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November 10, 2005
By facsimile to (212) 698-3899 and U.S. Mail
Mr. John M. Engquist
President and Chief Executive Officer
H&E Equipment Services, Inc.
11100 Mead Road, Suite 200
Baton Rouge, LA 70816
Re: H&E Equipment Services, Inc.
Registration Statement on Form S-1
Filed October 14, 2005
File No. 333-128996
H&E Equipment Services LLC
Form 10-K year ended December 31, 2004
Forms 10-Q periods ended March 31, 2005 and June 30, 2005
Dear Mr. Engquist:
We reviewed the captioned filings and have the comments
below.
Our page references below are to the courtesy copy of the
registration statement.
Where indicated, we think that you should revise the document
in
response to the comments. If you disagree, we will consider your
explanation why a comment is inapplicable or a revision is
unnecessary. Be as detailed as necessary in your explanation. To
understand better your disclosure, we may ask you in some comments
to
provide us supplemental information. We may raise additional
comments after reviewing this information.
Our review`s purpose is to assist you in your compliance with
applicable disclosure requirements and to enhance the overall
disclosure in your document. We look forward to working with you
to
achieve these objectives. We welcome any questions that you may
have
about comments or any other aspect of our review. You may call us
at
the telephone numbers listed at the end of this letter.
1. We note that non-Rule 430A information is omitted throughout
the
S-1. To the extent practicable, complete the information before
you
amend the S-1.
2. If you intend to include artwork in the registration statement,
submit the artwork for our review before the registration
statement`s
effectiveness. For any artwork included in the registration
statement:
* Ensure that the artwork does not serve as a substitute for or as
a
supplement to the prospectus` summary and business sections.
* Ensure that any graphical presentation and accompanying text
provide a balanced view of H&E Equipment Services and its
business.
Outside Front Cover Page
3. We note that you omit an estimated price range for the
offering.
You may omit an estimated price range in the first amendment,
provided you give us adequate time to review the registration
statement with the estimated price range in it before requesting
acceleration of the registration statement`s effectiveness. We
consider estimated price ranges of up to $2.00 if under $20.00 or
10%
if over $20.00 to be a good faith estimate for purposes of
requirements under the Securities Act. Further, confirm that you
will include an estimated price range in the form of preliminary
prospectus distributed to prospective purchasers. See Item
501(b)(3)
of Regulation S-K and the item`s instructions.
Industry and Market Data; Non-GAAP Financial Measures; Trademarks,
page i
4. Move the paragraphs regarding industry and market data, non-
GAAP
financial measures and trademarks so that they follow the summary
and
risk factors sections. See Item 502 of Regulation S-K and section
IV.B. of Release No. 33-7497.
Non-GAAP Financial Measures, page i
5. We note your use of non-GAAP financial measures. We have the
following comments:
* Please describe how you use EBITDA to evaluate performance of
your
operating segments given your disclosures in Note 18 that your
segment measure is gross profit.
* You describe the limitations associated with the use of the non-
GAAP measure EBITDA as a cash flow and liquidity measure; however,
you indicate you use it as a performance measure. Revise your
discussions to address the material limitations associated with
the
use of your non-GAAP financial measure, consistent with how you
use
such measure. As such, you should describe the material
limitations
associated with any performance measure that does not include
interest, taxes, depreciation and amortization.
* Discuss the manner in which you compensate for these limitations
when using the non-GAAP financial measure.
Refer to Question 8 of the Frequently Asked Questions Regarding
the
Use of Non-GAAP Financial Measures, dated June 13, 2003, available
at
www.sec.gov.
Summary, page 1
6. Disclosure in the Summary and Business sections that the
regions
in which H&E Equipment Services operates "are minimally impacted
by
seasonality" appears inconsistent with disclosure in the seventh
risk
factor and elsewhere that H&E Equipment Services` sales and rental
activity tends to be lower in the winter. Please reconcile the
disclosures.
Risk Factors, page 12
7. This section`s first paragraph states that "Additional risks
and
uncertainties not presently known to us or that are currently
deemed
immaterial may also impair our business, financial condition and
operating results." Since H&E Equipment Services must disclose
all
risks that it believes are material, delete this sentence.
