UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                  

Commission file number:  333-141011

AHERN RENTALS, INC.

(Exact name of registrant as specified in its charter)

Nevada	88-0381960
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
4241 South Arville Street
Las Vegas, Nevada	89103
(Address of principal executive offices)	(Zip Code)

(702) 362-0623

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
None

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act..  Yes  o  No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes  o  No  x

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  o  No  x

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.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o         Accelerated filer  o         Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

As of March 28, 2007, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $-0-.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at March 28, 2007
Common Stock no par value per share	1,000 shares

Forward-Looking Statements

In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements which involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this report under “Item 1A - Risk Factors.” You should carefully review the risks described in this report and in other documents we file from time to time with the Securities and Exchange Commission (“SEC”). When used in this report, the words “expects,” “could,” “would”, “may,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “targets,” “estimates,” “looks for,” “looks to,” and similar expressions, as well as statements regarding our focus for the future, are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

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PART I

ITEM 1.  BUSINESS

We are an equipment rental company with locations primarily in the southwestern United States and we rent a broad range of equipment and sell new and used rental equipment as well as parts and supplies related to our rental equipment and merchandise used by the construction industry.  We also provide maintenance and repair services.  We serve a diverse base of customers, including commercial and residential construction companies, industrial companies, utilities, convention centers, municipalities and homeowners. Founded in 1953 with one location in Las Vegas, Nevada, we have expanded through organic growth and, as of March 23, 2007, offer our rental equipment to customers through our 38 branches in Nevada, California, Arizona, Utah, Texas, Oregon, Colorado, New Mexico, Kansas, and New Jersey.  We are an S corporation, incorporated under the laws of the state of Nevada in 1997.

As of December 31, 2006, our rental fleet included:

·    over 16,800 high reach units, such as scissor lifts, forklifts and boom lifts; and

·over 11,300 general rental units, comprised of ground engaging units, such as backhoes, skidsteers, skiploaders and trenchers; and other rental units, including compressors, generators, light towers, welders and other equipment.

For the year ended December 31, 2006, we generated 69% of our revenues from high reach equipment rental, 20% of our revenues from general equipment rental and 11% of our revenues from the sale of new and used rental equipment, and related merchandise, parts and services.

Our principal executive offices are located at 4241 South Arville Street, Las Vegas, Nevada 89103. Our main telephone number is (702) 362-0623, and our Web site is http://www.ahern.com. The content of our Web site is not part of this report.

Operations

Equipment Rentals.  Our rental equipment includes a wide array of items from bulldozers and boom lifts to ladders and lawnmowers. Our primary focus is on high reach equipment. The breadth of our rental offerings allows us to meet virtually all of the equipment needs of our customers, from the largest contractor to the individual homeowner.

All of our high reach equipment is kept in our floating fleet. Our floating fleet is not assigned to a specific rental branch, but is instead shared among all of our rental branches. As a result, we can quickly reallocate high reach equipment among branches in accordance with changing customer demand. Most of our other rental equipment, although it may be assigned to individual branches, also is available to any branch based on demand. Using a floating fleet and sharing equipment allows us to respond rapidly to the needs of our customers and to increase the utilization rates of equipment, thereby reducing our capital expenditures and improving our profitability.

We offer our equipment for rent on a daily, weekly and monthly basis. We determine rental rates for each type of equipment based on the cost and expected utilization of the equipment and adjust rental rates at each branch based on demand, length of rental, volume of equipment rented and other competitive considerations.

We have a well-maintained, high-quality rental fleet that has a weighted average age of 27 months as of December 31, 2006 and is supported by an extensive, in-house maintenance program. In addition to routine maintenance, we repaint and refurbish our rental equipment frequently to maintain the appearance and performance of our fleet. We make regular and significant capital investments in new equipment and generally do not purchase used equipment for our rental fleet.

New Equipment Sales. We sell a variety of new high reach and other construction equipment. The equipment we sell is manufactured by JLG Industries, Inc., Skyjack Inc., Snorkel International and others. Because of our strong relationships with equipment manufacturers, we are able to acquire almost any type of equipment our customers need.

Used Rental Equipment Sales. We sell our used rental equipment in the normal course of business primarily through our experienced sales force, or through our branch locations or at auction. We market and sell our used rental equipment and invest in new equipment based on general economic conditions and other factors including: (1) customer demand, (2) growth opportunities, and (3) management of the age, size, and composition of our fleet.

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Parts, Supplies and Merchandise. We sell a full range of parts and supplies related to our rental equipment, and we also sell merchandise used by the construction industry. Each rental branch stocks parts with high-turnover rates. Our central purchasing facility in Las Vegas stocks a wide array of lower-turnover parts and can ship those parts to a branch where they are needed, usually within one day. Parts availability is also critical to our ability to repair and service our rental equipment and satisfy the demands of our customers.

Equipment Purchasing

All of our equipment is acquired from reputable national manufacturers that are known for their product quality and reliability. We believe we have sufficient alternative sources of supply for the equipment we purchase in each of our principal product categories. In 2006, our top 10 suppliers comprised 83% of our total equipment purchases. We believe our size and the quantity of equipment we acquire enable us to purchase equipment at lower prices and on more favorable terms than many of our competitors. We usually obtain 15 - 50% discounts off retail prices from our major suppliers. We do not enter into long-term supplier commitments to purchase equipment and have the flexibility to cancel orders with our suppliers if expected demand for rental equipment does not materialize. We purchase all of our rental equipment centrally to ensure the most favorable and consistent terms with our suppliers.

Parts Purchasing and Supply

We believe the quality and timely availability of parts and service are key competitive factors, significant elements in overall customer satisfaction and strong contributors to the decision to rent equipment.

Each of our branches maintains a full range of high-turnover parts to allow us to repair quickly the equipment we rent and sell. Slower moving parts are stored at our central purchasing facility in Las Vegas for distribution to our branches when needed. We handle all logistical arrangements through an agreement with a nationally recognized overnight courier. We track each branch’s parts inventory through our centralized computer system, which allows us to monitor our overall inventory and adjust its distribution throughout our branches. Through our centralized parts tracking and logistical arrangements, we are able to transfer parts among our branches to maximize utilization.

If parts are unavailable at any of our branches or our central purchasing facility, the experienced purchasing agents at our central purchasing facility will purchase the parts from a manufacturer or supplier, often at previously negotiated prices. Whenever possible, we purchase our parts in volume to take advantage of discounts and other favorable terms. We also have agreements with national suppliers to provide certain items, such as batteries and filters, to our branches. We believe our parts purchasing capabilities are adequate to support our existing branches.

Customers

We serve a diverse customer base, including commercial and residential construction companies, industrial companies, utilities, convention centers, municipalities and homeowners. Customers in construction-related end markets constitute our principal customer base. In 2006, our largest customer accounted for less than 1.3% of our revenues, and our top 10 customers accounted for less than 7.6% of our revenues. Many of our customers operate in several of the different markets we serve. We offer these customers the ability to rent equipment on the same terms in each of these regions. Many of our customers have been with us for over a decade.

We rent equipment, sell parts and supplies related to the equipment we rent, sell merchandise used by the construction industry, provide repair services and sell new equipment and our used rental equipment on account to customers who are screened through a credit application process. Credit account customers are our core customers, accounting for approximately 91% of our revenues in 2006, and our largest source of repeat business.  In 2006, approximately 70% of our credit account customers rented equipment three or more times from us. We also assist customers in arranging financing for purchases of large equipment through a variety of sources including manufacturers, banks, finance companies and other financial institutions.

Sales and Marketing

We maintain a strong marketing and sales organization that is committed to building relationships with customers and potential customers, working with customers on an ongoing basis and internally sharing information about new business opportunities. We undertake sales and marketing initiatives designed to increase revenues and market share and build brand awareness. We actively network with decision makers from construction and industrial companies, utilities, convention centers, municipalities and other organizations. We promote brand awareness through involvement in the community. In addition, we prepare marketing analyses that address key business issues such as market and industry

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history, opportunities, company philosophy, sales trends, consumer behavior trends, distribution channels, pricing issues, target markets, advertising and media analyses, competitive situations and selling strategies. Based on the results of our analyses, we develop additional targeted marketing and sales strategies.

Although our entire executive management is involved in our sales and marketing efforts, our vice president of sales and marketing is responsible for training, supervising and directing the Ahern Rentals sales force. He is supported by experienced sales managers, each of whom is responsible for overseeing and coordinating sales and marketing activities at one or more of our rental branches, overseeing the mix of equipment at the branches they serve, and keeping abreast of local and regional activity in the end markets we serve.

As of December 31, 2006, we employed 116 salespeople who manage our customer relationships. We train our salespeople both in selling our rental services and selling new equipment and our used rental equipment. Our salespeople use targeted local marketing strategies to address specific customer needs and respond to competitive pressures. Our local sales force focuses on maintaining and building strong relationships with local decision makers in the end markets we serve. In addition, they keep abreast of local market activity by tracking construction, industrial and municipal projects and new and used equipment sales in their area.

Our salespeople are dedicated to maintaining strong relationships with our existing customers. Our sales structure is customer-account based rather than territory based. Our salespeople serve as the single point of initial contact for all customer needs. They are encouraged to ensure that existing customers continue to choose our company to fulfill their rental needs when those customers expand their operations into new territories. Our salespeople elicit input from customers concerning their equipment needs and communicate this input to our management team. We use this information in our efforts to tailor to local or regional demand the mix of equipment available at each of our rental branches.

Through our performance-based compensation system, salespeople are encouraged to maximize rental rates. This compensation system has permitted us to attract and retain talented salespeople.

Customer Service and Support

We provide high-quality customer service in every phase of a customer’s rental or purchasing life cycle. We believe high-quality service greatly influences customer satisfaction and retention and allows us to develop and maintain the loyalty of our customers and to enhance our rental rates. Typical services we provide to our customers include:

·    assisting the customer with choosing the right equipment for its needs;

·    ensuring timely delivery of the equipment;

·    setting up on-site rental yards on selected construction and other projects;

·dispatching repair technicians to service equipment or delivering replacement equipment in a timely manner to provide customers with operable equipment as quickly as possible;

·accommodating special requests by customers;

·moving the equipment of our rental customers from one job site to another;

·ensuring strict quality control of our billing and, in the rare circumstance when we have a payment or other dispute, resolving the dispute quickly; and

·providing access to a broad range of rental equipment through our floating fleet and the sharing of equipment among our branches.

Each customer is assigned to one of our sales representatives who serves as the primary contact for all aspects of the customer relationship and ensures that all of the customer’s needs are met promptly and satisfactorily. Our sales team is available 24 hours a day, seven days a week to respond to customer needs.

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Our local branches are able to supply equipment and services quickly to our customers in most cases. If a customer’s local branch does not have a particular item, we are able to take advantage of our floating fleet and centralized parts database to access equipment and parts at our other branches, usually within one day. The manager of each branch can obtain an item from another branch by contacting our central purchasing facility in Las Vegas. The central purchasing facility then identifies the nearest branch that has the equipment available and arranges for the equipment to be shipped to the branch where it is needed. Our central purchasing facility may also purchase needed equipment if satisfactory equipment is not immediately available in our floating fleet.

We provide customers with equipment operation and safety training, equipment inspection and maintenance services that meet or exceed the standards of the American National Standards Institute and the Security Industry Association, often provided at the customer’s location. We include this training in the rental fees and purchase prices we charge our customers. We believe this training is highly valued by our customers and is an important factor supporting the rental rates we are able to charge.

Growth and Development

Our growth and development department conducts market research on potential metropolitan areas and regions in which to establish new branches. We focus on high-growth metropolitan areas to take advantage of strong demand from the construction industry. We also analyze the competitive environment and the demographic outlook of each potential branch location. Once a decision is made to enter a new market, we look for branch sites in industrial areas with convenient freeway access and begin hiring employees to operate the new branch.

Growth at each new location typically occurs in three stages. First, we stock new branches primarily with high reach equipment, including units we already own, to take advantage of our strong expertise in this area. As demand develops at that branch, we add general rental equipment designed for contractor use, as well as additional high reach equipment, followed by ground engaging equipment. We typically are able to open a new branch in two weeks or less from the date we obtain possession of the property.

Competition

The equipment rental industry is capital intensive, highly fragmented and characterized by intense price and service competition. We compete through a combination of pricing, service, equipment quality, equipment availability, value and convenience. We compete with independent equipment rental businesses in all of the markets in which we operate, and we compete with equipment manufacturers that sell and rent equipment to customers, directly and through their dealer networks. We also compete with the tool rental centers of national home improvement stores. As a result of industry consolidation in recent years, many of our competitors operate on a regional or national basis. Many of our competitors are significantly larger and have greater financial and marketing resources than we have.

At times, industry-wide price pressures on certain classes of equipment have adversely affected equipment rental companies, and we have, on such occasions, priced our equipment in response to these pressures. Moreover, at times when the equipment rental industry has experienced equipment oversupply, competitive pressure has intensified, with a negative impact on the industry’s rental rates.

We believe we have a competitive advantage over many of our competitors because of our loyal customer base, our emphasis on customer service, our ability to provide our customers with new and well-maintained equipment and our ability to transfer our floating fleet among rental branches in response to changing customer demand. We also believe our entrepreneurial management system enables us to respond to market changes more quickly than many of our competitors.

