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

FORM 10-K

NES Rentals Holdings, Inc.
(Exact Name of Registrant as Specified in its Charter)

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        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 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. Yes o    No ý

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

        As of June 30, 2004, the aggregate market value of the voting and non-voting common equity held by non-affiliates of NES Rentals Holdings, Inc. was approximately $56,185,000.

        Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ý    No o

        As of March 1, 2005, there were 19,027,269 shares of Common Stock, par value $0.01 per share, of NES Rentals Holdings, Inc., outstanding.

        Information required by Items 10, 11, 12, 13 and 14 of Part III of the Annual Report on Form 10-K incorporates by reference information (to the extent specific sections are referred to herein) from the registrant's Proxy Statement for its annual meeting to be held on May 11, 2005 (the "2005 Proxy Statement").

NES Rentals Holdings, Inc.

FORM 10-K REPORT INDEX

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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, changes in market price or market demand for rental equipment; loss of business from customers; general declines in rental rates in the market; pricing pressure from competitors; unanticipated expenses; changes in financial markets; the Company's substantial leverage; and other factors discussed in the Company's filings with the Securities and Exchange Commission.

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

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PART I

ITEM 1.    BUSINESS

General

        NES Rentals Holdings, Inc. (the "Company") is a leading participant in the highly fragmented $26 billion equipment rental industry. Through its 42 businesses acquired (of which 6 have been sold or exited) since January 1997, the Company rents general, specialty and traffic safety 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 130 locations across 34 states and Canada and is a leading competitor in many of the geographic markets it serves.

        Management believes the Company offers a well-maintained fleet of general and specialty equipment in each of its markets. The Company's general industrial and construction equipment selection ranges from large equipment such as aerial work platforms (booms and scissors), cranes, industrial and rough terrain forklifts, light earth-moving equipment and portable air compressors to small equipment such as hand tools. The Company's specialty equipment available for rent includes mobile storage, pumps and highway safety equipment.

        The Company is led by an experienced management team. The professionals who manage the Company's local operations have an average of more than 15 years of experience in the equipment rental and traffic safety industries and have extensive knowledge of, and relationships in, their local markets.

Reorganization

        On February 11, 2004 (the "Effective Date"), the Company emerged from bankruptcy as prescribed by the joint plan of reorganization (the "Plan of Reorganization") of National Equipment Services, Inc. (the "Predecessor Company") and its U.S. subsidiaries (collectively, the "Debtors"). The Plan of Reorganization was confirmed by the Bankruptcy Court on January 23, 2004. On June 27, 2003, the Debtors filed for voluntary reorganization under Chapter 11 (the "Reorganization") of the U.S. Bankruptcy Code (the "Bankruptcy Code") in the Northern District of Illinois ("Bankruptcy Court"). The Predecessor Company's Canadian subsidiary, which represented less than 2% of total revenues and total assets of the Predecessor Company, was not included in the petition. From June 27, 2003 through February 11, 2004, the Debtors continued to operate as debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.

        The Plan of Reorganization provided for the cancellation, as of the Effective Date, of all of the issued and outstanding shares of common stock, par value $0.01 per share, of the Predecessor Company (the "Old Common Stock"), all of the issued and outstanding shares of preferred stock of the Predecessor Company, and all other outstanding securities of the Predecessor Company, including common stock options.

        On the Effective Date, National Equipment Services, Inc. merged into NES Rentals, Inc. NES Rentals, Inc. was the surviving company in the merger and was renamed National Equipment Services, Inc. NES Rentals, Inc. is a subsidiary of both NES IT Services, Inc. and NES Real Estate Management, Inc., which are subsidiaries of NES Rentals Holdings, Inc., which is the successor company to National Equipment Services, Inc. The Company has 25 million authorized shares of common stock, par value $0.01 per share (the "New Common Stock").

        In accordance with the Plan of Reorganization, (i) holders of general unsecured claims, including the holders of the Predecessor Company's Senior Subordinated Notes due 2004, Series B (the "Series B Notes") and Senior Subordinated Notes due 2004, Series D (the "Series D Notes"), received 97.5% of the

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New Common Stock, (ii) the holders of the Predecessor Company's preferred stock received 2.0% of the New Common Stock, and (iii) the holders of the Predecessor Company's Old Common Stock received 0.5% of the New Common Stock.

Products and Services

        The Company is primarily involved in the business of renting general, specialty and traffic safety equipment to industrial and construction end-users. In addition, the Company sells complementary parts, merchandise and rental equipment, acts as a distributor of new equipment on behalf of original equipment manufacturers and services the equipment it sells. Please refer to the notes to the Company's consolidated financial statements included later in this report for financial information about the Company's business 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 includes hydraulic and truck-mounted cranes, liquid storage tanks, pumps and highway safety equipment. The Company's general rental contracts range from daily rental contracts for small subcontractors to multi-year contracts for certain industrial customers, with an overall average rental period of approximately three weeks. 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. 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 certain types of new equipment to end-users. 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 preventive maintenance program and its practice of selling rental equipment before it becomes irreparable or obsolete. Fleet 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 and to used equipment buyers through its branch operations and website as well as through third party auctioneers.

