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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-K

|(Mark One)                                  |  |                                                                                        
|------------------------------------------- |  | ---------------------------------------------------------------------------------------
|/x/                                         |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15() OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31, 2002
|/ /                                         |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15() OF THE SECURITIES EXCHANGE ACT OF 1934
|For the Transition period from 
to         
|Commission File Number: 001-14163          

National Equipment Services, Inc.(Exact Name of Registrant as Specified in its Charter)

|Delaware(State or other jurisdiction of
incorporation or organization)                                                                          |  | 36-4087016(I.R.S. Employer
Identification No.)
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------
|1603 Orrington Avenue, Suite 1600
Evanston, Illinois 60201(Address of principal executive offices)                                             
|Registrant's telephone number, including area code: (847) 733-1000                                                                             
|Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $0.01 per share, registered on the New York Stock Exchange.
|Securities registered pursuant to Section 12(g) of the Act: None.                                                                              

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ý

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). o

As
of April 9, 2003, the aggregate market value of the voting stock held by non-affiliates of National Equipment Services, Inc. was approximately $871,071.

As
of April 9, 2003, there were 21,151,163 shares of Common Stock of National Equipment Services, Inc., par value $0.01 per share, outstanding.

Documents Incorporated by Reference:

Part III incorporates by reference certain information to be included in Registrant's Proxy Statement relating to its 2003 Annual Meeting of Stockholders.

Index to Exhibits:

Located on pages 52 through 56 of this report.

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PART I

ITEM 1.    BUSINESS

General

National Equipment Services, Inc. (the "Company") is a leading participant in the highly fragmented $25 billion equipment rental industry. Through
its 42 businesses acquired since January 1997, the Company rents general and specialty equipment to industrial and construction end users. The Company rents over 750 different types of
machinery and equipment and distributes new equipment for nationally recognized original equipment manufacturers. The Company also sells used equipment as well as complementary parts, supplies and
merchandise and provides repair and maintenance services to its customers. The Company is geographically diversified, with more than 180 locations and is a leading competitor in each of the geographic
markets it serves.

Management
believes the Company offers one of the most modern and well-maintained fleets of general and specialty equipment in each of its markets. The average age of the
Company's equipment fleet is approximately four years. General industrial and construction equipment includes aerial work platforms, air compressors, cranes, earth-moving equipment and rough terrain
forklifts. Specialty equipment includes electric and pneumatic hoists, hydraulic and truck-mounted cranes, liquid storage tanks, pumps and highway safety equipment.

The
Company is led by an experienced management team. The professionals who manage the Company's local operations average more than 15 years of experience in the equipment rental
industry and have extensive knowledge of and relationships in their local markets. The Company also benefits from the financial expertise of GTCR Golder Rauner and Brown Brothers
Harriman & Co., established investment firms. Golder, Thoma, Cressey, Rauner Fund V, L.P., an affiliate of GTCR Golder Rauner,
and The 1818 Fund III, L.P., an affiliate of Brown Brothers Harriman & Co., are the Company's principal equity investors.

Recent Events

The Company's financial performance has been negatively affected over the last two years due to lower activity levels in the economy, decreasing rental rates and
higher operating costs. The resulting decrease in earnings combined with existing cash needs for working capital significantly affected the Company's cash flows from operations in 2002. In response to
this environment, management initiated several actions during 2002 including actions to reduce its operating expenses through personnel reductions and consolidations of branch and support operations,
as well as asset sales to reduce its debt, including the sale of the Trench Shoring business. Although these actions resulted in reduced debt levels from 2001 to 2002 of approximately
$105.7 million, the Company's liquidity is strained. Additionally, a significant portion of the Company's debt matures in 2003.

During
January, 2003, the Company notified the senior bank lenders ("Senior Lenders") under its Amended and Restated Credit Agreement dated as of August 6, 2003, as amended (the
"credit facility"), that it was in default under the credit facility. As of December 31, 2002, the Company and the Senior Lenders entered into Amendment No. 8 to the credit facility
("Amendment No. 8"), which, among other things, amended the definition of "Borrowing Base." As of January 23, 2003, the Company and the Senior Lenders entered into an agreement (the
"Forbearance Agreement"), pursuant to which the Senior Lenders agreed to a forbearance period during which they agreed not to exercise certain remedies available to them as a result of the existing
defaults under the Company's credit facility. The initial forbearance period ended on March 14, 2003.

As
of March 14, 2003, the Company and the Senior Lenders entered into the Second Forbearance Agreement and Amendment No. 9 to the credit facility (the "Second Forbearance
Agreement"), which extended the forbearance period. The forbearance period, which is currently scheduled to end on May 14,

1

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2003, will end sooner upon the occurrence of certain events, such as an event of default under the credit facility (other than an Acknowledged Event of Default (as defined)), or in the event the
Company fails to complete certain actions leading to a financial restructuring. Under the terms of the Second Forbearance Agreement, the likelihood is remote that the Company would be able access any
additional funds from its credit. The Company is currently in discussions with its Senior Lenders about the possible terms of a financial restructuring. The Company is also in discussions with an Ad HocCommittee representing holders ("Noteholders") of the Company's outstanding Senior Subordinated Notes due 2004. The significant terms and
conditions of a financial restructuring being negotiated include negotiations about: extension of debt maturities and repayment schedules, debt forgiveness, conversion of debt to equity or other
equity-like instruments, additional equity investments, further asset sales, interest rates and other yield matters, as well as the covenants associated with the renegotiated capital
instruments.

The
next scheduled interest payment due on the Senior Subordinated Notes is on May 31, 2003. Under the credit facility, the Senior Lenders have the ability to issue a notice to
the Company preventing the Company from paying such interest if the Company is in default under the credit facility. The failure by the Company to pay interest on the Senior Subordinated Notes when
due which, if not cured within 30 days, would be an event of default under the Senior Subordinated Notes. In the event the Company is unable to reach agreement with the Senior Lenders and
Noteholders on acceptable terms and conditions, the Company would be forced to seek to reorganize its business under Chapter 11 of the U.S. bankruptcy laws.

While
management continues to execute the Company's cost savings initiatives and to manage its working capital, there are no assurances that these, or future, efforts will be successful
in improving the Company's financial performance or liquidity. Management is also unable to predict the timing or outcome of the negotiations discussed above. Until such time as the negotiations are
completed or the Company seeks to reorganize its business under Chapter 11 of the U.S. bankruptcy laws, which could happen as soon as the second quarter, it is not possible to estimate the effect on
the Company's recorded values of its assets and liabilities. There is a high likelihood these adjustments will be material to the financial statements, but no adjustments have been made as of
December 31, 2002 due to the uncertainty associated with future events and resulting accounting consequences. The deterioration of the Company's financial performance and resulting defaults
under the credit facility also raise substantial doubt about the ability of the Company to continue as a going concern.

Acquired Businesses

The Company was founded in June 1996 to acquire and integrate businesses that focus on the rental of general and specialty equipment to industrial and
construction end users. Since January 1997, the Company has acquired the 42 businesses summarized in the following table:

|Acquired Business           |  | Products                             |  | Geographic Focus       | Years in Business at Acquisition Date |  | Date Acquired
|--------------------------- |  | ------------------------------------ |  | ---------------------- | ------------------------------------- |  | -------------
|Industrial Hoist Services   |  | Pneumatic and electric hoists        |  | National               | 16                                    |  | January 1997 
|Aerial Platforms            |  | Aerial work platforms                |  | Atlanta, Georgia       | 15                                    |  | February 1997
|Lone Star Rentals           |  | General equipment                    |  | Gulf Coast             | 17                                    |  | March 1997   
|BAT Rentals                 |  | General equipment                    |  | Las Vegas, Nevada      | 37                                    |  | April 1997   
|Sprintank                   |  | Liquid and specialized storage tanks |  | Gulf Coast             | 9                                     |  | July 1997    
|Equipco Rentals & Sales     |  | General equipment                    |  | Western Virginia       | 21                                    |  | July 1997    
|Genpower Pump and Equipment |  | Pumps                                |  | Gulf Coast             | 15                                    |  | January 1998 
|Eagle Scaffolding           |  | Scaffolding                          |  | Las Vegas, Nevada      | 6                                     |  | January 1998 
|Grand Hi-Reach              |  | Aerial work platforms                |  | Grand Rapids, Michigan | 14                                    |  | February 1998
|Work Safe Supply            |  | Highway safety equipment             |  | Michigan               | 20                                    |  | February 1998

2

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|Dragon Rentals                                                                         |  | Liquid storage tanks             |  | Gulf Coast                | 7  |  | March 1998    
|-------------------------------------------------------------------------------------- |  | -------------------------------- |  | ------------------------- | -- |  | --------------
|Cormier Equipment Company                                                              |  | General equipment                |  | East Coast                | 15 |  | March 1998    
|Albany Ladder                                                                          |  | Aerial work platforms            |  | Northeast                 | 67 |  | March 1998    
|Falconite Equipment, Inc.                                                              |  | Aerial work platforms and cranes |  | Mid-South and Gulf Coast  | 44 |  | July 1998     
|R & R Rentals                                                                          |  | Cranes                           |  | Gulf Coast                | 16 |  | July 1998     
|Traffic Signing and Marking                                                            |  | Highway safety equipment         |  | Wisconsin                 | 20 |  | August 1998   
|Shaughnessy Crane Service, Inc.                                                        |  | Aerial work platforms and cranes |  | Northeast                 | 84 |  | September 1998
|Rebel Studio Rentals                                                                   |  | Aerial work platforms            |  | California                | 5  |  | October 1998  
|Barricade & Light Rental, Inc.                                                         |  | Highway safety equipment         |  | Arizona                   | 25 |  | March 1999    
|Mayer-Hammant                                                                          |  | Pumps and compressors            |  | Gulf Coast                | 30 |  | March 1999    
|Wellesley Crane Service                                                                |  | Cranes                           |  | Northeast                 | 29 |  | March 1999    
|Advanced Warnings, Inc.                                                                |  | Highway safety equipment         |  | Oklahoma                  | 16 |  | April 1999    
|The Mike Madrid Company Inc.,
Latshaw Traffic Services, Inc., and Madrid Leasing Corp. |  | Highway safety equipment         |  | Indiana                   | 16 |  | April 1999    
|The Illinois operations of S&R Equipment Co.                                           |  | Aerial work platforms and cranes |  | Mid-South and Gulf Coast  | 9  |  | May 1999      
|Elite Rentals                                                                          |  | Earth-moving equipment           |  | Gulf Coast                | 2  |  | June 1999     
|Gould & Associates, Inc.                                                               |  | Pumps                            |  | Southeast                 | 11 |  | July 1999     
|The Plank Company, LP                                                                  |  | Trench safety equipment          |  | Gulf Coast and West Coast | 39 |  | August 1999   
|Interstate Traffic Control, Inc. and Rich-Lite, Inc.                                   |  | Highway safety equipment         |  | Southeast                 | 18 |  | August 1999   
|American Tool Rental Corp.                                                             |  | General equipment                |  | East Coast                | 12 |  | August 1999   
|Management Technology America, Ltd.                                                    |  | Management information systems   |  | National                  | 14 |  | August 1999   
|Alternate Construction Controls, Inc.                                                  |  | Highway safety equipment         |  | Illinois                  | 12 |  | September 1999
|L and C Flashing Barricades, Inc.                                                      |  | Highway safety equipment         |  | East Coast                | 36 |  | September 1999
|Safety Light Sales & Leasing, Inc. of Texas                                            |  | Highway safety equipment         |  | Gulf Coast                | 31 |  | October 1999  
|Tropical Ladder and Lifts, Inc.                                                        |  | General equipment                |  | Florida                   | 10 |  | October 1999  
|ABC Barricade, Inc.                                                                    |  | General equipment                |  | Florida                   | 8  |  | October 1999  
|Cantel, Inc.                                                                           |  | Trench safety equipment          |  | Northwest                 | 14 |  | November 1999 
|Tri-State Signing, Inc.                                                                |  | Highway safety equipment         |  | Iowa                      | 11 |  | November 1999 
|Cassidy & Lee, Inc.                                                                    |  | Earth-moving equipment           |  | Northeast                 | 40 |  | March 2000    
|Road Light, Inc. and Interstate Sign, Inc.                                             |  | Highway safety equipment         |  | East Coast                | 26 |  | March 2000    
|Laser Products, Inc.                                                                   |  | Trench safety equipment          |  | Georgia                   | 25 |  | June 2000     
|St. Clair Equipment Company                                                            |  | Aerial work platforms            |  | Gulf Coast                | 40 |  | August 2000   
|Brambles Equipment Services, Inc.                                                      |  | General equipment                |  | Midwest                   | 12 |  | December 2001 

Products and Services

The Company is primarily involved in the business of renting equipment to industrial and construction end users. In addition, to more fully serve its customers
and leverage its fixed costs, the Company sells complementary parts, merchandise and rental equipment, acts as a distributor of new equipment on behalf

3

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of original equipment manufacturers and services the equipment it sells. Refer to Note 20 of the notes to the consolidated financial statements of the Company later in this report for
financial information about segments.

Equipment Rental and Service.The Company rents a broad selection of general equipment, ranging from large equipment, such as
aerial work platforms, air compressors, generators, earth-moving equipment and rough terrain forklifts, to smaller equipment and hand tools. The Company's specialty equipment available for rent
includes electric and pneumatic hoists, hydraulic and truck-mounted cranes, liquid storage tanks, pumps and highway safety equipment. The Company is the leading renter of industrial hoists in the
United States and the leading renter of portable storage tanks to the chemical and petrochemical industries in the Gulf Coast region. The Company's rental contracts range from one-day
rental contracts for small subcontractors to multi-year contracts for certain industrial customers, with an overall average rental period of approximately thirty-five days. The
mix of rental equipment at each of the Company's locations is a function of the demands of the local customer base and the focus of that business. At December 31, 2002, the original equipment
cost of the Company's rental fleet was in excess of $800 million, and the average age of its rental fleet was approximately four years. The Company also provides repair and maintenance services
in connection with the equipment it sells as a complement to its core business.

Sales of New Equipment.The Company sells new equipment to end users from certain original equipment manufacturers including
JLG Industries, Genie Industries, OmniQuip, Manitowoc, Gehl, Broderson, Ingersoll-Rand, Miller Electric, SkyJack, Tadano, Avant Garde, Multiquip and Wacker. The Company believes the volume
of equipment it buys creates significant purchasing power with suppliers, which generally leads to favorable prices and terms for equipment the Company purchases for its rental fleet and sells as new
equipment. The Company's ability to sell new equipment offers flexibility to its customers, and the Company believes this enhances its customer relations.

Sales of Rental Equipment.The Company routinely sells rental equipment to adjust the size and composition of its rental
fleet to changing market conditions and as part of its ongoing commitment to maintain a high quality fleet. The Company can receive favorable sales prices for its rental equipment due to its rigorous
preventive maintenance program and its practice of selling rental equipment before it becomes irreparable or obsolete. Senior management works with local managers to optimize the timing of sales of
rental equipment by taking into account maintenance costs, rental demand patterns and resale prices. The Company sells rental equipment to its existing rental customers, as well as to domestic and
international used-equipment buyers.

Sales of Parts and Merchandise.The Company also sells a wide range of parts and merchandise, including saw blades, drill
bits, shovels, goggles, hard hats and other safety gear as a complement to its core equipment rental business. The Company believes these sales enable the Company to attract and retain customers by
offering the convenience of "one-stop shopping." These revenues are reflected as "Other revenues" in the Company's Consolidated Statements of Operations and Comprehensive (Loss) Income.

Customers

Management estimates the Company currently has more than 70,000 active customers, ranging from "Fortune 500" companies to small contractors. During 2002, no
single customer accounted for more than 2% of the Company's total revenues, while the top five customers represented less than 5% of total revenues. Customers look to the Company as a comprehensive
source of rental equipment because of the convenience of renting as well as the high costs associated with equipment ownership. The Company's primary customer base can be classified into the following
categories: 1) industrial, including manufacturers, petrochemical facilities, chemical companies, paper mills and public utilities and 2) commercial and non-residential
construction, repair and renovation, including contractors. In addition

4

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to maintaining its historically strong relationship with local customers, the Company services a variety of larger national and multi-regional accounts.