Technology

We employ diverse technologies that create a highly scalable and reliable environment. Our information systems allow us to make rapid and informed decisions and respond quickly to changing market conditions. Supported by a team of over 20 IT professionals, we are able to identify and deploy appropriate technology solutions to address our dynamic business needs.

The core of our information technology infrastructure is our IBM AS/400, a reliable, redundant, and efficient operating platform. The IBM AS/400 is used for our daily operations and supports rental contracts, inventory, dispatch, equipment maintenance, and financial reporting in addition to numerous other essential business functions. Our information technology infrastructure also includes:

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·Central Enterprise Data Center. Our critical computer systems are located in a Tier 1, carrier class data center that includes dual independent and redundant power sources, a dedicated back-up generator, multiple key card security checkpoints, a 24x7 controlled environment monitored for both temperature and humidity, pre-action fire protection, water detection, raised floors with positive air ventilation, and other security features.

·Centralized Computing through Thin-Client Technology. Utilizing thin-client technology for user desktops enables quick connections to each of our operating environments. This technology allows us to control security and configuration from one central location, which minimizes our technical staff requirements. System-wide upgrades are also easier and less time-consuming as we simply upgrade the servers located in our Central Enterprise Data Center.

·Wynne Systems’ RentalMan Software. For the past five years, we have been one of the leading developers for RentalMan software. RentalMan is our primary line-of-business software and is used by many of the top-ten rental companies in North America. With full access to RentalMan source code, we are able to independently enhance the software to address our diverse business needs.

·Infor Infinium Financial Management Software. We use Infinium Financial Management software, which is IBM AS/400-based and fully integrated with RentalMan. Infinium is used for financial reporting, payroll functions, accounts payable, human resources, and fixed asset processing.

·Centralized Dispatch and Communication Systems. Our dispatch and communication systems enable our dispatchers to quickly and efficiently make informed decisions, facilitate equipment delivery, and route field service vehicles. This allows us to meet our customers’ needs with superior response times.

·BlackBerry Technology. We have deployed more than 400 handheld wireless devices, which provide e-mail, telephone, and radio services to our management, sales, and customer service teams. Armed with up-to-the minute information, personnel can make informed, critical business decisions while in the field and away from our networked computer systems.

·Document Imaging. We employ an integrated document imaging and workflow system that allows us to streamline our business processes, improve efficiency, and preserve document integrity. Documents are captured electronically as they are received or created and are routed through a pre-determined workflow process. This system provides easy access to information, clear separation of duties, and strong internal controls. Remote locations have instant, secure access to the critical information they need. Extensive audit logs and reporting capabilities detailing actions taken on each document further enhance the security of the system.

·Reporting. Our centralized information systems allow us to generate more than 170 scheduled reports providing branch-level operating statistics and metrics such as branch profitability, equipment utilization, return on investment, inventory control, and labor. These reports keep management and other key employees in touch with the business.

·Video Conferencing. Each branch is equipped with state-of-the art video conferencing capabilities. This enables Ahern employees to have direct access to people both within and outside the company without incurring travel expenses. The system allows management to quickly meet and resolve time-sensitive issues. Additionally, the system has the ability to conference all company locations at the same time and is used regularly for company-wide meetings and training.

Seasonality

Our revenues and operating results fluctuate according to the seasonal rental and purchasing patterns of our customers, with rental and purchasing activity tending to be lower in the winter. This seasonality is accentuated due to higher construction equipment prices during the construction season. As a result of this seasonality, our purchases of equipment and parts usually increase in the second and third quarters, and our inventory and accounts payable correspondingly increase.

Intellectual Property

We own a service mark registered in the state of Nevada that includes the name “Ahern Rentals.” We have registered in the state of Nevada the trade name “Ahern Rentals.” We have also registered in Clark County, Nevada the

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trade name “Ahern Heavy Equipment.” We have registered the mark “Ahern Rentals” with the United States Patent and Trademark Office.

Employees

As of December 31, 2006, we had 291 salaried and 978 hourly employees, none of whom are members of a labor union. The table below sets forth the number of employees assigned to our various departments as of December 31, 2006.

Department	Number of Employees
Service	549
Transportation and risk management	269
Operations	131
Sales and marketing	120
Administration, growth and development, and management information systems	117
Purchasing and parts	83
Total	1,269

We believe our entrepreneurial business model and our performance-based compensation program create an attractive working environment for our employees. We believe our relations with our employees are good.

Environmental Matters

Our facilities and operations are subject to comprehensive and frequently changing federal, state and local environmental and occupational safety and health requirements, including those relating to discharges of substances into the air, water and land, the handling, storage, use and disposal of hazardous materials and wastes and the cleanup of properties affected by pollutants. We do not currently anticipate any material adverse effect on our business or financial condition or competitive position as a result of our efforts to comply with such requirements. Although we have made and will continue to make capital and other expenditures to comply with environmental requirements, we do not expect to incur material capital expenditures for environmental controls or compliance in this or the next fiscal year.

In the future, federal, state or local governments could enact new or stricter laws or issue new or stricter regulations concerning environmental and worker health and safety matters, or effect a change in their enforcement of existing laws or regulations, that could affect our operations. Also, in the future, we could discover previously unknown environmental noncompliance or contamination, or contamination may be found to exist at our facilities or off-site locations where we have sent wastes. We could be held liable for such newly discovered noncompliance or contamination. Changes in environmental and worker health and safety requirements or liabilities from newly discovered noncompliance or contamination could have a material adverse effect on our business, financial condition and results of operations.

ITEM 1A.               RISK FACTORS

Our Business, our 9 ¼% Second Priority Senior Secured Notes due 2013 (our “notes”) and our financial performance are subject to the following risks.   If any of the circumstances described in these risk factors occurs, our business, results of operations or financial condition would likely suffer and the value of our outstanding notes could be adversely affected.

Decreases in construction, industrial activities or the convention business could adversely affect our revenues and operating results by decreasing the demand for our equipment or the rental rates or prices we can charge.

Our products and services are used primarily in non-residential construction activity and, to a lesser extent, in residential construction activity, industrial activity and the convention business. Weakness in our end markets, such as a decline in construction, industrial activity or the convention business, has led in the past and may in the future lead to a decrease in the demand for our equipment or the rental rates or prices we can charge. For example, in 2002 and 2003, non-residential construction activity declined significantly from prior periods, which had an adverse effect on our results in 2002 and 2003. Further declines in the construction industry could adversely affect our operating results by decreasing our revenues and gross profit margins.

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Certain factors that may cause weakness in the construction industry include:

·weakness in the economy or the onset of a recession;

·an increase in interest rates;

·reductions in corporate spending for plants and facilities or government spending for infrastructure projects;

·adverse weather conditions and natural disasters;

·    terrorism or hostilities involving the United States; and

·    an increase in the cost of construction materials.

Our operating results are highly dependent on the strength of the Las Vegas economy. In 2004, 2005 and 2006, the percentage of our total revenues attributable to our Las Vegas operations was 37.8%, 37.4%, and 35.0%, respectively. Any future weakness in the Las Vegas economy could have a material adverse effect on our operations.

We depend on key personnel whom we may not be able to retain.

Our future performance depends on the continued contributions of key management personnel. A loss of one or more of these key people, our inability to attract and retain additional key management personnel, including qualified rental store managers, or the inability of these personnel to manage our operations successfully could harm our business and prevent us from implementing our business strategy. We do not maintain “key man” life insurance on the lives of any of our key employees. We also do not have employment agreements with any of our key employees.

The equipment rental industry is highly competitive, and competition could lead to a decrease in our market share or in the rental rates and prices we charge.

The equipment rental industry is highly fragmented and competitive. Our competitors include:

·small independent businesses with one or two rental locations;

·regional competitors that operate in one or more states;

·large national companies, including public companies and divisions of public companies; and

·   equipment manufacturers and dealers that both sell and rent equipment directly to customers.

Many of our competitors are significantly larger and have greater financial and marketing resources than we have, are more geographically diverse than we are and have greater name recognition than we do. We may in the future encounter increased competition in the equipment rental market or in the equipment repair and services market from existing competitors or from new market entrants.

Competition could adversely affect our revenues and operating results by decreasing our market share or depressing the rental rates and prices we can charge. We believe rental rates are one of the primary competitive factors in the equipment rental industry. From time to time, we or our competitors may attempt to compete aggressively by lowering rental rates or prices. To the extent we lower rental rates or prices to attempt to increase or retain market share, our operating margins would be adversely impacted. In some cases, we may not be able to or may choose not to match a competitor’s rate or price reductions. If we do not, we may lose market share, resulting in decreased revenues and cash flow, which could have a material adverse effect on our business.

Disruptions in our information technology systems could adversely affect our operating results by limiting our capacity to effectively monitor and control our operations.

Our information technology systems help us monitor and control our operations to adjust to changing market conditions, including management of our floating fleet. Any disruptions in our information technology systems or the failure of these systems to operate as expected could adversely affect our operating results.

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The nature of our business exposes us to liability claims, which may exceed the level of our insurance.

Our business exposes us to claims for personal injury, death or property damage resulting from the use of the equipment we rent, sell, service or repair and from injuries caused in motor vehicle accidents in which our personnel are involved. Our business also exposes us to worker compensation claims and other employment-related claims. We carry comprehensive insurance, subject to deductibles, at levels we believe are sufficient to cover existing and future claims. Although we have not experienced any material losses that were not covered by insurance, claims have been made against us which, on their face, far exceeded the level of our insurance. Future claims may exceed the level of our insurance, and our insurance may not continue to be available on economically reasonable terms, or at all. In addition, certain types of claims, such as claims for punitive damages, are not covered by our insurance.

We must comply with numerous environmental and occupational health and safety regulations that may subject us to unanticipated liabilities.

Our facilities and operations are subject to federal, state and local environmental and occupational safety and health requirements, including those relating to discharges of substances into the air, water and land, the handling, storage, use and disposal of hazardous materials and wastes and the cleanup of properties affected by pollutants. We do not anticipate any material adverse effect on our business, financial condition or competitive position as a result of our efforts to comply with these requirements. However, if we violate environmental laws or regulations, we may be held liable for damages and the costs of remedial actions, and could be subject to fees and penalties. We may violate or incur liability under environmental laws and regulations in the future as a result of human error, newly discovered noncompliance, contamination or other causes. These violations or liabilities could have a material adverse effect on our business, financial condition and results of operations.

Under some environmental laws and regulations, an owner or operator of a site or facility may be liable for the costs of removal or remediation of hazardous substances located on or emanating from the site or facility. These laws and regulations often impose strict and, under certain circumstances, joint and several liability without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous substances.

Some of our business operations at existing and former branches use, or have used, substances which are or may be considered hazardous or otherwise are subject to applicable environmental requirements. As a result, we may incur liability in connection with the use, management and disposal of these substances. We use hazardous materials such as petroleum products for fueling our rental equipment and vehicles and solvents to clean and maintain rental equipment and vehicles. We incur expenses associated with using, storing and managing these materials in compliance with environmental requirements. We also generate and must manage in accordance with applicable environmental laws and regulations certain used or spent materials such as used motor oil, radiator fluid and solvents. We often seek to reuse, recycle or dispose of these spent materials at offsite disposal facilities in accordance with environmental laws and regulations. We may be liable under various federal, state and local laws and regulations for environmental contamination at off-site facilities where our waste has been disposed of, regardless of whether the waste was disposed of in compliance with environmental requirements.

Environmental and safety requirements may become stricter or be interpreted and applied more strictly in the future. In addition, we may be required to indemnify other parties for adverse environmental conditions that are now unknown to us. These future changes or interpretations, or the indemnification for such adverse environmental conditions, could result in environmental compliance or remediation costs not anticipated by us, which could have a material adverse effect on our business, financial condition or results of operations.

We may encounter substantial competition in our efforts to expand our operations.

A key element of our growth strategy is to continue to expand by opening new rental branches. The success of our growth strategy depends in part on identifying sites for new branches at attractive prices. Zoning restrictions often prevent us from being able to open new branches at sites we have identified. We may also encounter substantial competition in our efforts to acquire new sites or in any efforts we may make to acquire other equipment rental companies, which may limit the number of acquisition opportunities and lead to higher acquisition costs. We may not have the financial resources necessary to open any new branches or complete any acquisitions in the future or the ability to obtain the necessary funds on satisfactory terms or at all.

In the past when we have opened new branches, we have attracted talented salespeople who have terminated their employment with other rental equipment companies to work for us. We believe there has been a trend recently for equipment rental companies to seek non-competition agreements when they hire salespeople. This trend may hinder our

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ability to attract talented salespeople to work at new branches, which could prevent us from opening new branches at sites we have identified or result in our failure to realize the expected benefits from any new branch we open.

If we are unable to obtain additional capital as required, we may be unable to fund the capital outlays required for the success of our business, including those relating to purchasing equipment and to new rental branches. If we are successful in our efforts to expand our operations, it may result in significant transaction expenses and risks associated with entering new markets.

