**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, 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  September 30, 2003** |
|                                                        |       |                                                                                                |
| **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.**

**(Debtor-in-Possession as of June 27, 2003)**

(Exactname of registrant as specified in its charter)

 
| **DELAWARE**                                                     | ** ** | **36-4087016**                         |
|------------------------------------------------------------------|------------|----------------------------------------|
| (State  or other Jurisdiction of  Incorporation or Organization) |       | (I.R.S.  Employer  Identification No.) |

 

**8770W. Bryn Mawr, 4th FloorChicago, Illinois 60631**(Address of principal executive offices)

 

**(773) 695-3999**

(Registrant’stelephone number, including area code)

 

Indicate bycheck mark whether the registrant has filed all documents and reports requiredto be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of1934 subsequent to the distribution of securities under a plan confirmed by acourt. Yes ýNo o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inExchange Act Rule 12b-2). Yes o No ý

 

There were21,151,163 shares of Common Stock ($.01 par value) outstanding as ofNovember 14, 2003.

 

#### Explanatory Note

National Equipment Services, Inc. (“NES”) isfiling this Quarterly Report on Form 10-Q for the period endedSeptember 30, 2003.  NES and itsdomestic subsidiaries filed voluntary petitions under Chapter 11 of the U.S.Bankruptcy Code on June 27, 2003. At the time of filing for bankruptcy protection, NES owed a substantialamount to its independent auditors at the time, PricewaterhouseCoopers LLP(“PwC”).  As a result, PwC did notperform the limited review of the quarterly financial statements included inthis Report as required by Rule 10-01(d) of Regulation S-X under the U.S.securities laws.  On November 12,2003, NES notified PwC of its intent to replace them as independent auditor.  NES subsequently retained KPMG LLP as itsindependent auditor.  Except asspecifically noted herein, this Form 10-Q does not contain updates to reflectany events occurring after September 30, 2003, which was the end of theperiod covered by this Form 10-Q.  Pleasesee the discussion in Note 2 for information about emergence from bankruptcyprotection on February 11, 2004. All information contained in this Form 10-Q is subject to updating andsupplementing as provided in the reports filed with the Securities and ExchangeCommission for periods subsequent to the end of the original period for thisForm 10-Q.

 

 

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**NATIONAL EQUIPMENT SERVICES, INC. andSubsidiaries**

**(Debtor-in-Possession as of June 27,2003)**

**QUARTERLY REPORT ON FORM 10-Q**

**For the Quarter ended**

**September 30, 2003**

**INDEX**

 
| PART I. FINANCIAL  INFORMATION |                                                                                                                     |
|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|
|                           |                                                                                                                     |
| Item 1.                        | Financial Statements                                                                                                     |   |
|                           |                                                                                                                     |   |
|                           | Consolidated Balance Sheets  at September 30, 2003 (Unaudited) and December 31, 2002                           |   |
|                           |                                                                                                                     |   |
|                           | Consolidated  Statements of Operations for the three and nine months ended  September 30, 2003 and 2002 (Unaudited) |   |
|                           |                                                                                                                     |   |
|                           | Consolidated  Statements of Cash Flows for the nine months ended September 30, 2003  and 2002 (Unaudited)           |   |
|                           |                                                                                                                     |   |
|                           | Notes to  Consolidated Financial Statements (Unaudited)                                                                  |   |
|                           |                                                                                                                     |   |
| Item 2.                        | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                              |   |
|                           |                                                                                                                     |   |
| Item 3.                        | Quantitative and Qualitative  Disclosures About Market Risk                                                              |   |
|                           |                                                                                                                     |   |
| Item 4.                        | Controls and Procedures                                                                                                  |   |
|                           |                                                                                                                     |   |
| PART II. OTHER INFORMATION     |                                                                                                                     |
|                           |                                                                                                                     |   |
| Item  1.                       | Legal  Proceedings                                                                                                       |   |
|                           |                                                                                                                     |   |
| Item 2.                        | Changes in Securities;  Use of Proceeds and and Issuer Purchase of Equity Securities                                     |   |
|                           |                                                                                                                     |   |
| Item 3.                        | Defaults upon  Senior Securities                                                                                         |   |
|                           |                                                                                                                     |   |
| Item  4.                       | Submission  of Matters to a Vote of Security Holders                                                                     |   |
|                           |                                                                                                                     |   |
| Item  5.                       | Other  Information                                                                                                       |   |
|                           |                                                                                                                     |   |
| Item 6.                        | Exhibits and  Reports on Form 8-K                                                                                        |   |
|                           |                                                                                                                     |   |
| SIGNATURE                      |                                                                                                                     |
|                           |                                                                                                                     |   |
| Index of Exhibits              |                                                                                                                     |

 

2

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**ForwardLooking Statements**

 

Note: This report containsforward-looking statements as encouraged by the Private SecuritiesLitigation Reform Act of 1995. All statements contained in this document, otherthan historical information, are forward-looking statements. Thesestatements represent management’s current judgment on what the future holds. Avariety of factors could cause business conditions and the Company’s actualresults to differ materially from those expected by the Company or expressed inthe Company’s forward-looking statements. These factors include, withoutlimitation, the Company’s ability to successfully integrate acquiredbusinesses; changes in market price or market demand; loss of business fromcustomers; general declines in rental rates in the market; pricing pressurefrom competitors; inability to fund required capital expenditures; theCompany’s bankruptcy reorganization; unanticipated expenses; changes infinancial markets; the Company’s substantial leverage; potential defaults inthe Company’s indebtedness; inability to make scheduled principal amortizationpayments on indebtedness; and other factors discussed in the Company’s filingswith the Securities and Exchange Commission.

 

Our annual report on Form 10-K, quarterly reportson Form 10-Q, current reports on Form 8-K and amendments to these reports areavailable on our internet website free of charge.  These reports are available as soon aspracticable after we electronically file these reports with the Securities andExchange Commission.  Our website addressis www.nesrentals.com.

 

**PARTI. FINANCIAL INFORMATION**

 

**ITEM 1.****FINANCIAL STATEMENTS**

 

**National Equipment Services, Inc. andSubsidiaries**

**(Debtor-in-Possession as of June 27,2003)**

**CONSOLIDATED BALANCE SHEETS**

**(in thousands)**

 
| ** **                                                                                            | ** ** | **September 30, 2003** | ** ** | **December 31, 2002** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                                                                            | ** ** | **(Unaudited)**             | ** ** | ** **                 | ** ** |
|                                                                                                  |       |                        |       |                       |       |
| **Assets**                                                                                            |       |                        |       |                       |       |
| Cash and cash equivalents                                                                             |       | $                           | 37,205     |                       | $          | 15,184 |   |
| Trade accounts receivable, net of allowance for doubtful accounts of  $5,795 and $5,477, respectively |       | 134,854                     |       | 123,094                    |       |
| Inventory, net                                                                                        |       | 15,590                      |       | 18,186                     |       |
| Loan origination costs, net                                                                           |       | 2,097                       |       | 6,791                      |       |
| Prepaid expenses and other assets                                                                     |       | 31,580                      |       | 20,811                     |       |
| Rental equipment, net                                                                                 |       | 428,225                     |       | 492,775                    |       |
| Property and equipment, net                                                                           |       | 39,309                      |       | 45,803                     |       |
| Intangible assets, net                                                                                |       | 1,186                       |       | 139,978                    |       |
| Total assets                                                                                          |       | $                           | 690,046    |                       | $          | 862,622 |   |
|                                                                                                  |       |                        |       |                       |       |
| **Liabilities**                                                                                       |       |                        |       |                       |       |
| Liabilities not subject to compromise                                                                 |       |                        |       |                       |       |
| Book overdraft                                                                                        |       | $                           | 9,601      |                       | $          | 490 |   |
| Trade accounts payable                                                                                |       | 4,911                       |       | 28,965                     |       |
| Accrued interest                                                                                      |       | —                      |       | 8,592                      |       |
| Accrued expenses and other liabilities                                                                |       | 40,254                      |       | 51,715                     |       |
| Debt                                                                                                  |       | 2,335                       |       | 763,276                    |       |
| Liabilities subject to compromise                                                                     |       | 904,378                     |       | —                     |       |
| Total liabilities                                                                                     |       | 961,479                     |       | 853,038                    |       |
| Commitments and contingencies                                                                         |       | —                      |       | —                     |       |
| Senior mandatorily redeemable convertible preferred stock                                             |       | —                      |       | 96,796                     |       |
| **Stockholders’ deficit:**                                                                       |       |                        |       |                       |       |
| Common stock, $0.01 par, 100,000 shares authorized; 24,170 shares  issued, 21,151 shares outstanding  |       | 241                         |       | 241                        |       |
| Additional paid-in capital                                                                            |       | 123,887                     |       | 123,887                    |       |
| Accumulated deficit                                                                                   |       | (377,804                    | )          | (187,589                   | )          |
| Stock subscriptions receivable                                                                        |       | —                      |       | (80                        | )          |
| Treasury stock at cost, 3,019 shares                                                                  |       | (19,062                     | )          | (19,062                    | )          |
| Accumulated other comprehensive income (loss)                                                         |       | 1,305                       |       | (4,609                     | )          |
| Total stockholders’ deficit                                                                      |       | (271,433                    | )          | (87,212                    | )          |
| Total liabilities and stockholders’ deficit                                                      |       | $                           | 690,046    |                       | $          | 862,622 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

