UNITED
STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549  FORM
10-Q  x
  QUARTERLY REPORT PURSUANT TO
  SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
  OF 1934  For the quarterly
period ended March 31, 2001 OR o
  TRANSITION REPORT PURSUANT TO
  SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 Commission File No. 001-14163  National
Equipment Services, Inc.(Exact name of registrant as specified in its
charter)  DELAWARE
  36-4087016(State or
  other Jurisdiction of
  (I.R.S.
  EmployerIncorporation
  or Organization)
  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.   
YesxNoo There were
21,151,163 shares of Common Stock ($.01 par value) outstanding as of May 7,
2001.    NATIONAL EQUIPMENT SERVICES,
INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarter ended
March 31, 2001

INDEX



PART I. FINANCIAL
  INFORMATIONItem 1.
  Financial StatementsConsolidated Balance Sheets
  at March 31, 2001 (Unaudited) and December 31, 2000Consolidated
  Statements of Operations for the three months ended March 31, 2001 and 2000
  (Unaudited)Consolidated
  Statements of Cash Flows for the three months ended March 31, 2001 and 2000
  (Unaudited)Notes to
  Consolidated Financial Statements (Unaudited)Item
  2.
  Managements
  Discussion and Analysis of Financial Condition and Results of OperationsItem
  3.
  Quantitative
  and Qualitative Disclosures About Market RiskPART II. OTHER
  INFORMATIONItem 1.
  Legal ProceedingsItem 2.
  Changes in SecuritiesItem 3.
  Defaults upon
  Senior SecuritiesItem
  4.
  Submission
  of Matters to a Vote of Security HoldersItem 5.
  Other InformationItem 6.
  Exhibits
  and Reports on Form 8-KSIGNATUREIndex of
  Exhibits

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATIONAL EQUIPMENT SERVICES,
INC.
AND SUBSIDIARIES

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



March
  31,2001
  December
  31,
  2000(Unaudited)AssetsCash and cash equivalents
  $2,430
  $3,162Accounts receivable, net of allowance
  for doubtful accounts of $6,557 and$5,484,
  respectively
  123,948
  138,459Inventory, net
  34,191
  33,267Rental equipment, net
  593,779
  616,212Property and equipment, net
  62,461
  62,784Intangible assets, net
  364,101
  365,819Loan origination costs, net
  8,398
  9,109Deferred income taxes
  11,056
  4,644Prepaid expenses and other assets, net
  15,488
  15,480Total assets
  $1,215,852
  $1,248,936LiabilitiesBook overdraft
  $2,367
  $3,237Accounts payable
  22,994
  38,867Accrued interest
  17,119
  12,544Deferred income taxes, net
  49,872
  49,872Accrued expenses and other liabilities
  23,825
  27,115Debt
  861,750
  872,072Total liabilities
  977,927
  1,003,707Convertible preferred stock
  95,922
  95,797Commitments and contingencies
  
  Stockholders equity:Common stock, $0.01
  par, 100,000 shares authorized; 24,170 shares issued
  241
  241Additional paid-in
  capital
  123,887
  123,887Retained earnings
  37,039
  44,468Stock subscriptions receivable
  (102)
  (102)Treasury stock at
  cost, 3,019 shares
  (19,062)
  (19,062)Total stockholders equity
  142,003
  149,432Total liabilities and
  stockholders equity
  $1,215,852
  $1,248,936

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

NATIONAL EQUIPMENT SERVICES,
INC.
AND SUBSIDIARIES

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



For
  the Three
  Months Ended
  March 31,2001
  2000RevenuesRental revenues
  $107,328
  $99,521New equipment sales
  12,373
  12,013Rental equipment sales
  7,104
  6,948Parts, service and other
  11,977
  15,816Total revenues
  $138,782
  $134,298Cost of revenuesRental equipment depreciation
  24,256
  20,959Cost of new equipment sales
  9,255
  8,957Cost of rental equipment sales
  4,912
  4,449Other operating expenses
  51,171
  46,598Total cost of revenues
  89,594
  80,963Gross profit
  49,188
  53,335Selling, general and
  administrative expenses
  34,910
  30,176Non-rental
  depreciation and amortization
  7,009
  6,846Operating income
  7,269
  16,313Other income, net
  198
  109Interest expense, net
  20,510
  19,482Loss before income
  taxes
  (13,043)
  (3,060)Income tax benefit
  (5,739)
  (1,239)Net loss
  $(7,304)
  $(1,821)Basic loss per common
  share
  $(0.36)
  $(0.09)Average number of
  common shares used in basic calculation
  20,859
  22,133Diluted loss per
  common share
  $(0.36)
  $(0.09)Average number of
  common shares used in diluted calculation
  20,859
  22,133