Industrial.The Company's industrial customers, many of whom operate 24 hours per day, use the Company to outsource
their equipment requirements, which reduces the capital investment and minimizes the ongoing maintenance, repair and storage costs associated with equipment ownership. In addition, the Company's
specialty products, such as hoists and tanks, are tailored to meet the needs of industrial end users. Industrial customers accounted for 26% of the Company's total revenues during 2002.

Construction.The Company's construction customers include "Fortune 500" companies, national and regional contractors and
subcontractors involved in construction projects such as 1) chemical plants and other manufacturing facilities, 2) roads, bridges and highways, 3) schools, hospitals and airports
and 4) residential developments and apartment buildings. Construction customers accounted for 67% of the Company's total revenues during 2002.

Management Information Systems

The Company has made significant investments in its information systems. These information systems integrate customer and equipment tracking programs that allow
the sales force to use the Internet to track customer requirements, while coordinating with inside sales and logistics personnel to ensure customer demands are met on a timely basis. These systems
also provide real-time equipment rental data, which allows management to monitor asset utilization, rental rates, repairs and maintenance and inventory levels by region, location,
equipment classification and individual rental item.

Operations

The Company's equipment rental yards typically include 1) a customer service center and showroom displaying selected rental equipment, new equipment
offered for sale and related merchandise, 2) an equipment service area, and 3) equipment storage facilities. Rental centers are staffed by a variety of personnel, including managers,
assistant managers, sales representatives, administrative support, truck drivers, yard personnel and mechanics. The rental center employees' knowledge of the equipment enables them to recommend the
best equipment for a customer's particular application.

Sales

The Company offers rental equipment and related services primarily through its sales force of more than 400 employees. The sales force at each rental center is
knowledgeable about all of the services and products provided there. Sales managers and representatives regularly call on contractors' job sites and industrial facilities in their sales territories,
often assisting customers in planning for their equipment requirements. The Company also provides its sales force with extensive training, including frequent in-house training by supplier
representatives, covering the operating features and maintenance requirements of its equipment. Members of the Company's sales force generally are compensated through commissions on all equipment
rentals and sales they generate.

Seasonality

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

Purchasing and Suppliers

Management believes that the Company's size enables it to purchase equipment directly from manufacturers at favorable prices. The Company has developed strong
relationships with many leading original equipment manufacturers, including JLG Industries, Genie Industries, OmniQuip, Manitowoc,

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John Deere, Ford, Broderson, Ingersoll-Rand, Miller Electric, SkyJack, Tadano, Komatsu, Multiquip, Wacker and Mitsui. No single supplier accounted for more than 13% of the Company's total
purchases during 2002 and management believes there are comparable alternative suppliers for the purchases made from significant suppliers. The Company believes it could readily replace any of its
suppliers if necessary.

Competition

The equipment rental industry is highly fragmented and competitive. Numerous competitors serve many of the markets in which the Company operates. These
competitors range from national and multi-regional operators, such as United Rentals, Inc., RSC and Hertz Equipment Rental Corporation (an affiliate of Ford Motor Company), to small,
independent businesses with a limited number of locations. Management believes that participants in the equipment rental industry compete on the basis of availability and quality of equipment,
service, delivery time and price. Geographic territories for competition usually are limited to 50 to 75 miles, due to servicing requirements and equipment transportation costs. In general, management
believes that national and multi-regional operators, such as the Company, enjoy substantial competitive advantages over small, independent rental businesses, which do not have the financial resources
to maintain the comprehensive rental equipment fleet and high level of maintenance and service that the Company offers.

Employees

At December 31, 2002, the Company had a total of approximately 2,900 employees, approximately 530 of which are represented by unions. Management believes
that its relationship with its employees is good. The Company is committed to, and has realized significant benefits from, its formal employee training programs. Management believes that this
investment in training and safety awareness programs for employees is a competitive advantage that positions the Company to be responsive to customer needs.

Governmental and Environmental Regulation

The Company's facilities are subject to federal, state and local environmental requirements relating to discharges to air, water and land; the handling and
disposal of solid and hazardous waste; and the cleanup of properties affected by hazardous substances. Certain environmental laws impose substantial penalties for noncompliance, and others, such as
the federal Comprehensive Environmental Response, Compensation, and Liability Act, as amended ("CERCLA"), impose strict, retroactive, joint and several liability for releases of hazardous substances.

Based
on environmental assessments conducted in connection with the Company's acquisitions, the Company believes that its facilities are in substantial compliance with environmental
requirements, and that the Company has no material liabilities arising under environmental requirements. However, some risk of environmental 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 more stringent compliance, cleanup or other obligations under environmental laws.

The
Company dispenses petroleum products from storage tanks located at some of its locations. Although the Company is not aware of any leaks or spills involving its tank systems, there
can be no assurance that these systems have been or will at all times remain free from leaks, or that the use of these tanks has not resulted or will not result in spills or other releases. Management
does not believe that the presence or operation of these tanks will have a material adverse effect on the Company's operating results or financial position.

The
Company uses hazardous substances, such as solvents, to clean and maintain its rental equipment fleet, and generates wastes, such as used motor oil, radiator fluid and solvents,
which are stored on site and disposed of at off-site locations. Although the Company is not aware of any material issues regarding its use of hazardous substances, under various
environmental laws, including CERCLA, the Company could

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be liable for contamination at sites where hazardous substances used in its operations have been disposed of or otherwise released.

Management
does not expect that compliance with environmental laws will have a material adverse effect on the Company's operating results, financial condition or competitive position to
date. The Company does not expect to incur material expenditures for environmental upgrades or controls in this or the succeeding year.

ITEM 2.    PROPERTIES

At December 31, 2002, the Company operated 181 locations in the following 37 states and Canada: Alabama (10), Arizona (5), Arkansas (4), California (1),
Colorado (1), Connecticut (1), Florida (6), Georgia (7), Illinois (5), Indiana (7), Iowa (4), Kansas (1), Kentucky (6), Louisiana (5), Maine (5), Maryland (1), Massachusetts (8), Michigan (12),
Minnesota (1), Mississippi (3), Missouri (3), Nevada (3), New Hampshire (1), New Jersey (1), New York (8), North Carolina (3), Ohio (5), Oklahoma (3), Oregon (1), Pennsylvania (3), Rhode Island (2),
Tennessee (8), Texas (28), Vermont (1), Virginia (2), West Virginia (3), Wisconsin (10) and Canada (3). The Company's properties typically include an outside storage yard and a small building
containing a maintenance center, offices and, in certain locations, a retail showroom. The Company owns 16 of its equipment rental locations and leases the other 165, as well as its approximately
7,000 square foot headquarters space in Evanston, Illinois. The net book value of owned facilities was approximately $12 million at December 31, 2002, and the average annual lease
expense per leased facility was approximately $78,000 in 2002. Management believes that none of the Company's leased facilities, individually, is material to its operations, and that all of these
leases can be readily replaced at similar terms. The Company's ownership interests in each of these properties collateralized borrowings under its credit facility.

ITEM 3.    LEGAL PROCEEDINGS

From time to time, the Company has been and is involved in various legal proceedings, all of which management believes are routine in nature and incidental to the
conduct of its business. Although the Company's ultimate legal and financial liability resulting from any of these proceedings cannot be estimated with certainty, the Company, after examining these
matters, believes the likelihood that an adverse ruling in any of these proceedings would have a material adverse effect on the Company's financial condition or results of operations is remote.

On
April 10, 2003, the Company received a so called "Wells Notice" from the Securities and Exchange Commission ("SEC") arising out of the SEC's inquiry into the Company's previous
revisions to its 2000 and 2001 financial statements announced in the Company's April 2002 10-K. The SEC stated that it intends to recommend that a
cease-and-desist proceeding against the Company be initiated, alleging that the Company violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange
Act of 1934 ("Exchange Act") and Rules 12b-20, 13a-1 and 13a-13 of the Exchange Act. The Company has been cooperating in the SEC's inquiry, which is
continuing.

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

No matters were submitted to a vote of security holders during the fourth quarter of 2002.

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PART II

ITEM 5.    MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of April 9, 2003, there were 35 holders of record of the Company's common stock. The Company has never paid any dividends on its common stock and does
not expect to pay any dividends on its common stock in the foreseeable future. Dividend payments are restricted under the terms of the Company's credit facility and indentures.

From
the Company's initial public stock offering in July 1998 through October 2002, the Company's common stock was traded on the New York Stock Exchange under the symbol
"NSV." The table below lists the high and low sales price information for the common stock, as reported by the New York Stock Exchange, during each quarter of the Company's last two years. Subsequent
to October 2002, the Company's common stock has been traded over-the-counter under the symbol "NEQS."

Quarter

High

Low2001:First quarter

$
4.00

$
2.06Second quarter

$
4.00

$
2.60Third quarter

$
2.85

$
1.85Fourth quarter

$
2.25

$
1.152002:First quarter

$
3.65

$
2.00Second quarter

$
3.50

$
1.50Third quarter

$
1.90

$
0.60Fourth quarter

$
0.80

$
0.15


Equity Compensation Plan Information

|              |                                                        | (a) |       |  |   | (c) 
|------------- | ------------------------------------------------------ | --- | ----- |  | - | ----
|
|
|
|Plan catagory |                                                        |     |       |  |   |     
|              | Equity compensation plans approved by security holders |     | 2,537 |  | $ | 7.65

ITEM 6.    SELECTED FINANCIAL DATA

The data presented below on the Company should be read in conjunction with Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data.

During the periods presented below, the Company completed 42 business acquisitions that were accounted for using the purchase method of accounting. The accounts
of the businesses acquired in these transactions are included in the Company's results of operations from their respective acquisition dates. In addition, the Company disposed of one operation in
2002. The accounts of this business have been reclassified to discontinued operations in all periods presented below. Since the Company's historical operating results for the periods presented below
were significantly affected by acquisitions, the Company believes that its results of operations for the years presented are not directly comparable. See Note 5 of the

8

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Notes to the Consolidated Financial Statements of the Company later in this report for pro forma financial information.

|                                                                              |  | 2002 |         | 2001 |   | 2000      |   | 1999 |           | 1998
|----------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | --------- | - | ---- | --------- | ----
|
|Operating data for the year ended December 31(a):                             |  |      |         |      |   |           |   |      |           |     
|Total revenues                                                                |  | $    | 621,334 |      | $ | 555,298   |   | $    | 576,201   |     
|Operating income                                                              |  |      | 4,604   |      |   | 21,452    |   |      | 86,480    |     
|(Loss) income from continuing operations                                      |  |      | (65,545 | )    |   | (31,136   | ) |      | 5,354     |     
|Basic (loss) earnings per share from continuing operations                    |  |      | (3.12   | )    |   | (1.51     | ) |      | 0.23      |     
|Diluted (loss) earnings per share from continuing operations                  |  |      | (3.12   | )    |   | (1.51     | ) |      | 0.17      |     
|Balance sheet data as of December 31(a):                                      |  |      |         |      |   |           |   |      |           |     
|Rental equipment, net                                                         |  | $    | 492,775 |      | $ | 572,931   |   | $    | 585,209   |     
|Intangible assets, net(c)                                                     |  |      | 139,978 |      |   | 296,609   |   |      | 302,091   |     
|Total assets(b)                                                               |  |      | 862,622 |      |   | 1,202,331 |   |      | 1,238,623 |     
|Total long term obligations and senior redeemable convertible preferred stock |  |      | 860,072 |      |   | 965,312   |   |      | 966,608   |     
|Total stockholders' equity (deficit)                                          |  |      | (87,212 | )    |   | 100,331   |   |      | 142,839   |     

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company's results of operations and its financial condition and liquidity should be read in
conjunction with Item 1, Business, Item 6, Selected Financial Data and Item 8, Financial Statements and Supplementary Data. All dollar amounts presented are in thousands.

General

The Company was founded in June 1996 to acquire and integrate businesses that focus on the rental of general and specialty equipment to industrial and
construction end users. Since January 1997, the Company has acquired 42 businesses and disposed of one business in separate transactions. All acquisitions were accounted for using the purchase
method of accounting. The results of operations of the businesses acquired are included in the Company's financial statements only from their respective dates of acquisition. The results of operations
of the disposition have been reclassified as discontinued operations.

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

Cost
of revenues consists primarily of rental equipment depreciation, the cost of rental and service revenue, the cost of new equipment, the net book value of rental equipment sold and
other direct operating costs. Given the varied, and in some cases specialized, nature of its rental equipment, the Company uses a range of periods over which it depreciates its equipment on a
straight-line basis. On average, the Company depreciates its equipment over an estimated useful life of eight to nine years with 0% to 20% salvage value.

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Critical Accounting Policies

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, which requires our
management to make estimates and general assumptions about the effects of matters that are inherently uncertain. We have summarized our significant accounting policies in Note 3 to our
consolidated financial statements. Of these accounting policies, we believe the following may involve a higher degree of judgment and complexity.

Allowance
for Doubtful AccountsAt December 31, 2002, we had an allowance for doubtful accounts totaling $5,477 which we have established in the event that we are
unable to collect certain receivables. This allowance represents our best estimate of the total receivables recorded as of December 31, 2002 that we will be unable to collect. Future general
events, such as changes in the economy, and specific events, such as changes in the economic condition of our customers, could significantly impact our ability to collect on these receivables, and
therefore, cause us to change our allowance estimate.

Useful
Lives and Estimated Salvage Value of Rental Equipment and Property and Equipment.At December 31, 2002, we had $492,775 of net rental equipment and $45,803 of
net property and equipment recorded on our balance sheet. Rental equipment is depreciated using the straight-line method over five to fifteen years, and a salvage value ranging between 0%
and 20% is used. Property and equipment is depreciated over three to thirty years, depending on the type of asset. Our depreciable lives are based on our estimates of the useful lives of the
respective assets. Salvage value is based on our estimates of the minimum recoverable value we expect at the end of the asset's depreciable life. These estimates may require adjustment based on
changing circumstances in the marketplace. Changes to these estimates could result in us having to recognize an increase to or decrease in depreciation expense.

GoodwillAt
December 31, 2002, we had approximately $139,978 of goodwill and non-compete agreements related to acquisitions recorded on our balance sheet.
Effective January 1, 2002, we adopted
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" issued by the Financial Accounting Standards Board (FASB). Under this standard, goodwill is no
longer amortized but subject to annual impairment test on a reporting unit level. Our non-compete agreements will continue to be amortized over their estimated useful lives.

We
completed our initial impairment analysis in the second quarter of 2002 and recorded a non-cash impairment charge of approximately $155,102 ($129,505, net of tax benefit),
as a cumulative effect of a change in accounting principle retroactive to January 1, 2002, on the consolidated statement of operations and comprehensive (loss) income. We did not have any
goodwill impairment subsequent to the initial analysis.

We
evaluate the recoverability of goodwill by estimating the future discounted cash flows of the operating segments to which the goodwill relates. The rate used in determining discounted
cash flows is a rate corresponding to our cost of capital, risk adjusted where necessary. Estimated cash flows are then determined by disaggregating our business segments to a reporting level for
which meaningful identifiable cash flows can be determined. When estimated future discounted cash flows are less than the carrying value of the net assets (tangible and identifiable intangibles) and
related goodwill, impairment losses of goodwill are charged to operations. Impairment losses, limited to the carrying value of goodwill, represent the excess of the sum of the carrying value of the
net assets (tangible and identifiable intangible) and goodwill over the discounted cash flows of the business being evaluated. In determining the estimated future cash flows, we consider current and
projected future levels of income as well as business trends, prospects and market and economic conditions.

Valuation
Allowance on Deferred Tax AssetAt December 31, 2002, we provided a full valuation allowance of $28,787 on the net deferred tax asset. Realization of
deferred income tax assets is dependent upon generating sufficient future taxable income in the periods in which the assets reverse or the benefits expire.

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Contractual Commitments

The following table summarizes our obligations and commitments to make future payments under certain contracts, including debt obligations, capitalized leases and
operating leases at December 31, 2002.

|                                    |       | Payments Due By Year
|----------------------------------- | ----- | --------------------
|
|
|Debt Principal (including revolver) |       | $                   
|Capital Leases                      |       |                     
|Operating Leases                    |       |                     
|                                    |       |                     
|                                    | Total |                     

In addition, the Company will be required to make interest payments, the amount of which will depend upon outstanding debt and applicable interest rates.