3

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**National Equipment Services, Inc. andSubsidiaries**

**(Debtor-in-Possession as of June 27,2003)**

**CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)**

**(in thousands)**

 
| ** **                                                              | ** ** | **For the Three Months Ended  September 30,** | ** ** | **For the Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                              | ** ** | **2003**                                           | ** ** | **2002**                                          | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                                    |       |                                               |       |                                              |       |   |   |   |   |
| **Revenues**                                                            |       |                                               |       |                                              |       |   |   |   |   |
| Rental and service revenues                                             |       | $                                                  | 131,880    |                                              | $          | 139,587 |   | $ | 365,185 |   | $ | 387,696 |   |
| New equipment sales                                                     |       | 8,146                                              |       | 11,062                                            |       | 26,658 |   | 32,157 |   |
| Rental equipment sales                                                  |       | 7,452                                              |       | 13,760                                            |       | 24,921 |   | 30,804 |   |
| Other revenues                                                          |       | 5,244                                              |       | 7,043                                             |       | 16,168 |   | 20,894 |   |
| Total revenues                                                          |       |                                               | 152,722    |                                              |       | 171,452 |   |   | 432,932 |   |   | 471,551 |   |
| **Cost of revenues**                                                    |       |                                               |       |                                              |       |   |   |   |   |
| Cost of rental and service revenues                                     |       | 64,080                                             |       | 68,282                                            |       | 184,065 |   | 188,142 |   |
| Rental equipment depreciation                                           |       | 26,206                                             |       | 29,576                                            |       | 79,761 |   | 85,661 |   |
| Cost of new equipment sales                                             |       | 6,570                                              |       | 9,519                                             |       | 22,451 |   | 26,157 |   |
| Cost of rental equipment sales                                          |       | 6,293                                              |       | 11,997                                            |       | 18,308 |   | 23,002 |   |
| Other operating expenses                                                |       | 5,319                                              |       | 7,253                                             |       | 16,443 |   | 20,948 |   |
| Total cost of revenues                                                  |       | 108,468                                            |       | 126,627                                           |       | 321,028 |   | 343,910 |   |
|                                                                    |       |                                               |       |                                              |       |   |   |   |   |
| Gross profit                                                            |       | 44,254                                             |       | 44,825                                            |       | 111,904 |   | 127,641 |   |
| Selling, general and administrative expenses                            |       | 32,777                                             |       | 34,701                                            |       | 104,769 |   | 98,351 |   |
| Reorganization expenses                                                 |       | 2,644                                              |       | —                                            |       | 2,644 |   | — |   |
| Goodwill impairment                                                     |       | —                                             |       | —                                            |       | 138,115 |   | — |   |
| Non-rental depreciation and amortization                                |       | 1,515                                              |       | 2,286                                             |       | 4,967 |   | 7,172 |   |
| Operating income (loss)                                                 |       | 7,318                                              |       | 7,838                                             |       | (138,591 | ) | 22,118 |   |
| Other income, net                                                       |       | 118                                                |       | 252                                               |       | 517 |   | 1,032 |   |
| Interest expense, net (contractual interest 2003 - $15,901 and $58,368) |       | 9,026                                              |       | 17,631                                            |       | 51,493 |   | 51,858 |   |
| Loss from continuing operations before income taxes                     |       | (1,590                                             | )          | (9,541                                            | )          | (189,567 | ) | (28,708 | ) |
| Income tax expense                                                      |       | —                                             |       | —                                            |       | — |   | — |   |
| Loss from continuing operations                                         |       | (1,590                                             | )          | (9,541                                            | )          | (189,567 | ) | (28,708 | ) |
| Discontinued operations                                                 |       |                                               |       |                                              |       |   |   |   |   |
| Loss from discontinued operations, net of tax                           |       | —                                             |       | —                                            |       | (518 | ) | (3,409 | ) |
| Gain on disposal of discontinued operations, net of tax                 |       | —                                             |       | —                                            |       | — |   | 6,981 |   |
| Loss before cumulative effect of a change in accounting principle       |       | (1,590                                             | )          | (9,541                                            | )          | (190,085 | ) | (25,136 | ) |
| Cumulative effect of a change in accounting principle, net of tax       |       | —                                             |       | —                                            |       | — |   | (129,505 | ) |
| Net loss                                                                |       | $                                                  | (1,590     | )                                                 | $          | (9,541 | ) | $ | (190,085 | ) | $ | (154,641 | ) |
| Other comprehensive income                                              |       | 57                                                 |       | 1,499                                             |       | 5,895 |   | 3,669 |   |
| Comprehensive loss                                                      |       | $                                                  | (1,533     | )                                                 | $          | (8,042 | ) | $ | (184,190 | ) | $ | (150,972 | ) |

 

Seeaccompanying notes to consolidated financial statements.

 

4

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**National Equipment Services, Inc. andSubsidiaries**

**(Debtor-in-Possession as of June 27,2003)**

**CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)**

**(in thousands)**

 
| ** **                                                                       | ** ** | **For the Nine Months Ended September 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2003**                                         | ** ** | **2002** | ** ** |
|                                                                             |       |                                             |       |   |   |
| **Cash flows from operating activities:**                                        |       |                                             |       |   |   |
| Net loss                                                                         |       | $                                                | (190,085   | ) | $ | (154,641 | ) |
| Adjustments to reconcile net loss to net cash provided by operating  activities: |       |                                             |       |   |   |
| Depreciation and amortization                                                    |       | 84,728                                           |       | 92,832 |   |
| Goodwill impairment                                                              |       | 138,115                                          |       | — |   |
| Cumulative effect of a change in accounting principle, net of tax                |       | —                                           |       | 129,505 |   |
| Amortization of deferred finance costs and debt discount                         |       | 5,891                                            |       | 4,310 |   |
| Gain on sale of equipment                                                        |       | (6,845                                           | )          | (8,167 | ) |
| Gain on sale of discontinued operations                                          |       | —                                           |       | (6,981 | ) |
| Changes in operating assets and liabilities                                      |       |                                             |       |   |   |
| Trade accounts receivable                                                        |       | (11,760                                          | )          | (29,155 | ) |
| Inventory                                                                        |       | 2,596                                            |       | 1,026 |   |
| Prepaid expenses and other assets                                                |       | (11,922                                          | )          | (24 | ) |
| Trade accounts payable                                                           |       | 1,086                                            |       | 5,845 |   |
| Accrued expenses and other liabilities                                           |       | 9,383                                            |       | (3,123 | ) |
| Net cash flows provided by continuing operating activities                       |       | 21,187                                           |       | 31,427 |   |
| Net cash flows provided by discontinued operating activities                     |       | 181                                              |       | 5,791 |   |
| Net cash flows provided by operating activities                                  |       | 21,368                                           |       | 37,218 |   |
|                                                                             |       |                                             |       |   |   |
| **Cash flows from investing activities:**                                        |       |                                             |       |   |   |
| Proceeds received from the sale of discontinued operations                       |       | —                                           |       | 108,890 |   |
| Purchases of rental equipment                                                    |       | (26,103                                          | )          | (58,778 | ) |
| Proceeds from sale of rental equipment                                           |       | 24,921                                           |       | 30,804 |   |
| Purchases of property and equipment                                              |       | (6,387                                           | )          | (6,150 | ) |
| Proceeds from sale of property and equipment                                     |       | 1,411                                            |       | 1,361 |   |
| Net cash flows (used in) provided by investing activities                        |       | (6,158                                           | )          | 76,127 |   |
|                                                                             |       |                                             |       |   |   |
| **Cash flows from financing activities:**                                        |       |                                             |       |   |   |
| Proceeds from long-term debt                                                     |       | —                                           |       | 37,000 |   |
| Payments on long-term debt                                                       |       | (1,700                                           | )          | (143,942 | ) |
| Payments of loan origination costs                                               |       | (600                                             | )          | — |   |
| Increase (decrease) in book overdraft                                            |       | 9,111                                            |       | (5,234 | ) |
| Net cash provided by (used in) financing activities                              |       | 6,811                                            |       | (112,176 | ) |
| Net increase in cash and cash equivalents                                        |       | 22,021                                           |       | 1,169 |   |
| Cash and cash equivalents at beginning of period                                 |       | 15,184                                           |       | 4,199 |   |
| Cash and cash equivalents at end of period                                       |       | $                                                | 37,205     |   | $ | 5,368 |   |
|                                                                             |       |                                             |       |   |   |
| **Supplemental Cash Flow Information:**                                          |       |                                             |       |   |   |   |   |
| Cash paid for interest                                                           |       | $                                                | 37,903     |   | $ | 44,159 |   |
| Cash paid for income taxes                                                       |       |                                             | 884        |   |   | 876 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

5

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**National Equipment Services, Inc. andSubsidiaries**

**(Debtor-in-Possession as of June 27,2003)**

# NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

**(Amounts in thousands)**

 

**1.  Organization**

 

NationalEquipment Services, Inc. (the “Company”) is principally a holding companyorganized under the laws of Delaware. The Company conducts its operationsthrough its wholly owned subsidiaries acquired or formed since the date ofinception. The Company owns and operates equipment rental, sales and servicefacilities primarily located throughout the United States of America. TheCompany rents various types of equipment to a diverse customer base, includingconstruction, automotive and other industrial users. The Company also sells newequipment and used equipment out of its rental fleet, sells related parts andprovides other services. The nature of the Company’s business is such thatshort-term obligations are met typically by cash flow generated from long-termassets. Consequently, consistent with industry practice, the accompanyingconsolidated balance sheets are presented on an unclassified basis.

