H&E Equipment Services, Inc. - Quarter Report: 2006 September (Form 10-Q)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2006

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

For the transition period from      to

H&E Equipment Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware		81-0553291
(State of Incorporation)		(I.R.S. Employer Identification No.)
11100 Mead Road, Suite 200, Baton Rouge, Louisiana		70816
(Address of principal executive offices)		(Zip code)

(225) 298-5200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 þ      No o

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. (Check one):

Large accelerated filer o      Accelerated filer o      Non-Accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o      No þ

Number of shares of common stock, par value $0.01 per share, of the registrant outstanding as of November 8, 2006 was 38,192,094 shares.

 

 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
SEPTEMBER 30, 2006

		Page
PART I. FINANCIAL INFORMATION		4
Item 1. Financial Statements:		4
Condensed Consolidated Balance Sheets as of September 30, 2006 (Unaudited) and December 31, 2005		4
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2006 and 2005		5
Condensed Consolidated Statement of Members’ Deficit and Stockholders’ Equity (Unaudited) for the Nine Months Ended September 30, 2006		6
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2006 and 2005		7
Notes to Condensed Consolidated Financial Statements (Unaudited)		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures about Market Risk		39
Item 4. Controls and Procedures		39
PART II. OTHER INFORMATION		40
Item 1. Legal Proceedings		40
Item 1A. Risk Factors		40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		40
Item 3. Defaults upon Senior Securities		41
Item 4. Submission of Matters to a Vote of Security Holders		41
Item 5. Other Information		41
Item 6. Exhibits		42
Signatures		42
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 1350

Special Note Regarding Forward-Looking Statements

     This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity.

     Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results that differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:

	•		general economic conditions and construction activity in the markets where we operate in North America;
	•		relationships with new equipment suppliers;
	•		increased maintenance and repair costs;
	•		our substantial leverage;
	•		the risks associated with the expansion of our business;
	•		our possible inability to integrate any businesses we acquire;
	•		competitive pressures;
	•		compliance with laws and regulations, including those relating to environmental matters and corporate governance matters; and
	•		other factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005 and under Item 1A – “Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006.

     Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above mentioned factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance. For a more detailed discussion of some of the foregoing risk and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005, and Item 1A – “Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, as well as other reports and registration statements filed by us with the SEC. All of our annual, quarterly and current reports and amendments thereto, filed with the SEC are available on our website under the Investor Relations link. For more information about us and the announcements we make from time to time, visit our website at www.he-equipment.com.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

		Balances at
		September 30,				December 31,
		2006				2005
		(Unaudited)
ASSETS
Cash		$	5,053			$	5,627
Receivables, net of allowance for doubtful accounts of $2,714 and $2,364, respectively			109,730				99,523
Inventories, net of reserve for obsolescence of $807 and $975, respectively			116,325				81,093
Prepaid expenses and other assets			4,474				1,378
Rental equipment, net of accumulated depreciation of $150,902 and $133,943, respectively			429,219				308,036
Property and equipment, net of accumulated depreciation of $25,377 and $21,142, respectively			28,339				18,284
Deferred financing costs and other intangible assets, net of accumulated amortization of $4,896 and $7,250, respectively			9,449				8,184
Goodwill			30,455				8,572
Total assets		$	733,044			$	530,697
LIABILITIES, MEMBERS’ DEFICIT AND STOCKHOLDERS’ EQUITY
Liabilities:
Amounts due on senior secured credit facility		$	26,265			$	106,451
Accounts payable			62,174				56,173
Manufacturer flooring plans payable			130,020				93,728
Accrued expenses payable and other liabilities			33,621				22,798
Related party obligation			709				869
Notes payable			2,400				521
Senior secured notes, net of original issue discount of $23 and $1,127, respectively			4,477				198,873
Senior subordinated notes, net of original issue discount of $8,943 at December 31, 2005			—				44,057
Senior unsecured notes			250,000				—
Deferred income taxes			5,411				645
Deferred compensation payable			3,215				11,722
Total liabilities			518,292				535,837
Commitments and contingencies
Members’ deficit			—				(5,140	)
Stockholders’ equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued at September 30, 2006 and December 31, 2005, respectively			—				—
Common stock, $0.01 par value, 175,000,000 shares authorized; 38,192,094 and no shares issued and outstanding at September 30, 2006 and December 31, 2005, respectively			382				—
Additional paid-in capital			204,328				—
Retained earnings			10,042				—
Total stockholders’ equity			214,752				—
Total liabilities, members’ deficit and stockholders’ equity		$	733,044			$	530,697

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Revenues:
Equipment rentals		$	67,327			$	50,409			$	185,333			$	136,576
New equipment sales			60,673				36,152				173,333				99,867
Used equipment sales			29,668				26,751				97,387				76,332
Parts sales			21,024				16,986				61,574				51,202
Service revenues			14,074				10,409				39,782				29,459
Other			11,369				7,749				31,472				21,300
Total revenues			204,135				148,456				588,881				414,736
Cost of revenues:
Rental depreciation			20,644				14,354				56,674				39,394
Rental expense			10,339				12,015				31,427				35,024
New equipment sales			53,321				31,783				151,615				87,803
Used equipment sales			21,708				20,325				71,253				58,043
Parts sales			14,895				11,972				43,499				36,105
Service revenues			5,045				3,980				14,343				10,973
Other			9,436				7,229				27,005				21,700
Total cost of revenues			135,388				101,658				395,816				289,042
Gross profit			68,747				46,798				193,065				125,694
Selling, general and administrative expenses			34,118				28,219				108,545				81,342
Gain on sales of property and equipment, net			241				118				400				15
Income from operations			34,870				18,697				84,920				44,367
Other income (expense):
Interest expense			(9,060	)			(10,557	)			(29,342	)			(30,982	)
Loss on early extinguishment of debt			(40,771	)			—				(40,771	)			—
Other, net			245				85				675				255
Total other expense, net			(49,586	)			(10,472	)			(69,438	)			(30,727	)
Income (loss) before provision (benefit) for income taxes			(14,716	)			8,225				15,482				13,640
Provision (benefit) for income taxes			(3,185	)			—				3,290				171
Net income (loss)		$	(11,531	)		$	8,225			$	12,192			$	13,469
Net income (loss) per common share:
Basic		$	(0.30	)		$	0.32			$	0.33			$	0.53
Diluted		$	(0.30	)		$	0.32			$	0.33			$	0.53
Weighted average common shares outstanding:
Basic			38,070				25,492				36,550				25,492
Diluted			38,070				25,492				36,587				25,492

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

										Additional								Total
		Common Stock								Paid-in				Retained				Stockholders’				Members’
		Shares				Amount				Capital				Earnings				Equity				Deficit
Balances at January 1, 2006			—			$	—			$	—			$	—			$	—			$	(5,140	)
Net income for the period January 1, 2006 through February 2, 2006			—				—				—				—				—				2,150
Effect of the Reorganization Transactions			25,492,019				255				(3,245	)			—				(2,990	)			2,990
Common stock issued on February 3, 2006 pursuant to initial public offering, net of $15,915 issue costs			12,578,125				126				206,892				—				207,018				—
Issuance of common stock			121,950				1				—				—				1				—
Stock-based compensation			—				—				681				—				681				—
Net income for the period February 3, 2006 through September 30, 2006			—				—				—				10,042				10,042				—
Balances at September 30, 2006			38,192,094			$	382			$	204,328			$	10,042			$	214,752			$	—

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

		Nine Months Ended
		September 30,
		2006				2005
Cash flows from operating activities:
Net income		$	12,192			$	13,469
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation on property and equipment			5,010				3,752
Depreciation on rental equipment			56,674				39,394
Amortization of loan discounts and deferred financing costs			2,056				2,044
Amortization of other intangible assets			34				82
Provision for losses on accounts receivable			1,457				1,096
Provision for inventory obsolescence			18				30
Provision for deferred income taxes			2,692				—
Non-cash compensation expense			681				—
Loss on early extinguishment of debt			40,771				—
Gain on sales of property and equipment, net			(400	)			(15	)
Gain on sales of rental equipment, net			(23,339	)			(16,199	)
Changes in operating assets and liabilities, net of impact of acquisition:
Receivables, net			(4,363	)			(15,269	)
Inventories			(58,315	)			(36,378	)
Prepaid expenses and other assets			(4,437	)			(2,058	)
Accounts payable			5,513				19,188
Manufacturer flooring plans payable			36,292				11,456
Accrued expenses payable and other liabilities			7,021				16,426
Deferred compensation payable			(8,507	)			864
Net cash provided by operating activities			71,050				37,882
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired			(56,961	)			—
Purchases of property and equipment			(13,353	)			(5,672	)
Purchases of rental equipment			(174,372	)			(117,723	)
Proceeds from sales of property and equipment			1,841				725
Proceeds from sales of rental equipment			76,068				61,494
Net cash used in investing activities			(166,777	)			(61,176	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issue costs			207,018				—
Borrowings on senior secured credit facility			718,819				424,867
Payments on senior secured credit facility			(799,005	)			(398,955	)
Proceeds from issuance of senior unsecured notes			250,000				—
Principal payment of senior secured notes			(214,608	)			—
Principal payment of senior subordinated notes			(59,155	)			—
Payments of deferred financing costs			(8,816	)			(10	)
Payments of related party obligation			(225	)			(225	)
Proceeds from issuance of notes payable			1,271				—
Principal payments of notes payable			(146	)			(181	)
Payments on capital lease obligations			—				(1,120	)
Net cash provided by financing activities			95,153				24,376
Net increase (decrease) in cash			(574	)			1,082
Cash, beginning of period			5,627				3,358
Cash, end of period		$	5,053			$	4,440

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the nine months ended September 30, 2006 and 2005
(Unaudited)
(Amounts in thousands)

		Nine Months Ended
		September 30,
		2006				2005
Supplemental schedule of noncash investing activities:
Assets transferred from new and used inventory to rental fleet		$	23,980			$	19,573
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	24,880			$	22,084
Income taxes		$	576			$	171

As of September 30, 2006 and 2005, we had $130.0 million and $62.7 million, respectively, in manufacturer flooring plans payable outstanding, which are used to finance purchases of inventory and rental equipment.