Results of Operations

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

|                                                                  |  | Year Ended December 31, 2002 |    | Year Ended December 31, 2001 |    | Year Ended December 31, 2000 |  
|----------------------------------------------------------------- |  | ---------------------------- | -- | ---------------------------- | -- | ---------------------------- | -
|Rental and service revenues                                       |  | 82.7                         | %  | 83.8                         | %  | 83.8                         | %
|New equipment sales                                               |  | 6.7                          |    | 8.0                          |    | 8.4                          |  
|Rental equipment sales                                            |  | 6.3                          |    | 4.7                          |    | 3.9                          |  
|Other revenues                                                    |  | 4.3                          |    | 3.5                          |    | 3.9                          |  
|                                                                  |  |                              |    |                              |    |                              |  
|Total revenues                                                    |  | 100.0                        |    | 100.0                        |    | 100.0                        |  
|Cost of revenues                                                  |  | 72.8                         |    | 68.4                         |    | 60.3                         |  
|                                                                  |  |                              |    |                              |    |                              |  
|Gross profit                                                      |  | 27.2                         |    | 31.6                         |    | 39.7                         |  
|Selling, general and administrative expenses                      |  | 24.9                         |    | 23.0                         |    | 20.4                         |  
|Non-rental depreciation and amortization                          |  | 1.6                          |    | 4.7                          |    | 4.3                          |  
|                                                                  |  |                              |    |                              |    |                              |  
|Operating income                                                  |  | 0.7                          |    | 3.9                          |    | 15.0                         |  
|Other income, net                                                 |  | 0.3                          |    | 0.0                          |    | 0.1                          |  
|Interest expense, net                                             |  | 11.5                         |    | 12.3                         |    | 13.3                         |  
|                                                                  |  |                              |    |                              |    |                              |  
|(Loss) income before income taxes                                 |  | (10.5                        | )  | (8.4                         | )  | 1.8                          |  
|Income tax (benefit) expense                                      |  |                             |    | (2.8                         | )  | 0.9                          |  
|                                                                  |  |                              |    |                              |    |                              |  
|(Loss) income from continuing operations                          |  | (10.5                        | )  | (5.6                         | )  | 0.9                          |  
|(Loss) income from discontinued operations, net of tax            |  | (0.6                         | )  |                             |    | 0.1                          |  
|Gain on disposal of discontinued operations, net of tax           |  | 0.8                          |    |                             |    |                             |  
|Cumulative effect of a change in accounting principle, net of tax |  | (20.8                        | )  |                             |    |                             |  
|Net (loss) income                                                 |  | (31.1                        | %) | (5.6                         | %) | 1.0                          | %
|                                                                  |  |                              |    |                              |    |                              |  

The Company's historical consolidated financial statements included herein cover the years ended December 31, 2002, 2001 and 2000. Comparisons of the
Company's results are significantly impacted by the fact that the Company completed one and four acquisitions at different times during 2001 and 2000, respectively. The results of operations of the
businesses acquired in these acquisitions are included in the Company's financial statements only from their respective dates of acquisition.

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Year Ended December 31, 2002, Compared With the Year Ended December 31, 2001

Revenues.Total revenues increased from $555,298 in 2001 to $621,334 in 2002. A $48,471 increase in rental and service
revenues was primarily the result of the operations acquired in conjunction with the Company's acquisition of the North American equipment rental business of Brambles U.S.A. and Brambles Canada
("Brambles"), partially offset by a slower economy. Rental equipment sales were up $13,002 as the result of a variety of fleet management techniques utilized during the year, including fleet auctions
and vendor trade packages, in an effort to improve the overall quality of the Company's fleet. A $2,621 decline in new equipment sales from 2001 to 2002 was more than offset by a $7,184 increase in
other revenues, primarily related to increased parts sales as a result of the Brambles acquisition.

Revenues
in the General Rental and Other operations increased significantly from $446,261 in 2001 to $518,480 in 2002. As noted above, this increase was primarily the result of the
operations acquired in conjunction with the Brambles transaction at the end of 2001, offset slightly by general pressure on pricing. Rental and service revenues increased 14% from 2001 to 2002.

Revenues
in the Traffic Safety segment declined $6,183 or 5.7% from $109,037 in 2001 to $102,854 in 2002. This decrease is primarily the result of increased rental rate pressure due to
the less favorable economic conditions experienced in 2002 as compared to the prior year.

Gross Profit.Gross profit declined from $175,660 in 2001 to $169,291 in 2002. Gross margin decreased from 31.6% to 27.2%
during these respective periods primarily due to the continued decline in rental rates, as well as a 2% decline in margins earned on fleet and equipment sales in 2002 in connection with the fleet
management initiatives discussed above. Additionally, the write-down of off-brand and impaired fleet negatively impacted the Company's operating expenses by $6,333 in 2002.

Gross
profit for the General Rental and Other operations decreased slightly from $143,490 in 2001 to $144,240 in 2002. Gross margins declined from 32.2% in 2001 to 27.8% in 2002. Again,
this decline is the primarily the result of increased rate pressure and the asset write-downs discussed above.

Gross
profit for the Traffic Safety operations decreased slightly from $32,170 for 2001 as compared to $25,051 for 2002. Gross margins declined from 29.5% in 2001 to 24.3% in 2002 as a
result of increased pressure on rental rates.

Selling, General and Administrative Expenses.Selling, general and administrative expenses increased from $128,037 in 2001 to
$155,021 in 2002. This increase is primarily the result of the additional
infrastructure acquired in conjunction with the Brambles transaction. Additionally, the Company recorded a $3,769 charge associated with severance and lease termination costs incurred as a result of
restructuring initiatives undertaken during the fourth quarter of 2002. As a percentage of revenue, these costs increased from 23.0% to 24.9% in the respective periods.

Selling,
general and administrative expenses for the General Rental and Other operations increased from $109,584 in 2001 to $138,293 in 2002. As discussed above, this increase is
primarily the result of the additional infrastructure associated with the Brambles acquisition, as well as the restructuring charge taken in the fourth quarter.

Selling,
general and administrative expenses for the Traffic Safety operations decreased from $18,453 in 2001 to $16,728 in 2002 or 16.9% and 16.3% of total revenues for these respective
periods. This decrease is attributable to the implementation of various cost-savings initiatives implemented during 2002.

Non-rental Depreciation and Amortization.Non-rental depreciation and amortization decreased
significantly from $26,171 in 2001 to $9,666 in 2002. This decrease is primarily the result of the Company's adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," in 2002, under
which no amortization expense of goodwill is recorded.

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Operating Income.As a result of the performance described above, operating income declined from $21,452 in 2001 to $4,604 in
2002 and approximated 0.7% of total revenues in 2002. Operating income (loss) for the General Rental and Other operations declined from $11,704 in 2001 to $(3,072) in 2002, and operating income within
the Traffic Safety segment declined from $9,748 to $7,676 during these respective periods.

Interest Expense, net.Interest expense, net increased from $68,306 in 2001 to $71,742 in 2002. This increase is the result
of higher average debt balances associated with continuing operations during the year, partially offset by lower interest rates on the Company's variable debt.

Loss from Discontinued Operations.On June 30, 2002, the Company sold its underground trench shoring business. In
accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the financial condition and results of operations of this business are reflected
herein as discontinued operations.

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

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

Income Tax Expense (Benefit).The Company did not provide any current or deferred income tax provision or benefit during 2002
because it has recently experienced significant operating losses. Prior to June 30, 2002, the Company was in a net deferred tax liability position. At June 30, 2002 the Company, as a
result of adopting SFAS No. 142, was in a net deferred tax asset position. At that time, it was determined that a full valuation allowance against the net deferred tax asset should be recorded
and no additional net deferred tax assets were recorded.

Year Ended December 31, 2001, Compared With the Year Ended December 31, 2000

Revenues.Total revenues declined slightly from $576,201 in 2000 to $555,298 in 2001. A $17,706 decline in rental and service
revenues and a $3,634 decline in new equipment sales from 2000 to 2001 were partially offset by a $3,539 increase in rental equipment sales. Decreased demand in the general rental sector prompted the
Company to discount rental rates and promote the sale of otherwise under-utilized fleet.

Revenues
in the General Rental and Other operations declined from $467,739 in 2000 to $446,261 in 2001. As noted above, decreased demand within this segment prompted the Company to
discount rental rates and promote the sale of otherwise under-utilized fleet. Rental equipment sales increased 15.5% from $22,292 in 2000 to $25,755.

Revenues
in the Traffic Safety segment increased from $108,462 in 2000 to $109,037 in 2001. This increase is primarily attributable to the inclusion in 2001 of a full year of results of
operations related to businesses acquired in 2000.

Gross Profit.Gross profit declined from $228,620 in 2000 to $175,660 in 2001. Gross margin decreased from 39.7% to 31.6%
during these respective periods primarily due to the decline in rental rates, increased direct costs and the shift in revenue mix from the more profitable rental revenue to the less profitable sale of
rental equipment. Also, the write-down of off-brand fleet negatively impacted the Company's operating expenses in 2001 by $3,183.

Gross
profit for the General Rental and Other operations declined from $194,538 in 2000 to $143,490 in 2001. Both the shift in revenue mix from the more profitable rental revenue to the
less profitable sale of

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rental equipment and the write-down of off-brand fleet negatively impacted the Company's operating expenses in this segment during 2001.

Gross
profit for the Traffic Safety operations remained relatively flat at $34,082 for 2000 as compared to $32,170 for 2001. Gross margins declined from 31.4% in 2000 to 29.5% in 2001 as
a result of increased pressure on rental rates.

Selling, General and Administrative Expenses.Selling, general and administrative expenses increased from $117,408 in 2000 to
$128,037 in 2001. A portion of this increase is attributable to the $1,700 reserve for branch closures recorded in conjunction with the acquisition of Brambles. In addition, the Company incurred a
$4,900 increase in bad debt expense in connection with general economic conditions. The remainder of the increase is the result of the inclusion in 2001 of a full year of expenses related to
businesses acquired in 2000. As a percentage of total revenues, selling, general and administrative expenses increased from 20.4% in 2000 to 23.0% in 2001.

Selling,
general and administrative expenses for the General Rental and Other operations increased from $100,357 in 2000 to $109,584 in 2001. This increase is attributable to the branch
closure reserve and the increase in bad debt expense discussed above.

Selling,
general and administrative expenses for the Traffic Safety operations increased from $17,051 in 2000 to $18,453 in 2001 or 15.7% and 16.9% of total revenues for these respective
periods. This increase is attributable to the inclusion in 2001 of a full year of expenses related to businesses acquired in 2000.

Non-rental Depreciation and Amortization.Non-rental depreciation and amortization increased slightly
from $24,732 in 2000 to $26,171 in 2001. This increase was due primarily to the inclusion of a full year of depreciation and amortization expense related to the businesses acquired in 2000. As a
percentage of total revenues, non-rental depreciation and amortization remained a relatively constant 4.3% and 4.7% in 2000 and 2001, respectively.

Operating Income.As a result of the performance described above, operating income declined from $86,480 in 2000 to $21,452
in 2001 and approximated 3.9% of total revenues in 2001. Operating income for the General Rental and Other operations declined from $73,938 in 2000 to $11,704 in 2001, and operating income within the
Traffic Safety segment declined from $12,542 to $9,748 during these respective periods.

Interest Expense, net.Interest expense, net decreased from $76,430 in 2000 to $68,306 in 2001 due to the repayment during
2001 of approximately $102,000 in debt drawn on the Company's revolving credit line.

Income from Discontinued Operations.As discussed above, the results of operations from the Company's underground trench
shoring business are reflected herein as discontinued operations.

Income Tax Expense (Benefit).The Company incurred an income tax benefit of ($15,614) in 2001 as compared to the $5,011 of
expense recognized in 2000. The Company's effective tax rate decreased from 48% in 2000 to 33% in 2001.

Liquidity and Capital Resources

The Company's primary capital requirements are for purchasing new rental equipment. The Company's other capital expenditures include buying vehicles used for
delivery and maintenance and for purchasing property and equipment. The Company purchases rental equipment throughout the year to replace equipment that has been sold as well as to maintain adequate
levels of equipment to meet existing and new customer needs. Rental fleet purchases for the Company were $61,255, $15,172 and $147,556 in 2002, 2001 and 2000, respectively. The Company's expenditures
for rental fleet are expected to be approximately $50,000 in 2003. The Company's principal sources of cash are cash generated from

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operations. Prior to the Company's default under its credit facility, the Company also utilized borrowings available under its credit facility.

For
the years ended December 31, 2002, 2001 and 2000, the Company's net cash provided by operations was $47,123, $100,569 and $112,515, respectively. The decrease in 2002 is
primarily the result of a decline in earnings as compared to 2001. For the same three years, the Company's net cash provided by (used in) investing activities was $81,192, ($92,616) and ($147,342),
respectively. Net cash used in investing activities consists primarily of expenditures for new acquisitions and purchases of rental equipment and other property, plant and equipment. In 2002, the
Company received $108,890 of proceeds from the sale of its trench shoring business. Net cash (used in) provided by financing activities was ($117,330) in 2002, ($6,916) in 2001 and $5,333 in 2000. Net
cash provided by financing activities consists primarily of borrowings, net of repayments, under the Company's credit facility. The proceeds received from the sale of the trench shoring business were
used to repay debt in 2002.

The
Company's credit facility provides for a $70,000 term loan and a revolving credit facility up to a maximum of $480,000 (subject to availability based on certain financial tests
including a borrowing base) to meet acquisition needs, as well as seasonal working capital and general corporate
requirements. As of December 31, 2002, $486,856 was outstanding under the credit facility. Based upon the available borrowing base (which is based on the book value of the Company's inventory
and accounts receivable and the appraised value of the Company's rental equipment) at December 31, 2002, the Company did not have any additional availability on the revolving Credit Facility
loan. The available borrowing base is recomputed monthly. In the event that the book value of the Company's inventory or accounts receivable or the appraised value of the Company's rental equipment
declines without a corresponding increase in one of the other categories, the available borrowing base will be reduced accordingly. As a result of the significant reduction in the available borrowing
base, the Company's liquidity has been adversely affected, including its ability to pay interest on the Series B Notes and the Series D Notes when due. A failure to pay such interest
when due which continues for thirty days would result in a default under the indentures governing the Series B Notes and the Series D Notes, which would have a material adverse effect on
the Company.

The
credit facility contains certain covenants that require the Company to, among other things, satisfy certain financial tests relating to 1) the ratio of senior debt to EBITDA,
2) minimum interest coverage ratio and 3) the ratio of funded debt to EBITDA. The credit facility also contains various other covenants that restrict the Company's ability to, among
other things, 1) incur additional indebtedness, 2) permit liens to attach to its assets, 3) pay dividends or make other restricted payments on its common stock and certain other
securities and 4) make acquisitions unless certain financial conditions are satisfied. As of December 31, 2002, the Company was in default under the financial covenants governing the
credit facility. As of January 23, 2003, the Company and the lenders under the credit facility entered in a forbearance agreement with an initial expiration of March 14, 2003. As of
March 14, 2003, the Company and the lenders under the credit facility entered into a second forbearance agreement which extended the forbearance period until May 14, 2003, subject to
earlier expiration upon the occurrence of certain circumstances.

During
1997, the Company issued $100,000 of Senior Subordinated Notes due 2004 (the "Series A Notes") at a discount netting proceeds of $99,000. During 1998, the Company completed
its exchange of $100,000 of Senior Subordinated Notes due 2004, Series B (the "Series B Notes"), which have been registered for public trading, for the Series A Notes.

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

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The
Company accretes the original issue discount of the Series B Notes and the Series D Notes over the term of the notes using the effective interest rate method. The
indentures for the Series B and Series D Notes contain a number of covenants that, among other things, set certain limitations on the granting of liens, asset sales, additional
indebtedness, transactions with affiliates, restricted payments, investments, issuances of stock and payment of dividends. The Company is currently in compliance with
all such covenants under the indentures. Under the credit facility, the Senior Lenders have the ability to issue a notice to the Company preventing the Company from paying such interest if the Company
is in default under the credit facility. The failure by the Company to pay interest on the Series B Notes and Series D Notes when due which is not cured within thirty days would be an
event of default under the Series B Notes and Series D Notes.