8. Include in each risk factor`s discussion information necessary
to
assess the risk, including its magnitude. For example:
* The second risk factor states that H&E Equipment Services will
require a significant amount of cash to service its indebtedness.
Quantify the amount of cash that H&E Equipment Services will
require
to service its indebtedness on a during the next 12 months.
* The fourth risk factor states that H&E Equipment Services is
subject to a court`s judgment that could have an adverse effect on
its business. Update the disclosure to discuss the consequences
or
effects of the denial of H&E Equipment Services` appeal by the
Court
of Appeals of North Carolina on October 18, 2005.
* The tenth risk factor states that H&E Equipment Services` rental
fleet is subject to residual value risk upon disposition. Include
quantitative data, if available, that illustrate H&E Equipment
Services` experience in disposing of its rental fleet in order to
convey the importance of this risk. As you have identified this
as a
material risk, it seems appropriate that you should elaborate upon
it
and the impact it has and is likely to have on your financial
condition and results of operations in MD&A as well.
9. Since the financial statements of H&E LLC are included in the
registration statement, provide risk factor disclosure about the
ineffectiveness of the disclosure controls and procedures of H&E
LLC
as of December 31, 2004, if you believe any material risk to new
investors results therefrom. We note the disclosure in the
thirtieth
risk factor about H&E Equipment Services` internal controls on a
prospective basis.
10. We note your disclosure in the risk factor entitled "We are
subject to a court`s judgment that could have an adverse effect on
our business" on page 14, in note 14 on page F-27 and elsewhere in
the prospectus that "while we are appealing this judgment, we
believe
that even if there is a reduction in the amount of damages awarded
to
the plaintiff on appeal, the judgment could have an adverse effect
on
our business." We understand that you have already accrued $17.4M
for the loss, and that you have posted a letter of credit in
connection with the appeal. Please elaborate on how the judgment,
or
any reduced judgment, could have an adverse effect on your
business,
here and elsewhere in the document where similar disclosure
appears.
11. In the risk factor entitled "Our new equipment suppliers may
appoint additional distributors . . .", please clarify the nature
of
the "exclusive responsibility" you have for selected markets,
given
that you also state that the manufacturers retain the right to
appoint additional dealers and sell directly to national accounts
and
governmental agencies.
12. Ensure that each risk you include describes a meaningful,
material risk. Speculative disclosure about any risk that could
possibly materialize is not helpful to investors. For example,
the
disclosure under "Our rental fleet is subject to residual value
risk
upon disposition" on page 16 does not seem to present a material
risk
given that you disclose on page 62 that for 2004, you sold used
equipment from your rental fleet at an average selling price of
130.3% of book value. Similarly, we question whether disclosure
under "We could be adversely affected by environmental and safety
requirements . . ." on page 19 is really a material risk given
disclosure on page 68 that you "do not expect to incur material
capital expenditures for environmental controls or compliance."
Please remove these items as risk factors or revise them to
clarify
why they present a meaningful risk. Review and revise as
necessary
other risk factors to comply with this comment.
Dilution, page 27
13. We note that the comparative table excludes shares issuable
upon
exercise of options that H&E Equipment Services expects to grant
under its proposed stock incentive plan. The requirement for
including shares subject to options in the comparative table
pertains
also to any shares that directors, officers, promoters, and
affiliated persons "have the right to acquire." See Item 506 of
Regulation S-K. Revise so that the table includes all shares that
directors, officers, promoters, and affiliated persons have the
right
to acquire. We note the disclosure in the first full paragraph on
page 79.
Unaudited Pro Forma Consolidated Financial Data, page 28
14. Clarify in the headnotes to your pro forma consolidated
financial
data that the pro forma results for the year ended December 31,
2004
was materially impacted by Eagle LLC`s $13.5 million gain on debt
restructuring and that future results will not reflect such
material
nonrecurring charges.
15. Clarify in the headnotes to your pro forma consolidated
financial
data the ownership interests in Eagle held by Mr. Bagley, your
Chairman, and Mr. Sharp, one of your executives.
16. Please remove your non-GAAP financial measures and other data
from the face of your pro forma financial information on pages 31-
32.
Refer to Item 10(e)(ii)(D) of Regulation S-K and Rule 11-02 of
Regulation S-X.