Our ability to compete, sustain our growth and expand our operations through new branches largely depends on access to capital. If the cash we generate from our business, together with cash on hand and cash that we may borrow under our bank credit facility (“credit facility”), is not sufficient to implement our growth strategy and meet our capital needs, we will require additional financing. However, we may not succeed in obtaining additional financing on terms that are satisfactory to us or at all. In addition, our ability to obtain additional financing is restricted by both the indenture governing our notes and the agreements covering our credit facility. If we are unable to obtain sufficient additional capital in the future, we may be unable to fund the capital outlays required for the success of our business, including those relating to purchasing equipment and to new rental branches. Furthermore, any additional indebtedness that we do incur may make us more vulnerable to economic downturns and may limit our ability to withstand competitive pressures.

The opening of any new branches or the completion of any future acquisitions of other equipment rental companies may result in significant start-up or transaction expenses and risks associated with entering new markets in which we have limited or no experience. New rental branches, in particular, require significant capital expenditures and may initially have a negative impact on our results of operations. New branches may not become profitable when projected or ever. Our ability to realize the expected benefits from any future acquisitions of other equipment rental companies depends in large part on our ability to integrate and consolidate the new operations with our existing operations in a timely and effective manner. In addition, we may fail or be unable to discover certain liabilities of any acquired business, including liabilities relating to noncompliance with environmental and occupational health and safety laws and regulations. Any significant diversion of management’s attention from our existing operations, the loss of key employees or customers of any acquired business, or any major difficulties encountered in opening new branches or integrating new operations could have a material adverse effect on our business, financial condition or results of operations.

We are controlled by one shareholder. His interests may conflict with the interests of the holders of our notes.

Don F. Ahern, our President and Chief Executive Officer, beneficially owns 97% of our outstanding common stock. John Paul Ahern, Jr., Don F. Ahern’s brother, owns the remaining 3% of our outstanding common stock. As a result, Don F. Ahern controls the outcome of matters submitted to a shareholder vote. Circumstances may occur in which the interests of Don F. Ahern, as our majority shareholder, could conflict with the interests of our creditors.

We purchase a significant amount of our equipment from a small number of manufacturers. Termination of our relationship with any of those manufacturers could have a material adverse effect on our business because we may be unable to obtain adequate rental and sales equipment from other sources in a timely manner or at all.

We purchase most of our rental and sales equipment from a small number of original equipment manufacturers. For example, we acquired from JLG Industries, Inc. more than 20% of all rental equipment we purchased in 2006. Although we believe we have alternative sources of supply for the rental and sales equipment we purchase in each of our principal product categories, termination of our relationship with any of these major suppliers could have a material adverse effect on our business, financial condition or results of operations if we were unable to obtain adequate rental and sales equipment from other sources in a timely manner or at all.

Our rental fleet is subject to residual value risk upon disposition.

The market value of any piece of rental equipment could be less than its depreciated value at the time it is sold, in which case, that sale would result in a loss. The market value of used rental equipment depends on several factors, including:

·   the market price for new equipment of a like kind;

·   wear and tear on the equipment relative to its age;

·   the time of year that it is sold (generally prices are higher during the construction season);

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·   worldwide and domestic demand for used equipment; and

·   general economic conditions.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

Our principal executive offices are located in Las Vegas, Nevada. As of March 23, 2007, we operated 38 rental branches in ten states. We lease the real estate for all of our branches, including in some cases from related parties. See “Item 13 — Certain Relationships and Related Transactions.” We believe our facilities are sufficient for our current needs. Below is an overview of our branches:

States with Ahern Rentals Branches	Number of Locations
California	15
Nevada	8
Arizona	2
Oregon	2
Utah	4
Texas	3
Colorado	1
New Jersey	1
New Mexico	1
Kansas	1
Total	38

With the exception of our corporate headquarters in Las Vegas, Nevada, each of our properties consists of an equipment lot, a shop facility and an office from which we conduct our local rental operations. These properties are not materially different from each other in size, facilities or purpose. Our Las Vegas headquarters is made up of offices and an extensive rental yard. Of our 38 leased properties, 23 are leased from related parties. See “Item 13 — Certain Relationships and Related Transactions.” Each lease with a related party runs through October 27, 2014, unless earlier terminated. Annual aggregate rental payments to related parties and unaffiliated third parties under our property leases was $4,048,192 and $1,181,159, respectively, for 2006.

ITEM 3.  LEGAL PROCEEDINGS

We are party to various litigation matters in the ordinary course of our business. We cannot estimate with certainty our ultimate legal and financial liability with respect to our pending litigation matters. However, we believe, based on our examination of such matters, that our ultimate liability will not have a material adverse effect on our financial position, results of operations or cash flows.

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

Not applicable.

PART II

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

(a)  There is no public trading market for our common equity. On December 31, 2006, there were two holders of record of our common stock.  In 2004, 2005 and 2006, we paid cash dividends to our shareholders in the amount of $1,346,721, $0 and $8,469,774, respectively. We expect to pay cash dividends in the future.  Our ability to pay dividends is limited by our credit facility and the indenture governing our notes.  On March 12, 2007, our board of directors declared a dividend payable to the shareholders of the Company in the amount of $7,509,615, which was in compliance with the

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provisions of the indenture governing our notes.  The lenders for our credit facility have approved this distribution and it is expected to be paid on March 30, 2007.

(b) We did not, and our affiliates did not, purchase any of our shares of common equity in the quarter ended December 31, 2006.

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ITEM 6.  SELECTED FINANCIAL DATA

The following table sets forth selected historical financial data (presented in thousands, except percentages) of Ahern Rentals, Inc. as of the dates and for the periods indicated.  The selected historical financial data as of December 31, 2002, 2003 and 2004 and for the years ended December 31, 2002 and 2003 have been derived from our audited financial statements that are not included in this report.  The selected historical financial data as of December 31, 2005 and 2006 and for the years ended December 31, 2004, 2005 and 2006 have been derived from our audited financial statements included elsewhere in this report.  We have elected to be treated as an S corporation for federal income tax purposes.  As a result, our shareholders are taxed directly on their respective shares of our income.  Accordingly, no provision or liability for federal and state income tax is included in our financial statements.  This data should be read in conjunction with the financial statements and notes thereto, and with “Item 7 —  Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	Year Ended December 31,
	2002			2003			2004			2005			2006
Income Statement Data:
Revenues:
Equipment rentals and related	$	83,556		$	99,541		$	136,402		$	179,858		$	236,855
Sales of rental equipment	4,359			5,723			7,256			11,379			16,600
Other	4,630			5,969			11,411			12,479			12,651
Total revenues	92,545			111,233			155,069			203,716			266,106
Cost of revenues:
Cost of equipment rental operations, excluding depreciation	36,133			48,508			61,086			75,139			92,047
Depreciation, rental equipment	23,355			22,023			28,412			36,900			54,183
Cost of rental equipment sold	2,934			3,836			5,210			8,197			11,457
Other	3,123			4,279			8,804			9,969			9,163
Total cost of revenues	65,545			78,646			103,512			130,205			166,850
Gross profit	27,000			32,587			51,557			73,511			99,256
Operating expenses:
Selling, general and administrative	16,088			18,565			22,961			30,417			37,039
Non-rental equipment depreciation	2,525			2,283			3,006			4,323			5,949
Total operating expenses	18,613			20,848			25,967			34,740			42,988
Operating income	8,387			11,739			25,590			38,771			56,268
Other income (expense):
Interest expense	(9,879		)	(9,155		)	(15,488		)	(33,388		)	(31,152		)
Other(1)	1,955			1,490			187			214			59
Net income	$	463		$	4,074		$	10,289		$	5,597		$	25,175
Other Financial Data:
EBITDA(1)(2)	$	36,222		$	37,535		$	57,195		$	80,208		$	116,459
EBITDA margin(1)(2)(3)	39.1		%	33.7		%	36.9		%	39.4		%	43.8		%
Depreciation	25,880			24,306			31,418			41,223			60,132
Net cash provided by operating activities	25,702			19,153			33,588			52,133			93,428
Net cash provided by (used in) investing activities	(2,257		)	2,722			(13,018		)	(120,950		)	(192,338		)
Net cash provided by (used in) financing activities	(24,512		)	(21,382		)	(20,374		)	69,599			98,898

	As of December 31,
	2002		2003		2004		2005		2006
Balance Sheet Data:
Cash	$	225	$	718	$	914	$	1,696	$	1,684
Rental equipment, net	146,479		147,020		180,169		262,843		392,084
Total assets	184,508		208,205		260,406		357,180		509,528
Total debt	157,438		157,962		217,711		295,723		403,329
Total stockholders’ equity	18,677		19,747		24,320		29,917		46,622

(1)Includes for 2002 nonrecurring income of approximately $1.9 million representing the amount of gain recognized in connection with the settlement of a contractual dispute with an equipment supplier.  Includes for 2003 nonrecurring income of approximately $1.3 million relating to a condemnation award.

(2)EBITDA is defined as earnings before interest, taxes, depreciation, and amortization. We present EBITDA because we believe EBITDA is a useful analytical tool for assessing our financial performance, including our ability to meet future debt service obligations and capital expenditure and working capital requirements. EBITDA is not, however, a measure of financial performance or liquidity under U.S. generally accepted accounting principles. Accordingly, EBITDA should not be considered a substitute for net income or cash flows as an indicator of our operating performance or liquidity. The table below provides a reconciliation of net income and EBITDA for the periods indicated.

	Year Ended December 31,
	2002		2003		2004		2005		2006
Net income	$	463	$	4,074	$	10,289	$	5,597	$	25,175
Interest expense	9,879		9,155		15,488		33,388		31,152
Depreciation, rental equipment	23,355		22,023		28,412		36,900		54,183
Non-rental equipment depreciation	2,525		2,283		3,006		4,323		5,949
EBITDA	$	36,222	$	37,535	$	57,195	$	80,208	$	116,459

(3)EBITDA margin is defined as EBITDA as a percentage of total revenues.

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

The following discussion should be read in conjunction with our financial statements and accompanying notes included in this report

Overview

Through our network of 38 equipment rental branches, we rent a full range of equipment, sell our used rental equipment, new equipment, parts, supplies and related merchandise, and provide maintenance, repair and other services that supplement our rental activities. The types of equipment we rent range from a fleet of high reach and earth engaging units to hand tools. Accordingly, our business is capital intensive, and our profitability and cash flows depend upon the availability and terms of financing. See “— Liquidity and Capital Resources”.

Our revenues are affected primarily by changes in the level of investment in new equipment for our rental fleet, openings of new branch locations and the relative strength of the economies in the geographic regions in which we operate. For financial reporting purposes, our revenues are divided into three categories:

·Equipment rentals and related includes revenues from renting equipment and related revenues such as the fees we charge for equipment delivery, damage waivers, repair of rental equipment and fuel. For the year ended December 31, 2006, revenues from equipment rentals and related accounted for approximately 89% of our total revenues. Of equipment rentals and related revenues in that period, 69% were attributable to rentals of high reach equipment, 20% to rentals of general rental equipment, including ground engaging equipment, and 11% to rental related revenues.

·Sales of rental equipment includes revenues from the sale of our used rental equipment. For the year ended December 31, 2006, these revenues accounted for approximately 6% of our total revenues.

·Other is primarily revenues from the sale of new equipment, merchandise and supplies. For the year ended December 31, 2006, these revenues accounted for approximately 5% of our total revenues.

Equipment rental revenues are affected by several factors including general economic conditions and conditions in the non-residential construction industry in particular, the amount and quality of equipment available for rent, rental rates, the mix and percentage of equipment rented, length of time the equipment is on rent, and weather. One metric we use to measure the interaction of changes in rental rates, product mix, average length of rental, and time utilization is “dollar utilization.” Dollar utilization is the annualized ratio (expressed as a percentage) of equipment rentals and related revenues on our entire fleet of rental equipment for a period to the average original cost of our rental fleet during that period. Revenues from the sale of used equipment are affected by price, general economic conditions, the amount and type of equipment available in the marketplace, and the condition and age of the equipment. Consequently, the age and mix of equipment in our rental fleet has a direct impact on these revenues. Other revenues, including revenues from the sale of new equipment and from the sale of parts, supplies and maintenance and repair services, are affected by price and general economic conditions.

For financial reporting purposes, our cost of revenues is divided into four categories.

·Cost of equipment rental operations, excluding depreciation includes branch personnel costs, the cost of repairing and maintaining rental equipment and our service and delivery vehicles, fuel costs, occupancy costs and supply costs for our rental locations, and historically, operating lease payments relating to our rental equipment.

·Depreciation on rental equipment.

·Cost of rental equipment sales which represents the net book value of rental equipment sold.

·Other includes the cost of the items we sell, including new equipment, parts, merchandise and supplies.

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Operating expenses include all selling, general and administrative expenses (“SG&A”) and depreciation and amortization on non-rental equipment. SG&A expenses include primarily sales force compensation, administrative payroll, marketing costs, professional fees, and property and casualty insurance.  Non-rental equipment is comprised of all non-rental property and other equipment and includes such items as our fleet of service and delivery trucks.  We anticipate SG&A will increase in 2007 and 2008 in connection with the implementation of testing and documentation procedures to allow us to provide the reports required by Section 404 of the Sarbanes-Oxley Act of 2002.