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

NATIONAL EQUIPMENT SERVICES,
INC.
AND SUBSIDIARIES

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



For
  the Three
  Months Ended
  March 31,2001
  2000Operating Activities:Net loss
  $(7,304)
  $(1,821)Adjustments to
  reconcile net loss to net cash provided by operating activities:Depreciation and amortization
  31,990
  27,805Gain on sale of equipment
  (2,272)
  (2,469)Deferred income taxes
  (6,412)
  Changes in operating assets and
  liabilities:Accounts receivable
  14,511
  2,773Inventory
  (924)
  (6,624)Prepaid expenses and other assets
  (3,707)
  (2,058)Accounts payable
  (15,873)
  (8,064)Accrued expenses and other
  liabilities
  1,285
  3,277Net cash provided by
  operating activities
  11,294
  12,819Investing Activities:Acquisitions, net of
  cash received
  
  (10,006)Purchases of rental
  equipment
  (6,735)
  (48,324)Proceeds from sale of
  rental equipment
  7,104
  6,948Purchases of property
  and equipment
  (1,400)
  (7,488)Proceeds from sale of
  property and equipment
  197
  135Net cash used in
  investing activities
  (834)
  (58,735)Financing Activities:Proceeds from
  long-term debt
  26,000
  47,000Payments on long-term
  debt and capital leases
  (36,322)
  (21,081)Book overdrafts
  (870)
  Repurchase of treasury
  stock
  
  (9,599)Payments of loan
  origination costs
  
  (224)Net cash (used)
  provided by financing activities
  (11,192)
  16,096Net decrease in cash
  and cash equivalents
  (732)
  (29,820)Cash and cash
  equivalents at beginning of period
  3,162
  33,530Cash and cash
  equivalents at end of period
  $2,430
  $3,710



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

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

The
accompanying unaudited financial statements as of and for the quarters ended
March 31, 2001 and 2000 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,
2000 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.

The
Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, effective January 1, 2001.  The adoption of SFAS No. 133 had no effect
on the Company's consolidated financial position, liquidity or results of
operations.

The
Company does not have any components of other comprehensive income that would
have to be reported in accordance with Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income.

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, 2001 and 2000
are calculated as follows:



2001
  2000Net loss
  $(7,304)
  $(1,821)Less accretion on
  preferred stock
  (125)
  (125)Net loss available to
  common stockholders
  $(7,429)
  $(1,946)Basic weighted average
  shares
  20,859
  22,133Basic loss per share
  $(0.36)
  $(0.09)

If
the effect of the Companys unvested stock and convertible preferred stock were
included in the above calculation as of March 31, 2001 and 2000, the weighted
average shares outstanding would have been 28,843 and 30,377, respectively,
resulting in a diluted loss per share of ($0.26) and ($0.06), respectively.

4. Inventory



Inventory,
net consists of the following, at:



March
  31,
  2001
  December
  31,
  2000New equipment
  $11,864
  $11,812Used equipment
  5,212
  4,801Contractor supplies
  4,743
  4,910Parts
  14,779
  13,860Reserves for excess
  and obsolete inventory
  (2,407)
  (2,116)$34,191
  $33,267



5. Debt

During
the first quarter of 2001, the Company reduced the committed amount under its
Credit Facility with First Union National Bank, as the agent, and certain other
financial institutions from $750,000 down to a maximum amount of $650,000
(subject to availability based on certain financial tests including a borrowing
base).  Based upon the available
borrowing base at March 31, 2001, the Company had $60,090 available on the
revolving credit facility.

The
Companys indentures contain a number of covenants that, among other things,
require the Company to maintain certain financial ratios and set certain
limitations on the granting of liens, asset sales, additional indebtedness,
transactions with affiliates, restricted payments, investments and issuances of
stock. The Company is currently in compliance with all covenants of the
indentures.  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.



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 EndedMarch
  31,2001
  2000Rental revenues
  77.4
  %
  74.1
  %New equipment sales
  8.9
  8.9Rental equipment sales
  5.1
  5.2Parts, service and
  other
  8.6
  11.8Total revenues
  100.0
  100.0Cost of revenues
  64.6
  60.3Gross margin
  35.4
  39.7Selling, general and
  administrative expenses
  25.2
  22.5Non-rental
  depreciation and amortization
  5.0
  5.1Operating income
  5.2
  12.1Other income, net
  0.2
  0.2Interest expense, net
  14.8
  14.6Income (loss) before
  income taxes
  (9.4)
  (2.3)Income tax expense
  (benefit)
  (4.1)
  (0.9)Net income (loss)
  (5.3)%
  (1.4)%Results
of Operations

Quarter
Ended March 31, 2001, Compared with the Quarter Ended March 31, 2000

Revenues.Total
revenues increased to $138,782 in 2001 from $134,298 in 2000, a 3% increase.
Rental revenues increased 8% to $107,328 from $99,521. The increase in rental
revenues was primarily the result of the utilization of additional rental fleet
equipment. The increase was offset in part by a decrease in parts, service, and
other revenues of $3,839 which was due primarily to softness in several
geographic markets and the Company's continued emphasis on rental revenues.

