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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

        (Mark one)


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

For the quarterly period ended June 30, 2003

OR

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 numbers: 333-99587
333-99589		  

H&E EQUIPMENT SERVICES L.L.C.
(Exact name of registrant as specified in its charter)

Louisiana
(State of Incorporation)		   72-1287046
(I.R.S. Employer Identification No.)
     
11100 Mead Road, Suite 200,
Baton Rouge, Louisiana
(Address of principal executive offices)		   70816
(Zip Code)

Registrant's telephone number, including area code (225) 298-5200

        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.

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

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

        H&E Holdings L.L.C. owns 100% of the registrant's limited liability company interests.


H&E EQUIPMENT SERVICES L.L.C.

TABLE OF CONTENTS

 
    
   Page
PART I   FINANCIAL INFORMATION    

Item 1.
 
Unaudited Financial Statements:
 
 

 
 
Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002
 
3

 
 
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2003 and 2002
 
4

 
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002
 
5

 
 
Notes to Condensed Consolidated Financial Statements
 
7

Item 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
19

Item 3.
 
Quantitative and Qualitative Disclosures about Market Risk
 
27

Item 4.
 
Controls and Procedures
 
28

PART II.
 
OTHER INFORMATION
 
 

Item 1.
 
Legal Proceedings
 
28

Item 2.
 
Changes in Securities and Use of Proceeds
 
28

Item 3.
 
Defaults upon Senior Securities
 
28

Item 4.
 
Submission of Matters to a Vote of Security Holders
 
29

Item 5.
 
Other Information
 
29

Item 6.
 
Exhibits and Reports on Form 8-K
 
29

Signature Pages
 
29

2


H&E EQUIPMENT SERVICES L.L.C.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

 
   June 30,
2003
   December 31,
2002
 
   (In thousands)
ASSETS            
Cash   $ 2,826   $ 3,398
Receivables, net of allowance for doubtfull accounts of $3,012 and $3,609,
    respectively		     65,268     65,145
Inventories, net     49,809     47,992
Prepaid expenses and other assets     3,757     1,945
Rental equipment, net of accumulated depreciation of $111,223 and $87,064,
    respectively		     289,581     314,892
Property and equipment, net of accumulated depreciation of $12,531 and $13,338,
    respectively		     16,516     19,156
Deferred financing costs, net of accumulated amortization of $1,825 and $854,
    respectively		     11,926     12,612
Goodwill, net     3,204     3,204
   
 
    Total assets   $ 442,887   $ 468,344
   
 

LIABILITIES AND MEMBER'S EQUITY (DEFICIT)
 
 
 
 
 
 
Liabilities:            
  Senior secured credit facility   $ 73,701   $ 76,724
  Accounts payable     87,010     91,213
  Accrued expenses and other liabilities     15,052     12,329
  Accrued loss from litigation     17,000     —
  Notes payable     1,217     1,402
  Senior secured notes, net of discount     198,614     198,570
  Senior subordinated notes, net of discount     42,797     42,602
  Capital lease obligations     8,266     10,841
  Deferred compensation     10,610     10,233
   
 
    Total liabilities     454,267     443,914
   
 

Member's equity (deficit)
 
 
(11,380
)
 
24,430
   
 
    Total liabilities and member's equity (deficit)   $ 442,887   $ 468,344
   
 

See notes to condensed consolidated financial statements

3


H&E EQUIPMENT SERVICES L.L.C.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
   Three Months Ended
June 30,
   Six Months Ended
June 30,
  
 
   2003
   2002
   2003
   2002
  
 
   (In thousands)

   (In thousands)

  
Revenues:                          
  Equipment rentals   $ 37,828   $ 27,003   $ 74,856   $ 49,882  
  New equipment sales     20,460     16,410     40,830     32,457  
  Used equipment sales     18,657     13,043     37,067     22,166  
  Parts sales     14,234     10,822     26,439     20,312  
  Service revenues     8,591     6,078     17,178     11,247  
  Other     5,086     3,406     9,708     6,398  
   
 
 
 
 
    Total revenues     104,856     76,762     206,078     142,462  
   
 
 
 
 

Cost of revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
  Rental depreciation     13,962     9,624     27,753     17,408  
  Rental expense     12,571     6,553     24,722     12,539  
  New equipment sales     18,370     14,677     36,949     29,394  
  Used equipment sales     15,409     11,385     30,007     18,886  
  Parts sales     10,191     8,076     19,120     15,159  
  Service revenues     3,517     2,493     6,870     4,689  
  Other     4,907     3,640     9,512     6,794  
   
 
 
 
 
    Total cost of revenues     78,927     56,448     154,933     104,869  
   
 
 
 
 
    Gross profit     25,929     20,314     51,145     37,593  

Selling, general and administrative expenses
 
 
25,663
 
 
17,289
 
 
50,409
 
 
32,857
 
Loss from litigation     —     —     17,000     —  
Gain on sale of assets     64     8     37     29  
   
 
 
 
 
   
Income (loss) from operations
 
 
330
 
 
3,033
 
 
(16,227
)
 
4,765
 
   
 
 
 
 

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
  Interest expense     (9,866 )   (5,648 )   (19,679 )   (8,494 )
  Other, net     75     68     96     93  
   
 
 
 
 
    Total other expense, net     (9,791 )   (5,580 )   (19,583 )   (8,401 )
   
 
 
 
 
    Loss before income taxes     (9,461 )   (2,547 )   (35,810 )   (3,636 )
Income tax benefit     —     892     —     1,271  
   
 
 
 
 
    Net loss   $ (9,461 ) $ (1,655 ) $ (35,810 ) $ (2,365 )
   
 
 
 
 

See notes to condensed consolidated financial statements

4


H&E EQUIPMENT SERVICES L.L.C.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
   Six Months Ended June 30,
  
 
   2003
   2002
  
 
   (In thousands)

  
Cash flows from operating activities:              
  Net loss   $ (35,810 ) $ (2,365 )
Adjustments to reconcile net loss to net cash provided by operating activities:              
  Depreciation on property and equipment     1,964     1,092  
  Depreciation on rental equipment     27,753     17,408  
  Amortization of loan discounts and deferred financing costs     1,209     76  
  Provision for losses on accounts receivable     142     176  
  Gain on sale of property and equipment     (37 )   (29 )
  Gain on sale of rental equipment     (5,748 )   (2,273 )
  Deferred income taxes     —     (1,306 )
  Changes in operating assets and liabilities, net of business combination:              
    Receivables, net     (265 )   (4,650 )
    Inventories, net     (2,371 )   (10,645 )
    Prepaid expenses and other assets     (1,812 )   (1,314 )
    Accounts payable     (4,203 )   1,853  
    Accrued expenses and other liabilities     2,723     2,019  
    Accrued loss from litigation     17,000     —  
    Deferred compensation     377     17  
   
