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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, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                    to
 Commission file number: 000-51759
 
 H&E Equipment Services, Inc.
 
 Delaware
(State of other jurisdiction of incorporation or organization)
    
    81-0553291
(I.R.S. Employer Identification No.)11100 Mead Road, Suite 200, Baton Rouge, Louisiana
(Address of principal executive offices)
    
    70816
(Zip code)
 (225) 298-5200
  þ o
  o o þ
  o þ




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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
SEPTEMBER 30, 2007
 PagePART I. FINANCIAL INFORMATION
    
    
    4Item 1. Financial Statements:Condensed Consolidated Balance Sheets as of September 30, 2007 (Unaudited) and December 31, 2006
    
    
    4Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended
September 30, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September
30, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    29Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    45Item 4. Controls and Procedures
    
    
    45PART II. OTHER INFORMATION
    
    
    45Item 1. Legal Proceedings
    
    
    45Item 1A. Risk Factors
    
    
    46Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 3. Defaults upon Senior Securities
    
    
    46Item 4. Submission of Matters to a Vote of Security Holders
    
    
    46Item 5. Other Information
    
    
    46Item 6. Exhibits
    
    
    46Signatures
    
    
    47Certification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 1350
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##### Table of Contents



Forward-Looking Statements
   
    
    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, including our recently
completed acquisition of J.W. Burress, Incorporated;
    
    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, 2006 or elsewhere in this Quarterly Report on Form 10-Q.
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##### Table of Contents



PART IFINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
 Balances atSeptember 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)ASSETSCash
    
    $
    1,916
    
    
    $
    9,303Receivables, net of allowance for doubtful accounts of $3,707 and $2,852,
respectively
    
    
    152,697
    
    
    
    107,760Inventories, net of reserve for obsolescence of $1,418 and $1,326, respectively
    
    
    144,823
    
    
    
    126,737Prepaid expenses and other assets
    
    
    8,336
    
    
    
    6,122Rental equipment, net of accumulated depreciation of $177,939 and $158,822,
respectively
    
    
    556,169
    
    
    
    440,454Property and equipment, net of accumulated depreciation and amortization of
$29,638 and $27,112, respectively
    
    
    42,948
    
    
    
    29,663Deferred financing costs, net of accumulated amortization of $5,860 and $4,983,
respectively
    
    
    9,023
    
    
    
    9,296Intangible assets, net of accumulated amortization of $258 and $103,
respectively
    
    
    11,430
    
    
    
    34Goodwill
    
    
    54,401
    
    
    
    30,573Total assets
    
    $
    981,743
    
    
    $
    759,942LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Amounts due on senior secured credit facility
    
    $
    81,515
    
    
    $
    9,134Accounts payable
    
    
    108,929
    
    
    
    61,486Manufacturer flooring plans payable
    
    
    160,498
    
    
    
    148,028Accrued expenses payable and other liabilities
    
    
    49,622
    
    
    
    33,150Related party obligation
    
    
    476
    
    
    
    653Notes payable
    
    
    1,993
    
    
    
    2,354Senior secured notes, net of original issue discount of $23 at December 31, 2006
    
    
    
    
    
    
    4,477Senior unsecured notes
    
    
    250,000
    
    
    
    250,000Capital lease payable
    
    
    2,418
    
    
    
    Deferred income taxes
    
    
    40,702
    
    
    
    11,805Deferred compensation payable
    
    
    1,902
    
    
    
    3,271Total liabilities
    
    
    698,055
    
    
    
    524,358Commitments and contingenciesStockholders 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; 38,192,094 shares
issued at September 30, 2007 and December 31, 2006 and 38,176,339 and
38,192,094 shares outstanding at September 30, 2007 and December 31, 2006,
respectively
    
    
    382
    
    
    
    382Additional paid-in capital
    
    
    205,620
    
    
    
    204,638Treasury stock at cost, 15,755 shares of common stock held at September 30,
2007 and no shares held at December 31, 2006, respectively
    
    
    (432
    )
    
    
    Retained earnings
    
    
    78,118
    
    
    
    30,564Total stockholders equity
    
    
    283,688
    
    
    
    235,584Total liabilities and stockholders equity
    
    $
    981,743
    
    
    $
    759,942
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share amounts)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Equipment rentals
    
    $
    75,598
    
    
    $
    67,327
    
    
    $
    208,371
    
    
    $
    185,333New equipment sales
    
    
    94,675
    
    
    
    60,673
    
    
    
    240,910
    
    
    
    173,333Used equipment sales
    
    
    44,503
    
    
    
    29,668
    
    
    
    110,190
    
    
    
    97,387Parts sales
    
    
    26,716
    
    
    
    21,024
    
    
    
    73,803
    
    
    
    61,574Services revenues
    
    
    16,877
    
    
    
    14,074
    
    
    
    46,599
    
    
    
    39,782Other
    
    
    12,218
    
    
    
    11,369
    
    
    
    33,595
    
    
    
    31,472Total revenues
    
    
    270,587
    
    
    
    204,135
    
    
    
    713,468
    
    
    
    588,881Cost of revenues:Rental depreciation
    
    
    24,468
    
    
    
    20,644
    
    
    
    68,132
    
    
    
    56,674Rental expense
    
    
    11,173
    
    
    
    10,339
    
    
    
    33,802
    
    
    
    31,427New equipment sales
    
    
    81,523
    
    
    
    53,321
    
    
    
    208,875
    
    
    
    151,615Used equipment sales
    
    
    33,730
    
    
    
    21,708
    
    
    
    82,604
    
    
    
    71,253Parts sales
    
    
    18,895
    
    
    
    14,895
    
    
    
    52,224
    
    
    
    43,499Services revenues
    
    
    6,131
    
    
    
    5,045
    
    
    
    16,899
    
    
    
    14,343Other
    
    
    10,768
    
    
    
    9,436
    
    
    
    30,112
    
    
    
    27,005Total cost of revenues
    
    
    186,688
    
    
    
    135,388
    
    
    
    492,648
    
    
    
    395,816Gross profit
    
    
    83,899
    
    
    
    68,747
    
    
    
    220,820
    
    
    
    193,065Selling, general and administrative expenses
    
    
    41,609
    
    
    
    34,118
    
    
    
    117,124
    
    
    
    108,545Gain on sales of property and equipment, net
    
    
    97
    
    
    
    241
    
    
    
    444
    
    
    
    400Income from operations
    
    
    42,387
    
    
    
    34,870
    
    
    
    104,140
    
    
    
    84,920Other income (expense):Interest expense
    
    
    (9,007
    )
    
    
    (9,060
    )
    
    
    (26,597
    )
    
    
    (29,342
    )Loss on early extinguishment of debt
    
    
    (325
    )
    
    
    (40,771
    )
    
    
    (325
    )
    
    
    (40,771
    )Other, net
    
    
    293
    
    
    
    245
    
    
    
    816
    
    
    
    675Total other expense, net
    
    
    (9,039
    )
    
    
    (49,586
    )
    
    
    (26,106
    )
    
    
    (69,438
    )Income (loss) before provision (benefit) for income taxes
    
    
    33,348
    
    
    
    (14,716
    )
    
    
    78,034
    
    
    
    15,482Provision (benefit) for income taxes
    
    
    13,154
    
    
    
    (3,185
    )
    
    
    30,480
    
    
    
    3,290Net income (loss)
    
    $
    20,194
    
    
    $
    (11,531
    )
    
    $
    47,554
    
    
    $
    12,192Net income (loss) per common share:Basic
    
    $
    0.53
    
    
    $
    (0.30
    )
    
    $
    1.25
    
    
    $
    0.33Diluted
    
    $
    0.53
    
    
    $
    (0.30
    )
    
    $
    1.25
    
    
    $
    0.33Weighted average common shares outstanding:Basic
    
    
    38,095
    
    
    
    38,070
    
    
    
    38,090
    
    
    
    36,550Diluted
    
    
    38,095
    
    
    
    38,070
    
    
    
    38,090
    
    
    
    36,587
 The accompanying notes are an integral part of these condensed consolidated financial statements.
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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
 Nine Months EndedSeptember 30,2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    47,554
    
    
    $
    12,192Adjustments to reconcile net income to net cash provided by operating activities:Depreciation on property and equipment
    
    
    6,087
    
    
    
    5,010Amortization of property and equipment under capital lease
    
    
    23
    
    
    
    Depreciation on rental equipment
    
    
    68,132
    
    
    
    56,674Amortization of loan discounts and deferred financing costs
    
    
    1,019
    
    
    
    2,056Amortization of intangible assets
    
    
    270
    
    
    
    34Provision for losses on accounts receivable
    
    
    1,712
    
    
    
    1,457Provision for inventory obsolescence
    
    
    61
    
    
    
    18Provision for deferred income taxes
    
    
    28,897
    
    
    
    2,692Stock-based compensation expense
    
    
    938
    
    
    
    681Loss on early extinguishment of debt
    
    
    325
    
    
    
    40,771Gain on sales of property and equipment, net
    
    
    (444
    )
    
    
    (400
    )Gain on sales of rental equipment, net
    
    
    (25,594
    )
    
    
    (23,339
    )Changes in operating assets and liabilities, net of impact of acquisition:Receivables, net
    
    
    (32,498
    )
    
    
    (4,363
    )Inventories
    
    
    (53,719
    )
    
    
    (58,315
    )Prepaid expenses and other assets
    
    
    (1,963
    )
    
    
    (4,437
    )Accounts payable
    
    
    38,684
    
    
    
    5,513Manufacturer flooring plans payable
    
    
    (7,317
    )
    
    
    36,292Accrued expenses payable and other liabilities
    
    
    5,817
    
    
    
    7,021Deferred compensation payable
    
    
    (1,368
    )
    
    
    (8,507
    )Net cash provided by operating activities
    
    
    76,616
    
    
    
    71,050Cash flows from investing activities:Acquisition of businesses, net of cash acquired
    
    
    (99,848
    )
    
    
    (56,961
    )Purchases of property and equipment
    
    
    (12,325
    )
    
    
    (13,353
    )Purchases of rental equipment
    
    
    (128,202
    )
    
    
    (174,372
    )Proceeds from sales of property and equipment
    
    
    651
    
    
    
    1,841Proceeds from sales of rental equipment
    
    
    91,626
    
    
    
    76,068Net cash used in investing activities
    
    
    (148,098
    )
    
    
    (166,777
    )Cash flows from financing activities:Proceeds from issuance of common stock, net of issue costs
    
    
    
    
    
    
    207,018Excess tax benefits from stock-based awards
    
    
    44
    
    
    
    Purchase of treasury stock
    
    
    (432
    )
    
    
    Borrowings on senior secured credit facility
    
    
    754,616
    
    
    
    718,819Payments on senior secured credit facility
    
    
    (681,964
    )
    
    
    (799,005
    )Proceeds from issuance of senior unsecured notes
    
    
    
    
    
    
    250,000Principal payment of senior secured notes
    
    
    (4,478
    )
    
    
    (214,608
    )Principal payment of senior subordinated notes
    
    
    (278
    )
    
    
    (59,155
    )Payments of deferred financing costs
    
    
    (547
    )
    
    
    (8,816
    )Payments of related party obligation
    
    
    (225
    )
    
    
    (225
    )Payments on capital lease obligations
    
    
    (2,280
    )
    
    
    Proceeds from issuance of notes payable
    
    
    
    
    
    
    1,271Principal payments of notes payable
    
    
    (361
    )
    
    
    (146
    )Net cash provided by financing activities
    
    
    64,095
    
    
    
    95,153Net decrease in cash
    
    
    (7,387
    )
    
    
    (574
    )Cash, beginning of period
    
    
    9,303
    
    
    
    5,627Cash, end of period
    
    $
    1,916
    
    
    $
    5,053
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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Amounts in thousands)
 Nine Months EndedSeptember 30,2007
    
    
    2006Supplemental schedule of noncash investing and financing activities:Noncash asset purchases:Assets transferred from new and used inventory to rental fleet
    
    $
    59,324
    
    
    $
    23,980Capital lease obligations incurred
    
    $
    4,698
    
    
    $
    Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    28,594
    
    
    $
    24,880Income taxes
    
    $
    1,873
    
    
    $
    576
  The accompanying notes are an integral part of these condensed consolidated financial statements.
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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 (1) Organization and Nature of Operations
 Basis of Presentation
     Nature of Operations
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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 (2) Significant Accounting Policies
  Use of Estimates
  Recently Adopted Accounting Pronouncements
      Recently Issued Accounting Pronouncements
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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
   (3) Initial Public Offering and Use of Proceeds
   
    
    $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.
  (4) Acquisitions
 2007 Acquisition
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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
  Receivables
    
    $
    14,423Inventories
    
    
    23,751Rental equipment
    
    
    62,354Property and equipment
    
    
    7,277Prepaid expenses and other assets
    
    
    472Intangible assets (1)
    
    
    11,688Goodwill
    
    
    23,828Accounts payable
    
    
    (8,758
    )Manufacturer flooring plans payable
    
    
    (19,787
    )Accrued expenses payable and other liabilities
    
    
    (5,692
    )Due to Burress shareholders (2)
    
    
    (5,010
    )Capital leases (3)
    
    
    (4,698
    )Net assets acquired
    
    $
    99,848
 
 (1)
    
    The following intangible assets were acquired in the Burress acquisition (dollar
amounts in thousands): Balances atWeighted-Average
    
    
    September 30, 2007Gross Carrying
    
    
    Amortization Period
    
    
    Accumulated
    
    
    Net IntangibleAcquired Intangible Asset
    
    Amount
    
    
    (in Years)
    
    
    Amortization
    
    
    AssetsTrade name
    
    $
    1,370
    
    
    
    1.0
    
    
    $
    114
    
    
    $
    1,256Non-compete agreements
    
    
    788
    
    
    
    4.0
    
    
    
    16
    
    
    
    772Customer relationships
    
    
    9,530
    
    
    
    6.0
    
    
    
    128
    
    
    
    9,402Total
    
    $
    11,688
    
    
    
    5.3
    
    
    $
    258
    
    
    $
    11,430
  (2)
    
    Represents the amount payable to Burress shareholders for the gross up effect related
to the Section 338 tax election pursuant to the acquisition agreement.
 (3)
    
    Represents the present value of our obligation under capital leases assumed on the date
of acquisition. Subsequent to the acquisition date and during the third quarter ended
September 30, 2007, we paid approximately $3.2 million to purchase all vehicles previously
held under capital leases. The accompanying condensed consolidated balance sheet reflects
the incremental cost basis of the vehicles from the lease buyouts in property and equipment
and reflects no obligation under those vehicle leases as of September 30, 2007.
Additionally, Burress previously leased four branch facility locations under capital
leases. On August 31, 2007, three of those capital leases related to Burress branch
facility locations were amended and these amendments resulted in a lease classification
change, pursuant to Statement on Financial Accounting Standard No. 13, Accounting for
Leases, from capital leases to operating leases as of September 1, 2007, the acquisition
date. Therefore, the accompanying condensed consolidated balance sheet as of September 30,
2007 reflects only one capital lease obligation on a Burress branch facility for
approximately $2.4 million and the related asset, net of accumulated amortization, of $2.3
million is included in property and equipment.
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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Total revenues
    
    $
    301,529
    
    
    $
    241,326
    
    
    $
    827,183
    
    
    $
    718,630Gross profit
    
    $
    92,997
    
    
    $
    84,632
    
    
    $
    247,882
    
    
    $
    228,666Operating income
    
    $
    46,195
    
    
    $
    39,035
    
    
    $
    110,438
    
    
    $
    97,311Net income (loss)
    
    $
    20,655
    
    
    $
    (9,314
    )
    
    $
    47,979
    
    
    $
    17,718Basic net income (loss) per common share
    
    $
    0.54
    
    
    $
    (0.24
    )
    
    $
    1.26
    
    
    $
    0.48Diluted net income (loss) per common share
    
    $
    0.54
    
    
    $
    (0.24
    )
    
    $
    1.26
    
    
    $
    0.48
   2006 Acquisition
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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
  Cash
    
    $
    32Receivables
    
    
    7,300Inventories
    
    
    915Rental equipment
    
    
    32,235Property and equipment
    
    
    3,154Prepaid expenses and other assets
    
    
    654Goodwill
    
    
    22,001Accounts payable
    
    
    (483
    )Accrued expenses payable and other liabilities
    
    
    (2,349
    )Deferred income taxes
    
    
    (2,192
    )Notes payable
    
    
    (755
    )Net assets acquired
    
    $
    60,512
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2007
    
    2006
    
    2007
    
    2006Total revenues
    
    $
    270,587
    
    
    $
    204,135
    
    
    $
    713,468
    
    
    $
    594,209Gross profit
    
    $
    83,899
    
    
    $
    68,747
    
    
    $
    220,820
    
    
    $
    194,839Operating income
    
    $
    42,387
    
    
    $
    34,870
    
    
    $
    104,140
    
    
    $
    84,212Net income (loss)
    
    $
    20,194
    
    
    $
    (11,531
    )
    
    $
    47,554
    
    
    $
    11,842Basic net income (loss) per common share
    
    $
    0.53
    
    
    $
    (0.30
    )
    
    $
    1.25
    
    
    $
    0.32Diluted net income (loss) per common share
    
    $
    0.53
    
    
    $
    (0.30
    )
    
    $
    1.25
    
    
    $
    0.32
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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 (5) Stockholders Equity
  Additional
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Treasury
    
    
    Retained
    
    
    StockholdersShares Issued
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    EquityBalances at December 31, 2006
    
    
    38,192,094
    
    
    $
    382
    
    
    $
    204,638
    
    
    $
    
    
    
    $
    30,564
    
    
    $
    235,584Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    938
    
    
    
    
    
    
    
    
    
    
    
    938Tax benefits associated with stock-based
awards
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    44Surrender of 15,755 shares(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (432
    )
    
    
    
    
    
    
    (432
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,554
    
    
    
    47,554Balances at September 30, 2007
    
    
    38,192,094
    
    
    $
    382
    
    
    $
    205,620
    
    
    $
    (432
    )
    
    $
    78,118
    
    
    $
    283,688
 
 (1)
    
    On February 22, 2007, 40,650 shares of non-vested stock that was issued in 2006
subsequently vested in accordance with the terms of the respective grant agreements. In accordance
with the provisions of our 2006 Stock-Based Incentive Compensation Plan, holders of those vested
shares returned 15,755 common shares to the Company in payment of related employee withholding
taxes. This resulted in the recognition of Treasury Stock for those 15,755 shares. (6) Stock-Based Compensation
   15




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##### Table of Contents



H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 Non-vested Stock
  Weighted AverageGrant Date FairNumber of Shares
    
    ValueNon-vested stock at January 1, 2007
    
    
    121,950
    
    
    $
    24.60Granted
    
    
    
    
    
    
    Vested
    
    
    (40,650
    )
    
    $
    24.60Forfeited
    
    
    
    
    
    
    Non-vested stock at September 30, 2007
    
    
    81,300
    
    
    $
    24.60
   Stock Options
  Risk-free interest rate
    
    
    5.0
    %Expected life of options (in years)
    
    
    6.0Expected volatility
    
    
    33.0%  35.0
    %Expected annual dividend yield
    
    
    
   16




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##### Table of Contents



H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
  Weighted AverageNumber of
    
    Weighted Average
    
    Contractual LifeShares
    
    Exercise Price
    
    In YearsOutstanding options at January 1, 2007
    
    
    45,000
    
    
    $
    24.60Granted
    
    
    6,000
    
    
    $
    26.27Exercised
    
    
    
    
    
    
    Canceled, forfeited or expired
    
    
    
    
    
    
    Outstanding options at September 30, 2007
    
    
    51,000
    
    
    $
    24.80
    
    
    
    8.55Options exercisable at September 30, 2007
    
    
    15,000
    
    
    $
    24.60
    
    
    
    8.40
   Weighted AverageNumber of
    
    Grant Date FairShares
    
    ValueNon-vested stock options at January 1, 2007
    
    
    45,000
    
    
    $
    24.60Granted
    
    
    6,000
    
    
    $
    26.27Vested
    
    
    (15,000
    )
    
    $
    24.60Forfeited
    
    
    
    
    
    
    Non-vested stock options at September 30, 2007
    
    
    36,000
    
    
    $
    24.88
 (7) Earnings per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Basic net income (loss) per share:Net income (loss)
    
    $
    20,194
    
    
    $
    (11,531
    )
    
    $
    47,554
    
    
    $
    12,192Weighted average number of common shares outstanding
    
    
    38,095
    
    
    
    38,070
    
    
    
    38,090
    
    
    
    36,550Net income (loss) per common share  basic
    
    $
    0.53
    
    
    $
    (0.30
    )
    
    $
    1.25
    
    
    $
    0.33Diluted net income (loss) per share:Net income (loss)
    
    $
    20,194
    
    
    $
    (11,531
    )
    
    $
    47,554
    
    
    $
    12,192Weighted average number of common shares outstanding
    
    
    38,095
    
    
    
    38,070
    
    
    
    38,090
    
    
    
    36,550Effect of dilutive securities:Effect of dilutive stock options and non-vested stock
    
    
     ̄
    
    
    
     ̄
    
    
    
     ̄
    
    
    
    37Weighted average number of shares outstanding  diluted
    
    
    38,095
    
    
    
    38,070
    
    
    
    38,090
    
    
    
    36,587Net income (loss) per common share  diluted
    
    $
    0.53
    
    
    $
    (0.30
    )
    
    $
    1.25
    
    
    $
    0.33Common shares excluded from the denominator as
anti-dilutive:Stock options
    
    
    132
    
    
    
    23
    
    
    
    132
    
    
    
    Non-vested stock
    
    
    
    
    
    
    30
    
    
    
    41
    
    
    
    Total
    
    
    132
    
    
    
    53
    
    
    
    173
    
    
    
    
 17




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##### Table of Contents



H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 (8) Senior Secured Notes
  (9) Senior Unsecured Notes
 1 2
    th th
  18




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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
   (10) Segment Information
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Equipment rentals
    
    $
    75,598
    
    
    $
    67,327
    
    
    $
    208,371
    
    
    $
    185,333New equipment sales
    
    
    94,675
    
    
    
    60,673
    
    
    
    240,910
    
    
    
    173,333Used equipment sales
    
    
    44,503
    
    
    
    29,668
    
    
    
    110,190
    
    
    
    97,387Parts sales
    
    
    26,716
    
    
    
    21,024
    
    
    
    73,803
    
    
    
    61,574Services revenues
    
    
    16,877
    
    
    
    14,074
    
    
    
    46,599
    
    
    
    39,782Total segmented revenues
    
    
    258,369
    
    
    
    192,766
    
    
    
    679,873
    
    
    
    557,409Non-segmented revenues
    
    
    12,218
    
    
    
    11,369
    
    
    
    33,595
    
    
    
    31,472Total revenues
    
    $
    270,587
    
    
    $
    204,135
    
    
    $
    713,468
    
    
    $
    588,881Gross Profit:Equipment rentals
    
    $
    39,957
    
    
    $
    36,344
    
    
    $
    106,437
    
    
    $
    97,232New equipment sales
    
    
    13,152
    
    
    
    7,352
    
    
    
    32,035
    
    
    
    21,718Used equipment sales
    
    
    10,773
    
    
    
    7,960
    
    
    
    27,586
    
    
    
    26,134Parts sales
    
    
    7,821
    
    
    
    6,129
    
    
    
    21,579
    
    
    
    18,075Services revenues
    
    
    10,746
    
    
    
    9,029
    
    
    
    29,700
    
    
    
    25,439Total segmented gross profit
    
    
    82,449
    
    
    
    66,814
    
    
    
    217,337
    
    
    
    188,598Non-segmented gross profit
    
    
    1,450
    
    
    
    1,933
    
    
    
    3,483
    
    
    
    4,467Total gross profit
    
    $
    83,899
    
    
    $
    68,747
    
    
    $
    220,820
    
    
    $
    193,065
 19




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##### Table of Contents



H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 Balances atSeptember 30,
    
    
    December 31,2007
    
    
    2006Segment identified assets:Equipment sales
    
    $
    117,628
    
    
    $
    104,648Equipment rentals
    
    
    556,169
    
    
    
    440,454Parts and services
    
    
    27,195
    
    
    
    22,089Total segment identified assets
    
    
    700,992
    
    
    
    567,191Non-segment identified assets
    
    
    280,751
    
    
    
    192,751Total assets
    
    $
    981,743
    
    
    $
    759,942
  (11) Condensed Consolidating Financial Information of Guarantor Subsidiaries
   20




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H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING BALANCE SHEET
 As of September 30, 2007H&E Equipment
    
    
    GuarantorServices
    
    
    Subsidiaries
    
    
    Elimination
    
    
    Consolidated(Amounts in thousands)AssetsCash
    
    $
    3,088
    
    
    $
    (1,172
    )
    
    $
    
    
    
    $
    1,916Receivables, net
    
    
    129,401
    
    
    
    23,296
    
    
    
    
    
    
    
    152,697Inventories, net
    
    
    112,062
    
    
    
    32,761
    
    
    
    
    
    
    
    144,823Prepaid expenses and other assets
    
    
    7,562
    
    
    
    774
    
    
    
    
    
    
    
    8,336Rental equipment, net
    
    
    426,238
    
    
    
    129,931
    
    
    
    
    
    
    
    556,169Property and equipment, net
    
    
    28,335
    
    
    
    14,613
    
    
    
    
    
    
    
    42,948Deferred financing costs, net
    
    
    8,898
    
    
    
    125
    
    
    
    
    
    
    
    9,023Intangible assets, net
    
    
    11,430
    
    
    
    
    
    
    
    
    
    
    
    11,430Investment in guarantor subsidiaries
    
    
    200,328
    
    
    
    
    
    
    
    (200,328
    )
    
    
    Goodwill
    
    
    54,401
    
    
    
    
    
    
    
    
    
    
    
    54,401Total assets
    
    $
    981,743
    
    
    $
    200,328
    
    
    $
    (200,328
    )
    
    $
    981,743Liabilities and Stockholders EquityAmount due on senior secured credit facility
    
    $
    91,167
    
    
    $
    (9,652
    )
    
    $
    
    
    
    $
    81,515Accounts payable
    
    
    105,574
    
    
    
    3,355
    
    
    
    
    
    
    
    108,929Manufacturer flooring plans payable
    
    
    143,240
    
    
    
    17,258
    
    
    
    
    
    
    
    160,498Accrued expenses payable and other liabilities
    
    
    42,239
    
    
    
    7,383
    
    
    
    
    
    
    
    49,622Intercompany balances
    
    
    (163,732
    )
    
    
    163,732
    
    
    
    
    
    
    
    Related party obligation
    
    
    476
    
    
    
    
    
    
    
    
    
    
    
    476Notes payable
    
    
    1,254
    
    
    
    739
    
    
    
    
    
    
    
    1,993Senior unsecured notes
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    250,000Capital lease payable
    
    
    
    
    
    
    2,418
    
    
    
    
    
    
    
    2,418Deferred income taxes
    
    
    40,702
    
    
    
    
    
    
    
    
    
    
    
    40,702Deferred compensation payable
    
    
    1,902
    
    
    
    
    
    
    
    
    
    
    
    1,902Total liabilities
    
    
    512,822
    
    
    
    185,233
    
    
    
    
    
    
    
    698,055Stockholders equity
    
    
    468,921
    
    
    
    15,095
    
    
    
    (200,328
    )
    
    
    283,688Total liabilities and stockholders equity
    
    $
    981,743
    
    
    $
    200,328
    
    
    $
    (200,328
    )
    
    $
    981,743
 21




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##### Table of Contents



H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING BALANCE SHEET
 As of December 31, 2006H&E Equipment
    
    
    GuarantorServices
    
    
    Subsidiaries
    
    
    Elimination
    
    
    Consolidated(Amounts in thousands)AssetsCash
    
    $
    9,214
    
    
    $
    89
    
    
    $
    
    
    
    $
    9,303Receivables, net
    
    
    92,281
    
    
    
    15,479
    
    
    
    
    
    
    
    107,760Inventories, net
    
    
    123,695
    
    
    
    3,042
    
    
    
    
    
    
    
    126,737Prepaid expenses and other assets
    
    
    5,995
    
    
    
    127
    
    
    
    
    
    
    
    6,122Rental equipment, net
    
    
    377,910
    
    
    
    62,544
    
    
    
    
    
    
    
    440,454Property and equipment, net
    
    
    24,369
    
    
    
    5,294
    
    
    
    
    
    
    
    29,663Deferred financing costs, net
    
    
    9,296
    
    
    
    
    
    
    
    
    
    
    
    9,296Intangible assets, net
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    34Investment in guarantor subsidiaries
    
    
    86,575
    
    
    
    
    
    
    
    (86,575
    )
    
    
    Goodwill
    
    
    30,573
    
    
    
    
    
    
    
    
    
    
    
    30,573Total assets
    
    $
    759,942
    
    
    $
    86,575
    
    
    $
    (86,575
    )
    
    $
    759,942Liabilities and Stockholders EquityAmount due on senior secured credit facility
    
    $
    9,134
    
    
    $
    
    
    
    $
    
    
    
    $
    9,134Accounts payable
    
    
    61,982
    
    
    
    (496
    )
    
    
    
    
    
    
    61,486Manufacturer flooring plans payable
    
    
    148,028
    
    
    
    
    
    
    
    
    
    
    
    148,028Accrued expenses payable and other liabilities
    
    
    32,248
    
    
    
    902
    
    
    
    
    
    
    
    33,150Intercompany balances
    
    
    (70,953
    )
    
    
    70,953
    
    
    
    
    
    
    
    Related party obligation
    
    
    653
    
    
    
    
    
    
    
    
    
    
    
    653Notes payable
    
    
    1,607
    
    
    
    747
    
    
    
    
    
    
    
    2,354Senior secured notes, net of discount
    
    
    4,477
    
    
    
    
    
    
    
    
    
    
    
    4,477Senior unsecured notes
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    250,000Deferred income taxes
    
    
    11,805
    
    
    
    
    
    
    
    
    
    
    
    11,805Deferred compensation payable
    
    
    3,271
    
    
    
    
    
    
    
    
    
    
    
    3,271Total liabilities
    
    
    452,252
    
    
    
    72,106
    
    
    
    
    
    
    
    524,358Stockholders equity
    
    
    307,690
    
    
    
    14,469
    
    
    
    (86,575
    )
    
    
    235,584Total liabilities and stockholders equity
    
    $
    759,942
    
    
    $
    86,575
    
    
    $
    (86,575
    )
    
    $
    759,942
 22




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##### Table of Contents



H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 Three Months Ended September 30, 2007H&E Equipment
    
    
    GuarantorServices
    
    
    Subsidiaries
    
    
    Elimination
    
    
    Consolidated(Amounts in thousands)Revenues:Equipment rentals
    
    $
    62,806
    
    
    $
    12,792
    
    
    $
    
    
    
    $
    75,598New equipment sales
    
    
    89,198
    
    
    
    5,477
    
    
    
    
    
    
    
    94,675Used equipment sales
    
    
    39,565
    
    
    
    4,938
    
    
    
    
    
    
    
    44,503Parts sales
    
    
    23,741
    
    
    
    2,975
    
    
    
    
    
    
    
    26,716Services revenues
    
    
    15,207
    
    
    
    1,670
    
    
    
    
    
    
    
    16,877Other
    
    
    10,616
    
    
    
    1,602
    
    
    
    
    
    
    
    12,218Total revenues
    
    
    241,133
    
    
    
    29,454
    
    
    
    
    
    
    
    270,587Cost of revenues:Rental depreciation
    
    
    20,536
    
    
    
    3,932
    
    
    
    
    
    
    
    24,468Rental expense
    
    
    9,473
    
    
    
    1,700
    
    
    
    
    
    
    
    11,173New equipment sales
    
    
    76,760
    
    
    
    4,763
    
    
    
    
    
    
    
    81,523Used equipment sales
    
    
    29,825
    
    
    
    3,905
    
    
    
    
    
    
    
    33,730Parts sales
    
    
    16,917
    
    
    
    1,978
    
    
    
    
    
    
    
    18,895Services revenues
    
    
    5,387
    
    
    
    744
    
    
    
    
    
    
    
    6,131Other
    
    
    9,110
    
    
    
    1,658
    
    
    
    
    
    
    
    10,768Total cost of revenues
    
    
    168,008
    
    
    
    18,680
    
    
    
    
    
    
    
    186,688Gross profit:Equipment rentals
    
    
    32,797
    
    
    
    7,160
    
    
    
    
    
    
    
    39,957New equipment sales
    
    
    12,438
    
    
    
    714
    
    
    
    
    
    
    
    13,152Used equipment sales
    
    
    9,740
    
    
    
    1,033
    
    
    
    
    
    
    
    10,773Parts sales
    
    
    6,824
    
    
    
    997
    
    
    
    
    
    
    
    7,821Services revenues
    
    
    9,820
    
    
    
    926
    
    
    
    
    
    
    
    10,746Other
    
    
    1,506
    
    
    
    (56
    )
    
    
    
    
    
    
    1,450Gross profit
    
    
    73,125
    
    
    
    10,774
    
    
    
    
    
    
    
    83,899Selling, general and administrative expenses
    
    
    33,065
    
    
    
    8,544
    
    
    
    
    
    
    
    41,609Equity in loss of guarantor subsidiaries
    
    
    (155
    )
    
    
    
    
    
    
    155
    
    
    
    Gain (loss) on sales of property and equipment, net
    
    
    131
    
    
    
    (34
    )
    
    
    
    
    
    
    97Income from operations
    
    
    40,036
    
    
    
    2,196
    
    
    
    155
    
    
    
    42,387Other income (expense):Interest expense
    
    
    (6,632
    )
    
    
    (2,375
    )
    
    
    
    
    
    
    (9,007
    )Loss on early extinguishment of debt
    
    
    (325
    )
    
    
    
    
    
    
    
    
    
    
    (325
    )Other, net
    
    
    269
    
    
    
    24
    
    
    
    
    
    
    
    293Total other expense, net
    
    
    (6,688
    )
    
    
    (2,351
    )
    
    
    
    
    
    
    (9,039
    )Income (loss) before provision for income taxes
    
    
    33,348
    
    
    
    (155
    )
    
    
    155
    
    
    
    33,348Provision for income taxes
    
    
    13,154
    
    
    
    
    
    
    
    
    
    
    
    13,154Net income (loss)
    
    $
    20,194
    
    
    $
    (155
    )
    
    $
    155
    
    
    $
    20,194
 23




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##### Table of Contents



H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 Three Months Ended September 30, 2006H&E Equipment
    
    
    GuarantorServices
    
    
    Subsidiaries
    
    
    Elimination
    
    
    Consolidated(Amounts in thousands)Revenues:Equipment rentals
    
    $
    56,205
    
    
    $
    11,122
    
    
    $
    
    
    
    $
    67,327New equipment sales
    
    
    58,659
    
    
    
    2,014
    
    
    
    
    
    
    
    60,673Used equipment sales
    
    
    27,270
    
    
    
    2,398
    
    
    
    
    
    
    
    29,668Parts sales
    
    
    20,162
    
    
    
    862
    
    
    
    
    
    
    
    21,024Services revenues
    
    
    13,528
    
    
    
    546
    
    
    
    
    
    
    
    14,074Other
    
    
    9,855
    
    
    
    1,514
    
    
    
    
    
    
    
    11,369Total revenues
    
    
    185,679
    
    
    
    18,456
    
    
    
    
    
    
    
    204,135Cost of revenues:Rental depreciation
    
    
    17,548
    
    
    
    3,096
    
    
    
    
    
    
    
    20,644Rental expense
    
    
    8,912
    
    
    
    1,427
    
    
    
    
    
    
    
    10,339New equipment sales
    
    
    51,557
    
    
    
    1,764
    
    
    
    
    
    
    
    53,321Used equipment sales
    
    
    20,066
    
    
    
    1,642
    
    
    
    
    
    
    
    21,708Parts sales
    
    
    14,298
    
    
    
    597
    
    
    
    
    
    
    
    14,895Services revenues
    
    
    4,874
    
    
    
    171
    
    
    
    
    
    
    
    5,045Other
    
    
    8,040
    
    
    
    1,396
    
    
    
    
    
    
    
    9,436Total cost of revenues
    
    
    125,295
    
    
    
    10,093
    
    
    
    
    
    
    
    135,388Gross profit:Equipment rentals
    
    
    29,745
    
    
    
    6,599
    
    
    
    
    
    
    
    36,344New equipment sales
    
    
    7,102
    
    
    
    250
    
    
    
    
    
    
    
    7,352Used equipment sales
    
    
    7,204
    
    
    
    756
    
    
    
    
    
    
    
    7,960Parts sales
    
    
    5,864
    
    
    
    265
    
    
    
    
    
    
    
    6,129Services revenues
    
    
    8,654
    
    
    
    375
    
    
    
    
    
    
    
    9,029Other
    
    
    1,815
    
    
    
    118
    
    
    
    
    
    
    
    1,933Gross profit
    
    
    60,384
    
    
    
    8,363
    
    
    
    
    
    
    
    68,747Selling, general and administrative expenses
    
    
    30,499
    
    
    
    3,619
    
    
    
    
    
    
    
    34,118Equity in earnings of guarantor subsidiaries
    
    
    3,192
    
    
    
    
    
    
    
    (3,192
    )
    
    
    Gain on sales of property and equipment, net
    
    
    139
    
    
    
    102
    
    
    
    
    
    
    
    241Income from operations
    
    
    33,216
    
    
    
    4,846
    
    
    
    (3,192
    )
    
    
    34,870Other income (expense):Interest expense
    
    
    (7,397
    )
    
    
    (1,663
    )
    
    
    
    
    
    
    (9,060
    )Loss on early extinguishment of debt
    
    
    (40,771
    )
    
    
    
    
    
    
    
    
    
    
    (40,771
    )Other, net
    
    
    236
    
    
    
    9
    
    
    
    
    
    
    
    245Total other expense, net
    
    
    (47,932
    )
    
    
    (1,654
    )
    
    
    
    
    
    
    (49,586
    )Income (loss) before benefit for income taxes
    
    
    (14,716
    )
    
    
    3,192
    
    
    
    (3,192
    )
    
    
    (14,716
    )Provision (benefit) for income taxes
    
    
    (3,185
    )
    
    
    
    
    
    
    
    
    
    
    (3,185
    )Net income (loss)
    
    $
    (11,531
    )
    
    $
    3,192
    
    
    $
    (3,192
    )
    
    $
    (11,531
    )
 24




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##### Table of Contents



H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
 Nine Months Ended September 30, 2007H&E Equipment
    
    
    GuarantorServices
    
    
    Subsidiaries
    
    
    Elimination
    
    
    Consolidated(Amounts in thousands)Revenues:Equipment rentals
    
    $
    175,843
    
    
    $
    32,528
    
    
    $
    
    
    
    $
    208,371New equipment sales
    
    
    231,759
    
    
    
    9,151
    
    
    
    
    
    
    
    240,910Used equipment sales
    
    
    100,014
    
    
    
    10,176
    
    
    
    
    
    
    
    110,190Parts sales
    
    
    68,772
    
    
    
    5,031
    
    
    
    
    
    
    
    73,803Services revenues
    
    
    43,314
    
    
    
    3,285
    
    
    
    
    
    
    
    46,599Other
    
    
    29,455
    
    
    
    4,140
    
    
    
    
    
    
    
    33,595Total revenues
    
    
    649,157
    
    
    
    64,311
    
    
    
    
    
    
    
    713,468Cost of revenues:Rental depreciation
    
    
    58,222
    
    
    
    9,910
    
    
    
    
    
    
    
    68,132Rental expense
    
    
    28,405
    
    
    
    5,397
    
    
    
    
    
    
    
    33,802New equipment sales
    
    
    200,877
    
    
    
    7,998
    
    
    
    
    
    
    
    208,875Used equipment sales
    
    
    74,819
    
    
    
    7,785
    
    
    
    
    
    
    
    82,604Parts sales
    
    
    48,836
    
    
    
    3,388
    
    
    
    
    
    
    
    52,224Services revenues
    
    
    15,725
    
    
    
    1,174
    
    
    
    
    
    
    
    16,899Other
    
    
    25,367
    
    
    
    4,745
    
    
    
    
    
    
    
    30,112Total cost of revenues
    
    
    452,251
    
    
    
    40,397
    
    
    
    
    
    
    
    492,648Gross profit:Equipment rentals
    
    
    89,216
    
    
    
    17,221
    
    
    
    
    
    
    
    106,437New equipment sales
    
    
    30,882
    
    
    
    1,153
    
    
    
    
    
    
    
    32,035Used equipment sales
    
    
    25,195
    
    
    
    2,391
    
    
    
    
    
    
    
    27,586Parts sales
    
    
    19,936
    
    
    
    1,643
    
    
    
    
    
    
    
    21,579Services revenues
    
    
    27,589
    
    
    
    2,111
    
    
    
    
    
    
    
    29,700Other
    
    
    4,088
    
    
    
    (605
    )
    
    
    
    
    
    
    3,483Gross profit
    
    
    196,906
    
    
    
    23,914
    
    
    
    
    
    
    
    220,820Selling, general and administrative expenses
    
    
    99,879
    
    
    
    17,245
    
    
    
    
    
    
    
    117,124Equity in earnings of guarantor subsidiaries
    
    
    626
    
    
    
    
    
    
    
    (626
    )
    
    
    Gain on sales of property and equipment, net
    
    
    393
    
    
    
    51
    
    
    
    
    
    
    
    444Income from operations
    
    
    98,046
    
    
    
    6,720
    
    
    
    (626
    )
    
    
    104,140Other income (expense):Interest expense
    
    
    (20,466
    )
    
    
    (6,131
    )
    
    
    
    
    
    
    (26,597
    )Loss on early extinguishment of debt
    
    
    (325
    )
    
    
    
    
    
    
    
    
    
    
    (325
    )Other, net
    
    
    779
    
    
    
    37
    
    
    
    
    
    
    
    816Total other expense, net
    
    
    (20,012
    )
    
    
    (6,094
    )
    
    
    
    
    
    
    (26,106
    )Income before provision for income taxes
    
    
    78,034
    
    
    
    626
    
    
    
    (626
    )
    
    
    78,034Provision for income taxes
    
    
    30,480
    
    
    
    
    
    
    
    
    
    
    
    30,480Net income
    
    $
    47,554
    
    
    $
    626
    
    
    $
    (626
    )
    
    $
    47,554
 25




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##### Table of Contents



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




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##### Table of Contents



H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
 Nine Months Ended September 30, 2007H&E Equipment
    
    
    GuarantorServices
    
    
    Subsidiaries
    
    
    Elimination
    
    
    Consolidated(Amounts in thousands)Cash flows from operating activities:Net income
    
    $
    47,554
    
    
    $
    626
    
    
    $
    (626
    )
    
    $
    47,554Adjustments to reconcile net income to net cash provided by
(used in) operating activities:Depreciation on property and equipment
    
    
    5,229
    
    
    
    858
    
    
    
    
    
    
    
    6,087Amortization of property and equipment under capital lease
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    23Depreciation on rental equipment
    
    
    58,222
    
    
    
    9,910
    
    
    
    
    
    
    
    68,132Amortization of loan discounts and deferred financing costs
    
    
    (34,373
    )
    
    
    35,392
    
    
    
    
    
    
    
    1,019Amortization of intangible assets
    
    
    270
    
    
    
    
    
    
    
    
    
    
    
    270Provision for losses on accounts receivable
    
    
    1,648
    
    
    
    64
    
    
    
    
    
    
    
    1,712Provision for inventory obsolescence
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    61Provision for deferred income taxes
    
    
    28,897
    
    
    
    
    
    
    
    
    
    
    
    28,897Stock-based compensation expense
    
    
    938
    
    
    
    
    
    
    
    
    
    
    
    938Loss on early extinguishment of debt
    
    
    325
    
    
    
    
    
    
    
    
    
    
    
    325Gain on sales of property and equipment
    
    
    (193
    )
    
    
    (251
    )
    
    
    
    
    
    
    (444
    )Gain on sales of rental equipment
    
    
    (23,355
    )
    
    
    (2,239
    )
    
    
    
    
    
    
    (25,594
    )Equity in earnings of guarantor subsidiaries
    
    
    (626
    )
    
    
    
    
    
    
    626
    
    
    
    Changes in operating assets and liabilities:Receivables, net
    
    
    (38,769
    )
    
    
    6,271
    
    
    
    
    
    
    
    (32,498
    )Inventories, net
    
    
    (25,515
    )
    
    
    (28,204
    )
    
    
    
    
    
    
    (53,719
    )Prepaid expenses and other assets
    
    
    (1,787
    )
    
    
    (176
    )
    
    
    
    
    
    
    (1,963
    )Accounts payable
    
    
    43,591
    
    
    
    (4,907
    )
    
    
    
    
    
    
    38,684Manufacturer flooring plans payable
    
    
    (4,788
    )
    
    
    (2,529
    )
    
    
    
    
    
    
    (7,317Accrued expenses payable and other liabilities
    
    
    10,038
    
    
    
    (4,221
    )
    
    
    
    
    
    
    5,817Intercompany balances
    
    
    (92,779
    )
    
    
    92,779
    
    
    
    
    
    
    
    Deferred compensation payable
    
    
    (1,368
    )
    
    
    
    
    
    
    
    
    
    
    (1,368
    )Net cash provided by (used in) operating activities
    
    
    (26,757
    )
    
    
    103,373
    
    
    
    
    
    
    
    76,616Cash flows from investing activities:Acquisition of businesses, net of cash acquired
    
    
    
    
    
    
    (99,848
    )
    
    
    
    
    
    
    (99,848
    )Purchases of property and equipment
    
    
    (9,330
    )
    
    
    (2,995
    )
    
    
    
    
    
    
    (12,325
    )Purchases of rental equipment
    
    
    (128,553
    )
    
    
    351
    
    
    
    
    
    
    
    (128,202
    )Proceeds from sales of property and equipment
    
    
    306
    
    
    
    345
    
    
    
    
    
    
    
    651Proceeds from sales of rental equipment
    
    
    82,444
    
    
    
    9,182
    
    
    
    
    
    
    
    91,626Net cash used in investing activities
    
    
    (55,133
    )
    
    
    (92,965
    )
    
    
    
    
    
    
    (148,098
    )Cash flows from financing activities:Excess tax benefits from stock-based awards
    
    
    (44
    )
    
    
    
    
    
    
    
    
    
    
    44Purchase of treasury stock at cost
    
    
    (432
    )
    
    
    
    
    
    
    
    
    
    
    (432
    )Borrowings on senior secured credit facility
    
    
    754,616
    
    
    
    
    
    
    
    
    
    
    
    754,616Payments on senior secured credit facility
    
    
    (672,583
    )
    
    
    (9,381
    )
    
    
    
    
    
    
    (681,964
    )Principal payment of senior secured notes
    
    
    (4,478
    )
    
    
    
    
    
    
    
    
    
    
    (4,478
    )Principal payment of senior subordinated notes
    
    
    (278
    )
    
    
    
    
    
    
    
    
    
    
    (278
    )Payments of deferred financing costs
    
    
    (547
    )
    
    
    
    
    
    
    
    
    
    
    (547
    )Payments of related party obligation
    
    
    (225
    )
    
    
    
    
    
    
    
    
    
    
    (225
    )Payments on capital lease obligation
    
    
    
    
    
    
    (2,280
    )
    
    
    
    
    
    
    (2,280
    )Principal payments of notes payable
    
    
    (353
    )
    
    
    (8
    )
    
    
    
    
    
    
    (361
    )Net cash provided by (used in) financing activities
    
    
    75,764
    
    
    
    (11,669
    )
    
    
    
    
    
    
    64,095Net decrease in cash
    
    
    (6,126
    )
    
    
    (1,261
    )
    
    
    
    
    
    
    (7,387
    )Cash, beginning of period
    
    
    9,214
    
    
    
    89
    
    
    
    
    
    
    
    9,303Cash, end of period
    
    $
    3,088
    
    
    $
    (1,172
    )
    
    $
    
    
    
    $
    1,916
 27




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##### Table of Contents



H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
 Nine Months Ended September 30, 2006H&E Equipment
    
    
    GuarantorServices
    
    
    Subsidiaries
    
    
    Elimination
    
    
    Consolidated(Amounts in thousands)Cash flows from operating activities:Net income
    
    $
    12,192
    
    
    $
    5,019
    
    
    $
    (5,019
    )
    
    $
    12,192Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation on property and equipment
    
    
    4,466
    
    
    
    544
    
    
    
    
    
    
    
    5,010Depreciation on rental equipment
    
    
    49,852
    
    
    
    6,822
    
    
    
    
    
    
    
    56,674Amortization of loan discounts and deferred financing costs
    
    
    2,056
    
    
    
    
    
    
    
    
    
    
    
    2,056Amortization of intangible assets
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    34Provision for losses on accounts receivable
    
    
    1,457
    
    
    
    
    
    
    
    
    
    
    
    1,457Provision for inventory obsolescence
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    18Provision for deferred income taxes
    
    
    2,692
    
    
    
    
    
    
    
    
    
    
    
    2,692Stock-based compensation expense
    
    
    681
    
    
    
    
    
    
    
    
    
    
    
    681Gain on sales of property and equipment, net
    
    
    (268
    )
    
    
    (132
    )
    
    
    
    
    
    
    (400
    )Gain on sales of rental equipment, net
    
    
    (16,293
    )
    
    
    (7,046
    )
    
    
    
    
    
    
    (23,339
    )Loss on early extinguishment of debt
    
    
    40,771
    
    
    
    
    
    
    
    
    
    
    
    40,771Equity in earnings of guarantor subsidiaries
    
    
    (5,019
    )
    
    
    
    
    
    
    5,019
    
    
    
    Changes in operating assets and liabilities:Receivables, net
    
    
    (2,678
    )
    
    
    (1,685
    )
    
    
    
    
    
    
    (4,363
    )Inventories, net
    
    
    (31,572
    )
    
    
    (26,743
    )
    
    
    
    
    
    
    (58,315
    )Prepaid expenses and other assets
    
    
    (2,941
    )
    
    
    (1,496
    )
    
    
    
    
    
    
    (4,437
    )Accounts payable
    
    
    5,980
    
    
    
    (467
    )
    
    
    
    
    
    
    5,513Manufacturer flooring plans payable
    
    
    36,292
    
    
    
    
    
    
    
    
    
    
    
    36,292Accrued expenses payable and other liabilities
    
    
    6,214
    
    
    
    807
    
    
    
    
    
    
    
    7,021Intercompany balances
    
    
    (60,678
    )
    
    
    60,678
    
    
    
    
    
    
    
    Deferred compensation payable
    
    
    (8,507
    )
    
    
    
    
    
    
    
    
    
    
    (8,507
    )Net cash provided by operating activities
    
    
    34,749
    
    
    
    36,301
    
    
    
    
    
    
    
    71,050Cash flows from investing activities:Acquisition of businesses, net of cash acquired
    
    
    (15,051
    )
    
    
    (41,910
    )
    
    
    
    
    
    
    (56,961
    )Purchases of property and equipment
    
    
    (12,377
    )
    
    
    (976
    )
    
    
    
    
    
    
    (13,353
    )Purchases of rental equipment
    
    
    (177,421
    )
    
    
    3,049
    
    
    
    
    
    
    
    (174,372
    )Proceeds from sales of property and equipment
    
    
    1,882
    
    
    
    (41
    )
    
    
    
    
    
    
    1,841Proceeds from sales of rental equipment
    
    
    69,705
    
    
    
    6,363
    
    
    
    
    
    
    
    76,068Net cash used in investing activities
    
    
    (133,262
    )
    
    
    (33,515
    )
    
    
    
    
    
    
    (166,777
    )Cash flows from financing activities:Proceeds from initial public offering, net of issuance costs
    
    
    207,018
    
    
    
    
    
    
    
    
    
    
    
    207,018Payment of deferred financing costs
    
    
    (8,816
    )
    
    
    
    
    
    
    
    
    
    
    (8,816
    )Borrowings on senior secured credit facility
    
    
    718,819
    
    
    
    
    
    
    
    
    
    
    
    718,819Payments on senior secured credit facility
    
    
    (795,534
    )
    
    
    (3,471
    )
    
    
    
    
    
    
    (799,005
    )Proceeds from issuance of senior unsecured notes, net of issue costs
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    250,000Principal payment of senior secured notes
    
    
    (214,608
    )
    
    
    
    
    
    
    
    
    
    
    (214,608
    )Principal payment of senior subordinated notes
    
    
    (59,155
    )
    
    
    
    
    
    
    
    
    
    
    (59,155
    )Payment of related party obligation
    
    
    (225
    )
    
    
    
    
    
    
    
    
    
    
    (225
    )Proceeds from issuance of notes payable
    
    
    1,271
    
    
    
    
    
    
    
    
    
    
    
    1,271Principal payments of notes payable
    
    
    (895
    )
    
    
    749
    
    
    
    
    
    
    
    (146
    )Net cash provided by (used in) financing activities
    
    
    97,875
    
    
    
    (2,722
    )
    
    
    
    
    
    
    95,153Net increase (decrease) in cash
    
    
    (638
    )
    
    
    64
    
    
    
    
    
    
    
    (574
    )Cash, beginning of period
    
    
    5,610
    
    
    
    17
    
    
    
    
    
    
    
    5,627Cash, end of period
    
    $
    4,972
    
    
    $
    81
    
    
    $
    
    
    
    $
    5,053
 28




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##### Table of Contents



ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
 Background
     Critical Accounting Policies
  29




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##### Table of Contents



Business Segments
  
    
    Equipment Rentals.Our rental operation primarily rents our four core types of
construction and industrial equipment. We believe that we have an extremely
well-maintained rental fleet, with our own dedicated sales force, focused by equipment
type. We actively manage the size, quality, age and composition of our rental fleet based
on our analysis of key measures such as time utilization (equipment usage based on
customer demand), rental rate trends and targets, and equipment demand, which we closely
monitor. We maintain fleet quality through regional quality control managers and our parts
and services operations.
    
    New Equipment Sales.Our new equipment sales operation sells new equipment in all
four core product categories. We have a retail sales force focused by equipment type that
is separate from our rental sales force. Manufacturer purchase terms and pricing are
managed by our product specialists.
    
    Used Equipment Sales.Our used equipment sales are generated primarily from sales of
used equipment from our rental fleet, as well as from sales of inventoried used equipment
that we acquire through trade-ins from our equipment customers and through selective
purchases of high quality used equipment. Used equipment is sold by our dedicated retail
sales force. Our used equipment sales are an effective way for us to manage the size and
composition of our rental fleet and provide a profitable distribution channel for the
disposal of rental equipment.
    
    Parts Sales.Our parts business sells new and used parts for the equipment we sell,
and also provides parts to our own rental equipment fleet. To a lesser degree, we also
sell parts for equipment produced by manufacturers whose products we neither rent nor
sell. In order to provide timely parts and service support to our customers as well as our
own rental fleet, we maintain an extensive parts inventory.
    
    Services.Our services operation provides maintenance and repair services for our
customers owned equipment and to our own rental fleet at our facilities as well as at our
customers locations. As the authorized distributor for numerous equipment manufacturers,
we are able to provide services to that equipment that will be covered under the
manufacturers warranty.
   Revenue Sources
   30




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##### Table of Contents



Equipment Rentals.
 New Equipment Sales.
 Used Equipment Sales.
 Parts Sales.
 Services.
 Non-Segmented Other Revenues.
 Principal Costs and Expenses
  31




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##### Table of Contents



Rental Depreciation.
 Rental Expense.
 New Equipment Sales.
 Used Equipment Sales.
 Parts Sales.
 Services Support.
 Non-Segmented Other.
     Refinancing
  32




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##### Table of Contents



th th
 Principal Cash Flows
  Rental Fleet
  % of
    
    
    Original
    
    
    % of Original
    
    
    AverageTotal
    
    
    Acquisition
    
    
    Acquisition
    
    
    Age inUnits
    
    
    Units
    
    
    Cost
    
    
    Cost
    
    
    MonthsHi-Lift or Aerial Work Platforms
    
    
    14,044
    
    
    
    72.2
    %
    
    $
    459.0
    
    
    
    58.9
    %
    
    
    38.4Cranes
    
    
    475
    
    
    
    2.4
    %
    
    
    89.9
    
    
    
    11.5
    %
    
    
    31.7Earthmoving
    
    
    1,682
    
    
    
    8.6
    %
    
    
    163.3
    
    
    
    20.9
    %
    
    
    17.0Industrial Lift Trucks
    
    
    1,418
    
    
    
    7.3
    %
    
    
    40.0
    
    
    
    5.1
    %
    
    
    24.0Other
    
    
    1,846
    
    
    
    9.5
    %
    
    
    27.7
    
    
    
    3.6
    %
    
    
    18.3Total
    
    
    19,465
    
    
    
    100.0
    %
    
    $
    779.9
    
    
    
    100.0
    %
    
    
    33.4
   Principal External Factors that Affect our Businesses
  33




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##### Table of Contents




    
    Spending levels by customers.Rentals and sales of equipment to the construction
industry and to industrial companies constitute a significant portion of our revenues. As
a result, we depend upon customers in these businesses and their ability and willingness
to make capital expenditures to rent or buy specialized equipment. Accordingly, our
business is impacted by fluctuations in customers spending levels on capital
expenditures.
    
    Economic downturns.The demand for our products is dependent on the general economy,
the industries in which our customers operate or serve, and other factors. Downturns in
the general economy or in the construction and manufacturing industries can cause demand
for our products to materially decrease.
    
    Adverse weather.Adverse weather in any geographic region in which we operate may
depress demand for equipment in that region. Our equipment is primarily used outdoors and,
as a result, prolonged adverse weather conditions may prohibit our customers from
continuing their work projects. The adverse weather also has a seasonal impact in parts of
our Intermountain region.
  Results of Operations
    Three Months Ended September 30, 2007 Compared to the Three Months Ended September 30, 2006
 Revenues.
 Three Months Ended
    
    
    Total
    
    
    TotalSeptember 30,
    
    
    Dollar
    
    
    Percentage2007
    
    
    2006
    
    
    Change
    
    
    Change(in thousands, except percentages)Segment Revenues:Equipment rentals
    
    $
    75,598
    
    
    $
    67,327
    
    
    $
    8,271
    
    
    
    12.3
    %New equipment sales
    
    
    94,675
    
    
    
    60,673
    
    
    
    34,002
    
    
    
    56.0
    %Used equipment sales
    
    
    44,503
    
    
    
    29,668
    
    
    
    14,835
    
    
    
    50.0
    %Parts sales
    
    
    26,716
    
    
    
    21,024
    
    
    
    5,692
    
    
    
    27.1
    %Services revenues
    
    
    16,877
    
    
    
    14,074
    
    
    
    2,803
    
    
    
    19.9
    %Non-Segmented revenues
    
    
    12,218
    
    
    
    11,369
    
    
    
    849
    
    
    
    7.5
    %Total revenues
    
    $
    270,587
    
    
    $
    204,135
    
    
    $
    66,452
    
    
    
    32.6
    %
 Total Revenues.
 Equipment Rental Revenues.
 34




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##### Table of Contents



New Equipment Sales Revenues.
 Used Equipment Sales Revenues.
 Parts Sales Revenues.
 Services Revenues.
 Non-Segmented Other Revenues.
 Gross Profit.
 Three Months Ended
    
    
    Total
    
    
    TotalSeptember 30,
    
    
    Dollar
    
    
    Percentage2007
    
    
    2006
    
    
    Change
    
    
    Change(in thousands, except percentages)Segment Gross Profit:Equipment rentals
    
    $
    39,957
    
    
    $
    36,344
    
    
    $
    3,613
    
    
    
    9.9
    %New equipment sales
    
    
    13,152
    
    
    
    7,352
    
    
    
    5,800
    
    
    
    78.9
    %Used equipment sales
    
    
    10,773
    
    
    
    7,960
    
    
    
    2,813
    
    
    
    35.3
    %Parts sales
    
    
    7,821
    
    
    
    6,129
    
    
    
    1,692
    
    
    
    27.6
    %Services revenues
    
    
    10,746
    
    
    
    9,029
    
    
    
    1,717
    
    
    
    19.0
    %Non-Segmented gross profit
    
    
    1,450
    
    
    
    1,933
    
    
    
    (483
    )
    
    
    (25.0
    )%Total gross profit
    
    $
    83,899
    
    
    $
    68,747
    
    
    $
    15,152
    
    
    
    22.0
    %
 35




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##### Table of Contents



Total Gross Profit.
 Equipment Rentals Gross Profit.
 New Equipment Sales Gross Profit.
 Used Equipment Sales Gross Profit.
 Parts Sales Gross Profit.
 Services Revenues Gross Profit.
 36




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##### Table of Contents



Non-Segmented Other Revenues Gross Profit.
 Selling, General and Administrative Expenses.
 Other Income (Expense).
 Income Taxes.
  37




---



##### Table of Contents



Nine Months Ended September 30, 2007 Compared to the Nine Months Ended September 30, 2006
 Revenues.
 Nine Months Ended
    
    
    Total
    
    
    TotalSeptember 30,
    
    
    Dollar
    
    
    Percentage2007
    
    
    2006
    
    
    Change
    
    
    Change(in thousands, except percentages)Segment Revenues:Equipment rentals
    
    $
    208,371
    
    
    $
    185,333
    
    
    $
    23,038
    
    
    
    12.4
    %New equipment sales
    
    
    240,910
    
    
    
    173,333
    
    
    
    67,577
    
    
    
    39.0
    %Used equipment sales
    
    
    110,190
    
    
    
    97,387
    
    
    
    12,803
    
    
    
    13.1
    %Parts sales
    
    
    73,803
    
    
    
    61,574
    
    
    
    12,229
    
    
    
    19.9
    %Services revenues
    
    
    46,599
    
    
    
    39,782
    
    
    
    6,817
    
    
    
    17.1
    %Non-Segmented revenues
    
    
    33,595
    
    
    
    31,472
    
    
    
    2,123
    
    
    
    6.7
    %Total revenues
    
    $
    713,468
    
    
    $
    588,881
    
    
    $
    124,587
    
    
    
    21.2
    %
 Total Revenues.
 Equipment Rental Revenues.
    New Equipment Sales Revenues.
 38




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##### Table of Contents



Used Equipment Sales Revenues.
 Parts Sales Revenues.
 Services Revenues.
 Non-Segmented Other Revenues.
 Gross Profit.
 Nine Months Ended
    
    
    Total
    
    
    TotalSeptember 30,
    
    
    Dollar
    
    
    Percentage2007
    
    
    2006
    
    
    Change
    
    
    Change(in thousands, except percentages)Segment Gross Profit:Equipment rentals
    
    $
    106,437
    
    
    $
    97,232
    
    
    $
    9,205
    
    
    
    9.5
    %New equipment sales
    
    
    32,035
    
    
    
    21,718
    
    
    
    10,317
    
    
    
    47.5
    %Used equipment sales
    
    
    27,586
    
    
    
    26,134
    
    
    
    1,452
    
    
    
    5.6
    %Parts sales
    
    
    21,579
    
    
    
    18,075
    
    
    
    3,504
    
    
    
    19.4
    %Services revenues
    
    
    29,700
    
    
    
    25,439
    
    
    
    4,261
    
    
    
    16.7
    %Non-Segmented gross profit
    
    
    3,483
    
    
    
    4,467
    
    
    
    (984
    )
    
    
    (22.0
    )%Total gross profit
    
    $
    220,820
    
    
    $
    193,065
    
    
    $
    27,755
    
    
    
    14.4
    %
 Total Gross Profit.
 39




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##### Table of Contents



Equipment Rentals Gross Profit.
 New Equipment Sales Gross Profit.
 Used Equipment Sales Gross Profit.
 Parts Sales Gross Profit.
 Services Revenues Gross Profit.
 40




---



##### Table of Contents



Non-Segmented Other Revenues Gross Profit.
 Selling, General and Administrative Expenses.
 Other Income (Expense).
 Income Taxes.
  Liquidity and Capital Resources
 Cash flow from operating activities
 41




---



##### Table of Contents



Cash flow for investing activities.
 Cash flow from financing activities.
  Senior Secured Credit Facility Amendments
   42




---



##### Table of Contents



Cash Requirements Related to Operations
      43




---



##### Table of Contents



Contractual and Commercial Commitments Summary
  Payments Due by YearTotal
    
    
    2007
    
    
    2008-2009
    
    
    2010-2011
    
    
    Thereafter(Dollars in thousands)Long-term debt (including senior unsecured notes
payable)
    
    $
    250,807
    
    
    $
    7
    
    
    $
    58
    
    
    $
    58
    
    
    $
    250,684Interest payments on senior unsecured notes (1)
    
    
    188,438
    
    
    
    
    
    
    
    41,875
    
    
    
    41,875
    
    
    
    104,688Senior secured credit facility
    
    
    81,514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,514Interest payments on senior secured credit facility (2)
    
    
    23,816
    
    
    
    1,562
    
    
    
    12,392
    
    
    
    9,862
    
    
    
    Related party obligation (including interest) (3)
    
    
    525
    
    
    
    75
    
    
    
    450
    
    
    
    
    
    
    
    Capital lease obligations (4)
    
    
    2,438
    
    
    
    27
    
    
    
    231
    
    
    
    259
    
    
    
    1,921Operating leases (5)
    
    
    72,529
    
    
    
    2,873
    
    
    
    18,930
    
    
    
    12,405
    
    
    
    38,321Other long-term obligations (6)
    
    
    160,923
    
    
    
    10,834
    
    
    
    83,517
    
    
    
    56,958
    
    
    
    9,614Total contractual cash obligations
    
    $
    780,990
    
    
    $
    15,378
    
    
    $
    157,453
    
    
    $
    121,417
    
    
    $
    486,742
 
 (1)
    
    Future interest payments are calculated based on the assumption that all debt is outstanding
until maturity. For debt instruments with variable interest rates, interest has been
calculated for all periods using rates in effect on September 30, 2007.(2)
    
    Future interest payments are calculated based on the assumption that all debt is outstanding
until maturity. For debt instruments with variable interest rates, interest has been
calculated for all future periods using rates in effect on September 30, 2007.(3)
    
    Payments under the consulting and non-competition agreement with Mr. Thomas Engquist.(4)
    
    This includes a capital lease for which the related liabilities have been recorded at the
present value of future minimum lease payments due under this lease.(5)
    
    This includes total operating lease rental payments (including interest) having initial or
remaining non-cancelable lease terms longer than one year.(6)
    
    Includes $160.5 million in manufacturer flooring plans payable, which is used by the Company
to finance purchases of inventory and rental equipment.  Seasonality
   Inflation
  Acquisitions
  44




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Managements Quarterly Evaluation of Disclosure Controls and Procedures
    Changes in Internal Controls
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  45




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##### Table of Contents



Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other information.
  
 Item 6. Exhibits.
  2.1
    
    Amendment No. 1 to Agreement and Plan of Merger, dated as of August 31, 2007, by and
among H&E Equipment Services, Inc., HE-JWB Acquisition, Inc., J.W. Burress,
Incorporated, the Burress Shareholders (as defined therein), and Richard S. Dudley, as
Burress Shareholders Representative (incorporated by reference to Exhibit 2.1 to Current
Report on Form 8-K of H&E Equipment Services, Inc. (File No. 000-51759), filed on
September 4, 2007).10.1
    
    Second Amended and Restated Credit Agreement, dated as of September 1, 2007, by and
among H&E Equipment Services, Inc., Great Northern Equipment, Inc., GNE Investments,
Inc., H&E Finance Corp., H&E Equipment Services (California), LLC, H&E California
Holdings, Inc., J.W. Burress, Incorporated, General Electric Capital Corporation, as
Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K of H&E Equipment Services, Inc. (File
No. 000-51759), filed on September 4, 2007).31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (furnished herewith).
 46




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##### Table of Contents



SIGNATURES
  H&E EQUIPMENT SERVICES, INC.Dated: November 8, 2007
    By:
    /s/ John M. EngquistJohn M. EngquistPresident and Chief Executive
Officer
(Principal Executive Officer)Dated: November 8, 2007
    By:
    /s/ Leslie S. MageeLeslie S. MageeChief Financial Officer and
Secretary
(Principal Financial and Accounting Officer) 47




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##### Table of Contents



EXHIBIT INDEX
 2.1
    
    Amendment No. 1 to Agreement and Plan of Merger, dated as of August 31, 2007, by and
among H&E Equipment Services, Inc., HE-JWB Acquisition, Inc., J.W. Burress,
Incorporated, the Burress Shareholders (as defined therein), and Richard S. Dudley, as
Burress Shareholders Representative (as defined therein) (incorporated by reference to
Exhibit 2.1 to Current Report on Form 8-K of H&E Equipment Services, Inc. (File No.
000-51759), filed on September 4, 2007).10.1
    
    Second Amended and Restated Credit Agreement, dated as of September 1, 2007, by and
among H&E Equipment Services, Inc., Great Northern Equipment, Inc., GNE Investments,
Inc., H&E Finance Corp., H&E Equipment Services (California), LLC, H&E California
Holdings, Inc., J.W. Burress, Incorporated, General Electric Capital Corporation, as
Agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to
Current Report on Form 8-K of H&E Equipment Services, Inc. (File
No. 000-51759), filed on September 4, 2007).31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (furnished herewith).
 48