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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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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 June 30, 2002
|OR                                          
|o                                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|Commission File No. 001-14163               

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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)

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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 /x/ No / /

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

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NATIONAL EQUIPMENT SERVICES, INC.    QUARTERLY REPORT ON FORM 10-Q    For the Quarter ended June 30, 2002    INDEX

|PART I.           |  | FINANCIAL INFORMATION                                                                                       |  | 3 
|----------------- |  | ----------------------------------------------------------------------------------------------------------- |  | --
|Item 1.           |  | Financial Statements                                                                                        |  | 3 
|                  |  | Consolidated Balance Sheets at June 30, 2002 (Unaudited) and December 31, 2001                              |  | 3 
|                  |  | Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001 (Unaudited) |  | 4 
|                  |  | Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001 (Unaudited)           |  | 5 
|                  |  | Notes to Consolidated Financial Statements (Unaudited)                                                      |  | 6 
|Item 2.           |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                       |  | 12
|Item 3.           |  | Quantitative and Qualitative Disclosures About Market Risk                                                  |  | 16
|PART II.          |  | OTHER INFORMATION                                                                                           |  | 17
|Item 1.           |  | Legal Proceedings                                                                                           |  | 17
|Item 2.           |  | Changes in Securities                                                                                       |  | 17
|Item 3.           |  | Defaults upon Senior Securities                                                                             |  | 17
|Item 4.           |  | Submission of Matters to a Vote of Security Holders                                                         |  | 17
|Item 5.           |  | Other Information                                                                                           |  | 17
|Item 6.           |  | Exhibits and Reports on Form 8-K                                                                            |  | 17
|SIGNATURE         |  | 18                                                                                                         
|Index of Exhibits |  | 19                                                                                                         

2

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATIONAL EQUIPMENT SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

|                                                                         |                                                                                                | June 30,
2002                                        |          | December 31,
2001 |          
|------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------- | -------- | ----------------- | ---------
|
|Assets                                                                   |                                                                                                |                                                      |          |                   |          
|                                                                         | Cash and cash equivalents                                                                      |                                                      | $        | 3,703             |          
|                                                                         | Accounts receivable, net of allowance for doubtful accounts of $8,168 and $5,844, respectively |                                                      |          | 128,813           |          
|                                                                         | Receivable from sale of discontinued operations                                                |                                                      |          | 108,890           |          
|                                                                         | Inventory, net                                                                                 |                                                      |          | 27,528            |          
|                                                                         | Rental equipment, net                                                                          |                                                      |          | 543,720           |          
|                                                                         | Property and equipment, net                                                                    |                                                      |          | 50,652            |          
|                                                                         | Intangible assets, net                                                                         |                                                      |          | 139,286           |          
|                                                                         | Loan origination costs, net                                                                    |                                                      |          | 7,887             |          
|                                                                         | Deferred income taxes                                                                          |                                                      |          |                  |          
|                                                                         | Prepaid expenses and other assets, net                                                         |                                                      |          | 12,361            |          
|                                                                         | Assets associated with discontinued operations                                                 |                                                      |          | 13,227            |          
|                                                                         |                                                                                                |                                                      |          |                   |          
|                                                                         |                                                                                                | Total assets                                         |          | $                 | 1,036,067
|                                                                         |                                                                                                |                                                      |          |                   |          
|Liabilities                                                              |                                                                                                |                                                      |          |                   |          
|                                                                         | Book overdraft                                                                                 |                                                      | $        | 6,041             |          
|                                                                         | Accounts payable                                                                               |                                                      |          | 29,410            |          
|                                                                         | Accrued interest                                                                               |                                                      |          | 8,633             |          
|                                                                         | Deferred income taxes, net                                                                     |                                                      |          |                  |          
|                                                                         | Accrued expenses and other liabilities                                                         |                                                      |          | 54,124            |          
|                                                                         | Debt                                                                                           |                                                      |          | 868,957           |          
|                                                                         | Liabilities associated with discontinued operations                                            |                                                      |          | 12,187            |          
|                                                                         |                                                                                                |                                                      |          |                   |          
|                                                                         |                                                                                                | Total liabilities                                    |          |                   | 979,352  
|                                                                         |                                                                                                |                                                      |          |                   |          
|                                                                         | Senior redeemable convertible preferred stock                                                  |                                                      |          | 96,546            |          
|                                                                         | 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)                                  |                                                                                                |                                                      | (138,882 | )                 |          
|Stock subscriptions receivable                                           |                                                                                                |                                                      | (80      | )                 |          
|Treasury stock at cost, 3,019 shares                                     |                                                                                                |                                                      | (19,062  | )                 |          
|Accumulated other comprehensive loss                                     |                                                                                                |                                                      | (5,935   | )                 |          
|                                                                         |                                                                                                |                                                      |          |                   |          
|                                                                         |                                                                                                | Total stockholders' equity (deficit)                 |          |                   | (39,831  
|                                                                         |                                                                                                |                                                      |          |                   |          
|                                                                         |                                                                                                | Total liabilities and stockholders' equity (deficit) |          | $                 | 1,036,067
|                                                                         |                                                                                                |                                                      |          |                   |          