 
 
   
Net cash provided by operating activities
 
 
922
 
 
59
 
   
 
 

Cash flows from investing activities:
 
 
 
 
 
 
 
  Purchases of property and equipment     (1,562 )   (1,666 )
  Purchases of rental equipment     (21,220 )   (16,545 )
  Proceeds from sale of property and equipment     2,275     62  
  Proceeds from sale of rental equipment     25,650     12,362  
  Cash acquired in ICM business combination     —     3,643  
   
 
 
   
Net cash provided by (used in) investing activities
 
 
5,143
 
 
(2,144
)
   
 
 

Cash flows from financing activities:
 
 
 
 
 
 
 
  Borrowings on senior secured credit facility     203,641     81,900  
  Payments on senior secured credit facility     (206,664 )   (304,415 )
  Net proceeds from issuance of senior secured notes     —     198,526  
  Net proceeds from issuance of senior subordinated notes     —     50,009  
  Payment of amount due to member     —     (13,347 )
  Payment of deferred financing costs     (854 )   (11,487 )
  Principal payments on notes payable     (185 )   (284 )
  Payments on capital lease obligations     (2,575 )   (1,947 )
   
 
 
   
Net cash (used in) provided by financing activities
 
 
(6,637
)
 
(1,045
)
   
 
 
   
Net decrease in cash
 
 
(572
)
 
(3,130
)

Cash, beginning of period
 
 
3,398
 
 
4,322
 
   
 
 

Cash, end of period
 
$
2,826
 
$
1,192
 
   
 
 

See notes to condensed consolidated financial statements

5


H&E EQUIPMENT SERVICES L.L.C.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
   Six Months Ended June 30,
 
   2003
   2002
 
   (In thousands)
Supplemental schedule of noncash investing and financing activities:            
    Assets transferred from new and used inventory to rental fleet   $ 554   $ 4,690
    Rental equipment financed under capital lease obligations     —     4,182
    Members' equity issued with the subordinated notes     —     7,600
Supplemental disclosures of cash flow information:            
  Cash paid during the period for:            
    Interest     19,626     10,356
    Income taxes     97     106

        As of June 30, 2003 and December 31, 2002, the Company had $51.8 and $55.1 million, respectively, in flooring plans outstanding, which were used to finance purchases of inventory and rental equipment.

See notes to condensed consolidated financial statements

6


H&E EQUIPMENT SERVICES L.L.C.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Operations

Basis of Presentation

        H&E Equipment Services L.L.C. (H&E Equipment Services) is a wholly owned subsidiary of H&E Holdings L.L.C. (H&E Holdings). H&E Holdings is principally a holding company conducting all of its operations through H&E Equipment Services (see Note 2). The condensed consolidated financial statements include the results of operations of H&E Equipment Services and its wholly owned subsidiaries H&E Finance Corp., GNE Investments, Inc. and Great Northern Equipment, Inc., collectively referred to herein as the "Company".

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

Nature of Operations

        The Company is an integrated equipment rental, service and sales company located in the United States with an integrated network of 41 facilities, most of which have full service capabilities, and a workforce that includes a group of service technicians and a separate rental and equipment sales force. In addition to renting equipment, the Company also sells new and used equipment and provides extensive parts and service support. The Company generates a significant portion of its gross profit from parts sales and service revenues.

        The Company's operations are principally connected with construction and industrial activities. Consequently, a downturn in construction or industrial activity may lead to a decrease in the demand for equipment or depressed rental rates and sales prices of equipment. The Company has a substantial amount of debt. In accordance with the terms of the current debt agreements, the Company must comply with certain restrictive financial and operational covenants. Failure to comply with these covenants may adversely affect the Company's ability to finance future operations or capital needs or to engage in business activities.

        The accompanying condensed consolidated financial statements are unaudited and, in the opinion of management, such financial statements reflect all adjustments, consisting only of normal recurring adjustments necessary to present fairly the results of the interim periods presented. Interim financial statements do not require all disclosures normally presented in year-end financial statements prepared in accordance with accounting principles generally accepted in the United States of America, and, accordingly, certain disclosures have been omitted. Results of operations for the three- and six-month periods ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. The Company suggests the information included in this report be read in conjunction with the financial statements and related notes included in the Company's Form 10-K for the year ended December 31, 2002.

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

7


Reclassifications

        Certain amounts in the prior-period condensed consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current condensed consolidated financial statements.

Adoption of Recently Issued Accounting Standards

        In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 150 (SFAS No. 150), "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." The new statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both debt and equity. The provisions of SFAS No. 150 apply to the classification and disclosure requirements for the following three types of financial instruments: Mandatorily Redeemable Instruments, Instruments with Repurchase Obligations, and Instruments with Obligations to Issue a Variable Number of Securities. The new reporting and disclosure requirements for SFAS No. 150 become effective for the first interim period beginning after June 15, 2003 or for any covered instruments entered into or modified subsequent to May 31, 2003. The Company has not completed its analysis of the potential impacts from adopting the new reporting requirements of SFAS No. 150.

2. Reorganization and Acquisition of ICM Equipment Company L.L.C.

        On June 17, 2002, the equity holders of H&E Equipment Services and ICM Equipment Company L.L.C. (ICM) formed H&E Holdings by executing a Limited Liability Company Agreement of H&E Holdings and by contributing to H&E Holdings all of the outstanding equity securities and certain outstanding subordinated debt of the two companies to the members of H&E Holdings in exchange for certain equity securities of H&E Holdings. Pursuant to a Contribution Agreement and Plan of Reorganization, H&E Holdings contributed all of the outstanding equity securities of ICM to H&E Equipment Services, consummating the merger.

        The consolidated results of operations data shown below is presented on an unaudited pro forma basis and represents the results of H&E Equipment Services had the business combination occurred at the beginning of the period presented for the three and six months ended June 30, 2002 (in thousands):

 
   Three Months Ended
June 30, 2002
   Six Months Ended
June 30, 2002
  
Revenues   $ 116,000   $ 222,500  
Net loss   $ (4,600 ) $ (10,600 )

        The unaudited pro forma financial information is presented for informational purposes only and is based upon certain assumptions and estimates, which are subject to change. The results are not necessarily indicative of the operating results that would have occurred had the transaction been consummated at the beginning of the period presented, nor are they necessarily indicative of future operating results.

3. Litigation

        In July 2000, a complaint was filed by a competitor of the Company in the General Court of Justice, Superior Court Division, State of North Carolina, County of Mecklenburg under the caption Sunbelt Rentals, Inc. v. Head & Engquist Equipment, d/b/a H&E Hi-Lift, et al. On May 2, 2003, the court handed down an order and opinion in favor of the plaintiff. The Company recorded a $17.0 million loss for estimated damages, plaintiff's attorney's fees and other costs during the quarter ended March 31, 2003.

8


        The final judgment has not yet been entered in this matter. The Company's management intends to appeal and vigorously contest this judgment. During the appeals process, management anticipates posting a standby letter of credit for the amount of the final judgment. Even if there is a reduction in the amount of damages awarded to the plaintiff on appeal, management believes that the resulting judgment could have a material adverse effect on the Company's business or financial condition.

        As a result of the Company recording the $17.0 million estimated loss from litigation, on May 14, 2003, the Company's senior secured credit agreement was amended to modify certain restrictive financial covenants and financial ratios. The credit agreement was amended to:

1.
Exclude the loss from litigation from the calculation of Company's earnings before interest, taxes, depreciation, and amortization.

2.
Adjust the maximum leverage ratio and the maximum adjusted leverage ratio, respectively, to 5.20x from 4.60x for the remaining term of the credit agreement. The minimum adjusted interest coverage ratio was adjusted to 1.25x from 1.45x through 2004. In 2005, the ratio increases to 1.30x with an additional increase to 1.40x in 2006 through the remainder of the agreement.

3.
Increase the maximum amount of letters of credit allowed under the senior credit facility to $30.0 million from $10.0 million.

4.
Institute a pricing grid such that if excess availability (defined as the total borrowing base assets less total outstanding borrowings):

a.
falls below $90.0 million, the interest rate and letter of credit fee increase by 25 basis points,

b.
falls below $50.0 million, the interest rate and letter of credit fee increase an additional 25 basis points.

5.
Institute a $20.0 million block on availability based on the total borrowing base assets.

        On May 14, 2003, the Company paid a loan amendment fee of $0.4 million that is being amortized over the remaining term of the loan. Consequently, the Company is not and does not expect to be in default under the senior secured credit facility as a result of the estimated loss from litigation.

9

4. Segment Information

        The Company has identified five reportable segments; new equipment sales, used equipment sales, equipment rentals, parts 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. Selling, general, and administrative expenses and all other income and expense items below gross profit are generally not allocated to reportable segments. The Company does not compile discrete financial information by its segments other than the information presented below. The following table presents information about the Company's reportable segments (in thousands):

 
   For the Three Months
Ended June 30,
   For the Six Months
Ended June 30,
  
 
   2003
   2002
   2003
   2002
  
Revenues:                          
  Equipment rentals   $ 37,828   $ 27,003   $ 74,856   $ 49,882  
  New equipment sales     20,460     16,410     40,830     32,457  
  Used equipment sales     18,657     13,043     37,067     22,166  
  Parts sales     14,234     10,822     26,439     20,312  
  Services revenues     8,591     6,078     17,178     11,247  
   
 
 
 
 
    Total segmented revenues     99,770     73,356     196,370     136,064  
    Non-segmented revenues     5,086     3,406     9,708     6,398  
   
 
 
 
 
    Total revenues   $ 104,856   $ 76,762   $ 206,078   $ 142,462  
   
 
 
 
 
Gross Profit:                          
  Equipment rentals   $ 11,295   $ 10,826   $ 22,381   $ 19,935  
  New equipment sales     2,090     1,733     3,881     3,063  
  Used equipment sales     3,248     1,658     7,060     3,280  
  Parts sales     4,043     2,746     7,319     5,153  
  Services revenues     5,074     3,585     10,308     6,558  
   
 
 
 
 
  Total gross profit from revenues     25,750     20,548     50,949     37,989  
  Non-segmented gross profit (loss)     179     (234 )   196     (396 )
   
 
 
 
 
  Total gross profit   $ 25,929   $ 20,314   $ 51,145   $ 37,593  
   
 
 
 
 
                           
 
   As of June 30,
   As of December 31,
 
   2003
   2002
Segment identified assets:            
  Equipment sales   $ 34,182   $ 31,283
  Equipment rentals     289,581     314,892
  Parts and service     15,627     16,709
   
 
    Total segment identified assets     339,390     362,884
    Non-segment identified assets     103,497     105,460
   
 
    Total assets   $ 442,887   $ 468,344
   
 

        The Company operates only in U.S. markets and had no significant international sales for any of the periods presented. No one customer accounted for more than 10% of the Company's sales on an overall or segment basis for any of the periods presented.

10

5. Condensed Consolidating Financial Information of Guarantor Subsidiaries

        All of the indebtedness of H&E Equipment Services is guaranteed by GNE Investments, Inc. and its wholly owned subsidiary Great Northern Equipment, Inc. The guarantor subsidiaries are all wholly owned and the guarantees are made on a joint and several basis and 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' ability to obtain funds from the guarantor subsidiaries by dividend or loan.

        The condensed consolidating financial information of H&E Equipment Services and its subsidiaries are included below.


CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)

 
   June 30, 2003
  
 
   Parent
   Guarantor
Subsidiaries
   Elimination
   Consolidated
  
ASSETS                          
  Cash   $ 2,784   $ 42   $ —   $ 2,826  
  Receivables, net     64,497     771     —     65,268  
  Inventories, net     49,243     566     —     49,809  
  Prepaid expenses and other assets     3,757     —     —     3,757  
  Rental equipment, net     283,066     6,515     —     289,581  
  Property and equipment, net     16,221     295     —     16,516  
  Deferred financing costs, net     11,926     —     —     11,926  
  Investment in guarantor subsidiaries     4,485     —     (4,485 )   —  
  Goodwill, net     3,204     —     —     3,204  
   
 
 
 
 
    Total assets   $ 439,183   $ 8,189   $ (4,485 ) $ 442,887  
   
 
 
 
 
LIABILITIES AND MEMBER'S EQUITY
    (DEFICIT)		                          
Liabilities:                          
  Senior secured credit facility   $ 73,701   $ —   $ —   $ 73,701  
  Accounts payable     87,010     —     —     87,010  
  Accrued expenses and other liabilities     11,348     3,704     —     15,052  
  Accrued loss from litigation     17,000     —     —     17,000  
  Notes payable     1,217     —     —     1,217  
  Senior secured notes, net of discount     198,614     —     —     198,614  
  Senior subordinated notes, net of discount     42,797     —     —     42,797  
  Capital lease obligations     8,266     —     —     8,266  
  Deferred compensation     10,610     —     —     10,610  
   
 
 
 
 
    Total liabilities     450,563     3,704     —     454,267  
Member's equity (deficit)     (11,380 )   4,485     (4,485 )   (11,380 )
   
 
 
 
 
      Total liabilities and member's equity (deficit)   $ 439,183   $ 8,189   $ (4,485 ) $ 442,887  
   
 
 
 
 

11


CONDENSED CONSOLIDATING BALANCE SHEET
(In thousands)

 
   December 31, 2002
 
   Parent
   Guarantor
Subsidiaries
   Elimination
   Consolidated
ASSETS                        
  Cash   $ 3,331   $ 67   $ —   $ 3,398
  Receivables, net     64,742     403     —     65,145
  Inventories, net     46,535     1,457     —     47,992
  Prepaid expenses and other assets     1,941     4     —     1,945
  Rental equipment, net     309,006     5,886     —     314,892
  Property and equipment, net     19,031     125     —     19,156
  Deferred financing costs, net     12,612     —     —     12,612
  Investment in guarantor subsidiaries     4,841     —     (4,841 )   —
  Goodwill, net     3,204     —     —     3,204
   
 
 
 
    Total assets   $ 465,243   $ 7,942   $ (4,841 ) $ 468,344
   
 
 
 
LIABILITIES AND MEMBER'S EQUITY                        
Liabilities:                        
  Senior secured credit facility   $ 76,724   $ —   $ —   $ 76,724
  Accounts payable     91,125     88     —     91,213
  Accrued expenses and other liabilities     9,316     3,013     —     12,329
  Notes payable     1,402     —     —     1,402
  Senior secured notes, net of discount     198,570     —     —     198,570
  Senior subordinated notes, net of discount     42,602     —     —     42,602
  Capital lease obligations     10,841     —     —     10,841
  Deferred compensation     10,233     —     —     10,233
   
 
 
 
    Total liabilities     440,813     3,101     —     443,914
Member's equity     24,430     4,841     (4,841 )   24,430
   
 
 
 
      Total liabilities and member's equity   $ 465,243   $ 7,942   $ (4,841 ) $ 468,344
   
 
 
 

12


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)

 
   Three Months Ended June 30, 2003
  
 
   Parent
   Guarantor
Subsidiaries
   Elimination
   Consolidated
  
Revenues:                          
  Equipment rentals   $ 36,635   $ 1,193   $ —   $ 37,828  
  New equipment sales     19,670     790     —     20,460  
  Used equipment sales     17,592     1,065     —     18,657  
  Parts sales     13,904     330     —     14,234  
  Service revenues     8,372     219     —     8,591  
  Other     4,940     146     —     5,086  
   
 
 
 
 
   
Total revenues
 
 
101,113
 
 
3,743
 
 
—
 
 
104,856
 
   
 
 
 
 

Cost of Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
  Rental depreciation     13,510     452     —     13,962  
  Rental expense     12,383     188     —     12,571  
  New equipment sales     17,683     687     —     18,370  
  Used equipment sales     14,598     811     —     15,409  
  Parts sales     9,972     219     —     10,191  
  Service revenues     3,455     62     —     3,517  
  Other     4,748     159     —     4,907  
   
 
 
 
 
   
Total cost of revenues
 
 
76,349
 
 
2,578
 
 
—
 
 
78,927
 
   
 
 
 
 
   
Gross profit
 
 
24,764
 
 
1,165
 
 
—
 
 
25,929
 
 
Selling, general and administrative expenses
 
 
24,687
 
 
976
 
 
—
 
 
25,663
 
  Gain on sale of assets     59     5     —     64  
  Equity (deficit) in earnings of guarantor
    subsidiaries		     (16 )   —     16     —  
   
 
 
 
 
   
Income from operations
 
 
120
 
 
194
 
 
16
 
 
330
 
   
 
 
 
 

Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
  Interest expense     (9,649 )   (217 )   —     (9,866 )
  Other, net     68     7     —     75  
   
 
 
 
 
    Total other expense, net     (9,581 )   (210 )   —     (9,791 )
   
 
 
 
 
Net loss   $ (9,461 ) $ (16 ) $ 16   $ (9,461 )
   
 
 
 
 

13


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)

 
   Three Months Ended June 30, 2002
  
 
   Parent
   Guarantor
Subsidiaries
   Elimination
   Consolidated
  
Revenues:                          
  Equipment rentals   $ 26,837   $ 166   $ —   $ 27,003  
  New equipment sales     16,355     55     —     16,410  
  Used equipment sales     12,824     219     —     13,043  
  Parts sales     10,779     43     —     10,822  
  Service revenues     6,048     30     —     6,078  
  Other     3,406     —     —     3,406  
   
 
 
 
 
    Total revenues     76,249     513     —     76,762  
   
 
 
 
 
Cost of Revenues:                          
  Rental depreciation     9,624     —     —     9,624  
  Rental expense     6,452     101     —     6,553  
  New equipment sales     14,641     36     —     14,677  
  Used equipment sales     11,205     180     —     11,385  
  Parts sales     8,047     29     —     8,076  
  Service revenues     2,484     9     —     2,493  
  Other     3,640     —     —     3,640  
   
 
 
 
 
    Total cost of revenues     56,093     355     —     56,448  
   
 
 
 
 
    Gross profit     20,156     158     —     20,314  
                           
  Selling, general and administrative expenses     17,215     74           17,289  
  Gain on sale of assets     8     —     —     8  
  Equity in earnings of guarantor subsidiaries     63     —     (63 )   —  
   
 
 
 
 
    Income from operations     3,012     84     (63 )   3,033  
   
 
 
 
 
Other income (expense):                          
  Interest expense     (5,648 )   —     —     (5,648 )
  Other, net     68     —     —     68  
   
 
 
 
 
    Total other expense, net     (5,580 )   —     —     (5,580 )
   
 
 
 
 
  Income (loss) before provision for income taxes     (2,568 )   84     (63 )   (2,547 )
  Income tax benefit (provision)     913     (21 )   —     892  
   
 
 
 
 
    Net income (loss)   $ (1,655 ) $ 63   $ (63 ) $ (1,655 )
   
 
 
 
 

14


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)

 
   Six Months Ended June 30, 2003
  
 
   Parent
   Guarantor
Subsidiaries
   Elimination
   Consolidated
  
Revenues:                          
  Equipment rentals   $ 72,842   $ 2,014   $ —   $ 74,856  
  New equipment sales     39,798     1,032     —     40,830  
  Used equipment sales     35,272     1,795     —     37,067  
  Parts sales     25,831     608     —     26,439  
  Service revenues     16,732     446     —     17,178  
  Other     9,481     227     —     9,708  
   
 
 
 
 
    Total revenues     199,956     6,122     —     206,078  
   
 
 
 
 
Cost of Revenues:                          
  Rental depreciation     26,875     878     —     27,753  
  Rental expense     24,282     440     —     24,722  
  New equipment sales     36,061     888     —     36,949  
  Used equipment sales     28,655     1,352     —     30,007  
  Parts sales     18,708     412     —     19,120  
  Service revenues     6,736     134     —     6,870  
  Other     9,250     262     —     9,512  
   
 
 
 
 
    Total cost of revenues     150,567     4,366     —     154,933  
   
 
 
 
 
    Gross profit     49,389     1,756     —     51,145  
                           
  Selling, general and administrative expenses     48,689     1,720     —     50,409  
  Loss from litigation     17,000     —     —     17,000  
  Gain on sale of assets     15     22     —     37  
  Equity in earnings of guarantor subsidiaries     (356 )   —     356     —  
   
 
 
 
 
    Income (loss) from operations     (16,641 )   58     356     (16,227 )
   
 
 
 
 
Other income (expense):                          
  Interest expense     (19,259 )   (420 )   —     (19,679 )
  Other, net     90     6     —     96  
   
 
 
 
 
    Total other expense, net     (19,169 )   (414 )   —     (19,583 )
   
 
 
 
 
    Net loss   $ (35,810 ) $ (356 ) $ 356   $ (35,810 )
   
 
 
 
 

15


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)

 
   Six Months Ended June 30, 2002
  
 
   Parent
   Guarantor
Subsidiaries
   Elimination
   Consolidated
  
Revenues:                          
  Equipment rentals   $ 49,716   $ 166   $ —   $ 49,882  
  New equipment sales     32,402     55     —     32,457  
  Used equipment sales     21,947     219     —     22,166  
  Parts sales     20,269     43     —     20,312  
  Service revenues     11,217     30     —     11,247  
  Other     6,398     —     —     6,398  
   
 
 
 
 
    Total revenues     141,949     513     —     142,462  
   
 
 
 
 
Cost of Revenues:                          
  Rental depreciation     17,408     —     —     17,408  
  Rental expense     12,438     101     —     12,539  
  New equipment sales     29,358     36     —     29,394  
  Used equipment sales     18,706     180     —     18,886  
  Parts sales     15,130     29     —     15,159  
  Service revenues     4,680     9     —     4,689  
  Other     6,794     —     —     6,794  
   
 
 
 
 
    Total cost of revenues     104,514     355     —     104,869  
   
 
 
 
 
    Gross profit     37,435     158     —     37,593  
                           
  Selling, general and administrative expenses     32,783     74     —     32,857  
  Gain on sale of assets     29     —     —     29  
  Equity in earnings of guarantor subsidiaries     63     —     (63 )   —  
   
 
 
 
 
    Income from operations     4,744     84     (63 )   4,765  
   
 
 
 
 
Other income (expense):                          
  Interest expense     (8,494 )   —     —     (8,494 )
  Other, net     93     —     —     93  
   
 
 
 
 
    Total other expense, net     (8,401 )   —     —     (8,401 )
   
 
 
 
 
  Income (loss) before provision for income taxes     (3,657 )   84     (63 )   (3,636 )
  Income tax benefit (provision)     1,292     (21 )   —     1,271  
   
 
 
 
 
    Net income (loss)   $ (2,365 ) $ 63   $ (63 ) $ (2,365 )
   
 
 
 
 

16

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)

 
   Six Months Ended June 30, 2003
  
 
   Parent
   Guarantor
Subsidiaries
   Elimination
   Consolidated
  
Cash flows from operating activities:                          
  Net loss   $ (35,810 ) $ (356 ) $ 356   $ (35,810 )
  Adjustments to reconcile net loss to net cash (used
    in) provided by operating activities:		                          
    Depreciation on property and equipment     1,928     36     —     1,964  
    Depreciation on rental equipment     26,875     878     —     27,753  
    Amortization of loan discounts and deferred
    financing costs		     1,209     —     —     1,209  
    Provision for losses on accounts receivables     142     —     —     142  
    Gain on sale of property and equipment     (15 )   (22 )   —     (37 )
    Gain on sale of rental equipment     (5,356 )   (392 )   —     (5,748 )
    Equity in earnings of guarantor subsidiaries     356     —     (356 )   —  
  Changes in operating assets and liabilities:                          
    Receivables, net     103     (368 )   —     (265 )
    Inventories, net     (3,262 )   891     —     (2,371 )
    Prepaid expenses and other assets     (1,816 )   4     —     (1,812 )
    Accounts payable     (4,115 )   (88 )   —     (4,203 )
    Accrued expenses and other liabilities     2,032     691     —     2,723  
    Accrued loss from litigation     17,000     —     —     17,000  
    Deferred compensation     377     —     —     377  
   
 
 
 
 
     
Net cash (used in) provided by operating
    activities
 
 
(352
)
 
1,274
 
 
—
 
 
922
 
   
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
    Purchases of property and equipment     (1,356 )   (206 )   —     (1,562 )
    Purchases of rental equipment     (18,588 )   (2,632 )   —     (21,220 )
    Proceeds from sale of property and equipment     2,253     22     —     2,275  
    Proceeds from sale of rental equipment     24,133     1,517     —     25,650  
   
 
 
 
 
     
Net cash provided by (used in) investing
    activities:
 
 
6,442
 
 
(1,299
)
 
—
 
 
5,143
 
   
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
    Borrowings on senior secured credit facility     203,641     —     —     203,641  
    Payments on senior secured credit facility     (206,664 )   —     —     (206,664 )
    Payment of deferred financing costs     (854 )   —     —     (854 )
    Principal payments on notes payable     (185 )   —     —     (185 )
    Payments on capital lease obligations     (2,575 )   —     —     (2,575 )
   
 
 
 
 
     
Net cash used in financing activities
 
 
(6,637
)
 
—
 
 
—
 
 
(6,637
)
   
 
 
 
 
 
Net decrease in cash
 
 
(547
)
 
(25
)
 
—
 
 
(572
)
  Cash, beginning of period     3,331     67     —     3,398  
   
 
 
 
 
  Cash, end of period   $ 2,784   $ 42   $ —   $ 2,826  
   
 
 
 
 

17


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)

 
   Six Months Ended June 30, 2002
  
 
   Parent
   Guarantor
Subsidiaries
   Elimination
   Consolidated
  
Cash flows from operating activities:                          
  Net income (loss)   $ (2,365 ) $ 63   $ (63 ) $ (2,365 )
  Adjustments to reconcile net income (loss) to
    net cash provided by (used in) operating
    activities:		                          
    Depreciation on property and equipment     1,092     —     —     1,092  
    Depreciation on rental equipment     17,408     —     —     17,408  
    Amortization of loan discounts and deferred financing costs     76     —     —     76  
    Provision for losses on accounts receivables     176     —     —     176  
    Gain on sale of property and equipment     (29 )   —     —     (29 )
    Gain on sale of rental equipment     (2,273 )   —     —     (2,273 )
    Equity in earnings of guarantor subsidiaries     (63 )   —     63     —  
    Deferred taxes     (1,306 )   —     —     (1,306 )
  Changes in operating assets and liabilities, net of business combination:                          
    Receivables, net     (4,039 )   (611 )   —     (4,650 )
    Inventories, net     (10,345 )   (300 )   —     (10,645 )
    Prepaid expenses and other assets     (1,302 )   (12 )   —     (1,314 )
    Accounts payable     1,853     —     —     1,853  
    Accrued expenses and other liabilities     2,231     (212 )   —     2,019  
    Deferred compensation     17     —     —     17  
   
 
 
 
 
      Net cash provided by (used in) operating
    activities		     1,131     (1,072 )   —     59  
   
 
 
 
 
  Cash flows from investing activities:                          
    Purchases of property and equipment     (1,666 )   —     —     (1,666 )
    Purchases of rental equipment     (17,301 )   756     —     (16,545 )
    Proceeds from sale of property and equipment     62     —     —     62  
    Proceeds from sale of rental equipment     12,362     —     —     12,362  
    Cash acquired in ICM business combination     3,643     —     —     3,643  
   
 
 
 
 
      Net cash (used in) provided by investing
    activities:		     (2,900 )   756     —     (2,144 )
   
 
 
 
 
  Cash flows from financing activities:                          
    Borrowings on senior secured credit facility     82,245     (345 )   —     81,900  
    Payments on senior secured credit facility     (304,415 )   —     —     (304,415 )
    Net proceeds from issuance of senior secured
    notes		     198,526     —     —     198,526  
    Net proceeds from issuance of senior subordinated notes     50,009     —     —     50,009  
    Payment of amount due to member     (13,347 )   —     —     (13,347 )
    Payment of deferred financing costs     (11,487 )   —     —     (11,487 )
    Principal payments on notes payable     (284 )   —     —     (284 )
    Payments on capital lease obligations     (1,947 )   —     —     (1,947 )
   
 
 
 
 
      Net cash provided by (used in) financing
    activities		     (700 )   (345 )   —     (1,045 )
   
 
 
 
 
  Net decrease in cash     (2,469 )   (661 )   —     (3,130 )
  Cash, beginning of period     3,630     692     —     4,322  
   
 
 
 
 
  Cash, end of period   $ 1,161   $ 31   $ —   $ 1,192  
   
 
 
 
 

18

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion reviews our operations for the three and six months ended June 30, 2003 and 2002 and should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and related notes included herein. The following discussion and analysis should also be read in conjunction with the Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Form 10-K for the year ended December 31, 2002.

General

        The Company derives its revenues primarily from the following sources: (i) rental of equipment; (ii) new equipment sales and distribution; (iii) used equipment sales and distribution; and (iv) parts and service. Equipment rental, as well as new and used equipment sales, includes products such as hi-lift equipment, cranes, earthmoving equipment and industrial lift trucks. Used equipment sales are primarily derived from our rental fleet. Our integrated approach leads to revenue for each source being partially driven by our activities of the other sources. Our revenues are dependent on several factors, including the demand for rental equipment, rental fleet availability, rental rates, the demand for new and used equipment, the level of industrial and construction activity and general economic conditions.

        Cost of revenues include cost of equipment sold, depreciation and maintenance costs of rental equipment and cost of parts and service. Cost of equipment sold consists of (i) the net book value of rental equipment at the time of sales for used equipment and (ii) the cost of new equipment sales. Depreciation of rental equipment represents the depreciation costs attributable to rental equipment and is generally calculated over the assets estimated useful lives after giving effect to an estimated salvage value of 0% to 25% of cost. Maintenance of rental equipment represents the costs of servicing and maintaining rental equipment on an ongoing basis. Cost of parts and service represents costs attributable to the sale of parts directly to customers and service provided for the maintenance and repair of customer owned equipment.

        Selling, general and administrative expenses include sales and marketing expenses, payroll and related costs, professional fees, property and other taxes and administrative overhead, and depreciation associated with property and equipment (other than rental equipment).

Accounting for Acquisitions

        The Company completed the acquisition of ICM on June 17, 2002 (see Note 2 to the Unaudited Condensed Consolidated Financial Statements included herein for further information) and accounted for this acquisition using the purchase method of accounting. Accordingly, ICM's results of operations are included in the Unaudited Condensed Consolidated Statement of Operations for the three and six months ended June 30, 2002 from the date of acquisition (June 17, 2002) and thereafter.

Results of Operations

Three months ended June 30, 2003 compared to three months ended June 30, 2002

        Total revenues for the three months ended June 30, 2003 increased 36.6% or $28.1 million to $104.9 million, from $76.8 million for the three months ended June 30, 2002. The revenues during these periods were attributable to the following sources:

19

20

21

Six months ended June 30, 2003 compared to six months ended June 30, 2002.

        Total revenues for the six months ended June 30, 2003 increased 44.6% or $63.6 million to $206.1 million, from $142.5 million for the six months ended June 30, 2002. The revenues during these periods were attributable to the following sources:

22

23

Liquidity and Capital Resources

        Cash flows from operating activities.    For the six months ended June 30, 2003 cash provided by operating activities was $0.9 million. The significant components of operating activities that provided cash were total property and equipment and rental fleet depreciation expense of $29.7 million and the $17.0 million accrued loss from litigation. Significant components of operating activities that used cash consisted of a $35.8 million net loss, a net gain on sale of both rental and non-rental equipment of $5.8 million, an increase in accounts receivable of $0.3 million, an increase in inventories of $2.4 million, and a decrease in accounts payable and accrued expenses of $1.5 million.

        Cash flows from investing activities.    For the six months ended June 30, 2003 cash provided by investing activities was $5.1 million. This is a result of purchasing $22.8 million in rental and non-rental equipment. The proceeds from the sale of rental and non-rental equipment was $27.9 million.

24


        Cash flows from financing activities.    For the six months ended June 30, 2003 cash used in financing activities was $6.6 million. The net payments under the senior secured credit facility were $3.0 million. Payments on capital leases and other notes totaled $2.7 million and $0.9 million was paid in additional deferred financing costs.

        As of July 31, 2003, the balance outstanding on the senior secured credit facility was $73.3 million with $71.6 million available in additional borrowings (based on the borrowing base assets) net of $5.1 million in standby letters of credit. Also, at July 31, 2003, the total balance payable on capital lease obligations and notes payable were $7.8 million and $1.2 million, respectively.

        As a result of the Company recording the $17.0 million estimated loss from litigation, on May 14, 2003, the Company's senior secured credit agreement was amended to modify certain restrictive financial covenants and financial ratios. The credit agreement was amended to:

1.
Exclude the loss from litigation from the calculation of Company's earnings before interest, taxes, depreciation, and amortization.

2.
Adjust the maximum leverage ratio and the maximum adjusted leverage ratio, respectively, to 5.20x from 4.60x for the remaining term of the credit agreement. The minimum adjusted interest coverage ratio was adjusted to 1.25x from 1.45x through 2004. In 2005, the ratio increases to 1.30x with an additional increase to 1.40x in 2006 through the remainder of the agreement.

3.
Increase the maximum amount of letters of credit allowed under the senior credit facility to $30.0 million from $10.0 million.

4.
Institute a pricing grid such that if excess availability (defined as the total borrowing base assets less total outstanding borrowings):

a.
falls below $90.0 million, the interest rate and letter of credit fee increase by 25 basis points,

b.
falls below $50.0 million, the interest rate and letter of credit fee increase an additional 25 basis points.

5.
Institute a $20.0 million block on availability based on the total borrowing base assets.

        On May 14, 2003, the Company paid a loan amendment fee of $0.4 million that is being amortized over the remaining term of the loan. Consequently, the Company is not and does not expect to be in default under the senior secured credit facility as a result of the estimated loss from litigation.

        The Company's management intends to appeal and vigorously contest the judgement related to the litigation described in Note 3 of the notes to condensed consolidated financial statements. During the appeals process, management anticipates posting a standby letter of credit for the amount of the final judgement.

        Off-Balance Sheet Arrangements.    At June 30, 2003 and at December 31, 2002, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Contractual and Commercial Commitments Summary

        The following summarizes our contractual obligations at June 30, 2003, and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands).

25

 
   Payments Due by Year
 
   Total
   2003(1)
   2004-2005
   2006-2007
   Threafter
 
   (In thousands)
Long-term debt (including
    subordinated notes payable)		   $ 254,217   $ 163   $ 593   $ 364   $ 253,097
Interest payments on senior secured
    notes		     211,251     11,125     44,500     44,500     111,126
Interest payments on senior
    subordinated notes		     69,525     3,312     13,250     13,250     39,713
Revolving credit facility     73,701     —     —     —     73,701
Capital lease obligations (including
    interest)		     8,807     6,164     2,643     —     —
Operating leases (2)     84,805     14,960     40,356     22,565     6,924
Other long-term obligations (3)     58,103     8,462     27,672     21,669     300
   
 
 
 
 
  Total contractual cash obligations   $ 760,409   $ 44,186   $ 129,014   $ 102,348   $ 484,861
   
 
 
 
 
(1)
This includes payments due during the six months ending December 31, 2003.

(2)
This includes total operating lease payments having initial or remaining non-cancelable lease terms longer than one year.

(3)
This includes: (i) BRS annual management fees through 2006 (based upon the lesser of 1.75% of estimated EBITDA excluding operating lease expense or $2.0 million per year) for $4.7 million; (ii) Thomas R. Engquist management fees (6 years) for $1.7 million; (iii) payments for secured floor plan financing for $51.7 million.

        Additionally, we have standby letters of credit totaling $5.1 million that expire in September 2003 and January 2004.

Seasonality

        Our business is seasonal with demand for our rental equipment tending to be lower in the winter months. The equipment rental activities are directly related to commercial and industrial construction and maintenance activities. Therefore, equipment rental will be correlated to the levels of active construction activities. The severity of weather conditions can have a temporary impact on the level of construction activities.

        Equipment sales cycles are also subject to seasonality with the peak selling period during spring season and expanding through summer. Parts and service activities are less affected by changes in demand caused by seasonality.

Inflation

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

Critical Accounting Policies and Estimates

        We prepare our financial statements in accordance with accounting principles generally accepted in the United States. In applying many accounting principles, we need to make assumptions, estimates and/or judgements. These assumptions, estimates and judgements are often subjective and may change based on changing circumstances or changes in our analysis. Material changes in these assumptions, estimates, and judgements have the potential to materially alter our results of operations. We have

26


identified below those of our accounting policies that we believe could potentially produce materially different results were we to change underlying assumptions, estimates and judgements.

        Revenue Recognition.    The Company's policy is to recognize revenue from equipment rentals in the period earned, over the contract term, regardless of the timing of the billing to customers. A rental contract term can be daily, weekly or monthly. Because the term of the contracts can extend across financial reporting periods, we record unbilled rental revenue and deferred revenue at the end of reporting periods so rental revenue is appropriately stated in the periods presented. Revenue from the sale of equipment and parts is recognized at the time of delivery to, or pick-up by, the customer and when all obligations under the sales contract have been fulfilled and collectability is reasonably assured. Service revenues are recognized at the time the services are rendered. Other revenues consist primarily of billings to customers for rental equipment delivery and damage waiver charges.

        Allowance for Doubtful Accounts.    We maintain allowances for doubtful accounts. This allowance reflects our estimate of the amount of our receivables that we will be unable to collect. Our estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance.

        Useful Lives of Rental Equipment and Property and Equipment.    We depreciate rental equipment and property and equipment over their estimated useful lives, after giving effect to an estimated salvage value ranging from 0% to 25% of cost. The useful life of an asset (ranging from three to ten years) is determined based on our estimate of the period the asset will generate revenues, and the salvage value is determined based on our estimate of the minimum value we could realize from the asset after such period. We may be required to change these estimates based on changes in our industry or other changing circumstances. If these estimates change in the future, we may be required to recognize increased or decreased depreciation expense for the assets.

Forward-Looking Statements

        Certain of the statements contained in this Report are forward looking in nature. Such statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "seek," "on- track," "plan," "intend," or "anticipate" or the negative thereof or comparable terminology, or by discussions of strategy. You are cautioned that our business and operations are subject to a variety of risks and uncertainties and, consequently, our actual results may materially differ from those projected by any forward-looking statements. Certain of these factors are discussed in our Form 10-K for the year ended December 31, 2002. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made.


Item 3. Quantitative and Qualitative Disclosures about Market Risk

        The Company's earnings are effected by changes in interest rates due to the fact that interest on the revolving line of credit is calculated based upon LIBOR plus 300 basis points. The Company is also required to pay the lenders a commitment fee equal to 0.5% per annum in respect of undrawn commitments under the revolving credit facility. At June 30, 2003, and as a result of the refinancing the Company had variable rate debt representing 22.8% of total debt. A portion of our indebtedness bears interest at variable rates that are linked to changing market interest rates. Based upon the balances outstanding at June 30, 2003, a one percent increase in market rates would increase our annual interest expense approximately $1.3 million. The Company does not have significant exposure to the changing interest rates on its fixed-rate senior secured notes, senior subordinated notes or the capital lease obligations, which represented 77.2% of total debt.

27



Item 4. Controls and Procedures

        (a)    The Company carried out an evaluation as of the end of the period covered by this report, under the supervision and with the participation of the Company's management, including the Company's President and Chief Executive Officer along with the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(d). Based upon that evaluation, the Company's President and Chief Executive Officer along with the Company's Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings.

        (b)    There have been no significant changes in the Company's internal control over financial reporting identified in connection with the evaluation described in paragraph (a) above that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.


PART II OTHER INFORMATION

Item 1. Legal Proceedings

        As of June 30, 2003, except for the legal proceeding referred to below, we were not subject to any legal proceedings that management believes could have a material adverse effect on our business or financial condition.

        In July 2000, a complaint was filed by a competitor of the Company in the General Court of Justice, Superior Court Division, State of North Carolina, County of Mecklenburg under the caption Sunbelt Rentals, Inc. v. Head & Engquist Equipment, d/b/a H&E Hi-Lift, et al. On May 2, 2003, the court handed down an order and opinion in favor of the plaintiff. The Company recorded a $17.0 million loss for estimated damages, plaintiff's attorney's fees and other costs during the quarter ended March 31, 2003.

        The final judgment has not yet been entered in this matter. The Company's management intends to appeal and vigorously contest this judgment. During the appeals process, management anticipates posting a standby letter of credit for the amount of the final judgment. Even if there is a reduction in the amount of damages awarded to the plaintiff on appeal, management believes that the resulting judgment could have a material adverse effect on the Company's business or financial condition.


Item 2. Changes in Securities and Use of Proceeds.

        None.


Item 3. Defaults upon Senior Securities.

        None.


Item 4. Submission of Matters to a Vote of Security Holders.

        None.


Item 5. Other information.

        None.

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Item 6. Exhibits and reports on Form 8-K.

29

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

    H&E EQUIPMENT SERVICES L.L.C.

Dated: August 14, 2003
 
By:
/s/  JOHN M. ENGQUIST      
John M. Engquist
 Chief Executive Officer
(Principal Executive Officer)

Dated: August 14, 2003
 
By:
/s/  LINDSAY C. JONES      
Lindsay C. Jones
 Chief Financial Officer
(Principal Financial Officer)

30



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H&E EQUIPMENT SERVICES L.L.C. TABLE OF CONTENTS
H&E EQUIPMENT SERVICES L.L.C. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
H&E EQUIPMENT SERVICES L.L.C. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
H&E EQUIPMENT SERVICES L.L.C. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
H&E EQUIPMENT SERVICES L.L.C. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
H&E EQUIPMENT SERVICES L.L.C. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET (In thousands)
CONDENSED CONSOLIDATING BALANCE SHEET (In thousands)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In thousands)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In thousands)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In thousands)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (In thousands)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (In thousands)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (In thousands)

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Exhibit 31.1


CERTIFICATIONS

        I, John M. Engquist, President and Chief Executive Officer of H&E Equipment Services L.L.C., certify that:

1.
I have reviewed this quarterly report on Form 10-Q of H&E Equipment Services L.L.C.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

    (a)
    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

    (b)
    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

    (c)
    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

    (a)
    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

    (b)
    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date: August 14, 2003


By:
 
/s/  JOHN M. ENGQUIST      
John M. Engquist
 President and Chief Executive Officer
 
 
 
 


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CERTIFICATIONS

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Exhibit 31.2


CERTIFICATIONS

        I, Lindsay C. Jones, Chief Financial Officer of H&E Equipment Services L.L.C., certify that:

1.
I have reviewed this quarterly report on Form 10-Q of H&E Equipment Services L.L.C.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

    (a)
    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

    (b)
    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

    (c)
    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

    (a)
    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

    (b)
    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.

Date: August 14, 2003


By:
 
/s/  LINDSAY C. JONES      
Lindsay C. Jones
 Chief Financial Officer
 
 
 
 


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CERTIFICATIONS