Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2001

For the Transition period from                              to                             

Commission File Number: 001-14163

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

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

        As of April 8, 2002, the aggregate market value of the voting stock held by non-affiliates of National Equipment Services, Inc. was approximately $17,170,398.

        As of April 8, 2002, 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 2002 Annual Meeting of Stockholders.

Index to Exhibits:

        Located on pages 41 through 45 of this report.

PART I

ITEM 1.    BUSINESS

General

        National Equipment Services, Inc. (the "Company") is a leading participant in the growing and highly fragmented $25 billion equipment rental industry. Through its 42 businesses acquired since January 1997, the Company specializes in renting specialty and general 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 243 locations across 37 states and Canada, 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 specialty and general equipment in each of its markets. The average age of the Company's equipment fleet is approximately three years. Specialty equipment includes electric and pneumatic hoists, hydraulic and truck-mounted cranes, liquid storage tanks, pumps and highway safety equipment. General industrial and construction equipment includes aerial work platforms, air compressors, cranes, earth-moving equipment and rough terrain forklifts. The Company rents and sells this equipment to industrial and construction end users.

        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. These managers are typically former owners or managers of the businesses acquired by the Company. 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.

Acquired Businesses

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

1

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 1) sells complementary parts, merchandise and rental equipment, 2) acts as a distributor of new equipment on behalf of original equipment manufacturers and 3) services the equipment it sells.

        For financial information about segments, refer to Note 20 of the financial statements.

2

        Equipment Rentals.    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 small equipment, such as hand tools, to industrial and commercial construction customers. The Company's specialty equipment available for rent includes electric and pneumatic hoists, hydraulic and truck-mounted cranes, liquid storage tanks, pumps, and trench and highway safety equipment. The Company is the only major firm in the industry with such an extensive offering of specialty 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 35 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, 2001, the original equipment cost of the Company's rental fleet was approximately $1,121 million, and the average age of its rental equipment fleet was approximately three years.

        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 strong 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; Service and Repair.    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." The Company also provides repair and maintenance services in connection with the equipment it sells as a complement to its core business.

Customers

        Management estimates the Company currently has more than 90,000 customers, ranging from "Fortune 500" companies to small contractors. For fiscal 2001, no single customer accounted for more than 1.3% of the Company's total revenues, while the top five customers represented less than 4.1% of total revenues. Customers look to the Company as an ongoing, comprehensive source of rental equipment because of the economic advantages and 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 residential construction, repair and renovation, including contractors. In addition to maintaining its historically strong relationship with local customers, the Company is increasing its emphasis on larger national and multi-regional accounts.

3

        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. Management believes the Company is well positioned to take advantage of the increasing trend among industrial customers to outsource their equipment needs. In addition, the Company's specialty products, such as hoists and tanks, are tailored to meet the needs of industrial end users. Management believes that given its multi-regional presence, the Company is well positioned to increase its industrial revenue base. The Company intends to expand its industrial customer base by providing additional equipment and services to its existing industrial customers and establishing new relationships through its existing businesses.

        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.

Management Information Systems

        The Company has made significant investments in its information systems. These information systems substantially 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 rental management 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. Each rental center is staffed by an average of 16 employees, including a manager, an assistant manager, sales people, back office clerks, truck drivers, mechanics, and yard personnel. The rental center employees' knowledge of the equipment enables them to recommend the best equipment for a customer's particular application. Each rental center manager is responsible for all aspects of the center's operation, including establishing rental rates, selecting equipment, and determining employee compensation at such location. The Company also maintains two re-manufacturing facilities utilized for equipment refurbishing.

Sales

        The Company offers rental equipment and related services primarily through its sales force of approximately 400 employees. The sales force at each location 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 in part 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.

4

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, John Deere, Ford, Broderson, Ingersoll-Rand, Miller Electric, SkyJack, Tadano, Komatsu, Multiquip, Wacker and Mitsui. No single supplier accounted for more than 7.5% of the Company's total purchases. The Company believes it could readily replace any of its suppliers if necessary.