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

3

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NATIONAL EQUIPMENT SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)

|                                                                           |                                                         | For the Three Months Ended
June 30, |        | For the Six Months Ended
June 30, |        
|-------------------------------------------------------------------------- | ------------------------------------------------------- | ----------------------------------- | ------ | --------------------------------- | -------
|
|Revenues                                                                   |                                                         |                                     |        |                                   |        
|                                                                           | Rental revenues                                         |                                     | $      | 116,034                           |        
|                                                                           | New equipment sales                                     |                                     |        | 11,633                            |        
|                                                                           | Rental equipment sales                                  |                                     |        | 10,537                            |        
|                                                                           | Parts, service and other                                |                                     |        | 23,445                            |        
|                                                                           |                                                         |                                     |        |                                   |        
|                                                                           |                                                         | Total revenues                      |        | $                                 | 161,649
|Cost of revenues                                                           |                                                         |                                     |        |                                   |        
|                                                                           | Rental equipment depreciation                           |                                     |        | 28,539                            |        
|                                                                           | Cost of new equipment sales                             |                                     |        | 9,294                             |        
|                                                                           | Cost of rental equipment sales                          |                                     |        | 6,345                             |        
|                                                                           | Other operating expenses                                |                                     |        | 66,378                            |        
|                                                                           |                                                         |                                     |        |                                   |        
|                                                                           |                                                         | Total cost of revenues              |        |                                   | 110,556
|                                                                           |                                                         |                                     |        |                                   |        
|Gross profit                                                               |                                                         |                                     | 51,093 |                                   |        
|Selling, general and administrative expenses                               |                                                         |                                     | 35,725 |                                   |        
|Non-rental depreciation and amortization                                   |                                                         |                                     | 2,447  |                                   |        
|                                                                           |                                                         |                                     |        |                                   |        
|Operating income                                                           |                                                         |                                     | 12,921 |                                   |        
|Other income, net                                                          |                                                         |                                     | 333    |                                   |        
|Interest expense, net                                                      |                                                         |                                     | 17,543 |                                   |        
|                                                                           |                                                         |                                     |        |                                   |        
|Income (loss) from continuing operations before income taxes               |                                                         |                                     | (4,289 | )                                 |        
|Income tax expense (benefit)                                               |                                                         |                                     |       |                                   |        
|                                                                           |                                                         |                                     |        |                                   |        
|Loss from continuing operations                                            |                                                         |                                     | (4,289 | )                                 |        
|Discontinued operations:                                                   |                                                         |                                     |        |                                   |        
|                                                                           | Loss from discontinued operations, net of tax           |                                     |        | (1,779                            | )      
|                                                                           | Gain on disposal of discontinued operations, net of tax |                                     |        | 6,981                             |        
|                                                                           |                                                         |                                     |        |                                   |        
|Income (loss) before cumulative effect of a change in accounting principle |                                                         |                                     | 913    |                                   |        
|Cumulative effect of a change in accounting principle, net of tax          |                                                         |                                     |       |                                   |        
|                                                                           |                                                         |                                     |        |                                   |        
|Net income (loss)                                                          |                                                         | $                                   | 913    |                                   | $      
|Other comprehensive income                                                 |                                                         |                                     | 1,498  |                                   |        
|                                                                           |                                                         |                                     |        |                                   |        
|Comprehensive income (loss)                                                |                                                         | $                                   | (2,411 | )                                 | $      
|Basic income (loss) per common share:                                      |                                                         |                                     |        |                                   |        
|                                                                           | Continuing operations                                   |                                     | $      | (0.21                             | )      
|                                                                           | Discontinued operations                                 |                                     |        | 0.25                              |        
|Cumulative effect of a change in accounting principle                      |                                                         |                                     |       |                                   |        
|                                                                           |                                                         |                                     |        |                                   |        
|Net earnings (loss)                                                        |                                                         | $                                   | 0.04   |                                   | $      
|Diluted income (loss) per common share:                                    |                                                         |                                     |        |                                   |        
|                                                                           | Continuing operations                                   |                                     | $      | (0.15                             | )      
|                                                                           | Discontinued operations                                 |                                     |        | 0.18                              |        
|Cumulative effect of a change in accounting principle                      |                                                         |                                     |       |                                   |        
|                                                                           |                                                         |                                     |        |                                   |        
|Net earnings (loss)                                                        |                                                         | $                                   | 0.03   |                                   | $      
|Weighted average shares outstanding:                                       |                                                         |                                     |        |                                   |        
|                                                                           | Basic                                                   |                                     |        | 21,151                            |        
|                                                                           | Diluted                                                 |                                     |        | 28,843                            |        