        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 Income (Loss).

Customers

        The Company's customers range from "Fortune 500" companies to small contractors. During 2004, no single customer accounted for more than 2% of the Company's total revenues, while the top ten customers represented less than 10% 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,

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automotive companies, paper mills and public utilities, and 2) commercial and non-residential construction, repair and renovation, including contractors and governmental agencies (federal, state and local funds for traffic improvement and infrastructure spending). In addition to maintaining its historically strong relationship with local customers, the Company services a variety of larger national and 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. Management believes that the Company is well positioned to take advantage of the increasing trend among industrial customers to outsource equipment needs. In addition, the Company's specialty products, such as tanks and industrial forklifts, are tailored to meet the needs of industrial end-users. Given its multi-region presence, the Company is well positioned to increase its industrial revenue base. Industrial customers accounted for approximately 35% of the Company's total revenues during 2004.

        Construction.    The Company's construction customers include "Fortune 500" companies, national and regional contractors and subcontractors involved in construction projects such as 1) non-residential commercial building, 2) chemical plants and other manufacturing facilities, 3) roads, bridges and highways, 4) schools, hospitals and airports and 5) residential developments and apartment buildings. Construction customers currently comprise the largest portion of the Company's customer base, representing approximately 65% of the Company's total revenues during 2004.

Branch Operations

        The Company's equipment general rental and traffic safety branches typically include: (i) a customer service area and showroom displaying selected rental equipment, new equipment offered for sale and related merchandise, (ii) an equipment service and maintenance area and (iii) equipment storage facilities. Each branch is staffed with management personnel, administrative support, sales people, drivers, mechanics and yard personnel. Our employees' knowledge of the equipment enables them to recommend the best equipment for a customer's particular application.

Sales and Marketing

        Sales.    The Company offers rental equipment and related services primarily through its sales force, consisting of 10 district managers, who oversee 300 sales people. The field sales organization works closely with inside sales teams to ensure that the customer needs are fulfilled operationally. Inside sales teams assist in lead-generation programs for follow-up calls, telemarketing, dormant customer calls and government, state and municipal bid prospecting, to generate qualified leads and drive incremental revenues.

        The inside sales force at each branch location is knowledgeable about all of the services and products provided at that location. Field sales representatives regularly visit 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, regarding the operating features and maintenance requirements of its equipment. Members of the Company's sales force generally earn commissions on all equipment rentals and sales that they generate.

        Marketing.    The Company focuses on distinct markets that are aligned with its core businesses: non-residential construction and industrial maintenance, repair and operations (MRO) for equipment rental, sales and service; highway construction for traffic safety product rentals, and the process industries for tank rentals. These markets are further analyzed and segmented based on equipment needs and

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profitability to determine the highest probability opportunities, based on market awareness and understanding of the Company's and related equipment rental value propositions.

        Marketing programs are integrated across all business-to-business media channels, including publicity, print and online advertising, direct marketing, and e-communications. A primary goal of each market initiative is lead generation to augment a targeted sales approach. District management focuses on Fortune 500 companies and contractors with national reach. Field sales representatives focus on core mid-sized industrial, municipal and contractor segments.

        In mid-2004, the Company launched a significantly more aggressive advertising, direct marketing and search engine optimization campaign featuring an updated branding, positioning and graphic identity strategy. Early measurements of these initiatives have been favorable with new business leads being generated for the Company.

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 Terex, Genie Industries, SkyJack, JLG Industries, Hyster, Sullair, Dragon, Caterpillar,and Ingersoll Rand. No single supplier accounted for more than 10% of the Company's total purchases during 2004, and management believes that there are comparable alternative suppliers for the purchases made from significant suppliers.

        After reviewing its vendor management strategy, the Company has consolidated hundreds of vendors by centralizing its purchasing operations. The Company earns volume purchasing discounts and has established national accounts for a variety of products, including filters, paint, tires, gloves and hand safety supplies, shop supplies, hand tools, ladders, batteries, office supplies and printing.

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., Rental Service Corp., Hertz Equipment Rental Corp., Sunbelt Rentals and NationsRent, 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. In general, management believes that national and multi-regional operators, such as the Company, enjoy 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, 2004, the Company had a total of approximately 2,800 employees, approximately 650 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 its 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

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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.