17. We note your pro forma condensed statement of operations does
not
disclose income (loss) from continuing operations before
nonrecurring
charges or credits directly attributable to the transaction. In
this
regard, please revise your pro forma financials to present such a
line item and highlight that the one-time payment of approximately
$8.0 million to the affiliates of BRS as described in note (5) on
page 33 has not been included in these pro forma condensed
statement
of operations. Refer to Rule 11-02(b)(5) of Regulation S-X.
Note (10) to the Unaudited Pro Forma Condensed Combined Statements
of
Operations
18. We note that Eagle High Reach Equipment, Inc. has historically
elected under the Internal Revenue Code to be taxed as an "S"
Corporation. Expand your disclosure to address whether the
Company
can/will continue to make this election and if not, what impact it
will have on its current and future income tax provisions.
Note (2) to the Unaudited Pro Forma Condensed Combined Balance
Sheet
and Note (15) to the Unaudited Pro Forma Condensed Combined
Statements of Operations
19. We note, as indicated on page F-67, the minority interest
reflected on Eagle High Reach Equipment`s balance sheet and
statement
of operations results from its 50% ownership interest in Eagle LLC
which it consolidates in accordance with FIN 46R. Revise your
disclosure to clarify how your acquisition of Eagle High Reach
eliminates its minority interest related to Eagle LLC.
Specifically
address how you applied the guidance set forth in FIN 46R.
20. Please describe the factors that contributed to a purchase
price
that resulted in the recognition of goodwill. Refer to paragraph
51b
of SFAS 141.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 38
21. For any credit facility or other financial instrument that
requires H&E Equipment Services to satisfy specified financial
ratios
and tests, state what the limits of all material financial ratios
and
tests are. Also indicate whether H&E Equipment Services is in
compliance with them. We note the disclosure in the third risk
factor.
22. The information in the table regarding the types of rental
equipment units you have and the percentages of total units that
each
type of unit comprises is not consistent with similar disclosure
on
page 61 in the Business section. Please reconcile.
Critical Accounting Policies, page 43
23. We note your rental equipment makes up approximately 60% of
your
total assets at December 31, 2004. Given the significance of
these
assets, we believe that it is appropriate to include a discussion
of
your accounting for these assets within Critical Accounting
Policies.
Please provide a sensitivity analysis such that a reader would
understand the impact of a 5-year change in useful life for each
category of equipment as well as a 5% change in salvage value on
your
results of operations.
Business, page 60
24. Disclosure in the first full paragraph on page 65 indicates
that
H&E Equipment Services` customer relationship management system is
currently being implemented. State the known or estimated
completion
date for the implementation.
25. Your risk factor on page 16 entitled "Our new equipment
suppliers
may appoint additional distributors . . ." suggests that your
distribution agreements with OEMs typically give you "exclusive"
responsibility for selected markets. Please elaborate on the
material terms of your typical agreements in this section. For
example, you should discuss the exclusive nature of those
contracts
and clarify the limitations on exclusivity that are suggested by
the
risk factor. Also disclose whether the contracts are for any
particular term and that the contracts can generally be terminated
by
the suppliers without cause. If you are substantially dependent
upon
any particular contract, please file it as an exhibit to the
registration statement.
26. Expand the disclosure under "Competition" on page 68 to
address
these items:
* If H&E Equipment Services knows or has reason to know that one
or a
small number of competitors is dominant in the industry, identify
the
competitors.
* If negative factors pertaining to H&E Equipment Services`
competitive position exist, explain the factors if they are known
or
reasonably available to H&E Equipment Services.
See Item 101(c)(1)(x) of Regulation S-K.
Management, page 72
27. In the biographical paragraph of Mr. Bradley W. Barber,
describe
briefly his business experience during the past five years. See
Item
401(e)(1) of Regulation S-K.
28. Disclosures under "Committees of Our Board of Directors"
indicate
that:
* The board of directors will nominate a third director to the
audit
committee.
* The board of directors will nominate a third director to the
compensation committee.
* The board of directors will designate a corporate governance and
nominating committee that will consist of three members.
Specify when the board of directors will take these actions.
29. Expand the disclosure in the third paragraph under "Deferred
Compensation Plans" on page 79 to identify the persons to whom the
compensation is owed.