Gross
Profit.Gross profit decreased to $49,188 in 2001 from $53,335, in
2000. Gross margin decreased to 35.4% from 39.7%.  The decrease in gross margin is primarily due to lower physical
utilization rates of the rental fleet resulting from a slower spring pick-up in
business in several geographic markets of the Company.  In addition, the Company experienced an
increase in the direct costs of equipment rental due to additional labor and
infrastructure necessary to support the increased size of the rental fleet.

Selling,
General and Administrative Expenses.Selling, general and
administrative expenses increased to $34,910 in 2001 from $30,176 in 2000. As a
percentage of total revenues, selling, general and administrative expenses
increased to 25.2% from 22.5%. This increase is primarily the result of
additional investments in personnel and systems to support the Company's
growth.

Non-rental
Depreciation and Amortization.Non-rental depreciation and
amortization increased to $7,009 in 2001 from $6,846 in 2000 due primarily to
increased amortization expense from the acquisition of additional businesses.

Interest
Expense, Net.Interest expense, net, increased to $20,510 in 2001
from $19,482 in 2000. This increase was due primarily to higher interest rates
on the Company's variable rate debt in the first quarter of 2001.

Income Tax Rate.The effective income tax
rate increased to 44.0% in the first quarter of 2001 from 40.5% in the first
quarter of 2000 due to non-deductible goodwill representing a greater
percentage of pre-tax income in 2001.

Liquidity and Capital Resources

The
Companys primary capital requirements are for the purchasing of new rental
equipment and for acquisitions of businesses. 
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
$6,735 and $48,324 in the first three months of 2001 and 2000, respectively.
The Companys expenditures for rental fleet are expected to be approximately
$22,000 in 2001 compared to $165,000 in 2000. The Company expects to minimize
capital expenditures until such time as the business environment improves.

For
the three months ended March 31, 2001 and 2000, the Companys net cash provided
by operations was $11,294 and $12,819, respectively. The decrease in 2001 was
due primarily to timing of payments for current liabilities offset in part by
collections on outstanding accounts receivable. For the three months ended
March 31, 2001 and 2000, the Companys net cash used in investing activities was
$834 and $58,735, respectively. Net cash used for investing activities consists
primarily of expenditures for new acquisitions of businesses and purchases of
rental equipment and property and equipment. The decrease in 2001 was due
primarily to reduced purchases of rental equipment and lower acquisition
activity. For the three months ended March 31, 2001 and 2000, the Companys net
cash provided by financing activities was ($11,192) and $16,096, respectively.
Net cash provided by financing activities consists primarily of borrowings
under the Companys credit facility and was lower in 2001 due to reduced rental
fleet purchasing and the reduction of indebtedness under the Company's credit
facility.  The Company intends to
continue to reduce the amount of its indebtedness under its credit facility.

The
Companys credit facility provides for a $100 million term loan and a revolving
credit facility up to a maximum of $550 million (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.
In March 2001 the Company reduced the committed amount under its revolving
credit facility to $550 million from $650 million.  As of March 31, 2001, $587,000 was outstanding under the credit
facility. Based upon the available borrowing base at March 31, 2001, the
Company had $60,090 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 agreements governing the credit facility
also contain 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.

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, 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 in November 2004.

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. This is more apparent in the
current period because of the more seasonal nature of our recently acquired
businesses and the rental patterns of customers in our new geographical regions
(with rental activity tending to be lower in winter).

Recently Issued Accounting Pronouncements

The
Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, effective January 1, 2001.  The adoption of SFAS No. 133 had no effect
on the Company's consolidated financial position, liquidity or results of
operations.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

The
Companys credit facility, as amended, provides the Company with a $100 million
term loan and permits the Company to borrow up to an additional $550 million 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, 2001, the Company had total
borrowings under the credit facility of $593 million, $193 million 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 $1.9 million.

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 million 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.

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 13. The Company did not file any Current Reports on
Form 8-K for the quarterly period ended March 31, 2001.



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 14, 2001.



National
  Equipment Services, Inc.By:
  /s/   
  Dennis OConnorDennis
  OConnorChief
  Financial OfficerForm 10-Q: For the quarter ended March
31, 2001.

INDEX OF EXHIBITS

ExhibitNumber
  Description of
  Document4.1
  Notice
  of Revolving Commitment Reduction11.1
  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.