        The Company has a program to review its facilities' compliance with environmental laws which addresses as a matter of standard operating procedure any deficiencies identified in the course of that audit process. 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 significant 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 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.

Seasonality

        The Company's revenues and operating results fluctuate due to the seasonal nature of the markets in which the Company operates. The Company's presence both in the traffic safety and control industry and in the general rental market in the Northeast and Midwest are highly seasonal in nature, with activity tending to be lower in the winter as compared to the spring and summer.

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Acquired Businesses

        The Predecessor 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 inception, the Predecessor Company acquired the following 42 businesses:

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*

Indicates businesses that have been sold or exited by the Company and its predecessors.

ITEM 2.    PROPERTIES

        At December 31, 2004, the Company operated 130 branches in the following 34 states and Canada: Alabama (7), Arizona (4), Arkansas (4), California (1), Connecticut (1), Florida (4), Georgia (6), Illinois (4), Indiana (6), Iowa (2), Kansas (1), Kentucky (2), Louisiana (6), Maine (3), Massachusetts (6), Michigan (12), Mississippi (3), Missouri (1), Nevada (1), New Hampshire (1), New Jersey (1), New York (7), North Carolina (1), Ohio (4), Oklahoma (3), Pennsylvania (2), Rhode Island (2), South Carolina (1), Tennessee (5), Texas (13), Vermont (1), Virginia (2), West Virginia (1), Wisconsin (9), 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 majority of these locations are leased. The net book value of owned facilities was approximately $7.1 million at December 31, 2004, and the average annual lease expense per leased facility was approximately $100,000 in 2004. 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 collateralize 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.

Reorganization

        On February 11, 2004 (the "Effective Date"), the Company emerged from bankruptcy as prescribed by the joint plan of reorganization (the "Plan of Reorganization") of National Equipment Services, Inc. (the "Predecessor Company") and its U.S. subsidiaries (collectively, the "Debtors"). The Plan of Reorganization was confirmed by the Bankruptcy Court on January 23, 2004. On June 27, 2003, the Debtors filed for voluntary reorganization under Chapter 11 (the "Reorganization") of the U.S. Bankruptcy Code (the "Bankruptcy Code") in the Northern District of Illinois ("Bankruptcy Court"). The Predecessor Company's Canadian subsidiary, which represented less than 2% of total revenues and total assets of the Predecessor Company, was not included in the petition. From June 27, 2003 through February 11, 2004, the Debtors continued to operate as debtors-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.

        The Plan of Reorganization provided for the cancellation, as of the Effective Date, of all of the issued and outstanding shares of common stock, par value $0.01 per share, of the Predecessor Company (the "Old Common Stock"), all of the issued and outstanding shares of preferred stock of the Predecessor Company, and all other outstanding securities of the Predecessor Company, including common stock options.

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        On the Effective Date, National Equipment Services, Inc. merged into NES Rentals, Inc. NES Rentals, Inc. was the surviving company in the merger and was renamed National Equipment Services, Inc. NES Rentals, Inc. is a subsidiary of both NES IT Services, Inc. and NES Real Estate Management, Inc., which are subsidiaries of NES Rentals Holdings, Inc., which is the successor company to National Equipment Services, Inc. The Company has 25 million authorized shares of common stock, par value $0.01 per share (the "New Common Stock").

        In accordance with the Plan of Reorganization, (i) the holders of general unsecured claims, including the holders of the Predecessor Company's Series B Notes and Series D Notes received 97.5% of the New Common Stock, (ii) the holders of the Predecessor Company's preferred stock received 2.0% of the New Common Stock, and (iii) the holders of the Predecessor Company's Old Common Stock received 0.5% of the New Common Stock.

Other matters

        Following the Company's announcement in April 2002 that it was restating its prior period financial statements through the filing of its 2002 Annual Report on Form 10-K, the Company received a notice of inquiry from the SEC relating to the Company's restated financial statements. Following a review of the Company's response to the notice of inquiry, the SEC commenced an informal investigation into this matter. The informal investigation included the production of relevant documents and the taking of testimony from certain current and former Company employees. The Company was informed that the SEC also commenced an investigation with respect to three individuals (two former employees no longer associated with the Company and one current employee).

        On April 10, 2003, the Company was informed by the SEC's staff, through receipt of a "Wells Notice," that the staff intended to recommend that the SEC institute a cease-and-desist proceeding against the Company, alleging that the Company violated Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rules 12b-20, 13a-1, and 13a-13 thereunder. Prior to and during the investigation, the Company had voluntarily upgraded and reinforced significant portions of its financial controls functions. The Company fully cooperated with the SEC throughout the investigation.

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

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 2004.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        As of March 1, 2005, there were 33 holders of record of the Company's common stock. The Company has never paid any dividends on its common stock. Dividend payments are restricted under the terms of the Company's credit facility.