 

**2.  Bankruptcy; Subsequent Event**

 

On June 27,2003, the Company and its U.S. subsidiaries (collectively, the “Debtors”) filedfor voluntary reorganization under Chapter 11 (the “Filing”) of the U.S.Bankruptcy Code (the “Bankruptcy Code”) in the Northern District of Illinois(“Bankruptcy Court”).  The Company’ssubsidiary located in Canada, which represents less than 2% of total revenuesand total assets was not included in thepetition.  Due to the size of theCompany’s Canadian subsidiary, the consolidated financial statements of theCompany presented herein are essentially equivalent to the consolidatedfinancial statements of the Debtors.  Asof September 30, 2003, the Debtors were operating their businesses as“debtors-in-possession” under the jurisdiction of the Bankruptcy Court and inaccordance with the applicable provisions of the Bankruptcy Code.

 

The initialjoint plan of reorganization was filed on October 17, 2003.  On January 23, 2004, the Debtors filed afourth amended joint plan of reorganization (the “Plan of Reorganization”),which received the requisite support from the creditors authorized to votethereon.  The Plan of Reorganization wasconfirmed by the bankruptcy court on January 23, 2004, and the Companyemerged from bankruptcy on February 11, 2004 (the “Effective Date”).

 

FromJune 27, 2003 through February 11, 2004, the Debtors continued tooperate as debtors-in-possession pursuant to Sections 1107 and 1108 of theBankruptcy Code.  Shortly after theFiling, the Debtors began notifying all known or potential creditors about theFiling for the purposes of identifying all pre-petition claims against theDebtors.  Any creditor actions to obtainpossession of property from the Debtors or to create, perfect or enforce anylien against the property of the Debtors were stayed.  As a result, the creditors of the Debtorswere precluded from collecting pre-petition debts without the approval of theBankruptcy Court.  Certain pre-petitionliabilities have been paid after obtaining the approval of the Bankruptcy Court,including certain wages and benefits of employees and insurance costs.

 

6

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The Companyobtained Debtor-in-Possession financing which provided up to $30 million ofavailability to the Company to fund operations during the bankruptcyperiod.  The Company did not borrow anyfunds from this financing source during the period it was in place.

 

The Plan ofReorganization provides for the cancellation of all of the issued andoutstanding shares of common stock, par value $0.01 per share, of the Company(the “Old Common Stock”), all of the issued and outstanding shares of preferredstock of the Company, and all other outstanding securities of the Company,including common stock options as of the Effective Date.

 

On the EffectiveDate, National Equipment Services, Inc. merged into NES Rentals,Inc.  NES Rentals, Inc. was the surviving company in the merger andwas renamed National Equipment Services, Inc.  NES Rentals, Inc. is asubsidiary of both NES IT Services, Inc. and NES Real Estate Management, Inc.,which are subsidiaries of the newly formed NES Rentals Holdings, Inc. (“NESR”),which is the successor to National Equipment Services, Inc.  NESR is the new public company parent ofNational Equipment Services, Inc.  NESRhas 25,000 authorized shares of common stock, of which 21,400 will be issued(the “New Common Stock”).

 

In accordancewith the Plan of Reorganization, (i) holders of general unsecured claims,including the holders of the Company’s Senior Subordinated Notes due 2004,Series B (the “Series B Notes”) and Senior Subordinated Notes due 2004, SeriesD (the “Series D Notes”), are to receive 97.5% (20,865 shares) of the NewCommon Stock of the Company, (ii) the holders of the Company’s preferred stockare to receive 2.0% (428 shares) of the New Common Stock of the Company, and(iii) the holders of the Company’s Old Common Stock are to receive 0.5% (107shares) of the New Common Stock of the Company.

 

On the EffectiveDate, NESR entered into a new senior secured credit facility (the “New CreditFacility”).  The New Credit Facilityconsists of $285,000 of term loan facilities and a $205,000 revolving creditfacility.  There are quarterly scheduledprincipal repayments on the term loan facilities through the May 15, 2007maturity date of the New Credit Facility.

 

As a result ofthe emergence from bankruptcy, the Company is to adopt fresh-start reporting inaccordance with Statement of Position 90-7, “Financial Reporting by Entities inReorganization Under the Bankruptcy Code” (“SOP90-7”).  SOP 90-7 requires the Company toallocate the reorganization value of the reorganized company to its assets andto state liabilities existing at the Plan of Reorganization confirmation dateat present values of amounts to be paid determined at appropriate current interestrates.  For financial reporting purposes,the effective date of the emergence from bankruptcy is the close of business onJanuary 31, 2004.  Accordingly, theeffects of the adjustments on the reported amounts of individual assets andliabilities resulting from the adoption of fresh-start reporting will berecorded in the Company’s consolidated financial statements prior toemergence.  As a result of thereorganization and the expected adoption of fresh-start reporting, theCompany’s results of operations after January 31, 2004 will not becomparable to results reported in prior periods.

 

**3.  Basis of Presentation**

 

The accompanying unaudited financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States of America for interim financialstatements and with the instructions to Form 10-Q and Rule 10-01 of RegulationS-X.  Accordingly, they do not includeall of the information and disclosures required by accounting principlesgenerally accepted in the United States of America for annual financialstatements.  In the opinion ofmanagement, all adjustments considered necessary for a fair presentation,consisting only of normal recurring adjustments, except as described in thefollowing sentence, have been included. The consolidated financial statements gave effect to the followingadjustments that are not of a normal recurring nature:  (a) the reclassification of liabilitiessubject to compromise described in Note 7 and (b) the impairment ofgoodwill described in Note 5.  Forfurther information, refer to the consolidated financial statements and notesthereto included in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2002.  The balance sheet atDecember 31, 2002 has been derived from the audited financial statementsincluded in the Company’s Annual Report on Form 10-K for the year endedDecember 31, 2002.

 

As noted in Note 2, no adjustments have beenmade to the consolidated financial statements to reflect the reorganization resultingfrom the Filing.  Results of operationsfor the interim periods are not necessarily indicative of the results that maybe expected for a full year.  Due to theseasonality that impacts a significant portion of the Company’s locations, thesecond and third quarters are typically the most active quarters for theCompany.

 

As all of the Company’s Old Common Stock wascancelled in accordance with the terms of the Plan of Reorganization,stock-based compensation, per share and share information for all periodspresented on the consolidated statement of operations have been omitted as suchinformation is deemed to be not meaningful.

 

The consolidatedfinancial statements include the accounts of the Company and its subsidiaries.All significant intercompany transactions and balances have been eliminated.

 

The consolidatedfinancial statements have been prepared on a going concern basis, whichcontemplates continuity of operations, realization of assets, and payment ofliabilities in the ordinary course of business, and do not reflect adjustmentsthat might result if the Company is unable to continue as a going concern.  The Company’s history of significant losses,the stockholders’ deficit, and the Filing discussed herein raise substantialdoubt about the Company’s ability to continue as a going concern.  Continuing as a going concern is dependentupon, among other things, the success of future business operations and thegeneration of sufficient cash from operations and financing sources to meet theCompany’s obligations.  

 

The consolidatedfinancial statements have been prepared in accordance with AICPA Statement ofPosition 90-7, “Financial Reporting by Entities in Reorganization under theBankruptcy Code” (“SOP 90-7”).  Under SOP90-7, revenues and expenses, realized gains and losses and provisions forlosses resulting from the reorganization of the business are to be reported inthe consolidated statements of operations separately as reorganizationexpenses.  Professional fees are expensedas incurred.  Interest expense isreported only to the extent that it will be paid during the bankruptcy or thatit is probable that it will be an allowed claim.  

 

The consolidatedfinancial statements do not reflect the effect of any changes to the Company’scapital structure or in the Company’s business operations as the result of thePlan of Reorganization.