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

4

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NATIONAL EQUIPMENT SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)

|                                                                                                                      |                                                       | For the Six Months Ended June 30,      |        
|--------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | -------------------------------------- | -------
|
|Operating Activities:                                                                                                 |                                                       |                                        |        
|Net loss from continuing operations                                                                                   |                                                       | $                                      | (19,167
|Net income (loss) from discontinued operations                                                                        |                                                       |                                        | (3,409 
|                                                                                                                      |                                                       |                                        |        
|                                                                                                                      | Net loss                                              |                                        |        
|Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:            |                                                       |                                        |        
|                                                                                                                      | Depreciation and amortization                         |                                        |        
|                                                                                                                      | Gain on sale of discontinued operations               |                                        |        
|                                                                                                                      | Cumulative effect of a change in accounting principle |                                        |        
|                                                                                                                      | 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 |        
|Adjustments to reconcile net loss from discontinued operations to net cash (used in) provided by operating activities |                                                       |                                        | 107,075
|                                                                                                                      |                                                       |                                        |        
|Net cash provided by operating activities                                                                             |                                                       |                                        | 19,473 
|Investing Activities:                                                                                                 |                                                       |                                        |        
|Purchases of rental equipment                                                                                         |                                                       |                                        | (33,455
|Proceeds from sale of rental equipment                                                                                |                                                       |                                        | 17,045 
|Purchases of property and equipment                                                                                   |                                                       |                                        | (3,499 
|Proceeds from sale of property and equipment                                                                          |                                                       |                                        | 519    
|Net cash provided by (used in) discontinued operations                                                                |                                                       |                                        | 5      
|                                                                                                                      |                                                       |                                        |        
|Net cash (used in) provided by investing activities                                                                   |                                                       |                                        | (19,385
|Financing Activities:                                                                                                 |                                                       |                                        |        
|Proceeds from long-term debt                                                                                          |                                                       |                                        | 27,000 
|Payments on long-term debt and capital leases                                                                         |                                                       |                                        | (27,256
|Book overdrafts                                                                                                       |                                                       |                                        | (1,999 
|Net change in fair value of derivative instrument                                                                     |                                                       |                                        | 1,498  
|Net cash provided by discontinued operations                                                                          |                                                       |                                        | 173    
|                                                                                                                      |                                                       |                                        |        
|Net cash used in financing activities                                                                                 |                                                       |                                        | (584   
|                                                                                                                      |                                                       |                                        |        
|Net (decrease) increase in cash and cash equivalents                                                                  |                                                       |                                        | (496   
|Cash and cash equivalents at beginning of period                                                                      |                                                       |                                        | 4,199  
|                                                                                                                      |                                                       |                                        |        
|Cash and cash equivalents at end of period                                                                            |                                                       | $                                      | 3,703  
|                                                                                                                      |                                                       |                                        |        

