    OTHER INFORMATION

Not applicable.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

See Index of Exhibits on page 16. The Company filed a Current Report on Form 8-K dated January 2, 2002, to report the acquisition
of Brambles Equipment Services, Inc.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized on May 15, 2002.

| |  | NATIONAL EQUIPMENT SERVICES, INC.
| |  | ---------------------------------
| |  |                                  
| |  | By:                              

Form 10-Q: For the quarter ended March 31, 2002.

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INDEX OF EXHIBITS

|Exhibit
Number |  | Description of Document                                                                                                                                                                          
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|11.1           |  | Statement re Computation of Per Share Earnings. Not required because the relevant computations can be clearly determined from the material contained in the financial statements included herein.

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