        The Predecessor Company's common stock was traded on the New York Stock Exchange under the symbol "NSV" until October 2002. For the period from October 2002 until the Company's emergence from bankruptcy on February 11, 2004, the Predecessor Company's common stock was traded on the over-the-counter market under the symbol "NEQS." Subsequent to emergence from bankruptcy, the Company's New Common Stock has been traded on the over-the-counter market under the symbol "NLEQ."

        The table below lists the high and low quarterly sales price information for the Company's New Common Stock since its emergence from bankruptcy.

        The Plan of Reorganization provided for the cancellation, as of the Effective Date, of all of the Predecessor Company's issued and outstanding shares of common stock and all other equity securities of the Predecessor Company, including common stock options. Accordingly, the Company has not presented information about the prices at which the Predecessor Company's common stock previously traded and compensation plans related to the Predecessor Company's equity securities, because such information is not meaningful.

Equity Compensation Plan Information

        Refer to the Notes to Consolidated Financial Statements of the Company later in this report for a summary of the Company's equity compensation plan.

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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. All dollar amounts presented are in thousands, except per share data.

        As a result of the Reorganization and the adoption of fresh-start accounting following emergence from bankruptcy, the Company's results of operations after January 31, 2004 are not comparable to results reported in prior periods.

        All of the Predecessor's Company's common stock was cancelled per the terms of the Plan of Reorganization. As a result, earnings (loss) per share information for all periods have been omitted for the Predecessor as such information is not deemed to be meaningful.

(a)

See Note 9 in the Notes to Consolidated Financial Statements regarding intangible assets.

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 Predecessor Company was founded in June 1996 to acquire and integrate businesses that focus on the rental of general, specialty and traffic safety equipment to industrial and construction end-users. Since inception, the Predecessor Company acquired 42 businesses (of which 6 have been sold or exited) 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 financial statements only from their respective dates of acquisition.

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        On February 11, 2004, the Predecessor Company merged into NES Rentals, Inc. NES Rentals, Inc. was the surviving company in the merger and was renamed National Equipment Services, Inc. NES Rentals, Inc. was a subsidiary of both NES IT Services, Inc. and NES Real Estate Management, Inc., which are subsidiaries of the newly formed NES Rentals Holdings, Inc. (the "Company"), which is the successor to National Equipment Services, Inc.

        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 the cost of rental and service revenues, the cost of new equipment, the net book value of rental equipment sold, rental equipment depreciation 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 from one to fifteen years over which it depreciates its equipment on a straight-line basis.

Critical Accounting Policies

        We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, which require 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.

Application of SOP 90-7

        The consolidated financial statements of the Predecessor Company were prepared in accordance with SOP 90-7. Under SOP 90-7, revenues and expenses, realized gains and losses and provisions for losses resulting from the reorganization of the business were reported in the consolidated statements of operations separately as reorganization items. Professional fees were expensed as incurred. Interest expense was reported only to the extent that it was to be paid during the bankruptcy or that it was probable that it would be an allowed claim. The application of SOP 90-7 also required that the Company estimate the expected amount of allowed claims with respect to pre-petition liabilities in accordance with Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies."

Allowance for Doubtful Accounts

        At December 31, 2004, we had an allowance for doubtful accounts totaling $5,532 which we have established in the event that we are unable to collect certain receivables. This allowance represents our estimate of the total receivables recorded as of December 31, 2004 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 of Rental Equipment and Property and Equipment

        At December 31, 2004, we had $383,934 of net rental equipment and $26,969 of net property and equipment recorded on our balance sheet. Rental equipment is depreciated using the straight-line method

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over a period of up to fifteen years. 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 over which they will generate revenues. 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.

Impairment of Long-Lived Assets

        In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," we test long-lived assets or asset groups for recoverability whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. When such events occur, we compare 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 the long-lived asset or asset group. If this comparison indicates that an impairment exists, the amount of the impairment is measured by comparing the carrying value to the fair market value of the asset. We recognized impairments of $3,093, $831 and $6,743 primarily related to capitalized software development costs and rental fleet during the eleven months ended December 31, 2004 and the years ended 2003 and 2002, respectively, which are appropriately included as depreciation expense in the consolidated statements of operations and comprehensive income (loss).

Valuation Allowance on Net Deferred Tax Assets

        At December 31, 2004, we provided a full valuation allowance of $43,097 on our net deferred tax assets. Realization of net deferred income tax assets is dependent upon generating sufficient future taxable income in the periods in which the underlying temporary differences reverse, or prior to the dates that net operating loss carry-forwards expire. We must assess the likelihood that our net deferred tax assets will be recovered in the future. Because of our history of operating losses, we are required to maintain a full valuation allowance.