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

5

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NATIONAL EQUIPMENT SERVICES, INC.  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
June 30, 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 that 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 June 30, 2002, the derivative
liability totaled $5,935 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 $5,166 of income during the six-month period ending June 30, 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, "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

6

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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 recission of Statement No. 4 are effective beginning in 2003. All
other provisions are effective after May 15, 2002.

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.

In
June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," that supersedes Accounting Principles Board ("APB") Opinion
No. 16, Business Combinations. 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. All business combinations under the scope of SFAS No. 141 are to be accounted for using the purchase method.

Also
in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," that supersedes APB Opinion No. 17, Intangible Assets. SFAS No. 142
is effective for fiscal years beginning after December 15, 2001. Under this standard, goodwill is no longer amortized but subject to annual impairment tests on a reporting unit level. In the
second quarter of 2002, the Company completed a transitional impairment test on its reporting units. As a result of this test, the Company recorded an impairment charge of approximately $125,571, net
of tax benefit, as a cumulative effect of change in accounting principle retroactive to January 1, 2002.

The
effect of adopting the new standards on net income and diluted earnings per share for the quarter ended June 30, 2001 is as follows:

June 30,
2001Reported net loss

$
(1,274
)Plus: goodwill amortization


2,636Adjusted net income

$
1,362Diluted earnings per share:Reported net loss

$
(0.07
)Goodwill amortization

$
0.09Adjusted net income

$
0.04


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

7

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3.    Earnings per share

The Company's earnings per share for the three and six months ended June 30, 2002 and 2001 are calculated as follows:

|                                                                 |                             | For the Three Months Ended
June 30, |        | For the Six Months Ended
June 30, |  
|---------------------------------------------------------------- | --------------------------- | ----------------------------------- | ------ | --------------------------------- | -
|
|Loss from continuing operations                                  |                             | $                                   | (4,289 | )                                 | $
|Less accretion on preferred stock                                |                             |                                     | (125   | )                                 |  
|                                                                 |                             |                                     |        |                                   |  
|Loss from continuing operations available to common stockholders |                             | $                                   | (4,414 | )                                 | $
|Weighted average shares                                          |                             |                                     | 21,151 |                                   |  
|                                                                 | Less unvested stock         |                                     |        |                                  |  
|                                                                 |                             |                                     |        |                                   |  
|Basic weighted average shares                                    |                             |                                     | 21,151 |                                   |  
|Effect of dilutive securities                                    |                             |                                     |        |                                   |  
|                                                                 | Unvested stock              |                                     |        |                                  |  
|                                                                 | Convertible preferred stock |                                     |        | 7,692                             |  
|                                                                 |                             |                                     |        |                                   |  
|Diluted weighted average shares                                  |                             |                                     | 28,843 |                                   |  
|Basic income (loss) per share from continuing operations         |                             | $                                   | (0.21  | )                                 | $
|Diluted income (loss) per share from continuing operations       |                             | $                                   | (0.21  | )                                 | $

The
effect of dilutive securities is omitted from the computation of earnings per share during periods of net loss because inclusion would be anti-dilutive by reducing the
loss per share. At June 30, 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 and Dispositions