Stock Incentive Plan, page 77
30. As indicated in the last paragraph of this section, we note
that
you intend to grant options to your employees in connection with
the
consummation of this offering. Disclose the exercise price of the
options to be granted to employees and address whether or not the
exercise price will be less than the IPO price of the common
shares
being offered. In the event that the exercise price is
anticipated
to be less than the IPO price, expand your disclosures to address
any
material stock compensation costs herein and in the pro forma
financial statements.
31. Please file the stock incentive plan as an exhibit to the
registration statement.
Principal Stockholders, page 80
32. Please identify by footnote or otherwise the natural person or
persons having sole or shared voting and investment control over
the
securities held by each of the BRS entities. Refer to telephone
interpretation 4S. in the Regulation S-K section of the March 1999
supplement to our "Manual of Publicly Available Telephone
Interpretations" that is available on the Commission`s website at
http://www.sec.gov, and revise appropriately.
33. The information in the tables presented in this section seems
to
depict the beneficial ownership of units of H&E Holdings, as H&E
Equipment`s financial statements suggest that all of its
outstanding
units were converted in 2002 and it is now wholly-owned by H&E
Holdings. For clarity, please amend the heading of these tables
to
indicate that they depict ownership of H&E Holdings` units.
Please
also update the table to include information as of the most recent
practicable date.
Related Party Transactions, page 83
34. Expand the disclosure in the last sentence under "Management
Agreement and Transaction Fees" on page 84 to specify the dollar
amount of accrued management fees and expenses.
35. Expand the disclosure in the first full paragraph on page 88
to
specify the commission received by Perkins-McKenzie Insurance
Agency,
Inc. based upon the premiums paid by H&E Equipment Services in
2002,
2003, and 2004. Alternatively, tell us why the disclosure is not
required by Item 404 of Regulation S-K.
Description of Capital Stock, page 89
36. Expand the disclosure under "Preferred Stock" on page 89 to
indicate whether the board of directors has any intent to
authorize
shares of preferred stock.
Description of Indebtedness, page 93
37. Describe in detail the amended senior secured credit
facility`s
financial covenants. Alternatively, cross reference to disclosure
in
MD&A.
Shares Eligible for Future Sale, page 96
38. Confirm that there are no agreements or understandings between
the underwriters and any of the persons subject to the lock-up
agreement to permit those persons to resell their shares before
the
lock-up period`s expiration. Also describe briefly the factors
that
the underwriters would consider in determining whether to consent
to
the sale of shares by those persons before the lock-up period`s
expiration.
Underwriting, page 101
39. We note disclosure of a directed share program on page 102.
Indicate the amount of shares reserved for the program, and
provide
us a copy of the materials that you sent or plan to send to
directed
share program participants.
* We note the disclosure in the last paragraph on page 103.
Identify
any members of the underwriting syndicate that will engage in any
electronic offer, sale, or distribution of the shares. Describe
their procedures to us or confirm that our Office of Chief Counsel
has reviewed the procedures without objection.
40. If you become aware of any additional members of the
underwriting
syndicate that may engage in electronic offers, sales, or
distributions after you respond to the comment immediately above,
supplement promptly your response to identify those members and
provide us a similar description of their procedures. Also
include a
brief description of any electronic distribution in the
prospectus.
41. Tell us whether you or your underwriters have any arrangements
with any third party to host or access your preliminary prospectus
on
the Internet. If so, identify the party and the website, describe
the material terms of your agreement, and provide us a copy of any
written agreement. Also provide us copies of all information
concerning the issuer or the prospectus that has appeared on the
third party`s website. If you enter subsequently into any such
arrangement, supplement promptly your response.
Where You Can Find More Information, page 105
42. Delete the language that statements contained in the
prospectus
about the contents of any agreement or other document "are not
necessarily complete" and are "qualified in all respects." Rule
411(a) of Regulation C under the Securities Act allows
qualification
of information inside the prospectus by reference to information
outside the prospectus only to the extent that the form explicitly
permits it or where the form requires a summary of the document.
If
you retain the language that statements "are not necessarily
complete," disclose that all material provisions of the agreement
or
other document are discussed in the prospectus.