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, 2004.

        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

        During 2002 and 2003, the Predecessor Company's financial performance was negatively affected by lower activity levels in the economy, a slowdown in non-residential construction, competitive pricing pressure due to over-capacity of rental equipment in the industry and lower demand. The resulting decrease in earnings negatively impacted the Predecessor Company's cash flows from operations during this period, limiting the Predecessor Company's ability to invest in its rental fleet. Management initiated

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several actions in response to these circumstances, including actions to reduce operating expenses through personnel reductions and consolidation of branch and support operations, as well as asset sales to reduce debt. Although these actions reduced debt levels by more than $100,000 in 2002 and 2003, the Predecessor Company's liquidity remained strained.

        Beginning in late 2002, the Company entered into a series of discussions with its debt and equity holders to evaluate various restructuring alternatives. In June 2003, it was determined that it was in the best interest of the Predecessor Company's creditors and other constituents to seek protection through voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code. As a result of defaults under its credit facilities, the Predecessor Company operated with limited capital resources due to its inability to borrow under its senior credit facility until its emergence from bankruptcy on February 11, 2004.

        During 2004, the Company's financial performance improved primarily as a result of increases in rental and service activity from non-residential construction, industrial and traffic safety customers and from higher rental rates experienced in the industry. The Company successfully completed several major initiatives during 2004 including: emergence from bankruptcy, retention of a new Board of Directors and Chief Executive Officer, completion of a new credit facility extinguishing the exit credit agreement, selected branch closures and asset dispositions and reduction of certain expenses in preparation for 2005. The Company experienced strong cash flow from operating activities as a result of improved financial performance combined with the impact of restructuring activities and cost-saving initiatives implemented in connection with the Reorganization.

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

        As a result of the application of fresh start reporting on January 31, 2004, and in accordance with SOP 90-7, the post-emergence financial results for the eleven-month period ended December 31, 2004 are presented as the results of the "Successor," and the pre-emergence financial results for the month ended January 31, 2004 and the years ended December 31, 2003 and 2002 are presented as the results of the "Predecessor." Comparative financial statements do not straddle the emergence date because in effect the Successor represents a new entity. As a result of applying fresh start reporting, the Successor has higher levels of depreciation and amortization expense in comparison to the Predecessor. For purposes of discussion herein, the results of operations for the Predecessor for the month ended January 31, 2004 and the results of operations for the Successor for the eleven months ended December 31, 2004 are combined.

Comparison of the Years Ended December 31, 2004 and 2003

        Revenues.    Total revenues for the year ended December 31, 2004 of $588,118 were up $21,019, or 4%, from $567,099 in 2003, with improved performance in both of the Company's operating segments, even through utilizing a smaller rental fleet. Total revenues in the General Rental and Other segment of $476,739 in 2004 were up 2% over prior year levels, as rental rates were up as much as 10% in some the Company's largest fleet categories. Fleet sales in the General Rental and Other segment of $42,431 were up $12,312 over the prior year, as the Company targeted equipment for disposal while investing approximately $100,000 in new fleet during 2004 in an effort to improve the overall composition of the

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fleet. Favorable market conditions also contributed to a 3% improvement in new equipment sales during 2004. Total revenues for the Traffic Safety segment increased 15% to $111,379 in 2004 from $97,226 in 2003. Increased market share in existing markets, as well as expansion into new markets in the Midwest, resulted in rental and service revenues growth of $11,691 in 2004.

        Gross Profit.    Gross profit of $122,601 for 2004 was down $24,596 from 2003 as a result of a $25,401 increase in rental equipment depreciation expense due primarily to the Company's adoption of fresh start accounting and the related write-up of the Company's assets. Excluding depreciation expense, gross margins within the General Rental segment were up slightly primarily as a result of the improved rental rates year-over-year. Gross margins within the Traffic Safety segment were down 4%, excluding depreciation expense, as decreases in state funding have resulted in more aggressive competitive bidding of projects in 2004.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses of $133,869 for 2004 were down $2,538 from $136,407 in 2003. This improvement is primarily the result of cost savings realized from the consolidation of the General Rental back office functions in late 2003. Selling, general and administrative expenses for 2004 and 2003 include $10,092 and $5,346, respectively, of professional fees and related expenses incurred in connection with the Reorganization outside of the bankruptcy filing period, which are not expected to recur.

        Reorganization Expenses.    During the bankruptcy filing period in 2004 and 2003, the Company incurred $1,973 and $8,816, respectively, of charges related to the Reorganization. These expenses related to professional fees incurred, amortization of loan origination fees and employee retention-related expenses.

        Fresh Start Accounting Adjustments.    As a result of the Company's bankruptcy filing on June 27, 2003, the Company recognized a pre-emergence gain of $50,667 resulting from the aggregate remaining changes to the net carrying value of the Company's pre-emergence assets and liabilities to reflect the fair values under fresh start reporting.