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 June 30, 2001 represents the pro forma results of operations as if the BESI acquisition 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

8

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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

$
191,859Operating income


22,004Net loss


(1,274
)Net loss per share:Basic

$
(0.07
)Diluted

$
(0.07
)Weighed average shares outstandingBasic


20,859Diluted


20,859


On
June 30, 2002, the Company sold its underground trench shoring business. The proceeds of $108,890 from the sale were used to repay existing indebtedness under the Credit
Facility. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the financial condition and results of operations of this business are
reflected herein as discontinued operations.

5.    Inventory

Inventory, net consists of the following, at:

June 30,
2002

December 31,
2001New equipment

$
7,783

$
5,288Used equipment


4,337


4,512Contractor supplies


4,933


4,495Parts


15,127


17,16632,180


31,461Reserves for excess and obsolete inventory


(4,652
)

(4,676
)$
27,528

$
26,785


6.    Income Taxes

As a result of the adoption of SFAS No. 142, the Company's deferred tax assets exceeded the Company's deferred tax liabilities. The Company did not provide
any current or deferred US federal, state or foreign income tax provision or benefit during 2002 because it has recently experienced significant operating losses. The Company has provided a full
valuation allowance on the deferred tax asset, consisting primarily of net operating loss, because of uncertainty regarding its realizability. At June 30, 2002, the valuation allowance was
$10,250.

7.    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 June 30, 2002, the Company had $44,171 available on the revolving Credit Facility loan. The Credit Facility is collateralized by
substantially all of the Company's assets.

During
1997, the Company issued $100,000 of Senior Subordinated Notes due 2004 (the "Series A Notes") at a discount netting proceeds of $99,000. 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

9

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registered for public trading, for the Series A Notes. 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 $122,000. 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.

The
Company is a holding company with no independent operations, and the Company's assets (excluding the intercompany receivables and common stock of its subsidiaries) are insignificant.
All of the Company's subsidiaries make full, unconditional, joint and several guarantees of the Series B Notes and the Series D Notes, and all of these subsidiaries are directly or
indirectly wholly-owned by the Company. The separate financial statements of each of these wholly-owned subsidiaries are not presented as management believes that separate financial statements and
other disclosures concerning these subsidiaries are not individually meaningful for presentation or material to investors.

The
Credit Facility contains certain covenants that, among other things, require the Company to satisfy certain financial tests, including 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 Credit
Facility and the indentures for the Series B and Series D Notes. However, based on current operating projections, the Company expects that it will violate the leverage ratio covenants
under its Credit Facility at the end of the third quarter of 2002. A failure by the Company to comply with these covenants could result in an event of default under the Credit Facility, which could
have an adverse effect on the Company. The Company is currently in discussions with its lenders to amend its leverage ratio covenants, which would give the Company additional financial flexibility.

8.    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.

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The
following table presents the information for the reported segments for the quarters ended June 30:

Traffic Safety

Continuing
General Rental and
Other

Discontinued
Operations

Consolidated2002:Total revenues

30,998

130,651



161,649Operating income

4,910

7,511



12,421Identifiable assets

112,798

913,950

122,117

1,036,067Depreciation and amortization

2,942

28,044



30,986Capital expenditures

2,763

32,627



35,390Goodwill, net

40,230

99,056



139,2862001:Total revenues

33,502

117,257



150,759Operating income

5,848

11,657



17,505Identifiable assets

123,660

948,754

114,854

1,187,268Depreciation and amortization

3,503

25,407



28,910Capital expenditures

2,519

9,300



11,819Goodwill, net

40,731

260,114



300,845


9.    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
June 30,
2002Lease termination costs and other facility closure costs