H&E Equipment Services LLC December 31, 2004 Financial Statements
(2) Summary of Significant Accounting Policies, page F-8
Revenue Recognition, page F-8
43. We note other revenues consist primarily of billings to
customers
for rental equipment delivery and damage waiver charges. Please
expand your disclosures to clarify how you recognize such other
revenues. In this regard, we also note your disclosure on page 40
that you recognize revenue for support services at the time you
generate an invoice for such services. Confirm that the invoice
would only be generated after the services have been provided;
otherwise tell us how your accounting is appropriate under
generally
accepted accounting principles.
44. You indicate on page 40 that you acquire a portion of your
used
equipment for your Used Equipment Sales Segment through trade-ins
from your equipment customers. Please expand your disclosures to
address your obligations under any trade-in agreements you may
have
and how you account for trade-ins. Refer to EITF 00-24 and FIN 45
and address any other literature you relied on.
Rental Equipment, page F-9
45. You state that your rental fleet is held for sale at all times
and is not transferred to inventory held for sale prior to
disposal.
Please clarify for readers whether this statement means that you
follow the held for sale model or held for use model of SFAS 144.
Refer to paragraphs 25-26 and 47-48 of SFAS 144.
Recent Accounting Pronouncements, page F-13
46. Please clarify for readers when you expect to adopt SFAS 123R,
and explain how you determined that its adoption is not expected
to
have any impact on your reported results of operations given the
Stock Incentive Plan you intend to implement prior to the
consummation of the offering, as discussed on pages 77-79.
Eagle High Reach Equipment, Inc. Financial Statements
Independent Auditor`s Report, page F-61
47. Please revise the audit report to identify the city and state
where issued, in accordance with Rule 2-02(a)(3) of Regulation S-
X.
Note 2 - Restructuring - Debt Resolution Agreement and Note 4 -
Revolving Note Payable
48. You indicate that the Company estimated that the fair value of
the 50% interest in Eagle LLC was $8.8 million. Clarify why,
then,
as a result of the sale of the ownership of Eagle LLC to SBN, the
company transferred $4,986,873 to minority interest. Specifically
address how you determined the fair value of Eagle LLC and what
the
$4,986,873 represents. With regard to the fair value of Eagle
LLC,
help us to understand how the fair value of Eagle LLC relates to
the
$53 million estimated purchase price to be paid by H&E Equipment
Services for Eagle High Reach Equipment, Inc. (Eagle). In this
regard, we note that as a result of the Debt Resolution Agreement,
Eagle transferred its principle operating assets and liabilities,
including operating leases to Eagle LLC and then transferred 50%
ownership of Eagle LLC to retire certain of its debt obligations.
49. Clarify what the $3,813,126 restructuring charge recorded
directly to retained earnings represents. Your Consolidated
Statement of Stockholders` Equity (Deficit) refers to Note 2.
However, it appears that this charge may also relate to the
settlement of the $4,113,457 note receivable due from a major
stockholder.
50. Reconcile your disclosures in Notes 2 and 4 with regard to the
$21,000,000 borrowings under the line of credit from the Lender,
the
related payment of the $21,000,000 to Summitbridge, the transfer
of
50% of Eagle LLC to Summitbridge, and the $13 million forgiveness
of
debt to your Statement of Cash Flows which reflects $40,611,400
cash
payments on the revolving notes payable during the year ended June
30, 2005 and $41,462,775 cash proceeds from borrowings on
revolving
notes payable. These fiscal year 2005 cash payments and proceeds
do
not appear to agree to your footnote disclosures. Please clarify
and
ensure that only the cash portion of your financing activities is
included in your cash flows from financing activities within your
statement of cash flows.
Note 14 - Prior Period Adjustments, page F-80
51. Expand your disclosures regarding your June 30, 2004
adjustments
to better clarify the nature of the adjustments that were
necessary.
In this regard, clarify what you mean by "...the Company
incorrectly
presented rental fleet write down, property tax and sales tax
expense
and other administrative expenses on its rental fleet equipment
and
write down of inventories in the consolidated statement of
operations."
Exhibits
52. We note that you intend to file by amendment numerous
exhibits,
including the underwriting agreement and the legality opinion.
Allow
us sufficient time to review the exhibits before requesting
acceleration of the registration statement`s effectiveness.