 

**Hedging Instruments**—Statement ofFinancial Accounting Standards (“SFAS”) No. 133, “Accounting forDerivative Instruments and Hedging Activities”, and its related amendment, SFASNo. 138, “Accounting for Certain Derivative Instruments and

 

7

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Certain Hedging Activities”(collectively referred to as “SFAS No. 133”) require that all derivativefinancial instruments be recorded on the consolidated balance sheet at theirfair value as either assets or liabilities. Changes in the fair value ofderivatives are recorded each period as charges or credits to operations oraccumulated other comprehensive loss, depending on whether a derivative isdesignated and effective as part of a hedge transaction and, if it is, the typeof hedge transaction.  The interest rateswap agreement expired on April 17, 2003.

 

**Comprehensive Income**—Anunrealized foreign currency translation gain is included in other comprehensiveincome for the three-month period ending September 30, 2003.

 

**Reclassifications**—Certainreclassifications of prior year financial statement amounts have been made toconform to current year reporting.

 

**4.  Dispositions**

 

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 theCredit Facility. In accordance with SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets,” the results of operations of thisbusiness are presented as discontinued operations. Assets and liabilitiesassociated with discontinued operations are not considered significant forseparate disclosure in the periods presented herein.

 

8

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**5.  Intangible Assets**

 

AtDecember 31, 2002, the Company had $139,978 of goodwill and non-competeagreements related to acquisitions recorded on our balance sheet.  In accordance with SFAS No. 142, “Goodwilland Other Intangible Assets,” goodwill is subject to annual impairment test ona reporting unit level. As a result of the Company’s bankruptcy filing onJune 27, 2003 and the resulting reorganization, the Company determinedthat its remaining goodwill was fully impaired and recorded a non-cashimpairment charge of approximately $138,115 during the second quarter of theyear, which reflected the impairment of the remaining goodwill of the Company.

 

**6.  Liabilities Not Subject to Compromise**

 

Liabilities whichare not subject to compromise consist of the following:

 
| ** **             | ** ** | **September 30,  2003** | ** ** | **December 31,  2002** | ** ** |
|------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                   |       |                         |       |                        |       |
| Book overdraft         |       | $                            | 9,601      |                        | $          | 490 |   |
| Accounts payable       |       | 4,911                        |       | 28,965                      |       |
| Accrued interest       |       | —                       |       | 8,592                       |       |
| Other accrued expenses |       | 40,254                       |       | 51,715                      |       |
| Debt                   |       | 2,335                        |       | 763,276                     |       |
|                   |       | $                            | 57,101     |                        | $          | 853,038 |   |

 

**7.  Liabilities Subject to Compromise**

 

Liabilitiessubject to compromise consist of the following at September 30, 2003:

 
| Accounts payable                              |   | $       | 25,140  |   |
|-----------------------------------------------|--------|---------|---------|--------|
| Accrued interest                              |   | 16,136  |    |
| Accrued expenses                              |   | 6,299   |    |
| Debt                                          |   | 759,757 |    |
| Senior mandatorily redeemable preferred stock |   | 97,046  |    |
|                                          |   | $       | 904,378 |   |

 

All amountsabove may be subject to adjustment depending on further developments withrespect to disputed claims, the completion of the reconciliation of claims filedwith the Bankruptcy Court to amounts included in the Company’s records or otherevents.  Additional pre-petition claimsmay arise from the rejection of executory contracts or unexpired leases.

 

As a result ofthe bankruptcy filing, no principal or interest payments may be made on theCompany’s Series B Notes and Series D Notes. As a result, interest on the Series B Notes and the Series D Notes hasnot been accrued or recorded after June 27, 2003.  Contractual interest expense not accrued orrecorded totaled $6,875 for the nine months ended September 30, 2003.

 

9

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**8.  Debt and Liquidity**

 

In 1998, theCompany entered into a credit facility with various financial institutions (asamended, the “Credit Facility”). This provided for a secured credit facility,including a term loan of $100,000 and a revolving credit facility loan of$300,000. Proceeds from the Credit Facility were used to repay approximately$59,513 of indebtedness under the Company’s previous credit facility. During1999, the Company amended its Credit Facility to increase the availableborrowings from $400,000 up to a maximum amount of $750,000. In 2001, theCompany amended its Credit Facility to decrease the maximum availableborrowings to $650,000. In 2002, the Company amended its credit facility todecrease the maximum available borrowings to $550,000.

 

As ofDecember 31, 2002, the Company was in default under the financialcovenants governing the credit facility. As of January 23, 2003, the Company and the lenders under thecredit facility entered in a forbearance agreement with an initial expirationof March 14, 2003.  As ofMarch 14, 2003, the Company and the lenders under the credit facilityentered into a second forbearance agreement which extended the forbearanceperiod until May 14, 2003, subject to earlier expiration upon the occurrence ofcertain circumstances.  This forbearanceperiod was subsequently extended to June 15, 2003.

 

During 1997, theCompany issued $100,000 of Senior Subordinated Notes due 2004 (the“Series A Notes”) at a discount netting proceedsof $99,000. During 1998, the Company completed its exchange of $100,000 ofSenior 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 SeniorSubordinated Notes due 2004, Series C (the “Series C Notes”) at adiscount netting proceeds of $122,000. During 1999, the Company issued $50,000of additional Series C Notes, at a discount netting proceeds of $49,000.Later during 1999, the Company completed its exchange of $175,000 of SeniorSubordinated Notes due 2004, Series D (the “Series D Notes”), whichhave been registered for public trading, for the Series C Notes.

 

The Series BNotes and the Series D Notes contained a cross-default provision whereby theCompany’s default on its Credit Facility resulted in a default on the Series BNotes and the Series D Notes.  Inaccordance with the Plan of Reorganization, the holders of the Company’s SeriesB Notes and Series D Notes are to receive 97.5% of the new common stock of theCompany created upon emergence from bankruptcy. The Company ceased accruing interest on the Series B Notes and theSeries D Notes upon the Filing.

 

The Company is aholding 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 andthe Series D Notes, and all of these subsidiaries are directly orindirectly wholly-owned by the Company. There are no restrictions on the Company’s ability to obtain funds fromits subsidiaries by dividend or loan.

 

The separatefinancial statements of each of these wholly-owned subsidiaries are notpresented as management believes that separate financial statements and otherdisclosures concerning these subsidiaries are not individually meaningful forpresentation or material to investors. In addition, the Company has pledged thestock of each of its subsidiaries as further security for the Company’sobligations under the Credit Facility.

 

Prior to seekingprotection in bankruptcy on June 27, 2003, the Company obtainedDebtor-in-Possession financing which provided up to $30,000 of availability tothe Company to fund operations during the bankruptcy period.  The financing required that the Company meetcertain financial tests monthly during the period that the facility was inplace.  The Company did not borrow anyfunds from this financing source during the period it was in place.  The fees associated with this financing wereexpensed during 2003.

 

In connectionwith the Company’s emergence from bankruptcy on February 11, 2004, NESRentered into a new senior secured credit facility (the “New CreditFacility”).  The New Credit Facilityconsists of $285,000 of term loan facilities and a $205,000 revolving creditfacility.  Proceeds under the New CreditFacility were used to repay the balance outstanding under the CreditFacility.  NESR has scheduled principalrepayments quarterly on the term loan facilities through the May 15, 2007maturity date of the New Credit Facility. Scheduled principal payments are as follows:  $55,000 in 2004, $20,000 in 2005, $20,000 in2006 and the balance of $369,000 is due upon expiration in 2007.  The average interest rate on the new creditfacility is base rate plus 3% or LIBOR plus 4.25%.

 

The New CreditFacility contains certain covenants that require the Company to, among otherthings, satisfy certain financial tests relating to 1) adjusted EBITDAlevels, 2) fixed charge coverage ratios, 3) debt leverage ratios and4) capital expenditure levels.  Thecredit facility also contains various other covenants that restrict theCompany’s ability to, among other things, 1) incur additionalindebtedness, 2) permit liens to attach to its assets, 3) paydividends or make other restricted payments on its common stock and certainother securities and 4) make acquisitions unless certain financialconditions are satisfied. The New Credit Facility is collateralized bysubstantially all of the Company’s assets.

 

10

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**9.  Reorganization Expenses**

 

Expenses incurred as a result ofthe bankruptcy filing have been segregated from normal operations and aredisclosed separately.  These expensesconsist primarily of professional fees incurred for financial advisors, legalcounsel and consultants subsequent to the Filing.  These professional fees were cash charges.

 

**10.  Segment information**

 

All operationsare managed on a branch basis. The Company has two reporting segments: TrafficSafety and General Rental and Other. The General Rental operations areprimarily involved in the rental and sale of various types of lift andspecialty equipment to construction, automotive and other industrial users. TheTraffic Safety operations are primarily involved in the rental of trafficsafety equipment and providing the related services to manage traffic flowduring construction.  The Traffic Safetyoperations have different contractual, regulatory and capital requirements thanthe General Rental operations. The accounting policies for these segments arethe same as those described in Note 3.

 

The Company’soperations in Canada represent less than 2% of total revenues and total assetsof the Company.  Due to the size of theCompany’s Canadian operations, these operations are considered insignificantfor separate geographical segment reporting.