As
a result of the covenant defaults and issues with the borrowing base, the Company does not believe that it has sufficient liquidity and capital resources to finance its operations and
pursue its business strategy. The Company will need to refinance its credit facility and its Series B Notes and Series D Notes since the Credit Facility becomes due and payable in
July 2003 and its Series B Notes and Series D Notes become due and payable in November 2004. There can be no assurance that the Company will be able to raise the necessary
capital on favorable terms, which could have a material effect on the Company's future financial condition and results of operations and may require the Company to seek to reorganize its business
under Chapter 11 of the U.S. bankruptcy laws. As a result, there is substantial doubt about the ability of the Company to continue as a going concern.

As
a result of the Company's financial condition, certain suppliers have requested alternate payment provisions. To date, such alternate payment provisions have not had a significant
negative impact on the Company's liquidity.

General Economic Conditions, Inflation, and Seasonality

The Company's operating results may be adversely affected by changes in general economic conditions, including changes in construction and industrial activity or
increases in interest rates, or by adverse weather conditions that may temporarily decrease construction and industrial activity in a particular geographic area. Although the Company cannot accurately
anticipate the effect of inflation on its operations, management believes this has not had a material impact on the Company's results of operations and is not likely to in the foreseeable future. The
Company's revenues and operating results are expected to fluctuate due to the seasonal nature of the industry in which the Company operates, with rental activity tending to be lower in the winter.

Recently Issued Accounting Pronouncements

In May 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, "Recession of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13 and Technical Corrections." This Statement rescinds SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt," and an amendment to that Statement, SFAS
No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements." This Statement amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability
under changed conditions. The provisions of
this Statement related to the recission of SFAS No. 4 are effective beginning in 2003. All other provisions are effective after May 15, 2002. As discussed in the Recent Events section
above, it is possible the Company will restructure its debt. If a restructuring should occur, the related gain will be accounted for pursuant to SFAS No.145. It is not possible to estimate the impact
of this new pronouncement given the uncertainties surrounding the potential outcomes of any such restructuring.

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On
July 30, 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (SFAS 146), "Accounting for Costs Associated with Exit or Disposal Activities."
SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than as of the date of a commitment to an exit or disposal plan.
Examples of costs covered by SAFS 146 included lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other
exit or disposal activity. SFAS 146 also supercedes, in its entirety, previous accounting guidance that was provided by Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Terminations Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company will apply the provisions of SFAS 146 prospectively to exit or disposal activities beginning in 2003.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransistion and Disclosure". This standard provides alternative methods
of transition to the fair value method of accounting for stock-based employee compensation under SFAS No. 123, "Accounting for Stock-Based Compensation," but does not require the Company to use
the fair value method. This standard also amends certain disclosure requirements related to stock-based employee compensation. The Company adopted the disclosure portion of this standard as of
December 31, 2002 and such adoption is reflected in Note 3 of the Notes to the Consolidated Financial Statements of the Company later in this report.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's credit facility provides the Company with a $70,000 term loan and permits the Company to borrow up to an additional $480,000 of revolving loans
provided that certain conditions and financial tests are met, subject to a borrowing base. Borrowings under the credit facility bear interest, at the Company's option, at a specified base rate or
Eurodollar rate plus the applicable borrowing margin. Under the Second Forebearance Agreement, the Company is limited in its ability to utilize the Eurodollar rate. At April 9, 2003, the
Company had total borrowings under the credit facility of $486,856, $86,856 of which was subject to interest rate risk. Each 100 basis point increase in interest rates on the variable rate debt would
decrease pretax earnings by approximately $869.

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

Forward-Looking Statements

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

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's consolidated financial statements are listed in Part IV, Item 15, of this report and begin on page 21.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

18

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

Information regarding the Company's directors and executive officers is set forth in the Company's 2003 Proxy Statement, under the captions "ELECTION OF
DIRECTORS" and "MANAGEMENT." This information is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

Information on the cash compensation of the executive officers, compensation available under employee benefit plans, employee benefit plans and compensation of
directors is included in the Company's 2003 Proxy Statement under the caption "MANAGEMENT" and "EXECUTIVE COMPENSATION." This information is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information about security ownership of certain beneficial owners and management appears in the Company's 2003 Proxy Statement under the caption "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." This information is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions can be found in the Company's 2003 Proxy Statement under the caption "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS." This information is incorporated herein by reference.

ITEM 14.    CONTROLS AND PROCEDURES

Explanation of disclosure controls and proceduresAfter evaluating the effectiveness of the Company's
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) as of a date within 90 days of the filing date of this annual report
(the "Evaluation Date"), the Company's chief executive officer and chief financial officer have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were
adequate and effective to ensure that material information relating to the Company and its subsidiaries would be made known to them by others within those entities, particularly during the period in
which this annual report was being prepared.

Changes in internal controlsThere were no significant changes in the Company's internal controls or in other factors that
could significantly affect the Company's disclosure controls and procedures subsequent to the Evaluation Date, nor were there any significant deficiencies or material weaknesses in such disclosure
controls and procedures requiring corrective actions. As a result, no corrective actions were taken.

19

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PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K







20

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REPORT OF INDEPENDENT ACCOUNTANTS

To
the Board of Directors and Shareholders
    of National Equipment Services, Inc.

In
our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) on page 20 present fairly, in all material respects, the financial
position of National Equipment Services, Inc. and its subsidiaries (the "Company") at December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 15(a)(2) on page 20 presents fairly, in all material respects, the information set forth therein when read in conjunction with
the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company has suffered recurring losses from operations, is in default of its senior credit facility and lacks the ability to repay obligations coming due July 2003
which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.

As
discussed in Note 8 to the consolidated financial statements, the Company changed its method of accounting for goodwill and intangible assets during 2002.

/s/
PricewaterhouseCoopers LLP

Chicago,
Illinois
April 15, 2003

21

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NATIONAL EQUIPMENT SERVICES, INC.        CONSOLIDATED BALANCE SHEETS  December 31, 2002 and 2001        (Amounts in thousands, except per share data)

|                               |                                                                                                      | December 31,                                         |  
|------------------------------ | ---------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | -
|
|Assets                         |                                                                                                      |                                                      |  
|                               | Cash and cash equivalents                                                                            |                                                      | $
|                               | Trade accounts receivable, net of allowance for doubtful accounts of $5,477 and $5,844, respectively |                                                      |  
|                               | Inventory, net                                                                                       |                                                      |  
|                               | Rental equipment, net                                                                                |                                                      |  
|                               | Property and equipment, net                                                                          |                                                      |  
|                               | Intangible assets, net                                                                               |                                                      |  
|                               | Loan origination costs, net                                                                          |                                                      |  
|                               | Deferred income taxes, net                                                                           |                                                      |  
|                               | Prepaid expenses and other assets                                                                    |                                                      |  
|                               | Assets associated with discontinued operations                                                       |                                                      |  
|                               |                                                                                                      |                                                      |  
|                               |                                                                                                      | Total assets                                         |  
|                               |                                                                                                      |                                                      |  
|Liabilities                    |                                                                                                      |                                                      |  
|                               | Book overdraft                                                                                       |                                                      | $
|                               | Trade accounts payable                                                                               |                                                      |  
|                               | Accrued interest                                                                                     |                                                      |  
|                               | Deferred income taxes, net                                                                           |                                                      |  
|                               | Accrued expenses and other liabilities                                                               |                                                      |  
|                               | Debt                                                                                                 |                                                      |  
|                               | Liabilities associated with discontinued operations                                                  |                                                      |  
|                               |                                                                                                      |                                                      |  
|                               |                                                                                                      | Total liabilities                                    |  
|                               |                                                                                                      |                                                      |  
|                               | Senior redeemable convertible preferred stock                                                        |                                                      |  
|                               | Commitments and contingencies                                                                        |                                                      |  
|Stockholders' equity (deficit) |                                                                                                      |                                                      |  
|                               | Common stock, $0.01 par value, 100,000 shares authorized, 24,170 shares issued                       |                                                      |  
|                               | Additional paid-in capital                                                                           |                                                      |  
|                               | Retained earnings (accumulated deficit)                                                              |                                                      |  
|                               | Stock subscriptions receivable                                                                       |                                                      |  
|                               | Treasury stock at cost, 3,019 shares                                                                 |                                                      |  
|                               | Accumulated other comprehensive loss                                                                 |                                                      |  
|                               |                                                                                                      |                                                      |  
|                               |                                                                                                      | Total stockholders' equity (deficit)                 |  
|                               |                                                                                                      |                                                      |  
|                               |                                                                                                      | Total liabilities and stockholders' equity (deficit) |  
|                               |                                                                                                      |                                                      |  

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

22

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NATIONAL EQUIPMENT SERVICES, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME  For the Years Ended December 31, 2002, 2001 and 2000        (Amounts in
thousands, except per share data)

|                                                                           |                                                                   | For the Year Ended December 31,
|-------------------------------------------------------------------------- | ----------------------------------------------------------------- | -------------------------------
|
|Revenues                                                                   |                                                                   |                                
|                                                                           | Rental and service revenues                                       |                                
|                                                                           | New equipment sales                                               |                                
|                                                                           | Rental equipment sales                                            |                                
|                                                                           | Other revenues                                                    |                                
|                                                                           |                                                                   |                                
|                                                                           |                                                                   | Total revenues                 
|                                                                           |                                                                   |                                
|Cost of revenues                                                           |                                                                   |                                
|                                                                           | Rental equipment depreciation                                     |                                
|                                                                           | Cost of rental and service revenues                               |                                
|                                                                           | Cost of new equipment sales                                       |                                
|                                                                           | Cost of rental equipment sales                                    |                                
|                                                                           | Other cost of revenues                                            |                                
|                                                                           |                                                                   |                                
|                                                                           |                                                                   | Total cost of revenues         
|                                                                           |                                                                   |                                
|Gross profit                                                               |                                                                   |                                
|Selling, general and administrative expenses                               |                                                                   |                                
|Non-rental depreciation and amortization                                   |                                                                   |                                
|                                                                           |                                                                   |                                
|Operating income                                                           |                                                                   |                                
|Other income, net                                                          |                                                                   |                                
|Interest expense, net                                                      |                                                                   |                                
|                                                                           |                                                                   |                                
|(Loss) income from continuing operations before income taxes               |                                                                   |                                
|Income tax (benefit) expense                                               |                                                                   |                                
|                                                                           |                                                                   |                                
|(Loss) income from continuing operations                                   |                                                                   |                                
|                                                                           |                                                                   |                                
|Discontinued operations:                                                   |                                                                   |                                
|                                                                           | (Loss) income from discontinued operations, net of tax            |                                
|                                                                           | Gain on disposal of discontinued operations, net of tax           |                                
|                                                                           |                                                                   |                                
|(Loss) income before cumulative effect of a change in accounting principle |                                                                   |                                
|                                                                           | Cumulative effect of a change in accounting principle, net of tax |                                
|                                                                           |                                                                   |                                
|Net (loss) income                                                          |                                                                   | $                              
|                                                                           | Other comprehensive income (loss)                                 |                                
|                                                                           |                                                                   |                                
|Comprehensive (loss) income                                                |                                                                   | $                              
|                                                                           |                                                                   |                                
|Basic (loss) earnings per common share:                                    |                                                                   |                                
|                                                                           | Continuing operations                                             |                                
|                                                                           | Discontinued operations                                           |                                
|                                                                           | Cumulative effect of a change in accounting principle             |                                
|                                                                           |                                                                   |                                
|Net (loss) earnings                                                        |                                                                   | $                              
|                                                                           |                                                                   |                                
|Diluted (loss) earnings per common share:                                  |                                                                   |                                
|                                                                           | Continuing operations                                             |                                
|                                                                           | Discontinued operations                                           |                                
|                                                                           | Cumulative effect of a change in accounting principle             |                                
|                                                                           |                                                                   |                                
|Net (loss) earnings                                                        |                                                                   | $                              
|                                                                           |                                                                   |                                
|Weighted average shares outstanding:                                       |                                                                   |                                
|                                                                           | Basic calculation                                                 |                                
|                                                                           | Diluted calculation                                               |                                

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

23

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NATIONAL EQUIPMENT SERVICES, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS  For the Years Ended December 31, 2002, 2001 and 2000        (Amounts in thousands)

|                                                     |                                                                                          | For the Year Ended December 31,                                   |                                       
|---------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | --------------------------------------
|
|Cash flows from operating activities                 |                                                                                          |                                                                   |                                       
|                                                     | Net (loss) income                                                                        |                                                                   | $                                     
|                                                     | Adjustments to reconcile net (loss) income to net cash provided by operating activities: |                                                                   |                                       
|                                                     |                                                                                          | Depreciation and amortization                                     |                                       
|                                                     |                                                                                          | Cumulative effect of a change in accounting principle             |                                       
|                                                     |                                                                                          | Amortization of deferred finance costs and debt discount          |                                       
|                                                     |                                                                                          | Gain on sale of equipment                                         |                                       
|                                                     |                                                                                          | Gain on sale of discontinued operations                           |                                       
|                                                     |                                                                                          | Deferred income taxes                                             |                                       
|                                                     |                                                                                          | Writedown of long-lived assets                                    |                                       
|                                                     |                                                                                          | Changes in operating assets and liabilities, net of acquisitions: |                                       
|                                                     |                                                                                          |                                                                   | Trade accounts receivable             
|                                                     |                                                                                          |                                                                   | Inventory                             
|                                                     |                                                                                          |                                                                   | Prepaid expenses and other assets     
|                                                     |                                                                                          |                                                                   | Trade accounts payable                
|                                                     |                                                                                          |                                                                   | Accrued expenses and other liabilities
|                                                     |                                                                                          |                                                                   |                                       
|                                                     |                                                                                          | Net cash flows provided by continuing operating activities        |                                       
|                                                     |                                                                                          | Net cash flows provided by discontinued operating activities      |                                       
|                                                     |                                                                                          |                                                                   |                                       
|                                                     |                                                                                          | Net cash flows provided by operating activities                   |                                       
|                                                     |                                                                                          |                                                                   |                                       
|Cash flows from investing activities                 |                                                                                          |                                                                   |                                       
|                                                     | Acquisitions, net of cash received                                                       |                                                                   |                                       
|                                                     | Proceeds received from sale of discontinued operations                                   |                                                                   |                                       
|                                                     | Cash received in connection with business combination                                    |                                                                   |                                       
|                                                     | Purchases of rental equipment                                                            |                                                                   |                                       
|                                                     | Proceeds from sale of rental equipment                                                   |                                                                   |                                       
|                                                     | Purchases of property and equipment                                                      |                                                                   |                                       
|                                                     | Proceeds from sale of property and equipment                                             |                                                                   |                                       
|                                                     |                                                                                          |                                                                   |                                       
|                                                     | Net cash flows provided by (used in) continuing investing activities                     |                                                                   | $                                     
|                                                     | Net cash flows used in discontinued investing activities                                 |                                                                   |                                       
|                                                     |                                                                                          |                                                                   |                                       
|                                                     |                                                                                          | Net cash flows provided by (used in) investing activities         |                                       
|                                                     |                                                                                          |                                                                   |                                       
|Cash flows from financing activities                 |                                                                                          |                                                                   |                                       
|                                                     | Proceeds from long-term debt                                                             |                                                                   |                                       
|                                                     | Payments on long-term debt                                                               |                                                                   |                                       
|                                                     | Repurchase of treasury stock                                                             |                                                                   |                                       
|                                                     | Payments of loan origination costs                                                       |                                                                   |                                       
|                                                     | Book overdraft                                                                           |                                                                   |                                       
|                                                     |                                                                                          |                                                                   |                                       
|                                                     |                                                                                          | Net cash (used in) provided by financing activities               |                                       
|                                                     |                                                                                          |                                                                   |                                       
|Net increase (decrease) in cash and cash equivalents |                                                                                          |                                                                   | 10,985                                
|Cash and cash equivalents at beginning of period     |                                                                                          | $                                                                 | 4,199                                 
|                                                     |                                                                                          |                                                                   |                                       
|Cash and cash equivalents at end of period           |                                                                                          | $                                                                 | 15,184                                
|                                                     |                                                                                          |                                                                   |                                       
|Supplemental cash flow information                   |                                                                                          |                                                                   |                                       
|                                                     | Cash paid for interest                                                                   |                                                                   | $                                     
|                                                     | Cash paid for income taxes                                                               |                                                                   |                                       

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

24

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NATIONAL EQUIPMENT SERVICES, INC.        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)  For the Years Ended December 31, 2002, 2001 and 2000        (Amounts in thousands,
except per share data)

|                                                  |  | Common Stock |  |   |     |  |   |  |   |   |  | Accumulated
Other
Compre-
hensive
Loss |  |   |  
|------------------------------------------------- |  | ------------ |  | - | --- |  | - |  | - | - |  | -------------------------------------- |  | - | -
|
|
|Balance at December 31, 1999                      |  | 24,123       |  | $ | 241 |  |  |  | $ |  |  |                                       |  | $ | 
|Issuance of common stock                          |  | 47           |  |   |    |  |  |  |   |  |  |                                       |  |   | 
|Accretion of preferred stock                      |  |             |  |   |    |  |  |  |   |  |  |                                       |  |   | 
|Repurchase of treasury shares, 2,114 shares       |  |             |  |   |    |  |  |  |   |  |  |                                       |  |   | 
|Net income                                        |  |             |  |   |    |  |  |  |   |  |  |                                       |  |   | 
|                                                  |  |              |  |   |     |  |   |  |   |   |  |                                        |  |   |  
|Balance at December 31, 2000                      |  | 24,170       |  |   | 241 |  |  |  |   |  |  |                                       |  |   | 
|Accretion of preferred stock                      |  |             |  |   |    |  |  |  |   |  |  |                                       |  |   | 
|Net change in fair value of derivative instrument |  |             |  |   |    |  |  |  |   |  |  |                                       |  |   | 
|Net loss                                          |  |             |  |   |    |  |  |  |   |  |  |                                       |  |   | 
|                                                  |  |              |  |   |     |  |   |  |   |   |  |                                        |  |   |  
|Balance at December 31, 2001                      |  | 24,170       |  |   | 241 |  |  |  |   |  |  |                                       |  |   | 
|Accretion of preferred stock                      |  |             |  |   |    |  |  |  |   |  |  |                                       |  |   | 
|Payments received                                 |  |             |  |   |    |  |  |  |   |  |  |                                       |  |   | 
|Net change in fair value of derivative instrument |  |             |  |   |    |  |  |  |   |  |  |                                       |  |   | 
|Net loss                                          |  |             |  |   |    |  |  |  |   |  |  |                                       |  |   | 
|                                                  |  |              |  |   |     |  |   |  |   |   |  |                                        |  |   |  
|Balance at December 31, 2002                      |  | 24,170       |  | $ | 241 |  |  |  | $ |  |  |                                       |  | $ | 
|                                                  |  |              |  |   |     |  |   |  |   |   |  |                                        |  |   |  

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

25

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NATIONAL EQUIPMENT SERVICES, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        For the Years Ended December 31, 2002, 2001 and 2000        (Amounts in thousands,
except per share data)

1.    Organization and Basis of Presentation

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

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

2.    Going Concern

The Company's financial performance has been negatively affected over the last two years due to lower activity levels in the economy, decreasing rental rates and
higher operating costs. The resulting decrease in earnings combined with existing cash needs for working capital significantly affected the Company's cash flows from operations in 2002. In response to
this environment, management initiated several actions during 2002 including actions to reduce its operating expenses through personnel reductions and consolidations of branch and support operations,
as well as asset sales to reduce its debt, including the sale of the Trench Shoring business. Although these actions resulted in reduced debt levels from 2001 to 2002 of approximately
$105.7 million, the Company's liquidity is strained. Additionally, a significant portion of the Company's debt matures in 2003.

During
January, 2003, the Company notified the senior bank lenders ("Senior Lenders") under its Amended and Restated Credit Agreement dated as of August 6, 2003, as amended (the
"credit facility"), that it was in default under the credit facility. As of December 31, 2002, the Company and the Senior Lenders entered into Amendment No. 8 to the credit facility
("Amendment No. 8"), which, among other things, amended the definition of "Borrowing Base." As of January 23, 2003, the Company and the Senior Lenders entered into an agreement (the
"Forbearance Agreement"), pursuant to which the Senior Lenders agreed to a forbearance period during which they agreed not to exercise certain remedies available to them as a result of the existing
defaults under the Company's credit facility. The initial forbearance period ended on March 14, 2003.

As
of March 14, 2003, the Company and the Senior Lenders entered into the Second Forbearance Agreement and Amendment No. 9 to the credit facility (the "Second Forbearance
Agreement"), which extended the forbearance period. The forbearance period, which is currently scheduled to end on May 14, 2003, will end sooner upon the occurrence of certain events, such as
an event of default under the credit facility (other than an Acknowledged Event of Default (as defined)), or in the event the Company fails to complete certain actions leading to a financial
restructuring. Under the terms of the Second Forbearance Agreement, the likelihood is remote that the Company would be able access any additional funds from its credit. The Company is currently in
discussions with its Senior Lenders about the possible terms of a financial restructuring. The Company is also in discussions with anAd HocCommittee
representing

26

---

holders ("Noteholders") of the Company's outstanding Senior Subordinated Notes due 2004. The significant terms and conditions of a financial restructuring being negotiated include negotiations about:
extension of debt maturities and repayment schedules, debt forgiveness, conversion of debt to equity or other equity-like instruments, additional equity investments, further asset sales,
interest rates and other yield matters, as well as the covenants associated with the renegotiated capital instruments.

The
next scheduled interest payment due on the Senior Subordinated Notes is on May 31, 2003. Under the credit facility, the Senior Lenders have the ability to issue a notice to
the Company preventing the Company from paying such interest if the Company is in default under the credit facility. The failure by the Company to pay interest on the Senior Subordinated Notes when
due which, if not cured within 30 days, would be an event of default under the Senior Subordinated Notes. In the event the Company is unable to reach agreement with the Senior Lenders and
Noteholders on acceptable terms and
conditions, the Company would be forced to seek to reorganize its business under Chapter 11 of the U.S. bankruptcy laws.

While
management continues to execute the Company's cost savings initiatives and to manage its working capital, there are no assurances that these, or future, efforts will be successful
in improving the Company's financial performance or liquidity. Management is also unable to predict the timing or outcome of the negotiations discussed above. Until such time as the negotiations are
completed or the Company seeks to reorganize its business under Chapter 11 of the U.S. bankruptcy laws, which could happen as soon as the second quarter, it is not possible to estimate the
effect on the Company's recorded values of its assets and liabilities. There is a high likelihood these adjustments will be material to the financial statements, but no adjustments have been made as
of December 31, 2002 due to the uncertainty associated with future events and resulting accounting consequences. The deterioration of the Company's financial performance and resulting defaults
under the credit facility also raise substantial doubt about the ability of the Company to continue as a going concern.

3.    Significant Accounting Policies



Cash and cash equivalents are highly liquid investments with original maturities of three months or less.



Trade accounts receivable represents amounts due from customers on rental and service contracts and equipment sales. Allowances for doubtful accounts are
estimated at each balance sheet date and bad debt expense totaled $6,004, $10,226 and $5,360 for the years ended December 31, 2002, 2001 and 2000, respectively.



Inventory primarily consists of new and used equipment held for sale, supplies, and spare parts held for sale and internal maintenance. Inventory is stated at the
lower of cost or market. Cost is determined using
the first-in, first-out method or the weighted average cost method. Reserves for excess and obsolete inventory are estimated at each balance sheet date and expense associated
with these reserves totaled $5,784, $3,350 and $906 for the years ended December 31, 2002, 2001 and 2000, respectively.

27

---



Rental equipment is recorded at cost. Depreciation for rental equipment is computed using the straight-line method over five to fifteen year useful
lives, with 0% to 20% salvage values. Accumulated depreciation on rental equipment was $303,096 and $228,673 at December 31, 2002 and 2001, respectively. When rental equipment is sold, the
related cost and accumulated depreciation are removed from the respective accounts. Proceeds from the sale and the related net book value of the equipment are recognized in the period of disposal and
reported as revenue from rental equipment sales and cost of rental equipment sales in the consolidated statements of operations and comprehensive (loss) income.

Rental
equipment depreciation expense aggregated $119,731, $99,779 and $87,096 for the years ended December 31, 2002, 2001 and 2000, respectively.

Ordinary
repairs and maintenance costs are charged to operations as incurred.



Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as
follows:

Buildings and improvements

30 yearsVehicles

3-5 yearsMachinery and equipment

5-7 yearsComputers, furniture and fixtures

3-7 yearsLeasehold improvements

Over the shorter of lease term or estimated useful life


When property and equipment are disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gains
or losses are included in the consolidated statements of operations and comprehensive (loss) income as other income (loss).

Ordinary
repairs and maintenance costs are charged to operations as incurred.



In accordance with our adoption in 2002 of Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-lived Assets," a long-lived asset or asset group is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be
recoverable. When such events occur, the Company compares the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying
amount of a long-lived asset or asset group. If this comparison indicates that there is an impairment, the amount of the impairment is typically calculated using the discounted expected
future cash flows. The discount rate applied to these cash flows is based on the Company's weighted-average cost of capital, which represents the blended after-tax costs of debt and
equity.

The
Company recognized impairments of $6,743 and $3,183, related to rental fleet and buildings in 2002 and 2001, respectively, which are appropriately included as depreciation expense in
the consolidated statements of operations and comprehensive (loss) income.

28

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Goodwill consists of the capitalized excess cost over acquired net assets. In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets," that superseded APB Opinion No. 17, Intangible Assets. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Under this standard, goodwill is no
longer amortized but subject to annual impairment test on a reporting unit level.

The
Company completed its initial impairment analysis in the second quarter of 2002 and recorded a non-cash impairment charge of approximately $155,102 ($129,505, net of tax
benefit), as a cumulative effect of a change in accounting principle retroactive to January 1, 2002, on the consolidated statement of operations and comprehensive (loss) income. See
Note 8 for further discussion regarding the adoption of the SFAS No. 142.

The
Company evaluates the recoverability of goodwill by estimating the future discounted cash flows of the operating segments to which the goodwill relates. The rate used in determining
discounted cash flows is a rate corresponding to the Company's cost of capital, risk adjusted where necessary. Estimated cash flows are then determined by disaggregating the Company's business
segments to a reporting level for which meaningful identifiable cash flows can be determined. When estimated future discounted cash flows are less than the carrying value of the net assets (tangible
and identifiable intangibles) and related goodwill, impairment losses of goodwill are charged to operations. Impairment losses, limited to the carrying value of goodwill, represent the excess of the
sum of the carrying value of the net assets (tangible and identifiable intangible) and goodwill over the discounted cash flows of the business being evaluated. In determining the estimated future cash
flows, the Company considers current and projected future levels of income as well as business trends, prospects and market and economic conditions.



Loan origination costs primarily consist of $14,011 related to the Senior Credit Facility and $9,193 related to the Senior Subordinated Notes, all of which are
stated at cost and amortized to interest expense using the effective interest rate method over the life of the related debt. Accumulated amortization related to loan origination costs aggregated
$17,063 and $9,828 at December 31, 2002 and 2001, respectively.



Provisions are made to record deferred income taxes in recognition of items reported differently for financial reporting purposes than for federal and state
income tax purposes. The Company records deferred income taxes using the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes."



The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, trade accounts receivable, inventory, trade accounts payable and
accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The carrying value of the revolving credit
facility loan and term loan approximates fair value as the interest rate is reset every thirty to ninety days to reflect current market rates. The Company's interest rate swap is recorded at fair
value (Note 13). The fair value of the Senior Subordinated Notes was $96,250 and $233,750 based on the December 31, 2002 and 2001 monthly closing bids in the
over-the-counter markets,

29

---

respectively. It is not practical to estimate the fair value of the senior redeemable convertible preferred stock as the security is not actively traded and has numerous unique features as described
in Note 11.



SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its related amendment, SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" (collectively referred to as "SFAS No. 133") require that all derivative financial instruments be recorded on the consolidated balance
sheet at their fair value as either assets or liabilities. Changes in the fair value of derivatives are recorded each period in income or accumulated other comprehensive loss, depending on whether a
derivative is designated and effective as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in accumulated other
comprehensive loss are included in income in the periods in which income is affected by the hedged item.



Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and trade
accounts receivable from construction and industrial customers. Concentration of credit risk with respect to trade accounts receivable is limited due to the large number of customers and the Company's
geographic dispersion. The Company performs credit evaluations of its customers' financial condition and generally does not require collateral on trade accounts receivable. The Company maintains an
allowance for doubtful accounts on its trade accounts receivable based upon expected collectibility.



The Company is insured for general liability, automobile liability, workers' compensation, and group medical claims up to a specified claim and aggregate amounts
(subject to deductibles of $500 per incident for general and automobile liability). Insured losses subject to this deductible are accrued based upon the aggregate liability for reported claims
incurred and an estimated liability for claims incurred but not reported. These liabilities are not discounted.



The Company accounts for its stock-based employee compensation plan, which is described more fully in Note 14, under the recognition and measurement
principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. In accordance with the intrinsic value method, no
compensation expense is recognized for the Company's stock option plan. Had compensation expense been determined based on the fair value at the assumed grant date for

30

---

awards under this plan consistent with the method of SFAS No. 123, the Company's net (loss) income and net (loss) earnings per share would have been as follows for the years ended
December 31:

| |  |                                                                                                            |  | 2002 |          | 2001 |   | 2000   
| |  | ---------------------------------------------------------------------------------------------------------- |  | ---- | -------- | ---- | - | -------
| |  | Net (Loss) income, as reported                                                                             |  | $    | (193,557 | )    | $ | (30,907
| |  | Deduct: Total stock-based employee compensation expense determined under the fair value method, net of tax |  |      | 200      |      |   | 1,200  
| |  |                                                                                                            |  |      |          |      |   |        
| |  | Pro forma net (loss) income                                                                                |  |      | (193,757 | )    |   | (32,107
| |  |                                                                                                            |  |      |          |      |   |        
| |  | Basic (loss) earnings per share, as reported                                                               |  |      | (9.18    | )    |   | (1.50  
| |  | Pro forma basic (loss) earnings per share                                                                  |  |      | (9.19    | )    |   | (1.56  
| |  | Diluted (loss) earnings per share, as reported                                                             |  |      | (9.18    | )    |   | (1.50  
| |  | Pro forma diluted (loss) earnings per share                                                                |  |      | (9.19    | )    |   | (1.56  

The determination of compensation expense for the pro forma information was based upon the estimated fair value of the options granted on the date
of their grant using the Black-Scholes option pricing model at the following weighted average assumptions by grant year:

| |  |                         |  | 2002    |   | 2001    |   | 2000    |  
| |  | ----------------------- |  | ------- | - | ------- | - | ------- | -
| |  | Risk-free interest rate |  | 2.54    | % | 4.98    | % | 6.00    | %
| |  | Expected life           |  | 8 years |   | 5 years |   | 5 years |  
| |  | Expected volatility     |  | 84      | % | 76      | % | 70      | %
| |  | Expected dividend yield |  |        |   |        |   |        |  

The weighted average fair value of options granted was $0.63, $1.67 and $3.90 in 2002, 2001 and 2000, respectively. The number of options
exercisable was 6, 532 and 456 at December 31, 2002, 2001 and 2000, respectively.



The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates relate to useful lives and recoverability of long-lived assets, residual
values of rental equipment and reserves and allowances for trade accounts receivable and inventory. Actual results could differ from those estimates.



Revenues from equipment rentals are recognized ratably over the contract term. For construction-related contracts, which comprise approximately 5% of total
revenues, revenues are recognized based on the percentage of work completed. Revenues from equipment and part sales are recognized at the point of delivery. Unbilled revenues at December 31,
2002 and 2001 were $20,987 and $23,484, respectively.

31

---



Shipping and handling costs are included in cost of revenues in the accompanying consolidated statements of operations and comprehensive (loss) income.



Certain reclassifications of prior year consolidated financial statement amounts have been made to conform to the current year presentation.



In May 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, "Recession of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13 and Technical Corrections." This Statement rescinds SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt," and an amendment to that Statement, SFAS
No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements." This Statement amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between
the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability
under changed conditions. The provisions of this Statement related to the recission of SFAS No. 4 are effective beginning in 2003. All other provisions are effective after May 15, 2002.
As discussed in Note 2, it is possible the Company will restructure its debt. If a restructuring should occur, the related gain will be accounted for pursuant to SFAS No. 145. It is not
possible to estimate the impact of this new pronouncement given the uncertainties surrounding the potential outcomes of any such restructuring.

On
July 30, 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (SFAS 146), "Accounting for Costs Associated with Exit or Disposal Activities."
SFAS 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than as of the date of a commitment to an exit or disposal plan.
Examples of costs covered by SAFS 146 included lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other
exit or disposal activity. SFAS 146 also supercedes, in its entirety, previous accounting guidance that was provided by Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Terminations Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company will apply the provisions of SFAS 146 prospectively to exit or disposal activities beginning in 2003.

In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based CompensationTransistion and Disclosure". This standard provides alternative methods
of transition to the fair value method of accounting for stock-based employee compensation under SFAS No. 123, "Accounting for Stock-Based Compensation," but does not require the Company to use
the fair value method. This standard also amends certain disclosure requirements related to stock-based employee compensation. The Company adopted the disclosure portion of this standard as of
December 31, 2002 and such adoption is reflected under "Stock-Based Compensation" above.

32

---

4.    (Loss) Earnings Per Share

| |  |                                                                           |  | 2002 |         | 2001 |   | 2000    |  
| |  | ------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
| |  | (Loss) income from continuing operations                                  |  | $    | (65,545 | )    | $ | (31,136 | )
| |  | Less accretion on preferred stock                                         |  |      | (500    | )    |   | (500    | )
| |  |                                                                           |  |      |         |      |   |         |  
| |  | (Loss) income from continuing operations available to common stockholders |  | $    | (66,045 | )    | $ | (31,636 | )
| |  |                                                                           |  |      |         |      |   |         |  
| |  | Weighted average shares                                                   |  |      | 21,143  |      |   | 20,956  |  
| |  | Unvested stock                                                            |  |      |        |      |   |        |  
| |  | Convertible preferred stock                                               |  |      |        |      |   |        |  
| |  |                                                                           |  |      |         |      |   |         |  
| |  | Diluted weighted average shares                                           |  |      | 21,143  |      |   | 20,956  |  
| |  |                                                                           |  |      |         |      |   |         |  
| |  | Basic (loss) earnings per share from continuing operations                |  | $    | (3.12   | )    | $ | (1.51   | )
| |  | Diluted (loss) earnings per share from continuing operations              |  | $    | (3.12   | )    | $ | (1.51   | )

The effect of dilutive securities in 2002 and 2001 is omitted from the computation of diluted (loss) earnings per share because inclusion would be
anti-dilutive by reducing the loss per share. At December 31, 2002, 2001 and 2000, stock options totaling approximately 2,537, 2,836 and 2,449, respectively, and for
December 31, 2002 and 2001 convertible preferred stock shares of 7,692 in each year, were excluded from the computation of the diluted (loss) earnings per share because the exercise prices were
greater than the average market price of the common shares.

5.    Acquisitions and 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 the Credit Facility. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the financial condition and results of operations of
this business are reflected herein as discontinued operations and prior periods have been restated. Components of amounts reflected in the consolidated statements of operations and comprehensive
(loss) income and balance sheets are presented in the following table.

| |  |                                            |  | 2002 |        | 2001 |   | 2000  
| |  | ------------------------------------------ |  | ---- | ------ | ---- | - | ------
| |  | Total revenues                             |  | $    | 23,962 |      | $ | 55,450
| |  | Operating income                           |  |      | 260    |      |   | 7,942 
| |  | Other income, net                          |  |      | 22     |      |   | 134   
| |  | Interest expense, net                      |  |      | 3,691  |      |   | 7,754 
| |  | Income tax expense                         |  |      |       |      |   | 93    
| |  |                                            |  |      |        |      |   |       
| |  | (Loss) income from discontinued operations |  | $    | (3,409 | )    | $ | 229   
| |  |                                            |  |      |        |      |   |       

| |  |                                          |  |  |  | 2002 |       | 2001 |  
| |  | ---------------------------------------- |  |  |  | ---- | ----- | ---- | -
| |  | Net Assets of Discontinued Operations    |  |  |  |      |       |      |  
| |  | Cash and cash equivalents                |  |  |  | $    |      |      | $
| |  | Accounts receivable, net                 |  |  |  |      | 1,149 |      |  
| |  | Inventory, net                           |  |  |  |      |      |      |  
| |  | Rental equipment, net                    |  |  |  |      |      |      |  
| |  | Property and equipment, net              |  |  |  |      |      |      |  
| |  | Intangible assets, net                   |  |  |  |      |      |      |  
| |  | Prepaid expenses and other assets        |  |  |  |      |      |      |  
| |  | Accounts payable and accrued liabilities |  |  |  |      | (968  | )    |  
| |  |                                          |  |  |  |      |       |      |  
| |  | Net assets of discontinued operations    |  |  |  | $    | 181   |      | $
| |  |                                          |  |  |  |      |       |      |  

33

---



In 2001, the Company purchased Brambles Equipment Services, Inc. ("BESI"), an equipment rental company based in Taylor, Michigan, for a total purchase
price of $95,359. The purchase price was allocated as follows:

Rental equipment

$
97,525Property and equipment


7,443Inventory


4,703Intangibles and other assets


6,121Accounts payable and accrued expenses


(12,433
)Integration reserve


(8,000
)$
95,359


The
Company allocated $63,533 of the excess of the fair value of net assets acquired over the consideration paid to the long-lived assets.

In
2000, the Company completed the acquisition of four companies with a total purchase price of $15,500. Effective April 1, 2000, the Company completed an exchange of certain
assets and liabilities and all of the stock of its subsidiary, Safety Lights & Leasing, Inc., for certain assets and liabilities and all of the stock of Texoma, Inc., a rental
equipment company, and approximately $18,000 in cash. This transaction was accounted for as a fair value transaction and no gain or loss was recognized.

These
transactions have been accounted for by the purchase method of accounting and are included in the Company's results of operations from the closing date of each respective
acquisition. The purchase prices were allocated based on the fair values of assets acquired and liabilities assumed.

The
following unaudited consolidated financial information represents the pro forma results of operations as if the 2002 disposition and the 2001 and 2000 acquisitions had been completed
on January 1, 2000, after giving effect to certain adjustments including increased depreciation of property and equipment, interest expense for acquisition debt and amortization of related
intangibles. These pro forma results and (loss) earnings per share have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that would have
been achieved had these transactions been completed as of January 1, 2000, nor are the results indicative of the Company's future results of operations.

2001

2000(Unaudited)

(Unaudited)Revenues

$
723,098

$
767,002Operating income


35,252


107,880Net (loss) income


(26,436
)

14,654Pro forma (loss) earnings per share:Basic

$
(1.28
)
$
0.67Diluted


(1.28
)

0.48Pro forma weighted average shares outstanding:Basic


20,956


21,221Diluted


20,956


29,368


34

---

6.    Inventory

Inventory, net consists of the following at December 31:

2002

2001New equipment

$
4,007

$
5,288Used equipment


1,136


4,512Supplies


4,735


4,495Parts


13,732


17,16623,610


31,461Less: Reserves for excess and obsolete inventory


(5,424
)

(4,676
)$
18,186

$
26,785


7.    Property and Equipment

Property and equipment, net consists of the following at December 31:

2002

2001Land

$
3,393

$
3,628Buildings and improvements


13,262


13,545Vehicles


45,395


45,137Machinery and equipment


11,954


11,693Computers, furniture and fixtures


17,237


15,290Leasehold improvements


7,244


6,30498,485


95,597Less: Accumulated depreciation


(52,682
)

(39,565
)$
45,803

$
56,032


Property and equipment depreciation expense aggregated $8,137, $16,098 and $14,608 for the years ended December 31, 2002, 2001 and 2000, respectively.

8.    Intangible Assets

The Company's intangible asset balance at December 31, 2002 consists of $138,115 of goodwill subject to annual impairment tests under SFAS No. 142
and $1,863 of non-compete agreements recorded at a cost of $9,596 and amortized on a straight-line basis over five years. Accumulated amortization on these agreements was
$7,733 at December 31, 2002, and amortization expense for the years ended December 31, 2002, 2001 and 2000 were $1,529, $1,603 and $1,739, respectively. Amortization expense for the
years ended December 31, 2003, 2004 and 2005 is estimated to be $1,129, $624 and $82, respectively.

35

---

The
changes in the carrying amount of goodwill for the year ended December 31, 2002 are as follows:

Traffic

GeneralSafety

Rental

TotalBalance as of December 31, 2001, including goodwill of discontinued operation

$
39,645

$
315,743

$
355,388Impairment loss as a result of the adoption of SFAS 142





(155,102
)

(155,102
)Goodwill disposed of related to sale of trench shoring





(62,171
)

(62,171
)Balance as of December 31, 2002

$
39,645

$
98,470

$
138,115


The effect of adopting SFAS 142 on net (loss) income and diluted (loss) earnings per share for the years ended December 31, 2001 and 2000 is as
follows:

2001

2000Reported (loss) income from continuing operations

$
(31,136
)
$
5,354Plus: goodwill amortization, net of tax


5,674


4,696Adjusted (loss) income from continuing operations

$
(25,462
)
$
10,050Reported net (loss) income

$
(30,907
)
$
6,053Plus: goodwill amortization, net of tax


5,674


4,696Adjusted net (loss) income

$
(25,233
)
$
10,749Diluted (loss) earnings per share:Reported (loss) income from continuing operations

$
(1.51
)
$
0.17Goodwill amortization


0.27


0.16Adjusted (loss) income from continuing operations

$
(1.24
)
$
0.33Reported net (loss) income

$
(1.50
)
$
0.19Goodwill amortization


0.27


0.16Adjusted net (loss) income

$
(1.23
)
$
0.35


9.    Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consists of the following at December 31:

2002

2001Interest rate swap payable

$
4,609

$
11,101Integration and restructuring reserves (Note 21)


6,450


9,700Accrued compensation and benefits


10,853


14,314Accrued insurance reserves


8,885


5,941Accrued property and sales taxes


8,385


4,578Liabilities to former owners of acquired businesses





3,311Other


11,565


9,997$
50,747

$
58,942


36

---

10.    Debt and Liquidity

Debt consists of the following at December 31:

2002

2001Revolving credit facility loan, interest at prime rate plus 1.75% or the eurodollar rate plus 3%, due July 17, 2003

$
416,856

$
492,000Term loan, interest at prime rate plus 1.75% or the eurodollar rate plus 3%, due July 17, 2003


70,000


100,000Senior Subordinated Notes, Series B and D, interest at 10% payable semi-annually on May 30 and November 30, due November 30, 2004


273,450


272,656Capital lease obligations


2,970


4,359$
763,276

$
869,015


During 1997, the Company entered into a credit facility agreement with First Union Commercial Corporation (as amended, the "Old Credit Facility"). The Old Credit
Facility provided for a secured revolving line of credit of $140,000.

During
1998, the Company entered into a new credit facility with First Union National Bank, as the agent, and certain other financial institutions (as amended, 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 Old Credit Facility. During 1999, the Company amended its Credit Facility to increase the available borrowings from $400,000 up to a maximum amount of $750,000. In 2001, the
Company amended its Credit Facility to decrease the maximum available borrowings to $650,000. In 2002, the Company amended its credit facility to decrease the maximum available borrowings to $550,000.
Based upon the available borrowing base at December 31, 2001, the Company did not have any additional availability on the revolving credit facility loan. The Credit Facility is collateralized
by substantially all of the Company's assets.

The
Company accretes the original issue discount of the Senior Subordinated Notes due 2004, Series B (the "Series B Notes") and the Senior Subordinated Notes due 2004,
Series D (the "Series D Notes") over the term of the notes using the effective interest rate method.

The
Company is a holding company with no independent operations, and the Company's assets (excluding the intercompany receivables and common stock of its subsidiaries) are insignificant.
All of the Company's subsidiaries make full, unconditional, joint and several guarantees of the Series B Notes and the Series D Notes, and all of these subsidiaries are directly or
indirectly wholly-owned by the Company. There are no restrictions on the Company's ability to obtain funds from its subsidiaries by dividend or loan.

The
separate financial statements of each of these wholly-owned subsidiaries are not presented as management believes that separate financial statements and other disclosures concerning
these subsidiaries are not individually meaningful for presentation or material to investors. In addition, the Company has pledged the stock of each of its subsidiaries as further security for the
Company's obligations under the Credit Facility. The Company's weighted average interest rate was 8.4% in 2002 and 8.9% in both 2001 and 2000.

37

---

The
credit facility contains certain covenants that require the Company to, among other things, satisfy certain financial tests relating to 1) the ratio of senior debt to EBITDA,
2) minimum interest coverage ratio and 3) the ratio of funded debt to EBITDA. The credit facility also contains various other covenants that restrict the Company's ability to, among
other things, 1) incur additional indebtedness, 2) permit liens to attach to its assets, 3) pay dividends or make other restricted payments on its common stock and certain other
securities and 4) make acquisitions unless certain financial conditions are satisfied. As of December 31, 2002, the Company was in default under the financial covenants governing the
credit facility. As of January 23, 2003, the Company and the lenders under the credit facility entered in a forbearance agreement with an initial expiration of March 14, 2003. As of
March 14, 2003, the Company and the lenders under the credit facility entered into a second forbearance agreement which extended the forbearance period until May 14, 2003, subject to
earlier expiration upon the occurrence of certain circumstances.

As
a result of the covenant defaults and issues with the borrowing base, the Company does not believe that it has sufficient liquidity and capital resources to finance its operations and
pursue its business strategy. The Company will need to refinance its credit facility and its Series B Notes and Series D Notes since the Credit Facility becomes due and payable in
July 2003 and its Series B Notes and Series D Notes become due and payable in November 2004. There can be no assurance that the Company will be able to raise the necessary
capital on favorable terms, which could have a material effect on the Company's future financial condition and results of operations. Refer to Note 2 for further discussion.

The
Company's debt, including capital lease obligations matures as follows:

2003

$
488,0232004


274,4702005


4232006


2552007


97Thereafter


8$
763,276


Accumulated
amortization on capital leases as of December 31, 2002 and 2001 was $1,389 and $817, respectively.

11.    Senior Redeemable Convertible Preferred Stock

During 1999, the Company issued 100 shares of Senior Redeemable Convertible Preferred Stock, Series A (the "Preferred Shares") for proceeds of
approximately $100,000, less a 5% facility fee. Each Preferred Share is convertible at the option of the holder into a number of shares of the Company's Common Stock equal to $1,000 divided by the
conversion price (the "Conversion Price") then in effect. The Conversion Price is $13, subject to adjustment based upon (i) certain issuances of Common Stock at a price per share below the then
current Conversion Price and (ii) standard anti-dilution adjustments. Each Preferred Share is convertible at the option of the Company into a number of shares of Common Stock equal
to $1,000 divided by the then current Conversion Price if at any time after one year from the issue date of the
Preferred Shares the average closing market price of the Common Stock over a sixty consecutive trading day period equals or exceeds $20 per share. Each holder of Preferred Shares is entitled

38

---

to vote with the Company's Common Stock on an as-if converted basis. The $5,000 facility fee is being accreted over the life of the Preferred Stock as a reduction of stockholders' equity.

Each
holder of Preferred Shares is entitled to receive dividends and other distributions on parity with each holder of Common Stock in an amount equal to the dividends per share payable
on the number of shares of Common Stock into which such Preferred Shares would be convertible on the record date. On April 30, 2009, the Company will be obligated to redeem all of the shares of
Preferred Stock then outstanding, at a price per share equal to $1,000 plus an amount per share equal to all declared and unpaid dividends thereon.

If
a change of control occurs, the Company will within five business days thereafter offer to purchase from each holder of Preferred Shares all outstanding Preferred Shares then held by
such holder at a purchase price equal to the greater of (i) the amount, if any, that each holder of Preferred Shares would be entitled to receive per share of Common Stock in connection with
the change of control if such holder had converted its Preferred Shares and (ii) $20 in cash per share of Common Stock assuming such holder had converted its Preferred Shares. If a liquidation
or winding-up of the Company (other than a change of control) occurs, no distribution will be made to the holders of shares of any class of junior stock (including Common Stock) unless,
prior thereto, the holders of Preferred Shares have received an amount per Preferred Share equal to the greater of (i) $1,000 plus all declared and unpaid dividends and (ii) the proceeds
in liquidation that the holders of Preferred Shares would have received in respect of all shares of Common Stock issuable to such holders upon conversion.

12.    Treasury Stock

Repurchases of Common Stock are authorized by the Company's Board of Directors. Currently repurchases of common stock are not permitted as outlined in the
covenants to the Credit Facility (Note 10).

13.    Financial Instruments

Derivative financial instruments are used by the Company principally to reduce exposures to market risks resulting from fluctuations in interest rates by creating
offsetting exposures. The Company is not a party to leveraged derivatives. For a derivative to qualify as a hedge at inception and throughout the hedged period, the Company formally documents the
nature and relationships between the hedging instruments and hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions and method
of assessing hedge effectiveness. Financial instruments
qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period.

Effective
April 18, 2001, the Company entered into an interest rate swap contract, which fixes the interest rate at 4.71% on $400,000 of variable rate debt through
April 17, 2003. The Company's interest rate swap is a cash flow hedge. For the interest rate swap, the net amounts paid or received and net amounts accrued through the end of the accounting
period are included in interest expense. Unrealized gains or losses on the interest rate swap contract are not recognized in income, but rather changes in the fair value of the swap are recorded in
other comprehensive income, and in the consolidated balance sheet as a component of accrued expenses and other liabilities. Gains or losses on any contracts terminated early are deferred and amortized
to income over the remaining average life of the terminated contract. During the year ended December 31, 2002, there was no ineffectiveness relating to the cash flow hedge.

39

---



14.    Stock Option Plan

During 1998, the Company established a plan in which options to purchase shares of Common Stock can be granted to directors, officers and key employees of the
Company, and other individuals. Up to 4,461 shares of Common Stock may be issued under this plan. Granted options under the plan vest over five years from the grant date and expire ten years
from the grant date. A summary of options activity for the years ended December 31, 2002, 2001 and 2000 is as follows:

Number of
Shares

Exercise Price
per Share

Weighted-Average
Exercise Price per
ShareShares under Option:December 31, 1999

2,004

$
8.81 to $13.50

$
11.78Granted

593


2.25 to 6.00


5.97Forfeited

(148
)

6.00 to 13.50


12.11December 31, 2000

2,449


2.25 to 13.50


10.35Granted

593


1.79 to 2.90


2.56Forfeited

(206
)

2.90 to 13.50


9.28December 31, 2001

2,836


1.79 to 13.50


8.80Granted

513


0.30 to 5.00


1.80Forfeited

(812
)

2.90 to 13.50


7.97December 31, 2002

2,537


0.30 to 13.50

$
7.65


A summary of outstanding and exercisable stock options as of December 31, 2002, is as follows:

|                |  | Options Outstanding |  | Options Exercisable
|--------------- |  | ------------------- |  | -------------------
|
|$0.30 to $2.90  |  | 876                 |  | 9.1                
|3.00 to 5.00    |  | 107                 |  | 9.7                
|6.00 to 8.8125  |  | 374                 |  | 7.1                
|10.875 to 13.50 |  | 1,180               |  | 6.0                
|                |  | 2,537               |  | 7.4                

40

---

15.    Income Taxes

The provision (benefit) for income taxes on income (loss) from continuing operations differs from the amount of income tax determined by applying the U.S.
statutory federal income tax rate of 35% to income before income taxes as a result of the following:

2002

2001

2000Federal income taxes at 35%

$
(22,941
)
$
(16,363
)
$
3,628State income taxes, net of federal benefit


(2,261
)

(953
)

501Goodwill





1,090


1,000Other


1,611


612


(118
)Valuation allowance


23,591





$


$
(15,614
)
$
5,011


The tax benefit on the cumulative effect of a change in accounting principle results in a tax rate less than the expected tax rate due to the write-off of
goodwill not deductible for tax purposes.

Income
tax (benefit) expense included in comprehensive income was as follows:

2002

2001

2000Current income tax expense:Federal

$


$


$
State








Total current income tax expense








Deferred income tax (benefit) expense:Federal


(23,299
)

(13,999
)

5,059State


(2,297
)

(1,521
)

501Total deferred income tax (benefit) expense


(25,596
)

(15,520
)

5,560Total income tax (benefit) expense

$
(25,596
)
$
(15,520
)
$
5,560


Deferred income tax assets and liabilities are computed based on temporary differences between the financial statement and income tax bases of assets and
liabilities using the enacted marginal income tax
rate in effect for the year in which the differences are expected to reverse. Deferred income tax expenses or benefits are based on the changes in the deferred tax assets or liabilities from period to
period.

41

---

Deferred
income taxes have been provided for the temporary differences between the financial statement and the income tax bases of the Company's assets and liabilities as follows:

2002

2001Trade accounts receivable and inventory

$
7,527

$
7,323Non-compete agreements


2,162


1,754Accrued expenses


4,242


3,346Minimum tax credits


1,744


1,851Net operating losses


106,119


93,506Goodwill


15,107


Other


5,279


1,389Valuation allowance


(28,787
)

Deferred income tax asset

$
113,393

$
109,169Goodwill

$


$
(11,598
)Depreciation


(113,393
)

(122,198
)Other





(969
)Deferred income tax liability

$
(113,393
)
$
(134,765
)


Realization of deferred income tax assets is dependent upon generating sufficient future taxable income in the periods in which the assets reverse or the benefits
expire. The Company has provided a full valuation allowance on the net deferred tax asset, consisting primarily of net operating loss, because of uncertainty regarding its realizability. The Company's
net operating loss carryforward of approximately $275,936 expires principally in 2012 through 2022.

16.    Lease Commitments

The Company leases certain rental fleet equipment, facilities, office equipment and vehicles under operating leases, some of which contain renewal options. Future
minimum rental commitments under operating leases consists of the following at December 31, 2002:

2003

$
20,7072004


17,6732005


11,0772006


7,6022007


4,972Thereafter


15,037$
77,068


Rent expense was $31,252, $24,242 and $18,529 for the years ended December 31, 2002, 2001 and 2000, respectively.

42

---

17.    Contingencies

The Company is party to legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the ultimate
resolution of these matters will have no material adverse effect on the Company's financial position, results of operations or cash flows.

18.    Employee Benefit Plans

The Company sponsors a profit sharing and 401(k) plan (the "Plan") in which employees over twenty-one years of age with greater than
one-half year of service are eligible, as defined by the Plan. Under the Plan, the Company makes a discretionary contribution to a trust based on each eligible employee's base annual
wages. In addition, eligible employees can defer up to 15% of their salary with a partially matching contribution by the Company of 50% of the first 5% of the employee contribution. The employer
contributions vest over a five-year period. Contributions by the Company to the Plan were $1,940, $4,068 and $3,840 for the years ended December 31, 2002, 2001 and 2000,
respectively.

19.    Related Party Transactions

Stock subscriptions receivable of $80 and $102 as of December 31, 2002 and 2001, respectively, represent notes due from officers of the Company related to
purchases of Common Stock and is collateralized by the purchased shares. Interest on the notes accrues at 8.3% and is payable in full at maturity on January 6, 2007 or upon termination of
employment. All stock subscriptions receivable were repaid in full during the first quarter of 2003.

The
Company incurred expenses of $2,767, $3,015 and $2,067 for rent under certain lease obligations to former owners, members of management and their affiliates during the years ended
December 31, 2002, 2001 and 2000, respectively.

During
2000, the Company acquired St. Clair Equipment Company for $2,300 from one of the Company's directors.

20.    Segment Information

All operations are managed at the branch level. Allocations of capital and investment decisions are made by senior management on a regional basis. The Company's
significant operating segments include Traffic Safety, East, Southwest and Central. The Company has two reporting segments, Traffic Safety, and
General Rental and Other. The Traffic Safety operations have different contractual, regulatory and capital requirements than the General Rental operations. The accounting policies for these segments
are the same as those described in Note 3. Intersegment revenues are not material. The net operating earnings (losses) of the segments include interest expense (income). The Company has no
single customer that represents greater than 10% of the Company's consolidated revenues. Identifiable assets are those used in the Company's operations in each segment.

43

---

The
following table presents the information for the reported segments for the years ending December 31:

Traffic
Safety

General Rental
and Other

Discontinued
Operations

Consolidated2002Rental and service revenues

$
93,995

$
419,550

$


$
513,545New equipment sales


6,067


35,830





41,897Rental equipment sales


288


38,874





39,162Other revenues


2,504


24,226





26,730Total revenues


102,854


518,480





621,334Operating income (loss)


7,676


(3,072
)




4,604Net income (loss)(a)


524


(195,574
)

1,493


(193,557
)Identifiable assets


103,371


758,102


1,149


862,622Depreciation and amortization


11,764


117,633





129,397Capital expenditures


5,278


63,665





68,9432001Rental and service revenues

$
97,003

$
368,071

$


$
465,074New equipment sales


7,988


36,530





44,518Rental equipment sales


405


25,755





26,160Other revenues


3,641


15,905





19,546Total revenues


109,037


446,261





555,298Operating income


9,748


11,704





21,452Net income (loss)


1,741


(32,877
)

229


(30,907
)Identifiable assets


111,656


979,027


111,648


1,202,331Depreciation and amortization


13,426


112,524





125,950Capital expenditures


5,014


20,097


8,222


33,3332000Rental and service revenues

$
94,760

$
388,020

$


$
482,780New equipment sales


7,995


40,157





48,152Rental equipment sales


329


22,292





22,621Other revenues


5,378


17,270





22,648Total revenues


108,462


467,739





576,201Operating income


12,542


73,938





86,480Net income (loss)


2,056


3,298


699


6,053Identifiable assets


122,632


999,092


116,899


1,238,623Depreciation and amortization


13,151


98,677





111,828Capital expenditures


15,412


143,588


19,717


178,717


---

44

---

21. Restructuring and Impairment Charges

During the fourth quarter of 2002, the Company recorded a pre-tax restructuring charge of $3,769, which was recorded in selling, general and
administrative expenses in the consolidated statement of operations and comprehensive (loss) income. The restructuring activites included the elimination of administrative personnel and closure of 8
branch locations. This charge consisted primarily of severance and lease termination costs. The charge includes costs associated with the termination of more than 300 people, of which 180 were
completed by December 31, 2002. The remaining terminations will occur during 2003. As of December 31, 2002, the Company has essentially completed these restructuring activities, with the
balance of the reserve of approximately $2,394 related to outstanding lease commitments.

During
the fourth quarter of 2001, the Company recorded a non-recurring pre-tax restructuring charge of $1,700 related to the acquisition of BESI. This charge
consists primarily of a reserve for lease termination and severance costs. More than 200 branch and administrative employees have been terminated in conjunction with this restructuring. The Company
also established a reserve of $8,000, which was recorded against goodwill, related to the closure of certain BESI locations in conjunction with the purchase accounting for the acquisition
(Note 5).

The
Company has essentially completed these restructuring activities, with the balance of the reserve of $4,056 related to outstanding lease commitments.

45

---



22. Selected Quarterly Financial Data (Unaudited)

Selected quarterly financial data for the years ended December 31, 2002 and 2001 is as follows:

|                                          |                                | 2002 |         
|----------------------------------------- | ------------------------------ | ---- | --------
|
|Revenues                                  |                                | $    | 138,451 
|Gross profit                              |                                |      | 38,324  
|(Loss) income from continuing operations  |                                |      | (14,878 
|Discontinued operations                   |                                |      | (1,631  
|Change in accounting principle            |                                |      | (129,505
|Net (loss) income                         |                                |      | (146,014
|Basic (loss) earnings per common share:   |                                |      |         
|                                          | Continuing operations          |      | $       
|                                          | Discontinued operations        |      |         
|                                          | Change in accounting principle |      |         
|Net (loss) earnings per common share      |                                | $    | (6.92   
|Diluted (loss) earnings per common share: |                                |      |         
|                                          | Continuing operations          |      | $       
|                                          | Discontinued operations        |      |         
|                                          | Change in account principle    |      |         
|Net (loss) earnings per common share      |                                | $    | (6.92   

|                                          |                         | 2001 |        
|----------------------------------------- | ----------------------- | ---- | -------
|
|Revenues                                  |                         | $    | 127,491
|Gross profit                              |                         |      | 40,854 
|(Loss) income from continuing operations  |                         |      | (7,269 
|Discontinued operations                   |                         |      | (1,034 
|Net (loss) income                         |                         | $    | (8,303 
|Basic (loss) earnings per common share:   |                         |      |        
|                                          | Continuing Operations   |      | $      
|                                          | Discontinued Operations |      |        
|Net (loss) earnings per common share      |                         | $    | (0.40  
|Diluted (loss) earnings per common share: |                         |      |        
|                                          | Continuing Operations   |      | $      
|                                          | Discontinued Operations |      |        
|Net (loss) earnings per common share      |                         | $    | (0.40  

As discussed in Notes 3 and 21, the Company incurred restructuring and impairment charges in the fourth quarter of both 2002 and 2001.

46

---

23. Recent Developments

On April 10, 2003, the Company received a so called "Wells Notice" from the Securities and Exchange Commission ("SEC") arising out of the SEC's inquiry
into the Company's previous revisions to its 2000 and 2001 financial statements announced in the Company's April 2002 10-K. The SEC stated that it intends to recommend that a
cease-and-desist proceeding against the Company be initiated, alleging that the Company violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of
1934 ("Exchange Act") and Rules 12b-20, 13a-1 and 13a-13 of the Exchange Act. The Company has been cooperating in the SEC's inquiry, which is continuing.

47

---



NATIONAL EQUIPMENT SERVICES, INC. AND SUBSIDIARIES        Schedule IIValuation and Qualifying Accounts and Reserves        (Amounts in thousands)

|Column A                               |  | Column B |       | Column C |   | Column D |  | Column E
|-------------------------------------- |  | -------- | ----- | -------- | - | -------- |  | --------
|
|
|2002:                                  |  |          |       |          |   |          |  |         
|Allowance for doubtful accounts        |  | $        | 5,844 |          | $ | 6,004    |  | $       
|Reserve for obsolete inventory         |  |          | 4,676 |          |   | 5,784    |  |         
|Deferred tax asset valuation allowance |  |          |      |          |   | 28,787   |  |         
|2001:                                  |  |          |       |          |   |          |  |         
|Allowance for doubtful accounts        |  | $        | 4,944 |          | $ | 10,226   |  | $       
|Reserve for obsolete inventory         |  |          | 1,816 |          |   | 3,350    |  |         
|2000:                                  |  |          |       |          |   |          |  |         
|Allowance for doubtful accounts        |  | $        | 4,830 |          | $ | 5,360    |  | $       
|Reserve for obsolete inventory         |  |          | 1,739 |          |   | 906      |  |         

---

48

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, National Equipment
Services, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Evanston, State of Illinois, on April 15, 2003.

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

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on April 15, 2003, by the
following persons in the capacities indicated:

|Signature                                 |  | Capacity                                                                              
|----------------------------------------- |  | --------------------------------------------------------------------------------------
|                                          |  |                                                                                       
|/s/JOSEPH M. GULLIONJoseph M. Gullion     |  | President, Chief Executive Officer and Director (Principal Executive Officer)         
|/s/MICHAEL D. MILLIGANMichael D. Milligan |  | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
|/s/CARL D. THOMACarl D. Thoma             |  | Chairman of the Board                                                                 
|/s/JOHN MOLNERJohn Molner                 |  | Director                                                                              
|/s/RONALD ST. CLAIRRonald St. Clair       |  | Director                                                                              
|/s/DANIEL TIMMDaniel Timm                 |  | Director                                                                              

49

---



CERTIFICATIONS

I,
Joseph M. Gullion, certify that:

1.    I
have reviewed this annual report on Form 10-K of National Equipment Services, Inc.;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material
weaknesses.

|Date: April 15, 2003 | /s/JOSEPH M. GULLIONJoseph M. Gullion Chief Executive
Officer
|-------------------- | -------------------------------------------------------------

50

---

I, Michael D. Milligan, certify that:

1.    I
have reviewed this annual report on Form 10-K of National Equipment Services, Inc.;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.    The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:



5.    The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):



6.    The
registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other
factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

|Date: April 15, 2003 | /s/MICHAEL D. MILLIGANMichael D. Milligan Chief
Financial Officer
|-------------------- | -----------------------------------------------------------------

51

---



INDEX TO EXHIBITS

| | Exhibit
Number |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Reference |  
| | -------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------- | -
| | 3.1            |  | Restated Certificate of Incorporation of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                    |  | (1        | )
| | 3.2            |  | Restated By-laws of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | (1        | )
| | 4.1(i)         |  | Indenture dated November 25, 1997, by and among the Company, the subsidiary guarantors named therein and Harris Savings and Trust Company, as trustee.                                                                                                                                                                                                                                                                                                                   |  | (2        | )
| | 4.1(ii)        |  | Supplemental Indenture dated April 1, 1998, by and among NES East Acquisition Corp.; NES Michigan Acquisition Corp.; Albany Ladder Company, Inc. and Harris Savings and Trust Company, as trustee.                                                                                                                                                                                                                                                                       |  | (2        | )
| | 4.1(iii)       |  | Supplemental Indenture dated July 23, 1998, by and among Falconite, Inc.; Carl's Mid South Rent-All Center Incorporated; Falconite Aviation, Inc.; Falconite Equipment, Inc.; Falconite Rebuild Center, Inc.; McCurry &
Falconite Equipment Co., Inc.; M&M Properties, Inc. and Harris Savings and Trust Company, as trustee.                                                                                                                                            |  | (2        | )
| | 4.1(iv)        |  | Supplemental Indenture dated as of April 9, 1999, by and between Barricade & Light Rental, Inc.; Mayer-Hammant Equipment, L.L.C.; Wellesley Crane Service Co., Inc. and Harris Savings and Trust Company, as
trustee.                                                                                                                                                                                                                                                    |  | (7        | )
| | 4.2            |  | Forms of Series B 10% Senior Subordinated Notes (contained in Exhibit 4.1(i) as Exhibit A thereto).                                                                                                                                                                                                                                                                                                                                                                      |  | (2        | )
| | 4.3            |  | Form of Subsidiary Guarantee relating to Series B Senior Subordinated Notes (contained in Exhibit 4.1[i] as Exhibit D thereto).                                                                                                                                                                                                                                                                                                                                          |  | (2        | )
| | 4.4            |  | Registration Rights Agreement dated as of November 25, 1997, among the Company; Aerial Platforms, Inc.; NES Acquisition Corp.; BAT Acquisition Corp.; MST Enterprises, Inc. and the initial purchasers named therein.                                                                                                                                                                                                                                                    |  | (2        | )
| | 4.5            |  | Purchase Agreement dated as of November 20, 1997, among the Company; Aerial Platforms, Inc.; NES Acquisition Corp.; BAT Acquisition Corp.; MST Enterprises, Inc. and the initial purchasers named therein.                                                                                                                                                                                                                                                               |  | (2        | )
| | 4.6            |  | Amended and Restated Credit Agreement dated as of August 6, 1999 and amended as of October 16, 2002 among National Equipment Services, Inc., as Borrower, and Certain Subsidiaries of the Borrower From Time to Time Party Hereto, as
Guarantors, The Several Lenders from Time to Time Party Hereto and First Union National Bank, as Agent.                                                                                                                            |  | (13       | )
| | 4.7            |  | Pledge Agreement dated as of July 17, 1998, by and among the Company; NES Acquisition Corp.; BAT Acquisition Corp.; NES East Acquisition Corp.; NES Michigan Acquisition Corp.; Albany Ladder Company, Inc.;
Falconite, Inc.; Falconite Equipment, Inc.; M&M Properties, Inc.; Carl's Mid South Rent-All Center Incorporated; Falconite Rebuild Center, Inc.; Falconite Aviation, Inc.; McCurry & Falconite
Equipment Co., Inc. and First Union National Bank, as Agent. |  | (2        | )
| |                |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |           |  

52

---

| | 4.8      |  | Security Agreement dated as of July 17, 1998, among the Company; NES Acquisition Corp.; BAT Acquisition Corp.; NES East Acquisition Corp.; NES Michigan Acquisition Corp.; Albany Ladder Company, Inc.;
Falconite, Inc.; Falconite Equipment, Inc.; M&M Properties, Inc.; Carl's Mid South Rent-All Center Incorporated; Falconite Rebuild Center, Inc.; Falconite Aviation, Inc.; McCurry & Falconite
Equipment Co., Inc. and First Union National Bank, as Agent.                                                                               |  | (2 | )
| | -------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -- | -
| | 4.9      |  | Junior Subordinated Convertible Promissory Note, dated September 17, 1998, in the principal amount of $15,000,000.                                                                                                                                                                                                                                                                                                                                                                                                                                |  | (3 | )
| | 4.10(i)  |  | Indenture dated December 11, 1998, by and among the Company, the Subsidiary Guarantors and Harris Savings and Trust Company, as trustee.                                                                                                                                                                                                                                                                                                                                                                                                          |  | (4 | )
| | 4.10(ii) |  | Supplemental indenture dated as of April 9, 1999, by and between Barricade & Light Rental, Inc.; Mayer-Hammant Equipment, L.L.C.; Wellesley Crane Service Co., Inc. and Harris Savings and Trust Company, as
trustee.                                                                                                                                                                                                                                                                                                                             |  | (7 | )
| | 4.11     |  | Forms of Series C and Series D 10% Senior Subordinated Notes (contained in Exhibit 4.10 as Exhibit A thereto).                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | (4 | )
| | 4.12     |  | Form of Subsidiary Guarantee relating to Series C and Series D 10% Senior Subordinated Notes (contained in Exhibit 4.10 as Exhibit D thereto).                                                                                                                                                                                                                                                                                                                                                                                                    |  | (4 | )
| | 4.13     |  | Registration Rights Agreement dated as of December 11, 1998, among the Company; Albany Ladder Company, Inc.; BAT Acquisition Corp.; Carl's Mid South Rent-All Center Incorporated; Falconite Aviation, Inc.; Falconite Equipment,
 Inc.; Falconite, Inc.; Falconite Rebuild Center, Inc.; McCurry & Falconite Equipment Co., Inc.; M&M Properties, Inc.; NES Acquisition Corp.; NES East Acquisition Corp.;
NES Michigan Acquisition Corp.; Rebel Studio Rentals, Inc.; Shaughnessy Crane Service, Inc. and the initial purchasers named therein. |  | (4 | )
| | 4.14     |  | Purchase Agreement dated as of December 8, 1998, among the Company; Albany Ladder Company, Inc.; BAT Acquisition Corp.; Carl's Mid South Rent-All Center Incorporated; Falconite Aviation, Inc.; Falconite Equipment, Inc.;
Falconite, Inc.; Falconite Rebuild Center, Inc.; McCurry & Falconite Equipment Co., Inc.; M&M Properties, Inc.; NES Acquisition Corp.; NES East Acquisition Corp.; NES Michigan
Acquisition Corp.; Rebel Studio Rentals, Inc.; Shaughnessy Crane Service, Inc. and the initial purchasers named therein.              |  | (4 | )
| | 4.15     |  | Registration Rights Agreement dated as of January 8, 1999, among the Company; Albany Ladder Company, Inc.; BAT Acquisition Corp.; Carl's Mid South Rent-All Center Incorporated; Falconite Aviation, Inc.; Falconite Equipment,
 Inc.; Falconite, Inc.; Falconite Rebuild Center, Inc.; McCurry & Falconite Equipment Co., Inc.; M&M Properties, Inc.; NES Acquisition Corp.; NES East Acquisition Corp.;
NES Michigan Acquisition Corp.; Rebel Studio Rentals, Inc.; Shaughnessy Crane Service, Inc. and the initial purchasers named therein.   |  | (4 | )
| |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |    |  

53

---

| | 4.16      |  | Purchase Agreement dated as of January 5, 1999, among the Company; Albany Ladder Company, Inc.; BAT Acquisition Corp.; Carl's Mid South Rent-All Center Incorporated; Falconite Aviation, Inc.; Falconite Equipment, Inc.;
Falconite, Inc.; Falconite Rebuild Center, Inc.; McCurry & Falconite Equipment Co., Inc.; M&M Properties, Inc.; NES Acquisition Corp.; NES East Acquisition Corp.; NES Michigan
Acquisition Corp.; Rebel Studio Rentals, Inc.; Shaughnessy Crane Service, Inc. and the initial purchasers named therein. |  | (4 | )
| | --------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -- | -
| | 10.1      |  | Purchase Agreement dated as of June 4, 1996, between the Company and Golder, Thoma, Cressey, Rauner Fund IV, L.P.                                                                                                                                                                                                                                                                                                                                                                                                                   |  | (2 | )
| | 10.2(i)   |  | Stockholders Agreement dated as of June 4, 1996, by and between the Company; Golder, Thoma, Cressey, Rauner Fund IV, L.P. and certain Executives named therein.                                                                                                                                                                                                                                                                                                                                                                     |  | (2 | )
| | 10.2(ii)  |  | Amendment No. 1 to Stockholders Agreement dated December 31, 1996, by and among the Company; Golder, Thoma, Cressey, Rauner Fund IV, L.P. and certain Executives named therein.                                                                                                                                                                                                                                                                                                                                                     |  | (2 | )
| | 10.3(i)   |  | Registration Agreement dated as of June 4, 1996, between the Company; Golder, Thoma, Cressey, Rauner Fund IV, L.P. and certain Executives named therein.                                                                                                                                                                                                                                                                                                                                                                            |  | (2 | )
| | 10.3(ii)  |  | Amendment No. 1 to Registration Agreement dated as of December 31, 1996, by and among the Company; Golder, Thoma, Cressey, Rauner Fund IV, L.P. and certain Executives named therein.                                                                                                                                                                                                                                                                                                                                               |  | (2 | )
| | 10.3(iii) |  | Amendment No. 2 to Registration Agreement dated as of July 24, 1998, by and among the Company; Golder, Thoma, Cressey, Rauner Fund IV, L.P. and R & R Rentals, Inc.                                                                                                                                                                                                                                                                                                                                                                 |  | (2 | )
| | 10.3(iv)  |  | Amendment No. 3 to Registration Agreement dated as of May 14, 1999, by and among National Equipment Services, Inc.; Golder, Thoma, Cressey, Rauner Fund IV, L.P.; The 1818 Fund III, L.P.; Co-Investment Partners,
 L.P.; Erie Indemnity Company; Erie Insurance Exchange; Aquila Limited Partnership; GTR Associates V, Corp., and certain Executives and other persons named therein.                                                                                                                                             |  | (7 | )
| | 10.4(i)   |  | Senior Management Agreement dated as of June 4, 1996, between the Company and Kevin Rodgers.*                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | (2 | )
| | 10.4(ii)  |  | Amendment No. 1 to Senior Management Agreement dated December 31, 1996, between the Company and Kevin Rodgers.*                                                                                                                                                                                                                                                                                                                                                                                                                     |  | (2 | )
| | 10.5(i)   |  | Senior Management Agreement dated as of June 4, 1996, between the Company and Paul Ingersoll.*                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | (2 | )
| | 10.5(ii)  |  | Amendment No. 1 to Senior Management Agreement dated December 31, 1996, between the Company and Paul Ingersoll.*                                                                                                                                                                                                                                                                                                                                                                                                                    |  | (2 | )
| | 10.6      |  | Senior Management Agreement dated as of December 31, 1996, between the Company and Dennis O'Connor.*                                                                                                                                                                                                                                                                                                                                                                                                                                |  | (2 | )
| | 10.7      |  | Executive Stock Pledge Agreement dated as of June 4, 1996, between the Company and Kevin Rodgers.                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | (2 | )
| | 10.8      |  | Executive Stock Pledge Agreement dated as of June 4, 1996, between the Company and Paul Ingersoll.                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | (2 | )
| |           |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |    |  

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| | 10.9  |  | Executive Stock Pledge Agreement dated as of December 31, 1996, between the Company and Dennis O'Connor.                                                                                                                                                                                                                                                                                                               |  | (2  | )
| | ----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- | -
| | 10.10 |  | Promissory Note dated as of January 6, 1997, by Kevin Rodgers in favor of the Company in the principal amount of $63,232.                                                                                                                                                                                                                                                                                              |  | (2  | )
| | 10.11 |  | Promissory Note dated as of January 6, 1997, by Paul Ingersoll in favor of the Company in the principal amount of $9,880.                                                                                                                                                                                                                                                                                              |  | (2  | )
| | 10.12 |  | Promissory Note dated as of January 6, 1997, by Dennis O'Connor in favor of the Company in the principal amount of $19,760.                                                                                                                                                                                                                                                                                            |  | (2  | )
| | 10.13 |  | Securities Transfer Agreement dated as of December 31, 1996, by and among the Company; Golder, Thoma, Cressey, Rauner Fund IV, L.P.; Golder, Thoma, Cressey, Rauner Fund V, L.P.; Kevin Rodgers; Paul Ingersoll and Dennis
O'Connor.                                                                                                                                                                                   |  | (2  | )
| | 10.14 |  | Stock Purchase Agreement dated as of April 1, 1998, by and among the Company; Falconite, Inc. and the stockholders of Falconite, Inc.                                                                                                                                                                                                                                                                                  |  | (2  | )
| | 10.15 |  | First Amendment and Restatement of the National Equipment Services, Inc. 1998 Long-Term Incentive Plan.                                                                                                                                                                                                                                                                                                                |  | (11 | )
| | 10.16 |  | Form of Underwriting Agreement among the Company; Salomon Smith Barney; Smith Barney, Inc.; William Blair & Company, L.L.C.; Credit Suisse First Boston Corporation; Donaldson, Lufkin & Jenrette Securities Corporation and
NationsBanc Montgomery Securities LLC.                                                                                                                                                    |  | (1  | )
| | 10.17 |  | Stock Purchase Agreement dated as of September 1, 1998, by and among the Company; Shaughnessy Crane Service, Inc. and the stockholders of Shaughnessy Crane Service, Inc.                                                                                                                                                                                                                                              |  | (3  | )
| | 10.18 |  | Employment Letter Agreement dated September 10, 1998, by and between the Company and James W. O'Neil.                                                                                                                                                                                                                                                                                                                  |  | (5  | )
| | 10.19 |  | Stock Purchase Agreement dated April 27, 1999, by and among National Equipment Services, Inc.; The 1818 Fund III, L.P.; Co-Investment Partners, L.P.; Erie Indemnity Company; Erie Insurance Exchange and Aquila Limited
Partnership.                                                                                                                                                                                  |  | (6  | )
| | 10.20 |  | Purchase Agreement dated July 31, 1999, by and among The Plank Companies, L.P.; The Plank Companies, Inc.; Plank Management, Inc.; Michael J. Plank and NES Shoring Acquisition, Inc.                                                                                                                                                                                                                                  |  | (8  | )
| | 10.21 |  | Purchase Agreement, dated as of December 31, 2001, by and among National Equipment Services, Inc., a Delaware corporation, NES Equipment Rental, L.P., a Delaware limited partnership, NES Equipment Services Corporation, an
Illinois corporation, Brambles Equipment Services Holding, Inc., a Delaware corporation, Brambles U.S.A., Inc. a Delaware corporation, and Brambles Canada Inc., an Ontario corporation. |  | (10 | )
| | 10.22 |  | Employment Letter Agreement dated November 1, 2001, by and between the Company and Stephen A. Shaughnessy.                                                                                                                                                                                                                                                                                                             |  | (11 | )
| | 10.23 |  | Employment Letter Agreement dated December 26, 2001, by and between the Company and Michael D. Milligan.                                                                                                                                                                                                                                                                                                               |  | (11 | )
| |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                        |  |     |  

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| | 10.24 |  | Asset Purchase Agreement, dated as of June 30, 2002, by and among National Equipment Services, Inc., NES Companies, L.P. and United Rentals (North America), Inc.                                 |  | (12 | )
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- | -
| | 10.25 |  | Employment Letter Agreement dated September 23, 2002, by and between the Company and Joseph M. Gullion.                                                                                           |  | (14 | )
| | 11.1  |  | Statement RE Computation of Per Share Earnings. Not required because the relevant computations can be determined clearly from the material contained in the financial statements included herein. |  |     |  
| | 21.1  |  | Subsidiaries of the Company.                                                                                                                                                                      |  |     |  
| | 23.1  |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                            |  |     |  
| | 99.1  |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                            |  |     |  
| | 99.2  |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                            |  |     |  

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