        Goodwill Impairment.    As a result of the Company's bankruptcy filing on June 27, 2003, the Company completed an impairment analysis of goodwill as of June 30, 2003. Based on the results of this analysis, the Company recorded a non-cash charge of $138,115 during the second quarter of 2003, which reflected the elimination of the remaining goodwill of the Company. No similar charge was recorded in 2004.

        Non-rental Depreciation and Amortization.    Non-rental depreciation and amortization increased to $17,260 in 2004 from $7,699 in 2003. This increase was primarily the result of additional depreciation expense resulting from the write-up of property and equipment in conjunction with the adoption of fresh start accounting, as well as amortization expense resulting from the other intangible assets identified in conjunction with fresh start accounting. In addition, the Company recognized an impairment loss of $3,093 in 2004, related primarily to capitalized software development costs.

        Operating Income (Loss).    As a result of the performance described above, operating income (loss) improved to $20,166 in 2004 from ($143,840) in 2003. Operating income (loss) for the General Rental and Other segment improved to $24,688 in 2004 from ($106,034) in 2003, and operating income (loss) within the Traffic Safety segment improved to ($4,522) from ($37,806) during these respective periods.

        (Loss) Gain on Discharge of Debt.    In conjunction with the refinancing during the third quarter of 2004, the Company recognized a ($5,468) loss on the write-off of the unamortized debt issuance costs associated with the previous credit facility. In connection with the Company's emergence from bankruptcy, the Company recognized a $241,128 gain associated with the elimination of pre-petition liabilities discharged under the Plan of Reorganization.

        Interest Expense.    Interest expense decreased to $33,068 in 2004 from $60,600 in 2003 as a result of lower interest rates on the Company's senior debt during the current year as compared to the default interest rates incurred during the same period of 2003 when the Company was operating under

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forbearance agreements. In addition, the Company incurred interest expense of $13,750 on its Senior Subordinated Notes during the first half of 2003.

        Income Tax Expense.    The Company did not provide any current or deferred income tax provision or benefit during 2003 or 2004 because it has experienced significant operating losses. The Company provides a full valuation allowance against its net deferred tax asset. The income tax expense recognized in 2004 is related to alternative minimum tax payments.

Comparison of the Years Ended December 31, 2003 and 2002

        Revenues.    Total revenues declined to $567,099 in 2003 from $621,334 in 2002. A $30,697 decrease in rental and service revenues was primarily the result of consistently declining rental rates during 2003. In some markets, rates were down more than 15% from 2002. Rental equipment sales were down $8,942 in 2003 as compared to 2002 as the result of a variety of vendor trade packages and fleet auctions in which the Company participated during 2002. New equipment sales of $34,006 in 2003 were down $7,891 from 2002, and other revenues of $20,025 were down $6,705 from 2002, both indicative of the slowdown experienced in the non-residential market during the year.

        Revenues in the General Rental and Other segment were down in 2003. Segment revenues of $469,873 in 2003 were down 9% from 2002 levels, with rental and service revenues down 7% year-over-year. As noted above, this decrease was primarily the result of continued pressure on rental rates. In addition, the Company has taken steps during the preceding two years to improve the mix of its fleet which has resulted in a fleet size that was approximately 13% smaller than when these efforts were initiated. Other revenues, primarily consisting of sales of parts and supplies, which generally complement equipment rentals and sales, were down as well.

        Traffic Safety segment revenues declined 5% to $97,226 in 2003 from $102,854 in 2002. Rental and service revenue was down $3,148 year-over-year as state funding of highway construction projects was down from 2002.

        Gross Profit.    Gross profit declined to $147,197 in 2003 from $156,091 in 2002 on the lower revenues. Gross margin improved slightly, however, from 25% to 26% during these respective periods. This improvement is the result of actions management took to integrate the Brambles acquisition, completed at the end of 2001, including branch closures and consolidations, as well as workforce reductions. Approximately 15% of the Company's branches were closed or consolidated early 2002 through late 2003. Additionally, the write-down of off-brand and impaired fleet negatively impacted the Company's operating expenses by $6,333 in 2002.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses decreased to $136,407 in 2003 from $141,821 in 2002. As with direct costs, this improvement was the result of actions management took to consolidate and centralize branch and administrative operations. Additionally, the Company recorded a $3,769 charge associated with severance and lease termination costs incurred as a result of restructuring initiatives undertaken during 2002. Selling, general and administrative expenses for 2003 included $5,346 of reorganization expenses incurred prior to the bankruptcy filing.