Exhibit 10.1
53. Absent an order granting confidential treatment, Item
601(b)(10)
of Regulation S-K requires the filing of material contracts,
including attachments, in their entirety. Attachments include,
for
example, annexes, appendices, exhibits, and schedules. Since you
did
not file all of the exhibit`s attachments, revise to file all of
the
exhibit`s attachments.
Undertakings, page II-7
54. Provide the undertaking specified by Item 512(f) of Regulation
S-
K.
Signatures
55. H&E Equipment Services` controller or principal accounting
officer also must sign the registration statement. Further, any
person who occupies more than one of the specified positions, for
example, principal financial officer and controller or principal
accounting officer, must specify each capacity in which he signs
the
registration statement. See the instructions for signatures on
Form
S-1, and revise.
Form 10-K for the year ended December 31, 2004 and Forms 10-Q for
the
periods ended March 31, 2005 and June 30, 2005
Item 9A and 4. Controls and Procedures
56. You state that there were no significant changes in your
internal
controls over financial reporting that occurred during the fiscal
year ended December 31, 2004 and the quarters ended March 31, 2005
and June 30, 2005 that have materially affected, or are reasonably
likely to materially affect the Company`s internal control over
financial reporting. If true, please confirm in your response
that
there have been no changes in your internal control over financial
reporting that occurred during the period covered by your report
that
have materially affected, or are reasonably likely to materially
affect, your internal control over financial reporting. Refer to
Item 308(c) of Regulation S-K. Revise your disclosures in future
filings accordingly.
Closing
File an amendment to the S-1 in response to the comments. To
expedite our review, H&E Equipment Services may wish to provide us
three marked courtesy copies of the amendment. Include with the
filing any supplemental information requested and a cover letter
tagged as correspondence that keys the responses to the comments.
If
H&E Equipment Services thinks that compliance with any of the
comments is inappropriate, provide the basis in the letter. We
may
have additional comments after review of the amendment, the
responses
to the comments, and any supplemental information.
We urge all persons responsible for the accuracy and adequacy
of
the disclosure in the registration statement reviewed by us to
ensure
that they have provided all information investors require for an
informed decision. Since H&E Equipment Services and its
management
are in possession of all facts relating to the disclosure in the
registration statement, they are responsible for the adequacy and
accuracy of the disclosures that they have made.
If H&E Equipment Services requests acceleration of the
registration statement`s effectiveness, H&E Equipment Services
should
furnish a letter at the time of the request, acknowledging that:
* Should the Commission or the staff acting by delegated authority
declare the registration statement effective, it does not
foreclose
the Commission from taking any action on the filing.
* The action of the Commission or the staff acting by delegated
authority in declaring the registration statement effective does
not
relieve H&E Equipment Services from its full responsibility for
the
adequacy and accuracy of the registration statement`s disclosures.
* H&E Equipment Services may not assert our comments or the
declaration of the registration statement`s effectiveness as a
defense in any proceedings initiated by the Commission or any
person
under the United States` federal securities laws.
The Commission`s Division of Enforcement has access to all
information that H&E Equipment Services provides us in our review
of
the registration statement or in response to our comments on the
registration statement.
We will consider a written request for acceleration of the
registration statement`s effectiveness under Rule 461 of
Regulation C
under the Securities Act as confirmation that those requesting
acceleration are aware of their responsibilities under the
Securities
Act and the Exchange Act as they relate to the proposed public
offering of the securities specified in the registration
statement.
We will act on the request and by delegated authority grant
acceleration of the registration statement`s effectiveness.
You may direct questions on accounting comments to Jenn Do,
Staff Accountant, at (202) 551-3743 or Jeanne K. Baker, Assistant
Chief Accountant, at (202) 551-3691. You may direct questions on
other comments and disclosure issues to Edward M. Kelly, Senior
Counsel, at (202) 551- 3728 or me at (202) 551-3760.
Very truly yours,
Pamela A. Long
Assistant Director
cc: Bonnie A. Barsamian, Esq.
Dechert LLP
30 Rockefeller Plaza, 23rd Floor
New York, NY 10112
Kirk A. Davenport, Esq.
Dennis Lamont, Esq.
Latham & Watkins LLP
885 Third Avenue, Suite 1000
New York, NY 10022
Mr. John M. Engquist
November 10, 2005
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE