H&E Equipment Services, Inc. - Quarter Report: 2009 June (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

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

Commission file number: 000-51759

 

H&E Equipment Services, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware		81-0553291
(State of Other Jurisdiction of Incorporation or Organization)		(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)

None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

     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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
     Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

     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

     As of August 3, 2009, there were 34,927,049 shares of H&E Equipment Services, Inc. common stock, $0.01 par value, outstanding.

 

 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
JUNE 30, 2009

			Page
PART I. FINANCIAL INFORMATION			4
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008			4
Condensed Consolidated Statements of Income (Unaudited) for the Three and Six Months Ended June 30, 2009 and 2008			5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2009 and 2008			6
Notes to Condensed Consolidated Financial Statements (Unaudited)			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			35
PART II. OTHER INFORMATION			36
Item 1. Legal Proceedings			36
Item 1A. Risk Factors			36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 3. Defaults upon Senior Securities			36
Item 4. Submission of Matters to a Vote of Security Holders			37
Item 5. Other Information			37
Item 6. Exhibits			37
Signatures			38
EX-31.1
EX-31.2
EX-32.1

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,” “foresee” 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 and timing 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 to 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 and industrial activity in the markets where we operate in North America, as well as the current macroeconomic downturn and the impact of current conditions in the global credit markets and its effect on construction spending and the economy in general;
	•		relationships with new equipment suppliers;
	•		increased maintenance and repair costs as we age our fleet and decreases in our equipment’s residual value;
	•		our indebtedness;
	•		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, 2008.

     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 on Form 10-Q, 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, 2008, as well as other reports and registration statements filed by us with the SEC. All of our annual, quarterly and current reports, and any amendments thereto, filed with or furnished to the SEC are available on our Internet website under the Investor Relations link. For more information about us and the announcements we make from time to time, visit our Internet website at www.he-equipment.com.

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)

		Balances at
		June 30,				December 31,
		2009				2008
		(Unaudited)
ASSETS
Cash		$	8,868			$	11,266
Receivables, net of allowance for doubtful accounts of $5,988 and $5,524, respectively			97,354				150,293
Inventories, net of reserves for obsolescence of $894 and $920, respectively			126,699				129,240
Prepaid expenses and other assets			7,837				11,722
Rental equipment, net of accumulated depreciation of $220,235 and $210,961, respectively			497,402				554,457
Property and equipment, net of accumulated depreciation and amortization of $39,700 and $35,187, respectively			64,831				58,122
Deferred financing costs, net of accumulated amortization of $8,341 and $7,631, respectively			6,255				6,964
Intangible assets, net of accumulated amortization of $2,196 and $1,900, respectively			1,283				1,579
Goodwill			42,991				42,991
Total assets		$	853,520			$	966,634
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Amounts due on senior secured credit facility		$	44,981			$	76,325
Accounts payable			37,830				93,667
Manufacturer flooring plans payable			105,287				127,690
Accrued expenses payable and other liabilities			39,777				47,206
Related party obligation			—				145
Notes payable			1,945				1,959
Senior unsecured notes			250,000				250,000
Capital lease payable			2,241				2,300
Deferred income taxes			76,440				75,109
Deferred compensation payable			2,059				2,026
Total liabilities			560,560				676,427
Commitments and contingent liabilities
Stockholders’ equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued			—				—
Common stock, $0.01 par value, 175,000,000 shares authorized; 38,525,688 and 38,287,848 shares issued at June 30, 2009 and December 31, 2008, respectively, and 34,927,049 and 34,706,372 shares outstanding at June 30, 2009 and December 31, 2008, respectively			385				383
Additional paid-in capital			207,763				207,346
Treasury stock at cost, 3,598,639 and 3,581,476 shares of common stock held at June 30, 2009 and December 31, 2008, respectively			(56,115	)			(56,008	)
Retained earnings			140,927				138,486
Total stockholders’ equity			292,960				290,207
Total liabilities and stockholders’ equity		$	853,520			$	966,634

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

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Revenues:
Equipment rentals		$	50,077			$	75,234			$	105,561			$	146,445
New equipment sales			59,268				99,985				123,325				176,338
Used equipment sales			20,463				47,152				36,556				88,563
Parts sales			26,335				29,247				52,358				58,161
Services revenues			15,482				17,730				30,939				34,318
Other			8,616				13,296				17,698				24,585
Total revenues			180,241				282,644				366,437				528,410
Cost of revenues:
Rental depreciation			22,899				26,048				46,684				52,476
Rental expense			10,902				12,130				22,232				23,946
New equipment sales			51,655				87,164				106,970				152,710
Used equipment sales			16,725				36,463				29,413				67,382
Parts sales			18,865				20,740				37,387				41,006
Services revenues			5,710				6,283				11,413				12,424
Other			8,979				13,253				17,552				25,179
Total cost of revenues			135,735				202,081				271,651				375,123
Gross profit			44,506				80,563				94,786				153,287
Selling, general and administrative expenses			36,122				45,857				75,269				92,541
Gain on sales of property and equipment, net			201				157				183				296
Income from operations			8,585				34,863				19,700				61,042
Other income (expense):
Interest expense			(8,011	)			(9,531	)			(16,192	)			(19,698	)
Other, net			180				265				395				481
Total other expense, net			(7,831	)			(9,266	)			(15,797	)			(19,217	)
Income before provision for income taxes			754				25,597				3,903				41,825
Provision for income taxes			491				9,479				1,462				15,498
Net income		$	263			$	16,118			$	2,441			$	26,327
Net income per common share:
Basic		$	0.01			$	0.45			$	0.07			$	0.72
Diluted		$	0.01			$	0.45			$	0.07			$	0.72
Weighted average common shares outstanding:
Basic			34,596				35,986				34,588				36,335
Diluted			34,596				35,988				34,595				36,339

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)

		Six Months Ended
		June 30,
		2009				2008
Cash flows from operating activities:
Net income		$	2,441			$	26,327
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization on property and equipment			5,552				5,538
Depreciation on rental equipment			46,684				52,476
Amortization of loan discounts and deferred financing costs			709				730
Amortization of intangible assets			296				1,467
Provision for losses on accounts receivable			2,053				1,521
Provision for inventory obsolescence			39				27
Provision for deferred income taxes			1,331				14,485
Stock-based compensation expense			417				631
Gain on sales of property and equipment, net			(183	)			(296	)
Gain on sales of rental equipment, net			(6,638	)			(19,274	)
Changes in operating assets and liabilities:
Receivables, net			50,886				3,531
Inventories, net			(3,979	)			(36,521	)
Prepaid expenses and other assets			3,885				238
Accounts payable			(55,837	)			9,985
Manufacturer flooring plans payable			(22,403	)			(10,399	)
Accrued expenses payable and other liabilities			(7,422	)			(920	)
Deferred compensation payable			33				19
Net cash provided by operating activities			17,864				49,565
Cash flows from investing activities:
Acquisition of business, net of cash acquired			—				(5,306	)
Purchases of property and equipment			(12,394	)			(11,748	)
Purchases of rental equipment			(4,877	)			(68,474	)
Proceeds from sales of property and equipment			316				982
Proceeds from sales of rental equipment			28,367				69,939
Net cash provided by (used in) investing activities			11,412				(14,607	)
Cash flows from financing activities:
Excess tax benefit (deficiency) from stock-based awards			—				(44	)
Purchases of treasury stock			(107	)			(33,077	)
Borrowings on senior secured credit facility			387,311				536,099
Payments on senior secured credit facility			(418,655	)			(544,059	)
Payments of related party obligation			(150	)			(150	)
Payments of capital lease obligation			(59	)			(55	)
Principal payments on notes payable			(14	)			(14	)
Net cash used in financing activities			(31,674	)			(41,300	)
Net decrease in cash			(2,398	)			(6,342	)
Cash, beginning of period			11,266				14,762
Cash, end of period		$	8,868			$	8,420

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Amounts in thousands)

		Six Months Ended
		June 30,
		2009				2008
Supplemental schedule of noncash investing and financing activities:
Noncash asset purchases:
Assets transferred from new and used inventory to rental fleet		$	6,481			$	35,465
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	15,678			$	18,895
Income taxes, net of refunds received		$	259			$	1,280

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) Organization and Nature of Operations

Basis of Presentation

     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., H&E California Holdings, Inc., H&E Equipment Services (California) LLC and H&E Equipment Services (Mid-Atlantic), Inc., collectively referred to herein as “we” or “us” or “our” or the “Company.”

     The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America 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. Operating results for the three and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009, 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 audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2008, from which the balance sheet amounts as of December 31, 2008 were derived.

     All significant intercompany accounts and transactions have been eliminated in these condensed consolidated financial statements. Business combinations accounted for as acquisitions are included in the condensed consolidated financial statements from their respective dates of acquisition.

     We have evaluated all subsequent events through August 5, 2009, the date the condensed condensed consolidated financial statements were issued.

     The nature of our business is such that short-term obligations are typically met by cash flows generated from long-term assets. Consequently, and 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 a 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 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2008. There were no significant changes to those accounting policies during the three and six month periods ended June 30, 2009.

     Use of Estimates

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

     Accounting Pronouncements Adopted in Fiscal Year 2009

     In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), Business Combinations (“SFAS 141R”), which replaces SFAS No. 141 (“SFAS 141”). This Statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be used for all business combinations. SFAS 141R also establishes principles and requirements for how the acquirer: (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (iii) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Previously, under SFAS 141, changes in valuation allowances, as a result of income from acquisitions, for certain deferred tax assets would serve to reduce goodwill whereas under SFAS 141R, any changes in the valuation allowance related to income from acquisitions currently or in prior periods will serve to reduce income taxes in the period in which the allowance is reversed. Under SFAS 141R, transaction related expenses, which were previously capitalized as direct costs of the acquisition, will be expensed as incurred under SFAS 141R. In April 2009, the FASB also released FSP No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (“FSP 141R-1”), to address some of the application issues under SFAS 141R. FSP 141R-1 deals with the initial recognition and measurement of an asset acquired or a liability assumed in a business combination that arises from a contingency provided the asset or liability’s fair value on the date of acquisition can be determined. We will apply the provisions of SFAS 141R and FSP 141R-1 prospectively to business combinations consummated after January 1, 2009. The impact that SFAS 141R and FSP 141R-1 may have on our financial condition, results of operations or cash flows will depend upon the nature, terms and size of the acquisition and changes to the valuation allowances.

     In February 2008, the FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”). FSP 157-2 permitted a one-year deferral for the implementation of the provisions of SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), with regard to certain non-financial assets and non-financial liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). FSP157-2 became effective for us on January 1, 2009 and did not have a material impact on our condensed consolidated financial statements.

     In April 2009, the FASB issued FASB Staff Position FAS 157-4, Determining Fair Value When Volume and Level of Activity or the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (“FSP 157-4”). FSP 157-4 provides additional guidance under SFAS 157 on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability has significantly decreased. FSP 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. FSP 157-4 requires disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques. FSP 157-4 became effective for us in the quarter ended June 30, 2009 and did not have a material impact on our condensed consolidated financial statements.

     In April 2008, the FASB issued FASB Staff Position 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R and other generally accepted accounting principles. FSP 142-3 became effective for us on January 1, 2009 and did not have a material impact on our condensed consolidated financial statements.

     In April 2009, the FASB issued FASB Staff Position SFAS 107-1 and Accounting Principles Board (“APB”) Opinion No. 28-1, Interim Disclosures about Fair Value of Financial Instruments (“FSP 107-1” and “APB 28-1,” respectively). FSP 107-1 amends Statement of Financial Accounting Standards No. 107, Disclosures about Fair Values of Financial Instruments, to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. APB 28-1 amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in all interim financial statements. FSP 107-1 and APB 28-1 are effective for interim periods ending after June 15, 2009. We adopted FSP 107-1 and APB 28-1 during our quarter ended June 30, 2009 and have provided the additional disclosures required in this Quarterly Report on Form 10-Q.

     In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”). SFAS 165 establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this statement sets forth (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 became effective for us for the quarter ended June 30, 2009 and did not have a material effect on our condensed consolidated financial statements.

     Accounting Pronouncements Not Yet Adopted

     In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”), which amends the consolidation guidance applicable to variable interest entities. SFAS 167 changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. This statement is effective for us beginning in fiscal 2010. We are still assessing the potential impact of adoption.

     In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Codification and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168”). SFAS 168 replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, and established the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP, aside from those issued by the SEC. SFAS 168 becomes effective for us in our third quarter ending September 30, 2009. The Codification is not expected to have material impact on the Company’s financial statements.

     (3) Fair Value of Financial Instruments

     Pursuant to our adoption of FSB 107-1 and APB 28-1, the following information provides the additional disclosures concerning our financial instruments.

     The carrying value of financial instruments reported in our accompanying condensed consolidated balance sheets for cash, accounts receivable, accounts payable and accrued expenses payable and other liabilities approximate fair value due to the immediate or short-term nature or maturity of these financial instruments. The carrying amount for our senior secured credit facility approximates fair value because the underlying instrument includes provisions to adjust our interest rates based on current market rates. The determination of the fair value of our letters of credit is based on fees currently charged for similar agreements. The carrying amounts and fair values of our other financial instruments subject to fair value disclosures have been calculated based upon market quotes and present value calculations based on our current estimated incremental borrowing rates for similar types of borrowing arrangements, which are presented in the table below (amounts in thousands):

		June 30, 2009
		Carrying				Fair
		Amount				Value
Manufacturer flooring plans payable with interest computed at 7.00%		$	105,287			$	90,154
Senior unsecured notes with interest compounded at 8.375%			250,000				202,500
Notes payable to lenders with interest computed at 7.25% to 9.55%			1,945				1,451
Capital lease payable with interest computed at 5.929%			2,241				2,052
Letters of credit			—				98

		December 31, 2008
		Carrying				Fair
		Amount				Value
Manufacturer flooring plans payable with interest computed at 7.25%		$	127,690			$	105,053
Senior unsecured notes with interest compounded at 8.375%			250,000				132,500
Notes payable to lenders with interest computed at 7.25% to 9.55%			1,959				1,249
Capital lease payable with interest computed at 5.929%			2,300				2,210
Letters of credit			—				87

(4) Stockholders’ Equity

     The following table summarizes the activity in Stockholders’ Equity for the six month period ended June 30, 2009 (amounts in thousands, except share data):

		Common Stock								Additional												Total
		Shares								Paid-in				Treasury				Retained				Stockholders’
		Issued				Amount				Capital				Stock				Earnings				Equity
Balances at December 31, 2008			38,287,848			$	383			$	207,346			$	(56,008	)		$	138,486			$	290,207
Stock-based compensation			—				—				417				—				—				417
Surrender of 17,163 shares(1)			—				—				—				(107	)			—				(107	)
Issuance of common stock			237,840				2				—				—				—				2
Net income			—				—				—				—				2,441				2,441
Balances at June 30, 2009			38,525,688			$	385			$	207,763			$	(56,115	)		$	140,927			$	292,960

(5) Stock-Based Compensation

     We account for our stock-based compensation plan using the fair value recognition provisions of Statement of Financial Accounting Standard No. 123 (revised) (“SFAS 123R”), Share-Based Payment. Under the provisions of SFAS 123R, 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). Shares available for future stock-based payment awards under our Stock Incentive Plan were 4,112,332 shares of common stock as of June 30, 2009.

Non-vested Restricted Stock

     The following table summarizes our non-vested stock activity for the six months ended June 30, 2009:

						Weighted
		Number of				Average Grant
		Shares				Date Fair Value
Non-vested restricted stock at December 31, 2008			136,404			$	15.77
Granted			237,840			$	7.07
Vested			(72,569	)		$	19.07
Forfeited			—				—
Non-vested restricted stock at June 30, 2009			301,675			$	7.78

     On June 1 and June 2, 2009, we issued non-vested restricted stock grants for 227,260 shares and 10,580 shares, respectively. Compensation expense was determined based on the $6.62 and $7.09 market price of our stock on the June 1, 2009 and June 2, 2009 grant dates, respectively, applied to the total number of shares that were anticipated to fully vest. As of June 30, 2009, we have unrecognized compensation expense of $2.2 million related to non-vested restricted stock that is expected to be recognized over a weighted-average period of 2.6 years. The following table summarizes compensation expense included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income for the three and six month periods ended June 30, 2009 and 2008 (amounts in thousands):

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Compensation expense		$	133			$	251			$	372			$	501

Stock Options

     At June 30, 2009, there was $21,000 of unrecognized compensation expense related to stock option awards that is expected to be recognized over a weighted-average period of 1.0 years. The following table summarizes compensation expense included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income for the three and six month periods ended June 30, 2009 and 2008 (amounts in thousands):

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Compensation expense		$	5			$	64			$	45			$	130

     The following table represents stock option activity for the six months ended June 30, 2009:

										Weighted Average
		Number of				Weighted Average				Contractual Life
		Shares				Exercise Price				in Years
Outstanding options at December 31, 2008			51,000			$	24.80
Granted			—				—
Exercised			—				—
Canceled, forfeited or expired			—				—
Outstanding options at June 30, 2009			51,000			$	24.80				6.8
Options exercisable at June 30, 2009			49,000			$	24.74				6.7

     The closing price of our common stock on June 30, 2009 was $9.35. All options outstanding at June 30, 2009 have grant date fair values which exceed the June 30, 2009 closing stock price.

     The following table summarizes non-vested stock option activity for the six months ended June 30, 2009:

						Weighted Average
		Number of				Grant Date Fair
		Shares				Value
Non-vested stock options at December 31, 2008			19,000			$	24.95
Granted			—				—
Vested			(17,000	)		$	24.80
Forfeited			—				—
Non-vested stock options at June 30, 2009			2,000			$	26.27

(6) Closed Branch Facility Charges

     We continuously monitor and identify branch facilities with revenues and operating margins that consistently fall below Company performance standards. Once identified, we continue to monitor these branches to determine if operating performance can be improved or if the performance is attributable to economic factors unique to the particular market with unfavorable long-term prospects. If necessary, branches with unfavorable long-term prospects are closed and the rental fleet and new and used equipment inventories are deployed to more profitable branches within our geographic footprint where demand is higher.

     During the six months ended June 30, 2009, we closed or consolidated two branches. Under Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities (“SFAS 146”), exit costs include, but are not limited to, the following: (a) one-time termination benefits; (b) contract termination costs, including costs that will continue to be incurred under operating leases that have no future economic benefit; and (c) other associated costs. A liability for costs associated with an exit or disposal activity is recognized and measured at its fair value in the period in which the liability is incurred, except for one-time termination benefits that are incurred over time. In connection with the branch closings, we recorded charges of approximately $0.1 million and $0.3 million, respectively, for the three and six month periods ended June 30, 2009. These charges

consist primarily of the writeoff of leasehold improvements and the estimated costs that will continue to be incurred under operating leases that have no future economic benefit to the Company. These estimated lease costs represent the fair value of the liability at the cease-use date. The fair value of the liability is determined based on the present value of remaining lease rentals, reduced by estimated sublease rentals that could be reasonably obtained for the property even if the Company does not intend to enter into a sublease. Although we do not expect to incur material charges for branch closures occurring prior to June 30, 2009, additional charges are possible to the extent that actual future settlements differ from our estimates of such costs.

(7) Earnings per Share

     Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the reported period. Diluted earnings per share reflects the potential dilution that could occur upon vesting of restricted stock or exercise of stock options into common stock. The following table sets forth the computation of basic and diluted net income per common share for the three and six month periods ended June 30, 2009 and 2008 (amounts in thousands, except per share amounts):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Basic net income per share:
Net income		$	263			$	16,118			$	2,441			$	26,327
Weighted average number of shares of common stock outstanding			34,596				35,986				34,588				36,335
Net income per share of common stock — basic		$	0.01			$	0.45			$	0.07			$	0.72
Diluted net income per share:
Net income		$	263			$	16,118			$	2,441			$	26,327
Weighted average number of shares of common stock outstanding			34,596				35,986				34,588				36,335
Effect of dilutive securities:
Effect of dilutive stock options			—				—				—				—
Effect of dilutive non-vested stock			—				2				7				4
Weighted average number of shares of common stock outstanding — diluted			34,596				35,988				34,595				36,339
Net income per share of common stock — diluted		$	0.01			$	0.45			$	0.07			$	0.72
Common shares excluded from the denominator as anti-dilutive:
Non-vested restricted stock			167				51				130				51
Stock options			51				40				51				49

(8) Senior Secured Credit Facility

     In accordance with our Second Amended and Restated Credit Agreement, as amended, or the senior secured credit facility, we may borrow up to $320.0 million depending upon the availability of borrowing base collateral consisting of eligible trade receivables, inventories, property and equipment, and other assets. Additionally, upon the appropriate lender approval, the Company has access to an incremental facility in an aggregate amount of up to $130.0 million during the term of the senior secured credit facility, which matures August 4, 2011. If at any time an event of default exists, the interest rate on the senior secured credit facility will increase by 2.0% per annum. We are also required to pay a commitment fee equal to 0.25% per annum in respect of undrawn commitments.

     At June 30, 2009, the interest rate on the senior secured credit facility was LIBOR plus 125 basis points, or approximately 2.62%. The senior secured credit facility is senior to all other outstanding debt, secured by all assets of the Company (except for equipment that is collateralized under manufacturer flooring plan arrangements) and is guaranteed by the Company’s domestic subsidiaries (see note 10 to the condensed consolidated financial statements). The balance outstanding on the senior secured credit facility as of June 30, 2009 was approximately $45.0 million. Additional borrowings available under the terms of the senior secured credit facility as of June 30, 2009, net of $7.8 million of standby letters of credit outstanding, totaled $267.2 million. The average interest rate on our outstanding borrowings for the three and six month periods ended June 30, 2009 was approximately 2.08% and 2.35%, respectively. As of June 30, 2009, we were in compliance with our financial covenant under the senior secured credit facility.

(9) Segment Information

     We have identified five reportable segments: equipment rentals, new equipment sales, used equipment sales, parts sales and service revenues. 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.

     We do not compile discrete financial information by segments other than the information presented below. The following table presents information about our reportable segments (amounts in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Revenues:
Equipment rentals		$	50,077			$	75,234			$	105,561			$	146,445
New equipment sales			59,268				99,985				123,325				176,338
Used equipment sales			20,463				47,152				36,556				88,563
Parts sales			26,335				29,247				52,358				58,161
Services revenues			15,482				17,730				30,939				34,318
Total segmented revenues			171,625				269,348				348,739				503,825
Non-segmented revenues			8,616				13,296				17,698				24,585
Total revenues		$	180,241			$	282,644			$	366,437			$	528,410
Gross Profit:
Equipment rentals		$	16,276			$	37,056			$	36,645			$	70,023
New equipment sales			7,613				12,821				16,355				23,628
Used equipment sales			3,738				10,689				7,143				21,181
Parts sales			7,470				8,507				14,971				17,155
Services revenues			9,772				11,447				19,526				21,894
Total segmented gross profit			44,869				80,520				94,640				153,881
Non-segmented gross profit (loss)			(363	)			43				146				(594	)
Total gross profit		$	44,506			$	80,563			$	94,786			$	153,287

		Balances at
		June 30,				December 31,
		2009				2008
Segment identified assets:
Equipment sales		$	108,214			$	108,109
Equipment rentals			497,402				554,457
Parts and services			18,485				21,131
Total segment identified assets			624,101				683,697
Non-segment identified assets			229,419				282,937
Total assets		$	853,520			$	966,634

     The Company operates primarily in the United States and our sales to international customers for the three and six month periods ended June 30, 2009 were 7.5% and 4.3%, respectively, of total revenues compared to 5.2% and 4.1% for the three and six month periods ended June 30, 2008. No one customer accounted for more than 10% of our revenues on an overall or segment basis for any of the periods presented.

(10) 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, H&E California Holdings, Inc. and H&E Equipment Services (Mid-Atlantic), 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 H&E Equipment Services, Inc.’s ability to obtain funds from the guarantor subsidiaries by dividend or loan.

     The condensed consolidating financial statements of H&E Equipment Services, Inc. and its subsidiaries are included below. The financial statements for H&E Finance Corp. are not included within the consolidating financial statements because H&E Finance Corp. has no assets or operations. The condensed consolidating balance sheet amounts as of December 31, 2008 included herein were derived from our annual audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2008.

CONDENSED CONSOLIDATING BALANCE SHEET

		As of June 30, 2009
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
		(Amounts in thousands)
Assets:
Cash		$	8,857			$	11			$	—			$	8,868
Receivables, net			84,566				12,788				—				97,354
Inventories, net			99,457				27,242				—				126,699
Prepaid expenses and other assets			7,578				259				—				7,837
Rental equipment, net			395,190				102,212				—				497,402
Property and equipment, net			53,080				11,751				—				64,831
Deferred financing costs, net			6,255				—				—				6,255
Intangible assets, net			—				1,283				—				1,283
Investment in guarantor subsidiaries			2,137				—				(2,137	)			—
Goodwill			5,643				37,348				—				42,991
Total assets		$	662,763			$	192,894			$	(2,137	)		$	853,520
Liabilities and Stockholders’ Equity:
Amount due on senior secured credit facility		$	44,981			$	—			$	—			$	44,981
Accounts payable			37,725				105				—				37,830
Manufacturer flooring plans payable			105,287				—				—				105,287
Accrued expenses payable and other liabilities			38,257				1,520				—				39,777
Intercompany balances			(186,172	)			186,172				—				—
Notes payable			1,226				719				—				1,945
Senior unsecured notes			250,000				—				—				250,000
Capital lease payable			—				2,241				—				2,241
Deferred income taxes			76,440				—				—				76,440
Deferred compensation payable			2,059				—				—				2,059
Total liabilities			369,803				190,757				—				560,560
Stockholders’ equity			292,960				2,137				(2,137	)			292,960
Total liabilities and stockholders’ equity		$	662,763			$	192,894			$	(2,137	)		$	853,520

CONDENSED CONSOLIDATING BALANCE SHEET

		As of December 31, 2008
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
		(Amounts in thousands)
Assets:
Cash		$	11,251			$	15			$	—			$	11,266
Receivables, net			124,757				25,536				—				150,293
Inventories, net			103,540				25,700				—				129,240
Prepaid expenses and other assets			11,467				255				—				11,722
Rental equipment, net			453,320				101,137				—				554,457
Property and equipment, net			45,517				12,605				—				58,122
Deferred financing costs, net			6,964				—				—				6,964
Intangible assets, net			—				1,579				—				1,579
Investment in guarantor subsidiaries			8,448				—				(8,448	)			—
Goodwill			5,643				37,348				—				42,991
Total assets		$	770,907			$	204,175			$	(8,448	)		$	966,634
Liabilities and Stockholders’ Equity:
Amount due on senior secured credit facility		$	76,325			$	—			$	—			$	76,325
Accounts payable			93,667				—				—				93,667
Manufacturer flooring plans payable			127,690				—				—				127,690
Accrued expenses payable and other liabilities			45,965				1,241				—				47,206
Intercompany balances			(191,461	)			191,461				—				—
Related party obligation			145				—				—				145
Notes payable			1,234				725				—				1,959
Senior unsecured notes			250,000				—				—				250,000
Capital lease payable			—				2,300				—				2,300
Deferred income taxes			75,109				—				—				75,109
Deferred compensation payable			2,026				—				—				2,026
Total liabilities			480,700				195,727				—				676,427
Stockholders’ equity			290,207				8,448				(8,448	)			290,207
Total liabilities and stockholders’ equity		$	770,907			$	204,175			$	(8,448	)		$	966,634

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

		Three Months Ended June 30, 2009
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
		(Amounts in thousands)
Revenues:
Equipment rentals		$	40,956			$	9,121			$	—			$	50,077
New equipment sales			48,480				10,788				—				59,268
Used equipment sales			17,651				2,812				—				20,463
Parts sales			22,393				3,942				—				26,335
Services revenues			13,572				1,910				—				15,482
Other			7,065				1,551				—				8,616
Total revenues			150,117				30,124				—				180,241
Cost of revenues:
Rental depreciation			18,378				4,521				—				22,899
Rental expense			8,808				2,094				—				10,902
New equipment sales			42,276				9,379				—				51,655
Used equipment sales			14,253				2,472				—				16,725
Parts sales			16,039				2,826				—				18,865
Services revenues			5,083				627				—				5,710
Other			7,107				1,872				—				8,979
Total cost of revenues			111,944				23,791				—				135,735
Gross profit (loss):
Equipment rentals			13,770				2,506				—				16,276
New equipment sales			6,204				1,409				—				7,613
Used equipment sales			3,398				340				—				3,738
Parts sales			6,354				1,116				—				7,470
Services revenues			8,489				1,283				—				9,772
Other			(42	)			(321	)			—				(363	)
Gross profit			38,173				6,333				—				44,506
Selling, general and administrative expenses			30,215				5,907				—				36,122
Equity in loss of guarantor subsidiaries			(2,631	)			—				2,631				—
Gain on sales of property and equipment, net			158				43				—				201
Income from operations			5,485				469				2,631				8,585
Other income (expense):
Interest expense			(4,903	)			(3,108	)			—				(8,011	)
Other, net			172				8				—				180
Total other expense, net			(4,731	)			(3,100	)			—				(7,831	)
Income (loss) before provision for income taxes			754				(2,631	)			2,631				754
Provision for income taxes			491				—				—				491
Net income (loss)		$	263			$	(2,631	)		$	2,631			$	263

CONDENSED CONSOLIDATING STATEMENT OF INCOME

		Three Months Ended June 30, 2008
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
		(Amounts in thousands)
Revenues:
Equipment rentals		$	64,237			$	10,997			$	—			$	75,234
New equipment sales			78,065				21,920				—				99,985
Used equipment sales			34,747				12,405				—				47,152
Parts sales			23,894				5,353				—				29,247
Services revenues			15,312				2,418				—				17,730
Other			11,223				2,073				—				13,296
Total revenues			227,478				55,166				—				282,644
Cost of revenues:
Rental depreciation			21,391				4,657				—				26,048
Rental expense			10,049				2,081				—				12,130
New equipment sales			68,337				18,827				—				87,164
Used equipment sales			25,503				10,960				—				36,463
Parts sales			16,944				3,796				—				20,740
Services revenues			5,470				813				—				6,283
Other			10,845				2,408				—				13,253
Total cost of revenues			158,539				43,542				—				202,081
Gross profit (loss):
Equipment rentals			32,797				4,259				—				37,056
New equipment sales			9,728				3,093				—				12,821
Used equipment sales			9,244				1,445				—				10,689
Parts sales			6,950				1,557				—				8,507
Services revenues			9,842				1,605				—				11,447
Other			378				(335	)			—				43
Gross profit			68,939				11,624				—				80,563
Selling, general and administrative expenses			37,678				8,179				—				45,857
Equity in earnings of guarantor subsidiaries			323				—				(323	)			—
Gain on sales of property and equipment, net			113				44				—				157
Income from operations			31,697				3,489				(323	)			34,863
Other income (expense):
Interest expense			(6,334	)			(3,197	)			—				(9,531	)
Other, net			234				31				—				265
Total other expense, net			(6,100	)			(3,166	)			—				(9,266	)
Income before provision for income taxes			25,597				323				(323	)			25,597
Provision for income taxes			9,479				—				—				9,479
Net income		$	16,118			$	323			$	(323	)		$	16,118