$
5,059

919

4,140Severance


4,641

1,642

2,999$
9,700



7,139


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

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollar amounts 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
June 30, |   | Six Months Ended
June 30, |   
|----------------------------------------------------------------- |  | --------------------------- | - | ------------------------- | --
|
|Rental revenues                                                   |  | 71.8                        | % | 72.0                      | % 
|New equipment sales                                               |  | 7.2                         |   | 9.0                       |   
|Rental equipment sales                                            |  | 6.5                         |   | 5.6                       |   
|Parts, service and other                                          |  | 14.5                        |   | 13.4                      |   
|                                                                  |  |                             |   |                           |   
|Total revenues                                                    |  | 100.0                       |   | 100.0                     |   
|Cost of revenues                                                  |  | 68.4                        |   | 65.5                      |   
|                                                                  |  |                             |   |                           |   
|Gross margin                                                      |  | 31.6                        |   | 34.5                      |   
|Selling, general and administrative expenses                      |  | 22.1                        |   | 20.1                      |   
|Non-rental depreciation and amortization                          |  | 1.5                         |   | 2.8                       |   
|                                                                  |  |                             |   |                           |   
|Operating income                                                  |  | 8.0                         |   | 11.6                      |   
|Other income, net                                                 |  | 0.2                         |   | 0.1                       |   
|Interest expense, net                                             |  | 10.9                        |   | 11.5                      |   
|                                                                  |  |                             |   |                           |   
|Income (loss) before income taxes                                 |  | (2.7                        | ) | 0.2                       |   
|Income tax expense (benefit)                                      |  |                            |   | 1.0                       |   
|                                                                  |  |                             |   |                           |   
|Loss from continuing operations                                   |  | (2.7                        | ) | (0.8                      | ) 
|Loss from discontinued operations, net of tax                     |  | (1.1                        | ) | (0.0                      | ) 
|Gain on disposal of discontinued operations, net of tax           |  | 4.3                         |   |                          |   
|Cumulative effect of a change in accounting principle, net of tax |  |                            |   |                          |   
|                                                                  |  |                             |   |                           |   
|Net loss                                                          |  | 0.5                         | % | (0.8                      | )%

Results of Operations

Three and Six Months Ended June 30, 2002 Compared with Three and Six Months Ended June 30, 2001

Revenues.Total revenues increased to $161,649 for the three months ended June 30, 2002 from $150,759 for the three
months ended June 30, 2001 and to $300,099 for the six months ended June 30, 2002 from $278,249 for the six months ended June 30, 2001. Rental revenues increased to $116,034 for
the three months ended June 30, 2002 from $108,484 for the three months ended June 30, 2001 and to $221,780 for the six months ended June 30, 2002 from $207,498 for the six months
ended June 30, 2001. The increase in rental revenues was primarily the result of the operations acquired in conjunction with the Brambles Equipment Services, Inc. ("BESI") transaction,
partially offset by a slower economy. Declines in new equipment sales were more than offset by the 24.3% and 19.0% increases in rental fleet equipment sales for the three- and six-month
periods ended June 30, 2002, respectively, as the Company continues its focus on improving fleet management.

Gross Profit.Gross profit decreased to $51,093 for the three months ended June 30, 2002 from $52,035 for the three
months ended June 30, 2001 and to $89,417 for the six months ended June 30, 2002 from $92,888 for the six months ended June 30, 2001. Gross margins decreased to 31.6% from 34.5%
and to 29.8% from 33.4% during these respective periods. The decreases in gross margins are primarily due to increased operating costs resulting from the fleet and infrastructure acquired in
conjunction with the BESI transaction.

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Selling, General and Administrative Expenses.Selling, general and administrative expenses increased to $35,725 for the three
months ended June 30, 2002 from $30,346 for the three months ended June 30, 2001 and to $70,250 for the six months ended June 30, 2002 from $61,748 for the six months ended
June 30, 2001. As a percentage of total revenues, selling, general and administrative expenses increased to 22.1% from 20.1% and to 23.4% from 22.2% during these respective periods. These
increases are primarily the result of additional infrastructure acquired in conjunction with the BESI transaction.