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

(1) Organization and Nature of Operations

Basis of Presentation

     In connection with our initial public offering of common stock in February 2006 (see note 3 to the condensed consolidated financial statements for further information regarding our initial public offering), we converted H&E Equipment Services L.L.C. (“H&E LLC”), a Louisiana limited liability company and the wholly-owned operating subsidiary of H&E Holding L.L.C. (“Holdings”), into H&E Equipment Services, Inc., a Delaware corporation. Prior to our initial public offering, our business was conducted through H&E LLC. In order to have an operating Delaware corporation as the issuer of our initial public offering, immediately prior to the closing of the initial public offering, on February 3, 2006, H&E LLC and Holdings merged with and into us (H&E Equipment Services, Inc.), with us surviving the reincorporation merger as the operating company. Effective February 3, 2006, H&E LLC and Holdings no longer existed. In these transactions (collectively, the “Reorganization Transactions”), holders of preferred limited liability company interests and holders of common limited liability company interests in H&E Holdings received shares of our common stock. All references to common stock share and per share amounts included in our condensed consolidated statements of operations for the three and nine months ended September 30, 2006 and 2005 have been retroactively adjusted to reflect the Reorganization Transactions as if the Reorganization Transactions had taken place as of the beginning of the earliest period presented.

     Our condensed consolidated financial statements include the financial position and results of operations of H&E Equipment Services, Inc. and its wholly-owned subsidiaries H&E Finance Corp., GNE Investments, Inc., Great Northern Equipment, Inc., and our recent acquisition, as described in note 4 to the condensed consolidated financial statements, of Eagle High Reach Equipment, Inc. (H&E California Holdings, Inc.) and Eagle High Reach Equipment, LLC (H&E Equipment Services (California LLC)), consummated on February 28, 2006, collectively referred to herein as “we” or “us” or “our” or the “Company.”

     The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included. Certain items in the prior periods have been reclassified to make the presentation consistent with the current reporting periods. Operating results for the three and nine months ended September 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006, and therefore, the results and trends in these interim condensed consolidated financial statements may not be the same for the entire year. These interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2005.

     The nature of our business is such that short-term obligations are typically met by cash flows generated from long-term assets. Consequently, consistent with industry practice, the accompanying condensed consolidated balance sheets are presented on an unclassified basis.

Nature of Operations

     As one of the largest integrated equipment services companies in the United States focused on heavy construction and industrial equipment, we rent, sell and provide parts and service support for four core categories of specialized equipment: (1) hi-lift or aerial platform equipment, (2) cranes, (3) earthmoving equipment and (4) industrial lift trucks. By providing equipment sales, rental, on-site parts and repair and maintenance functions under one roof, we are a one-stop provider for our customers’ varied equipment needs. This full-service approach provides us with multiple points of customer contact, enables us to maintain an extremely high quality rental fleet, as well as an effective distribution channel for fleet disposal and provides cross-selling opportunities among our new and used equipment sales, rental, parts sales and service operations.

(2) Significant Accounting Policies

     We describe our significant accounting policies in note 1 of the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2005.

Use of Estimates

     We prepare our condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. These assumptions and estimates could have a material effect on our financial statements. Actual results may differ materially from those estimates. We review our estimates on an ongoing basis based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.

Recent Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Share-Based Payment,” (“SFAS 123(R)”), which revises SFAS No. 123 and supersedes APB Opinion No. 25 and related interpretations. SFAS 123(R) requires all share-based payment transactions, including grants of stock options, restricted stock awards, performance-based awards, shares appreciation rights and employee stock purchase plans to be valued at fair value on the date of grant, and to be expensed over the requisite service period. SFAS 123(R) is effective for the annual reporting period beginning after June 15, 2005. SFAS 123(R) became effective for us on January 1, 2006. For the nine months ended September 30, 2006, we incurred approximately $0.7 million of non-cash compensation expense related to stock grants and stock options.

     In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“SFAS 154”). SFAS 154 replaces APB Opinion No. 20 (“APB 20”), “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Charges in Interim Financial Statements.” SFAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS 154 also provides that a correction of errors in previously issued financial statements should be termed a “restatement.” APB 20 previously required most voluntary changes in accounting principle to be recognized by including in net income at the period of change the cumulative effect of changing to the new accounting principle. In addition, SFAS 154 carries forward without change the guidance contained in APB 20 for reporting a correction of an error in previously issued financial statements and a change in accounting estimate. SFAS 154 became effective for accounting principle changes and corrections of errors in previously issued financial statements made after January 1, 2006. We applied SFAS 154 in connection with the restatement of our consolidated financial statements included in our Form 10-Q/A for the three-month period ended March 31, 2006.

     In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109 (“SFAS 109”). FIN 48 clarifies the application of SFAS 109 by defining criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in the financial statements. Additionally, FIN 48 provides guidance on the measurement, derecognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. Management is currently assessing the impact of adopting FIN 48 but does not expect that it will have a material impact on our financial position, results of operations and cash flows.

     In June 2006, EITF Issue No. 06-3 (“EITF 06-3”) became authoritative GAAP. EITF 06-3 addresses how taxes collected from customers and remitted to governmental authorities should be presented in the statement of operations. EITF 06-3 permits companies to present either on a gross or net basis sales and other taxes that are imposed on and concurrent with revenue-producing transactions between a seller and a customer. The gross method includes the taxes in revenues and costs; the net basis excludes the taxes from revenues. We currently collect significant amounts of sales taxes from customers and remit those taxes to various governmental agencies as prescribed by the taxing jurisdictions in which we operate. In accordance with EITF 06-03, we present such taxes on a net basis.

     In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 108 (“SAB 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. Specifically, SAB 108 requires that public companies utilize a “dual-approach” to assessing quantitative effects of financial misstatements. This dual approach includes both an income statement focused assessment and a balance sheet focused assessment. The guidance in SAB 108 must be applied to annual financial statements for fiscal years ending after November 15, 2006. The Company is currently assessing the impact of adopting SAB 108 but does not expect that it will have a material effect on our consolidated financial position or results of operations.

     In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. SFAS 157 is effective for fiscal years beginning after December 15, 2007. Management is currently assessing the impact of adopting SFAS 157 but does not expect that it will have a material effect on our consolidated financial position or results of operations.

(3) Initial Public Offering and Use of Proceeds

     We completed an initial public offering of our common stock, par value $.01 per share, on February 3, 2006. In the offering, we sold 12,578,125 shares for an aggregate offering price of $226.4 million. Net proceeds to us, after deducting underwriting discounts and commissions and offering expenses, totaled approximately $207.0 million. Aggregate underwriting discounts and commissions totaled approximately $15.9 million and aggregate offering expenses totaled approximately $3.6 million.

     We used the net offering proceeds to us of $207.0 million as follows:

	•		$56.9 million to complete our acquisition of Eagle High Reach Equipment, Inc. and all of the equity interests of its subsidiary, Eagle High Reach Equipment, LLC (together, “Eagle”), on February 28, 2006. For information on the Eagle acquisition, see note 4 to the condensed consolidated financial statements.
	•		$30.3 million to purchase rental equipment under operating leases;
	•		$8.6 million to pay deferred compensation owed to one of our current executives and a former executive; and
	•		$96.6 million to repay outstanding principal indebtedness under our senior secured credit facility.

Additionally, we paid $8.0 million to Bruckmann, Rosser, Sherill & Co., L.L.C. (an affiliate of Bruckmann, Rosser, Sherill & Co., L.P. and Bruckmann, Rosser, Sherill & Co. II, L.P., two of our principal stockholders) in connection with the termination of a management services agreement. The remaining net proceeds of approximately $6.6 million were used for general corporate purposes.

(4) Acquisition

     We completed, effective as of February 28, 2006, the previously announced acquisition of all of the capital stock of Eagle High Reach Equipment, Inc. and all of the equity interests of its subsidiary, Eagle High Reach Equipment, LLC for an estimated consideration of approximately $66.2 million, consisting of cash paid of $59.9 million, liabilities assumed of $3.6 million, liabilities incurred of $2.1 million, and transaction costs of $0.6 million. The Eagle purchase price was determined based on the expected cash flows from the Eagle business and negotiation with the sellers. The purchase price was funded out of the proceeds from our recently completed initial public offering (see note 3 to the condensed consolidated financial statements for further information on our initial public offering). Prior to the acquisition Eagle was a privately-held construction and industrial equipment rental company. Eagle serves the southern California construction and industrial markets out of four locations. This acquisition marks our initial entry into the southern California market and is consistent with our business strategy. For further information on our business strategy, see Item 1 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2005.

     The Eagle acquisition has been accounted for using the purchase method of accounting. The aggregate purchase price has been

allocated to the assets acquired and liabilities assumed based an estimate of their fair values as determined by a valuation performed by an independent national firm. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired has been allocated to goodwill. Goodwill generated from the acquisition was recognized given the expected contribution of Eagle to the overall corporate strategy. We estimate that approximately $9.9 million of the goodwill acquired will be tax deductible. Additionally, we are in the process of evaluating the allocation of Eagle goodwill to our reporting units. Our operating results for the nine month period ended September 30, 2006 include the operating results of Eagle since the date of acquisition, February 28, 2006.

     The following table summarizes our purchase price allocation based on fair values of the Eagle assets acquired and liabilities assumed in February 2006 (amounts in thousands).

Cash		$	32
Receivables			7,300
Inventories			915
Rental equipment			32,235
Property and equipment			3,153
Prepaid expenses and other assets			654
Goodwill			21,883
Accounts payable			(483	)
Accrued expenses payable and other liabilities			(2,349	)
Deferred income taxes			(2,073	)
Notes payable			(755	)
Net assets acquired		$	60,512

     The following table contains pro forma condensed consolidated statements of operations information for the three and nine month periods ended September 30, 2006 and 2005, as if the Eagle transaction had occurred at the beginning of each respective period presented (amounts in thousands except per share data).

		Three Month Period Ended								Nine Month Period Ended
		September 30,								September 30,
		2006				2005				2006				2005
Total revenues		$	204,135			$	157,208			$	594,209			$	438,969
Gross profit			68,747				51,039				194,839				137,647
Operating income			34,870				20,058				84,212				46,922
Net income (loss)		$	(11,531	)		$	8,928			$	11,842			$	15,133
Basic net income (loss) per common share		$	(0.30	)		$	0.35			$	0.32			$	0.59
Diluted net income (loss) per common share		$	(0.30	)		$	0.35			$	0.32			$	0.59

     Net income (loss) and the resulting net income (loss) per common share for the three and nine months ended September 30, 2006 includes the $40.8 million, or $32.0 million after tax, loss on early extinguishment of debt. See note 7 to the condensed consolidated financial statements for additional information on these transactions.

     The pro forma information above is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred had the Eagle transaction occurred as presented. Further, the above pro forma amounts do not consider any potential synergies or integration costs that may result from the transaction. In addition, future results may vary significantly from the results reflected in such pro forma information.

(5) Stock-Based Compensation

     We adopted our 2006 Stock-Based Incentive Compensation Plan (the “Stock Incentive Plan”) in January 2006 prior to the Company’s initial public offering of common stock. The Stock Incentive Plan was further amended and restated with the approval of our stockholders at the 2006 annual meeting of the stockholders of the Company to provide for the inclusion of non-employee directors as persons eligible to receive awards under the Stock Incentive Plan. Prior to the adoption of the Stock Incentive Plan, no share-based payment arrangements existed. The Stock Incentive Plan is administered by the Compensation Committee of our Board of Directors, which selects persons eligible to receive awards and determines the number of shares and/or options subject to each award, the terms, conditions, performances measures, if any, and other provisions of the award. Under the Stock Incentive Plan, we

may offer deferred shares or restricted shares of our common stock and grant options, including both incentive stock options and nonqualified stock options, to purchase shares of our common stock.

     SFAS 123(R) became effective for us in the first quarter of our current fiscal year ending December 31, 2006. Under the provisions of SFAS 123(R), stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant).

Non-vested Stock

     On February 22, 2006, we issued non-vested stock grants for 121,950 shares of our common stock. These stock awards may not be sold or otherwise transferred until certain restrictions have lapsed. The unrecognized compensation cost related to these awards is expected to be expensed over the period the restrictions lapse (one to three years). Compensation expense was determined based on the $24.60 market price of our stock at the date of grant applied to the total number of shares that were anticipated to fully vest. As of September 30, 2006, we have unrecognized compensation expense of $2.4 million associated with these awards. Compensation expense related to these awards included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2006 was $0.3 million and $0.6 million, respectively. At September 30, 2006, there were 121,950 non-vested shares outstanding.

Stock Options

     On February 22, 2006, stock options for 45,000 shares of our common stock were granted by the Company, subject to stockholder approval of the amendment to and restatement of the Stock Incentive Plan at the Company’s annual meeting of stockholders, with an exercise price of $24.60 per share, the market price of our stock on the date of grant. These options vest in three equal parts over three years and expire ten years from the date of grant. On June 6, 2006, the Company’s stockholders approved the amendment to and restatement of the Stock Incentive Plan.

     The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards. The following assumptions were used in determining the estimated fair value for these awards:

Risk-free interest rate			5.00	%
Expected life of options (in years)			6.0
Expected volatility			35.00	%
Expected annual dividend yield			—

     The assumptions above are based on multiple factors. Since the Company is a new public entity with limited historical data on the price of its publicly traded common shares and has no history of share-based payments exercise activity, the Company, as provided for in SEC Staff Accounting Bulletin No. 107, used a simplified method for determining the options expected term and based its estimate of expected volatility on the historical, expected or implied volatility of similar entities within our industry whose share or option prices are publicly available.

     At September 30, 2006, there was $0.6 million of unrecognized compensation cost related to these stock options awards that is expected to be recognized over a period of 2.4 years. Compensation expense related to these awards included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations was $0.1 million for the three and nine months ended September 30, 2006, respectively. At September 30, 2006, 45,000 options were outstanding with a grant-date value of $14.62 per share. The weighted average exercise price of options outstanding is $24.60. The market price of our common stock at September 30, 2006 was $24.39 as compared to an exercise price of $24.60 to be paid by the optionee. None of the options outstanding were exercisable as of September 30, 2006.

     Shares available for future stock-based payment awards under our Stock Incentive Plan were 4,401,467 shares as of September 30, 2006.

(6) Earnings per Share

     Earnings per common share for the three and nine months ended September 30, 2006 and 2005 are based on the weighted average number of common shares outstanding during the period and have been retroactively adjusted for the three and nine month periods

ended September 30, 2006 and 2005, to reflect the Reorganization Transactions as if the Reorganization Transactions had occurred at the beginning of the earliest year presented. The following table sets forth the computation of basic and diluted net income (loss) per common share for the three and nine months ended September 30, 2006 and 2005 (amounts in thousands, except per share amounts).

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2006				2005				2006				2005
Basic net income (loss) per share:
Net income (loss)		$	(11,531	)		$	8,225			$	12,192			$	13,469
Weighted average number of common shares outstanding			38,070				25,492				36,550				25,492
Net income (loss) per common share — basic		$	(0.30	)		$	0.32			$	0.33			$	0.53
Diluted net income per share:
Net income (loss)		$	(11,531	)		$	8,225			$	12,192			$	13,469
Weighted average number of common shares outstanding			38,070				25,492				36,550				25,492
Effect of dilutive securities:
Effect of dilutive stock options and non-vested stock			—				—				37				—
Weighted average number of shares outstanding — diluted			38,070				25,492				36,587				25,492
Net income (loss) per common share — diluted		$	(0.30	)		$	0.32			$	0.33			$	0.53
Common shares excluded from the denominator as anti-dilutive:
Stock options and non-vested stock			53				—				—				—

(7) Senior Unsecured Notes

     On August 4, 2006, the Company completed its cash tender offer and consent solicitation for their 11 1/8% senior secured notes due 2012 and 12 ¹/2% senior subordinated notes due 2013 (collectively, the “Notes”). Additionally, the Company announced the closing of its previously announced private offering of $250 million aggregate principal amount of its 8 3/8% senior unsecured notes due 2016 (the “New Notes”).

     Net proceeds to us, after deducting underwriting commissions, totaled approximately $245.3 million. The Company used the net proceeds of the offering of the New Notes, together with cash on hand and borrowings under its existing senior secured credit facility, to purchase $195.5 million in aggregate principal amount of the senior secured notes (representing approximately 97.8% of the previously outstanding senior secured notes), and the $53.0 million in aggregate principal amount of the senior subordinated notes (representing 100% of the previously outstanding senior subordinated notes) that were validly tendered pursuant to the tender offer and consent solicitation. The total principal amount, accrued and unpaid interest, consent fee amounts and premiums paid for the senior secured notes was $217.6 million. The total principal amount, accrued and unpaid interest, consent fee amounts and premiums paid for the senior subordinated notes was approximately $60.1 million. Aggregate offering expenses totaled approximately $1.9 million.

     In connection with the above transactions, the Company recorded a one-time loss on the early extinguishment of debt in the three month period ended September 30, 2006 of approximately $40.8 million, or approximately $32.0 million after-tax, reflecting payment of the $25.3 million of tender premiums and other estimated costs of $0.5 million in connection with the tender offer and consent solicitation, combined with the write off of approximately $5.4 million of unamortized deferred financing costs of the Notes and $9.6 million of remaining unamortized original issue discount on the Notes.

     The amendments to the indentures pursuant to which the Notes were issued which were proposed in connection with the tender offer and consent solicitation became operative on August 4, 2006. The amendments to the indentures eliminate substantially all of the restrictive covenants and eliminate or modify certain events of default and related provisions contained in the indentures.

     The New Notes were issued at par and require semiannual interest payments on January 15^th and July 15^th of each year, beginning on July 15, 2007. No principal payments are due until maturity (January 15, 2016). We may redeem some or all of the New Notes on or after July 15, 2011, at the applicable redemption prices plus accrued and unpaid interest and additional interest, if any, to the date of redemption. Additionally, we may redeem up to 35% of the aggregate principal amount of the notes using net cash proceeds from equity offerings completed on or prior to July 15, 2009.

     The New Notes rank equal in right of payment to all of our and our guarantors’ existing and future unsecured senior indebtedness and senior in right of payment to any of our or our guarantors’ future subordinated indebtedness. The New Notes are effectively junior in priority to our and our guarantors’ obligations under all of our existing and future secured indebtedness, including borrowings under our senior secured credit facility, the $4.5 million of senior secured notes outstanding at September 30, 2006, and any other secured obligations, in each case, to the extent of the value of the assets securing such obligations. The New Notes are also effectively junior to all liabilities (including trade payables) of our non-guarantor subsidiaries.

     Concurrently with the closing of the private offering, the Company entered into an Amended and Restated Credit Agreement (the “Amended Credit Agreement”), amending and restating the Company’s senior secured credit agreement primarily to, (i) increase the principal amount of availability of the credit facility from $165.0 million to $250.0 million; (ii) reduce the applicable unused line fee margin” in respect of undrawn commitments to 0.25%,; (iii) increase the advance rate on rental fleet assets from the lesser of 100% of net book value or 80% of orderly liquidation value to the lesser of 100% of net book value or 85% of orderly liquidation value; (iv) extend the maturity date of the facility from February 10, 2009 to August 4, 2011; and (v) add H&E Equipment Services (California), LLC as a borrower. Furthermore, the Amended Credit Agreement changed the measurement frequency of our computed “Leverage Ratio” from a monthly calculation to a quarterly calculation. The Company paid $1.4 million to the “Lenders” in connection with this Amended Credit Agreement and incurred other transaction costs of approximately $0.2 million. As of September 30, 2006, we had $26.3 million of outstanding borrowings under our senior secured credit facility with $215.4 million of additional borrowing availability, net of $8.3 million of issued standby letters of credit. As of September 30, 2006, the Company was in compliance with its financial covenant under its Amended and Restated Credit Agreement.

     On October 3, 2006, the Company and the guarantors filed a Form S-4 Registration Statement, as subsequently amended on October 11, 2006, with respect to an offer to exchange the New Notes for notes of the Company being issued in a transaction registered under the Securities Act of 1933, as amended, having terms identical in all material respects to the New Notes (except that the exchange notes will not contain terms with respect to transfer restrictions). Upon the Form S-4 Registration Statement being declared effective on October 13, 2006, the Company launched the exchange offer. The exchange offer expired on November 13, 2006, with $250.0 million of the aggregate principal amount, or 100%, of the New Notes exchanged for new notes registered under the Securities Act of 1933, as amended.

(8) Segment Information

     We have identified five reportable segments: equipment rentals, new equipment sales, used equipment sales, parts sales and service revenue. These segments are based upon how management of the Company allocates resources and assesses performance. Non-segmented revenues and non-segmented costs relate to equipment support activities including transportation, hauling, parts freight and damage-waiver charges and are not allocated to the other reportable segments. There were no sales between segments for any of the periods presented. Selling, general and administrative expenses as well as all other income and expense items below gross profit are not generally allocated to reportable segments.

     The Company does not compile discrete financial information by its segments other than the information presented below. The following table presents information about the Company’s reportable segments (amounts in thousands).

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
Revenues:
Equipment rentals		$	67,327			$	50,409			$	185,333			$	136,576
New equipment sales			60,673				36,152				173,333				99,867
Used equipment sales			29,668				26,751				97,387				76,332
Parts sales			21,024				16,986				61,574				51,202
Service revenue			14,074				10,409				39,782				29,459
Total segmented revenues			192,766				140,707				557,409				393,436
Non-segmented revenues			11,369				7,749				31,472				21,300
Total revenues		$	204,135			$	148,456			$	588,881			$	414,736
Gross Profit:
Equipment rentals		$	36,344			$	24,040			$	97,232			$	62,158
New equipment sales			7,352				4,369				21,718				12,064
Used equipment sales			7,960				6,426				26,134				18,289

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2006				2005				2006				2005
Parts sales			6,129				5,014				18,075				15,097
Service revenue			9,029				6,429				25,439				18,486
Total segmented gross profit			66,814				46,278				188,598				126,094
Non-segmented gross profit (loss)			1,933				520				4,467				(400	)
Total gross profit		$	68,747			$	46,798			$	193,065			$	125,694

		Balances at
		September 30,				December 31,
		2006				2005
Segment identified assets:
Equipment sales		$	95,192			$	62,344
Equipment rentals			429,219				308,036
Parts and service			21,133				18,749
Total segment identified assets			545,544				389,129
Non-segment identified assets			187,500				141,568
Total assets		$	733,044			$	530,697

     The Company operates primarily in the United States and had minimal international sales for any of the periods presented. No one customer accounted for more than 10% of the Company’s revenues on an overall or segment basis for any of the periods presented.

(9) Condensed Consolidating Financial Information of Guarantor Subsidiaries

     All of the indebtedness of H&E Equipment Services, Inc. is guaranteed by GNE Investments, Inc. and its wholly-owned subsidiary Great Northern Equipment, Inc., H&E Equipment Services (California), LLC (formerly known as Eagle High Reach Equipment, LLC), and H&E California Holdings, Inc. (formerly known as Eagle High Reach Equipment, Inc.). The guarantor subsidiaries are all wholly-owned and the guarantees, made on a joint and several basis, are full and unconditional (subject to subordination provisions and subject to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). There are no restrictions on the Company’s ability to obtain funds from the guarantor subsidiaries by dividend or loan.

     The consolidating financial statements of H&E Equipment Services, Inc. and its subsidiaries are included below. The financial statements for H&E Finance Corp., the subsidiary co-issuer, are not included within the consolidating financial statements because H&E Finance Corp. has no assets or operations. The financial statements of H&E Equipment Services (California), LLC and H&E California Holdings, Inc. included are from the date of the Company’s acquisition of Eagle, February 28, 2006, to September 30, 2006 and as of September 30, 2006.

CONDENSED CONSOLIDATING BALANCE SHEET
(Amounts in thousands)

		As of September 30, 2006
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
Assets:
Cash		$	4,972			$	81			$	—			$	5,053
Receivables, net			96,511				13,219				—				109,730
Inventories, net			112,432				3,893				—				116,325
Prepaid expenses and other assets			4,320				154				—				4,474
Rental equipment, net			368,520				60,699				—				429,219
Property and equipment, net			23,823				4,516				—				28,339
Deferred financing costs and other intangible assets, net			9,449				—				—				9,449
Investment in guarantor subsidiaries			12,044				—				(12,044	)			—
Goodwill			30,455				—				—				30,455
Total assets		$	662,526			$	82,562			$	(12,044	)		$	733,044
Liabilities and Stockholders’ Equity:
Amount due on senior secured credit facility		$	26,265			$	—			$	—			$	26,265
Accounts payable			62,153				21				—				62,174
Manufacturer flooring plans payable			130,020				—				—				130,020
Accrued expenses payable and other liabilities			32,712				909				—				33,621
Intercompany balance			(68,839	)			68,839				—				—
Related party obligation			709				—				—				709
Notes payable			1,651				749				—				2,400
Senior secured notes, net of discount			4,477				—				—				4,477
Senior unsecured notes			250,000				—				—				250,000
Deferred income taxes			5,411				—				—				5,411
Deferred compensation payable			3,215				—				—				3,215
Total liabilities			447,774				70,518				—				518,292
Stockholders’ equity			214,752				12,044				(12,044	)			214,752
Total liabilities and stockholders’ equity		$	662,526			$	82,562			$	(12,044	)		$	733,044

CONDENSED CONSOLIDATING BALANCE SHEET
(Amounts in thousands)

		As of December 31, 2005
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
Assets:
Cash		$	5,610			$	17			$	—			$	5,627
Receivables, net			95,427				4,096				—				99,523
Inventories, net			76,533				4,560				—				81,093
Prepaid expenses and other assets			1,378				—				—				1,378
Rental equipment, net			298,708				9,328				—				308,036
Property and equipment, net			17,526				758				—				18,284
Deferred financing costs, net			8,184				—				—				8,184
Investment in guarantor subsidiaries			7,025				—				(7,025	)			—
Goodwill			8,572				—				—				8,572
Total assets		$	518,963			$	18,759			$	(7,025	)			530,697
Liabilities and Member’s Equity (Deficit):
Amount due on senior secured credit facility		$	102,980			$	3,471			$	—			$	106,451
Accounts payable			56,173				—				—				56,173
Manufacturer flooring plans payable			93,728				—				—				93,728
Accrued expenses payable and other liabilities			22,696				102				—				22,798
Intercompany balance			(8,161	)			8,161				—				—
Related party obligation			869				—				—				869
Notes payable			521				—				—				521
Senior secured notes, net of discount			198,873				—				—				198,873
Senior subordinated notes, net of discount			44,057				—				—				44,057
Deferred income taxes			645				—				—				645
Deferred compensation payable			11,722				—				—				11,722
Total liabilities			524,103				11,734				—				535,837
Members’ equity (deficit)			(5,140	)			7,025				(7,025	)			(5,140	)
Total liabilities and members’ equity (deficit)		$	518,963			$	18,759			$	(7,025	)		$	530,697

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Amounts in thousands)

		Three Months Ended September 30, 2006
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
Revenues:
Equipment rentals		$	56,205			$	11,122			$	—			$	67,327
New equipment sales			58,659				2,014				—				60,673
Used equipment sales			27,270				2,398				—				29,668
Parts sales			20,162				862				—				21,024
Service revenue			13,528				546				—				14,074
Other			9,855				1,514				—				11,369
Total revenues			185,679				18,456				—				204,135
Cost of revenues:
Rental depreciation			17,548				3,096				—				20,644
Rental expense			8,912				1,427				—				10,339
New equipment sales			51,557				1,764				—				53,321
Used equipment sales			20,066				1,642				—				21,708
Parts sales			14,298				597				—				14,895
Service revenue			4,874				171				—				5,045
Other			8,040				1,396				—				9,436
Total cost of revenues			125,295				10,093				—				135,388
Gross profit:
Equipment rentals			29,745				6,599				—				36,344
New equipment sales			7,102				250				—				7,352
Used equipment sales			7,204				756				—				7,960
Parts sales			5,864				265				—				6,129
Service revenue			8,654				375				—				9,029
Other			1,815				118				—				1,933
Gross profit			60,384				8,363				—				68,747
Selling, general and administrative expenses			30,499				3,619				—				34,118
Equity in earnings of guarantor subsidiaries			3,192				—				(3,192	)			—
Gain on sale of property and equipment			139				102				—				241
Income from operations			33,216				4,846				(3,192	)			34,870
Other income (expense):
Interest expense			(7,397	)			(1,663	)			—				(9,060	)
Loss on early extinguishment of debt			(40,771	)			—				—				(40,771	)
Other, net			236				9				—				245
Total other expense, net			(47,932	)			(1,654	)			—				(49,586	)
Income (loss) before provision (benefit) for income taxes			(14,716	)			3,192				(3,192	)			(14,716	)
Income tax provision (benefit)			(3,185	)			—				—				(3,185	)
Net income (loss)		$	(11,531	)		$	3,192			$	(3,192	)		$	(11,531	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Amounts in thousands)

		Three Months Ended September 30, 2005
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
Revenues:
Equipment rentals		$	48,222			$	2,187			$	—			$	50,409
New equipment sales			34,861				1,291				—				36,152
Used equipment sales			25,482				1,269				—				26,751
Parts sales			16,372				614				—				16,986
Service revenue			10,033				376				—				10,409
Other			7,427				322				—				7,749
Total revenues			142,397				6,059				—				148,456
Cost of revenues:
Rental depreciation			13,689				665				—				14,354
Rental expense			11,766				249				—				12,015
New equipment sales			30,656				1,127				—				31,783
Used equipment sales			19,367				958				—				20,325
Parts sales			11,549				423				—				11,972
Service revenue			3,881				99				—				3,980
Other			6,914				315				—				7,229
Total cost of revenues			97,822				3,836				—				101,658
Gross profit:
Equipment rentals			22,767				1,273				—				24,040
New equipment sales			4,205				164				—				4,369
Used equipment sales			6,115				311				—				6,426
Parts sales			4,823				191				—				5,014
Service revenue			6,152				277				—				6,429
Other			513				7				—				520
Gross profit			44,575				2,223				—				46,798
Selling, general and administrative expenses			26,804				1,415				—				28,219
Equity in loss of guarantor subsidiaries			483				—				(483	)			—
Gain on sale of property and equipment			106				12				—				118
Income from operations			18,360				820				(483	)			18,697
Other income (expense):
Interest expense			(10,216	)			(341	)			—				(10,557	)
Other, net			81				4				—				85
Total other expense, net			(10,135	)			(337	)			—				(10,472	)
Income before provision for income taxes			8,225				483				(483	)			8,225
Income tax provision			—				—				—				—
Net income		$	8,225			$	483			$	(483	)		$	8,225

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(Amounts in thousands)

		Nine Months Ended September 30, 2006
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
Revenues:
Equipment rentals		$	160,730			$	24,603			$	—			$	185,333
New equipment sales			167,944				5,389				—				173,333
Used equipment sales			90,354				7,033				—				97,387
Parts sales			59,319				2,255				—				61,574
Service revenue			38,444				1,338				—				39,782
Other			28,119				3,353				—				31,472
Total revenues			544,910				43,971				—				588,881
Cost of revenues:
Rental depreciation			49,741				6,933				—				56,674
Rental expense			27,592				3,835				—				31,427
New equipment sales			146,990				4,625				—				151,615
Used equipment sales			66,340				4,913				—				71,253
Parts sales			41,968				1,531				—				43,499
Service revenue			13,934				409				—				14,343
Other			23,849				3,156				—				27,005
Total cost of revenues			370,414				25,402				—				395,816
Gross profit:
Equipment rentals			83,397				13,835				—				97,232
New equipment sales			20,954				764				—				21,718
Used equipment sales			24,014				2,120				—				26,134
Parts sales			17,351				724				—				18,075
Service revenue			24,510				929				—				25,439
Other			4,270				197				—				4,467
Gross profit			174,496				18,569				—				193,065
Selling, general and administrative expenses			98,378				10,167				—				108,545
Equity in earnings of guarantor subsidiaries			5,019				—				(5,019	)			—
Gain on sale of property and equipment			268				132				—				400
Income from operations			81,405				8,534				(5,019	)			84,920
Other income (expense):
Interest expense			(25,814	)			(3,528	)			—				(29,342	)
Loss on early extinguishment of debt			(40,771	)			—				—				(40,771	)
Other, net			662				13				—				675
Total other expense, net			(65,923	)			(3,515	)			—				(69,438	)
Income before income taxes			15,482				5,019				(5,019	)			15,482
Income tax provision			3,290				—				—				3,290
Net income		$	12,192			$	5,019			$	(5,019	)		$	12,192