        Reorganization Expenses.    Subsequent to the bankruptcy filing, the Company incurred $8,816 of charges related to the Reorganization. These expenses related to professional fees incurred, amortization of loan origination fees and employee retention-related expenses.

        Goodwill Impairment.    As a result of the Company's bankruptcy filing on June 27, 2003, the Company completed an impairment analysis of goodwill as of June 30, 2003. Based on the results of this analysis, the Company recorded a non-cash impairment charge of $138,115 during the second quarter of 2003, which reflected the impairment of the remaining goodwill of the Company.

        Non-rental Depreciation and Amortization.    Non-rental depreciation and amortization declined to $7,699 in 2003 from $9,666, primarily as a result of the expiration of a portion of the Company's non-compete agreements.

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        Operating Income (Loss).    As a result of the performance described above, operating income (loss) declined to $(143,840) in 2003 from $4,604 in 2002. Operating income (loss) for the General Rental and Other segment declined to $(106,034) in 2003 from $(3,072) in 2002, and operating income (loss) within the Traffic Safety segment declined to $(37,806) from $7,676 during these respective periods.

        Interest Expense.    Interest expense decreased to $60,600 in 2003 from $71,742 in 2002. Upon filing for bankruptcy, the Company discontinued its monthly accrual for interest associated with the Senior Subordinated Notes, Series B and Series D. If the Company had continued to accrue for this interest, an additional $13,750 of interest expense would have been recognized during 2003.

        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 in 2002 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.    The Company did not provide any current or deferred income tax provision or benefit during 2002 or 2003 because it 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 future net deferred tax assets were recorded.

Liquidity, Financial Condition and Capital Resources

        The Company's primary capital requirements are for purchasing new rental equipment. The Company purchases rental equipment throughout the year to replace equipment that has been sold or retired as well as to maintain adequate levels of equipment to meet existing and new customer needs. Rental fleet purchases for the Company were $98,948, $33,902 and $61,255 in 2004, 2003 and 2002, respectively, and the Company's expenditures for 2005 are expected to be $80,000. The Company's principal sources of cash are cash generated from operations and borrowings available under its credit facility. At December 31, 2004, the Company had approximately $70,000 of availability under its credit facility.

        For the years ended December 31, 2004, 2003 and 2002, the Company's net cash provided by operations was $100,037, $34,599 and $47,123, respectively. The increase in 2004 is the result of improved results of operations, as well as a reduction in the cash deposits required by vendors and performance bonding companies while the Company was in bankruptcy. For the same three years, the Company's net cash (used in) provided by investing activities was $(64,114), ($10,047) and $81,192, respectively. Net cash used in investing activities consists primarily of expenditures for new acquisitions and rental equipment purchases. The Company invested $98,948 in new fleet in 2004, as compared to $33,902 in 2003. The Company received $108,890 in proceeds on the sale of its trench shoring division in 2002. This transaction, in addition to the fleet purchases noted above, caused the changes noted in cash flows from investing activities. Net cash (used in) provided by financing activities was $(47,124), $10,515 and $(117,330) in 2004, 2003 and 2002, respectively. Net cash provided by financing activities consists primarily of borrowings, net of repayments, under the Company's credit facility. The Company utilized the proceeds from the sale of the trench shoring business to repay outstanding indebtedness during 2002.

        On August 17, 2004, the Company entered into a new senior secured credit facility (the "2004 Credit Facility"). The 2004 Credit Facility consists of a $300,000 first lien credit facility, comprised of a $200,000

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term loan and a $100,000 revolving loan, and a $275,000 second lien term loan. Proceeds under the 2004 Credit Facility were used to repay the balance outstanding under the credit facility the Company entered into upon its emergence from bankruptcy on February 11, 2004 (the "Exit Credit Facility"). The Company has scheduled principal repayments of $500 quarterly on the first lien facility through the August 17, 2009 maturity date. The interest rate on the first lien debt averages base rate plus 0.5% or LIBOR plus 2.5%. The Company has scheduled principal repayments of $688 quarterly on the second lien term loan through the August 17, 2010 maturity date, and the interest rate is base rate plus 5% or LIBOR plus 6%.

        The 2004 Credit Facility contains certain covenants that require the Company to, among other things, satisfy certain financial tests relating to fixed charge coverage ratios and debt leverage ratios. The 2004 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 and 3) pay dividends or make other restricted payments on its common stock and certain other securities unless certain financial conditions are satisfied. The 2004 Credit Facility is collateralized by substantially all of the Company's assets. In accordance with the terms of the 2004 Credit Facility, management engages an independent, third-party service provider to appraise the Company's rental equipment monthly. The Company is currently in compliance with all covenants governing the 2004 Credit Facility.