Our cost of revenues and operating expenses also include lease expense for rental branches and other facilities, several of which we lease from affiliates. See “Item 13 — Certain Relationships and Related Transactions.”

Our operating results are subject to annual and seasonal variations resulting from a variety of factors, including overall economic conditions, construction activity in the geographic regions we serve, the competitive supply of rental equipment, the number of our significant competitors and, to a lesser extent, seasonal rental patterns resulting from lower activity by our customers during the winter. The expansion or contraction of our network of rental branches also causes fluctuations in our revenues and operating results, particularly as a result of the timing of new branch openings and expenditures related to those openings. Thus, the results of any period are not necessarily indicative of the results that may be expected for any other period.

In addition, our operating results are highly dependent on the strength of the economy of Las Vegas, Nevada. In 2004, 2005, and 2006, the percentage of our total revenues attributable to our Las Vegas operations was 37.8%, 37.4%, and 35.0%, respectively. The rapid growth experienced by the Las Vegas area in recent years has contributed significantly to our revenues. While we expect this growth to continue in the near term, any future weakness in the Las Vegas economy could have a material adverse effect on our results of operations.

We have elected to be treated as an S corporation for federal income tax purposes. Accordingly, our shareholders are taxed directly on their respective shares of our income, and no provision or liability for federal and state income tax is included in our financial statements. During the periods presented herein, our shareholders have not been required to pay income tax on their respective shares of our income because of the availability to our shareholders of excess depreciation on rental equipment, net operating losses and suspended losses due to at-risk basis limitations. We may, however, need to make future distributions to our shareholders to cover future tax liability they may incur with respect to our income. Our indenture generally allows us to make such distributions, with some limitations.

Recent Developments

On January 17, 2007, we issued $90.0 million aggregate principal amount of 9 ¼% Second Priority Senior Secured Notes due 2013 under our August 18, 2005 indenture. See “— Liquidity and Capital Resources.”  The net proceeds from this transaction of approximately $91.4 million, after deducting fees and expenses of approximately $2 million, were used to pay down a portion of amounts outstanding under the credit facility. We filed a Registration Statement on Form S-4 with the SEC to register an offering of notes in exchange for the notes we issued on January 17 and the SEC declared it effective on March 9, 2007. The form and terms of the new notes are identical in all material respects to the form and terms of the notes we issued on January 17, except for transfer restrictions and registration rights relating only to the January 17 notes. On March 12, 2007, we commenced an offer to exchange these new notes for the January 17 notes. The scheduled expiration date of the offer is Midnight, New York City Time, on April 6, 2007.

Since December 31, 2006, we have opened four branch locations in Hurricane, Utah; Cedar City, Utah; Kansas City, Kansas; and Houston, Texas.  We lease the real property for three of these branches from DFA, LLC, an entity controlled by Don F. Ahern, our president and chief executive officer.

Results of Operations

Fiscal Year Ended December 31, 2006 (“2006”) Compared to Fiscal Year Ended December 31, 2005 (“2005”) Compared to Fiscal Year Ended December 31, 2004 (“2004”)

Revenues

Revenues in 2006 increased 31% over 2005.  Revenues in 2005 increased 31% over 2004.  The primary factors contributing to the changes are discussed below.

Equipment rentals and related revenues.   Equipment rentals and related revenues in 2006 increased 32% over 2005.  These revenues accounted for 89% and 88% of our total revenues for 2006 and 2005, respectively. The increased revenues

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were the result of (1) an increase in the number of units available for rent as a result of capital expenditures that increased the average original cost of our rental fleet to $474 million in 2006 from $354 million in 2005, offset slightly by (2) a decrease in our average dollar utilization to 50% in 2006 from 51% in 2005.  Although average rental rates increased 4%, average time utilization of our high reach equipment remained about the same at approximately 73% in 2006.

Equipment rentals and related revenues in 2005 increased 32% over 2004. These revenues accounted for 88% of our total revenues for each of 2005 and 2004. The increased revenues were the result of (1) an increase in the number of units available for rent as a result of capital expenditures that increased the average original cost of our rental fleet to $354 million in 2005 from $294 million in 2004, and (2) average dollar utilization increased to 51% in 2005 from 46% in 2004.  Average rental rates increased 11% in 2005 over 2004 and average time utilization of our high reach equipment increased to 73% in 2005 from 72% in 2004, primarily, as a result of improved economic conditions in the construction industry in our principal markets.

Sales of rental equipment.  Sales of rental equipment in 2006 increased 46% over 2005.  Sales of rental equipment in 2005 increased 57% over 2004.  These increases are attributed to the increase in “Equipment rentals and related” revenues described above and the strong retail and secondary market demand for rental equipment.

Other revenues.  Other revenues in 2006 increased 1% over 2005.  This change results from a combination of the following:  (1) a decrease of 28%, or $2.3 million, in the sale of new equipment, and (2) an increase of 58%, or $2.5 million, in merchandise and other revenue due to the increased size of our rental fleet.

Other revenues in 2005 increased 9% over 2004.  This change results from a combination of the following:  (1) an increase of 8%, or $0.6 million, in the sale of new equipment, and (2) an increase of 13%, or $0.5 million, in merchandise and other revenue due to the increased size of our rental fleet.

Cost of Revenues

Cost of revenues in 2006 increased 28% over 2005.  Cost of revenues in 2005 increased 26% over 2004.  As a percentage of revenues, cost of revenues was 63%, 64%, and 67% for 2006, 2005 and 2004, respectively. The primary factors contributing to the changes are described below.

Cost of equipment rental operations, excluding depreciation. Cost of equipment rental operations, excluding depreciation, in 2006 increased 23% over 2005, due mainly to increased payroll costs, repairs and maintenance costs, fuel, and vehicle expenses in support of the increase in equipment available for rent.  As a percentage of equipment rentals and related revenues, cost of equipment rental operations was 39% in 2006 and 42% in 2005 due mainly to (1) a decrease in 2006 of $2.4 million related to lease expense on equipment now owned by us that was previously under an operating lease that was terminated in September 2005, and (2) economies of scale realized in payroll costs, repairs and maintenance, vehicle expenses and occupancy costs related to the branch locations.

Cost of equipment rental operations, excluding depreciation, in 2005 increased 23% over 2004.  The increase is due to increased payroll in support of the increase in revenues. As a percentage of equipment rentals and related revenues, cost of equipment rental operations was 42% in 2005 and 45% in 2004 due mainly to (1) economies of scale in payroll costs, repairs and maintenance, and vehicle expenses, and (2) a decrease in 2005 of $1.1 million related to lease expense on equipment now owned by us that was previously under an operating lease that was terminated in September 2005.

Depreciation, rental equipment . Depreciation, rental equipment in 2006 increased 47% over 2005.  Approximately $1.9 million of the total $17.3 million increase is due to depreciation on equipment now owned by us that was previously under an operating lease that was terminated in September 2005.  The remaining $15.4 million increase results from the increased investment in our rental fleet described previously under the caption “—Revenues — Equipment rentals and related revenues.”

Depreciation, rental equipment in 2005 increased 30% over 2004.  The increase results from net capital expenditures of $110 million in 2005 to increase the size of our fleet.  This $110 million is comprised of (1) $111 million of new rental equipment acquired, (2) $17 million of rental equipment acquired in September 2005 in connection with the termination an operating lease, offset by (3) $18 million, at original cost, of equipment disposed of in 2005.

Cost of rental equipment sales. Cost of rental equipment sales in 2006 increased 40% over 2005 principally as a result of the 46% increase in the sales of rental equipment described under the caption “—Revenues — Sales of rental equipment.”  However, the main cost of rental equipment sales is the net carrying value of the sold equipment, which averaged 69% and 72% of the selling price in 2006 and 2005, respectively.

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Cost of rental equipment sales in 2005 increased 57% over 2004 principally as a result of the 57% increase in the sales of rental equipment described under the caption “—Revenues — Sales of rental equipment.”  The net carrying value of the sold equipment averaged 72% of the selling price in both 2005 and 2004.

Other. Other cost of revenues in 2006 decreased 8% compared to 2005.  This decrease is due mainly to the reduction in sales of new equipment in 2006 described previously under the caption “—Revenues — Other revenues.”

Other cost of revenues in 2005 increased 13% over 2004.  This increase is due mainly to the increase in other revenues described under the caption “—Revenues — Other revenues” offset by slightly lower profit margins in sales of new equipment and merchandise.

Selling, General and Administrative

SG&A in 2006 increased 22% over 2005.  The increase relates to payroll and related costs, travel, rents, and other miscellaneous administrative costs. However, as a percentage of total revenues, SG&A decreased to 14% in 2006 from 15% in 2005 reflecting improved operating leverage in our business from revenues increasing at a higher rate than SG&A.

SG&A in 2005 increased 32% over 2004. The increase relates to payroll and related costs, rents, and other miscellaneous administrative costs.  However, as a percentage of total revenues, SG&A remained the same at 15% for both 2005 and 2004.

Non-Rental Equipment Depreciation and Amortization

Non-rental equipment depreciation and amortization in 2006 increased 38% over 2005.  This is due to an increased investment in non-rental equipment to an average original cost of $53 million in 2006 from $42 million in 2005.

Non-rental equipment depreciation and amortization in 2005 increased 44% over 2004.  This is due to an increased investment in non-rental equipment to an average original cost of $42 million in 2005 from $31 million in 2004.

Other Expense, Net

Other expense, net in 2006 decreased 6% compared to 2005.  In 2005, we recorded an approximate $9.0 million loss on debt extinguishment related to a refinancing transaction completed in August 2005.  Excluding this loss on debt extinguishment, Other expense, net in 2006 increased 29% over 2005 due almost entirely to interest expense which, despite an approximate 60 basis point reduction in our average interest rate, has increased due to higher average debt balances to fund the growth in our fleet of rental and non-rental equipment.  Average debt balances increased in 2006 to $350 million from $251 million in 2005.  Our weighted average interest rate, however, decreased to 8.4% in 2006 compared to 9.0% in 2005.  See “—Liquidity and Capital Resources.”

Other expense, net in 2005 increased 117% over 2004.  In 2004, we recorded an approximate $1.9 million loss on debt extinguishment relating to a refinancing transaction completed in October 2004.  Excluding this loss on debt extinguishment and the 2005 loss on debt extinguishment described above, Other expense, net in 2005 increased 81% over 2004 due almost entirely to interest expense which increased (1) due to higher average debt balance in 2005 of $251 million compared to $198 million in 2004 to fund the growth in our fleet of rental and non-rental equipment and (2) due to our weighted average interest rate increasing in 2005 to 9.0% compared to 7.1% in 2004.

Liquidity and Capital Resources

Indebtedness

Credit Facility.  Our credit facility is a senior secured revolving credit facility with a group of institutional lenders providing for an aggregate commitment of up to $250 million subject to a borrowing base test of eligible accounts receivable, rental equipment, transportation equipment and inventories.  The credit facility is secured by a first priority security interest in substantially all of our existing and future acquired assets.  Borrowings accrue interest at either (a) prime rate plus zero to 50 basis points for prime rate loans, or at our option (b) London Interbank Offered Rate (“LIBOR”) plus 175 to 225 basis points for LIBOR based loans; the rates charged will fluctuate within these ranges depending on our leverage ratio.  As of December 31, 2006, we had $201.2 million outstanding and $48.5 million of unused availability

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under the credit facility.  As of December 31, 2006, the credit facility had a weighted average interest rate of 7.1% per annum.  The credit facility matures August 21, 2011.

The credit facility is used to issue standby or commercial letters of credit and to finance ongoing working capital needs and for general corporate purposes.  In addition, the credit facility has an annual unused line fee of 25 basis points for each lender’s unused commitments. Since October 2004, all of our capital expenditures for rental equipment have been made through use of our credit facility.  Consequently, this activity is reflected as a cash expenditure in our statement of cash flows. Cash flow from operations and net proceeds from the sale of our used rental equipment are applied to reduce borrowings under our credit facility, and our expenditures for rental equipment increase borrowings under our credit facility.

At any time that borrowing availability falls below $25 million, the credit facility requires us to maintain a minimum fixed charge coverage ratio of not less than 1.00 to 1.00, a maximum total funded debt to EBITDA ratio of between 5.00 to 1.00 and 4.50 to 1.00 (depending on the then current fiscal quarter) and a minimum time utilization ratio of 45% of the maximum average time utilization in preceding fiscal quarters. In addition, the credit facility contains other usual and customary covenants and default provisions.

Second Priority Senior Secured Notes.  At December 31, 2006, we had outstanding $200 million principal amount of 9 ¼% Second Priority Senior Secured Notes. The notes are due August 15, 2013, bear interest at 9.25% payable semi-annually on each February 15 and August 15 and are secured on a second priority basis, behind the credit facility, by substantially all of our existing and future acquired assets. On January 17, 2007, we issued $90.0 million principal amount of 9 ¼% Second Priority Senior Secured Notes due 2013 under our August 18, 2005 indenture. The net proceeds from this transaction of approximately $91.4 million, after deducting fees and expenses of approximately $2 million, were used to pay down a portion of amounts outstanding under the credit facility.

As of December 31, 2006, our weighted average interest rate was approximately 8.2% and our debt totaled $403.3 million.

Liquidity and adequacy of capital resources

Our business is capital intensive. We purchase new equipment both to expand the size and maintain the age of our rental fleet. For 2006, 2005, and 2004, we had total cash and non-cash expenditures on new rental equipment of $195.2, $127.6 million, and $70.0 million, respectively.  If demand for rental equipment from our customers remains strong, we expect the rate of expenditures to purchase new rental equipment, replace used rental equipment, and purchase transportation equipment will remain constant or increase.

We manage our liquidity using cash management practices that project our future sources and uses of cash taking into consideration the legal requirements of our financing agreements.  Our principal existing sources of cash are generated from operations and from the sale of rental equipment and borrowings available under our credit facility.  Our current and expected long-term cash requirements consist primarily of expenditures to fund operating activities and working capital, to purchase new rental equipment, and to meet debt service obligations.

We believe our existing sources of liquidity will be sufficient to meet the cash requirements of our operations for at least the next twelve months.  To the extent the sources of liquidity described above are not sufficient to fund our operations, we may require additional debt or equity financing. Our ability to access these sources of capital is restricted by the indenture governing our notes and the terms of the agreements governing our credit facility. See “Item 1A — Risk Factors.”

Sources and uses of cash.  In 2006, we generated cash from operations of $93.4 million, cash from sales of rental equipment of $17.1 million, and net proceeds from borrowings under our credit facility of $107.8 million.  We used cash of $209.4 million to purchase rental equipment and other property, made dividend distributions to our shareholders of $8.5 million, and repaid other borrowings and paid debt issuance costs totaling $0.4 million.

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Contractual Obligations

At December 31, 2006, we had total payments due under our various contractual obligations as follows.

Type of Obligation	Total		Less than one year		1-3 years		3-5 years		Longer
	(dollars in thousands)
Credit facility(1)	$	269,479	$	14,483	$	28,966	$	226,030	—
Notes(1)	329,500		18,500		37,000		37,000		237,000
Long-term debt, other(1)	3,072		307		598		576		1,591
Operating lease obligations:(1)
Real estate	43,750		5,787		10,709		11,183		16,071
Other	5,055		547		1,091		1,086		2,331

(1)The payments due with respect to a period represent (i) in the case of our credit facility, other debt and the notes, the scheduled principal and interest payments due in the period and (ii) in the case of operating leases, the minimum lease payments due in the period under non-cancelable operating leases. Interest amounts on our credit facility are based on $201.2 million outstanding as of December 31, 2006 and the then applicable rate of interest of 7.1% per year. To the extent amounts are outstanding under our credit facility, we will be obligated to make required payments of principal and interest when due. Interest amounts on other debt are based on annual interest of 7.9% on $2.2 million outstanding as of December 31, 2006. We pay 9.25% interest semi-annually on the notes.

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect reported amounts and disclosures, some of which may require revision in future periods. Significant estimates are those involving the estimated useful lives and salvage values of our rental equipment and related depreciation methods, and the estimated collectibility of trade receivables. We do not believe there is a significant likelihood that future changes in these estimates will have a material impact on our financial statements.

Depreciation Methods and Asset Lives. We depreciate rental equipment and other property by the straight-line method to an estimated salvage value (approximately 10% of original cost) over the estimated useful lives of the assets. The estimated useful life of an asset is determined based on our expectation of the period over which the asset will generate sufficient revenues and profits. Estimated salvage value is determined based on our expectation of the minimum value we will realize from disposition of the asset after such period.

Allowance for Collection Losses. An allowance for collection losses of trade receivables is maintained at levels we believe adequately provide for such estimated losses. In determining the allowance, we consider economic conditions generally, the financial condition of specific customers, the value of any underlying collateral, including the effect of mechanics’ liens on construction projects, prices and volumes in used equipment markets, and other factors we believe are relevant. We review the adequacy of the allowance monthly.

Critical Accounting Policies

The following is a summary of what we believe are the critical accounting policies for our company. In some cases, the application of these policies requires us to make subjective judgments regarding the effect of matters that are inherently uncertain. See note 1, “Nature of business and summary of significant accounting policies,” to our audited financial statements included elsewhere in this report for more detailed information about our accounting policies.

Revenue and Cost Recognition. Our policy is to recognize revenue from equipment rentals in the period earned, over the contract term, regardless of the timing of the billing to customers. A rental contract can be daily, weekly, or monthly. Because the terms of the contracts can extend across financial reporting periods, we record unbilled rental revenue and deferred revenue at the end of reporting periods so rental revenue is properly stated in the periods presented. Revenues

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from the sale of our used rental equipment and inventories of new equipment and other merchandise and services are recognized at the time of delivery of the product or service to the customer. Revenues from warranties and service contracts sold separately, which have not been material, are recognized over the life of the contracts.

Recent Accounting Pronouncements

In June 2006, the FASB issued Financial Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109,” which deals with the accounting for uncertainty in income taxes. FIN 48 will be effective for the quarter ending March 31, 2007. Although FIN 48 applies in some respects to “flow-through” entities such as the Company, we do not expect that it will have a material impact on our future financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”  This standard defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America, and expands disclosure about fair value measurements.  In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115,” which will permit the option of choosing to measure certain eligible items at fair value at specified election dates and report unrealized gains and losses in earnings. SFAS Nos. 157 and 159 will become effective for us for fiscal year 2008, and interim periods within those fiscal years.  We are currently evaluating the requirements of SFAS Nos. 157 and 159, and have not yet determined the likely, if any, impact on our future financial statements.

Inflation

Although we cannot accurately anticipate the effect of inflation on our operations, we believe inflation has not had, and is not likely in the foreseeable future to have, a material impact on our results of operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The fair market value of long-term fixed interest rate debt is subject to interest rate risk. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The estimated fair market value of our long-term fixed interest rate debt at December 31, 2006 was $208.5 million; its carrying value was $200.0 million. Fair market values were determined from quoted market prices.

The interest on borrowings under our credit facility is at variable rates based on a financial performance test.  Borrowings under the credit facility accrue interest at either (a) prime rate plus zero to 50 basis points for prime rate loans, or at our option (b) LIBOR plus 175 to 225 basis points for LIBOR based loans; the rates charged will fluctuate within these ranges depending on our leverage ratio.  In addition, our credit facility has an annual unused line fee of 25 basis points for each lender’s unused commitments under the revolving credit line. An increase in interest of 100 basis points would increase our annual interest expense by $2.0 million based on $201.2 million, which was the amount of outstanding debt under our credit facility as of December 31, 2006.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENTS

Our financial statements required by this item are submitted as a separate section of this Form 10-K. See Item 15 (a)(2) for a listing of financial statements provided in the section titled “Financial Statements.”

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

None.

ITEM 9A.  CONTROLS AND PROCEDURES

We have evaluated, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of December 31, 2006, our disclosure controls and procedures were

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effective in timely alerting them to material information required to be included in the filing we make under the Securities Exchange Act of 1934.

ITEM 9B.  OTHER INFORMATION

None.

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table is a list of our current directors, executive officers and key employees:

Name	Age	Position
Don F. Ahern	53	President, Chief Executive Officer, Chairman of the Board of Directors, Secretary and Treasurer
Howard L. Brown	64	Chief Financial Officer and Director
Evan B. Ahern	32	Executive Vice President, Chief Information Officer and Director
Mark J. Wattles	46	Director
P. Enoch Stiff	59	Director
Timothy N. Lotspeich	53	Senior Vice President of Risk Management and Transportation
Roy Allen Holland, Jr.	49	Vice President of Operations
Ronald L. Lyster	48	Vice President of Sales and Marketing
Richard L. Weaver	58	Vice President of Purchasing
Mark S. Brown	46	Vice President of Growth and Development
Bruce E. Bilyeu	54	Vice President of Facilities Management and Construction

Don F. Ahern has been our President, Chief Executive Officer and a member of our board of directors since February 1994. Prior to that, since 1978, Mr. Ahern was the sole proprietor of Los Arcos Equipment, an equipment rental company. Mr. Ahern has over 30 years of experience in the equipment rental industry. Mr. Ahern is Evan B. Ahern’s father.

Howard L. Brown has been our Chief Financial Officer since September 1997. He joined our board of directors in April 2004. Mr. Brown has over 34 years of finance experience. Prior to joining us, from October 1995 through September 1997, Mr. Brown was Chief Financial Officer of the H&O Foods division of Rykoff-Sexton, Inc. (now known as U.S. Foodservice, Inc.), the largest food service distributor in Las Vegas, Nevada. From September 1992 through October 1995, Mr. Brown was Chief Financial Officer of H&O Foods, Inc.

Evan B. Ahern has been our Executive Vice President since March 2004. He joined our board of directors in April 2004. In addition, Mr. Ahern has been our Chief Information Officer since 1998 and is responsible for managing our information technology. His responsibilities also include business development activities. Mr. Ahern has approximately 12 years of information technology experience. From 1993 through 1998, Mr. Ahern was project manager for our technology systems, responsible for overseeing and implementing our technology infrastructure. From 1990 through 1993, Mr. Ahern held various positions with us. Mr. Ahern is Don F. Ahern’s son.

Mark J. Wattles joined our board of directors in April 2004. Mr. Wattles founded Hollywood Entertainment Corporation (“Hollywood”), a chain of video rental and game stores, in June 1988, and until September 1998 he served as Hollywood’s Chairman of the Board, President, and Chief Executive Officer. From August 1998 through June 2000, Mr. Wattles left his full-time position at Hollywood and served as Chief Executive Officer of Reel.com, then a wholly owned subsidiary of Hollywood. In August 2000, Mr. Wattles returned full time to Hollywood to assist with changes in its business strategy. He served as President of Hollywood from January 2001 until January 2004 and as Chief Executive Officer from January 2001 until February 2005. Since January 2005, Mr. Wattles has served as President of Mark Wattles Enterprises, LLC, a capital management company that invests in companies providing consumer products and services. In April 2005, Ultimate Acquisition Partners, L.P., an entity owned by Mark Wattles Enterprises, LLC, purchased from Ultimate Electronics, Inc. the assets associated with 32 Ultimate Electronics and SoundTrack stores. Since that time, Mr. Wattles has served as Chief Executive Officer of Ultimate Acquisition Partners, L.P., which does business as Ultimate Electronics and SoundTrack and is a retailer of home entertainment and consumer electronics products. In 2001, Mr. Wattles was appointed to the National Advisory Council of the Marriot Business School at Brigham Young University.

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P. Enoch Stiff joined our board of directors in April 2004. Mr. Stiff has been the managing partner of the Executive Management Group, a consulting firm specializing in effective management practices for senior executive teams of midsize businesses, since November 2002. Additionally, since January 2004, Mr. Stiff has been a partner in the Value Management Group, a Chicago-based investment management company that focuses on manufacturing companies. From September 2000 to November 2002, Mr. Stiff provided independent business consulting services to executive management groups. From September 1996 to September 2000, Mr. Stiff was the President, Chief Executive Officer and a member of the board of directors of OmniQuip International, Inc., a North American manufacturer of telescopic material handlers, aerial work platforms and other material handling equipment. From August 1989 to September 1996, Mr. Stiff was the President and Chief Executive Officer of TRAK International, Inc. (“TRAK”), a wholly owned subsidiary of OmniQuip International, Inc. He previously served as the Chief Operating Officer of TRAK from November 1987 to August 1989.

Timothy N. Lotspeich has been our Senior Vice President of Risk Management and Transportation since April 2005. From December 1995 until April 2005, he served as our Senior Vice President and was responsible for our floating fleet, transportation and risk management. Mr. Lotspeich has approximately 23 years of experience in the equipment rental industry. From July 1986 through December 1995, Mr. Lotspeich served as our California regional manager responsible for supervising operations and sales of all of our California branches. From April 1983 through June 1986, Mr. Lotspeich served as manager of our Bloomington, California branch and was responsible for operations and sales of that branch. Prior to joining us, from 1972 through June 1982, Mr. Lotspeich was a customer service representative for Grove Manufacturing, a large manufacturer of high reach equipment.

Roy Allen Holland, Jr. has been our Vice President of Operations since February 2000 and has over 30 years of experience in the equipment rental industry. From January 1997 through February 2000, Mr. Holland served as our branch manager at the Bonanza Road, Las Vegas, Nevada location, responsible for operations and sales at that branch. From February 1976 through January 1997, Mr. Holland held various positions with us including customer service representative, field sales manager and assistant branch manager.

Ronald L. Lyster has been our Vice President of Sales and Marketing since March 2002 and has over 11 years of experience in the equipment rental industry. He has been with Ahern Rentals since 1995 and was promoted to sales manager in 1999. Prior to joining us, from March 1991 through March 1995, Mr. Lyster was a salesman for Alco Products, a supplier of cleaning chemicals and industrial solvents.

Richard L. Weaver has been our Vice President of Purchasing since May 2005. He is responsible for supervising the purchasing of rental equipment and parts, and inventory management. Mr. Weaver has over 31 years of experience with purchasing and materials management. Prior to joining us, from January 2001 to May 2005, Mr. Weaver was Managing Principal of Weaver & Associates, a business management consulting firm specializing in solutions for procurement of supplies and services. From May 1999 to January 2001, Mr. Weaver was a senior manager with KPMG Consulting, LLC (now known as BearingPoint, Inc.), a business management consulting firm, where he consulted clients with respect to procurement solutions. From August 1982 to May 1999, Mr. Weaver was a division manager for Lawrence Livermore National Laboratory, a science laboratory specializing in national security applications. From March 1967 to August 1982, Mr. Weaver was employed by International Business Machines Corporation, where he held various management positions in product manufacturing and inventory management.

Mark S. Brown has been our Vice President of Growth and Development since February 2002 and is responsible for expanding our operations and sales by opening new branches and enhancing our performance in current branches. Mr. Brown has over 27 years of experience in the equipment rental industry. From January 1999 through February 2002, Mr. Brown was branch manager of our Sacramento store, and was responsible for supervising the operations and sales of that store. Prior to joining us, from March 1979 through January 1999, Mr. Brown was an operations manager for Thomas Equipment, an equipment rental company, where he was responsible for the company’s operations and sales.

Bruce E. Bilyeu has been our Vice President of Facilities Management and Construction since March 2005. He is responsible for supervising maintenance and renovation of our existing facilities and construction of our new facilities. Mr. Bilyeu has over 32 years of experience in the construction industry. From June 1995 to March 2005, Mr. Bilyeu served as our Facilities Manager with responsibilities similar to those he now has as a vice president. Prior to joining us, from August 1981 to June 1995, he was the President and sole stockholder of Building Dynamics, Inc., a provider of commercial and residential construction and remodeling services. From 1974 to August 1981, Mr. Bilyeu worked as an estimator and project manager for several general contractors in Las Vegas, Nevada.

Pursuant to the company’s bylaws, each of our directors serves for a term of one year or until his successor is elected and qualified.

We have not adopted a formal code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We are not required to adopt such a

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code and our board of directors believes a formal code of ethics would not provide significant value to our two stockholders.

ITEM 11.  EXECUTIVE COMPENSATION

Throughout this report, the individuals who served as our Chief Executive Officer and Chief Financial Officer during 2006, as well our three other most highly compensated executive officers during 2006, are referred to as the “named executive officers.” These individuals are listed in the Summary Compensation Table on page 3. The following compensation discussion and analysis, executive compensation tables and related narrative describe the compensation awarded to, earned by or paid to the named executive officers for services provided to us in 2006 and their compensatory arrangements.

Compensation Discussion and Analysis

Overview, Philosophy and Objectives of Executive Compensation

The board of directors has authority to establish the salaries, bonuses and equity plan participation levels for the named executive officers. We do not have a separately designated compensation committee. The board of directors also has the authority to review and approve employment agreements, severance arrangements and retirement plans for the named executive officers and otherwise to review and approve our compensation plans. The board of directors evaluates the performance of the Chief Executive Officer and, with input from the Chief Executive Officer, evaluates the performance of the other named executive officers.

We compensate our named executive officers primarily through a combination of base salary and bonus. The primary objectives of the board of directors with respect to the compensation of the named executive officers are to attract, motivate and retain talented and dedicated executives and to foster a team orientation toward the achievement of company-wide business objectives. The board of directors’ compensation philosophy with respect to the named executive officers includes the following general elements: (1) providing base salaries and bonus targets within a market competitive range and (2) rewarding achievement of company financial performance objectives as well as individual managerial effectiveness.

Base Salary

The primary component of compensation of our executives is base salary. The base salary levels of our executives in 2006 were established based upon: (i) the individual’s background and circumstances, including experience and skills, (ii) our knowledge of competitive factors in our industry, (iii) the job responsibilities of the individual, (iv) our expectations as to the performance and contribution of the individual and our judgment as to the individual’s potential future value to us, (v) prior year salary levels, (vi) prior year performance, (vii) length of service and (viii) with respect to those executives other than the Chief Executive Officer, the recommendations of the Chief Executive Officer. In establishing the current base salary levels, we did not engage in any formal benchmarking activities or engage any outside compensation advisors.

The base salary of a named executive officers is intended to provide a competitive base level of pay for the services provided. We believe the fixed base annual salary levels of the named executive officers help us to retain qualified executives and provide a measure of income stability for the named executive officers that reduces pressure to take possibly excessive risks to achieve performance measures under incentive compensation arrangements. The base salaries of some named executive officers may be increased in 2007.

Bonus

All of the named executive officers are eligible for a bonus. In addition, certain employees who are viewed as having an opportunity to directly and substantially contribute to achievement of our short-term objectives are eligible for a bonus.

Our bonuses reward the named executive officers for achieving company financial performance objectives and for demonstrating individual leadership. We believe that, by providing a positive incentive and cash rewards, the bonus plays an integral role in motivating and retaining qualified executives. We also believe the allocation of base salary and incentive compensation opportunity for named executive officers generally represents a reasonable combination of fixed salary compared to variable incentive pay opportunity and reflects our goal of retaining and motivating our named executive officers.

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All Other Compensation

Other compensation to the named executive officers in 2006 included eligibility to participate in our employee benefit plans, including medical, dental, life insurance and 401(k) plans, which are available to employees generally. These payments and other benefits, the amounts of which are not material to us, provide additional compensation and benefits to the named executive officers.

Summary Compensation Table

		Annual  Compensation				All Other		Total
Name and Principal Position	Year	Salary		Bonus		Compensation(1)		Compensation
Don F. Ahern President and Chief Executive Officer	2006	$	624,000	$	479,821	$	—	$	1,103,821
Howard L. Brown Chief Financial Officer	2006	180,000		150,000		4,200		334,200
Evan B. Ahern Executive Vice President and Chief Information Officer	2006	200,000		200,000		4,200		404,200
Timothy N. Lotspeich Vice President of Risk Management and Transportation	2006	100,000		165,000		—		265,000
Roy Allen Holland, Jr. Vice President of Operations	2006	120,000		175,000		2,380		297,380

(1)This item consists of matching contributions by the Company to its 401(k) Plan on behalf of each of the named executives to match pre-tax elective deferral contributions (included under Salary) made by each to such plan. Participation in the 401(k) Plan is open to any employee age 21 or older who has been employed by us for at least 12 months and who completed at least 1,000 hours of service in the previous year. Subject to limitations contained in the Internal Revenue Code, participants may contribute 1% to 15% of annual compensation and the Company contributes 50% of the participant’s contribution not to exceed 2% of the participant’s annual compensation.

Director Compensation

Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)		All Other Comp ($)		Total ($)
Don F. Ahern	$	0	$	0	$	0	$	0
Howard L. Brown	0		0		0		0
Evan B. Ahern	0		0		0		0
Mark J. Wattles	0		0		0		0
P. Enoch Stiff	0		0		0		0

Our non-employee directors are entitled to receive $3,000 per day for each day they attend a board meeting in addition to travel and other expense reimbursement incidental to board meeting attendance. Each of our non-employee directors waived all amounts owed them on account of service on our board. Our directors who are employees do not receive separate compensation for service on our board of directors.

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Compensation Committee Report

The board of directors has reviewed and discussed the “Compensation Discussion and Analysis” included in this report with management. Based on that review and discussion, the board of directors approved the “Compensation Discussion and Analysis” for inclusion in this report.

Don F. Ahern

Howard L. Brown

Evan B. Ahern

Mark J. Wattles

P. Enoch Stiff

Compensation Committee Interlocks and Insider Participation

During Fiscal 2006, the board of directors was comprised of Don F. Ahern, Howard L. Brown, Evan B. Ahern, Mark J. Wattles and P. Enoch Stiff. Mr. D. Ahern is our President and Chief Executive Officer, Mr. Brown serves as our Chief Financial Officer, and Mr. E. Ahern is an Executive Vice President and our Chief Information Officer. Mr. D. Ahern is primarily responsible for decisions regarding executive compensation. Neither of Mr. Wattles or Mr. Stiff is a current or former officer or employee. There are no interlocking Board memberships between our officers and any member of our board of directors.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information with respect to the beneficial ownership of our common stock at December 31, 2006, by: (1) each person or entity who owns of record or beneficially 5% or more of any class of our voting securities; (2) each of our named executive officers and directors; and (3) all of our directors and executive officers as a group. Except as noted below, the address for each of the directors and named executive officers is at our principal executive offices c/o Ahern Rentals, Inc., 4241 South Arville Street, Las Vegas, Nevada 89103.

	Shares Beneficially Owned(1)
	Common Stock
Name	Number of Shares	Percentage of Class
Principal Shareholders, Executive Officers and Directors
Don F. Ahern(2)	970	97	%
Howard L. Brown	—	—
Evan B. Ahern	—	—
Ronald L. Lyster, Jr.	—	—
Roy Allen Holland, Jr.	—	—
Enoch Stiff	—	—
Mark Wattles	—	—
Executive Officers and Directors as group (11 Persons)	970	97	%

(1)Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act.

(2)Includes shares of common stock held by the DFA Separate Property Trust, a revocable trust established by Don F. Ahern. Don F. Ahern is sole trustee and income beneficiary of this trust and, as trustee, has sole voting and investment power with respect to all 970 shares. The 30 shares (or 3%) of the Common Stock of Ahern Rentals not owned by Don F. Ahern are owned by John Paul Ahern, Jr., Don F. Ahern’s brother.

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ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

DFA Family Limited Partnership

We lease the property that houses our principal executive offices from DFA Family Limited Partnership, of which Don F. Ahern, our President and Chief Executive Officer and a member of our board of directors, is the general partner and which is 1% owned by Don F. Ahern as trustee of the DFA Separate Property Trust and 49.5% owned by each of Don F. Ahern’s two children, including Evan B. Ahern, our Executive Vice President, Chief Information Officer and a member of our board of directors. Our lease payments to DFA Family Limited Partnership totaled $378,672 in 2006. The written lease agreement for this property provides for monthly lease payments of $32,341. Under the lease, the monthly payment increases annually by the greater of (a) 3% of the monthly payment for the prior year or (b) the percentage increase in the Consumer Price Index. The term of the lease continues until October 27, 2014.

DFA, LLC

We lease 22 of our rental branches, as well as our parts warehouse, our dispatch facility, our credit department facility and our payroll facility, from DFA, LLC, of which Don F. Ahern is the managing member and which is 1% owned by Don F. Ahern individually and 99% owned by Don F. Ahern as trustee of the DFA Separate Property Trust. Our aggregate lease payments to DFA, LLC totaled $3,161,430 in 2006. The aggregate monthly lease payments for the properties we lease from DFA, LLC was approximately $341,464 at December 31, 2006. We are party to a written lease agreement for each rental branch we lease from DFA, LLC. Under each lease, the monthly payment increases annually by the greater of (a) 3% of the monthly payment for the prior year or (b) the percentage increase in the Consumer Price Index. The term of each lease continues until October 27, 2014.

Don and Paul, LLC

We lease property housing our Bonanza Road, Las Vegas, Nevada rental facilities from Don and Paul, LLC (“DPLLC”), of which Don F. Ahern is the managing member and which is 85.5% owned by Don F. Ahern as trustee of the DFA Separate Property Trust and 14.5% owned by John Paul Ahern, Jr., Don F. Ahern’s brother. Our lease payments to DPLLC totaled $508,090 in 2006. The written lease agreement for this property provides for monthly lease payments of $43,395. Under the lease, the monthly payment increases annually by the greater of (a) 3% of the monthly payment for the prior year or (b) the percentage increase in the Consumer Price Index. The term of the lease continues until October 27, 2014.

Xtreme Manufacturing, LLC

We purchase forklifts and other equipment from Xtreme Manufacturing, LLC (“Xtreme”), of which Don F. Ahern is the managing member and which is 96.6% owned by Don F. Ahern as trustee of the DFA Separate Property Trust. We purchased approximately $29.0 million of equipment from Xtreme in 2006.

In addition, Xtreme’s employees participate in the health plans and the 401(k) retirement plan that we make available to our employees. Xtreme directly pays the costs associated with its employees’ participation in the 401(k) retirement plan and reimburses us for our costs associated with its employees’ participation in the medical and dental plans.

A&K 67, LLC

We have a verbal agreement for the part-time use of a boat owned by A&K 67, LLC, which is 25% owned by Don F. Ahern as trustee of the DFA Separate Property Trust. Our payments to A&K 67, LLC pursuant to this agreement totaled approximately $43,100 in 2006. The verbal agreement provides for monthly payments of approximately $3,590. The agreement is terminable on reasonable notice.

XFS, Inc.

XFS, Inc. (“XFS”), of which Don F. Ahern is President and which is wholly owned by Don F. Ahern as trustee of the DFA Separate Property Trust, engages in lease financing transactions in which XFS purchases equipment from us for the purpose of leasing the equipment to third-party lessees. XFS purchased $91,087 of equipment from us in 2006.

Hutt Aviation

We entered into an Aircraft Management and Operating Agreement (the “Aircraft Agreement”) with Hutt Aviation, Inc. (“Hutt”) in September 2006. Don F. Ahern, our President, Chief Executive Officer and Chairman of the board of directors, owns 50% of the outstanding capital stock of Hutt. Under the Aircraft Agreement, Hutt operates our Cessna CE-525 aircraft (the “Aircraft”) both for our use and for charter flights for others. We pay or reimburse Hutt for

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fees and expenses it incurs in operating the Aircraft, including without limitation flight crew salaries and benefits and crew training. Hutt pays us $1,400 per hour of time the Aircraft is used for charter flights for others.

Other

Don F. Ahern is a guarantor of our obligations under certain of our real property leases, a joint lessee on our ten-year aircraft operating lease and a co-obligor with respect to approximately $2 million of outstanding indebtedness we incurred in 2004 to finance our corporate aircraft.

Director Independence

The board of directors has determined that Mark Wattles and P. Enoch Stiff are independent under the standards set forth in NASDAQ Marketplace Rules 4200.

Policies and Procedures for Review, Approval or Ratification of Transactions with Related Persons.

Our policy is to require that any transaction with a related party required to be reported under applicable Securities and Exchange Commission rules, other than compensation-related matters, be reviewed and approved or ratified by a majority of independent, disinterested directors. We have not adopted procedures for review of, or standards for approval of, these transactions, but review these transactions on a case by case basis.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table presents the aggregate fees for professional audit services rendered by our independent registered public accounting firm, Piercy, Bowler, Taylor & Kern for the audit of our annual financial statements for the years ended December 31, 2006 and 2005 and fees billed for other services rendered by Piercy, Bowler, Taylor & Kern.

	2005		2006
Audit Fees(1)	$	93,636	$	70,245
Audit-Related Fees(2)	81,229		31,010
Tax Fees(3)	34,715		19,436
Total	$	209,850	$	120,691

(1)Audit fees are exclusively related to our annual financial statement audits.

(2) Audit related fees are related to quarterly review services, comfort letters, consents and other services related to SEC matters.

(3) Fees for tax services consisted of:

·Tax compliance and planning services;

·Federal, state and local income tax return assistance;

·sales and use, property and other tax return assistance; and

·Assistance with tax audits and appeals.

We do not have, nor are we required to have, an audit committee currently serving and as a result our board of directors performs the duties of an audit committee.  Our board of directors evaluates and approves in advance the scope and cost of any proposed services to be provided by an auditor before the auditor renders audit or non-audit services.

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PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)           Documents filed as part of this report

1.	Report of Independent Registered Public Accounting Firm
2.	Financial statements
	Balance sheets
	Statements of income and retained earnings
	Statements of cash flows
3.	Notes to the financial statements
4.	Exhibits

The exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this report.

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Report of Independent Registered Public Accounting Firm

Board of Directors

Ahern Rentals, Inc.

Las Vegas, Nevada

We have audited the accompanying balance sheets of Ahern Rentals, Inc. as of December 31, 2006 and 2005, and the related statements of income, retained earnings and cash flows for each of the three years ended December 31, 2006, 2005 and 2004. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly we express no such opinion.  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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ahern Rentals, Inc. as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years ended December 31, 2006, 2005 and 2004, in conformity with accounting principles generally accepted in the United States.

PIERCY BOWLER TAYLOR & KERN
Certified Public Accountants & Business Advisors
A Professional Corporation
Las Vegas, Nevada
March 23, 2007

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AHERN RENTALS, INC.

BALANCE SHEETS

DECEMBER 31, 2006 AND 2005

	2006	2005
ASSETS
Cash	$1,684,467	$1,695,531
Accounts receivable, net of allowance of $1,777,843 and $1,707,468	43,881,043	37,071,240
Inventories	22,877,734	13,915,384
Rental equipment, net	392,084,311	262,842,720
Other property and equipment, net	35,735,561	27,699,723
Debt issuance costs, net of amortization	9,218,931	10,836,936
Other	4,045,890	3,118,927
	$509,527,937	$357,180,461
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Revolving credit facility	$201,191,138	$93,417,105
Accounts payable	42,231,691	17,431,929
Accrued expenses	17,345,029	14,108,803
Note payable	2,137,616	2,305,892
Second priority senior secured notes	200,000,000	200,000,000
	462,905,474	327,263,729
Stockholders’ Equity
Common stock, no par, 25,000 shares authorized, 1,000 shares issued andoutstanding	5,915,214	5,915,214
Retained earnings	40,707,249	24,001,518
	46,622,463	29,916,732
	$509,527,937	$357,180,461

See notes to financial statements

31

AHERN RENTALS, INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS

YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004

	2006			2005			2004
REVENUES
Equipment rentals and related	$	236,854,896		$	179,858,132		$	136,402,114
Sales of rental equipment	16,600,071			11,379,464			7,255,773
Other	12,651,345			12,478,538			11,411,338
	266,106,312			203,716,134			155,069,225
COST OF REVENUES
Cost of equipment rental operations, excluding depreciation, including related party rent of $2,821,921, $2,465,720 and $1,577,520	92,046,610			75,139,147			61,086,294
Depreciation, rental equipment	54,183,466			36,900,504			28,411,875
Cost of rental equipment sold	11,456,548			8,196,968			5,210,540
Other	9,163,040			9,968,582			8,803,792
	166,849,664			130,205,201			103,512,501
GROSS PROFIT	99,256,648			73,510,933			51,556,724
OPERATING EXPENSES
Selling, general, and administrative, including related party rent of $1,226,271, $913,048 and $836,450	37,038,952			30,417,105			22,961,042
Non-rental equipment depreciation and amortization	5,949,047			4,322,494			3,005,865
	42,987,999			34,739,599			25,966,907
OPERATING INCOME	56,268,649			38,771,334			25,589,817
OTHER INCOME (EXPENSE)
Interest expense	(31,152,343		)	(24,401,557		)	(13,521,469		)
Loss on debt extinguishment	—			(8,986,690		)	(1,966,516		)
Interest income	130,726			162,306			164,434
Other income (expense)	(71,527		)	51,416			22,743
NET INCOME	$	25,175,505		$	5,596,809		$	10,289,009
RETAINED EARNINGS, BEGINNING OF PERIOD	$	24,001,518		$	18,404,709		$	13,831,734
Net income	25,175,505			5,596,809			10,289,009
Distributions	(8,469,774		)	—			(5,716,034		)
RETAINED EARNINGS, END OF PERIOD	$	40,707,249		$	24,001,518		$	18,404,709

See notes to financial statements

32

AHERN RENTALS, INC.

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004

	2006			2005			2004
OPERATING ACTIVITIES:
Net income	$	25,175,505		$	5,596,809		$	10,289,009
Adjustments to reconcile net income to net cash
provided by operating activities:
Gross profit on disposition of rental equipment and other property and equipment	(5,071,996		)	(3,233,912		)	(2,067,976		)
Depreciation and amortization of rental equipment and other property and equipment	60,132,513			41,222,998			31,417,740
Amortization of deferred gain and rent payments	—			(1,234,430		)	(1,489,394		)
Amortization of debt issuance costs	1,847,098			1,795,656			392,234
Non-cash loss on debt extinguishment	—			2,644,451			379,348
Bad debts	261,367			943,818			694,151
Non-cash interest	—			1,326,419			387,917
Changes in operating assets and liabilities:
Accounts receivable	(7,071,170		)	(9,333,365		)	(7,851,017		)
Inventories	(8,962,350		)	(6,561,029		)	959,648
Other	(918,556		)	818,681			(1,035,358		)
Accounts payable, other	24,799,762			10,591,007			834,485
Accrued expenses	3,236,226			7,555,826			677,652
Net cash provided by operating activities	93,428,399			52,132,929			33,588,439
INVESTING ACTIVITIES:
Purchases of rental equipment	(195,156,723		)	(109,761,047		)	(18,899,149		)
Purchases of other property and equipment	(14,255,147		)	(11,038,856		)	(2,158,005		)
Early buyout of rental equipment under sale/leaseback	—			(21,612,615		)	—
Refund of deposit under sale/leaseback	—			8,731,065			—
Proceeds from sales of rental equipment and other property	17,073,924			11,723,606			7,670,420
Advances to shareholders and affiliate	—			—			(11,601,250		)
Collections from shareholders and affiliate	—			1,007,201			11,969,772
Net cash used in investing activities	(192,337,946		)	(120,950,646		)	(13,018,212		)
FINANCING ACTIVITIES:
Proceeds from borrowings	386,449,211			488,161,601			374,825,382
Repayment of borrowings	(278,843,454		)	(411,476,222		)	(385,382,577		)
Debt issuance costs paid	(237,500		)	(7,085,952		)	(8,470,253		)
Distributions	(8,469,774		)	—			(1,346,721		)
Net cash provided by (used in) financing activities	98,898,483			69,599,427			(20,374,169		)
NET INCREASE (DECREASE) IN CASH	(11,064		)	781,710			196,058
CASH, BEGINNING OF PERIOD	1,695,531			913,821			717,763
CASH, END OF PERIOD	$	1,684,467		$	1,695,531		$	913,821

See notes to financial statements

33

AHERN RENTALS, INC.

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004

1. Nature of business and summary of significant accounting policies:

Basis of presentation. The nature of the Company’s business is such that short-term obligations are typically met by cash flow generated from long-term assets. Therefore, the balance sheets are presented on an unclassified basis consistent with equipment rental industry practice.

Management has evaluated the circumstances attendant to its relationships with its affiliated lessors and other related parties described in Notes 5 and 6 and concluded that none of these entities qualify as either a “variable interest entity” (VIE), as defined in Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 46R, Consolidation of Variable Interest Entities—An Interpretation of ARB No. 51, or an “implicit VIE,” as described in FASB Staff Position FIN 46R-5 and, accordingly, are not considered for consolidation.

Nature of business. The Company operates a comprehensive equipment rental and sales business servicing a customer base that includes construction and industrial companies, municipalities, manufacturers, utilities, homeowners and others in Nevada, California, Arizona, Texas, Colorado, Utah, Oregon, New Mexico and New Jersey. Each of the Company’s 34 equipment rental and sales branches is considered a separate profit center. All profit centers are aggregated into one reportable segment because they offer similar products and services in similar markets and the factors that influence management’s strategic decisions are comparable.

Concentrations. Realization of the Company’s receivables (which are uncollateralized) and its future operations, could be affected by adverse changes in economic conditions in Las Vegas, Nevada and elsewhere in the southwestern United States, particularly in the construction industry. Approximately 35%, 37%, and 38% of the Company’s total revenues were generated in Las Vegas during 2006, 2005, and 2004, respectively. An additional 35%, 35%, and 36% were generated in California.

The Company manages its concentrations of credit risk by evaluating the credit worthiness of customers before credit is extended and monitoring it thereafter. When material amounts of credit are extended to a single customer in connection with a construction project, the Company usually has the right to, and does, lien the project if the customer fails to pay. In establishing an allowance for doubtful collection, the Company considers the financial condition of each customer, the relative strength of the Company’s legal position and the cost of related proceedings, and general economic conditions. The maximum losses that the Company would incur if a customer failed to both pay amounts owed and return the rental equipment would be limited to the recorded amount due after any allowances provided, plus the carrying value of the related equipment less insurance recovery, if any.

Use of estimates. Timely preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts, some of which may require revision in future periods, including the estimated useful lives and salvage values of property and equipment, the allowance for doubtful accounts, and accruals related to the Company’s self-insurance programs.

Inventories. Inventories (Note 2) are valued at the lower of market or cost determined by the average cost method, except for new serialized equipment units held for sale, the cost of which is determined using the specific identification method.

Property and equipment and depreciation and amortization. Property and equipment, including revenue-producing rental equipment (Note 3), is stated at cost. Depreciation and amortization is provided by the straight-line method to an estimated salvage value over the estimated useful lives of the assets, typically 3-10 years which for leasehold improvements (which are not material) is limited to the lease term.

Income taxes. The Company has elected to be an “S corporation” for federal income tax purposes. Therefore, no provision or liability for federal and state income tax has been included in the accompanying financial statements.

Revenue recognition. The Company’s revenues are divided into three categories:

·Equipment rentals and related. This includes revenue from renting equipment and related items such as the fees charged for equipment delivery, damage waivers, repair of rental equipment and fuel.

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·Sales of rental equipment. This includes revenue from the sale of used rental equipment.

·Other. This primarily includes revenue from the sale of new equipment, merchandise and supplies.

Revenue related to rental equipment is recognized over the contract term. Revenue related to sales of used rental equipment and inventories is recognized at the time of delivery to the customer. The Company typically does not provide warranties or maintenance services with the products sold. However, revenue from warranties and service contracts sold separately, which are not material, are recognized over the life of the contracts.

Cost of revenues and gross profit. Consistent with industry practice, certain expenses associated with the Company’s equipment rental operations, including costs of repairs and maintenance of the equipment, occupancy, supplies and personnel (excluding compensation of sales personnel, which costs are included in selling, general and administrative expenses) have been accounted for as cost of revenues and therefore, deducted in arriving at gross profit in the statements of income. In summary, cost of revenues consists of the following:

·Cost of equipment rental operations, excluding depreciation. This includes branch personnel costs, the cost of repairing and maintaining rental equipment and our service and delivery vehicles, fuel costs, occupancy costs and supply costs for our rental locations and, historically, operating lease payments relating to our rental equipment.

·        Depreciation on rental equipment.

·        Cost of rental equipment sales. This represents the net book value of rental equipment sold.

·        Other. This includes the cost of items sold, including new equipment, parts, merchandise and supplies.

Debt issuance costs. Costs relating to borrowings are deferred and amortized to interest expense using the straight line method, which does not differ materially from the effective interest method, over the terms of the related borrowings. As of December 31, 2006 and 2005, debt issuance costs shown in the accompanying balance sheet are net of accumulated amortization of $3,424,445 and $1,577,347, respectively.

Advertising. Advertising costs are charged as incurred to selling, general, and administrative operating expenses and amounted to $372,150, $346,510, and $270,026 for 2006, 2005, and 2004, respectively.

Legal defense costs. Legal and related defense costs in connection with pending or threatened litigation or other disputes, if any, are not included in accruable estimated losses but rather are recorded as period costs when they are incurred.

Accounts payable. Checks payable to vendors are written from our zero balance controlled disbursements bank account and remain classified as accounts payable until cleared by our bank. Checks released but uncleared and included in accounts payable at December 31, 2006 and 2005 were approximately $15.5 million and $2.0 million, respectively.

2. Inventories:

Inventories, excluding used equipment held for rental (Note 3), consist of the following as of December 31:

	2006		2005
Equipment	$	12,695,100	$	6,867,820
Parts	9,603,908		6,501,650
Accessories	578,726		545,914
	$	22,877,734	$	13,915,384

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3. Property and equipment:

	2006			2005
Revenue-producing rental equipment	$	563,844,938		$	393,791,753
Less accumulated depreciation	(171,760,627		)	(130,949,033		)
Rental equipment, net	$	392,084,311		$	262,842,720
Trucks, other equipment and leasehold improvements	$	58,856,408		$	46,394,808
Construction in progress	148,368			183,940
	59,004,776			46,578,748
Less accumulated depreciation and amortization	(23,269,215		)	(18,879,025		)
Property and other equipment, net	$	35,735,561		$	27,699,723

4.   Debt:

Revolving Credit Facility.  The Company has a senior secured revolving credit facility with a group of institutional lenders providing for an aggregate commitment of up to $250 million subject to a borrowing base test of eligible accounts receivable, rental equipment, transportation equipment and inventories.  This facility is secured by a first priority security interest in substantially all of the Company’s existing and future acquired assets.  Borrowings accrue interest at either (a) prime rate plus zero to 50 basis points for prime rate loans, or at the Company’s option (b) London Interbank Offered Rate (“LIBOR”) plus 175 to 225 basis points for LIBOR based loans; the rates charged will fluctuate within these ranges depending on the Company’s leverage ratio.  As of December 31, 2006, the Company had unused availability of approximately $48.5 million.  The weighted average interest rate for 2006, 2005, and 2004 was 7.2%, 6.3%, and 6.1%, respectively.  This facility matures August 21, 2011; it originated in October 2004 when the Company refinanced approximately $197.2 million of prior debt with a combination of this revolving credit facility and an additional $90 million in second lien notes payable to a commercial lender which bore interest at 14.5% annually,  payable monthly in cash at the rate of 12% plus 2.5% “in kind” through the issuance of additional notes (See also Note 9).

Second Priority Senior Secured Notes.  On August 18, 2005, the Company issued $200 million principal amount of 9¼ % Second Priority Senior Secured Notes (“Second Priority Notes”) under an indenture, the proceeds of which were used to (1) pay off the then remaining balance of the second lien note obligations described above approximating $99 million, including prepayment penalties, (2) pay down the revolving credit facility by approximately $85 million, (3) pay off other debt totaling approximately $10 million, and (4) pay fees and expenses of approximately $6 million. As a result of this transaction, the Company recorded a loss on debt extinguishment of approximately $8.9 million comprised of prepayment penalties of $6.3 million and the write off of unamortized debt issuance costs of $2.6 million related to old debt (See also Note 9).

The Second Priority Notes are due August 15, 2013, bear interest at 9¼ % payable semi-annually on each February 15 and August 15 and are secured on a second priority basis, behind the Revolving Credit Facility, by substantially all of the Company’s existing and future acquired assets.

All debt outstanding at the end of 2006 and 2005 (other than Revolving Credit Facility, Second Priority Notes, and second lien notes), is (or was) collateralized by equipment and payable in equal periodic (primarily monthly) payments of principal and interest. The effective annual interest rate on such other debt ranged from 4.8% to 8.4%.

Note payable consists of an aircraft note and an immaterial capital lease obligation.

36

Maturities of debt, including the Revolving Credit Facility, as of December 31, 2006, are as follows:

			Pro forma(1)
2007	$	143,743	$	143,743
2008	150,151		150,151
2009	156,846		156,846
2010	163,839		163,839
2011	201,362,282		109,976,798
Thereafter	201,351,893		291,351,893
	$	403,328,754	$	401,943,270

(1)after giving retroactive effect to the refinancing described in Note 9

5.   Related party transactions:

Changes in amounts due from shareholders and affiliate consist of advances to principal shareholders and entities they control as follows for 2005:

	2005
Balances, January 1	$	1,007,201
Collections	(1,007,201		)
Balances, December 31	$	—

Other related party transactions. The Company purchases forklifts and certain other equipment from an entity controlled by the Company’s majority shareholder. In addition, the affiliate’s employees participate in the Company’s employee benefit programs, including its workers’ compensation program, and the affiliate pays its costs related thereto. During 2006 and 2005, the Company purchased from the affiliate approximately $29.0 million and $13.4 million of equipment, respectively.

The indenture that governs the Company’s notes restricts its ability to pay dividends. Generally, the Company can pay (1) up to fifty percent of its cumulative net income for the period commencing October 1, 2005 to the end of its most recently completed fiscal quarter, and (2) an additional amount up to $5 million in the aggregate over the life of the indenture. In 2006 and 2005, the Company paid dividends of $8,469,774 and $0, respectively, to its shareholders.

The Company also provides certain administrative services at no cost for the non-rental equipment related operations of other commonly-owned affiliates (Note 6).

See Note 6 also regarding related party leases and a lease guarantee.

6.   Commitments and contingencies:

Related party operating leases.  The Company leases property from a partnership owned and controlled by Don F. Ahern and members of his family. Also, the Company leases the majority of the real estate used in the Company’s equipment rental operations from commonly-controlled affiliates.  These leases provide for annual rent increases equal to the greater of 3% or the consumer price index, as defined, and generally expire October 27, 2014, with no renewal provisions. The aggregate annual payment commitment under all related party leases as of December 31, 2006 is approximately $4.8 million. In addition, the Company is responsible for any maintenance costs under the leases.

Other operating leases.  In April 2006, the Company entered into a ten-year operating lease agreement for a corporate aircraft.  The aggregate annual rental commitment at December 31, 2006 is $547,153.  The monthly rental payment floats with changes in the 30-day LIBOR rate.  There are early buyout options in years 3 and 9 based on a percentage of the original cost of the aircraft, and the buyout option at the end of the lease is at fair market value.  The Company’s principal officer and majority shareholder is a joint lessee and effectively a guarantor in this agreement.

In September 2005, the Company repurchased all of the remaining rental equipment under lease for $21.6 million and terminated the lease. The lease originated in 2003, when the Company sold certain rental equipment for an

37

approximate $6.8 million gain to General Electric Capital Corporation (GE) and leased it back. The gain was deferred and was being amortized over the 62-month lease term until termination of the lease, when GE refunded to the Company its remaining deposit balance of $8.7 million. The Company recorded the repurchased equipment at $17.9 million which represents the $21.6 million acquisition price of the equipment reduced by $3.7 million of then unamortized deferred gain, and approximated fair value.

Future obligations over the primary terms of the Company’s long-term related party and other operating leases as of December 31, 2006, are as follows:

Year ending December 31,	Related party		Other		Total
2007	$	4,787,221	$	1,547,397	$	6,334,618
2008	4,907,354		927,259		5,834,613
2009	5,054,548		910,882		5,965,430
2010	5,206,166		877,256		6,083,422
2011	5,362,336		822,371		6,184,707
Thereafter	16,070,740		2,331,801		18,402,541
Total	$	41,388,365	$	7,416,966	$	48,805,331

The Company incurred a total of $5,229,351, $6,711,570, and $7,388,562 in operating lease rent expense during 2006, 2005, and 2004, including $4,048,192, $3,378,768, and $2,413,970, respectively, in connection with the related party leases.

Company sponsored profit-sharing plan. The Company maintains a defined contribution plan qualified under IRS regulation 401 (k). Participation in the plan is limited to full-time employees with a minimum of one year of service, and at least 21 years of age. Contributions to the plan are made annually at the discretion of management.  For the operating periods presented, contributions were not material.

Miscellaneous legal matters. The Company is currently a defendant in certain legal matters arising in the ordinary course of business. In the opinion of management, the outcome of these actions should not have a material effect on the future financial position, results of operations or cash flows of the Company. Since the Company is unable to reasonably estimate losses, if any, to be incurred, no estimated losses are accrued as of December 31, 2006.

7. Fair value of financial instruments:

The carrying amounts at December 31, 2006, for cash,  and short-term and long-term debt, excluding the Second Priority Notes, approximate their fair market values due to the short maturity of these instruments, or because the related interest rates approximate current market rates. The estimated fair market value of the Second Priority Notes was $208.5 million based on quoted market prices; the carrying amount was $200 million.

8. Supplemental cash flow information

	2006		2005		2004
Noncash financing and investing activities
Rental equipment acquired with debt					$	51,149,261
Other property and equipment acquired with debt					6,625,177
					$	57,774,438
Unamortized deferred gain and rent payments recognized as a reduction of the acquisition price of repurchased rental equipment subject to prior sale/leaseback			$	3,746,864
Distribution of amounts receivable to shareholders					$	4,369,313
Cash paid for interest	$	28,402,760	$	16,249,982	$	12,812,942

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9.Subsequent event

On January 17, 2007, the Company issued $90.0 million aggregate principal amount of 9 ¼% Second Priority Senior Secured Notes due 2013 under our August 18, 2005 indenture. The net proceeds from this transaction of approximately $91.4 million, after deducting fees and expenses of approximately $2 million, were used to pay down a portion of amounts outstanding under the credit facility. The Company filed a Registration Statement on Form S-4 with the SEC to register an offering of notes in exchange for the notes the Company issued on January 17 and the SEC declared it effective on March 9, 2007. The form and terms of the new notes are identical in all material respects to the form and terms of the notes the Company issued on January 17, except for transfer restrictions and registration rights relating only to the January 17 notes. On March 12, 2007, the Company commenced an offer to exchange these new notes for the January 17 notes. The scheduled expiration date of the offer is Midnight, New York City Time, on April 6, 2007.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 28, 2007.

AHERN RENTALS, INC.
By:	/s/ DON F. AHERN
	Don F. Ahern
	Chairman of the Board, Chief Executive
	Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 28th day of March, 2007.

Signature	Title
/s/ DON F. AHERN	Chairman of the Board, Chief Executive
Don F. Ahern	Officer and President
	(Principal Executive Officer)
/s/ HOWARD L. BROWN	Chief Financial Officer and Director
Howard L. Brown	(Principal Financial and Accounting Officer)
/s/ EVAN B. AHERN	Executive Vice President, Chief Information
Evan B. Ahern	Officer and Director
/s/ MARK J. WATTLES	Director
Mark J. Wattles
/s/ ENOCH STIFF	Director
P. Enoch Stiff

Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act

Ahern Rentals, Inc. is not required to nor does it intend to furnish an Annual Report or a Proxy Statement to security holders.

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INDEX TO EXHIBITS

3.1	Amended and Restated Articles of Incorporation of Registrant.(1)
3.2	Amended and Restated Bylaws of Registrant.(1)
4.1	Indenture, dated as of August 18, 2005, between Registrant, as Issuer, and Wells Fargo, N.A., as Trustee.(1)
4.2	Registration Rights Agreement, dated as of January 17, 2007, by and among the Registrant, CIBC World Markets Corp. and Banc of America Securities LLC.(2)
4.3	Amended and Restated Loan and Security Agreement, dated as of August 18, 2005, among the Registrant, Bank of America, N.A. as Administrative Agent, Wachovia Bank, National Association as Collateral Agent, and Bank of America, N.A., Wachovia Bank, National Association, Keybank National Association, PNC Bank, National Association and Comerica Bank, as lenders.(1)
4.4	Amendment No. 1, dated as of August 21, 2006, to Amended and Restated Loan and Security Agreement, dated as of August 18, 2005.(3)
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act).
31.2	Certification of Chief Financial Officer and Principal Accounting Officer Pursuant to Rule 13a-14(a) of the Exchange Act.
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)Incorporated herein by reference to our Registration Statement on Form S-4, File No. 333-128688, filed with the SEC on September 29, 2005.

(2)Incorporated herein by reference to our Registration Statement on Form S-4, File No. 333-141011, filed with the SEC on  March 1, 2007.

(3)Incorporated herein by reference to our Current Report on Form 8-K, filed with the SEC on August 25, 2006.

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