Competition

        The equipment rental industry is highly fragmented and competitive. Many of the markets in which the Company operates are served by numerous competitors, ranging from national and multi-regional companies, such as Hertz Equipment Rental Corporation (an affiliate of Ford Motor Company), Neff Corp., RSC and United Rentals, Inc., 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. Certain specialized equipment renters, such as the Company's Industrial Hoist Services division, compete on a larger regional or national basis. 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 April 8, 2002, the Company had a total of approximately 3,430 employees, approximately 970 of which are represented by unions. Management believes that its relationship with all of 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.

5

        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 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 fiscal year.

ITEM 2.    PROPERTIES

        At December 31, 2001, the Company operated 243 equipment rental locations in the following 37 states and Canada: Alabama (9), Arizona (7), Arkansas (5), California (6), Connecticut (1), Delaware (1), Florida (14), Georgia (9), Illinois (5), Indiana (9), Iowa (8), Kansas (1), Kentucky (9), Louisiana (9), Maine (5), Maryland (1), Massachusetts (8), Michigan (14), Mississippi (4), Missouri (6), Nevada (3), New Hampshire (4), New York (8), North Carolina (4), Ohio (7), Oklahoma (3), Oregon (4), Pennsylvania (3), Rhode Island (2), Tennessee (14), Texas (31), Utah (1), Vermont (1), Virginia (3), Washington (4), West Virginia (5), Wisconsin (13) and Canada (2). The Company's properties typically include an outside storage yard and a small building containing offices, a maintenance center and, in certain locations, a retail showroom. The Company owns 24 of its equipment rental locations and leases the other 219, as well as its approximately 7,000 square foot headquarters space in Evanston, Illinois. The net book value of owned facilities was approximately $13 million at December 31, 2001, and the average annual lease expense on leased facilities was approximately $45,000 in 2001. 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 interests in each of these properties secure 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 that an adverse ruling in any of these proceedings would not have a material adverse effect on the Company's financial condition or results of operations.

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 2001.

6

PART II

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

        As of April 8, 2002, 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.

        Since the Company's initial public stock offering in July 1998, the Company's common stock has been 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 fiscal years.

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. Since the Company's 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 Notes to the Consolidated Financial Statements of the Company later in this report. As discussed in Note 3 to the consolidated financial statements of the Company, the data for 2000 and 1999 have been restated.

7

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.

General

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

        The Company derives its revenues from four sources: 1) rental of equipment, 2) new equipment sales, 3) rental equipment sales and 4) sales of complementary parts and services. The Company's primary source of revenue is the rental 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 programs. Revenues from the sale of complementary parts and services are primarily affected by equipment rental and sales volumes.

        Cost of revenues consists primarily of rental equipment depreciation, 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 for certain rental equipment acquired.

Revision of 2000 and 1999 Results

        In the process of closing its books for 2001, the Company became aware that certain assets recorded on the 2001 and prior balance sheets were overstated. Management performed a comprehensive analysis of the Company's assets and liabilities as well as a company-wide evaluation of its existing internal control structure.

        As a result of the analysis, the Company is revising its previously issued financial statements for the years ended December 31, 2000 and 1999. The effect of these revisions in 2000 is to reduce net income from $11 million, as previously reported, to $6 million and to reduce earnings per diluted share from $0.36 to $0.19. The effect of these revisions in 1999 is to reduce net income from the previously reported $21 million to $19 million and to reduce earnings per diluted share from $0.72 to $0.66.

        Upon completion of the analysis, management took several steps to strengthen its control environment. These steps included the addition of experienced senior management in selected regions of the Company, the creation of a company-wide internal auditing function and the implementation of general improvements in the processes and controls surrounding the Company's accounting and reporting functions. In addition, management is currently in the process of centralizing selected support functions to further strengthen its internal control structure.

        All financial information presented in this Annual Report on Form 10-K reflects the revisions discussed above.

8

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 2 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, 2001, we had an allowance for doubtful accounts totalling $6.3 million 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, 2001 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, 2001, we had $604.2 million of net rental equipment and $56.8 million 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 0-20% is used. Property and equipment is depreciated over 3 to 30 years, depending on the type of asset held. 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 - - We had approximately $359.0 million of goodwill and non-compete agreements related to acquisitions recorded on our balance sheet at December 31, 2001. We regularly evaluate our acquired businesses for potential impairment indicators. Additionally, we adopted the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," on January 1, 2002, which requires us to perform impairment testing at least annually. Our judgments regarding the existence of impairment indicators are based on, among other things, the regulatory and market status and operational performance of each of our acquired businesses. Future events could significantly impact our judgments and any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.