Non-rental Depreciation and Amortization.Non-rental depreciation and amortization decreased to
$2,447 for the three months ended June 30, 2002 from $4,184 for the three months ended June 30, 2001 and to $4,886 for the six months ended June 30, 2002 from $8,550 for the six
months ended June 30, 2001. This decrease is the result of the Company's adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," in 2002, under which no amortization expense of
goodwill is recorded.

Interest Expense, Net.Interest expense, net, increased slightly to $17,543 for the three months ended June 30, 2002
from $17,321 for the three months ended June 30, 2001, but declined to $34,227 for the six months ended June 30, 2002 from $35,793 for the six months ended June 30, 2001. The
decline year-to-date was primarily the result of lower interest rates on the company's variable rate debt.

Loss from Discontinued Operations.On June 30, 2002, the Company sold its underground trench shoring business. The
proceeds from the sale were used to repay existing indebtedness under the Credit Facility. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," the financial condition and results of operations of this business are reflected herein as discontinued operations.

Gain on Disposal of Discontinued Operations.The gain on the disposal of discontinued operations reflects the gain recognized
in conjunction with the sale of the underground trench shoring business discussed above.

Cumulative Effect of a Change in Accounting Principle.The cumulative effect of a change in accounting principle reflects the
charge recognized in conjunction with the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets", effective January 1, 2002.

Liquidity and Capital Resources

The Company's primary capital requirements are for purchasing 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 $33,455 and $8,829 in the first six 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 six months ended June 30, 2002 and 2001, the Company's net cash provided by operations was $19,473 and $37,173, respectively. For the six months ended June 30, 2002
and 2001, the Company's net cash used in investing activities was $19,385 and $2,719, respectively. Net cash used for investing activities consists primarily of purchases of rental equipment and
property and equipment. For the six months ended June 30, 2002 and 2001, the Company's net cash used in financing activities was $584 and $32,648, respectively. Net cash used in financing
activities consists primarily of repayments of indebtedness under the Company's credit facility.

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

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requirements. Under the provisions of the credit facility, the Company reflected the $108,890 proceeds from the sale of the trench shoring business as a reduction in debt in its June 30, 2002
borrowing base. These proceeds were received on July 1, 2002 and immediately applied against outstanding debt under the credit facility. As a result, as of June 30, 2002, $487,535 was
outstanding under the credit facility. Based upon the available borrowing base (which is based on inventory, accounts receivable and rental equipment levels) at June 30, 2002, the Company had
additional availability of $44,171 on the revolving credit facility. The credit facility contains certain covenants that require the Company to, among other things, satisfy certain financial tests,
including 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 under its credit facility. However, based on current operating projections, the Company expects that it will violate the leverage ratio covenants under its credit
facility at the end of the third quarter of 2002 because it expects that EBITDA will not be sufficient to satisfy the required levels under the covenant. A failure by the Company to comply with these
covenants could result in an event of default under the credit facility, which could have a material adverse effect on the Company. The Company is currently in discussions with its lenders to amend
its leverage ratio covenants, which would give the Company additional financial flexibility.

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.

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.

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 to refinance its debt on favorable terms, and any such failure would have a material
adverse 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

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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.

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 provisions of this Statement were effective at the beginning of fiscal
2002.

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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 August 8, 2002, the Company had total borrowings under the credit facility of $487,535, $87,535 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 $875.

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
counter-party 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 judgment 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.

16

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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 did not file any Current Reports on Form 8-K during the quarterly period ended June 30,
2002.

17

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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 August 14, 2002.

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

Form 10-Q:
For the quarter ended June 30, 2002.

18

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INDEX OF EXHIBITS

|Exhibit
Number |  | Description of Document                                                                                                                                                                          
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1           |  | Asset Purchase Agreement, dated as of June 30, 2002, by and among National Equipment Services, Inc., NES Companies, L.P. and United Rentals (North America), Inc.(1)                             
|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.
|99.1           |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                           
|99.2           |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                           

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