Recent Accounting Pronouncements

        In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement No. 123R, a revision to Statement No. 123, "Accounting for Stock-Based Compensation." This standard requires the Company to measure the cost of employee services received in exchange for equity awards based on the grant date fair value of the awards. The cost will be recognized as compensation expense over the vesting period of the awards. The Company is required to adopt SFAS 123R at the beginning of the third quarter of 2005. The standard provides for a prospective application. Under this method, the Company will begin recognizing compensation cost for equity based compensation for all new or modified grants after the date of adoption. In addition, the Company will recognize the unvested portion of the grant date fair value of awards issued prior to adoption based on the fair values previously calculated for disclosure purposes. At December 31, 2004, the aggregate value of unvested options, as determined using a Black-Scholes option valuation model, was $3,790. Upon adoption of SFAS 123R, a majority of this amount will be recognized over the remaining vesting period of these options.

Factors That May Influence Future Results

Economic Conditions

        Our end-users consist of construction and industrial customers. Changes in these markets may lead to increased or decreased demand for our equipment and services. In addition, general economic declines usually result in lower overall rental rates, which generally adversely impact our business.

Seasonality

        The Company's revenues and operating results fluctuate from quarter to quarter due to the seasonal nature of the markets in which the Company operates. The Company's presence both in the traffic safety and control industry and in the general rental market in the Northeast and Midwest are both highly seasonal in nature, with activity tending to be lower in the winter as compared to the spring and summer.

Indebtedness

        The Company's substantial indebtedness could adversely affect the Company's operations in the future in one or more of the following ways:

•

Increases in interest rates could result in increased interest expense and increased cash outflows for debt service;

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•

The Company's ability to obtain additional financing could be limited as essentially all of the assets of the Company secure the existing indebtedness; and



•

Failure to comply with covenants associated with the existing indebtedness could result in the creditors' ability to require accelerated repayment of outstanding indebtedness.

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 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. However, increases in competition from either new or existing industry participants could occur, and the potential impact on our existing market share is unknown.

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 does not believe that an adverse ruling in any of these proceedings would have a material adverse impact on the Company's results of operations, the Company's ultimate legal and financial liability resulting from any of these proceedings cannot be estimated with certainty.

Environmental

        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. 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 reviews its environmental practices at its various locations from time to time.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The 2004 Credit Facility consists of a $300 million first lien credit facility, comprised of a $200 million term loan and a $100 million revolving loan, and a $275 million second lien term loan. Borrowings under the 2004 Credit Facility bear interest, at the Company's option, at a specified base rate or LIBOR rate plus the applicable borrowing margin. At March 1, 2005, the Company had total borrowings under the 2004 Credit Facility of $448 million. Each 100 basis point increase in interest rates on the variable rate debt would decrease annual pretax earnings by approximately $4.5 million. In August 2004, the Company purchased interest rate cap contracts, which cap the interest rate on substantially all of the LIBOR-based debt through 2008 in the event of a significant increase in the underlying interest rate. Because of the interest rate cap levels, management does not believe that these contracts will significantly reduce the Company's expected interest costs.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Report of Independent Registered Public Accounting Firm

The Board of Directors
NES Rentals Holdings, Inc.:

        We have audited the accompanying consolidated balance sheet of NES Rentals Holdings, Inc. and subsidiaries (the Company or the Successor) as of December 31, 2004, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity (deficit) and cash flows for the eleven-month period then ended, and the related consolidated balance sheet of National Equipment Services, Inc. and subsidiaries (the Predecessor) as of December 31, 2003, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity (deficit) and cash flows for the one-month period ended January 31, 2004, and the year ended December 31, 2003. | These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Successor as of December 31, 2004, and the results of their operations and their cash flows for the eleven-month period then ended, and the financial position of the Predecessor as of December 31, 2003, and the results of their operations and their cash flows for the one-month period ended January 31, 2004 and the year ended December 31, 2003 in conformity with U.S. generally accepted accounting principles.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
of NES Rentals Holdings, Inc.:

        In our opinion, the consolidated statements of operations and comprehensive income (loss), of cash flows and of stockholders' equity (deficit) present fairly, in all material respects, the results of operations and cash flows of National Equipment Services, Inc. and its subsidiaries (Predecessor Company) for the year 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 for the year ending December 31, 2002 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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.

        As discussed in Note 9 to the consolidated financial statements, the Company changed its method of accounting for goodwill and intangible assets during 2002.

/s/  PRICEWATERHOUSECOOPERS LLP      

PricewaterhouseCoopers LLP

Chicago, Illinois
April 15, 2003

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NES RENTALS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share information)

See accompanying notes to consolidated financial statements.

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NES RENTALS HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share information)

See accompanying notes to consolidated financial statements.

26

NES RENTALS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

See accompanying notes to consolidated financial statements.

27

NES RENTALS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except per share information)