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, 2001.

Non-Recurring Charges

        In the fourth quarter of 2001, the Company recorded a non-recurring, pre-tax $1.7 million restructuring charge related to the acquisition of Brambles Equipment Services, Inc. ("BESI"). This charge consists primarily of a reserve for lease termination and severance costs. The Company also established a reserve of $8 million related to the closure of selected BESI locations in conjunction with the purchase accounting for the acquisition.

9

        In conjunction with the BESI acquisition and a review of current market demands for the Company's rental equipment, management recorded an asset impairment charge of $3.18 million during the fourth quarter of 2001 for certain equipment no longer consistent with the Company's product lines.

        Results of Operations (Unless otherwise specified, all dollar amounts are in thousands, except per share data.)

        The following table shows information from the Company's consolidated statements of operations as a percentage of total revenues, as restated for the years ended December 31, 2000 and 1999.

        The Company's historical consolidated financial statements included herein cover the years ended December 31, 2001, 2000 and 1999. Comparisons of the Company's results are significantly impacted by the fact that the Company completed one, four and 19 acquisitions at different times during 2001, 2000 and 1999, 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.

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

        Revenues.    Total revenues declined slightly from $623,836 in 2000 to $610,748 in 2001. A $15,800 decline in rental revenues from 2000 to 2001 was partially offset by a $3,617 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 Traffic Safety segment were flat between 2000 and 2001.

        Gross Profit.    Gross profit declined to $206,030 in 2001 from $255,902 in 2000. Gross margin decreased to 33.7% from 41.0% 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, as discussed above, the write-down of off-brand fleet negatively impacted the Company's operating expenses in 2001 by $3,183.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased to $146,886 in 2001 from $132,456 in 2000. A portion of this increase is attributable to the reserve for branch closures discussed in conjunction with the restructuring charge above. In addition, the Company

10

incurred an 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 21.2% in 2000 to 24.0% in 2001.

        Non-rental Depreciation and Amortization.    Non-rental depreciation and amortization increased from $28,044 in 2000 to $29,750 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.

        Operating Income.    As a result of the performance described above, operating income declined from $95,402 in 2000 to $29,394 in 2001. Operating income approximated 4.8% of total revenues in 2001.

        Operating income within the Traffic Safety segment decreased by $2,794 due primarily to higher cost of revenues.

        Interest Expense, net.    Interest expense, net decreased from $84,182 in 2000 to $76,060 in 2001 due to the repayment during 2001 of approximately $102,000 in debt drawn on the Company's revolving credit line.

        Income Tax Expense (Benefit).    The Company incurred a ($15,520) income tax benefit in 2001 as compared to the $5,560 of expense recognized in 2000. The Company's effective tax rate decreased from 47.9% in 2000 to 33.4% in 2001.

Year Ended December 31, 2000, Compared With the Year Ended December 31, 1999

        Revenues.    Total revenues increased to $623,836 in 2000 from $473,194 in 1999. Rental revenues increased to $470,211 from $341,535 during these respective periods. The increases were primarily the result of the acquisition of additional businesses in 2000, as well as the inclusion in 2000 of a full year of revenue for the businesses acquired in 1999, coupled with strong industry demand resulting in same-store rental revenue growth of 15%. Revenues in the Traffic Safety segment increased $47,938 due to acquired businesses and generally strong demand for road construction projects.

        Gross Profit.    Gross profit increased to $255,902 in 2000 from $211,266 in 1999. Gross margin decreased to 41.0% from 44.6% during these respective periods. The decrease in gross margin was primarily the result of higher costs associated with the opening of 15 start-up locations during 2000 and the decline in rental rates in some markets.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased to $132,456 in 2000 from $100,060 in 1999. This increase was primarily the result of the inclusion in 2000 of a full year of expenses related to businesses acquired in 1999. As a percentage of total revenues, selling, general and administrative expenses remained a relatively constant 21.2% and 21.1% for 2000 and 1999, respectively.