 

The Company hasno single customer that represents greater than 10% of the Company’sconsolidated revenues. Identifiable assets are those used in the Company’soperations in each segment.  Intersegmentrevenues are not material.

 

The followingtable presents the information for the reporting segments for the quartersended September 30:

 
| ** **                    | ** ** | **Traffic  Safety** | ** ** | **General Rental and  Other** | ** ** | **Discontinued  Operations** | ** ** | **Consolidated** | ** ** |
|-------------------------------|------------|---------------------|------------|-------------------------------|------------|------------------------------|------------|------------------|------------|
| **2003:**                     |       |                |       |                          |       |                         |       |             |       |
| Rental and service revenues   |       | $                   | 28,432     |                          | $          | 103,448                      |       |             |       | $ | 131,880 |   |
| New equipment sales           |       | 537                 |       | 7,609                         |       |                         |       | 8,146            |       |
| Rental equipment sales        |       | 19                  |       | 7,433                         |       |                         |       | 7,452            |       |
| Other revenues                |       | 1,461               |       | 3,783                         |       |                         |       | 5,244            |       |
| Total revenues                |       | 30,449              |       | 122,273                       |       |                         |       | 152,722          |       |
| Operating income              |       | 4,431               |       | 2,887                         |       |                         |       | 7,318            |       |
| Net income (loss)             |       | 4,446               |       | (6,036                        | )          |                         |       | (1,590           | )          |
| Identifiable assets           |       | 75,030              |       | 615,016                       |       |                         |       | 690,046          |       |
| Depreciation and amortization |       | 2,859               |       | 24,862                        |       |                         |       | 27,721           |       |
| Capital expenditures          |       | 4,666               |       | 6,036                         |       |                         |       | 10,702           |       |
| **2002:**                     |       |                |       |                          |       |                         |       |             |       |
| Rental and service revenues   |       | $                   | 31,533     |                          | $          | 108,054                      |       |             |       | $ | 139,587 |   |
| New equipment sales           |       | 1,812               |       | 9,250                         |       |                         |       | 11,062           |       |
| Rental equipment sales        |       | 113                 |       | 13,647                        |       |                         |       | 13,760           |       |
| Other revenues                |       | 977                 |       | 6,066                         |       |                         |       | 7,043            |       |
| Total revenues                |       | 34,435              |       | 137,017                       |       |                         |       | 171,452          |       |
| Operating income              |       | 5,328               |       | 2,510                         |       |                         |       | 7,838            |       |
| Net income (loss)             |       | 3,533               |       | (13,074                       | )          |                         |       | (9,541           | )          |
| Identifiable assets           |       | 112,580             |       | 786,265                       |       | 3,856                        |       | 902,701          |       |
| Depreciation and amortization |       | 2,889               |       | 28,973                        |       |                         |       | 31,862           |       |
| Capital expenditures          |       | 1,593               |       | 26,381                        |       |                         |       | 27,974           |       |

 

Thefollowing table presents the information for the reporting segments for thenine month periods ended September 30:

 
| ** **                    | ** ** | **Traffic  Safety** | ** ** | **General Rental and  Other** | ** ** | **Discontinued  Operations** | ** ** | **Consolidated** | ** ** |
|-------------------------------|------------|---------------------|------------|-------------------------------|------------|------------------------------|------------|------------------|------------|
| **2003:**                     |       |                |       |                          |       |                         |       |             |       |
| Rental and service revenues   |       | 71,367              |       | 293,818                       |       |                         |       | 365,185          |       |
| New equipment sales           |       | 2,464               |       | 24,194                        |       |                         |       | 26,658           |       |
| Rental equipment sales        |       | 93                  |       | 24,828                        |       |                         |       | 24,921           |       |
| Other revenues                |       | 2,629               |       | 13,539                        |       |                         |       | 16,168           |       |
| Total revenues                |       | 76,553              |       | 356,379                       |       |                         |       | 432,932          |       |
| Operating loss (a)            |       | (35,159             | )          | (103,432                      | )          |                         |       | (138,591         | )          |
| Net loss (a)                  |       | (35,009             | )          | (154,558                      | )          | (518                         | )          | (190,085         | )          |
| Identifiable assets           |       | 75,030              |       | 615,016                       |       |                         |       | 690,046          |       |
| Goodwill impairment           |       | 39,644              |       | 98,471                        |       |                         |       | 138,115          |       |
| Depreciation and amortization |       | 8,842               |       | 75,886                        |       |                         |       | 84,728           |       |
| Capital expenditures          |       | 6,067               |       | 26,423                        |       |                         |       | 32,490           |       |
| **2002:**                     |       |                |       |                          |       |                         |       |             |       |
| Rental and service revenues   |       | 72,848              |       | 314,848                       |       |                         |       | 387,696          |       |
| New equipment sales           |       | 4,877               |       | 27,280                        |       |                         |       | 32,157           |       |
| Rental equipment sales        |       | 239                 |       | 30,565                        |       |                         |       | 30,804           |       |
| Other revenues                |       | 1,955               |       | 18,939                        |       |                         |       | 20,894           |       |
| Total revenues                |       | 79,919              |       | 391,632                       |       |                         |       | 471,551          |       |
| Operating income              |       | 6,471               |       | 15,647                        |       |                         |       | 22,118           |       |
| Net income (loss) (b)         |       | 1,435               |       | (159,648                      | )          | 3,572                        |       | (154,641         | )          |
| Identifiable assets           |       | 112,580             |       | 786,265                       |       | 3,856                        |       | 902,701          |       |
| Depreciation and amortization |       | 8,801               |       | 84,032                        |       |                         |       | 92,833           |       |
| Capital expenditures          |       | 4,356               |       | 60,572                        |       |                         |       | 64,928           |       |

----

(a)  Operating loss and net loss for TrafficSafety and General Rental and Other segments include goodwill impairmentcharges of $39,644 and $98,471, respectively.

 

(b)  Net income (loss) for the General Rental andOther segment includes a goodwill impairment charge of $129,505 recorded as thecumulative effect of a change in accounting principle as a result of theinitial adoption of SFAS No. 142.

 

11

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**ITEM 2.****MANAGEMENT’S****DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

This discussionshould be read in conjunction with the Company’s Annual Report on Form 10-K forthe year-ended December 31, 2002 as filed with the Securities and ExchangeCommission and other information included herein. All dollar amounts are inthousands.

 

**General**

 

The Company wasfounded in June 1996 to acquire and integrate businesses that focus on therental of general and specialty equipment to industrial and constructionend-users. Since inception, the Company acquired 42 businesses in separatetransactions. All acquisitions were accounted for using the purchase method ofaccounting. The results of operations of the businesses acquired are includedin the Company's financial statements only from their respective dates ofacquisition. 

 

The Companyderives its revenues from four sources: 1) equipment rental and service, 2) newequipment sales, 3) rental equipment sales and 4) sales of complementary partsand merchandise. The Company's primary source of revenue is the rental andservice of equipment to industrial and construction end-users. The growth ofrental revenues depends on several factors, including demand for rentalequipment, the amount and quality of equipment available for rent, rental ratesand general economic conditions. Revenues generated from the sale of newequipment are affected by price and general economic conditions. Revenuesgenerated from the sale of used rental equipment are affected by price, generaleconomic conditions and the Company's fleet management program. Revenues fromthe sale of complementary parts and services are primarily affected byequipment rental and sales volume. 

 

Cost of revenuesconsists primarily of rental equipment depreciation, the cost of rental andservice revenue, the cost of new equipment, the net book value of rentalequipment sold and other direct operating costs. Given the varied, and in somecases specialized, nature of its rental equipment, the Company uses a range ofperiods from two to fifteen years over which it depreciates its equipment on astraight-line basis. 

 

**Critical Accounting Policies**

 

We prepare ourconsolidated financial statements in accordance with accounting principlesgenerally accepted in the United States of America, which requires ourmanagement to make estimates and general assumptions about the effects ofmatters that are inherently uncertain. We have summarized our significantaccounting policies in Note 3 to our consolidated financial statements, aspresented in our Annual Report on Form 10-K for the year ended December 31,2002. Of these accounting policies, we believe the following may involve ahigher degree of judgment and complexity. 

 

*Application of SOP 90-7*

The consolidatedfinancial statements have been prepared in accordance with SOP 90-7.  Under SOP 90-7, revenues and expenses,realized gains and losses and provisions for losses resulting from thereorganization of the business are to be reported in the consolidatedstatements of operations separately as reorganization items.  Professional fees are expensed asincurred.  Interest expense is reportedonly to the extent that it will be paid during the bankruptcy or that it isprobable that it will be an allowed claim. The application of SOP 90-7 also requires that the Company estimate theexpected amount of allowed claims with respect to pre-petition liabilities inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 5,“Accounting for Contingencies.”  

 

*Allowance for DoubtfulAccounts*

At September 30,2003, we had an allowance for doubtful accounts totaling $5,795, which we haveestablished in the event that we are unable to collect certain receivables.This allowance represents our estimate of the total receivables recorded as ofSeptember 30, 2003 that we will be unable to collect. Future general events,such as changes in the economy, and specific events, such as changes in theeconomic condition of our customers, could significantly impact our ability tocollect on these receivables, and therefore, cause us to change our allowanceestimate. 

 

*Useful Lives of RentalEquipment and Property and Equipment*

At September 30,2003, we had $428,225 of net rental equipment and $39,309 of net property andequipment recorded on our balance sheet. Rental equipment is depreciated usingthe straightline method over two to fifteen years. Property andequipment is depreciated over three to thirty years, depending on the type ofasset. Our depreciable lives are based on our estimates of the useful lives ofthe respective assets over which they will generate revenues. These estimatesmay require adjustment based on changing circumstances in the marketplace.Changes to these estimates could result in us having to recognize an increaseto or decrease in depreciation expense. 

 

*Impairment of Long-LivedAssets*

In accordancewith SFAS No. 144, “Accounting for the Impairment or Disposal of Long-livedAssets,” we test long-lived assets or asset groups for recoverability wheneverevents or changes in circumstances indicate that its carrying amount may not berecoverable.  When such events occur, wecompare the sum of the undiscounted cash flows expected to result from the useand eventual disposition of the asset or asset group to the carrying amount ofthe long-lived asset or asset group.  Ifthis comparison indicates that an impairment exists,the amount of the impairment is measured by comparing the carrying value to thefair market value of the asset.  Fairmarket value is typically based on the discounted expected future cashflows.  The discount rate applied tothese cash flows is based on our weighted-average cost of capital, whichrepresents the blended after-tax costs of debt and equity.  

 

*Impairment of Goodwill*

EffectiveJanuary 1, 2002, we adopted SFAS No. 142, “Goodwill and Other IntangibleAssets” issued by the Financial Accounting Standards Board (FASB).  Under this standard, goodwill is no longeramortized but is subject to annual impairment tests on a reporting unitlevel.  We completed our initial impairmentanalysis in the second quarter of 2002 and recorded a non-cash impairmentcharge of approximately $155,102 ($129,505, net of tax benefit), as acumulative effect of a change in accounting principle retroactive to January 1,2002, on the consolidated statement of operations and comprehensive loss.  We completed a subsequent analysis at the endof 2002 and did not identify any goodwill impairment.  In the most recent analysis performed as ofJune 30, 2003, we recorded a non-cash impairment charge of approximately$138,115, which reflects the impairment of the remaining goodwill of theCompany.  

 

We evaluated therecoverability of goodwill by estimating the future discounted cash flows ofthe businesses to which the goodwill related. The rate used in determiningdiscounted cash flows is a rate corresponding to our cost of capital, riskadjusted where necessary. Estimated cash flows were then determined bydisaggregating our business segments to a reporting level for which meaningfulidentifiable cash flows could be determined. As the estimated future discountedcash flows were less than the carrying value of the net assets (tangible andidentifiable intangibles) and related goodwill, an impairment loss wasrecognized. The impairment losses, limited to the carrying value of goodwill,represented the excess of the sum of the carrying value of the net assets(tangible and identifiable intangible) and goodwill over the discounted cashflows of the business being evaluated. In determining the estimated future cashflows, we considered current and projected future levels of income as well asbusiness trends, prospects and market and economic conditions.

 

*Valuation Allowance on NetDeferred Tax Assets*

At September 30,2003, we provided a full valuation allowance on our net deferred taxassets.  Realization of net deferredincome tax assets is dependent upon generating sufficient future taxable incomein the periods in which the underlying temporary differences reverse, or priorto the dates that net operating loss carryforwards expire.  We must assess the likelihood that our netdeferred tax assets will be recovered in the future.  Because we believe that recovery is notlikely, we have established a full valuation allowance.

 

**Results of Operations**

 

The following tableshows information derived from the Company’s historical consolidated statementsof operations as a percentage of total revenues.

 
| ** **                                                        | ** ** | **Three Months  Ended  September 30,** | ** ** | **Nine Months  Ended  September 30,** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                        | ** ** | **2003**                                    | ** ** | **2002**                                   | ** ** | **2003** | ** ** | **2002** | ** ** |
|                                                              |       |                                        |       |                                       |       |   |   |   |   |
| Rental and service revenues                                       |       | 86.4                                        | %          | 81.4                                       | %          | 84.3 | % | 82.2 | % |
| New equipment sales                                               |       | 5.3                                         |       | 6.5                                        |       | 6.2 |   | 6.8 |   |
| Rental equipment sales                                            |       | 4.9                                         |       | 8.0                                        |       | 5.8 |   | 6.5 |   |
| Other revenues                                                    |       | 3.4                                         |       | 4.1                                        |       | 3.7 |   | 4.5 |   |
| Total revenues                                                    |       | 100.0                                       |       | 100.0                                      |       | 100.0 |   | 100.0 |   |
| Cost of revenues                                                  |       | 71.0                                        |       | 73.9                                       |       | 74.2 |   | 72.9 |   |
| Gross margin                                                      |       | 29.0                                        |       | 26.1                                       |       | 25.8 |   | 27.1 |   |
| Selling, general and administrative expenses                      |       | 21.5                                        |       | 20.2                                       |       | 24.2 |   | 20.9 |   |
| Reorganization expenses                                           |       | 1.7                                         |       | —                                     |       | 0.6 |   | — |   |
| Goodwill impairment                                               |       | —                                      |       | —                                     |       | 31.9 |   | — |   |
| Non-rental depreciation and amortization                          |       | 1.0                                         |       | 1.3                                        |       | 1.1 |   | 1.5 |   |
| Operating income                                                  |       | 4.8                                         |       | 4.6                                        |       | (32.0 | ) | 4.7 |   |
| Other income, net                                                 |       | 0.1                                         |       | 0.1                                        |       | 0.1 |   | 0.2 |   |
| Interest expense, net                                             |       | 5.9                                         |       | 10.3                                       |       | 11.9 |   | 11.0 |   |
| Loss before income taxes                                          |       | (1.0                                        | )          | (5.6                                       | )          | (43.8 | ) | (6.1 | ) |
| Income tax expense                                                |       | —                                      |       | —                                     |       | — |   | — |   |
| Loss from continuing operations                                   |       | (1.0                                        | )          | (5.6                                       | )          | (43.8 | ) | (6.1 | ) |
| Loss from discontinued operations, net of tax                     |       | —                                      |       | —                                     |       | (0.1 | ) | (0.7 | ) |
| Gain on disposal of discontinued operations, net of tax           |       | —                                      |       | —                                     |       | — |   | 1.5 |   |
| Cumulative effect of a change in accounting principle, net of tax |       | —                                      |       | —                                     |       | — |   | (27.5 | ) |
| Net loss                                                          |       | (1.0                                        | )%         | (5.6                                       | )%         | (43.9 | )% | (32.8 | )% |

 

The Company’sfinancial performance has been negatively affected over the last two years dueto lower activity levels in the economy, a slowdown in non-residentialconstruction, competitive pricing pressure due to over-capacity of rentalequipment in the industry and lower demand. Additionally, the Company’s Filing on June 27, 2003 has generatedconcern among the Company’s customers and vendors and disrupted business for aperiod of time.

 

The resultingdecrease in earnings negatively impacted the Company’s cash flows fromoperations during this period, limiting the Company’s ability to invest in itsrental fleet.  Management initiatedseveral actions in response to these circumstances, including actions to reduceits operating expenses through personnel reductions and consolidation of branchand support operations, as well as asset sales to reduce its debt.  Although these actions reduced debt levels bymore than $100,000 in 2002 and 2003, the Company’s liquidity has remainedstrained.

 

Over the lasttwo years, the Company closed and consolidated branch locations and centralizedadministrative functions in an effort to reduce costs.  For several months leading to the bankruptcyfiling in June 2003, the Company entered into a series of discussions withits debt and equity holders to evaluate various restructuringalternatives.  It was determined that itwas in the best interest of the Company’s creditors and other constituents toseek protection through voluntary petitions under Chapter 11 of the U.S.Bankruptcy Code.  As a result of defaultsunder its credit facilities, the Company has operated with limited capitalresources due to its inability to borrow under its senior credit facility.

 

### Threeand Nine Months Ended September 30, 2003, Compared with the Three and NineMonths Ended September 30, 2002

 

*Revenues*

Total revenuesdecreased to $152,722 for the three months ended September 30, 2003 from$171,452 for the three months

 

12

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endedSeptember 30, 2002.  Revenues weredown in all categories in the current quarter as compared to the same period inthe previous year.  Rental and servicerevenues declined 6% to $131,880 for the three months ended September 30,2003 from $139,587 for the same period in 2002. This decrease is primarily the result of continued pressure on rentalrates, brought about by the continued slowness in the economy.  Rental equipment sales were down $6,308 fromthe prior year’s levels due to various trade packages and an auction in whichthe Company participated during the third quarter of 2002.  New equipment sales of $8,146 were down$2,916 from the prior year, and other revenues were down $1,799.

 

Revenues weredown in both of the Company’s operating segments.  Consistent with previous quarters, totalrevenues within the General Rental segment were down, decreasing to $122,273for the three months ended September 30, 2003 from $137,017 for the threemonths ended September 30, 2002. Rental and service revenues decreased $4,606, and volume in all otherrevenue categories declined as well. Total revenues within the Company’s Traffic Safety operations alsodeclined to $30,449 for the third quarter of 2003, as compared to $34,435during the same period in 2002.

 

Similarly, totalrevenues for the nine months ended September 30, 2003 were $432,932, down8% from the $471,551 recognized in the same period in 2002.  Rental revenues comprise $22,511 of thisshortfall, as rates continue to trend downward. Revenues are also down year-over-year for both new and rental equipmentsales, as well as other revenues. Year-to-date, the revenue declines experienced resulted primarily fromthe Company’s General Rental operations.

 

*Gross Profit*

Gross profitdecreased slightly to $44,254 for the three months ended September 30,2003 from $44,825 for the three months ended September 30, 2002. Grossmargins improved, however, to 29% from 26% as a result of improved margins onrental and service revenue within the General Rental segment.  Consistent with previous quarters, grossprofit within the Traffic Safety operations decreased to $8,356 for the threemonths ended September 30, 2003 from $9,936 for the three months endedSeptember 30, 2002.  Decreased statefunding of highway and road construction projects resulted in more competitivebidding for fewer projects.

 

Year-to-date,gross profit of $111,904 is down 12% from the $127,641 recognized during thefirst nine months of 2002.  Overall,gross margins declined to 26% for the nine months ended September 30,2003, as compared to 27% for the nine months ended September 30, 2002.

 

*Selling, General and Administrative Expenses*

Selling, generaland administrative expenses decreased to $32,777 for the three months endedSeptember 30, 2003 from $34,701 for the three months endedSeptember 30, 2002.  Selling,general and administrative expenses for the General Rental and Other operationswere down $1,087 or 4% to $29,177 for the three months ended September 30,2003 as compared to $30,264 for the three months ended September 30,2002.  Selling, general andadministrative expenses for the Traffic Safety operations have declined to$3,600 for the three months ended September 30, 2003 from $4,437 for thethree months ended September 30, 2002. These decreases are the result of various cost-savings initiativesimplemented during 2002 within the Traffic Safety operations.  For the nine months ended September 30,2003, selling, general and administrative expenses increased to $104,769 ascompared to $98,351 for the same period in 2002 primarily as a result ofreorganization expenses incurred related to the bankruptcy prior to filing.

 

*Reorganization Expenses*

Subsequent tothe Filing, the Company incurred $2,644 of charges related to thereorganization during the three months ended September 30, 2003.  These expenses related primarily toprofessional fees incurred.

 

*Goodwill Impairment*

As a result ofthe Company’s Filing on June 27, 2003, the Company completed an impairmentanalysis of goodwill as of June 30, 2003. Based on the results of this analysis, the Company recorded a non-cashimpairment charge of $138,115 during the second quarter of the year, whichreflected the impairment of the remaining goodwill of the Company.

 

*Non-rental Depreciation andAmortization*

Non-rentaldepreciation and amortization declined slightly to $1,515 for the secondquarter of 2003 as compared to $2,286 for the same period in 2002.  This decline is primarily due to theexpiration of a portion of the Company’s non-competeagreements.  For the nine months endedSeptember 30, 2003, non-rental depreciation and amortization was down$2,205 to $4,967.

 

*Interest Expense, Net*

Interestexpense, net, decreased to $9,026 for the three months ended September 30,2003 from $17,631 for the three months ended September 30, 2002.  Upon filing for bankruptcy, the Companydiscontinued its monthly accrual for interest associated with the SeniorSubordinated Notes, Series B and Series D. Had the Company continued to accrue for this interest, an additional$6,875 of

 

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interestexpense would have been recognized during the third quarter of 2003.

 

*Loss from Discontinued Operations*

On June 30,2002, the Company sold its underground trench shoring business. The proceedsfrom the sale were used to repay existing indebtedness under the CreditFacility. In accordance with SFAS No. 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets,” the results of operations of this businessare presented as discontinued operations.

 

*Cumulative Effect of a Change in Accounting Principle*

The cumulativeeffect of a change in accounting principle reflects the charge recognized inconjunction with the adoption of SFAS No. 142, “Goodwill and OtherIntangible Assets”, effective January 1, 2002.

 

**Liquidity, Financial Condition and Capital Resources**

 

The Company’sconsolidated financial statements have been prepared on a going concern basis,which contemplates continuity of operations, realization of assets, and paymentof liabilities in the ordinary course of business, and do not reflectadjustments that might result if the Company is unable to continue as a goingconcern.  The Company’s history ofsignificant losses, the stockholders’ deficit, and the Chapter 11 bankruptcyfiling discussed herein raise substantial doubt about the Company’s ability tocontinue as a going concern.  Continuingas a going concern is dependent upon, among other things, the success of futurebusiness operations and the generation of sufficient cash from operations andfinancing sources to meet the Company’s obligations.  The Company is presently considering avariety of alternatives to provide other sources of cash flow outside ofordinary operations.  These alternativesinclude refinancing, fleet sales and other asset dispositions.

 

Theconsolidated financial statements do not reflect the effect of any changes tothe Company’s capital structure or in the Company’s business operations as theresult of the Plan of Reorganization.

 

The Company’sprimary capital requirements are for purchasing new rental equipment. TheCompany purchases rental equipment throughout the year to replace equipmentthat has been sold as well as to maintain adequate levels of equipment to meetexisting and new customer needs. Rental fleet purchases for the Company were$26,103 and $58,778 in the first nine months of 2003 and 2002, respectively.The Company’s principal sources of cash are cash generated from operations andborrowings available under its credit facility. In the last two years, however, as a result of the Company’s financialposition, the Company has had limited capital available for capital expendituresdue to more immediate funding requirements associated with debt service,insurance bonds and performance deposits.

 

For the ninemonths ended September 30, 2003 and 2002, the Company’s net cash providedby operations was $21,368 and $37,218, respectively.  For the nine months ended September 30,2003 and 2002, the Company’s net cash (used in) provided by investingactivities was $(6,158) and $76,127, respectively. Net cash used in investingactivities consists primarily of purchases of rental equipment and property andequipment.  For the nine months endedSeptember 30, 2002, proceeds from the sale of the Company’s trench shoringbusiness are included.  For the ninemonths ended September 30, 2003 and 2002, the Company’s net cash providedby (used in) financing activities was $6,811 and $(112,176), respectively. Netcash used in financing activities consists primarily of repayments under theCompany’s credit facility.  The proceedsfrom the trench shoring sale were used to repay the credit facility.

 

During 1997, theCompany issued $100,000 of Senior Subordinated Notes due 2004 (the“Series A Notes”) at a discount netting proceedsof $99,000. During 1998, the Company completed its exchange of $100,000 ofSenior Subordinated Notes due 2004, Series B (the “Series B Notes”),which were registered for public trading, for the Series A Notes. Also during 1998, the Company issued $125,000 ofSenior 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 ofSenior Subordinated Notes due 2004, Series D (the “Series D Notes”),which were registered for public trading, for the Series C Notes.  In accordance with the Plan ofReorganization, the holders of the Company’s Series B Notes and Series D Notesreceived 97.5% of the New Common Stock of the Company.

 

# New Credit Facility

 

In connectionwith the Company’s emergence from Chapter 11 on February 11, 2004, theCompany entered into a new senior secured credit facility (the “New CreditFacility”).  The New Credit Facilityconsists of $285,000 of term loan facilities and a $205,000 revolving creditfacility, subject to availability based on certain financial tests that includea borrowing base.  As ofFebruary 11, 2004, the Company had $464,000 outstanding under the NewCredit Facility, and $26,000 of additional availability on the revolving creditfacility.  The borrowing base is determinedby the Company’s eligible inventory, accounts receivable and rental equipmentand is recomputed monthly.  In the eventthat the book value of the Company’s inventory or accounts receivable or theappraised value of the Company’s rental equipment declines without acorresponding increase in one of the other categories, the available

 

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borrowing base will be temporarilyreduced accordingly.

 

The New Credit Facility contains certain covenantsthat require the Company to, among other things, satisfy certain financialtests relating to 1) adjusted EBITDA levels, 2) fixed charge coverageratios, 3) debt leverage ratios and 4) capital expenditure levels.  The credit facility also contains variousother covenants that restrict the Company’s ability to, among other things,1) incur additional indebtedness, 2) permit liens to attach to itsassets, 3) pay dividends or make other restricted payments on its commonstock and certain other securities and 4) make acquisitions unless certainfinancial conditions are satisfied.

 

**Factors That May Influence Future Results**

 

*Filing*

 

The Company’s Filing on June 27, 2003generated concern among the Company’s customers and suppliers and disruptedbusiness for a period of time during 2003. Disclosure of the terms of the Company’s Plan of Reorganization toemployees, customers and vendors, as well as the subsequent emergence frombankruptcy protection in February 2004, have reduced the distractions caused bythe Filing.  However, the ultimate impactof the Filing on future results is not known.

 

*UnfavorableEconomic Conditions*

 

Our end-users consist of construction andindustrial customers.  Weaknesses inthese markets may lead to a decrease in demand for our equipment and services.  Recent declines in the non-residentialconstruction industry, as well as reduced funding at the federal and statelevels on infrastructure, have adversely affected our results of operations.  The future impact of potential continueddeclines in these areas is not known.

 

*Seasonality*

 

The Company’s revenues and operatingresults fluctuate significantly from quarter to quarter due to the seasonalnature of the markets in which the Company operates.  The Company’s presence both in the trafficsafety and control industry and in the general rental market in the Northeastand Midwest are both highly seasonal in nature, with activity tending to belower in the winter.

 

*Indebtedness*

* *

The Company’s substantial indebtednesscould adversely affect the Company’s operations in the future in one or more ofthe following ways:

 

•                                          Significantcash required for debt service could limit the Company’s ability to invest inits rental fleet and grow operations,

 

•                                          Increasesin interest rates could result in increased interest expense and increased cashfor debt service,

 

•                                          TheCompany’s ability to obtain additional financing could be limited asessentially all of the assets of the Company secure the existing indebtednessand

 

•                                          Failureto comply with covenants associated with the existing indebtedness could resultin the creditors’ ability to require repayment of outstanding indebtednessthereunder.

 

*Competition*

 

The equipment rental Industry is highlyfragmented and competitive.  Numerouscompetitors serve many of the markets in which the Company operates.  These competitors range from national andmulti-regional operators to small, independent businesses with a limited numberof locations.  Management believes thatparticipants in the equipment rental industry compete on the basis ofavailability and quality of equipment, service, delivery time and price.  Recent economic pressures have reduced marketdemand and forced industry participants to lower rental rates, adverselyimpacting the Company’s results of operations. The future impact of potential continued economic declines is unknown.

 

*LegalProceedings*

 

From time to time, the Company has beenand is involved in various legal proceedings, all of which management believesare routine in nature and incidental to the conduct of its business.  Although the Company does not believe that anadverse ruling in any of these proceedings would have a material adverse impacton the Company’s results of operations, the Company’s ultimate legal andfinancial liability resulting from any of these proceedings cannot be estimatedwith certainty.

 

*Environmental*

 

The Company’s facilities are subject tofederal, state and local environmental requirements relating to discharges toair, water and land; the handling and disposal of solid and hazardous waste;and the cleanup of properties affected by hazardous substances.  Based on environmental assessments conductedin connection with the Company’s acquisitions, the Company believes that itsfacilities are in substantial compliance with environmental requirements, andthat the Company has no material liabilities arising under environmentalrequirements.  However, some risk ofenvironmental liability is inherent in the nature of the Company’s business,and in the future the Company may incur material costs to meet current or morestringent compliance, cleanup or other obligations under environmental laws.

 

**Recently IssuedAccounting Pronouncements**

 

In May 2003, the Financial AccountingStandards Board issued Statement No. 150, “Accounting for CertainFinancial Instruments with Characteristics of Both Liabilities and Equity”(“SFAS No. 150”). SFAS No. 150 requires that certain financial instruments withcharacteristics of both liabilities and equity be classified as a liability andthe accretion of any related fees be classified as interest expense rather thanas a charge to retained earnings.  TheCompany adopted SFAS No. 150 on July 1, 2003, and as a result the Companyhas reclassified $97,046 of senior redeemable preferred stock to liabilities.However, SFAS No. 150 does not permit the reclassification of the seniorredeemable preferred stock to liabilities in financial statements prior to theeffective date.

 

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Accordingly, theDecember 31, 2002 liabilities exclude the senior redeemable preferredstock.

 

**ITEM 3.****QUANTITATIVE****AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

The New CreditFacility consists of $285 million of term loan facilities and a $205 millionrevolving credit facility, subject to availability based on certain financialtests that include a borrowing base. Borrowings under the credit facility bear interest, at the Company’soption, at a specified base rate or LIBOR rate plus the applicable borrowingmargin. At February 11, 2004, the Company had total borrowings under thecredit facility of $462 million. Each 100 basis point increase in interestrates on the variable rate debt would decrease pretax earnings by approximately$4.6 million.

 

**ITEM 4.****CONTROLS****AND PROCEDURES**

 

**Evaluation of disclosure controls andprocedures** - After evaluating the effectiveness of the Company’s disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-14(c) and15d-14(c) as of September 30, 2003 (the “Evaluation Date”), the Company’s chiefexecutive officer and chief financial officer have concluded that, as of theEvaluation Date, the Company’s disclosure controls and procedures were adequateand effective to ensure that material information relating to the Company andits subsidiaries would be made known to them by others within those entities,particularly during the period in which this quarterly report was beingprepared.

 

**Changes in internal controls** – TheCompany has taken steps to strengthen its control and operating environment,information systems and procedures, including: the establishment of Company wide policies, procedures and internalcontrol standards; the establishment of an internal audit function; theintegration and consolidation of information systems into comprehensive operatingand financial reporting systems and the establishment of a shared servicedcenter.

 

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**PART II****.****OTHER INFORMATION**

 

**ITEM 1.****LEGAL PROCEEDINGS**

 

Following theCompany’s announcement in April 2002 that it was restating its priorperiod financial statements through the filing of its 2002 Annual Report onForm 10-K, the Company received a notice of inquiry from the SEC relating tothe Company’s restated financial statements. Following a review of the Company’s response to the notice of inquiry,the SEC commenced an informal investigation into this matter.  The informal investigation included theproduction of relevant documents and the taking of testimony from certaincurrent and former Company employees.  TheCompany was informed that the SEC also commenced an investigation with respectto three individuals (two former NES employees no longer associated with theCompany and one current NES employee).

 

OnApril 10, 2003, the Company was informed by the staff of the SEC, throughreceipt of a “Wells Notice,” that the SEC intended to recommend that theCommission institute a cease-and-desist proceeding against the Company,alleging that NES violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of theSecurities Exchange Act of 1934, as amended (the “Exchange Act”) and Rules12b-20, 13a-1, and 13a-13 thereunder. Prior to and during the investigation, the Company had voluntarilyupgraded and reinforced significant portions of its financial controlsfunctions.  The Company fully cooperatedwith the Commission throughout the investigation.

 

InAugust 2003, the Company offered to settle the SEC investigation (the“Offer”) by agreeing to certain reporting violations of the Exchange Act and byagreeing to consent to the entry of an administrative Cease-and-Desist Order(the “Order”).  While the Commission hasnot indicated at this time that it intends to seek a civil monetary penaltyagainst the Company, the Commission has the statutory authority to seek a civilpenalty of up to $500,000 for each violation of the Exchange Act committed bythe Company.  As of the date hereof, theSEC has not taken any formal action on the Offer or the Order.  The Company is continuing its efforts toresolve this matter with the SEC.

 

**ITEM 2.****CHANGES IN SECURITIES****,USE OF PROCEEDS AND ISSUER OF EQUITY SECURITIES**

 

Not applicable.

 

**ITEM 3.****DEFAULTS UPON SENIOR SECURITIES**

 

See Note 8 ofthe Notes to Consolidated Financial Statements for a discussion of certaindefaults under the Company’s Senior Credit Facility and Senior SubordinatedNotes.

 

**ITEM 4.****SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

Not applicable.

 

**ITEM 5.****OTHER INFORMATION**

 

Not applicable.

 

**ITEM 6.****EXHIBITS AND REPORTS ON FORM 8-K**

 

See Index ofExhibits on page 19.  The Company filed aCurrent Report on Form 8-K dated July 11, 2003 to report its Chapter11 bankruptcy filing.

 

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**SIGNATURE**

 

**Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized on April8, 2004.**

 
|                                                            | NATIONAL EQUIPMENT SERVICES,  INC. |
|-----------------------------------------------------------------|------------------------------------|
|                                                            |                               |   |
|                                                            |                               |   |
|                                                            | By:                                | /s/  MICHAEL D. MILLIGAN |
|                                                            |                               | Michael  D. Milligan |
|                                                            |                               | *Chief Financial Officer* |
| Form 10-Q: For the quarter  ended September 30, 2003. |                               |   |

 

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**INDEX OF EXHIBITS**

 
| **Exhibit  Number** | ** ** | **Description of Document**                                                                                                                                                                                                                       |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                                              |
| 11.1                |       | Statement re Computation of Per  Share Earnings. Not required because per share earnings (loss) information  has not been presented in the consolidated financial statements due to the  cancellation of the previously outstanding common stock. |
| 31.1                |       | Certification Pursuant to 18  U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002                                                                                                                          |
| 31.2                |       | Certification Pursuant to 18  U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002                                                                                                                          |
| 32.1                |       | Certification Pursuant to 18  U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                                |
| 32.2                |       | 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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