        Non-rental Depreciation and Amortization.    Non-rental depreciation and amortization increased to $28,044 in 2000 from $18,861 in 1999. This increase was due primarily to the inclusion of a full year of depreciation and amortization expense related to the businesses acquired in 1999.

        Operating Income.    As a result of the performance described above, operating income increased to $95,402 in 2000 from $92,345 in 1999. Operating income represented 15.3% of total revenues in 2000. An increase in operating income for the Traffic Safety segment accounted for $2,620 of the increase in 2000 and is due to acquired companies.

        Interest Expense, net.    Interest expense, net increased to $84,182 in 2000 from $60,156 in 1999. This increase was due to higher average debt levels resulting from increased financing required for the

11

Company's 2000 and 1999 acquisitions, as well as an overall increase in interest rates on the Company's revolving line of credit.

        Income Tax Expense.    Income tax expense decreased to $5,560 in 2000 from $13,422 in 1999. The Company's effective tax rate increased to 47.9% in 2000 from 40.8% in 1999 due to the non-deductibility for income tax purposes of amortization of goodwill related to certain acquisitions, offset by the effect of lower state tax rates compared to the prior year.

Liquidity and Capital Resources

        The Company's primary capital requirements are for purchasing new rental equipment and for acquisitions. 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 $23 million, $166 million and $197 million in 2001, 2000 and 1999, respectively. The Company's expenditures for rental fleet are expected to be approximately $35 million in 2002. The Company's principal existing sources of cash are 1) cash generated from operations and 2) borrowings available under its credit facility ($9 million as of April 8, 2002).

        For the years ended December 31, 2001, 2000 and 1999, the Company's net cash provided by operations was $102 million, $111 million and $72 million, respectively. The consistent cash flow from operations in 2001 and 2000 is the result of increased cash generated from accounts receivable in 2001 offset by the decrease in earnings as compared to the prior year and a decrease in accounts payable balance at the end of 2001 due to large purchases at the end of 2000 which did not recur in 2001. The increase in 2000 relative to 1999 is due primarily to higher earnings before depreciation and amortization. For the same three years, the Company's net cash used in investing activities was $94 million, $148 million and $469 million, 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. The decreases in 2001 and 2000 are attributable to consistently declining fleet purchases as well as significantly lower acquisition expenditures as compared to 1999. Fleet purchases in 2001 were further offset by increased proceeds on the sale of rental equipment. Net cash (used in) provided by financing activities was $(7) million in 2001, $6 million in 2000 and $430 million in 1999. Net cash provided by financing activities consists primarily of borrowings, net of repayments, under the Company's credit facility. The decrease in 2001 is a result of repayment of approximately $102 million of borrowings under the Company's credit facility essentially offset by borrowings for the BESI acquisition. The decrease in 2000 was due primarily to reduced acquisition spending, offset by an increase in purchases of shares under the Company's stock repurchase program.

        The Company's credit facility provides for a $100 million term loan and a revolving credit facility up to a maximum of $550 million (subject to availability based on certain financial tests including a borrowing base) to meet acquisition needs, as well as seasonal working capital and general corporate requirements. As of December 31, 2001, $592 million was outstanding under the credit facility with $28 million of additional availability based on the Company's borrowing certificate. The credit facility contains certain covenants that require the Company to, among other things, satisfy certain financial tests relating to 1) the ratio of senior debt to EBITDA, 2) minimum interest coverage ratio and 3) the ratio of funded debt to EBITDA. The agreements governing the credit facility also contain various other covenants that restrict the Company's ability to, among other things, 1) incur additional indebtedness, 2) permit liens to attach to its assets, 3) pay dividends or make other restricted payments on its common stock and certain other securities and 4) make acquisitions unless certain financial conditions are satisfied. The Company is currently in compliance with all covenants governing the credit facility. While the Company expects to be in compliance with the covenants and satisfy the financial ratios and tests related to the credit facility in the future, there can be no assurance that the Company will meet such financial ratios and tests.

12

        During 1997, the Company issued $100 million of Senior Subordinated Notes due 2004 (the "Series A Notes") at a discount netting proceeds of $99 million. During 1998, the Company completed its exchange of $100 million 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 million of Senior Subordinated Notes due 2004, Series C (the "Series C Notes") at a discount netting proceeds of $122 million. During 1999, the Company issued $50 million of additional Series C Notes, at a discount netting proceeds of $49 million. Later during 1999, the Company completed its exchange of $175 million of Senior Subordinated Notes due 2004, Series D (the "Series D Notes"), which have been registered for public trading, for the Series C Notes.

        The Company accretes the original issue discount of the Series B Notes and 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.

        The Company believes that its credit facility, together with funds generated by operations and related activities, will provide the Company with sufficient liquidity and capital resources in the near term to finance its operations and pursue its business strategy. Over the long term, the Company will need to refinance its credit facility 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.

General Economic Conditions, Inflation, and Seasonality

        The Company's operating results may be adversely affected by 1) changes in general economic conditions, including changes in construction and industrial activity or increases in interest rates, or 2) adverse weather conditions that may temporarily decrease construction and industrial activity in a particular geographic area. Although the Company cannot accurately anticipate the effect of inflation on its operations, management believes 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 June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," that supersede Accounting Principles Board ("APB"), Opinion No. 16, Business Combinations, and APB Opinion No. 17, Intangible Assets. The two statements modify the method of accounting for business combinations and address the accounting and reporting for goodwill and intangible assets. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Beginning in fiscal year 2002, the Company will no longer amortize goodwill, but will, however, evaluate goodwill for impairment on an annual basis. For the years ended December 31, 2001, 2000 and 1999, goodwill amortization was $10 million, $10 million and $7.6 million, respectively. The Company is currently reviewing these statements to determine their effect on the Company's consolidated financial statements. Based upon preliminary calculations of fair value pursuant

13

to SFAS No. 142, it appears that the Company will record a charge upon adoption of SFAS No. 142 in the range of $100 million to $200 million.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which supersedes SFAS No. 121 and the accounting and reporting provisions of APB No. 30, Reporting the Result of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently occurring Events and Transactions. This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The Company plans to adopt this standard at the beginning of 2002 and is currently reviewing this statement to determine its effect on the Company's consolidated financial statements.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company's credit facility provides the Company with a $100 million term loan and permits the Company to borrow up to an additional $550 million of revolving loans provided that certain conditions and financial tests are met, subject to a borrowing base. Borrowings under the credit facility bear interest, at the Company's option, at a specified base rate or Eurodollar rate plus the applicable borrowing margin. At April 8, 2002, the Company had total borrowings under the revolving credit facility and the term loan of $594 million. Each 100 basis point increase in interest rates on the variable rate debt would decrease pretax earnings by approximately $2 million.

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

Forward-Looking Statements

        Note: This 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.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The Company's consolidated financial statements are listed in Part IV, Item 14, of this report and begin on page 16.

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

        None.

14

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 2002 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 2002 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 2002 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 2002 Proxy Statement under the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." This information is incorporated herein by reference.

15

PART IV

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)

The following documents are filed as part of this report:

1.

The Consolidated Financial Statements set forth on pages 17 through 38.

Report of Independent Accountants

Consolidated Financial Statements:

Consolidated Balance Sheets, December 31, 2001 and 2000

Consolidated Statements of Operations and Comprehensive Loss, for the years ended December 31, 2001, 2000 and 1999

Consolidated Statements of Cash Flows, for the years ended December 31, 2001, 2000 and 1999

Consolidated Statements of Stockholders' Equity, for the years ended December 31, 2001, 2000 and 1999

Notes to Consolidated Financial Statements

2.

The Consolidated Financial Statement Schedule, set forth on page 39.

Schedule II. Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2001, 2000 and 1999

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the corresponding notes.

3.

The exhibits listed in the Index to Exhibits set forth on pages 41 through 45.

(b)

Reports on Form 8-K filed during the fourth quarter of the year ended December 31, 2001.

None.

16

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 14(a)(1) (as restated) on page 16 present fairly, in all material respects, the financial position of National Equipment Services, Inc. and its subsidiaries (the "Company") at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 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 14(a)(2) on page 16 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 consolidated financial statements for the years ended December 31, 2000 and 1999 have been restated as discussed in Note 3.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois
April 15, 2002

17

NATIONAL EQUIPMENT SERVICES, INC.

CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000

(Amounts in thousands, except per share data)

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

18

NATIONAL EQUIPMENT SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Years Ended December 31, 2001, 2000 and 1999

(Amounts in thousands, except per share data)

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

19

NATIONAL EQUIPMENT SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2000 and 1999

(Amounts in thousands, except per share data)

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

20

NATIONAL EQUIPMENT SERVICES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2001, 2000 and 1999

(Amounts in thousands, except per share data)

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

21

NATIONAL EQUIPMENT SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2001, 2000 and 1999

(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, 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. Significant Accounting Policies

Cash and Cash Equivalents

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

Trade Accounts Receivable

        Trade accounts receivable represents amounts due from customers on rental and service contracts and equipment sales.

Inventory

        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.

Rental Equipment

        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 $239,786 and $174,332 at December 31, 2001 and 2000, 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.

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

22

Property and Equipment

        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:

        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 as other income (loss).

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

Intangible Assets

        Goodwill consists of the excess cost over acquired net assets which has been capitalized and is being amortized on a straight-line basis over fifteen to forty years. Non-compete agreements are recorded at cost and amortized on a straight-line basis over five years.

Impairment of Long-Lived Assets

        The Company makes regular periodic assessments to determine if factors are present which indicate that an impairment of long-lived assets may exist. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," if factors indicate that an impairment may exist, the assessment of recoverability and measurement of impairment of identifiable intangibles is based on an undiscounted cash flow basis.

Loan Origination Costs

        Loan origination costs primarily consist of $10,532 related to the First Union 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 $9,828 and $6,717 at December 31, 2001 and 2000, respectively.

Income Taxes

        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."

23

Fair Value of Financial Instruments

        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 12). The fair value of the Senior Subordinated Notes was $233,750 and $160,875 based on the December 31, 2001 and 2000 monthly closing bids in the over-the-counter markets, 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.

Hedging Instruments

        Effective January 1, 2001, the Company adopted 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"). These standards 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. As of January 1, 2001, the adoption of these new standards did not have an impact on the consolidated financial statements.

Concentration of Credit Risk

        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.

Use of Estimates

        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.

24

Revenue Recognition

        Revenues from equipment rentals are recognized ratably over the contract term and, for certain contracts, based upon actual work completed to date. Revenues from equipment and part sales are recognized at the point of delivery.

Shipping and Handling Costs

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

Reclassifications

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

Recently Issued Accounting Pronouncements

        In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," that supersede Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations," and APB Opinion No. 17, "Intangible Assets." These two statements modify the method of accounting for business combinations and address the accounting and reporting for goodwill and intangible assets. SFAS No. 141 is effective for all business combinations initiated after June 30, 2001 and all business combinations accounted for by the purchase method for which the date of acquisition is after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Beginning in fiscal year 2002, the Company will no longer amortize goodwill, but will, however, evaluate goodwill for impairment on an annual basis. For the years ended December 31, 2001, 2000 and 1999, goodwill amortization was $10,124, $10,155 and $7,567, respectively. The Company is currently reviewing these statements to determine their effect on the Company's consolidated financial statements. Based upon preliminary calculations of fair value pursuant to SFAS No. 142, it appears that the Company will record a charge upon adoption of SFAS No. 142 in the range of $100,000 to $200,000.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No. 121 and the accounting and reporting provisions of APB No. 30, "Reporting the Result of Operations, Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently occurring Events and Transactions." This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The Company plans to adopt this standard at the beginning of 2002 and is currently reviewing this statement to determine its effect on the Company's consolidated financial statements.

3. Revision of Prior Year Consolidated Financial Statements

        In 2001, the Company became aware that certain assets recorded on the 2001 and prior consolidated balance sheets were overstated. Following a comprehensive accounting investigation, the Company is, by means of this filing, revising its previously issued consolidated financial statements for the years ended

25

December 31, 2000 and 1999 to reflect write-downs of trade accounts receivable, inventory and rental equipment.

        The following table reconciles the amounts previously reported to the amounts currently being reported in the consolidated financial statements of operations and comprehensive loss for the years ended December 31, 2000 and 1999:

        Total assets as previously reported at December 31, 2000 and 1999 were reduced by $10,313 and $4,036, respectively, due to these revisions as follows: