e10vk
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2006
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
000-51759
H&E EQUIPMENT SERVICES,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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81-0553291
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(State of
incorporation)
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(I.R.S. Employer
Identification No.)
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11100 Mead Road,
Suite 200,
Baton Rouge, Louisiana 70816
(Address of principal
executive offices,
including zip code)
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(225) 298-5200
(Registrants
telephone number,
including area code)
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Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, par value
$0.01 per share
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Nasdaq Global Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by checkmark if the Registrant is not required to file
report pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Sections 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act (Check one):
Large accelerated
filer o Accelerated
filer o Non-accelerated
filer þ
Indicate by checkmark whether the Registrant is a shell company
(as defined in Exchange Act
Rule 12b-2). Yes o No
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The aggregate market value of the common stock held by
non-affiliates of the Registrant was approximately $440,016,926
(computed by reference to the closing sale price of the
Registrants common stock on the Nasdaq Global Market on
June 30, 2006, the last business day of the
Registrants most recently completed second fiscal quarter).
As of March 21, 2007, there were 38,192,094 shares of
common stock, par value $0.01 per share, of the Registrant
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the document listed below have been incorporated by
reference into the indicated parts of this
Form 10-K,
as specified in the responses to the item numbers involved.
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Part III
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The Registrants definitive proxy statement, for use in
connection with the Annual Meeting of Stockholders, to be filed
within 120 days after the Registrants fiscal year
ended December 31, 2006.
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TABLE OF
CONTENTS
FORWARD-LOOKING
STATEMENTS
This Annual Report on
Form 10-K
contains forward-looking statements within the meaning of the
federal securities laws. Statements that are not historical
facts, including statements about our beliefs and expectations,
are forward-looking statements. Forward-looking statements
include statements preceded by, followed by or that include the
words may, could, would,
should, believe, expect,
anticipate, plan, estimate,
target, project, intend and
similar expressions. These statements include, among others,
statements regarding our expected business outlook, anticipated
financial and operating results, our business strategy and means
to implement the strategy, our objectives, the amount and timing
of capital expenditures, the likelihood of our success in
expanding our business, financing plans, budgets, working
capital needs and sources of liquidity.
Forward-looking statements are only predictions and are not
guarantees of performance. These statements are based on our
managements beliefs and assumptions, which in turn are
based on currently available information. Important assumptions
relating to the forward-looking statements include, among
others, assumptions regarding demand for our products, the
expansion of product offerings geographically or through new
applications, the timing and cost of planned capital
expenditures, competitive conditions and general economic
conditions. These assumptions could prove inaccurate.
Forward-looking statements also involve known and unknown risks
and
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uncertainties, which could cause actual results that differ
materially from those contained in any forward-looking
statement. Many of these factors are beyond our ability to
control or predict. Such factors include, but are not limited
to, the following:
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general economic conditions and construction activity in the
markets where we operate in North America;
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relationships with new equipment suppliers;
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increased maintenance and repair costs;
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our substantial leverage;
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the risks associated with the expansion of our business;
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our possible inability to integrate any businesses we acquire;
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competitive pressures;
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compliance with laws and regulations, including those relating
to environmental matters; and
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other factors discussed under Risk Factors or
elsewhere in this Annual Report on
Form 10-K.
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Except as required by applicable law, including the securities
laws of the United States and the rules and regulations of the
Securities and Exchange Commission (SEC), we are
under no obligation to publicly update or revise any
forward-looking statements after we file this Annual Report on
Form 10-K, whether as a result of any new information,
future events or otherwise. Investors, potential investors and
other readers are urged to consider the above mentioned factors
carefully in evaluating the forward-looking statements and are
cautioned not to place undue reliance on such forward-looking
statements. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot
guarantee future results or performance.
SPECIAL
NOTE REGARDING THE REGISTRANT
In connection with our initial public offering of our common
stock in February 2006, we converted H&E Equipment
Services L.L.C. (H&E LLC), a Louisiana limited
liability company and the wholly-owned operating subsidiary of
H&E Holding L.L.C. (H&E Holdings) into
H&E Equipment Services, Inc., a Delaware corporation. Prior
to our initial public offering, our business was conducted
through H&E LLC. In order to have an operating Delaware
corporation as the issuer for our initial public offering,
H&E Equipment Services, Inc. was formed as a Delaware
corporation and a wholly-owned subsidiary of H&E Holdings,
and immediately prior to the closing of the initial public
offering on February 3, 2006, H&E LLC and H&E
Holdings merged with and into us (H&E Equipment Services,
Inc.), with us surviving the reincorporation merger as the
operating company. In these transactions, holders of preferred
limited liability company interests and holders of common
limited liability company interests in H&E Holdings received
shares of our common stock. We refer to these transactions
collectively in this Annual Report on
Form 10-K
as the Reorganization Transactions. Unless we state
otherwise, the information in this Annual Report on
Form 10-K
gives effect to these Reorganization Transactions. Also, except
where specifically noted, references in this Annual Report on
Form 10-K
to the Company, we or us
mean H&E Equipment Services L.L.C. for periods prior to
February 3, 2006, and H&E Equipment Services, Inc. for
periods on or after February 3, 2006.
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PART I
The
Company
We are one of the largest integrated equipment services
companies in the United States focused on heavy construction and
industrial equipment. We rent, sell and provide parts and
service support for four core categories of specialized
equipment: (1) hi-lift or aerial platform equipment;
(2) cranes; (3) earthmoving equipment; and
(4) industrial lift trucks. We engage in five principal
business activities in these equipment categories:
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equipment rental;
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new equipment sales;
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used equipment sales;
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parts sales; and
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repair and maintenance services.
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By providing rental, sales, parts, repair and maintenance
functions under one roof, we offer our customers a one-stop
solution for their equipment needs. This full-service approach
provides us with (1) multiple points of customer contact;
(2) cross-selling opportunities among our rental, used and
new equipment sales, parts sales and services operations;
(3) an effective method to manage our rental fleet through
efficient maintenance and profitable distribution of used
equipment; and (4) a mix of business activities that
enables us to operate effectively throughout economic cycles. We
believe that the operating experience and extensive
infrastructure we have developed throughout our history as an
integrated services company provide us with a competitive
advantage over rental-focused companies and equipment
distributors. In addition, our focus on four core categories of
heavy construction and industrial equipment enables us to offer
specialized knowledge and support to our customers. For the year
ended December 31, 2006, we generated total revenues of
approximately $804.4 million. The pie charts below
illustrate a breakdown of our revenues and gross profits for the
year ended December 31, 2006 by business segment (see
note 19 to our consolidated financial statements for
further information regarding our business segments):
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Revenue by Segment
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Gross Profit by
Segment
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($ in millions)
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($ in millions)
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We have operated, through our predecessor companies, as an
integrated equipment services company for approximately
46 years and have built an extensive infrastructure that
includes 48 full-service facilities located throughout the high
growth West Coast, Intermountain, Southwest, Gulf Coast and
Southeast regions of the United States. Our management,
from the corporate level down to the branch store level, has
extensive industry experience. We focus our rental and sales
activities on, and organize our personnel principally by, our
four core equipment categories. We believe this allows us to
provide specialized equipment knowledge, improve the
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effectiveness of our rental and sales forces and strengthen our
customer relationships. In addition, we operate our
day-to-day
business on a branch basis which we believe allows us to more
closely service our customers, fosters management accountability
at local levels, and strengthens our local and regional
relationships.
Products
and Services
Equipment Rentals. We rent our heavy
construction and industrial equipment to our customers on a
daily, weekly and monthly basis. We have a well-maintained
rental fleet that, at December 31, 2006, consisted of
18,132 pieces of equipment having an original acquisition
cost (which we define as the cost originally paid to
manufacturers or the original amount financed under operating
leases) of approximately $655.2 million and an average age
of approximately 39.4 months. Our rental business creates
cross-selling opportunities for us in sales and services.
New Equipment Sales. We sell new heavy
construction and industrial equipment in all four core equipment
categories, and are a leading distributor for
nationally-recognized suppliers including JLG Industries, Gehl,
Genie Industries (Terex), Komatsu, Bobcat and Yale Material
Handling. In addition, we are the worlds largest
distributor of Grove and Manitowoc crane equipment. Our new
equipment sales operation is a source of new customers for our
parts sales and service support activities, as well as for used
equipment sales.
Used Equipment Sales. We sell used equipment
primarily from our rental fleet, as well as inventoried
equipment that we acquire through trade-ins from our equipment
customers and selective purchases of high-quality used
equipment. For the year ended December 31, 2006,
approximately 79% of our used equipment sales revenues were
derived from sales of rental fleet equipment. Used equipment
sales, like new equipment sales, generate parts and service
business for us.
Parts Sales. We sell new and used parts to
customers and also provide parts to our own rental fleet. We
maintain an extensive in-house parts inventory in order to
provide timely parts and service support to our customers as
well as to our own rental fleet. In addition, our parts
operations enable us to maintain a high quality rental fleet and
provide additional support to our end users.
Service Support. We provide maintenance and
repair services for our customers owned equipment and to
our own rental fleet. In addition to repair and maintenance on
an as-needed or scheduled basis, we provide ongoing preventative
maintenance services and warranty repairs for our customers. We
devote significant resources to training these technical service
employees and over time, we have built a full-scale services
infrastructure that we believe would be difficult for companies
without the requisite resources and lead time to replicate.
In addition to our principal business activities mentioned
above, we provide ancillary equipment support activities
including transportation, hauling, parts shipping and loss
damage waivers.
Industry
Background
The U.S. construction equipment distribution industry is
fragmented and consists mainly of a small number of
multi-location regional or national operators and a large number
of relatively small, independent businesses serving discrete
local markets. This industry is driven by a broad range of
economic factors including total U.S. non-residential
construction trends, construction machinery demand, and demand
for rental equipment. Construction equipment is largely
distributed to end users through two channels: equipment rental
companies and equipment dealers. Examples of rental equipment
companies include United Rentals, Hertz Equipment Rental and
Rental Service Corporation. Examples of equipment dealers
include Finning and Toromont. Unlike many of these companies
which principally focus on one channel of distribution, we
operate substantially in both channels. As an integrated
equipment service company, we rent, sell and provide parts and
service support. Although many of the historically pure
equipment rental companies have announced plans or have begun to
provide parts and service support to customers, their service
offerings are typically limited and may prove difficult to
expand due to the infrastructure, training and resources
necessary to develop the breadth of offerings and depth of
specialized equipment knowledge that our service and sales staff
provides.
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Our
Competitive Strengths
Integrated Platform of Products and
Services. We believe that the operating
experience and extensive infrastructure we have developed
through years of operating as an integrated equipment services
company provide us with a competitive advantage over
rental-focused companies and equipment distributors. Key
strengths of our integrated equipment services platform include:
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Ability to strengthen customer relationships by providing a
full-range of products and services;
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Purchasing power gained through purchases for our new equipment
sales and rental operations;
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High quality rental fleet supported by our strong product
support capabilities;
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Established retail sales network resulting in profitable
disposal of our used equipment; and
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Mix of business activities that enable us to effectively operate
through economic cycles.
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Complementary, High Margin Parts and Service
Operations. Our parts and service businesses
allow us to maintain our rental fleet in excellent condition and
to offer our customers top quality rental equipment. Our
after-market parts and service businesses together provide us
with a high-margin revenue source that has proven to be stable
throughout a range of economic cycles.
Specialized, High Quality Equipment Fleet. Our
focus on four core types of heavy construction and industrial
equipment allows us to better provide the specialized knowledge
and support that our customers demand when renting and
purchasing equipment. These four types of equipment are
attractive because they have a long useful life, high residual
value and strong industry demand.
Well-Developed Infrastructure. We have built
an infrastructure that as of December 31, 2006 includes a
network of 48 full-service facilities, and a workforce that
includes a highly-skilled group of approximately 650 service
technicians and an aggregate of approximately 185 sales people
in our specialized rental and equipment sales forces. We believe
that our well-developed infrastructure helps us to better serve
large multi-regional customers than our historically
rental-focused competitors and provides an advantage when
competing for lucrative fleet and project management business.
Leading Distributor for Suppliers. We are a
leading distributor for nationally-recognized equipment
suppliers, including JLG Industries, Gehl, Genie Industries
(Terex), Komatsu, Bobcat and Yale Material Handling. In
addition, we are the worlds largest distributor of Grove
and Manitowoc crane equipment. These relationships improve our
ability to negotiate equipment acquisition pricing and allow us
to purchase parts at wholesale costs.
Customized Information Technology Systems. Our
customized information systems allow us to actively manage our
business and our rental fleet. Our customer relationship
management system provides our sales force with real-time access
to customer and sales information.
Experienced Management Team. Our senior
management team is led by John M. Engquist, our President and
Chief Executive Officer, who has approximately 32 years of
industry experience. Our senior and regional managers have an
average of approximately 23 years of industry experience.
Our branch managers have extensive knowledge and industry
experience as well.
Our
Business Strategy
Leverage our Integrated Business Model. We
intend to continue to actively leverage our integrated business
model to offer a one-stop solution to our customers varied
needs with respect to the four categories of heavy construction
and industrial equipment on which we focus. We will continue to
cross-sell our services to expand and deepen our customer
relationships. We believe that our integrated equipment services
model provides us with a strong platform for additional growth.
Managing the Life Cycle of our Rental
Equipment. We actively manage the size, quality,
age and composition of our rental fleet, employing a
cradle through grave approach. During the life of
our rental equipment, we (1) aggressively negotiate on
purchase price; (2) use our customized information
technology systems to closely monitor and analyze, among other
things, time utilization (equipment usage based on customer
demand), rental rate
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trends and targets and equipment demand; (3) continuously
adjust our fleet mix and pricing; (4) maintain fleet
quality through regional quality control managers and our
on-site
parts and services support; and (5) dispose of rental
equipment through our retail sales force. This allows us to
purchase our rental equipment at competitive prices, optimally
utilize our fleet, cost-effectively maintain our equipment
quality and maximize the value of our equipment at the end of
its useful life.
Grow our Parts and Service Operations. Our
strong parts and services operations are keystones of our
integrated equipment services platform and together provide us
with a relatively stable high-margin revenue source. Our parts
and services operation helps us develop strong, ongoing customer
relationships, attract new customers and maintain a high-quality
rental fleet. We intend to grow this product support side of our
business and further penetrate our customer base.
Enter Carefully Selected New Markets. We
intend to continue to strategically expand our network to
solidify our presence in the attractive, contiguous regions
where we operate. The regions in which we operate are attractive
because they are among the highest growth areas in the United
States and are minimally impacted by seasonality. We have a
proven track record of successfully entering new markets and we
look to add locations that offer attractive growth
opportunities, high demand for construction and heavy equipment,
and contiguity to our existing markets.
Make Selective Acquisitions. The equipment
industry is fragmented and consists of a large number of
relatively small, independent businesses servicing discrete
local markets. Some of these businesses may represent attractive
acquisition candidates. We intend to evaluate and pursue
acquisitions on an opportunistic basis, with an objective of
increasing our revenues, improving our profitability, entering
additional attractive markets and strengthening our competitive
position.
History
Through our predecessor companies, we have been in the equipment
services business for approximately 46 years. H&E
Equipment Services L.L.C. was formed in June 2002 through the
combination of Head & Engquist Equipment, LLC
(Head & Engquist), a wholly-owned
subsidiary of Gulf Wide Industries, L.L.C. (Gulf
Wide), and ICM Equipment Company L.L.C (ICM).
Head & Engquist, founded in 1961, and ICM, founded in
1971, were two leading regional, integrated equipment service
companies operating in contiguous geographic markets. In the
June 2002 transaction, Head & Engquist and ICM were
merged with and into Gulf Wide, which was renamed H&E
Equipment Services L.L.C. Prior to the combination,
Head & Engquist operated 25 facilities in the Gulf
Coast region, and ICM operated 16 facilities in the
Intermountain region of the United States.
In connection with our initial public offering in February 2006,
we converted H&E LLC into H&E Equipment Services, Inc..
Prior to our initial public offering, our business was conducted
through H&E LLC. In order to have an operating Delaware
corporation as the issuer for our initial public offering,
H&E Equipment Services, Inc. was formed as a Delaware
corporation and wholly-owned subsidiary of H&E Holdings, and
immediately prior to the closing of our initial public offering,
on February 3, 2006, H&E LLC and H&E Holdings
merged with and into us (H&E Equipment Services, Inc.), with
us surviving the reincorporation merger as the operating company.
Customers
We serve more than 27,700 customers in the United States,
primarily in the West Coast, Intermountain, Southwest, Gulf
Coast and Southeast regions. Our customers include a wide range
of industrial and commercial companies, construction
contractors, manufacturers, public utilities, municipalities,
maintenance contractors and a variety of other large industrial
accounts. They vary from small, single machine owners to large
contractors and industrial and commercial companies who
typically operate under equipment and maintenance budgets. Our
branches enable us to closely service local and regional
customers, while our well developed full-service infrastructure
enables us to effectively service multi-regional and national
accounts. Our integrated strategy enables us to satisfy customer
requirements and increase revenues from customers through
cross-selling opportunities presented by the various products
and services that we offer. As a result, our five reporting
segments generally derive their revenue from the same customer
base. In 2006, no single customer accounted for more than
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1.0% of our total revenues, and no single customer accounted for
more than 10% of our revenue on a segmented basis. Our top ten
customers combined accounted for less than 7.0% of our total
revenues in 2006.
Sales and
Marketing
We have two distinct, focused sales forces; one specializing in
equipment rentals and one focused specifically on new and used
equipment sales. We believe maintaining separate sales forces
for equipment rental and sales is important to our customer
service, allowing us to effectively meet the demands of
different types of customers.
Both our rental sales force and equipment sales force, together
comprising approximately 185 sales people as of
December 31, 2006, are divided into smaller, product
focused teams which enhances the development of in-depth product
application and technical expertise. To further develop
knowledge and experience, we provide our sales force with
extensive training, including frequent factory and in-house
training by manufacturer representatives regarding the
operational features, operator safety training and maintenance
of new equipment. This training is essential, as our sales
personnel regularly call on contractors job sites often
assisting customers in assessing their immediate and ongoing
equipment needs. In addition, we have a commission-based
compensation program for our sales force.
We recently implemented a company-wide customer relationship
management system. We believe that this comprehensive customer
and sales management tool enhances our territory management
program by increasing the productivity and efficiency of our
sales representatives and branch managers as they are provided
real-time access to sales and customer information.
We have developed strategies to identify target customers for
our equipment services in all markets. These strategies allow
our sales force to identify frequent rental users, function as
advisors and problem solvers for our customers and accelerate
the sale process in new operations.
While our specialized, well-trained sales force strengthens our
customer relationships and fosters customer loyalty, we also
promote our business through marketing and advertising,
including industry publications, direct mail campaigns, the
Internet and Yellow Pages.
We have implemented a national accounts program in order to
develop national relationships and increase awareness of our
extensive offering of industrial and construction equipment,
ancillary products, parts and services. Under this program, a
portion of our sales force is assigned to call on corporate
headquarters of our large customers, particularly those with a
national or multi-regional presence.
Suppliers
We purchase a significant amount of equipment from the same
manufacturers with whom we have distribution agreements. These
relationships improve our ability to negotiate equipment
acquisition pricing. As an authorized distributor for a wide
range of suppliers, we are also able to provide our customers
parts and service that in many cases are covered under the
manufacturers warranty. We are a leading distributor for
nationally-recognized equipment suppliers including JLG
Industries, Gehl, Genie Industries (Terex), Komatsu, Bobcat,
Yale Material Handling, Grove and Manitowoc. While we believe
that we have alternative sources of supply for the equipment we
purchase in each of our principal product categories,
termination of one or more of our relationships with any of our
major suppliers of equipment could have a material adverse
effect on our business, financial condition or results of
operation if we were unable to obtain adequate or timely rental
and sales equipment.
Information
Technology Systems
We have specialized information systems that track
(i) rental inventory utilization statistics;
(ii) maintenance and repair costs; (iii) returns on
investment for specific equipment types; and (iv) detailed
operational and financial information for each piece of
equipment. These systems enable us to closely monitor our
performance and actively manage our business, and include
features that were custom designed to support our integrated
services platform. The
point-of-sale
aspect of our systems enables us to link all of our facilities,
permitting universal access to real-time data concerning
equipment located at the individual facility locations and the
rental status and maintenance history for each piece of
equipment. In addition, our systems include, among other
features, on-line contract generation, automated billing, local
sales tax computation and automated rental purchase option
calculation. We
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customized our customer relationship management system to enable
us to more effectively manage our business. This customer
relationship management system provides sales and customer
information, a quote system and other organizational tools to
assist our sales forces. In addition, we maintain an extensive
customer database which allows us to monitor the status and
maintenance history of our customers owned-equipment and
enables us to more effectively provide parts and service to meet
their needs. All of our critical systems run on servers and
other equipment that is current technology and available from
major suppliers and serviceable through existing maintenance
contracts.
Seasonality
Although our business is not significantly impacted by
seasonality, the demand for our rental equipment tends to be
lower in the winter months. The level of equipment rental
activities are directly related to commercial and industrial
construction and maintenance activities. Therefore, equipment
rental performance will be correlated to the levels of current
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 some seasonality with
the peak selling period during the spring season and extending
through the summer. Parts and service activities are less
affected by changes in demand caused by seasonality.
Competition
The equipment industry is generally comprised of either pure
rental equipment companies or manufacturer
dealer/distributorship companies. We are an integrated equipment
services company and rent, sell and provide parts and service
support. Despite recent consolidation, the equipment industry is
still fragmented and consists mainly of a small number of
multi-location regional or national operators and a large number
of relatively small, independent businesses serving discrete
local markets. Many of the markets in which we operate are
served by numerous competitors, ranging from national and
multi-regional equipment rental companies (for example, United
Rentals, Hertz Equipment Rental, NationsRent and RSC Equipment
Rental) to small, independent businesses with a limited number
of locations.
We believe that participants in the equipment rental industry
generally compete on the basis of availability, quality,
reliability, delivery and price. In general, large operators
enjoy substantial competitive advantages over small, independent
rental businesses due to a distinct price advantage. Although
many rental equipment companies have now announced plans to
provide parts and service support to customers, their service
offerings are typically limited and may prove difficult to
expand due to the training, infrastructure and management
resources necessary to develop the breadth of service offerings
and depth of knowledge our service technicians are able to
provide. Some of our competitors have significantly greater
financial, marketing and other resources than we do.
Traditionally, equipment manufacturers distributed their
equipment and parts through a network of independent dealers
with distribution agreements. As a result of the consolidation
and competition, both manufacturers and distributors sought to
streamline their operations, improve their costs and gain market
share. Our established, integrated infrastructure enables us to
compete directly with our competitors on either a local,
regional or national basis. We believe customers place greater
emphasis on value-added services, teaming with equipment rental
and sales companies who can meet all of their equipment, parts
and service needs.
Environmental
and Safety Regulations
Our facilities and operations are subject to comprehensive and
frequently changing federal, state and local environmental and
occupational health and safety laws. These laws regulate
(i) the handling, storage, use and disposal of hazardous
materials and wastes and, if any, the associated cleanup of
properties affected by pollutants; (ii) air quality; and
(iii) wastewater. We do not currently anticipate any
material adverse effect on our business or financial condition
or competitive position as a result of our efforts to comply
with such requirements. Although we have made and will continue
to make capital and other expenditures to comply with
environmental requirements, we do not expect to incur material
capital expenditures for environmental controls or compliance.
In the future, federal, state or local governments could enact
new or more stringent laws or issue new or more stringent
regulations concerning environmental and worker health and
safety matters, or effect a change in their
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enforcement of existing laws or regulations, that could affect
our operations. Also, in the future, contamination may be found
to exist at our facilities or off-site locations where we have
sent wastes. There can be no assurance that we will not discover
previously unknown environmental non-compliance or
contamination. We could be held liable for such newly-discovered
non-compliance or contamination. It is possible that changes in
environmental and worker health and safety laws or liabilities
from newly-discovered non-compliance or contamination could have
a material adverse effect on our business, financial condition
and results of operations.
Employees
As of December 31, 2006, we had approximately 1,677
employees. Generally, the total number of employees does not
significantly fluctuate throughout the year. Of these employees,
549 are salaried personnel and 1,128 are hourly personnel. Our
employees perform the following functions: sales operations,
parts operations, rental operations, technical service and
office and administrative support. Collective bargaining
agreements relating to three separate locations cover
approximately 96 of our employees. We believe our relations with
our employees are good, and we have never experienced a work
stoppage.
Recent
Developments
IPO and Reorganization Transactions. We
completed our initial public offering of our common stock in
February 2006. We used the $207.0 million of net offering
proceeds to fund the Eagle acquisition described below, purchase
rental equipment under operating leases, pay deferred
compensation, repay indebtedness under our senior secured credit
facility and for general corporate purposes. We also paid a fee
to terminate a management services agreement. In connection with
our initial public offering, we converted H&E Equipment
Services L.L.C. (H&E LLC), a Louisiana limited
liability company and the wholly-owned operating subsidiary of
H&E Holdings L.L.C. (H&E Holdings) into
H&E Equipment Services, Inc., a Delaware corporation. Prior
to our initial public offering, our business was conducted
through H&E LLC. In order to have an operating Delaware
corporation as the issuer for our initial public offering,
H&E Equipment Services, Inc., was formed as a Delaware
corporation and a wholly-owned subsidiary of H&E Holdings,
and immediately prior to the closing of the initial public
offering on February 3, 2006, H&E LLC and H&E
Holdings merged with and into us (H&E Equipment Services,
Inc.), with us surviving the reincorporation merger as the
operating company. In these transactions, holders of preferred
limited liability company interests and holders of common
limited liability company interests in H&E Holdings received
shares of our common stock. We refer to these transactions
collectively in this Annual Report on
Form 10-K
as the Reorganization Transactions. See also
note 3 to the consolidated financial statements for further
information on our initial public offering.
Eagle Acquisition. We completed, effective as
of February 28, 2006, the acquisition of all of the capital
stock of Eagle High Reach Equipment, Inc. and all of the equity
interests of its subsidiary, Eagle High Reach Equipment, LLC
(together, Eagle). Following the acquisition, we
changed the name of Eagle High Reach Equipment, Inc. to H&E
California Holding, Inc. and we changed the name of Eagle High
Reach Equipment, LLC to H&E Equipment Services (California),
LLC. The Eagle purchase price was funded out of the proceeds
from our initial public offering. Prior to the acquisition,
Eagle was a privately-held construction and industrial equipment
rental company. Eagle serves the southern California
construction and industrial markets out of four locations. See
also note 4 to the consolidated financial statements for
further information on the Eagle acquisition.
Refinancing. On August 4, 2006, we
completed our private offering of $250.0 million aggregate
principal amount of our
83/8% senior
unsecured notes due 2016 (the Old Notes). The Old
Notes were set to mature on July 15, 2016 and accrue
interest at the rate of
83/8% per
year. Interest on the Old Notes were to be payable semi-annually
in arrears on each January 15 and July 15, beginning on
January 15, 2007. In connection with the completion of the
offering of the Old Notes, we consummated our previously
announced cash tender offers and consent solicitations
(together, the Tender Offer) for our
111/8%
senior secured notes due 2012 (the senior secured
notes) and our
121/2%
senior subordinated notes due 2013 (the senior
subordinated notes). We used the net proceeds of the
offering of the Old Notes, together with cash on hand and
borrowings under our senior secured credit facility, to purchase
$195.5 million in aggregate principal amount of the senior
secured notes (representing approximately 97.8% of the
previously outstanding senior secured notes), and
$53.0 million in aggregate principal amount of the senior
subordinated notes (representing 100% of the previously
outstanding senior subordinated notes) that were validly
tendered. The total principal amount, accrued and unpaid
interest, consent fee amounts and
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premiums paid in connection with the purchase of the senior
secured notes was approximately $217.6 million. The total
principal amount, accrued and unpaid interest, consent fee
amounts and premiums paid in connection with the purchase of the
senior subordinated notes was approximately $60.1 million.
In connection with the Tender Offer, we amended the indenture
under which the senior secured notes were issued. The amendments
eliminated substantially all of the restrictive covenants and a
number of events of default. The remaining senior secured notes
are not redeemable at our option prior to June 15, 2007.
Thereafter, the senior secured notes are redeemable at our
option, in whole or in part in cash at redemption price
percentages that decline to par on or after June 15, 2010,
in each case together with accrued and unpaid interest, if any,
to the date of redemption.
On November 13, 2006, we completed an exchange offer of
$250.0 million aggregate principal amount of its
outstanding
83/8% senior
unsecured notes registered under the Securities Act of 1933 (the
New Notes) for the Old Notes. At the scheduled
expiration time of 4:00 p.m., New York City time on
November 13, 2006, $250.0 million of the aggregate
principal amount, or 100%, of the Old Notes were tendered and
accepted for exchange by us.
Also on August 4, 2006, we amended and restated our
existing senior secured credit facility to, among other things,
increase the principal amount of availability of the credit
facility from $165.0 million to $250.0 million and
extend the maturity date of the facility from February 10,
2009 to August 4, 2011. We refer to all of the foregoing
transactions collectively in this Annual Report on
Form 10-K
as the Refinancing. See also note 12 to the
consolidated financial statements for further information on the
Refinancing.
Available
Information
We file electronically with the SEC annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934. The public may read and copy any materials we have filed
with or furnished to the SEC at the SECs Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. The
public may obtain information on the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-3330.
The SEC maintains an Internet site (www.sec.gov) that contains
reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. Copies
of our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
ownership reports for insiders and any amendments to these
reports filed or furnished with the SEC are available free of
charge through our Internet site (www.he-equipment.com) as soon
as reasonably practicable after filing with the SEC.
Additionally, we make available free of charge on our internet
website:
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our Code of Conduct and Ethics;
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the charter of our Nominating and Governing Committee;
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the charter of our Compensation Committee;
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the charter of our Audit Committee.
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Investing in our securities involves a high degree of risk. You
should consider carefully the following risk factors and the
other information in this Annual Report on
Form 10-K,
including our consolidated financial statements and related
notes, before making any investment decisions regarding our
securities. If any of the following risks actually occur, our
business, financial condition and operating results could be
adversely affected. As a result, the trading price of our
securities could decline and you may lose part or all of your
investment.
Risks
Related to our Company
We
have substantial indebtedness and may be unable to service our
debt. Our substantial indebtedness could adversely affect our
financial position, limit our available cash and our access to
additional capital and prevent us from growing our
business.
We have a substantial amount of indebtedness. As of
December 31, 2006, our total indebtedness (consisting of
the aggregate amounts outstanding under our senior secured
credit facility, senior secured notes, senior unsecured
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notes and notes payable) was approximately, $266.0 million,
$9.1 million of which was first-priority secured debt and
effectively senior to our senior secured notes and senior
unsecured notes. Additionally, as of December 31, 2006, the
senior secured notes and senior unsecured notes were effectively
subordinated to our obligations under $148.0 million of
first-priority secured manufacturer floor plan financings to the
extent of the value of their collateral, $2.4 million in
notes payable (which includes one capital lease obligation of
$0.7 million) and $8.3 million in standby letters of
credit issued under our senior secured credit facility.
The level of our indebtedness could have important consequences,
including:
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a substantial portion of our cash flow from operations will be
dedicated to debt service and may not be available for other
purposes;
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limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate;
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limiting our ability to obtain financing in the future for
working capital, capital expenditures and general corporate
purposes, including acquisitions, and may impede our ability to
secure favorable lease terms;
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making us more vulnerable to economic downturns and possibly
limiting our ability to withstand competitive pressures; and
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placing us at a competitive disadvantage compared to our
competitors with less indebtedness.
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To
service our indebtedness, we will require a significant amount
of cash. Our ability to generate cash depends on many factors
beyond our control. An inability to service our indebtedness
could lead to a default under our senior secured credit facility
and the indentures governing our senior secured and senior
unsecured notes, which may result in an acceleration of our
indebtedness.
To service our indebtedness, we will require a significant
amount of cash. Our ability to pay interest and principal in the
future on our indebtedness and to fund our capital expenditures
and acquisitions will depend upon our future operating
performance and the availability of refinancing indebtedness,
which will be affected by prevailing economic conditions and
financial, business and other factors, some of which are beyond
our control.
Our future cash flow may not be sufficient to meet our
obligations and commitments. If we are unable to generate
sufficient cash flow from operations in the future to service
our indebtedness and to meet our other commitments, we will be
required to adopt one or more alternatives, such as refinancing
or restructuring our indebtedness, selling material assets or
operations or seeking to raise additional debt or equity
capital. These actions may not be effected on a timely basis or
on satisfactory terms or at all, and these actions may not
enable us to continue to satisfy our capital requirements. In
addition, our existing or future debt agreements, including the
indentures governing the senior secured notes and senior
unsecured notes and the senior secured credit facility agreement
may contain restrictive covenants prohibiting us from adopting
any of these alternatives. Our failure to comply with these
covenants could result in an event of default which, if not
cured or waived, could result in the acceleration of all of our
indebtedness. See also Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
Our
senior secured credit facility and the indentures governing our
senior secured and senior unsecured notes contain covenants that
limit our ability to finance future operations or capital needs,
or to engage in other business activities.
The operating and financial restrictions and covenants in our
debt agreements, including the senior secured credit facility,
and the indentures governing our senior secured and senior
unsecured notes, may adversely affect our ability to finance
future operations or capital needs or to engage in other
business activities. Our senior secured credit facility requires
us to maintain a minimum fixed charge coverage ratio (as
defined) in the event that our excess borrowing availability is
below $25 million. The imposition of the minimum fixed
charge coverage ratio may require that we limit our permitted
capital expenditures, take action to reduce debt or act in a
manner contrary to our business objectives. In addition, the
senior secured credit facility and the indentures governing the
senior secured
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and senior unsecured notes contain certain covenants that, among
other things, restrict our and our restricted subsidiaries
ability to:
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incur additional indebtedness, assume a guarantee or issue
preferred stock;
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pay dividends or make other equity distributions or payments to
or affecting our subsidiaries;
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purchase or redeem our capital stock;
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make certain investments;
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create liens;
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sell or dispose of assets or engage in mergers or consolidations;
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engage in certain transactions with subsidiaries and affiliates;
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enter into sale leaseback transactions; and
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certain business activities.
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These restrictions could limit our ability to obtain future
financing, make strategic acquisitions or needed capital
expenditures, withstand economic downturns in our business or
the economy in general, conduct operations or otherwise take
advantage of business opportunities that may arise. A failure to
comply with the restrictions contained in the senior secured
credit facility could lead to an event of default, which could
result in an acceleration of our indebtedness. Such an
acceleration would constitute an event of default under the
indentures governing the senior secured and senior unsecured
notes. A failure to comply with the restrictions in the senior
secured notes indenture or the senior unsecured notes indenture
could result in an event of default under those indentures. Our
future operating results may not be sufficient to enable
compliance with the covenants in the senior secured credit
facility, the indentures or other indebtedness or to remedy any
such default. In addition, in the event of an acceleration, we
may not have or be able to obtain sufficient funds to refinance
our indebtedness or make any accelerated payments, including
those under the senior secured and senior unsecured notes. Also,
we may not be able to obtain new financing. Even if we were able
to obtain new financing, we cannot guarantee that the new
financing will be on commercially reasonable terms or terms that
are acceptable to us. If we default on our indebtedness, our
business financial condition and results of operation could be
materially and adversely affected.
Concentration
of ownership among our existing executives, directors and
principal stockholders may prevent new investors from
influencing significant corporate decisions.
As of December 31, 2006, Bruckman, Rosser,
Sherill & Co. II, L.P. and Bruckman, Rosser,
Sherill & Co., L.P. (collectively BRS) and
their affiliates beneficially owned securities representing
approximately 39.1% of the voting power of our outstanding
common stock and our executives, directors and principal
stockholders beneficially own, in the aggregate, securities
representing approximately 61.4% of the voting power of our
outstanding common stock. Accordingly, these stockholders can
exercise significant influence over our business policies and
affairs, including the composition of our board of directors and
any action requiring the approval of our stockholders, including
the adoption of amendments to our certificate of incorporation
and the approval of significant corporate transactions,
including mergers or sales of substantially all of our assets.
This concentration of ownership will limit other
stockholders ability to influence corporate actions. The
concentration of ownership may delay, defer or even prevent a
change in control of our company and may make some transactions
more difficult or impossible without the support of these
stockholders. We cannot assure that the interests of these
stockholders will not conflict with your interests. In addition,
our interests may conflict with these stockholders in a number
of areas relating to our past and ongoing relationships,
including:
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the timing and manner of any sales or distributions by these
stockholders of all or any portion of its ownership interest in
us;
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business opportunities that may be presented to BRS and its
affiliates and to our directors associated with BRS; and
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competition between BRS and its affiliates and us within the
same lines of business.
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For additional information regarding the share ownership of, and
or relationships with, certain stockholders, you should read the
information under Item 12 Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters, and Item 13 Certain Relationships and
Related Transactions, and Director Independence.
Risks
Related to our Business
Our
business could be adversely affected by a decline in
construction and industrial activities, which could decrease the
demand for equipment or depress rental rates and sales prices,
resulting in a decline in our revenues and
profitability.
Our equipment is principally used in connection with
construction and industrial activities. Consequently, a downturn
in construction or industrial activity may lead to a decrease in
the demand for our equipment or depress rental rates and the
sales prices for the equipment we sell. We have identified below
certain of the factors which may cause such a downturn, either
temporarily or long-term:
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a reduction in spending levels by customers;
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a slow-down of the economy over the long-term;
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adverse weather conditions which may affect a particular region;
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an increase in interest rates; or
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terrorism or hostilities involving the United States.
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Our
revenue and operating results may fluctuate, which could result
in a decline in our profitability and make it more difficult for
us to grow our business.
Our revenue and operating results have historically varied from
quarter to quarter. Periods of decline could result in an
overall decline in profitability and make it more difficult for
us to make payments on our indebtedness and grow our business.
We expect our quarterly results to continue to fluctuate in the
future due to a number of factors, including:
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seasonal sales and rental patterns of our construction
customers, with sales and rental activity tending to be lower in
the winter months;
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severe weather and seismic conditions temporarily affecting the
regions where we operate;
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cyclical nature of our customers business, particularly
our construction customers;
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changes in corporate spending for plants and facilities or
changes in government spending for infrastructure projects;
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general economic conditions in the markets where we operate;
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the effectiveness of integrating acquired businesses and new
start-up
locations; and
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timing of acquisitions and new location openings and related
costs.
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In addition, we incur various costs when integrating newly
acquired businesses or opening locations, and the profitability
of a new location is generally expected to be lower in the
initial months of operation.
We
purchase a significant amount of our equipment from a limited
number of manufacturers. Termination of one or more of our
relationships with any of those manufacturers could have a
material adverse effect on our business, as we may be unable to
obtain adequate or timely rental and sales
equipment.
Currently, we purchase most of our rental and sales equipment
from leading, nationally-known original equipment manufacturers
(OEMs). For the year ended December 31, 2006,
we purchased approximately 70% of our rental and sales equipment
from seven manufacturers. During the year ended
December 31, 2006, we purchased
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between 12% and 15% each from three of these seven manufacturers
providing our rental and sales equipment. Although we believe
that we have alternative sources of supply for the rental and
sales equipment we purchase in each of our principal product
categories, termination of one or more of our relationships with
any of these major suppliers could have a material adverse
effect on our business, financial condition or results of
operation if we were unable to obtain adequate or timely rental
and sales equipment.
Our
new equipment suppliers may appoint additional distributors,
sell directly or unilaterally terminate our distribution
agreements, which could have a material adverse effect on our
business due to a reduction of, or inability to increase, our
revenues.
We are a distributor of new equipment and parts supplied by
leading, nationally-known OEMs. Under our distribution
agreements with these OEMs, manufacturers retain the right to
appoint additional dealers and sell directly to national
accounts and government agencies. In most instances, they may
unilaterally terminate their distribution agreements with us at
any time without cause. We have both written and oral
distribution agreements with our new equipment suppliers. Under
our oral agreements with the OEMs, we operate under our
developed course of dealing with the supplier and are subject to
the applicable state law regarding such relationship. Any such
actions could have a material adverse effect on our business,
financial condition and results of operations due to a reduction
of, or an inability to increase, our revenues.
Our
rental fleet is subject to residual value risk upon
disposition.
The market value of any given piece of rental equipment could be
less than its depreciated value at the time it is sold. The
market value of used rental equipment depends on several
factors, including:
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the market price for new equipment of a like kind;
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wear and tear on the equipment relative to its age;
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the time of year that it is sold (prices are generally higher
during the construction season);
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worldwide and domestic demands for used equipment; and
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general economic conditions.
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Although for the year ended December 31, 2006 we sold used
equipment from our rental fleet at an average selling price of
approximately 145.0% of book value, we cannot assure you that
used equipment selling prices will not decline. Any significant
decline in the selling prices for used equipment could have a
material adverse affect on our business, financial condition or
results of operations.
We
incur maintenance and repair costs associated with our rental
fleet equipment that could have a material adverse effect on our
business in the event these costs are greater than
anticipated.
Determining the optimal age for our rental fleet equipment is
subjective and requires considerable estimates by management. We
have made estimates regarding the relationship between the age
of our rental fleet equipment, and the maintenance and repair
costs, and the market value of used equipment. Our future
operating results could be adversely affected because our
maintenance and repairs costs may be higher than estimated and
market values of used equipment may fluctuate.
We may
be unsuccessful in integrating our future acquisitions, which
may decrease our profitability and make it more difficult for us
to grow our business.
We may not have sufficient management, financial and other
resources to integrate and consolidate any future acquisitions
and we may be unable to operate profitably as a consolidated
company. Any significant diversion of managements
attention or any major difficulties encountered in the
integration of the businesses could have a material adverse
effect on our business, financial condition or results of
operations, which could decrease our profitability and make it
more difficult for us to grow our business.
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We may
not be able to facilitate our growth strategy by identifying or
completing transactions with attractive acquisition candidates,
which could impede our revenues and profitability.
An important element of our growth strategy is to continue to
selectively seek additional businesses to acquire in order to
add new customers within our existing markets. We cannot assure
you that we will be able to identify attractive acquisition
candidates or complete the acquisition of any identified
candidates at favorable prices and upon advantageous terms and
conditions. Furthermore, competition for attractive acquisition
candidates may limit the number of acquisition candidates or
increase the overall costs of making acquisitions.
The difficulties we may face in identifying or completing
acquisitions could impede our revenues and profitability.
We may
experience integration and consolidation risks associated with
our growth strategy. Future acquisitions may also result in
significant transaction expenses and risks associated with
entering new markets and we may be unable to profitably operate
our consolidated company.
We periodically engage in evaluations of potential acquisitions
and start-up
facilities. The success of our growth strategy depends, in part,
on selecting strategic acquisition candidates at attractive
prices and identifying strategic
start-up
locations. We expect to face competition for acquisition
candidates, which may limit the number of acquisition
opportunities and lead to higher acquisition costs. We may not
have the financial resources necessary to consummate any
acquisitions or to successfully open any new facilities in the
future or the ability to obtain the necessary funds on
satisfactory terms. Any future acquisitions or the opening of
new facilities may result in significant transaction expenses
and risks associated with entering new markets in addition to
the integration and consolidation risks described above. We may
also be subject to claims by third parties related to the
operations of these businesses prior to our acquisition and by
sellers under the terms of our acquisition agreements. We may
not have sufficient management, financial and other resources to
integrate any such future acquisitions or to successfully
operate new locations and we may be unable to profitably operate
our consolidated company.
We are
dependent on key personnel. A loss of key personnel could have a
material adverse effect on our business, which could result in a
decline in our revenues and profitability.
We are dependent on the experience and continued services of our
senior management team, including Mr. Engquist.
Mr. Engquist has approximately 32 years of industry
experience and has served as an officer of Head and Engquist
since 1990, a director of Gulf Wide since 1995, an officer and
director of H&E LLC since its formation in June 2002 and an
officer and director of H&E Equipment Services, Inc. since
its inception. If we lose the services of any member of our
senior management team, particularly Mr. Engquist, and are
unable to find a suitable replacement, we may not have the depth
of senior management resources required to efficiently manage
our business and execute our strategy.
Our
business could be hurt if we are unable to obtain additional
capital as required, resulting in a decrease in our revenues and
profitability.
The cash that we generate from our business, together with cash
that we may borrow under our senior secured credit facility, may
not be sufficient to fund our capital requirements. As a result,
we may require additional financing to obtain capital for, among
other purposes, purchasing equipment, completing acquisitions,
establishing new locations and refinancing existing
indebtedness. Any additional indebtedness that we incur will
make us more vulnerable to economic downturns and limit our
ability to withstand competitive pressures. Moreover, we may not
be able to obtain additional capital on acceptable terms, if at
all. If we are unable to obtain sufficient additional financing
in the future, our business could be adversely affected by
reducing our ability to increase revenues and profitability.
We are
subject to competition, which may have a material adverse effect
on our business by reducing our ability to increase or maintain
revenues or profitability.
The equipment rental and retail distribution industries are
highly competitive and the equipment rental industry is highly
fragmented. Many of the markets in which we operate are served
by numerous competitors,
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ranging from national and multi-regional equipment rental
companies to small, independent businesses with a limited number
of locations. We generally compete on the basis of availability,
quality, reliability, delivery and price. Some of our
competitors have significantly greater financial, marketing and
other resources than we do, and may be able to reduce rental
rates or sales prices. If competitive pressures were to cause us
to reduce our rates, our operating margins may be adversely
impacted. If we were to maintain rates in the face of reductions
by our competitors, our market share could decline. We may
encounter increased competition from existing competitors or new
market entrants in the future, which could have a material
adverse effect on our business, financial condition and results
of operations.
Disruptions
in our information technology systems, including our customer
relationship management system, could adversely affect our
operating results by limiting our capacity to effectively
monitor and control our operations.
Our information technology systems facilitate our ability to
monitor and control our operations and adjust to changing market
conditions. Any disruption in any of these systems, including
our customer relationship management system, or the failure of
any of these systems to operate as expected could, depending on
the magnitude of the problem, adversely affect our operating
results by limiting our capacity to effectively monitor and
control our operations and adjust to changing market conditions.
The
nature of our business exposes us to various liability claims,
which may exceed the level of our insurance coverage and thereby
not fully protect us.
Our business exposes us to claims for personal injury, death or
property damage resulting from the use of the equipment we rent
or sell and from injuries caused in motor vehicle accidents in
which our delivery and service personnel are involved. We carry
comprehensive insurance, subject to deductibles, at levels we
believe are sufficient to cover existing and future claims made
during the respective policy periods. However, we may be exposed
to multiple claims that do not exceed our deductibles, and, as a
result, we could incur significant
out-of-pocket
costs that could adversely affect our financial condition and
results of operations. In addition, the cost of such insurance
policies may increase significantly upon renewal of those
policies as a result of general rate increases for the type of
insurance we carry as well as our historical experience and
experience in our industry. Although we have not experienced any
material losses that were not covered by insurance, our existing
or future claims may exceed the coverage level of our insurance,
and such insurance may not continue to be available on
economically reasonable terms, or at all. If we are required to
pay significantly higher premiums for insurance, are not able to
maintain insurance coverage at affordable rates or if we must
pay amounts in excess of claims covered by our insurance, we
could experience higher costs that could adversely affect our
financial condition and results of operations.
We
could be adversely affected by environmental and safety
requirements, which could force us to increase significant
capital and other operational costs and may subject us to
unanticipated liabilities.
Our operations, like those of other companies engaged in similar
businesses, require the handling, use, storage and disposal of
certain regulated materials. As a result, we are subject to the
requirements of federal, state and local environmental and
occupational health and safety laws and regulations. We may not
be at all times in complete compliance with all such
requirements. We are subject to potentially significant civil or
criminal fines or penalties if we fail to comply with any of
these requirements. We have made and will continue to make
capital and other expenditures in order to comply with these
laws and regulations. However, the requirements of these laws
and regulations are complex, change frequently, and could become
more stringent in the future. It is possible that these
requirements will change or that liabilities will arise in the
future in a manner that could have a material adverse effect on
our business, financial condition and result of operations.
Environmental laws also impose obligations and liability for the
cleanup of properties affected by hazardous substance spills or
releases. These liabilities can be imposed on the parties
generating or disposing of such substances or operator of the
affected property, often without regard to whether the owner or
operator knew of, or was responsible for, the presence of
hazardous substances. Accordingly, we may become liable, either
contractually or by operation of law, for remediation costs even
if a contaminated property is not presently owned or operated by
us, or if the contamination was caused by third parties during
or prior to our ownership or operation of the property.
17
Given the nature of our operations (which involve the use of
petroleum products, solvents and other hazardous substances for
fueling and maintaining our equipment and vehicles), there can
be no assurance that prior site assessments or investigations
have identified all potential instances of soil or groundwater
contamination. Future events, such as changes in existing laws
or policies or their enforcement, or the discovery of currently
unknown contamination, may give rise to additional remediation
liabilities which may be material.
Hurricanes
or other adverse weather events could negatively affect our
local economies or disrupt our operations, which could have an
adverse effect on our business or results of
operations.
Our market areas in the southeastern United States are
susceptible to hurricanes. Such weather events can disrupt our
operations, result in damage to our properties and negatively
affect the local economies in which we operate. In late summer
2005, Hurricane Katrina and Hurricane Rita struck the Gulf Coast
region of the United States and caused extensive and
catastrophic physical damage to those areas. While Hurricane
Katrina and Hurricane Rita did not have a material adverse
effect on our business or results of operations, future
hurricanes could affect our operations or the economies in those
market areas and result in damage to certain of our facilities
and the equipment located at such facilities, or equipment on
rent with customers in those areas. Our business or results of
operations may be adversely affected by these and other negative
effects of future hurricanes.
Our
disclosure controls and procedures were not effective as of
March 31, 2006 to properly record and report the correct
accounting treatment of a one-time payment made in connection
with our initial public offering.
In connection with our initial public offering in February 2006,
we accounted for a one-time, nonrecurring payment, as a direct
cost of the initial public offering, and as such, the payment
was reflected as a charge to stockholders equity in our
unaudited interim financial statements for the three months
ended March 31, 2006. Management concluded, after further
review and consultation with BDO Seidman, LLP, our independent
registered public accounting firm, that the payment should not
be accounted for as a direct cost of the initial public offering
and should instead be reflected as an expense on our
consolidated income statement for the three months ended
March 31, 2006. Management and our Audit Committee
concluded to restate our unaudited interim financial statements
for the three months ended March 31, 2006 to properly
record and report the correct accounting treatment of this
payment. Auditing Standard Number 2 issued by the Public Company
Accounting Oversight Board, or PCAOB, indicates that a
restatement of previously issued financial statements is a
strong indicator that a material weakness in internal
control over financial reporting exists. Accordingly, our
Chief Executive Officer and Chief Financial Officer (our
principal executive officer and principal financial officer,
respectively) re-evaluated the effectiveness of our disclosure
controls and procedures (as defined under the Securities
Exchange Act of 1934, as amended) as of March 31, 2006. As
part of their evaluation, they reviewed the circumstances
surrounding the restatement of our previously issued unaudited
interim financial statements for the three months ended
March 31, 2006.
Our Chief Executive Officer and our Chief Financial Officer
concluded that our disclosure controls and procedures were not
effective as of March 31, 2006 to properly record and
report the correct accounting treatment of this payment. To the
extent we engage in non-routine transactions in the future, our
disclosure controls and procedures now include procedures for
consultation as appropriate with outside qualified consultants
and performance of additional levels of review by the
Companys accounting personnel. Our Chief Executive Officer
and our Chief Financial Officer have concluded that our current
disclosure controls and procedures are effective to provide
reasonable assurance that material information required to be
included in our periodic SEC reports is recorded, processed,
summarized and reported within the time periods specified in the
SEC rules and forms.
In addition, our disclosure controls and procedures were not
effective as of December 31, 2004 to properly record and
report the correct accounting treatment of deferred taxes from
the Gulf Wide transaction. This restatement is described in the
notes to our consolidated financial statements in our Annual
Report on
Form 10-K
for the year ended December 31, 2004.
The design of any system of control is based upon certain
assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its
stated objectives under all future events, no matter how remote,
or that the degree of compliance with the policies or procedures
may not deteriorate. Because
18
of its inherent limitations, disclosure controls and procedures
may not prevent or detect all misstatements. Accordingly, even
effective disclosure controls and procedures can only provide
reasonable assurance of achieving their control objectives.
Our
internal controls over financial reporting may not be effective
and our independent registered public accounting firm may not be
able to certify as to their effectiveness, which could have a
significant and adverse effect on our business and
reputation.
We are evaluating our internal controls over financial reporting
in order to allow management to report on, and our independent
registered public accounting firm to attest to, our internal
controls over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act of 2002, as amended,
and rules and regulations of the SEC thereunder, which we
refer to as Section 404. We are in the process
of documenting and testing our internal control procedures over
financial reporting in order to satisfy certain requirements of
Section 404, which requires annual management assessments
of the effectiveness of our internal controls over financial
reporting and a report by our independent registered public
accountanting firm addressing these assessments. During the
course of our testing, we may identify deficiencies which we may
not be able to remediate in time to meet the deadline imposed by
the Sarbanes-Oxley Act for compliance with the requirements of
Section 404. In addition, if we fail to achieve and
maintain the adequacy of our internal controls, as such
standards are modified, supplemented or amended from time to
time, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal controls over
financial reporting in accordance with Section 404. We
cannot be certain as to the timing of completion of our
evaluation, testing and any remediation actions of the impact of
the same on our operations. If we are not able to implement the
requirements of Section 404 in a timely manner, we may be
subject to sanctions or investigation by regulatory authorities,
such as the SEC, as well as negative reaction in the financial
markets due to a loss of confidence in the reliability of our
consolidated financial statements. Conversely, if we are able to
implement the requirements of Section 404 in a timely
manner as required, but the implementation of such requirements
results in identified material weaknesses in our internal
control over financial reporting, there also could be a negative
reaction in the financial markets due to a loss of confidence in
the reliability of our consolidated financial statements. In
addition, we may be required to incur such costs in improving
our internal control system and the hiring of additional
personnel. Any such action could negatively affect our results
of operations.
As of December 31, 2006, we are considered a
non-accelerated filer pursuant to the rules and regulations of
the SEC and are not subject to the management assessment and
auditor attestation requirements of Section 404. However,
we believe that as of December 31, 2007, we will meet the
definition of an accelerated filer, and as such, we will be
required to provide managements assessment on internal
controls over financial reporting as well as the auditor
attestation report in our Annual Report on
Form 10-K
for the year ending December 31, 2007.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
Not applicable.
As of March 21, 2007, we had a network of 48 full-service
facilities, serving more than 27,700 customers across
18 states in the West Coast, Intermountain, Southwest, Gulf
Coast and Southeast regions of the United States.
19
In our facilities, we rent, display and sell equipment,
including tools and supplies, and provide maintenance and basic
repair work. We own 5 of our locations and lease 43 locations.
Our leases typically provide for varying terms and renewal
options. The number of multiple branch locations in each city is
indicated by parentheses. The following table provides data on
our locations:
|
|
|
|
|
|
|
City/State
|
|
Leased/Owned
|
|
City/State
|
|
Leased/Owned
|
|
Alabama
|
|
|
|
Mississippi
|
|
|
Birmingham
|
|
Leased
|
|
Jackson
|
|
Leased
|
Arizona
|
|
|
|
Montana
|
|
|
Phoenix
|
|
Leased
|
|
Billings
|
|
Leased
|
Tucson
|
|
Leased
|
|
Belgrade
|
|
Leased
|
Arkansas
|
|
|
|
Missoula
|
|
Leased
|
Little Rock
|
|
Owned
|
|
New Mexico
|
|
|
Springdale
|
|
Owned
|
|
Albuquerque
|
|
Leased
|
California (Eagle
Facilities)
|
|
|
|
Nevada
|
|
|
Bakersfield
|
|
Leased
|
|
Las Vegas
|
|
Leased
|
La Mirada
|
|
Leased
|
|
Reno
|
|
Leased
|
San Diego
|
|
Leased
|
|
North Carolina
|
|
|
Santa Fe Springs
|
|
Owned
|
|
Charlotte
|
|
Leased
|
Colorado
|
|
|
|
Oklahoma
|
|
|
Denver
|
|
Leased
|
|
Oklahoma City
|
|
Leased
|
Colorado Springs
|
|
Leased
|
|
Tulsa
|
|
Leased
|
Florida
|
|
|
|
Texas
|
|
|
Fort Myers
|
|
Leased
|
|
Corpus Christi
|
|
Leased
|
Jacksonville
|
|
Leased
|
|
Dallas(2)
|
|
Leased(2)
|
Orlando
|
|
Leased
|
|
Houston(2)
|
|
Leased(2)
|
Tampa
|
|
Leased
|
|
San Antonio
|
|
Owned
|
Georgia
|
|
|
|
Tennessee
|
|
|
Atlanta
|
|
Leased
|
|
Memphis
|
|
Leased
|
Idaho
|
|
|
|
Utah
|
|
|
Boise
|
|
Leased
|
|
Ogden
|
|
Leased
|
Coeur DAlene
|
|
Leased
|
|
Salt Lake City
|
|
Leased
|
Louisiana
|
|
|
|
St. George
|
|
Leased
|
Alexandria
|
|
Leased
|
|
|
|
|
Baton Rouge
|
|
Leased
|
|
|
|
|
Belle Chasse(2)
|
|
Leased(1)/Owned(1)
|
|
|
|
|
Gonzales
|
|
Leased
|
|
|
|
|
Kenner
|
|
Leased
|
|
|
|
|
Lafayette
|
|
Leased
|
|
|
|
|
Lake Charles
|
|
Leased
|
|
|
|
|
Shreveport(2)
|
|
Leased(2)
|
|
|
|
|
Each facility location has a branch manager who is responsible
for
day-to-day
operations. In addition, branch operating facilities are
typically staffed with approximately 5 to 115 people, who
may include technicians, salesmen, rental operations staff and
parts specialists. While facility offices are typically open
five days a week, we provide 24 hour, seven day per week
service.
20
Our corporate headquarters employs approximately
160 people. Our corporate headquarters are located in Baton
Rouge, Louisiana, where we occupy approximately
18,400 square feet under a lease that extends until
February 28, 2011. We believe that our existing facilities
will be sufficient for the conduct of our business during the
next fiscal year.
|
|
Item 3.
|
Legal
Proceedings
|
From time to time, we are party to various legal actions in the
normal course of our business. We believe that we are not party
to any litigation, that, if adversely determined, would have a
material adverse effect on our business, financial condition,
result of operations and cash flows.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matter was submitted to a vote of our security holders during
the fourth quarter of 2006.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
Market
Information
Our common stock, par value $0.01 per share, trades on the
Nasdaq Global Market (Nasdaq) under the symbol
HEES. The following table sets forth, for the
quarterly periods indicated, the high and low sale prices per
share for our common stock as reported by Nasdaq for our year
ended December 31, 2006. In connection with our initial
public offering, our common stock was priced for initial sale on
January 31, 2006. There was no established public trading
market for our common stock prior to that date.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Year ended December 31, 2006
|
|
|
|
|
|
|
|
|
First quarter (beginning
January 31, 2006)
|
|
$
|
29.90
|
|
|
$
|
20.25
|
|
Second quarter
|
|
|
42.05
|
|
|
|
23.20
|
|
Third quarter
|
|
|
31.73
|
|
|
|
22.39
|
|
Fourth quarter
|
|
|
27.63
|
|
|
|
22.82
|
|
Year ending December 31, 2007
|
|
|
|
|
|
|
|
|
First quarter (through
March 21, 2007)
|
|
$
|
27.70
|
|
|
$
|
22.00
|
|
Holders
On March 21, 2007, we had 47 stockholders of record of our
common stock.
Dividends
We have never paid or declared any dividends on our common stock
and do not anticipate paying any dividends on our common stock
in the foreseeable future. Any future determination relating to
our dividend policy will be made at the discretion of our board
of directors and will depend on, among other things, our results
of operations, financial conditions, cash requirements,
contractual restrictions and other factors that our board of
directors may deem relevant. In addition, our ability to declare
and pay dividends is restricted by covenants in our senior
secured credit facility and the indentures governing our senior
secured and senior unsecured notes, and may be further limited
by instruments governing future outstanding indebtedness we or
our subsidiaries may incur.
Securities
Authorized for Issuance Under Equity Compensation
Plans.
For certain information concerning securities authorized for
issuance under our equity compensation plan, see
Item 12 Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters.
21
Performance
Graph
The graph below compares the cumulative total stockholder return
(assuming the reinvestment of all dividends paid) on $100
invested at the market close on January 31, 2006, the date
our initial public offering was priced for initial sale, through
and including December 31, 2006, with the cumulative return
for the same period on the same amount of investment in the
Russell 2000 Index and a peer group consisting of United
Rentals, Inc. We do not believe that we can reasonably identify
other peer group companies that operate in similar lines of
business and that there is no published industry or
line-of-business
index that provides a meaningful comparison of shareholder
returns. The chart below the graph sets forth the actual numbers
depicted in the
graph.1
COMPARISON
OF 11 MONTH CUMULATIVE TOTAL RETURN*
Among H&E Equipment Services, Inc., The Russell 2000 Index
And A Peer Group
|
|
|
* |
|
$100 invested on
1/13/06 in
stock or index-including reinvestment of dividends. |
Fiscal year ending December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/31/06
|
|
|
3/31/06
|
|
|
6/30/06
|
|
|
9/30/06
|
|
|
12/31/06
|
H&E Equipment Services,
Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
161.78
|
|
|
|
$
|
163.61
|
|
|
|
$
|
135.50
|
|
|
|
$
|
137.61
|
|
Russell 2000 Index
|
|
|
|
100.00
|
|
|
|
|
104.56
|
|
|
|
|
99.31
|
|
|
|
|
99.75
|
|
|
|
|
108.63
|
|
United Rentals, Inc.
|
|
|
|
100.00
|
|
|
|
|
117.71
|
|
|
|
|
109.11
|
|
|
|
|
79.32
|
|
|
|
|
86.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer
Purchases of Equity Securities.
None.
1 The
stock performance shown on the graph above is not necessarily
indicative of future price performance. In addition, this graph
depicts a limited historical trading period due to our initial
public offering in 2006.
22
|
|
Item 6.
|
Selected
Financial Data
|
The following table sets forth our selected historical
consolidated financial data as of the dates and for the periods
indicated. The selected historical consolidated financial data
as of and for the years ended December 31, 2006, 2005, and
2004 have been derived from our audited consolidated financial
statements included elsewhere in this Annual Report on
Form 10-K.
The selected historical consolidated financial data as of and
for the years ended December 31, 2003 and 2002 have been
derived from our audited consolidated financial information not
included herein. Our historical results are not necessarily
indicative of future performance or results of operations. You
should read the consolidated historical financial data together
with our consolidated financial statements and related notes
included in Item 8 of this Annual Report on
Form 10-K
and with Item 7 Managements Discussion
and Analysis of Financial Condition and Results of Operations
and the consolidated financial statements and the related notes
thereto and other financial data included elsewhere in this
Annual Report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006(1)
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002(2)
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
Statement of operations
data(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
$
|
251,374
|
|
|
$
|
190,794
|
|
|
$
|
160,342
|
|
|
$
|
153,851
|
|
|
$
|
136,624
|
|
New equipment sales
|
|
|
241,281
|
|
|
|
156,341
|
|
|
|
116,907
|
|
|
|
81,692
|
|
|
|
72,143
|
|
Used equipment sales
|
|
|
133,897
|
|
|
|
111,139
|
|
|
|
84,999
|
|
|
|
70,926
|
|
|
|
52,487
|
|
Parts sales
|
|
|
82,106
|
|
|
|
70,066
|
|
|
|
58,014
|
|
|
|
53,658
|
|
|
|
47,218
|
|
Service revenues
|
|
|
53,699
|
|
|
|
41,485
|
|
|
|
33,696
|
|
|
|
33,349
|
|
|
|
27,755
|
|
Other
|
|
|
42,012
|
|
|
|
30,385
|
|
|
|
24,214
|
|
|
|
20,510
|
|
|
|
14,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
804,369
|
|
|
|
600,210
|
|
|
|
478,172
|
|
|
|
413,986
|
|
|
|
351,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation
|
|
|
78,159
|
|
|
|
54,534
|
|
|
|
49,590
|
|
|
|
55,244
|
|
|
|
46,627
|
|
Rental expense
|
|
|
40,582
|
|
|
|
47,027
|
|
|
|
50,666
|
|
|
|
49,696
|
|
|
|
37,706
|
|
New equipment sales
|
|
|
211,158
|
|
|
|
137,169
|
|
|
|
104,111
|
|
|
|
73,228
|
|
|
|
65,305
|
|
Used equipment sales
|
|
|
97,765
|
|
|
|
84,696
|
|
|
|
67,906
|
|
|
|
58,145
|
|
|
|
43,776
|
|
Parts sales
|
|
|
57,909
|
|
|
|
49,615
|
|
|
|
41,500
|
|
|
|
39,086
|
|
|
|
34,011
|
|
Service revenues
|
|
|
19,206
|
|
|
|
15,417
|
|
|
|
12,865
|
|
|
|
13,043
|
|
|
|
11,438
|
|
Other
|
|
|
36,409
|
|
|
|
30,151
|
|
|
|
28,246
|
|
|
|
26,433
|
|
|
|
19,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
541,188
|
|
|
|
418,609
|
|
|
|
354,884
|
|
|
|
314,875
|
|
|
|
258,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
|
132,633
|
|
|
|
89,233
|
|
|
|
60,086
|
|
|
|
48,911
|
|
|
|
52,291
|
|
New equipment sales
|
|
|
30,123
|
|
|
|
19,172
|
|
|
|
12,796
|
|
|
|
8,464
|
|
|
|
6,838
|
|
Used equipment sales
|
|
|
36,132
|
|
|
|
26,443
|
|
|
|
17,093
|
|
|
|
12,781
|
|
|
|
8,711
|
|
Parts sales
|
|
|
24,197
|
|
|
|
20,451
|
|
|
|
16,514
|
|
|
|
14,572
|
|
|
|
13,207
|
|
Service revenues
|
|
|
34,493
|
|
|
|
26,068
|
|
|
|
20,831
|
|
|
|
20,306
|
|
|
|
16,317
|
|
Other
|
|
|
5,603
|
|
|
|
234
|
|
|
|
(4,032
|
)
|
|
|
(5,923
|
)
|
|
|
(4,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
|
263,181
|
|
|
|
181,601
|
|
|
|
123,288
|
|
|
|
99,111
|
|
|
|
92,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
143,615
|
|
|
|
111,409
|
|
|
|
97,525
|
|
|
|
93,054
|
|
|
|
78,352
|
|
Loss from litigation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,434
|
|
|
|
|
|
Related party expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,275
|
|
|
|
|
|
Gain on sale of property and
equipment
|
|
|
479
|
|
|
|
91
|
|
|
|
207
|
|
|
|
80
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
120,045
|
|
|
|
70,283
|
|
|
|
25,970
|
|
|
|
(12,572
|
)
|
|
|
14,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006(1)
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002(2)
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense(4)
|
|
|
(37,684
|
)
|
|
|
(41,822
|
)
|
|
|
(39,856
|
)
|
|
|
(39,394
|
)
|
|
|
(28,955
|
)
|
Loss on early extinguishment of
debt
|
|
|
(40,771
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
818
|
|
|
|
372
|
|
|
|
149
|
|
|
|
221
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(77,637
|
)
|
|
|
(41,450
|
)
|
|
|
(39,707
|
)
|
|
|
(39,173
|
)
|
|
|
(28,583
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
42,408
|
|
|
|
28,833
|
|
|
|
(13,737
|
)
|
|
|
(51,745
|
)
|
|
|
(14,508
|
)
|
Income tax provision (benefit)
|
|
|
9,694
|
|
|
|
673
|
|
|
|
|
|
|
|
(5,694
|
)
|
|
|
(6,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
32,714
|
|
|
$
|
28,160
|
|
|
$
|
(13,737
|
)
|
|
$
|
(46,051
|
)
|
|
$
|
(8,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common
share(5):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.89
|
|
|
$
|
1.10
|
|
|
$
|
(0.54
|
)
|
|
$
|
(1.81
|
)
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.88
|
|
|
$
|
1.10
|
|
|
$
|
(0.54
|
)
|
|
$
|
(1.81
|
)
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
36,933
|
|
|
|
25,492
|
|
|
|
25,492
|
|
|
|
25,492
|
|
|
|
25,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
36,982
|
|
|
|
25,492
|
|
|
|
25,492
|
|
|
|
25,492
|
|
|
|
25,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2006(1)
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002(2)
|
|
|
|
(Amounts in thousands)
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization(6)
|
|
$
|
85,122
|
|
|
$
|
59,860
|
|
|
$
|
53,527
|
|
|
$
|
59,159
|
|
|
$
|
49,659
|
|
Statement of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
117,729
|
|
|
|
35,904
|
|
|
|
5,639
|
|
|
|
19,344
|
|
|
|
25,319
|
|
Net cash provided by (used in)
investing activities
|
|
|
(191,988
|
)
|
|
|
(83,075
|
)
|
|
|
(11,753
|
)
|
|
|
20,908
|
|
|
|
(18,694
|
)
|
Net cash provided by (used in)
financing activities
|
|
|
77,935
|
|
|
|
49,440
|
|
|
|
5,581
|
|
|
|
(39,759
|
)
|
|
|
(7,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2006(1)
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002(2)
|
|
|
|
(Amounts in thousands)
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
9,303
|
|
|
$
|
5,627
|
|
|
$
|
3,358
|
|
|
$
|
3,891
|
|
|
$
|
3,398
|
|
Rental equipment, net
|
|
|
440,454
|
|
|
|
308,036
|
|
|
|
243,630
|
|
|
|
261,154
|
|
|
|
322,271
|
|
Goodwill
|
|
|
30,573
|
|
|
|
8,572
|
|
|
|
8,572
|
|
|
|
8,572
|
|
|
|
8,572
|
|
Deferred financing costs and other
intangible assets, net
|
|
|
9,330
|
|
|
|
8,184
|
|
|
|
10,251
|
|
|
|
11,235
|
|
|
|
12,612
|
|
Total assets
|
|
|
759,942
|
|
|
|
530,697
|
|
|
|
408,669
|
|
|
|
409,393
|
|
|
|
476,119
|
|
Total
debt(7)
|
|
|
265,965
|
|
|
|
349,902
|
|
|
|
299,392
|
|
|
|
292,042
|
|
|
|
330,139
|
|
Stockholders
Equity/Members Equity (Deficit)
|
|
|
235,584
|
|
|
|
(5,140
|
)
|
|
|
(33,300
|
)
|
|
|
(19,563
|
)
|
|
|
26,487
|
|
|
|
|
(1) |
|
Our operating results for the year ended December 31, 2006
include the operating results of Eagle since the date of
acquisition, February 28, 2006. |
24
|
|
|
(2) |
|
H&E Equipment Services L.L.C. (H&E LLC) was
the result of the merger on June 17, 2002 of ICM Equipment
Company LLC and its consolidated subsidiaries (ICM)
and Head & Engquist Equipment, LLC
(Head & Engquist, a wholly-owned subsidiary
of Gulf Wide Industries, LLC (Gulf Wide)), with and
into Gulf Wide. Accordingly, the historical statement of
operations data for H&E LLC for the year ended
December 31, 2002 reflects the results of operations of
Head & Engquist from January 1, 2002, until the
date of the merger and includes ICMs results of operations
from the date of the merger through December 31, 2002.
Prior to the completion of our initial public offering in
February 2006, our business was conducted through H&E LLC.
For further information on our Reorganization Transactions, see
Special Note Regarding the Registrant immediately preceding
Part I. Item 1 of this Annual Report on
Form 10-K. |
|
(3) |
|
See note 19 of the 2006 consolidated financial statements
included in Item 8 of this Annual Report on
Form 10-K
discussing segment information. |
|
(4) |
|
Interest expense is comprised of cash-pay interest (interest
recorded on debt and other obligations requiring periodic cash
payments) and non-cash pay interest. |
|
(5) |
|
In calculating shares of common stock outstanding, we give
retroactive effect to the completion of the Reorganization
Transactions as if the Reorganization Transactions had occurred
as of the beginning of the earliest year presented with respect
to statement of operations data. |
|
(6) |
|
Excludes amortization of loan discounts and deferred financing
costs included in interest expense. |
|
(7) |
|
Total debt represents the amounts outstanding under the senior
secured credit facility, senior secured notes, senior
subordinated notes, senior unsecured notes, notes payable and
capital leases, as applicable for the periods presented. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read in conjunction with the
Selected Financial Data and our consolidated financial
statements and the accompanying notes thereto included elsewhere
herein. The following discussion contains, in addition to
historical information, forward-looking statements that include
risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking
statements as a result of certain factors, including those
factors set forth under Item 1A Risk Factors of
this Annual Report on
Form 10-K.
Overview
Background
As one of the largest integrated equipment services companies in
the United States focused on heavy construction and industrial
equipment, we rent, sell and provide parts and service support
for four core categories of specialized equipment:
(1) hi-lift or aerial platform equipment; (2) cranes;
(3) earthmoving equipment; and (4) industrial lift
trucks. By providing equipment rental, sales,
on-site
parts, repair and maintenance functions under one roof, we are a
one-stop provider for our customers varied equipment
needs. This full service approach provides us with multiple
points of customer contact, enables us to maintain a high
quality rental fleet, as well as an effective distribution
channel for fleet disposal and provides cross-selling
opportunities among our new and used equipment sales, rental,
parts sales and service operations.
As of March 21, 2007, we operated 48 full-service
facilities throughout the West Coast, Intermountain, Southwest,
Gulf Coast and Southeast regions of the United States. Our work
force includes distinct, focused sales forces for our new and
used equipment sales and rental operations, highly-skilled
service technicians, product specialists and regional managers.
We focus our sales and rental activities on, and organize our
personnel principally by, our four core equipment categories. We
believe this allows us to provide specialized equipment
knowledge, improve the effectiveness of our rental and sales
force and strengthen our customer relationships. In addition, we
have branch managers at each location who are responsible for
managing their assets and financial results. We believe this
fosters accountability in our business, and strengthens our
local and regional relationships.
Through our predecessor companies, we have been in the equipment
services business for approximately 46 years. H&E
Equipment Services L.L.C. was formed in June 2002 through the
combination of Head & Engquist, a wholly-owned
subsidiary of Gulf Wide, and ICM. Head & Engquist,
founded in 1961, and ICM, founded in 1971,
25
were two leading regional, integrated equipment service
companies operating in contiguous geographic markets. In the
June 2002 transaction, Head & Engquist and ICM were
merged with and into Gulf Wide, which was renamed H&E
Equipment Services L.L.C. Prior to the combination,
Head & Engquist operated 25 facilities in the Gulf
Coast region, and ICM operated 16 facilities in the
Intermountain region of the United States.
In connection with our initial public offering in February 2006,
we converted H&E LLC into H&E Equipment Services, Inc.
Prior to our initial public offering, our business was conducted
through H&E LLC. In order to have an operating Delaware
corporation as the issuer for our initial public offering,
H&E Equipment Services, Inc. was formed as a Delaware
corporation and wholly-owned subsidiary of H&E Holdings, and
immediately prior to the closing of our initial public offering,
on February 3, 2006, H&E LLC and H&E Holdings
merged with and into us (H&E Equipment Services, Inc.), with
us surviving the reincorporation merger as the operating company.
Business
Segments
We have five reportable segments because we derive our revenues
from five principal business activities: (1) equipment
rentals; (2) new equipment sales; (3) used equipment
sales; (4) parts sales; and (5) repair and maintenance
services. These segments are based upon how we allocate
resources and assess performance. In addition, we also have
non-segmented revenues and costs that relate to equipment
support activities.
|
|
|
|
|
Equipment Rentals. Our rental operation
primarily rents our four core types of construction and
industrial equipment. We have an extremely well-maintained
rental fleet and our own dedicated sales force, focused by
equipment type. We actively manage the size, quality, age and
composition of our rental fleet based on our analysis of key
measures such as time utilization (equipment usage based on
customer demand), rental rate trends and targets, and equipment
demand which we closely monitor. We maintain fleet quality
through regional quality control managers and our parts and
services operations.
|
|
|
|
New Equipment Sales. Our new equipment sales
operation sells new equipment in all four product categories. We
have a retail sales force focused by equipment type that is
separate from our rental sales force. Manufacturer purchase
terms and pricing are managed by our product specialists.
|
|
|
|
Used Equipment Sales. Our used equipment sales
are generated primarily from sales of used equipment from our
rental fleet, as well as from sales of inventoried equipment
that we acquire through trade-ins from our equipment customers
and through selective purchases of high quality used equipment.
Used equipment is sold by our dedicated retail sales force. Our
used equipment sales are an effective way for us to manage the
size and composition of our rental fleet and provide a
profitable distribution channel for disposal of rental equipment.
|
|
|
|
Parts Sales. Our parts business sells new and
used parts for the equipment we sell, and also provides parts to
our own rental fleet. To a lesser degree, we also sell parts for
equipment produced by manufacturers whose products we neither
rent nor sell. In order to provide timely parts and service
support to our customers as well as our own rental fleet, we
maintain an extensive parts inventory.
|
|
|
|
Services. Our services operation provides
maintenance and repair services for our customers
equipment and to our own rental fleet at our facilities as well
as at our customers locations. As the authorized
distributor for numerous equipment manufacturers, we are able to
provide service to that equipment that will be covered under the
manufacturers warranty.
|
Our non-segmented revenues and costs relate to equipment support
activities that we provide, such as transportation, hauling,
parts freight and damage waivers, and are not generally
allocated to reportable segments.
You can read more about our business segments under
Item 1 Business and in note 19 of the
consolidated financial statements in Item 8 of this Annual
Report on
Form 10-K.
Revenue
Sources
We generate all of our total revenues from our five business
segments and our non-segmented equipment support activities.
Equipment rentals and new equipment sales account for more than
half of our total revenues. For the year end December 31,
2006, approximately 31.3% of our total revenues were
attributable to equipment rentals,
26
30.0% of our total revenues were attributable to new equipment
sales, 16.6% were attributable to used equipment sales, 10.2%
were attributable to parts sales, 6.7% were attributable to our
service revenues and 5.2% were attributable to non-segmented
other revenues.
|
|
|
Revenue by Segment
|
|
Gross Profit by
Segment
|
($ in millions)
|
|
($ in millions)
|
|
|
|
The equipment that we sell, rent and service is principally used
in the construction industry, as well as by companies for
commercial and industrial uses such as plant maintenance and
turnarounds. As a result, our total revenues are affected by
several factors including, but not limited to, the demand for
and availability of rental equipment, rental rates, the demand
for new and used equipment, the level of construction and
industrial activities, spending levels by our customers, adverse
weather conditions and general economic conditions. For a
discussion of the impact of seasonality on our revenues, see
Seasonality below.
Equipment Rentals. Revenues from equipment
rentals depend on rental rates. Because rental rates are
impacted by competition in specific regions and markets, we
continuously monitor and adjust rental rates. Equipment rental
revenue is also impacted by the availability of equipment and by
time utilization (equipment usage based on customer demand). We
generate reports on, among other things, time utilization,
demand pricing (rental rate pricing based on physical
utilization), and rental rate trends on a
piece-by-piece
basis for our rental fleet. We recognize revenues from equipment
rentals in the period earned on a straight-line basis, over the
contract term, regardless of the timing of billing to customers.
New Equipment Sales. We seek to optimize
revenues from new equipment sales by selling equipment through a
professional in-house retail sales force focused by product
type. While sales of new equipment are impacted by the
availability of equipment from the manufacturer, we believe our
status as a leading distributor for some of our key suppliers
improves our ability to obtain equipment. New equipment sales
are an important component of our integrated model due to
customer interaction and service contact and new equipment sales
also lead to future parts and service revenues. We recognize
revenue from the sale of new equipment at the time of delivery
to, or
pick-up by,
the customer and when all obligations under the sales contract
have been fulfilled and collectibility is reasonably assured.
Used Equipment Sales. We generate the majority
of our used equipment sales revenues by selling equipment from
our rental fleet. The remainder of used equipment sales revenues
comes from the sale of inventoried equipment that we acquire
through trade-ins from our equipment customers and selective
purchases of high-quality used equipment. Our policy is not to
offer specified price trade-in arrangements on equipment for
sale. Sales of our rental fleet equipment allow us to manage the
size, quality, composition and age of our rental fleet, and
provide a profitable distribution channel for disposal of rental
equipment. We recognize revenue for the sale of used equipment
at the time of delivery to, or
pick-up by,
the customer and when all obligations under the sales contract
have been fulfilled and collectibility is reasonably assured.
27
Parts Sales. We generate revenues from the
sale of new and used parts for equipment that we rent or sell,
as well as for other makes of equipment. Our product support
sales representatives are instrumental in generating our parts
revenues. They are product specialists and receive performance
incentives for achieving certain sales levels. Most of our parts
sales come from our extensive in-house parts inventory. Our
parts sales provide us with a relatively stable revenue stream
that is less sensitive to the economic cycles that affect our
rental and equipment sales operations. We recognize revenues
from parts sales at the time of delivery to, or
pick-up by,
the customer and when all obligations under the sales contract
have been fulfilled and collectibility is reasonably assured.
Services. We derive our services revenues from
maintenance and repair services to customers for their owned
equipment. In addition to repair and maintenance on an as-needed
or scheduled basis, we also provide ongoing preventative
maintenance services to industrial customers. Our after-market
service provides a high-margin, relatively stable source of
revenue through changing economic cycles. We recognize services
revenues at the time services are rendered.
Non-Segmented Revenues. Our non-segmented
other revenue consists of billings to customers for equipment
support and activities including: transportation, hauling, parts
freight and loss damage waiver charges. We recognize revenue for
support services at the time we generate an invoice for such
services and after the services have been provided.
Principal
Costs and Expenses
Our largest expenses are the costs to purchase the new equipment
we sell, the costs associated with the used equipment we sell,
rental expenses, rental depreciation and costs associated with
parts sales and services, all of which are included in cost of
revenues. For the fiscal year ended December 31, 2006, our
total cost of revenues was approximately $541.2 million.
Our operating expenses consist principally of selling, general
and administrative expenses. For the fiscal year ended
December 31, 2006, our selling, general and administrative
expenses were approximately $143.6 million. In addition, we
incur interest expense related to our debt instruments.
Operating expenses and all other income and expense items below
the gross profit line of our consolidated statements of
operations are not generally allocated to our reportable
segments.
Cost of
Revenues:
Rental Depreciation. Depreciation of rental
equipment represents the depreciation costs attributable to
rental equipment. Estimated useful lives vary based upon type of
equipment. Generally, we depreciate cranes and aerial work
platforms over a ten year estimated useful life, earthmoving
over a five year estimated useful life with a 25% salvage
value, and industrial lift-trucks over a seven year estimated
useful life. Attachments and other smaller type equipment are
depreciated over a three year estimated useful life.
Rental Expense. Rental expense represents the
costs associated with rental equipment, including, among other
things, the cost of servicing and maintaining our rental
equipment, property taxes on our fleet, equipment operating
lease expense and other miscellaneous costs of rental equipment.
New Equipment Sales. Cost of new equipment
sales consist of the equipment cost of the new equipment that is
sold, net of any amount of credit given to the customer towards
the equipment for trade-ins.
Used Equipment Sales. Cost of used equipment
sales consist of the net book value of rental equipment for used
equipment sold from our rental fleet, net of any amount of
credit given to the customer towards the equipment for trade-ins
or the equipment cost for used equipment purchased for sale.
Parts Sales. Cost of parts sales represents
costs attributable to the sale of parts directly to customers.
Service Support. Cost of service revenues
represent costs attributable to service provided for the
maintenance and repair of customer-owned equipment and equipment
then on-rent by customers.
Non-Segmented Other. Costs associated with
providing transportation, hauling, parts freight, and damage
waiver including, among other items, drivers wages, fuel costs,
shipping costs, and our costs related to damage waiver policies.
28
Selling,
General and Administrative Expenses:
Our selling, general and administrative expenses
(SG&A) include sales and marketing expenses,
payroll and related benefit costs, insurance expenses,
professional fees, property and other taxes, administrative
overhead, and depreciation associated with property and
equipment (other than rental equipment). These expenses are not
generally allocated to our reportable segments.
Interest
Expense:
Interest expense represents the interest on our outstanding debt
instruments, including indebtedness outstanding under our senior
secured credit facility, senior secured notes due 2012 and
senior unsecured notes due 2016 and notes payable. Additionally,
interest expense for the periods presented in our consolidated
financial statements includes interest on our senior
subordinated notes through August 4, 2006, the date upon
which these notes were repaid. Interest expense also includes
non-cash interest expense related to the amortization cost of
(1) deferred financing cost and (2) original issue
discount accretion related to our senior secured notes and
senior subordinated notes (through August 4, 2006). See
note 12 to the consolidated financial statements in this
Annual Report on
Form 10-K
for additional information on our recent Refinancing.
Principal
Cash Flows
We generate cash primarily from our operating activities and
historically we have used cash flows from operating activities
and available borrowings under our senior secured credit
facility as the primary sources of funds to purchase our
inventory and to fund working capital and capital expenditures.
Rental
Fleet
A significant portion of our overall value is in our rental
fleet equipment. Our rental fleet as of December 31, 2006,
consisted of 18,132 units having an original acquisition
cost (which we define as the cost originally paid to
manufacturers or the original amount financed under operating
leases) of approximately $655.2 million. As of
December 31, 2006, our rental fleet composition was as
follows (dollars in millions):
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
Original
|
|
|
% of Original
|
|
|
Average
|
|
|
|
|
|
|
Total
|
|
|
Acquisition
|
|
|
Acquisition
|
|
|
Age in
|
|
|
|
Units
|
|
|
Units
|
|
|
Cost
|
|
|
Cost
|
|
|
Months
|
|
|
Hi-Lift or Aerial Work Platforms
|
|
|
13,697
|
|
|
|
76
|
%
|
|
$
|
434.4
|
|
|
|
66
|
%
|
|
|
43.6
|
|
Cranes
|
|
|
379
|
|
|
|
2
|
%
|
|
|
80.6
|
|
|
|
12
|
%
|
|
|
40.6
|
|
Earthmoving
|
|
|
1,049
|
|
|
|
6
|
%
|
|
|
79.4
|
|
|
|
12
|
%
|
|
|
18.8
|
|
Industrial Lift Trucks
|
|
|
1,348
|
|
|
|
7
|
%
|
|
|
38.1
|
|
|
|
6
|
%
|
|
|
26.2
|
|
Other
|
|
|
1,659
|
|
|
|
9
|
%
|
|
|
22.7
|
|
|
|
4
|
%
|
|
|
28.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18,132
|
|
|
|
100
|
%
|
|
$
|
655.2
|
|
|
|
100
|
%
|
|
|
39.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Determining the optimal age and mix for our rental fleet
equipment is subjective and requires considerable estimates by
management. We constantly evaluate the mix, age and quality of
the equipment in our rental fleet in response to current
economic conditions, competition and customer demand. We
decreased the average age of our rental fleet by approximately
2.5 months during the year ended December 31, 2006,
exclusive of the Eagle acquisition. When combined with the Eagle
acquisition, we decreased the average age of our rental fleet by
approximately 1.7 months during the year ended
December 31, 2006. The average age of the Eagle fleet was
approximately 61.0 months at the acquisition date. The
Eagle fleet has de-aged in excess of 17 months since our
acquisition of Eagle in February 2006. We have made significant
progress in reducing Eagles fleet age through a
combination of disposing of older fleet and adding new fleet. We
increased our overall gross rental fleet through the normal
course of business activities by approximately
$62.7 million during the year ended December 31, 2006
and $132.8 million when combined with the acquired Eagle
fleet as of December 31, 2006. We acquired approximately
$70.1 million of gross rental fleet in the Eagle
acquisition. We also increased for the year ended
December 31, 2006, our average rental rates by
approximately 9.0%. The mix among our four core product lines
remained consistent
29
with that of prior years. As a result of our in-house service
capabilities and extensive maintenance program, we believe our
rental fleet is well-maintained.
The mix and age of our rental fleet, as well as our cash flows,
are impacted by the normal sales of equipment from the rental
fleet and the capital expenditures to acquire new rental fleet
equipment. In making rental fleet acquisition decisions, we
evaluate current market conditions, competition,
manufacturers availability, pricing and return on
investment over the estimated useful life of the specific
equipment, among other things.
Principal
External Factors that Affect our Businesses
We are subject to a number of external factors that may
adversely affect our businesses. These factors, and other
factors, are discussed below and under the heading
Forward-Looking Statements, and in Item 1A Risk
Factors in this Annual Report on
Form 10-K.
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Spending levels by customers. Rentals and
sales of equipment to the construction industry and to
industrial companies constitute a significant portion of our
revenues. As a result, we depend upon customers in these
businesses and their ability and willingness to make capital
expenditures to rent or buy specialized equipment. Accordingly,
our business is impacted by fluctuations in customers
spending levels on capital expenditures.
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|
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|
Economic downturns. The demand for our
products is dependent on the general economy, the industries in
which our customers operate or serve, and other factors.
Downturns in the general economy or in the construction and
manufacturing industries can cause demand for our products to
materially decrease.
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|
Adverse weather. Adverse weather in a
geographic region in which we operate may depress demand for
equipment in that region. Our equipment is primarily used
outdoors and, as a result, prolonged adverse weather conditions
may prohibit our customers from continuing their work projects.
The adverse weather also has a seasonal impact in parts of our
Intermountain region, primarily in the winter months.
|
We believe that our integrated business tempers the effects of
downturns in a particular segment. For a discussion of
seasonality, see Seasonality below.
Critical
Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance
with accounting principles generally accepted in the United
States. The application of many accounting principles requires
us to make assumptions, estimates
and/or
judgments that affect the reported amounts of assets,
liabilities, revenues and expenses in our consolidated financial
statements. We base our estimates and judgments on historical
experience and other assumptions that we believe are reasonable
under the circumstances. These assumptions, estimates
and/or
judgments, however, are often subjective and they and our actual
results may change based on changing circumstances or changes in
our analyses. If actual amounts are ultimately different from
our estimates, the revisions are included in our results of
operations for the period in which the actual amounts first
become known. We believe the following critical accounting
policies could potentially produce materially different results
if we were to change underlying assumptions, estimates
and/or
judgments. See also note 2 to our consolidated financial
statements for a summary of our significant accounting policies.
Revenue Recognition. Our revenue recognition
policies vary by reporting segment. Our policy is to recognize
revenue from equipment rentals in the period earned on a
straight-line basis, 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 rental revenue at the end
of reporting periods so rental revenue earned is appropriately
reported in the periods presented. We recognize revenue from new
equipment sales, used equipment sales and parts sales at the
time of delivery to, or
pick-up by,
the customer and when all obligations under the sales contract
have been fulfilled and collectibility is reasonably assured. We
recognize services revenues at the time services are rendered.
We recognize other revenues for support services at the time we
generate an invoice including the charge for such completed
services.
30
Allowance for Doubtful Accounts. We maintain
an allowance for doubtful accounts that reflects our estimate of
the amount of our receivables that we will be unable to collect.
Our largest exposure to doubtful accounts is in our rental
operations. We perform credit evaluations of customers and
establish credit limits based on reviews of customer current
credit information and payment histories. We believe our credit
risk is mitigated by our geographically diverse customer base
and our credit evaluation procedures. During the year, we
write-off customer account balances when we have exhausted
reasonable collection efforts and determined that the likelihood
of collection is remote. Such write-offs are charged against our
allowance for doubtful accounts. In the past five years, our
write-offs have averaged approximately 0.3% of total annual
rental revenues. The actual rate of future credit losses,
however, may not be similar to past experience. Our estimate of
doubtful accounts could 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 for doubtful
accounts.
Useful Lives of Rental Equipment and Property and
Equipment. We depreciate rental equipment and
property and equipment over their estimated useful lives
(generally three to ten years), after giving effect to an
estimated salvage value of 0% to 25% of cost. The useful life of
rental equipment 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 routinely
review the assumptions utilized in computing rates of
depreciation. 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 these
assets.
The amount of depreciation expense we record is highly dependent
upon the estimated useful lives and the salvage values assigned
to each category of rental equipment. Generally, we assign
estimated useful lives to our rental fleet ranging from a
three-year life, five-year life with a 25% salvage value,
seven-year life and a ten-year life. Depreciation expense on the
rental fleet for the year ended December 31, 2006 was
$78.2 million. For the year ended December 31, 2006,
the estimated impact of a change in estimated useful lives for
each category of equipment by two years was as follows (amounts
in thousands):
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|
|
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|
|
Hi-Lift or
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerial Work
|
|
|
|
|
|
Earth-
|
|
|
Industrial Lift
|
|
|
|
|
|
|
|
|
|
Platforms
|
|
|
Cranes
|
|
|
Moving
|
|
|
Trucks
|
|
|
Other
|
|
|
Total
|
|
|
|
($ in millions)
|
|
|
Impact of
2-year
change in useful life on results of operations for the year
ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the year
ended December 31, 2006
|
|
$
|
42.8
|
|
|
$
|
10.4
|
|
|
$
|
14.2
|
|
|
$
|
6.3
|
|
|
$
|
4.5
|
|
|
$
|
78.2
|
|
Increase of 2 years in useful
life
|
|
|
36.2
|
|
|
|
6.7
|
|
|
|
8.6
|
|
|
|
4.2
|
|
|
|
4.5
|
|
|
|
60.2
|
|
Decrease of 2 years in useful
life
|
|
|
54.3
|
|
|
|
10.1
|
|
|
|
19.8
|
|
|
|
7.6
|
|
|
|
22.7
|
|
|
|
114.5
|
|
For purposes of the sensitivity analysis above, we have elected
not to decrease the lives of other equipment, which are
primarily three year estimated useful life assets; rather, we
have held the depreciation expense constant at our actual
amount. We believe that decreasing the life of the other
equipment by two years is an unreasonable estimate and would
potentially lead to the decision to expense, rather than
capitalize, a significant portion of the subject asset class. As
noted in this sensitivity table, in general terms, a one-year
increase in the estimated life across all classes of our rental
equipment will give rise to an approximate decrease in our
annual depreciation expense of $0.9 million. Additionally,
a one-year decrease in the estimated life across all classes of
our rental equipment will give rise to an approximate increase
in our annual depreciation expense of $1.8 million.
As previously mentioned, another significant assumption used in
our calculation of depreciation expense is the estimated salvage
value assigned to our earthmoving equipment. Based on our recent
experience, we have used a 25% factor of the equipments
original cost to estimate its salvage value. This factor is
highly subjective and subject
31
to change upon future actual results at the time we dispose of
the equipment. A change of 5%, either increase or decrease, in
the estimated salvage value would result in a change in our
annual depreciation expense of approximately $700,000.
Impairment of Long-Lived Assets. Long-lived
assets are recorded at the lower of amortized cost or, if there
is an impairment, at fair value. We review long-lived assets and
certain identifiable intangibles for impairment whenever events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount
of an asset to future undiscounted cash flows expected to be
generated by the asset over the remaining useful life. If such
assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. We
must make estimates and assumptions when applying the
undiscounted cash flow analysis. These estimates and assumptions
may prove to be inaccurate due to factors such as changes in
economic conditions, changes in our business prospects or other
changing circumstances. If these estimates change in the future,
we may be required to recognize write-downs on our long-lived
assets.
Inventories. We state our new and used
equipment inventories at the lower of cost or market by specific
identification. Parts and supplies are stated on the lower of
the weighted average cost or market. We maintain allowances for
damaged, slow-moving and unmarketable inventory to reflect the
difference between the cost of the inventory and the estimated
market value. Changes in product demand may affect the value of
inventory on hand and may require higher inventory allowances.
Uncertainties with respect to inventory valuation are inherent
in the preparation of financial statements.
Purchase Price Allocation. We have made
significant acquisitions in the past and expect that we will
continue to make acquisitions on an opportunistic basis in the
future to solidify our presence in the contiguous regions where
we operate with an objective of increasing our revenues,
improving our profitability, entering additional attractive
markets and strengthening our competitive position. The cost of
an entity acquired in a business combination includes the
purchase price and the direct costs of the business combination.
We allocate the cost of the acquired enterprise to the
identifiable assets acquired and liabilities assumed based on
their respective fair values at the date of acquisition. With
the exception of goodwill, long-lived fixed assets generally
represent the largest component of our acquisitions. Typically,
the long-lived fixed assets that we acquire are primarily
comprised of rental fleet equipment.. Historically, virtually
all of the rental equipment that we have acquired through
purchase business combinations has been classified as To
be Used, rather than as To be Sold. Equipment
that we acquire and classify as To be Used is
recorded at fair value, as determined by replacement cost of
such equipment. We use third party valuation experts to help
calculate replacement cost. Additionally, we use third party
valuation experts to determine fair market values associated
with any significant inventories of new and used equipment
acquired in the transaction.
In addition to long-lived fixed assets, we also acquire other
assets and assume liabilities. These other assets and
liabilities typically include, but are not limited to, parts
inventory, accounts receivable, accounts payable and other
working capital items. Because of their short-term nature, the
fair values of these assets and liabilities generally
approximate the book values reflected on the acquired entities
balance sheets. However, when appropriate, we adjust these book
values for factors such as collectibility and existence. The
intangible assets that we have acquired consist primarily of the
goodwill recognized. Goodwill is calculated as the excess of the
cost of the acquired entity over the net of the amounts assigned
to the identifiable assets acquired and the liabilities assumed.
Depending upon the applicable purchase agreement and the
particular facts and circumstances of the business acquired, we
may identify other intangible assets, such as non-compete
agreements and customer-related intangibles (specifically
customer relationships). When specifically negotiated by the
parties in the applicable purchase agreements, we base the value
of non-compete agreements on the amounts assigned to them in the
purchase agreements as these amounts represent the amounts
negotiated in an arms length transaction. When not
negotiated by the parties in the applicable purchase agreements,
the fair value of non-compete agreements is estimated based on a
percentage of the acquisitions goodwill. Customer
relationships are generally valued based on an excess earnings
or income approach with consideration to projected cash flows.
We use third party valuation experts to independently estimate
such values.
32
Impairment of Goodwill. We have made
acquisitions in the past that included the recognition of
goodwill. Commencing January 1, 2002, goodwill is no longer
amortized, but instead is reviewed for impairment annually or
more frequently if triggering events occur or other impairment
indicators arise which might impair recoverability. Impairment
of goodwill is evaluated at the reporting unit level. In
general, this means that we must determine whether the fair
value of our goodwill reporting units is greater than their
carrying value. If the fair value of a reporting unit is less
than its carrying value, then we must calculate the implied fair
value of goodwill, which is compared to its carrying value to
measure the amount of impairment, if any.
A reporting unit is defined as an operating segment (i.e. before
aggregation or combination), or one level below an operating
segment (i.e. a component). A component of an operating segment
is a reporting unit if the component constitutes a business for
which discrete financial information is available and segment
management regularly reviews the operating results of that
component. We have identified six reporting units pursuant to
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, and Statement
of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information,
as well as other relevant accounting guidance.
Reserves for Claims. We are exposed to various
claims relating to our business, including those for which we
provide self-insurance. Claims for which we self-insure include
(i) workers compensation claims; (ii) general
liability claims by third parties for injury or property damage
caused by our equipment or personnel; and (3) employee
health insurance claims. These types of claims may take a
substantial amount of time to resolve and, accordingly, the
ultimate liability associated with a particular claim may not be
known for an extended period of time. Our methodology for
developing self-insurance reserves is based on management
estimates. Our estimation process considers, among other
matters, the cost of known claims over time, cost inflation and
incurred but not reported claims. These estimates may change
based on, among other things, changes in our claim history or
receipt of additional information relevant to assessing the
claims. Further, these estimates may prove to be inaccurate due
to factors such as adverse judicial determinations or other
claim settlements at higher than estimated amounts. Accordingly,
we may be required to increase or decrease our reserve levels.
Income Taxes. We utilize the asset and
liability approach to measuring deferred tax assets and
liabilities based on temporary differences existing at each
balance sheet date using currently enacted tax rates in
accordance with Statement of Financial Accounting Standards
No. 109 (SFAS 109), Accounting for
Income Taxes. This standard takes into account the
differences between financial statement treatment and tax
treatment of certain transactions. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Our deferred tax
calculation requires management to make certain estimates about
future operations. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred
tax assets will not be realized. The effect of a change in tax
rate is recognized as income or expense in the period that
includes the enactment date.
We are subject to ongoing tax examinations and assessments in
various jurisdictions. Accordingly, we may incur additional tax
expense based on probable outcomes of such matters.
Results
of Operations
The tables included in the period comparisons below provide
summaries of our revenues and gross profits for our business
segments. The
period-to-period
comparisons of financial results are not necessarily indicative
of future results.
Our operating results for the year ended December 31, 2006
include the operating results of Eagle since the date of
acquisition, February 28, 2006.
33
Year
Ended December 31, 2006 Compared to the Year Ended
December 31, 2005
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Total
|
|
|
|
December 31,
|
|
|
Total Dollar
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except percentages)
|
|
|
Segment Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
$
|
251.4
|
|
|
$
|
190.8
|
|
|
$
|
60.6
|
|
|
|
31.8
|
%
|
New equipment sales
|
|
|
241.3
|
|
|
|
156.3
|
|
|
|
85.0
|
|
|
|
54.4
|
%
|
Used equipment sales
|
|
|
133.9
|
|
|
|
111.1
|
|
|
|
22.8
|
|
|
|
20.5
|
%
|
Parts sales
|
|
|
82.1
|
|
|
|
70.1
|
|
|
|
12.0
|
|
|
|
17.1
|
%
|
Service revenues
|
|
|
53.7
|
|
|
|
41.5
|
|
|
|
12.2
|
|
|
|
29.4
|
%
|
Non-Segmented revenues
|
|
|
42.0
|
|
|
|
30.4
|
|
|
|
11.6
|
|
|
|
38.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
804.4
|
|
|
$
|
600.2
|
|
|
$
|
204.2
|
|
|
|
34.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues. Our total revenues were
$804.4 million in 2006 compared to $600.2 million in
2005, an increase of $204.2 million, or 34.0%. Revenues
increased for all reportable segments primarily as a result of
increased customer demand for our products and services. Total
revenues related to Eagle included in our 2006 fiscal year
operating results were $33.3 million.
Equipment Rental Revenues. Our revenues from
equipment rentals increased $60.6 million, or 31.8%, to
$251.4 million in 2006 from $190.8 million in 2005.
The increase is primarily a result of a 9.0% increase in average
comparative rental rates, which was partially offset by a 0.6%
decrease in time utilization (equipment usage based on customer
demand) from 69.8% last year compared to 69.2% this year. Rental
revenues increased for all four core product lines. Revenues
from aerial work platforms increased $45.0 million, cranes
increased $4.5 million, earthmoving increased
$7.0 million, lift trucks increased $3.2 million and
other equipment rentals increased $0.9 million. Total
equipment rental revenues included in our 2006 operating results
related to Eagle were $26.0 million, of which
$20.3 million was related to the rental of aerial work
platforms. Rental equipment dollar utilization (annual rental
revenues divided by the average quarterly original rental fleet
equipment costs of $629.5 million and $494.7 million
for 2006 and 2005, respectively) was approximately 41.1% in 2006
compared to 38.6% in 2005.
New Equipment Sales Revenues. Our new
equipment sales increased $85.0 million, or 54.4%, to
$241.3 million in 2006 from $156.3 million in 2005. In
2006, sales of new cranes increased $52.2 million, aerial
work platforms increased $9.6 million, new earthmoving
sales increased $17.5 million and new lift trucks increased
$2.0 million. Other new equipment sales also increased by
$3.7 million. Total new equipment sales revenues for the
year ended December 31, 2006 related to Eagle and included
in our 2006 operating results were approximately
$0.8 million.
Used Equipment Sales Revenues. Our used
equipment sales increased $22.8 million, or 20.5%, to
$133.9 million in 2006 from $111.1 million in 2005.
Total used equipment sales revenues for the year ended
December 31, 2006 related to Eagle and included in our 2006
operating results were $2.5 million. Our used equipment
sales from our rental fleet in 2006 were approximately 145.0% of
net book value, compared to 136.6% of net book value for 2005,
which is indicative of higher customer demand for quality used
equipment.
Parts Sales Revenues. Our parts sales
increased $12.0 million, or 17.1%, to $82.1 million in
2006 from $70.1 million in 2005. Of the $12.0 million
increase for the year ended December 31, 2006,
$0.5 million was attributable to Eagle. The remaining
increase was primarily attributable to increased customer demand
for parts and the growth of our primary business activities.
Service Revenues. Our service revenues
increased $12.2 million, or 29.4%, to $53.7 million in
2006 from $41.5 million in 2005 and was primarily
attributable to increased customer demand for service support
and the growth of our primary business activities. Approximately
$0.3 million of the service revenues increase was
attributable to Eagle.
34
Non-Segmented Revenues. Our non-segmented
other revenues consisted primarily of equipment support
activities including transportation, hauling, parts freight and
damage waiver charges. Our other revenue increased
$11.6 million, or 38.2%, during 2006. These support
activities increased largely due to an increase in the volume of
these services in conjunction with the growth of our primary
business activities combined with a strategic focus on offering
these services to our customers.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
Total
|
|
|
|
December 31,
|
|
|
Total Dollar
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except for percentages)
|
|
|
Segment Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
$
|
132.7
|
|
|
$
|
89.3
|
|
|
$
|
43.4
|
|
|
|
48.6
|
%
|
New equipment sales
|
|
|
30.1
|
|
|
|
19.1
|
|
|
|
11.0
|
|
|
|
57.6
|
%
|
Used equipment sales
|
|
|
36.1
|
|
|
|
26.4
|
|
|
|
9.7
|
|
|
|
36.7
|
%
|
Parts sales
|
|
|
24.2
|
|
|
|
20.5
|
|
|
|
3.7
|
|
|
|
18.0
|
%
|
Service revenues
|
|
|
34.5
|
|
|
|
26.1
|
|
|
|
8.4
|
|
|
|
32.2
|
%
|
Non-Segmented revenues
|
|
|
5.6
|
|
|
|
0.2
|
|
|
|
5.4
|
|
|
|
2,700.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
263.2
|
|
|
$
|
181.6
|
|
|
$
|
81.6
|
|
|
|
44.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Profit. Our total gross profit was
$263.2 million in 2006 compared to $181.6 million in
2005, a $81.6 million, or 44.9%, increase. Gross profit
increased primarily as a result of increased rental revenues
combined with a reduction of rental expenses. In addition, due
to the increase in customer demand for new and well-maintained
used equipment, we were able to sell our equipment at a higher
gross margin. Total gross profit margin for 2006 was 32.7%, an
increase of 2.4% from the 30.3% gross profit margin in 2005.
Total gross profit related to Eagle included in our 2006
operating results was $15.3 million, or approximately 46.1%
of total Eagle revenues for 2006. Our gross profit was
attributable to:
Equipment Rentals Gross Profit. Our gross
profit from equipment rentals increased $43.4 million, or
48.6%, to $132.7 million in 2006 from $89.3 million in
2005. The increase is primarily a result of a $60.6 million
increase in rental revenue and a $6.5 million decrease in
rental expenses. These improvements in gross profit were offset
by a $23.7 million increase in rental depreciation expense
as a result of the fleet acquired in the Eagle acquisition and
the growth of our existing rental fleet.
The decrease in rental expenses is the net result of an
$11.8 million decrease in operating lease costs and a
$5.3 million increase in maintenance and repair costs as a
result of a larger fleet. As a percentage of equipment rental
revenues, maintenance and repair costs were 12.6% in 2006, down
from 14.2% in the prior year. The decrease in operating lease
costs is the result of our payoff of all rental fleet operating
leases with the proceeds of our initial public offering.
Eagles rental operations contributed $14.4 million of
the total gross profit increase for the period.
New Equipment Sales Gross Profit. Our new
equipment sales gross profit increased $11.0 million, or
57.6%, to $30.1 million in 2006 from $19.1 million in
2005. The increase in new equipment sales gross profit is
primarily attributable to higher new equipment sales revenue, an
improvement of 0.2% in comparative gross margins and the mix of
equipment sold.
Used Equipment Sales Gross Profit. Our used
equipment sales gross profit increased $9.7 million, or
36.7%, to $36.1 million in 2006 from $26.4 million in
2005. The increase in used equipment sales gross profit was
primarily the result of higher used equipment sales, a 3.2%
improvement in comparative gross margins and the mix of used
equipment sold. Additionally, Eagle contributed
$0.7 million of the increase.
Parts Sales Gross Profit. Our parts sales
revenue gross profit increased $3.7 million, or 18.0%, to
$24.2 million in 2006 from $20.5 million in 2005. The
increase was primarily attributable to the growth in parts sales
revenues from increased customer demand for parts.
35
Service Revenues Gross Profit. Our service
revenues gross profit increased $8.4 million, or 32.2%, to
$34.5 million in 2006 from $26.1 million in 2005. The
increase was primarily attributable to the growth in service
revenues from increased customer demand for service support.
Eagle contributed approximately $0.2 million of the gross
profit increase.
Non-Segmented Revenues Gross Profit. Our
non-segmented revenues gross profit improved $5.4 million.
The improvement is largely due to a strategic focus on these
equipment support activities combined with the increase in
support activity revenues and the streamlining of the related
costs of support revenues.
Selling, General and Administrative
Expenses. Selling, general and administrative
expenses increased $32.2 million, or 28.9%, to
$143.6 million in 2006 from $111.4 million in 2005.
The increase was primarily related to the growth of our
business, which resulted in increased headcount, higher sales
commissions, performance incentives, benefits and insurance
costs. Additionally, we incurred in 2006 a one-time,
non-recurring expense of $8.0 million to terminate a
management services agreement in connection with our initial
public offering of common stock. As a percentage of total
revenues, SG&A expenses were 17.8% in 2006, down from 18.6%
in the prior year, reflecting the fixed cost nature of certain
SG&A costs combined with higher revenues in the current year
compared to the prior year, which was partially offset by the
one-time, non-recurring expense mentioned above.
Other Income (Expense). For the year ended
December 31, 2006, our net other expense increased by
$36.2 million to $77.6 million compared to
$41.4 million for the same period in 2005. Included in the
current year other income (expense) is a $40.8 million
charge related to the early extinguishment of debt in connection
with our Refinancing (see discussion below). The remainder of
the change reflects $4.1 million of lower interest expense
resulting from a decrease in average outstanding borrowings for
2006 compared to 2005 as a result of our February 2006 paydown
of outstanding principal balances on our senior secured credit
facility from the proceeds of our initial public offering. We
had no subsequent borrowings under the senior secured credit
facility until August 4, 2006. Additionally, the lower
interest expense is reflective of the Companys Refinancing
as further discussed below. Offsetting these lower interest
costs were higher interest costs associated with an increase in
interest expense related to our manufacturer flooring plans
payable used to finance inventory purchases. Additionally, net
other income increased $0.4 million for the comparative
periods as a result of interest income earned during the first,
second and third quarters of 2006 from the investment of our
excess cash balances.
On August 4, 2006, we completed the cash tender offer and
consent solicitation for our
111/8% senior
secured notes due 2012 and
121/2% senior
subordinated notes due 2013 (collectively, the
Notes). Additionally, we announced the closing of
our private offering of $250 million aggregate principal
amount of its
83/8% senior
unsecured notes due 2016 (the New Notes).
Net proceeds to us, after deducting underwriting commissions,
totaled approximately $245.3 million. We used the net
proceeds of the offering of the New Notes, together with cash on
hand and borrowings under its existing senior secured credit
facility, to purchase $195.5 million in aggregate principal
amount of the senior secured notes (representing approximately
97.8% of the previously outstanding senior secured notes), and
the $53.0 million in aggregate principal amount of the
senior subordinated notes (representing 100% of the previously
outstanding senior subordinated notes) that were validly
tendered pursuant to the tender offer and consent solicitation.
The total principal amount, accrued and unpaid interest, consent
fee amounts and premiums paid for the senior secured notes was
$217.6 million. The total principal amount, accrued and
unpaid interest, consent fee amounts and premiums paid for the
Senior Subordinated Notes was approximately $60.1 million.
Aggregate offering expenses totaled approximately
$1.9 million.
In connection with the above transactions, we recorded a loss on
early extinguishment of debt in the three month period ended
September 30, 2006 of approximately $40.8 million, or
approximately $31.5 million after-tax, reflecting payment
of the $25.3 million of tender premiums and other
transaction costs of $0.5 million in connection with the
tender offer and consent solicitation, combined with the write
off of approximately $5.4 million of unamortized deferred
financing costs of the Notes and $9.6 million of remaining
unamortized original issue discount on the Notes.
36
Income Taxes. Effective with the
Reorganization Transactions on February 3, 2006, we are a
C-corporation for income tax purposes. Prior to the
Reorganization Transactions, we were a limited liability company
that elected to be treated as a C-corporation for income tax
purposes.
Income tax expense for the year ended December 31, 2006
increased approximately $9.0 million to $9.7 million
compared to $0.7 million for the year ended
December 31, 2005. The effective income tax rate for the
year ended December 31, 2006 was 22.9% compared to 2.3% for
the year ended December 31, 2005. The increase is a result
of our increased taxable income in 2006 that resulted in higher
state income taxes, as well as nondedeductible original issue
discount written off for book purposes in connection with our
Refinancing (see note 12 to the consolidated financial
statements for further information on our Refinancing). Also,
our 2006 effective tax rate was impacted by the reversal of
our deferred tax asset valuation allowance, which created a
current year income tax benefit, thereby lowering our estimated
effective tax rate for the year. We had recorded at
December 31, 2005 a tax valuation allowance against a
portion of our deferred income tax assets. The valuation
allowance was recorded given the cumulative losses incurred and
our belief that it was more likely than not that we would not be
able to recover the deferred income tax assets. The valuation
allowance was reversed in 2006. Based on available evidence,
both positive and negative, we believe it is more likely than
not that our deferred tax assets at December 31, 2006 are
fully realizable through future reversals of existing taxable
existing temporary differences and future taxable income, and
are not subject to any limitations.
Year
Ended December 31, 2005 Compared to the Year Ended
December 31, 2004
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
Total
|
|
|
Total
|
|
|
|
December 31,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2005
|
|
|
2004
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except percentages)
|
|
|
Segment Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
$
|
190.8
|
|
|
$
|
160.3
|
|
|
$
|
30.5
|
|
|
|
19.0
|
%
|
New equipment sales
|
|
|
156.3
|
|
|
|
116.9
|
|
|
|
39.4
|
|
|
|
33.7
|
%
|
Used equipment sales
|
|
|
111.1
|
|
|
|
85.0
|
|
|
|
26.1
|
|
|
|
30.7
|
%
|
Parts sales
|
|
|
70.1
|
|
|
|
58.0
|
|
|
|
12.1
|
|
|
|
20.9
|
%
|
Service revenues
|
|
|
41.5
|
|
|
|
33.7
|
|
|
|
7.8
|
|
|
|
23.1
|
%
|
Non-Segmented revenues
|
|
|
30.4
|
|
|
|
24.3
|
|
|
|
6.1
|
|
|
|
25.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
600.2
|
|
|
$
|
478.2
|
|
|
$
|
122.0
|
|
|
|
25.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues. Our total revenues were
$600.2 million in 2005 compared to $478.2 million in
2004, an increase of $122.0 million, or 25.5%. Revenues
increased for all reportable segments as a result of increased
customer demand for our products and services.
Equipment Rental Revenues. Our revenues from
equipment rentals increased $30.5 million, or 19.0%, to
$190.8 million in 2005 from $160.3 million in 2004.
The increase is primarily a result of improved rental rates and
higher time utilization. Rental revenues increased for all four
core product lines. Revenues from aerial work platforms
increased $20.0 million, cranes increased
$3.6 million, earthmoving increased $3.4 million, lift
trucks increased $1.8 million and other equipment rentals
increased $1.7 million. Rental equipment dollar utilization
(annual rental revenues divided by the average quarterly
original rental fleet equipment costs of $494.7 million and
$472.3 million for 2005 and 2004, respectively) was
approximately 38.6% in 2005 compared to 33.9% in 2004.
New Equipment Sales Revenues. Our new
equipment sales increased $39.4 million, or 33.7%, to
$156.3 million in 2005 from $116.9 million in 2004. In
2005, sales of new cranes increased $16.1 million, aerial
work platforms increased $11.6 million, new earthmoving
sales increased $8.6 million and new lift trucks increased
$2.6 million. Other new equipment sales also increased by
$0.5 million.
Used Equipment Sales Revenues. Our used
equipment sales increased $26.1 million, or 30.7%, to
$111.1 million in 2005 from $85.0 million in 2004. In
2005, our used equipment sales from the fleet were approximately
136.6%
37
compared to 130.3% of net book value for 2004. With extended
manufacturer lead times for new equipment, the demand for
well-maintained, used equipment has increased.
Parts Sales Revenues. Our parts sales
increased $12.1 million, or 20.9%, to $70.1 million in
2005 from $58.0 million in 2004. The increase was primarily
attributable to increased customer demand for parts.
Service Revenues. Our service revenues
increased $7.8 million, or 23.1%, to $41.5 million in
2005 from $33.7 million in 2004 primarily attributable to
increased customer demand for service support.
Non-Segmented Revenues. Our non-segmented
other revenues consisted primarily of equipment support
activities including transportation, hauling, parts freight and
damage waiver charges. Our other revenue increased
$6.1 million, or 25.1%, during 2005. These support
activities increased due to a combination of the increases in
charge-out rates and in the volume of our primary business
activities.
Gross
Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
Total
|
|
|
Total
|
|
|
|
December 31,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
2005
|
|
|
2004
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except for percentages)
|
|
|
Segment Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
$
|
89.3
|
|
|
$
|
60.1
|
|
|
$
|
29.2
|
|
|
|
48.6
|
%
|
New equipment sales
|
|
|
19.1
|
|
|
|
12.8
|
|
|
|
6.3
|
|
|
|
49.2
|
%
|
Used equipment sales
|
|
|
26.4
|
|
|
|
17.1
|
|
|
|
9.3
|
|
|
|
54.4
|
%
|
Parts sales
|
|
|
20.5
|
|
|
|
16.5
|
|
|
|
4.0
|
|
|
|
24.2
|
%
|
Service revenues
|
|
|
26.1
|
|
|
|
20.8
|
|
|
|
5.3
|
|
|
|
25.5
|
%
|
Non-Segmented revenues
|
|
|
0.2
|
|
|
|
(4.0
|
)
|
|
|
4.2
|
|
|
|
105.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
181.6
|
|
|
$
|
123.3
|
|
|
$
|
58.3
|
|
|
|
47.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Profit. Our total gross profit was
$181.6 million in 2005 compared to $123.3 million in
2004, a $58.3 million, or 47.3%, increase. Gross profit
increased primarily as a result of increased rental revenues
combined with reduced rental expense. In addition, due to the
increase in customer demand for new and well-maintained used
equipment, we were able to sell our equipment at a higher gross
margin. Total gross profit margin for 2005 was 30.3%, an
increase of 4.5% from the 25.8% gross profit margin in 2004. Our
gross profit was attributable to:
Equipment Rentals Gross Profit. Our gross
profit from equipment rentals increased $29.2 million, or
48.6%, to $89.3 million in 2005 from $60.1 million in
2004. The increase is primarily a result of a $30.5 million
increase in rental revenue and a $3.6 million decrease in
rental expense. These improvements in gross profit were offset
by a $4.9 million increase in rental depreciation expense.
New Equipment Sales Gross Profit. Our new
equipment sales gross profit increased $6.3 million, or
49.2%, to $19.1 million in 2005 from $12.8 million in
2004. The increase in new equipment sales gross profit is
primarily attributable to higher new equipment sales revenue,
improved margins and the mix of equipment sold.
Used Equipment Sales Gross Profit. Our used
equipment sales gross profit increased $9.3 million, or
54.4%, to $26.4 million in 2005 from $17.1 million in
2004. The increase in used equipment sales gross profit was
primarily the result of higher used equipment sales, improved
margins and the mix of used equipment sold.
Parts Sales Gross Profit. Our parts sales
revenue gross profit increased $4.0 million, or 24.2%, to
$20.5 million in 2005 from $16.5 million in 2004. The
increase was primarily attributable to increased customer demand
for parts.
Service Revenues Gross Profit. Our service
revenues gross profit increased $5.3 million, or 25.5%, to
$26.1 million in 2005 from $20.8 million in 2004. The
increase was primarily attributable to increased customer demand
for service support.
38
Non-Segmented Revenues Gross Profit. Our
non-segmented revenues gross profit improved 105.0% on a 25.1%
improvement in revenues. The improvement in gross profit is the
result of several factors, most significantly a
$1.8 million gross profit improvement in hauling activities
and a $1.2 million gross profit improvement in damage
waiver charges. These improvements are largely due to a
strategic focus on these equipment support activities combined
with the increase in support activity revenues.
Selling, General and Administrative
Expenses. Selling, general and administrative
(SG&A) expenses increased $13.9 million, or
14.3%, to $111.4 million in 2005 from $97.5 million in
2004. The increase was primarily related to increased headcount,
higher sales commissions, performance incentives, benefits and
professional services. As a percent of total revenues, SG&A
expenses were 18.6% in 2005 down from 20.4% in the prior year,
reflecting the fixed cost nature of certain SG&A costs
combined with higher revenues in the current year compared to
the prior year.
Other Income (Expense). Our 2005 other expense
increased by $1.8 million to $41.5 million from
$39.7 million in 2004. Our interest expense for 2005
increased $2.0 million this year compared to last year as a
result of increased outstanding borrowings under our senior
secured credit facility. The annual interest rates on our senior
secured credit facility averaged 7.4% in 2005 compared to 7.1%
in 2004.
Income Taxes. At December 31, 2005 we
were a limited liability company that had elected to be treated
as a C Corporation for income tax purposes. For 2005, income tax
expense was $0.7 million compared to $0 at
December 31, 2004. The increase is a result of our income
in 2005 and the establishment of a valuation allowance against
our net deferred income tax assets. Based on the cumulative
losses we had previously incurred, at the end of 2005 and 2004,
we recorded a tax valuation allowance of $8.2 million and
$19.1 million, respectively, to reduce our deferred tax
assets to an amount that we consider more likely than not to be
recoverable.
Liquidity
and Capital Resources
Cash flow from operating activities. Our cash
provided by operating activities for the year ended
December 31, 2006 was $117.7 million. Our cash flows
from operating activities were primarily attributable to our
reported net income of $32.7 million, which, when adjusted
for non-cash expense items, such as depreciation and
amortization, deferred income taxes, stock-based compensation
expense and gains on the sale of long-lived assets provided
positive cash flows of $139.5 million. Included in these
non-cash expense items is the $40.8 million loss on early
extinguishment of debt associated with our recent Refinancing
transactions (see note 12 to the consolidated financial
statements for further information on our Refinancing. These
cash flows from operating activities were positively impacted by
increases in operating assets and liabilities of
$4.8 million in accounts payable and an increase of
$54.3 million in manufacturer flooring plans payable,
primarily due to a $69.9 million increase in inventory
purchases to meet increasing customer demand. Offsetting these
positive cash flows from operating activities were increases in
our receivables of $2.9 million due to higher sales volumes
and in our prepaid expenses and other assets of
$6.2 million. Also, as discussed in note 3 to the
consolidated financial statements, we used a portion of the
proceeds from our initial public offering to pay approximately
$8.6 million of deferred compensation liabilities.
Our cash provided by operating activities for the year ended
December 31, 2005 was $35.9 million. Our cash flows
from operations were primarily attributable to our reported net
income of $28.2 million, which, when adjusted for non-cash
expense items, such as depreciation, deferred income taxes and
amortization and gains on the sale of long-lived assets provided
positive cash flows. These cash flows from operating activities
were partially offset by increases of $42.5 million in
manufacturer flooring plans payable and $14.8 million in
trade accounts payable, primarily due to an increase in
inventory purchases. Our cash flows from operations were also
positively impacted by increases in accrued expenses payable and
other liabilities including accrued insurance reserves, accrued
payroll and related liabilities, and accrued sales, use and
property taxes. Offsetting these positive cash flows from
operations were increases in our receivables of
$32.1 million and an increase in our inventories of
$44.2 million. Our receivables increased during 2005 due to
higher sales volume. The increase in our inventories reflects
our strategy of taking advantage of available inventory during a
time when original equipment manufacturers were experiencing
significantly increased lead times and to avoid anticipated
price increases from our manufacturers. Additionally, our cash
flow from operations was negatively impacted by payment of the
letter of credit, including
39
accrued interest, in connection with certain litigation with one
of our competitors, Sunbelt Rentals, Inc. (Sunbelt).
In July 2000, Sunbelt brought claims against us in the General
Court of Justice, Superior Court Division, State of North
Carolina, County of Mecklenburg, alleging, among other things,
that in connection with our hiring of former employees of the
plaintiff there occurred a misappropriation of trade secrets,
unfair trade practices and interference with prospective
advantages. In May 2003, the court ruled in favor of the
plaintiff in the amount of $17.4 million. We subsequently
appealed the judgment. In conjunction with the appeal and in
accordance with the courts ruling, we posted and filed an
irrevocable standby letter of credit for $20.1 million,
representing the amount of the judgment plus $2.7 million
in anticipated statutory interest for the twenty-four months
while the judgment was to be appealed. On October 18, 2005,
the Court of Appeals of North Carolina denied our appeal.
We did not pursue any additional appeals and, on
November 23, 2005, entered into a settlement agreement with
Sunbelt to pay the full amount of the irrevocable standby letter
of credit. We made this payment on November 28, 2005.
Cash flow from investing activities. For the
year ended December 31, 2006, cash used in our investing
activities was $192.0 million. This is a net result of
purchases of $242.8 million for rental equipment and
property and equipment, which was partially offset by proceeds
from the sale of rental and property and equipment of
$107.8 million, combined with approximately
$57.0 million related to the acquisition of Eagle (see
note 4 to the consolidated financial statements for further
information on our Eagle acquisition).
For 2005, cash used in our investing activities was
$83.1 million. This is a net result of purchases of
$171.1 million in rental and property and equipment, which
was offset by proceeds from the sale of rental and property and
equipment of $88.0 million.
Cash flow from financing activities. Cash
provided by our financing activities for the year ended
December 31, 2006 was $77.9 million. We completed an
initial public offering of our common stock in February 2006,
resulting in net proceeds to us, after deducting underwriting
commissions and other fees and expenses, of approximately
$207.0 million (see note 3 to the consolidated
financial statements for further information related to our
initial public offering).
As discussed above, we completed our Refinancing in August 2006
with the issuance of $250.0 million senior unsecured notes
due 2016. Net proceeds to us, after deducting underwriting
commissions, totaled approximately $245.3 million. We used
the net proceeds of the offering of the New Notes, together with
cash on hand and borrowings under our existing senior secured
credit facility, to purchase $195.5 million in aggregate
principal amount of the senior secured notes (representing
approximately 97.8% of the previously outstanding senior secured
notes), and the $53.0 million in aggregate principal amount
of the senior subordinated notes (representing 100% of the
previously outstanding senior subordinated notes) that were
validly tendered pursuant to the tender offer and consent
solicitation. The total principal amount, accrued and unpaid
interest, consent fee amounts and premiums paid for the senior
secured notes was $217.6 million. The total principal
amount, accrued and unpaid interest, consent fee amounts and
premiums paid for the Senior Subordinated Notes was
approximately $60.1 million. Aggregate offering expenses
totaled approximately $1.9 million.
For the year ended December 31, 2006, our total borrowings
under our senior secured credit facility were
$917.0 million and total payments under the senior secured
credit facility were $1.0 billion. Financing costs paid in
2006 related to Amendment No. 11 to our senior secured
credit facility totaled $0.2 million and $1.6 million
in financing costs were paid related to the amended and restated
senior secured credit facility in connection with our
Refinancing. Proceeds from the issuance of notes payable, net of
related principal payments were $1.1 million and payment of
a related party obligation totaled $0.3 million.
For 2005, cash provided by our financing activities was
$49.4 million. For the year ended December 31, 2005,
our total borrowings under our senior secured credit facility
were $616.5 million and total payments under the senior
secured credit facility were $565.4 million. The borrowings
under the senior secured credit facility included amounts drawn
to fund the letter of credit associated with the Sunbelt
litigation as discussed above. Financing costs paid totaled
$0.1 million and payment of related party obligation was
$0.3 million. Payments on capital leases and other notes
were $1.4 million.
40
Senior
Secured Credit Facility Amendments
The following information discusses amendments and other
significant events as they relate to our senior secured credit
facility during the year ended December 31, 2006. Also see
note 12 to the consolidated financial statements for
further information related to our credit facility.
On February 3, 2006, our senior secured credit agreement,
dated June 17, 2002, as amended, by and among the Company,
Great Northern Equipment, Inc. (together with the Company, the
Borrowers), GNE Investments, Inc., H&E Finance
Corp., General Electric Capital Corporation and the Lenders
party thereto (the Credit Agreement), was amended
primarily to (1) approve the merger of H&E Holdings and
H&E LLC with and into H&E Equipment Services, Inc., with
H&E Equipment Services, Inc. surviving the reincorporation
merger as the operating company, as further described herein as
the Reorganization Transactions, and to effectuate H&E
Equipment Services, Inc. as a Borrower under the
terms of the senior secured credit facility; and
(2) require the proceeds of certain stock and debt
issuances in excess of $1,000,000 in the aggregate be used to
prepay amounts outstanding under the senior secured credit
facility in an amount equal to such proceeds. We did not pay an
amendment fee relating to this amendment.
In February 2006, we used a portion of the proceeds from our
initial public offering to repay $96.6 million of
outstanding indebtedness under the senior secured credit
facility, and we subsequently paid accrued interest in the
amount of $0.2 million in March 2006.
On March 20, 2006, the senior secured credit agreement was
further amended to (1) adjust the Applicable Revolver
Index Margin, the Applicable Revolver LIBOR
Margin and the Applicable L/C Margin to
reflect tiered pricing based upon our monthly computed
Leverage Ratio applied on a prospective basis
commencing at least one day after the date of delivery to the
Lenders of the monthly unaudited Financial
Statements beginning after March 31, 2006;
(2) adjust the Applicable Unused Line Fee
Margin to reflect tiered pricing based upon our
Excess Availability Percentage computed on the first
day of a calendar month applied on a prospective basis
commencing with the first adjustment to the Applicable
Revolver Index Margin and Applicable Revolver LIBOR
Margin; (3) eliminate the $16.5 million block on
availability of assets; (4) revise the financial covenants
to (i) add a covenant requiring maintenance of a minimum
Fixed Charge Coverage Ratio of 1.10 to 1.00, which
is tested at the end of each fiscal month only if a
Covenant Liquidity Event has occurred and is then
continuing and (ii) eliminate all other Financial
Covenants; and (5) revise the definitions of various
other capitalized terms contained within the original senior
secured credit agreement. In connection with this amendment, we
paid fees to the Lenders of $190,000.
As of July 12, 2006, we were granted a waiver under our
senior secured credit agreement pursuant to which our lenders
under our senior secured credit agreement waived our
non-compliance with, and the effects of our non-compliance
under, various representations and non-financial covenants
contained in the senior secured credit agreement affected by the
accounting adjustment in connection with the restatement of our
Form 10-Q
on
Form 10-Q/A
for the three month period ended March 31, 2006 as filed
with the SEC on July 14, 2006. As a result of the
restatement, among other things, we would no longer be able to
make the representations under our senior secured credit
agreement concerning the conformity with GAAP of our previously
delivered financial statements, or confirm our prior compliance
with certain obligations concerning the maintenance of our books
and records in accordance with GAAP. Because the restatement did
not result in our having breached the financial covenant in the
senior secured credit agreement, the waiver does not waive or
modify the financial covenant. As a result of the waiver, we
continued to have full access to our revolving credit facility
under the senior secured credit agreement. We paid no fee to the
Lenders as a result of the waiver.
On August 4, 2006, we entered into an Amended and Restated
Credit Agreement (the Amended Credit Agreement),
amending and restating our senior secured credit agreement
primarily to, (i) increase the principal amount of
availability of the credit facility from $165.0 million to
$250.0 million, (ii) reduce the applicable unused line
fee margin in respect of undrawn commitments to 0.25%,
(iii) increase the advance rate on rental fleet assets from
the lesser of 100% of net book value or 80% of orderly
liquidation value to the lesser of 100% of net book value or 85%
of orderly liquidation value, (iv) extend the maturity date
of the facility from February 10, 2009 to August 4,
2011 and (v) add H&E Equipment Services (California),
LLC was added as a borrower. Furthermore, the Amended Credit
Agreement changed the measurement frequency of our computed
Leverage Ratio from a monthly
41
calculation to a quarterly calculation. We paid
$1.4 million to the Lenders in connection with
this Amended Credit Agreement and incurred other transaction
costs of approximately $0.2 million.
As of March 21, 2007, we had $7.6 million of
outstanding borrowings under our senior secured credit facility
with $235.1 million of additional borrowing availability,
net of $7.3 million of issued standby letters of credit. As
of December 31, 2006, we were in compliance with our
financial covenant under the Amended Credit Agreement.
Cash
Requirements Related to Operations
Our principal sources of liquidity have been from cash provided
by operating activities and the sales of new, used and rental
fleet equipment, proceeds from the issuance of debt, and
borrowings available under our senior secured credit facility.
In February 2006, we also completed an initial public offering
of our common stock (see note 3 to the consolidated
financial statements for further information on our initial
public offering).
Our principal uses of cash have been to fund operating
activities and working capital, purchase rental fleet equipment
and property and equipment, fund payments due under operating
leases and manufacturer flooring plans payable, and to meet debt
service requirements. In February 2006, we completed the Eagle
acquisition (see note 4 to the consolidated financial
statements for further information). In the future, we may
pursue additional strategic acquisitions. We anticipate that
these uses will be the principal demands on our cash in the
future.
The amount of our future capital expenditures will depend on a
number of factors including general economic conditions and
growth prospects. Our gross rental fleet capital expenditures
for the year ended December 31, 2006 were
$226.1 million, including $25.2 million of non-cash
transfers from new and used equipment to rental fleet inventory,
primarily to replace the rental fleet equipment we sold during
the period. Our gross property and equipment capital
expenditures for the year ended December 31, 2006 were
$16.7 million. We anticipate that our 2007 gross rental
fleet capital expenditures will be used to primarily replace the
rental fleet equipment we anticipate selling during 2007 as well
as to meet increased demand. We anticipate that we will fund
these rental fleet capital expenditures with the proceeds from
the sales of new, used and rental fleet equipment, cash flow
from operating activities and from borrowings under our senior
secured credit facility. In response to changing economic
conditions, we believe we have the flexibility to modify our
capital expenditures by adjusting them (either up or down) to
match our actual performance. If we pursue any other strategic
acquisitions during 2007, we may need to access available
borrowings under our senior secured debt.
To service our debt, we will require a significant amount of
cash. Our ability to pay interest and principal on our
indebtedness (including the senior unsecured notes, the senior
secured notes and obligations under the senior secured credit
facility) and to satisfy our other debt obligations, will depend
upon our future operating performance and the availability of
borrowings under our senior secured credit facility
and/or other
debt and equity financing alternatives available to us, which
will be affected by prevailing economic conditions and
financial, business and other factors, some of which are beyond
our control. Based on our current level of operations, we
believe our cash flow from operations, available cash and
available borrowings under the senior secured credit facility
will be adequate to meet our future liquidity needs for the
foreseeable future.
We cannot provide absolute assurance that our future cash flow
from operating activities will be sufficient to meet our
long-term obligations and commitments. If we are unable to
generate sufficient cash flow from our operating activities in
the future to service our indebtedness and to meet our other
commitments, we will be required to adopt one or more
alternatives, such as refinancing or restructuring our
indebtedness, selling material assets or operations or seeking
to raise additional debt or equity capital. We cannot assure
investors that any of these actions could be affected on a
timely basis or on satisfactory terms or at all, or that these
actions would enable us to continue to satisfy our capital
requirements. In addition, our existing or future debt
agreements, including the indentures governing the senior
secured and senior unsecured notes, and the amended senior
secured credit facility, contain restrictive covenants, which
may prohibit us from adopting any of these alternatives. Our
failure to comply with these covenants could result in an event
of default which, if not cured or waived, could result in the
accelerations of all of our debt.
42
Certain
Information Concerning Off-Balance Sheet Arrangements
We do 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. Further, we have evaluated
our relationships with related parties and determined that none
of the related party interests represent variable interest
entities pursuant to Financial Interpretation No. 46(R),
Consolidation of Variable Interest Entities (revised December
2003) an interpretation of ARB No. 51.
In the normal course of our business activities, we may lease
real estate, rental equipment and non-rental fleet equipment
under operating leases. See Contractual and Commercial
Commitments Summary below.
Contractual
and Commercial Commitments Summary
Our contractual obligations and commercial commitments
principally include obligations associated with our outstanding
indebtedness and interest payments as of December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Year
|
|
|
|
Total
|
|
|
2007
|
|
|
2008-2009
|
|
|
2010-2011
|
|
|
Thereafter
|
|
|
|
(Amounts in thousands)
|
|
|
Long-term debt (including senior
secured and senior unsecured notes payable)
|
|
$
|
256,831
|
|
|
$
|
367
|
|
|
$
|
58
|
|
|
$
|
59
|
|
|
$
|
256,347
|
|
Interest payments on senior
secured
notes(1)
|
|
|
2,753
|
|
|
|
501
|
|
|
|
1,001
|
|
|
|
1,001
|
|
|
|
250
|
|
Interest payments on senior
unsecured
notes(1)
|
|
|
208,340
|
|
|
|
19,902
|
|
|
|
41,875
|
|
|
|
41,875
|
|
|
|
104,688
|
|
Senior secured credit facility
|
|
|
9,134
|
|
|
|
|
|
|
|
|
|
|
|
9,134
|
|
|
|
|
|
Interest payments on senior
secured credit
facility(1)
|
|
|
3,153
|
|
|
|
684
|
|
|
|
1,368
|
|
|
|
1,101
|
|
|
|
|
|
Related party obligation
(including
interest)(2)
|
|
|
750
|
|
|
|
300
|
|
|
|
450
|
|
|
|
|
|
|
|
|
|
Operating
leases(3)
|
|
|
37,269
|
|
|
|
7,124
|
|
|
|
9,975
|
|
|
|
6,537
|
|
|
|
13,633
|
|
Other long-term
obligations(4)
|
|
|
148,566
|
|
|
|
25,059
|
|
|
|
64,898
|
|
|
|
54,779
|
|
|
|
3,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
666,796
|
|
|
$
|
53,937
|
|
|
$
|
119,625
|
|
|
$
|
114,486
|
|
|
$
|
378,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Future interest payments are calculated based on the assumption
that all debt is outstanding until maturity. For debt
instruments with variable interest rates, interest has been
calculated for all periods using rates in effect on
December 31, 2006. |
|
(2) |
|
Payments under the consulting and non-competition agreement with
Mr. Thomas Engquist. |
|
(3) |
|
This includes total operating lease rental payments (including
interest) having initial or remaining non-cancelable lease terms
longer than one year. |
|
(4) |
|
Includes $148.0 million in manufacturer flooring plans
payable, which is used by the Company to finance purchases of
inventory and rental equipment. |
Additionally, as of December 31, 2006, we have standby
letters of credit issued under our senior secured credit
facility totaling $8.3 million that expire in September
2007 and January 2008.
Seasonality
Although we believe our business is not significantly impacted
by seasonality, the demand for our rental equipment tends to be
lower in the winter months. The level of equipment rental
activities are directly related to commercial and industrial
construction and maintenance activities. Therefore, equipment
rental performance will
43
be correlated to the levels of current 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 some seasonality with
the peak selling period during the spring season and extending
through the 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 for the
three most recent fiscal years ended, and is not likely in the
foreseeable future to have, a material impact on our results of
operations.
Acquisitions
We completed, effective as of February 28, 2006, the
acquisition of all of the capital stock of Eagle High Reach
Equipment, Inc. and all of the equity interests of its
subsidiary, Eagle High Reach Equipment, LLC. See note 4 to
the consolidated financial statements of this Annual Report on
Form 10-K
for further information on this acquisition. The Eagle purchase
price was funded out of the proceeds from our initial public
offering. Prior to our acquisition, Eagle was a privately-held
construction and industrial equipment rental company. Eagle
serves the southern California construction and industrial
markets out of four locations.
We periodically engage in evaluations of potential acquisitions
and start-up
facilities. The success of our growth strategy depends, in part,
on selecting strategic acquisition candidates at attractive
prices and identifying strategic
start-up
locations. We expect to face competition for acquisition
candidates, which may limit the number of acquisition
opportunities and lead to higher acquisition costs. We may not
have the financial resources necessary to consummate any
acquisitions or to successfully open any new facilities in the
future or the ability to obtain the necessary funds on
satisfactory terms. For further information regarding our risks
related to acquisitions, see Item 1A of Part I of this
Annual Report on
Form 10-K.
New
Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for
uncertainty in income taxes recognized in accordance with FASB
Statement No. 109 (SFAS 109). FIN 48
clarifies the application of SFAS 109 by defining criteria
that an individual tax position must meet for any part of the
benefit of that position to be recognized in the financial
statements. Additionally, FIN 48 provides guidance on the
measurement, derecognition, classification and disclosure of tax
positions, along with accounting for the related interest and
penalties. The provisions of FIN 48 are effective for
fiscal years beginning after December 15, 2006, with the
cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. We do not expect
that the adoption of FIN 48 will have a material impact on
our financial position, cash flows or results from operations.
In September 2006, the Securities and Exchange Commission
(SEC) issued Staff Accounting
Bulletin No. 108 (SAB 108),
Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial
Statements, which provides interpretive guidance on the
consideration of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of a
materiality assessment. Specifically, SAB 108 requires that
public companies utilize a dual-approach to
assessing quantitative effects of financial misstatements. This
dual approach includes both an income statement focused
assessment and a balance sheet focused assessment. The guidance
in SAB 108 must be applied to annual financial statements
for fiscal years ending after November 15, 2006.
SAB 108 did not have an effect on our financial position or
results of operations for the year ended December 31, 2006.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. This
Statement applies under other accounting pronouncements that
require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that
fair value is the relevant measurement attribute. Accordingly,
this Statement does not require
44
any new fair value measurements. SFAS 157 is effective for
fiscal years beginning after December 15, 2007. Management
is currently assessing the impact of adopting SFAS 157 but
does not expect that it will have a material effect on our
financial position, cash flows or results of operations.
In February 2007, the FASB issued Statement No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS 159). SFAS 159
provides that companies may elect to measure specified financial
instruments and warranty and insurance contracts at fair value
on a
contract-by-contract
basis, with changes in fair value recognized in earnings each
reporting period. The election, called the fair value
option, will enable some companies to reduce the
variability in reported earnings caused by measuring related
assets and liabilities differently. Companies may elect
fair-value measurement when an eligible asset or liability is
initially recognized or when an event, such as a business
combination, triggers a new basis of accounting for that asset
or liability. The election is irrevocable for every contract
chosen to be measured at fair value and must be applied to an
entire contract, not to only specified risks, specific cash
flows, or portions of that contract. SFAS 159 is effective
as of the beginning of a companys first fiscal year that
begins after November 15, 2007. Retrospective application
is not allowed. Companies may adopt SFAS 159 as of the
beginning of a fiscal year that begins on or before
November 15, 2007 if the choice to adopt early is made
after SFAS 159 has been issued and within 120 days of
the beginning of the fiscal year of adoption and the entity has
not issued GAAP financial statements for any interim period of
the fiscal year that includes the early adoption date. Companies
are permitted to elect fair-value measurement for any eligible
item within SFAS 159s scope at the date they
initially adopt SFAS 159. The adjustment to reflect the
difference between the fair value and the current carrying
amount of the assets and liabilities for which a company elects
fair-value measurement is reported as a cumulative-effect
adjustment to the opening balance of retained earnings upon
adoption. Companies that adopt SFAS 159 early must also
adopt all of SFAS 157s requirements at the early
adoption date. Management is assessing the impact of adopting
SFAS 159 and currently does not believe the adoption will
have a material impact on our financial position, cash flows or
results of operations.
Item 7A. Quantitative
and Qualitative Disclosures about Market Risk
Our earnings are affected by changes in interest rates due to
the fact that interest on the amended senior secured credit
facility is calculated based upon LIBOR plus 125 basis
points as of December 31, 2006. At December 31, 2006,
we had $9.1 million outstanding under our senior secured
credit facility. The average interest rate in effect on those
borrowings at December 31, 2006 was approximately 7.5%. A
1.0% increase in the effective interest rate on our outstanding
borrowings at December 31, 2006, would increase our
interest expense by approximately $0.1 million on an
annualized basis. We do not have significant exposure to
changing interest rates on our fixed-rate senior secured notes,
fixed-rate senior unsecured notes or on our other notes payable.
45
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|
Item 8.
|
Consolidated
Financial Statements and Supplementary Data
|
Index to consolidated financial statements of H&E Equipment
Services, Inc.
46
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
H&E Equipment Services, Inc.
Baton Rouge, Louisiana
We have audited the accompanying consolidated balance sheets of
H&E Equipment Services, Inc. and subsidiaries as of
December 31, 2006 and 2005, and the related consolidated
statements of operations, members deficit and
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2006. We have also
audited the schedule listed in Item 15(a)(2) of the
Form 10-K.
These consolidated financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and
schedule are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits
included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements and schedule. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of H&E Equipment Services, Inc. and subsidiaries as
of December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2006, in conformity with
accounting principles generally accepted in the United States of
America.
Also, in our opinion, the schedule presents fairly, in all
material respects, the information set forth herein.
As more fully described in Note 2 to the consolidated
financial statements, effective January 1, 2006, the
Company adopted the provisions of SFAS 123(R),
Share-Based Payment.
Dallas, Texas
March 26, 2007
47
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
AS OF
DECEMBER 31, 2006 AND 2005
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Amounts in thousands, except share amounts)
|
|
|
ASSETS
|
Cash
|
|
$
|
9,303
|
|
|
$
|
5,627
|
|
Receivables, net of allowance for
doubtful accounts of $2,852 and $2,364, respectively
|
|
|
107,760
|
|
|
|
99,523
|
|
Inventories, net of reserve for
obsolescence of $1,326 and $975, respectively
|
|
|
126,737
|
|
|
|
81,093
|
|
Prepaid expenses and other assets
|
|
|
6,122
|
|
|
|
1,378
|
|
Rental equipment, net of
accumulated depreciation of $158,822 and $133,943, respectively
|
|
|
440,454
|
|
|
|
308,036
|
|
Property and equipment, net of
accumulated depreciation of $27,112 and $21,142, respectively
|
|
|
29,663
|
|
|
|
18,284
|
|
Deferred financing costs and other
intangible assets, net of accumulated amortization of $5,086 and
$7,250, respectively
|
|
|
9,330
|
|
|
|
8,184
|
|
Goodwill
|
|
|
30,573
|
|
|
|
8,572
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
759,942
|
|
|
$
|
530,697
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, MEMBERS
DEFICIT AND STOCKHOLDERS EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
|
Amounts due on senior secured
credit facility
|
|
$
|
9,134
|
|
|
$
|
106,451
|
|
Accounts payable
|
|
|
61,486
|
|
|
|
56,173
|
|
Manufacturer flooring plans payable
|
|
|
148,028
|
|
|
|
93,728
|
|
Accrued expenses payable and other
liabilities
|
|
|
33,150
|
|
|
|
22,798
|
|
Related party obligation
|
|
|
653
|
|
|
|
869
|
|
Notes payable
|
|
|
2,354
|
|
|
|
521
|
|
Senior secured notes, net of
original issue discount of $23 and $1,127, respectively
|
|
|
4,477
|
|
|
|
198,873
|
|
Senior subordinated notes, net of
original issue discount of $8,943
|
|
|
|
|
|
|
44,057
|
|
Senior unsecured notes
|
|
|
250,000
|
|
|
|
|
|
Deferred income taxes
|
|
|
11,805
|
|
|
|
645
|
|
Deferred compensation payable
|
|
|
3,271
|
|
|
|
11,722
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
524,358
|
|
|
|
535,837
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent
liabilities (see note 14 of consolidated financial
statements)
|
|
|
|
|
|
|
|
|
Members deficit
|
|
|
|
|
|
|
(5,140
|
)
|
Stockholders
equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par
value, 25,000,000 shares authorized; no shares issued
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par
value, 175,000,000 shares authorized; 38,192,094 and no
shares issued and outstanding at December 31, 2006 and
2005, respectively
|
|
|
382
|
|
|
|
|
|
Additional paid-in capital
|
|
|
204,638
|
|
|
|
|
|
Retained earnings
|
|
|
30,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
235,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, members
deficit and stockholders equity
|
|
$
|
759,942
|
|
|
$
|
530,697
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated statements.
48
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
FOR THE
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
$
|
251,374
|
|
|
$
|
190,794
|
|
|
$
|
160,342
|
|
New equipment sales
|
|
|
241,281
|
|
|
|
156,341
|
|
|
|
116,907
|
|
Used equipment sales
|
|
|
133,897
|
|
|
|
111,139
|
|
|
|
84,999
|
|
Parts sales
|
|
|
82,106
|
|
|
|
70,066
|
|
|
|
58,014
|
|
Service revenues
|
|
|
53,699
|
|
|
|
41,485
|
|
|
|
33,696
|
|
Other
|
|
|
42,012
|
|
|
|
30,385
|
|
|
|
24,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
804,369
|
|
|
|
600,210
|
|
|
|
478,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation
|
|
|
78,159
|
|
|
|
54,534
|
|
|
|
49,590
|
|
Rental expense
|
|
|
40,582
|
|
|
|
47,027
|
|
|
|
50,666
|
|
New equipment sales
|
|
|
211,158
|
|
|
|
137,169
|
|
|
|
104,111
|
|
Used equipment sales
|
|
|
97,765
|
|
|
|
84,696
|
|
|
|
67,906
|
|
Parts sales
|
|
|
57,909
|
|
|
|
49,615
|
|
|
|
41,500
|
|
Service revenues
|
|
|
19,206
|
|
|
|
15,417
|
|
|
|
12,865
|
|
Other
|
|
|
36,409
|
|
|
|
30,151
|
|
|
|
28,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
541,188
|
|
|
|
418,609
|
|
|
|
354,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
263,181
|
|
|
|
181,601
|
|
|
|
123,288
|
|
Selling, general and
administrative expenses
|
|
|
143,615
|
|
|
|
111,409
|
|
|
|
97,525
|
|
Gain on sales of property and
equipment, net
|
|
|
479
|
|
|
|
91
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
120,045
|
|
|
|
70,283
|
|
|
|
25,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(37,684
|
)
|
|
|
(41,822
|
)
|
|
|
(39,856
|
)
|
Loss on early extinguishment of
debt
|
|
|
(40,771
|
)
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
818
|
|
|
|
372
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(77,637
|
)
|
|
|
(41,450
|
)
|
|
|
(39,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for
income taxes
|
|
|
42,408
|
|
|
|
28,833
|
|
|
|
(13,737
|
)
|
Provision for income taxes
|
|
|
9,694
|
|
|
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
32,714
|
|
|
$
|
28,160
|
|
|
$
|
(13,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.89
|
|
|
$
|
1.10
|
|
|
$
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.88
|
|
|
$
|
1.10
|
|
|
$
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
36,933
|
|
|
|
25,492
|
|
|
|
25,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
36,982
|
|
|
|
25,492
|
|
|
|
25,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated statements.
49
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF MEMBERS DEFICIT AND STOCKHOLDERS
EQUITY
FOR THE
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Stockholders
|
|
|
Members
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Equity
|
|
|
Deficit
|
|
|
|
(Amounts in thousands, except share amounts)
|
|
|
Balances at December 31, 2003
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(19,563
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,300
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,140
|
)
|
Net income for the period
January 1, 2006 through February 2, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,150
|
|
Effect of the Reorganization
Transactions
|
|
|
25,492,019
|
|
|
|
255
|
|
|
|
(3,245
|
)
|
|
|
|
|
|
|
(2,990
|
)
|
|
|
2,990
|
|
Common stock issued on
February 3, 2006 pursuant to initial public offering, net
of $15,915 issue costs
|
|
|
12,578,125
|
|
|
|
126
|
|
|
|
206,892
|
|
|
|
|
|
|
|
207,018
|
|
|
|
|
|
Issuance of common stock
|
|
|
121,950
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
991
|
|
|
|
|
|
|
|
991
|
|
|
|
|
|
Net income for the period
February 3, 2006 through December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,564
|
|
|
|
30,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006
|
|
|
38,192,094
|
|
|
$
|
382
|
|
|
$
|
204,638
|
|
|
$
|
30,564
|
|
|
$
|
235,584
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated statements.
50
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
32,714
|
|
|
$
|
28,160
|
|
|
$
|
(13,737
|
)
|
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on property and
equipment
|
|
|
6,917
|
|
|
|
5,232
|
|
|
|
3,642
|
|
Depreciation on rental equipment
|
|
|
78,159
|
|
|
|
54,534
|
|
|
|
49,590
|
|
Amortization of other intangible
assets
|
|
|
46
|
|
|
|
94
|
|
|
|
295
|
|
Amortization of loan discounts and
deferred financing costs
|
|
|
2,232
|
|
|
|
2,744
|
|
|
|
2,627
|
|
Provision for deferred income taxes
|
|
|
8,968
|
|
|
|
645
|
|
|
|
|
|
Provision for losses on accounts
receivable
|
|
|
1,925
|
|
|
|
1,508
|
|
|
|
1,395
|
|
Non-cash compensation expense
|
|
|
991
|
|
|
|
|
|
|
|
|
|
Provision for obsolescence
|
|
|
24
|
|
|
|
30
|
|
|
|
240
|
|
Loss on early extinguishment of debt
|
|
|
40,771
|
|
|
|
|
|
|
|
|
|
Gain on sale of property and
equipment
|
|
|
(479
|
)
|
|
|
(91
|
)
|
|
|
(207
|
)
|
Gain on sale of rental equipment
|
|
|
(32,785
|
)
|
|
|
(23,343
|
)
|
|
|
(15,230
|
)
|
Changes in operating assets and
liabilities, net of effects of business combinations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
(2,861
|
)
|
|
|
(32,128
|
)
|
|
|
(7,682
|
)
|
Inventories, net
|
|
|
(69,949
|
)
|
|
|
(44,159
|
)
|
|
|
(22,263
|
)
|
Prepaid expenses and other assets
|
|
|
(6,188
|
)
|
|
|
(335
|
)
|
|
|
1,477
|
|
Accounts payable
|
|
|
4,825
|
|
|
|
14,779
|
|
|
|
1,717
|
|
Manufacturer flooring plans payable
|
|
|
54,300
|
|
|
|
42,530
|
|
|
|
(571
|
)
|
Accrued expenses payable and other
liabilities
|
|
|
6,570
|
|
|
|
1,986
|
|
|
|
4,674
|
|
Accrued loss from litigation
|
|
|
|
|
|
|
(17,434
|
)
|
|
|
|
|
Deferred compensation payable
|
|
|
(8,451
|
)
|
|
|
1,152
|
|
|
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
117,729
|
|
|
|
35,904
|
|
|
|
5,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of
cash acquired
|
|
|
(56,962
|
)
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(16,683
|
)
|
|
|
(8,283
|
)
|
|
|
(4,558
|
)
|
Purchases of rental equipment
|
|
|
(226,093
|
)
|
|
|
(162,780
|
)
|
|
|
(72,940
|
)
|
Proceeds from sales of property and
equipment
|
|
|
2,019
|
|
|
|
960
|
|
|
|
349
|
|
Proceeds from sales of rental
equipment
|
|
|
105,731
|
|
|
|
87,028
|
|
|
|
65,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(191,988
|
)
|
|
|
(83,075
|
)
|
|
|
(11,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common
stock, net of issue costs
|
|
|
207,018
|
|
|
|
|
|
|
|
|
|
Payment of deferred financing costs
|
|
|
(8,782
|
)
|
|
|
(92
|
)
|
|
|
(887
|
)
|
Borrowings on senior secured credit
facility
|
|
|
917,028
|
|
|
|
616,518
|
|
|
|
479,756
|
|
Payments on senior secured credit
facility
|
|
|
(1,014,345
|
)
|
|
|
(565,360
|
)
|
|
|
(468,421
|
)
|
Payments of related party obligation
|
|
|
(300
|
)
|
|
|
(300
|
)
|
|
|
(300
|
)
|
Proceeds from issuance of senior
unsecured notes
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
Principal payment of senior secured
and senior subordinated notes
|
|
|
(273,763
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of notes
payable
|
|
|
1,271
|
|
|
|
(206
|
)
|
|
|
(336
|
)
|
Principal payments on notes payable
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
Payments of capital lease
obligations
|
|
|
|
|
|
|
(1,120
|
)
|
|
|
(4,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
77,935
|
|
|
|
49,440
|
|
|
|
5,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
3,676
|
|
|
|
2,269
|
|
|
|
(533
|
)
|
Cash, beginning of year
|
|
|
5,627
|
|
|
|
3,358
|
|
|
|
3,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
9,303
|
|
|
$
|
5,627
|
|
|
$
|
3,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of noncash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash asset purchases:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets transferred from new and
used inventory to rental fleet
|
|
$
|
25,196
|
|
|
$
|
19,845
|
|
|
$
|
9,292
|
|
Supplemental disclosures of cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
28,049
|
|
|
$
|
38,314
|
|
|
$
|
33,648
|
|
Income taxes, net of refunds
received
|
|
$
|
576
|
|
|
$
|
171
|
|
|
$
|
19
|
|
Supplemental Disclosures of Non-Cash Investing and Financing
Activities:
As of December 31, 2006 and 2005, the Company had
$148.0 million and $93.7 million, respectively, in
manufacturer flooring plans payable outstanding, which were used
to finance purchases of inventory and rental equipment.
The accompanying notes are an integral part of these
consolidated statements.
51
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006 and 2005
(1) Organization
and Nature of Operations
Organization
In connection with our initial public offering of common stock
in February 2006 (see note 3 to the consolidated financial
statements for further information regarding our initial public
offering), we converted H&E Equipment Services L.L.C.
(H&E LLC), a Louisiana limited liability company
and the wholly-owned operating subsidiary of H&E Holding
L.L.C. (Holdings), into H&E Equipment Services,
Inc., a Delaware corporation. Prior to our initial public
offering, our business was conducted through H&E LLC. In
order to have an operating Delaware corporation as the issuer of
our initial public offering, immediately prior to the closing of
the initial public offering, on February 3, 2006, H&E
LLC and Holdings merged with and into us (H&E Equipment
Services, Inc.), with us surviving the reincorporation merger as
the operating company. Effective February 3, 2006, H&E
LLC and Holdings no longer existed. In these transactions
(collectively, the Reorganization Transactions),
holders of preferred limited liability company interests and
holders of common limited liability company interests in
Holdings received shares of our common stock. All references to
common stock share and per share amounts included in our
consolidated statements of operations for the years ended
December 31, 2006, 2005 and 2004 have been retroactively
adjusted to reflect the Reorganization Transactions as if the
Reorganization Transactions had taken place as of the beginning
of the earliest period presented.
Nature
of Operations
As one of the largest integrated equipment services companies in
the United States focused on heavy construction and industrial
equipment, we rent, sell and provide parts and service support
for four core categories of specialized equipment:
(1) hi-lift or aerial platform equipment; (2) cranes;
(3) earthmoving equipment; and (4) industrial lift
trucks. By providing equipment sales, rental,
on-site
parts, and repair and maintenance functions under one roof, we
are a one-stop provider for our customers varied equipment
needs. This full-service approach provides us with multiple
points of customer contact, enables us to maintain a high
quality rental fleet, as well as an effective distribution
channel for fleet disposal and provides cross-selling
opportunities among our new and used equipment sales, rental,
parts sales and service operations.
(2) Summary
of Significant Accounting Policies
Principles
of Consolidation and Basis of Presentation
Our consolidated financial statements include the financial
position and results of operations of H&E Equipment
Services, Inc. and its wholly-owned subsidiaries H&E Finance
Corp., GNE Investments, Inc., Great Northern Equipment, Inc.,
and our recent acquisition, as described in note 4 to the
consolidated financial statements, of Eagle High Reach
Equipment, Inc. (H&E California Holdings, Inc.) and Eagle
High Reach Equipment, LLC (H&E Equipment Services
(California LLC)), consummated on February 28, 2006,
collectively referred to herein as we or
us or our or the Company.
All significant intercompany accounts and transactions have been
eliminated in these consolidated financial statements. Business
combinations accounted for as purchases are included in the
consolidated financial statements from the respective dates of
acquisition.
The nature of our business is such that short-term obligations
are typically met by cash flows generated from long-term assets.
Consequently, and consistent with industry practice, the
accompanying consolidated balance sheets are presented on an
unclassified basis.
52
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Use of
Estimates
We prepare our consolidated financial statements in accordance
with U.S. generally accepted accounting principles, which
requires management to use its judgment to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and related disclosures at the date of the financial
statements and the reported amounts of revenues and expenses
during the reported period. These assumptions and estimates
could have a material effect on our consolidated financial
statements. Actual results may differ materially from those
estimates. We review our estimates on an ongoing basis based on
information currently available, and changes in facts and
circumstances may cause us to revise these estimates.
Reclassifications
Certain reclassifications have been made to prior year balances
to conform to the current year presentation. Specifically, we
have bifurcated our accounts payable balances into two separate
components; trade accounts payable (or accounts payable) and
manufacturer flooring plans payable. Also see note 8 to the
consolidated financial statements regarding accounts payable and
note 9 to the consolidated financial statements regarding
manufacturer flooring plans payable.
Revenue
Recognition
Our policy recognizes revenue from equipment rentals in the
period earned on a straight-line basis, 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 new
and used 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 revenue is recognized at the time the services are
rendered. Other revenues consist primarily of billings to
customers for rental equipment delivery and damage waiver
charges and are recognized at the time an invoice is generated
and after the service has been provided.
Inventories
New and used equipment inventories are stated at the lower of
cost or market, with cost determined by specific-identification.
Parts and supplies are stated at the lower of the average cost
or market.
Rental
Equipment
Rental equipment purchased by the Company is stated at cost and
is depreciated over the estimated useful lives of the equipment
using the straight-line method. Estimated useful lives vary
based upon type of equipment. Generally, we depreciate cranes
and aerial work platforms over a ten year estimated useful life,
earthmoving equipment over a five year estimated useful life
with a 25% salvage value, and industrial lift trucks over a
seven year estimated useful life. Attachments and other smaller
type equipment are fully depreciated over a three year estimated
useful life.
Ordinary repair and maintenance costs and property taxes are
charged to operations as incurred. Expenditures for additions or
improvements that extend the useful life of the asset are
capitalized in the period incurred. When rental equipment is
sold or disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any
gain or loss is included in the Companys consolidated
statements of operations. We receive individual offers for fleet
on a continual basis, at which time we perform an analysis on
whether or not to accept the offer. The rental equipment is not
transferred to inventory under the held for sale model as the
equipment is used to generate revenues until the equipment is
sold. In accordance with SFAS 144, Accounting for the
53
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Impairment or Disposal of Long-Lived Assets, we
periodically review the carrying value of its long-lived assets
for possible impairment.
Property
and Equipment
Property and equipment are recorded at cost and are depreciated
over the assets estimated useful lives using the
straight-line method. Ordinary repair and maintenance costs are
charged to operations as incurred. We periodically review the
carrying value of our long-lived assets for possible impairment.
Leasehold improvements are amortized using the straight-line
method over their estimated useful lives or the remaining term
of the lease, whichever is shorter. Generally, we assign the
following estimated useful lives to these categories:
|
|
|
|
|
|
|
Estimated
|
|
Category
|
|
Useful Life
|
|
|
Transportation equipment
|
|
|
5 years
|
|
Buildings
|
|
|
39 years
|
|
Office equipment
|
|
|
5 years
|
|
Computer equipment
|
|
|
3 years
|
|
Machinery and equipment
|
|
|
7 years
|
|
Deferred
Financing Costs and Initial Purchasers
Discounts
Deferred financing costs include underwriting, legal, accounting
and other direct costs incurred in connection with the issuance,
and amendments thereto, of the Companys long-term debt.
These costs are amortized over the terms of the related debt.
Initial purchasers discounts are amortized over the terms
of the related debt, utilizing the effective interest method.
The amortization expense of deferred financing costs and
accretion of initial purchasers discounts is included in
interest expense as an overall cost of the related financings.
Goodwill
We have used the purchase method of accounting for all of our
business combinations. Our business acquisitions result in the
allocation of purchase price to goodwill and other intangible
assets. We allocate the cost of acquired companies first to
identifiable assets based on estimated fair values. The excess
of the purchase price over the fair value of identifiable assets
acquired, net of liabilities assumed, is recorded as goodwill.
Under SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142), we evaluate
goodwill for impairment at the reporting unit level at least
annually, or more frequently if triggering events occur or other
impairment indicators arise which might impair recoverability.
Impairment of goodwill is evaluated at the reporting unit level.
A reporting unit is defined as an operating segment (i.e. before
aggregation or combination), or one level below an operating
segment (i.e. a component). A component of an operating segment
is a reporting unit if the component constitutes a business for
which discrete financial information is available and segment
management regularly reviews the operating results of that
component. We have identified two components within our Rental
operating segment and have determined that each of our other
operating segments (New, Used, Parts and Service) represent a
reporting unit, resulting in six total reporting units. To
determine if any of our reporting units are impaired, we must
determine whether the fair value of our goodwill reporting units
is greater than their carrying value. If the fair value of a
reporting unit is less than its carrying value, then the implied
fair value of goodwill must be calculated and compared to its
carrying value to measure the amount of impairment, if any.
54
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The changes in the carrying amount of goodwill for our reporting
units for the years ended December 31, 2006 and 2005 were
as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentals
|
|
|
Rentals
|
|
|
New
|
|
|
Used
|
|
|
|
|
|
|
|
|
|
|
|
|
Component
|
|
|
Component
|
|
|
Equipment
|
|
|
Equipment
|
|
|
Parts
|
|
|
Service
|
|
|
|
|
|
|
1
|
|
|
2
|
|
|
Sales
|
|
|
Sales
|
|
|
Sales
|
|
|
Revenues
|
|
|
Total
|
|
|
Balance at January 1, 2005
|
|
$
|
1,150
|
|
|
$
|
2,567
|
|
|
$
|
1,694
|
|
|
$
|
1,084
|
|
|
$
|
841
|
|
|
$
|
1,236
|
|
|
$
|
8,572
|
|
Balance at December 31, 2005
|
|
|
1,150
|
|
|
|
2,567
|
|
|
$
|
1,694
|
|
|
$
|
1,084
|
|
|
$
|
841
|
|
|
$
|
1,236
|
|
|
$
|
8,572
|
|
Acquisition of Eagle (see
note 4)
|
|
|
7,822
|
|
|
|
9,560
|
|
|
|
660
|
|
|
|
1,541
|
|
|
|
880
|
|
|
|
1,538
|
|
|
$
|
22,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
8,972
|
|
|
$
|
12,127
|
|
|
$
|
2,354
|
|
|
$
|
2,625
|
|
|
$
|
1,721
|
|
|
$
|
2,774
|
|
|
$
|
30,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our reporting units are tested for impairment in the fourth
quarter, after the annual forecasting process.
Sales
Taxes
We impose and collect significant amounts of sales taxes
concurrent with our revenue-producing transactions with
customers and remit those taxes to the various governmental
agencies as prescribed by the taxing jurisdictions in which we
operate. We present such taxes in our consolidated statements of
operations on a net basis.
Advertising
Advertising costs are expensed as incurred and totaled
$1.1 million for the year ended December 31, 2006, and
$1.0 million for the each of the years ended
December 31, 2005 and 2004.
Shipping
and Handling Fees and Costs
Shipping and handling fees billed to customers are recorded as
revenues while the related shipping and handling costs are
included in other cost of revenues.
Income
Taxes
The Company files a consolidated federal income tax return with
its wholly-owned subsidiaries. The Company is a C-Corporation
under the provisions of the Internal Revenue Code. We utilize
the asset and liability approach to measuring deferred tax
assets and liabilities based on temporary differences existing
at each balance sheet date using currently enacted tax rates in
accordance with Statement of Financial Accounting Standards
No. 109 (SFAS 109), Accounting for
Income Taxes. This standard takes into account the
differences between financial statement treatment and tax
treatment of certain transactions. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Our deferred tax
calculation requires management to make certain estimates about
future operations. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is
more likely than not that some portion or all of the deferred
tax assets will not be realized. The effect of a change in tax
rate is recognized as income or expense in the period that
includes the enactment date.
Fair
Value of Financial Instruments
The carrying value of financial instruments reported in the
accompanying consolidated balance sheets for accounts
receivable, accounts payable, accrued liabilities, and deferred
compensation payable approximate fair
55
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
value due to the immediate or short-term nature or maturity of
these financial instruments. The carrying amount of our senior
secured credit facility approximates fair value due to the fact
that the underlying instruments include provisions to adjust
interest rates to approximate fair market value. The estimated
fair value of our other financial instruments at
December 31, 2006 and 2005 have been calculated based upon
available market information. The estimated fair value of the
Companys cash, accounts receivable, accounts payable,
manufacturer flooring plans payable, notes payable, senior
secured and senior unsecured notes and other financial
instruments at December 31, 2006 and 2005 are as follows
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Cash
|
|
$
|
9,303
|
|
|
$
|
9,303
|
|
Receivables
|
|
|
107,760
|
|
|
|
107,760
|
|
Accounts payable
|
|
|
61,486
|
|
|
|
61,486
|
|
Manufacturer flooring plans
payable with interest computed at 8.25%
|
|
|
148,028
|
|
|
|
104,318
|
|
Senior secured notes with interest
computed at
111/8%
|
|
|
4,477
|
|
|
|
4,746
|
|
Senior unsecured notes with
interest computed at
833/8%
|
|
|
250,000
|
|
|
|
261,875
|
|
Notes payable to financial
institution with interest computed at 4.25%
|
|
|
342
|
|
|
|
290
|
|
Notes payable to lenders with
interest computed at 7.25% to 9.55%
|
|
|
2,012
|
|
|
|
1,057
|
|
Deferred compensation plans
payable with interest rates ranging from 8.50% to 13%
|
|
|
3,271
|
|
|
|
3,272
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Amount
|
|
|
Value
|
|
|
Cash
|
|
$
|
5,627
|
|
|
$
|
5,627
|
|
Receivables
|
|
|
99,523
|
|
|
|
99,523
|
|
Trade accounts payable
|
|
|
56,173
|
|
|
|
56,173
|
|
Manufacturer flooring plans
payable with interest computed at 8.25%
|
|
|
93,728
|
|
|
|
66,545
|
|
Senior secured notes with interest
computed at
111/8%
|
|
|
198,873
|
|
|
|
222,000
|
|
Senior subordinated notes with
interest computed at 12.50%
|
|
|
44,057
|
|
|
|
59,095
|
|
Notes payable to financial
institution with interest computed at 4.25%
|
|
|
502
|
|
|
|
422
|
|
Notes payable to suppliers with
interest computed at 7% to 7.25%
|
|
|
16
|
|
|
|
16
|
|
Notes payable to finance companies
with interest rates ranging from 9.50% to 10.50%
|
|
|
3
|
|
|
|
3
|
|
Deferred compensation plans
payable with interest rates ranging from 5.25% to 13%
|
|
|
11,722
|
|
|
|
11,722
|
|
Concentrations
of Credit and Supplier Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade
accounts receivable. We believe that credit risk with respect to
trade accounts receivable is mitigated by our large number of
geographically diverse customers and our credit evaluation
procedures. Although generally no collateral is required, when
feasible, mechanics liens are filed and personal
guarantees are signed to protect the Companys interests.
We maintain reserves for potential losses.
We record trade accounts receivables at sales value and
establishes specific reserves for certain customer accounts
identified as known collection problems due to insolvency,
disputes or other collection issues. The amounts of the specific
reserves estimated by management are based on the following
assumptions and variables:
56
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the customers financial position, age of the
customers receivables and changes in payment schedules. In
addition to the specific reserves, management establishes a
non-specific allowance for doubtful accounts by applying
specific percentages to the different receivable aging
categories (excluding the specifically reserved accounts). The
percentage applied against the aging categories increases as the
accounts become further past due. The allowance for doubtful
accounts is charged with the write-off of uncollectible customer
accounts.
We purchase a significant amount of equipment from the same
manufacturers with whom we have distribution agreements. During
the year ended December 31, 2006, we purchased between 12%
and 15% each from three manufacturers providing our rental and
sales equipment. We believe that while there are alternative
sources of supply for the equipment we purchase in each of the
principal product categories, termination of one or more of our
relationships with any of our major suppliers of equipment could
have a material adverse effect on our business, financial
condition or results of operation if we were unable to obtain
adequate or timely rental and sales equipment.
Earnings
per Share
Earnings per common share for the years ended December 31,
2006, 2005 and 2004 are based on the weighted average number of
common shares outstanding during the period and have been
retroactively adjusted to reflect the Reorganization
Transactions as if the Reorganization Transactions had occurred
at the beginning of the earliest year presented. The following
table sets forth the computation of basic and diluted net income
(loss) per common share for the years ended December 31,
2006, 2005 and 2004 (amounts in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
32,714
|
|
|
$
|
28,160
|
|
|
$
|
(13,737
|
)
|
Weighted average number of common
shares outstanding
|
|
|
36,933
|
|
|
|
25,492
|
|
|
|
25,492
|
|
Net income (loss) per common
share basic
|
|
$
|
0.89
|
|
|
$
|
1.10
|
|
|
$
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
32,714
|
|
|
$
|
28,160
|
|
|
$
|
(13,737
|
)
|
Weighted average number of common
shares outstanding
|
|
|
36,933
|
|
|
|
25,492
|
|
|
|
25,492
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options
and non-vested stock
|
|
|
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding diluted
|
|
|
36,982
|
|
|
|
25,492
|
|
|
|
25,492
|
|
Net income (loss) per common
share diluted
|
|
$
|
0.88
|
|
|
$
|
1.10
|
|
|
$
|
(0.54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares excluded from the
denominator as anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and non-vested stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-Based
Compensation
We adopted our 2006 Stock-Based Incentive Compensation Plan (the
Stock Incentive Plan) in January 2006 prior to our
initial public offering of common stock. The Stock Incentive
Plan was further amended and restated with the approval of our
stockholders at the 2006 annual meeting of the stockholders of
the Company to provide for the inclusion of non-employee
directors as persons eligible to receive awards under the Stock
Incentive Plan. Prior to the adoption of the Stock Incentive
Plan, no share-based payment arrangements existed. The Stock
Incentive Plan is administered by the Compensation Committee of
our Board of Directors, which selects persons eligible to
receive awards and determines the number of shares
and/or
options subject to each award, the terms, conditions,
performance measures, if any, and other provisions of the award.
Under the Stock Incentive Plan, we may offer
57
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
deferred shares or restricted shares of our common stock and
grant options, including both incentive stock options and
nonqualified stock options, to purchase shares of our common
stock.
SFAS 123(R) became effective for us in the first quarter of
our current fiscal year ended December 31, 2006. Under the
provisions of SFAS 123(R), stock-based compensation is
measured at the grant date, based on the calculated fair value
of the award, and is recognized as an expense over the requisite
employee service period (generally the vesting period of the
grant).
Non-vested
Stock
On February 22, 2006, we issued non-vested stock grants for
121,950 shares of our common stock. These stock awards may
not be sold or otherwise transferred until certain restrictions
have lapsed. The unrecognized compensation cost related to these
awards is expected to be expensed over the period the
restrictions lapse (one to three years). Compensation expense
was determined based on the $24.60 market price of our stock at
the date of grant applied to the total number of shares that
were anticipated to fully vest. As of December 31, 2006, we
have unrecognized compensation expense of $2.1 million
associated with these awards that is expected to be recognized
over a weighted-average period of 2.2 years. Compensation
expense related to these awards included in selling, general and
administrative expenses in the accompanying consolidated
statements of operations for the year ended December 31,
2006 was $0.9 million. At December 31, 2006, there
were 121,950 non-vested shares outstanding.
Stock
Options
On February 22, 2006, stock options for 45,000 shares
of our common stock were granted by the Company, subject to
stockholder approval of the amendment to and restatement of the
Stock Incentive Plan at the Companys annual meeting of
stockholders, with an exercise price of $24.60 per share,
the market price of our stock on the date of grant. These
options vest in three equal parts over three years and expire
ten years from the date of grant. On June 6, 2006, the
Companys stockholders approved the amendment to and
restatement of the Stock Incentive Plan.
We use the Black-Scholes option pricing model to estimate the
fair value of stock-based awards. The following assumptions were
used in determining the estimated fair value for these awards:
|
|
|
|
|
Risk-free interest rate
|
|
|
5.0
|
%
|
Expected life of options (in years)
|
|
|
6.0
|
|
Expected volatility
|
|
|
35.0
|
%
|
Expected annual dividend yield
|
|
|
|
|
The assumptions above are based on multiple factors. We
determined the expected life of the option awards to be
approximately 6.0 years. Since the Company is a new public
entity with limited historical data on the price of its publicly
traded common shares and has no history of share-based payments
exercise activity, we , as provided for in SEC Staff Accounting
Bulletin No. 107, Share-Based Payment,
based our estimate of expected volatility on the historical,
expected or implied volatility of similar entities within our
industry whose share or option prices are publicly available.
At December 31, 2006, there was $0.5 million of
unrecognized compensation cost related to these stock options
awards that is expected to be recognized over a period of
2.2 years. Compensation expense related to these awards
included in selling, general and administrative expenses in the
accompanying consolidated statements of operations was
$0.1 million for the year ended December 31, 2006,
respectively. At December 31, 2006, 45,000 options were
outstanding with a weighted average grant-date fair value of
$14.62 per share. The weighted average exercise price of
options outstanding is $24.60. The market price of our common
stock at December 31, 2006 was $24.77 as compared to an
exercise price of $24.60 to be paid by the optionee. None of the
options outstanding were exercisable as of December 31,
2006.
58
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Shares available for future stock-based payment awards under our
Stock Incentive Plan were 4,401,467 shares as of
December 31, 2006.
Segment
Reporting
We have determined in accordance with
SFAS No. 131,Disclosures about Segments of an
Enterprise and Related Information, that we have five
reportable segments. We derive our revenues from five principal
business activities: (1) equipment rentals; (2) new
equipment sales; (3) used equipment sales; (4) parts
sales; and (5) repair and maintenance services. These
segments are based upon how we allocate resources and assess
performance. See also note 19 to the consolidated financial
statements regarding our segment information.
New
Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for
uncertainty in income taxes recognized in accordance with FASB
Statement No. 109 (SFAS 109). FIN 48
clarifies the application of SFAS 109 by defining criteria
that an individual tax position must meet for any part of the
benefit of that position to be recognized in the financial
statements. Additionally, FIN 48 provides guidance on the
measurement, derecognition, classification and disclosure of tax
positions, along with accounting for the related interest and
penalties. The provisions of FIN 48 are effective for
fiscal years beginning after December 15, 2006, with the
cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. We do not expect
that FIN 48 will have a material impact on our financial
position, cash flows or results from operations.
In September 2006, the Securities and Exchange Commission
(SEC) issued Staff Accounting
Bulletin No. 108 (SAB 108),
Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial
Statements, which provides interpretive guidance on the
consideration of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of a
materiality assessment. Specifically, SAB 108 requires that
public companies utilize a dual-approach to
assessing quantitative effects of financial misstatements. This
dual approach includes both an income statement focused
assessment and a balance sheet focused assessment. The guidance
in SAB 108 must be applied to annual financial statements
for fiscal years ending after November 15, 2006.
SAB 108 did not have an effect on our financial position,
cash flows or results of operations for the year ended
December 31, 2006.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements (SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. This
Statement applies under other accounting pronouncements that
require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that
fair value is the relevant measurement attribute. Accordingly,
this Statement does not require any new fair value measurements.
SFAS 157 is effective for fiscal years beginning after
December 15, 2007. Management is currently assessing the
impact of adopting SFAS 157 but does not expect that it
will have a material effect on our consolidated financial
position, cash flows or results of operations.
In February 2007, the FASB issued Statement No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS 159). SFAS 159
provides that companies may elect to measure specified financial
instruments and warranty and insurance contracts at fair value
on a
contract-by-contract
basis, with changes in fair value recognized in earnings each
reporting period. The election, called the fair value
option, will enable some companies to reduce the
variability in reported earnings caused by measuring related
assets and liabilities differently. Companies may elect
fair-value measurement when an eligible asset or liability is
initially recognized or when an event, such as a business
combination, triggers a new basis of accounting for that asset
or liability. The election is irrevocable for every contract
chosen to be measured at fair value and must be applied to an
entire contract, not to only specified risks, specific cash
flows, or portions of that contract. SFAS 159 is effective
as of the beginning of a companys first fiscal year that
begins after November 15, 2007. Retrospective application
is not
59
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
allowed. Companies may adopt SFAS 159 as of the beginning
of a fiscal year that begins on or before November 15, 2007
if the choice to adopt early is made after SFAS 159 has
been issued and within 120 days of the beginning of the
fiscal year of adoption and the entity has not issued GAAP
financial statements for any interim period of the fiscal year
that includes the early adoption date. Companies are permitted
to elect fair-value measurement for any eligible item within
SFAS 159s scope at the date they initially adopt
SFAS 159. The adjustment to reflect the difference between
the fair value and the current carrying amount of the assets and
liabilities for which a company elects fair-value measurement is
reported as a cumulative-effect adjustment to the opening
balance of retained earnings upon adoption. Companies that adopt
SFAS 159 early must also adopt all of SFAS 157s
requirements at the early adoption date. Management is assessing
the impact of adopting SFAS 159 and currently does not
believe the adoption will have a material impact on our
financial position, cash flows or results of operations.
(3) Initial
Public Offering and Use of Proceeds
We completed an initial public offering of our common stock, par
value $.01 per share, on February 3, 2006. In the
offering, we sold 12,578,125 shares for an aggregate
offering price of $226.4 million. Net proceeds to us, after
deducting underwriting discounts and commissions and offering
expenses, totaled approximately $207.0 million. Aggregate
underwriting discounts and commissions totaled approximately
$15.9 million and aggregate offering expenses totaled
approximately $3.5 million.
We used the net offering proceeds to us of $207.0 million
as follows:
|
|
|
|
|
$56.9 million to complete our acquisition of Eagle High
Reach Equipment, Inc. and all of the equity interests of its
subsidiary, Eagle High Reach Equipment, LLC (together,
Eagle), on February 28, 2006 (for information
on the Eagle acquisition, see note 4 to the consolidated
financial statements);
|
|
|
|
$30.3 million to purchase rental equipment under operating
leases;
|
|
|
|
$8.6 million to pay deferred compensation owed to one of
our current executives and a former executive; and
|
|
|
|
$96.6 million to repay outstanding principal indebtedness
under our senior secured credit facility.
|
Additionally, we paid $8.0 million to Bruckmann, Rosser,
Sherill & Co., L.L.C. (an affiliate of Bruckmann,
Rosser, Sherill & Co., L.P. and Bruckmann, Rosser,
Sherill & Co. II, L.P., two of our principal
stockholders) in connection with the termination of a management
services agreement. The remaining net proceeds of approximately
$6.6 million were used for general corporate purposes.
(4) Eagle
Acquisition
We completed, effective as of February 28, 2006, the
acquisition of all of the capital stock of Eagle High Reach
Equipment, Inc. and all of the equity interests of its
subsidiary, Eagle High Reach Equipment, LLC for an estimated
consideration of approximately $66.3 million, consisting of
cash paid of $59.9 million, liabilities assumed of
$3.6 million, liabilities incurred of $2.2 million,
and transaction costs of $0.6 million. The Eagle purchase
price was determined based on the expected cash flows from the
Eagle business and negotiation with the sellers. The purchase
price was funded out of the proceeds from our initial public
offering (see note 3 to the consolidated financial
statements for further information on our initial public
offering). Prior to the acquisition Eagle was a privately-held
construction and industrial equipment rental company. Eagle
serves the southern California construction and industrial
markets out of four locations. This acquisition marks our
initial entry into the southern California market and is
consistent with our business strategy.
The Eagle acquisition has been accounted for using the purchase
method of accounting. The aggregate purchase price has been
allocated to the assets acquired and liabilities assumed based
on an estimate of their fair values as determined by a valuation
performed by an independent national firm. The excess of the
purchase price over the fair value of the net identifiable
tangible and intangible assets acquired has been allocated to
goodwill. Goodwill generated from the acquisition was recognized
given the expected contribution of Eagle to the overall
60
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
corporate strategy. We estimate that approximately
$9.9 million of the goodwill acquired will be tax
deductible. Our operating results for the year ended
December 31, 2006 include the operating results of Eagle
since the date of acquisition, February 28, 2006.
The following table summarizes our purchase price allocation
based on fair values of the Eagle assets acquired and
liabilities assumed in February 2006 (amounts in thousands):
|
|
|
|
|
Cash
|
|
$
|
32
|
|
Receivables
|
|
|
7,300
|
|
Inventories
|
|
|
915
|
|
Rental equipment
|
|
|
32,235
|
|
Property and equipment
|
|
|
3,154
|
|
Prepaid expenses and other assets
|
|
|
654
|
|
Goodwill
|
|
|
22,001
|
|
Accounts payable
|
|
|
(483
|
)
|
Accrued expenses payable and other
liabilities
|
|
|
(2,349
|
)
|
Deferred income taxes
|
|
|
(2,192
|
)
|
Notes payable
|
|
|
(755
|
)
|
|
|
|
|
|
Net assets acquired
|
|
$
|
60,512
|
|
|
|
|
|
|
The table above reflects the final purchase price allocation of
the Eagle acquisition. During the fourth quarter of fiscal 2006,
we recognized an increase to its previous purchase price
allocation to goodwill as reported in its
Form 10-Q
for the three month period ended September 30, 2006, of
approximately $0.1 million resulting from the recognition
of approximately $0.1 million in additional deferred income
taxes as of the acquisition date.
The following table contains unaudited pro forma combined
consolidated statements of operations information for the years
ending December 31, 2006 and 2005, as if the Eagle
transaction had occurred at the beginning of each respective
period presented (amounts in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Total revenues
|
|
$
|
809,697
|
|
|
$
|
633,816
|
|
Gross profit
|
|
|
264,955
|
|
|
|
197,139
|
|
Operating income
|
|
|
119,337
|
|
|
|
73,533
|
|
Net income
|
|
$
|
32,365
|
|
|
$
|
30,451
|
|
Basic net income per common share
|
|
$
|
0.88
|
|
|
$
|
1.19
|
|
Diluted net income per common share
|
|
$
|
0.88
|
|
|
$
|
1.19
|
|
Net income and the resulting net income per common share for the
year ended December 31, 2006 includes the
$40.8 million, or $31.5 million after tax, loss on
early extinguishment of debt. See note 12 to the
consolidated financial statements for additional information on
the Refinancing transactions.
The pro forma information above is presented for illustrative
purposes only and may not be indicative of the results of
operations that would have actually occurred had the Eagle
transaction occurred as presented. Further, the above pro forma
amounts do not consider any potential synergies or integration
costs that may result from the transaction. In addition, future
results may vary significantly from the results reflected in
such pro forma information.
61
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(5) Receivables
Receivables consisted of the following at December 31, 2006
and 2005 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Trade receivables
|
|
$
|
107,016
|
|
|
$
|
97,839
|
|
Unbilled rental revenue
|
|
|
3,576
|
|
|
|
3,407
|
|
Income tax receivables
|
|
|
|
|
|
|
445
|
|
Advances to employees
|
|
|
20
|
|
|
|
19
|
|
Affiliated companies
|
|
|
|
|
|
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110,612
|
|
|
|
101,887
|
|
Less allowance for doubtful
accounts
|
|
|
(2,852
|
)
|
|
|
(2,364
|
)
|
|
|
|
|
|
|
|
|
|
Total receivables, net
|
|
$
|
107,760
|
|
|
$
|
99,523
|
|
|
|
|
|
|
|
|
|
|
(6) Inventories
Inventories consisted of the following at December 31, 2006
and 2005 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
New equipment
|
|
$
|
96,733
|
|
|
$
|
53,687
|
|
Used equipment
|
|
|
7,915
|
|
|
|
8,657
|
|
Parts, supplies and other
|
|
|
22,089
|
|
|
|
18,749
|
|
|
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$
|
126,737
|
|
|
$
|
81,093
|
|
|
|
|
|
|
|
|
|
|
The above amounts are net of reserves for inventory obsolescence
at December 31, 2006 and 2005 totaling $1.3 million
and $1.0 million, respectively.
(7) Property
and Equipment
Net property and equipment consisted of the following at
December 31, 2006 and 2005 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Land
|
|
$
|
4,726
|
|
|
$
|
1,079
|
|
Transportation equipment
|
|
|
21,856
|
|
|
|
12,829
|
|
Building and leasehold improvements
|
|
|
11,522
|
|
|
|
8,968
|
|
Office and computer equipment
|
|
|
11,869
|
|
|
|
10,543
|
|
Machinery and equipment
|
|
|
6,802
|
|
|
|
6,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,775
|
|
|
|
39,426
|
|
Less accumulated depreciation
|
|
|
(27,112
|
)
|
|
|
(21,142
|
)
|
|
|
|
|
|
|
|
|
|
Total net property and equipment
|
|
$
|
29,663
|
|
|
$
|
18,284
|
|
|
|
|
|
|
|
|
|
|
62
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(8) Accounts
Payable
Accounts payable consisted of trade accounts payable in the
normal course of business of $61.5 million and
$56.2 million at December 31, 2006 and 2005,
respectively.
(9) Manufacturer
Flooring Plans Payable
Manufacturer flooring plans payable are financing arrangements
for inventory and rental equipment. The interest paid on the
manufacturer flooring plans ranges between zero percent and
1.9 percent plus the Prime Interest Rate. Certain
manufacturer flooring plans provide for a one to twelve-month
reduced interest rate term or a deferred payment period. We
recognize interest expense based on the effective interest
method. We make payments in accordance with the original terms
of the financing agreements. However, we routinely sell
equipment that is financed under manufacturer flooring plans
prior to the original maturity date of the financing agreement.
The payable is then paid at the time equipment being financed is
sold. The manufacturer flooring plans payable are secured by the
equipment being financed.
Maturities (based on original financing terms) of the
manufacturer flooring plans payable as of December 31, 2006
for each of the next five years ending December 31 are as
follows (amounts in thousands):
|
|
|
|
|
2007
|
|
$
|
24,909
|
|
2008
|
|
|
29,286
|
|
2009
|
|
|
35,312
|
|
2010
|
|
|
26,766
|
|
2011
|
|
|
27,925
|
|
Thereafter
|
|
|
3,830
|
|
|
|
|
|
|
Total
|
|
$
|
148,028
|
|
|
|
|
|
|
(10) Accrued
Expenses Payable and Other Liabilities
Accrued expenses payable and other liabilities consisted of the
following at December 31, 2006 and 2005 (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Payroll and related liabilities
|
|
$
|
10,723
|
|
|
$
|
9,978
|
|
Sales, use and property taxes
|
|
|
5,587
|
|
|
|
5,142
|
|
Accrued interest
|
|
|
8,725
|
|
|
|
1,664
|
|
Accrued insurance
|
|
|
4,620
|
|
|
|
3,755
|
|
Deferred revenue
|
|
|
2,463
|
|
|
|
2,148
|
|
Other
|
|
|
1,032
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses payable and
other liabilities
|
|
$
|
33,150
|
|
|
$
|
22,798
|
|
|
|
|
|
|
|
|
|
|
63
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(11) Notes Payable
A summary of notes payable as of December 31, 2006 and 2005
is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Notes payable to a financial
institution maturing through 2009.
|
|
|
|
|
|
|
|
|
Payable in monthly installments of
approximately $19. Interest is at 4.25%. Notes are
collateralized by real estate
|
|
$
|
342
|
|
|
$
|
502
|
|
Notes payable to suppliers
maturing through 2005.
|
|
|
|
|
|
|
|
|
Payable in monthly installments of
approximately $16. Interest ranges from 7% to 7.25%. Notes are
collateralized by equipment
|
|
|
|
|
|
|
16
|
|
Notes payable to finance companies
maturing through 2006.
|
|
|
|
|
|
|
|
|
Payable in monthly installments of
approximately $0.7 million. Interest ranges from 9.5% to
10.5%. Notes are collateralized by equipment
|
|
|
|
|
|
|
3
|
|
Notes payable to lender maturing
through 2016.
|
|
|
|
|
|
|
|
|
Payable in monthly installments of
approximately $8.8. Interest is at 7.25%. Notes are
collateralized by real estate
|
|
|
1,265
|
|
|
|
|
|
Notes payable to lender maturing
through 2029.
|
|
|
|
|
|
|
|
|
Payable in monthly installments of
approximately $6.8. Interest is at 9.55%. Notes are
collateralized by real estate
|
|
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
$
|
2,354
|
|
|
$
|
521
|
|
|
|
|
|
|
|
|
|
|
Maturities of notes payable as of December 31, 2006 for
each of the next five years ending December 31, are as
follows (amounts in thousands):
|
|
|
|
|
2007
|
|
$
|
367
|
|
2008
|
|
|
28
|
|
2009
|
|
|
30
|
|
2010
|
|
|
32
|
|
2011
|
|
|
27
|
|
Thereafter
|
|
|
1,870
|
|
|
|
|
|
|
Total
|
|
$
|
2,354
|
|
|
|
|
|
|
|
|
(12)
|
Senior
Secured Notes, Senior Subordinated Notes, Senior Unsecured Notes
and Senior Secured Credit Facility
|
In 2002, we issued $200.0 million aggregate principal
amount of
111/8%
senior secured notes and $53.0 million aggregate principal
amount of
121/2%
senior subordinated notes and entered into a new senior secured
credit facility. The senior secured credit facility is now
comprised of a $250.0 million revolving line of credit. The
deferred financing costs incurred in connection with these
facilities are being amortized to interest expense over the life
of the respective related debt using the effective interest rate
method.
64
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Senior
Secured Notes
As noted above, in 2002 we issued $200.0 million aggregate
principal amount of
111/8% senior
secured notes due 2012. The following table reconciles the
$200.0 million senior secured notes to the net balance at
December 31, 2006 (amounts in thousands):
|
|
|
|
|
Aggregate principal amount issued
on June 17, 2002
|
|
$
|
200,000
|
|
Initial purchasers discount
|
|
|
(1,474
|
)
|
Amortization through
December 31, 2004
|
|
|
235
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
198,761
|
|
Amortization for the year ended
December 31, 2005
|
|
|
112
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
198,873
|
|
Amortization for the year ended
December 31, 2006
|
|
|
1,104
|
|
Paydown from proceeds of
Refinancing
|
|
|
(195,500
|
)
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
4,477
|
|
|
|
|
|
|
The net proceeds from the sale of the senior secured notes were
approximately $190.7 million (after deducting the initial
purchasers discount and related financing costs). Interest
on the notes is paid semi-annually on June 15 and December 15 of
each year. The notes mature on June 15, 2012 and are
guaranteed by the Companys domestic subsidiaries (see
note 20 to the consolidated financial statements). The
notes are secured by junior security interests in substantially
all of the assets of the Company.
In connection with our Refinancing in August 2006, we paid
approximately $217.6 million representing approximately
97.8% of total principal outstanding and related accrued and
unpaid interest, consent fee amounts and premiums related to the
senior secured notes.
In connection with our Refinancing, we amended the indenture
under which the senior secured notes were issued. The amendments
eliminated substantially all of the restrictive covenants and a
number of events of default. The remaining senior secured notes
are not redeemable at our option prior to June 15, 2007.
Thereafter, the senior secured notes are redeemable at our
option, in whole or in part, in cash at redemption price
percentages that decline to par on or after June 15, 2010,
in each case together with accrued and unpaid interest, if any,
to the date of redemption.
Senior
Subordinated Notes
On June 17, 2002, we issued $53.0 million aggregate
principal amount of
121/2% senior
subordinated notes due 2013. The following table reconciles the
$53.0 million senior subordinated notes to the net balance
at December 31, 2006 (amounts in thousands):
|
|
|
|
|
Aggregate principal amount issued
on June 17, 2002
|
|
$
|
53,000
|
|
Initial purchasers discount
|
|
|
(10,591
|
)
|
Amortization through
December 31, 2004
|
|
|
1,082
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
43,491
|
|
Amortization for the year ended
December 31, 2005
|
|
|
566
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
44,057
|
|
Amortization for the year ended
December 31, 2006
|
|
|
8,943
|
|
Paydown from proceeds of
Refinancing
|
|
|
(53,000
|
)
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
|
|
|
|
|
|
|
65
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The net proceeds from the sale of the notes were approximately
$40.7 million (after deducting the initial purchasers
discount and related financing costs). Also in connection with
the issuances of the senior secured notes and the senior
subordinated notes, we recorded original issue discounts of
$1.5 million and $3.0 million, respectively.
Additionally, $7.6 million of value was allocated to the
H&E Holdings limited liability company interests
issued as part of the offering of the senior subordinated notes.
The value allocated to these interests was accounted for as
additional original issue discount. The value allocated to the
limited liability interests was based on an estimate of the
relative fair values of these interests and the senior
subordinated notes at the date of issuance. The original issue
discounts were amortized to interest expense over the lives of
the respective notes using the effective interest rate method.
In connection with our Refinancing in August 2006, we paid
approximately $60.1 million representing 100% total
principal amount outstanding and related accrued and unpaid
interest, consent fee amounts and premiums.
Senior
Unsecured Notes
On August 4, 2006, we completed our cash tender offer and
consent solicitation for our
111/8% senior
secured notes due 2012 and
121/2% senior
subordinated notes due 2013 (collectively, the
Notes). Additionally, we announced the closing of
our private offering of $250.0 million aggregate principal
amount of its
83/8% senior
unsecured notes due 2016 (the New Notes).
Net proceeds to us, after deducting underwriting commissions,
totaled approximately $245.3 million. We used the net
proceeds of the offering of the New Notes, together with cash on
hand and borrowings under our existing senior secured credit
facility, to purchase $195.5 million in aggregate principal
amount of the senior secured notes (representing approximately
97.8% of the previously outstanding senior secured notes), and
the $53.0 million in aggregate principal amount of the
senior subordinated notes (representing 100% of the previously
outstanding senior subordinated notes) that were validly
tendered pursuant to the tender offer and consent solicitation.
The total principal amount, accrued and unpaid interest, consent
fee amounts and premiums paid for the senior secured notes was
$217.6 million. The total principal amount, accrued and
unpaid interest, consent fee amounts and premiums paid for the
senior subordinated notes was approximately $60.1 million.
Aggregate offering expenses totaled approximately
$1.9 million.
In connection with the above transactions, we recorded a loss on
the early extinguishment of debt in the three month period ended
September 30, 2006 of approximately $40.8 million, or
approximately $31.5 million after-tax, reflecting payment
of the $25.3 million of tender premiums and other estimated
costs of $0.5 million in connection with the tender offer
and consent solicitation, combined with the write off of
approximately $5.4 million of unamortized deferred financing
costs of the Notes and $9.6 million of remaining
unamortized original issue discount on the Notes.
The amendments to the indentures pursuant to which the Notes
were issued which were proposed in connection with the tender
offer and consent solicitation became operative on
August 4, 2006. The amendments to the indentures eliminate
substantially all of the restrictive covenants and eliminate or
modify certain events of default and related provisions
contained in the indentures.
The New Notes were issued at par and require semiannual interest
payments on January 15th and July 15th of
each year, beginning on July 15, 2007. No principal
payments are due until maturity (January 15, 2016). We may
redeem some or all of the New Notes on or after July 15,
2011, at the applicable redemption prices plus accrued and
unpaid interest and additional interest, if any, to the date of
redemption. Additionally, we may redeem up to 35% of the
aggregate principal amount of the notes using net cash proceeds
from equity offerings completed on or prior to July 15,
2009.
The New Notes rank equal in right of payment to all of our and
our guarantors existing and future unsecured senior
indebtedness and senior in right of payment to any of our or our
guarantors future subordinated indebtedness. The New Notes
are effectively junior in priority to our and our
guarantors obligations under all of our
66
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
existing and future secured indebtedness, including borrowings
under our senior secured credit facility, the $4.5 million
of senior secured notes outstanding at December 31, 2006,
and any other secured obligations, in each case, to the extent
of the value of the assets securing such obligations. The New
Notes are also effectively junior to all liabilities (including
trade payables) of our non-guarantor subsidiaries.
On October 3, 2006, the Company and the guarantors filed a
Form S-4
Registration Statement, as subsequently amended on
October 11, 2006, with respect to an offer to exchange the
New Notes for notes of the Company being issued in a transaction
registered under the Securities Act of 1933, as amended, having
terms identical in all material respects to the New Notes
(except that the exchange notes will not contain terms with
respect to transfer restrictions). Upon the
Form S-4
Registration Statement being declared effective on
October 13, 2006, the Company launched the exchange offer.
The exchange offer expired on November 13, 2006, with
$250.0 million of the aggregate principal amount, or 100%,
of the New Notes exchanged for new notes registered under the
Securities Act of 1933, as amended.
Senior
Secured Credit Facility
Also on August 4, 2006, we entered into an Amended and
Restated Credit Agreement (the Amended Credit
Agreement), amending and restating the Companys
senior secured credit agreement primarily to, (i) increase
the principal amount of availability of the credit facility from
$165.0 million to $250.0 million; (ii) reduce the
applicable unused line fee margin in respect of undrawn
commitments to 0.25%; (iii) increase the advance rate on
rental fleet assets from the lesser of 100% of net book value or
80% of orderly liquidation value to the lesser of 100% of net
book value or 85% of orderly liquidation value; (iv) extend
the maturity date of the facility from February 10, 2009 to
August 4, 2011; and (v) add H&E Equipment Services
(California), LLC as a borrower. Furthermore, the Amended Credit
Agreement changed the measurement frequency of our computed
Leverage Ratio from a monthly calculation to a
quarterly calculation. We paid $1.4 million to the
Lenders in connection with this Amended Credit
Agreement and incurred other transaction costs of approximately
$0.2 million.
In accordance with the Companys senior secured credit
facility, we may borrow up to $250.0 million depending upon
the availability of borrowing base collateral consisting of
eligible trade receivables, inventories, property and equipment,
and other assets. The amended senior secured credit facility
matures August 4, 2011. At December 31, 2006, the
interest rate on the amended senior secured credit facility was
LIBOR plus 125 basis points. The credit facility is senior
to all other outstanding debt, secured by substantially all the
assets of the Company, and is guaranteed by the Companys
domestic subsidiaries (see note 20 to the consolidated
financial statements). The balance outstanding on the amended
senior secured credit facility as of December 31, 2006 was
approximately $9.1 million. Additional borrowings available
under the terms of the amended senior secured credit facility as
of December 31, 2006, net of $8.3 million of standby
letters of credit outstanding, totaled $232.6 million. The
average interest rate on outstanding borrowings for the year
ended December 31, 2006 was 7.5% and the interest rate at
December 31, 2005 was 7.4%. As of December 31, 2006,
we were in compliance with our financial covenant under the
Amended and Restated Credit Agreement.
If at any time an event of default exists, the interest rate on
the amended senior secured credit facility will increase by
2.0% per annum. We are also required to pay a commitment
fee equal to 0.25% per annum in respect of undrawn
commitments under the revolving credit facility.
The following discussion details in chronological order the
various amendments to and significant events affecting our
senior secured credit facility since the effective date of the
credit facility up to August 4, 2006, the date of the
Refinancing and the resulting Amended and Restated Credit
Agreement.
On May 14, 2003, the Companys 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
Companys earnings before interest, taxes, depreciation and
amortization.
67
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 amended 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 or 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, we paid a loan amendment fee of
$0.4 million that will be amortized over the remaining term
of the loan.
On February 10, 2004, the Companys senior secured
credit agreement was amended to extend the maturity date and to
modify certain restrictive financial covenants and financial
ratios, providing additional liquidity. Principally, the
amendment:
1. extends the maturity date of the senior secured credit
facility to February 2009.
2. eliminates the maximum leverage ratio covenant.
3. increases the adjusted maximum leverage ratio covenant
from 5.2x to 5.8x for each quarter in the first year; 5.7x for
each quarter in the second year; 5.4x for each quarter in the
third year; 5.3x for each quarter in the fourth year; and 5.2x
for each quarter in the fifth year. The minimum adjusted
interest coverage ratio is set at 1.25x for each quarter through
2005; 1.35x for each quarter in 2006 and 2007; and 1.40x for
each quarter in 2008 and through the remaining term of the
agreement.
4. increases the block on availability of assets from
$20.0 million to $30.0 million based on the total
borrowing base assets.
5. reduces the advance rate on rental fleet assets to
75 percent from 80 percent of orderly liquidation
value.
On February 10, 2004, we paid a loan amendment fee of
$0.8 million that is being amortized over the remaining
term of the loan.
On October 26, 2004, the Companys senior secured
credit agreement was further amended to eliminate the
requirement to provide separate collateral reports for the
Companys wholly-owned subsidiary, Great Northern
Equipment, Inc. No amendment fee was paid related to this
amendment.
On January 13, 2005, we further amended our senior secured
credit agreement to increase the maximum amount of property and
equipment capital expenditures from $5.0 million to
$8.5 million during any fiscal year. No amendment fee was
paid relating to this amendment.
On March 11, 2005, we amended the senior secured credit
agreement dated June 17, 2002, governing our senior secured
credit facility. Principally, the amendment:
|
|
|
|
|
lowers interest rates according to a pricing grid based upon
daily average excess availability for the immediately preceding
fiscal month. We elect interest at either (1) the Index
rate (the higher of the prime rate, as determined pursuant to
the amended credit agreement, and the federal funds rate plus
50 basis points)
|
68
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
plus the applicable revolver Index margin per annum or the
applicable LIBOR rate or (2) LIBOR rate, plus the
applicable revolver LIBOR, margin per each calendar month. With
daily average excess availability equal to or more than
$40 million, the LIBOR margin shall be 2.25% and the Index
margin shall be .75%. If availability falls below
$40 million and equal to or more than $25 million, the
senior secured credit facility bears interest at a LIBOR margin
of 2.50% and the Index margin shall be 1.00%. If availability is
less than $25 million, the LIBOR margin will be 2.75% and
the Index margin shall be 1.25%. The commitment fee equal to .5%
per annum in respect to un-drawn commitments remains unchanged;
|
|
|
|
|
|
decreases the block on availability of assets from
$30.0 million to $15.0 million based on the total
borrowing base assets; and
|
|
|
|
increases the advance rate on rental fleet assets to 80% of
orderly liquidation value as defined in the senior secured
credit agreement.
|
As of August 26, 2005, we were granted a waiver under our
senior secured credit agreement, pursuant to which, our lenders
have waived our non-compliance with, and the effects of our
non-compliance under, various representations and non-financial
covenants contained in the senior secured credit agreement
affected by the accounting adjustments in connection with the
restatement described in our Annual Report on
Form 10-K
for the year ended December 31, 2004, filed on
September 29, 2005.
On October 13, 2005, we further amended the senior secured
credit agreement. Principally, the amendment:
|
|
|
|
|
increases the aggregate revolving loan commitment from
$150.0 million to our current amount of $165.0 million;
|
|
|
|
increases the block on availability of assets from
$15.0 million to $16.5 million, based on the total
borrowing base assets; and
|
|
|
|
increases the lien basket for purchase money indebtedness and
conditional sale or other title retention agreements with
respect to equipment, from $90.0 million to
$125.0 million.
|
In connection with this amendment, we paid an amendment fee of
approximately $0.1 million.
On November 16, 2005, we further amended the senior secured
credit agreement to remove the $8.5 million limitation on
property and equipment capital expenditures. We did not pay an
amendment fee relating to this amendment.
On February 3, 2006, the senior secured credit agreement
was amended primarily to (1) approve, as described
elsewhere in this annual report, the merger of H&E Holdings
and H&E LLC with and into H&E Equipment Services, Inc.,
with H&E Equipment Services, Inc. surviving the
reincorporation merger as the operating company, and to
effectuate H&E Equipment Services, Inc. as a
Borrower under the terms of the senior secured
credit facility; and (2) require the proceeds of certain
stock and debt issuances in excess of $1,000,000 in the
aggregate be used to prepay amounts outstanding under the senior
secured credit facility in an amount equal to such proceeds. We
did not pay an amendment fee relating to this amendment.
On February 6, 2006, we used a portion of the proceeds from
the IPO to pay $96.6 million of our total outstanding
principal indebtedness related to the senior secured credit
facility. Accrued interest in the amount of $0.2 million
was subsequently paid in March 2006.
On March 20, 2006, the senior secured credit facility was
further amended to (1) adjust the Applicable Revolver
Index Margin, the Applicable Revolver LIBOR
Margin and the Applicable L/C Margin to
reflect tiered pricing based upon our monthly computed
Leverage Ratio applied on a prospective basis
commencing at least one day after the date of delivery to the
Lenders of the monthly unaudited Financial
Statements beginning after March 31, 2006;
(2) adjust the Applicable Unused Line Fee
Margin to reflect tiered pricing based upon our
Excess Availability Percentage computed on the first
day of a calendar month applied on a prospective basis
69
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
commencing with the first adjustment to the Applicable
Revolver Index Margin and Applicable Revolver LIBOR
Margin; (3) eliminate the $16.5 million block on
availability of assets; (4) revise the financial covenants
to (i) add a covenant requiring maintenance of a minimum
Fixed Charge Coverage Ratio of 1.10 to 1.00, which
is tested at the end of each fiscal month only if a
Covenant Liquidity Event has occurred and is then
continuing and (ii) eliminate all other Financial
Covenants; and (5) revise the definitions of various
other capitalized terms contained within the original senior
secured credit agreement. In connection with this amendment, we
paid fees to the Lenders of $190,000.
As of July 12, 2006, we were granted a waiver under our
senior secured credit agreement pursuant to which our lenders
under our senior secured credit agreement waived our
non-compliance with, and the effects of our non-compliance
under, various representations and non-financial covenants
contained in the senior secured credit agreement affected by the
accounting adjustment in connection with the restatement of our
consolidated financial statements for the three month period
ended March 31, 2006. As a result of the restatement, among
other things, we would no longer be able to make the
representations under our senior secured credit agreement
concerning the conformity with GAAP of our previously delivered
financial statements, or confirm our prior compliance with
certain obligations concerning the maintenance of our books and
records in accordance with GAAP. Because the restatement does
not result in our having breached the financial covenant in the
senior secured credit agreement, the waiver does not waive or
modify the financial covenant. As a result of the waiver, we
continue to have full access to our revolving credit facility
under the senior secured credit agreement.
(13) Income
Taxes
Income tax provision for the years ended December 31, 2006,
2005 and 2004, consists of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
Year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
391
|
|
|
$
|
8,261
|
|
|
$
|
8,652
|
|
State
|
|
|
335
|
|
|
|
707
|
|
|
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
726
|
|
|
$
|
8,968
|
|
|
$
|
9,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
25
|
|
|
$
|
645
|
|
|
$
|
670
|
|
State
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28
|
|
|
$
|
645
|
|
|
$
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of the Companys deferred income tax
assets and liabilities as of December 31, 2006 and 2005 are
as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
1,048
|
|
|
$
|
898
|
|
Inventories
|
|
|
504
|
|
|
|
370
|
|
Net operating losses
|
|
|
46,484
|
|
|
|
55,621
|
|
AMT credit
|
|
|
1,335
|
|
|
|
857
|
|
Sec 263A costs
|
|
|
1,382
|
|
|
|
885
|
|
Accrued liabilities
|
|
|
2,125
|
|
|
|
1,997
|
|
Deferred compensation
|
|
|
447
|
|
|
|
2,366
|
|
Accrued interest
|
|
|
796
|
|
|
|
2,089
|
|
Stock-based compensation
|
|
|
377
|
|
|
|
|
|
Other assets
|
|
|
240
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,738
|
|
|
|
65,484
|
|
Valuation allowance
|
|
|
|
|
|
|
(8,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
54,738
|
|
|
|
57,238
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(63,985
|
)
|
|
|
(55,718
|
)
|
Investments
|
|
|
(1,520
|
)
|
|
|
(1,520
|
)
|
Goodwill
|
|
|
(1,038
|
)
|
|
|
(645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(66,543
|
)
|
|
|
(57,883
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(11,805
|
)
|
|
$
|
(645
|
)
|
|
|
|
|
|
|
|
|
|
The reconciliation between income taxes computed using the
statutory federal income tax rate to the actual tax expense is
below for the years ended December 31, 2006, 2005 and 2004
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Computed tax at statutory rates
|
|
$
|
14,842
|
|
|
$
|
9,803
|
|
|
$
|
(4,670
|
)
|
Permanent items other
|
|
|
559
|
|
|
|
501
|
|
|
|
(629
|
)
|
Permanent Items excess
of tax deductible goodwill
|
|
|
(2,130
|
)
|
|
|
(2,069
|
)
|
|
|
|
|
Permanent items
non-deductible interest
|
|
|
3,130
|
|
|
|
|
|
|
|
|
|
State income tax, net of federal
tax effect
|
|
|
1,617
|
|
|
|
1,147
|
|
|
|
(594
|
)
|
Change in beginning of year
valuation allowance
|
|
|
(8,246
|
)
|
|
|
(10,853
|
)
|
|
|
5,643
|
|
Prior year deferred tax revisions
|
|
|
|
|
|
|
2,321
|
|
|
|
|
|
Other
|
|
|
(78
|
)
|
|
|
(177
|
)
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,694
|
|
|
$
|
673
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006, we had available federal net
operating loss carry forwards of approximately
$137.5 million, which expire in varying amounts from 2019
through 2024. We also had federal alternative minimum tax credit
carry forwards at December 31, 2006 of approximately
$1.3 million which do not expire.
71
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Management has concluded that it is more likely than not that we
will have sufficient taxable income within the carry back and
carry forward periods permitted by the current law to allow for
the utilization of certain carry forwards and other tax
attributes. Therefore, a valuation allowance is not required to
reduce the deferred tax assets as of December 31, 2006.
(14) Commitments
and Contingencies
Operating
Leases
As of December 31, 2006, we lease certain real estate
related to our branch facilities and our corporate office under
non-cancelable operating lease agreements expiring at various
dates through 2029. Our real estate leases provide for varying
terms, including customary renewal options and base rental
escalation clauses. Additionally, certain real estate leases may
require us to pay maintenance, insurance, taxes and other
expenses in addition to the stated rental payments. Rent expense
on property and rental equipment under non-cancelable operating
lease agreements for the years ended December 31, 2006,
2005 and 2004 amounted to approximately $9.4 million,
$21.1 million and $23.3 million, respectively.
Future minimum operating lease payments, in the aggregate,
existing at December 31, 2006 for each of the next five
years ending December 31 are as follows (amounts in
thousands):
|
|
|
|
|
2007
|
|
$
|
7,124
|
|
2008
|
|
|
5,956
|
|
2009
|
|
|
4,019
|
|
2010
|
|
|
3,608
|
|
2011
|
|
|
2,929
|
|
Thereafter
|
|
|
13,633
|
|
|
|
|
|
|
|
|
$
|
37,269
|
|
|
|
|
|
|
As discussed in note 3 to the consolidated financial
statements, we used a portion of the proceeds from our initial
public offering to purchase rental equipment under operating
leases.
Legal
Matters
We are also involved in various claims and legal actions arising
in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate
disposition of these various matters will not have a material
adverse effect on the Companys consolidated financial
position, results of operations or liquidity.
Letters
of Credit
The Company had outstanding letters of credit issued under its
senior secured credit facility totaling $8.3 million as of
December 31, 2006 and 2005.
(15) Employee
Benefit Plan
We offer substantially all of our employees participation
in a qualified 401(k)/profit-sharing plan in which we match
employee contributions up to predetermined limits for qualified
employees as defined by the plan. For the years ended
December 31, 2006, 2005 and 2004, we contributed
$1.2 million, $0.9 million and $0.7 million,
respectively, to this plan.
72
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(16) Deferred
Compensation Plans
In 2001, we assumed nonqualified employee deferred compensation
plans under which certain employees had previously elected to
defer a portion of their annual compensation. Participants in
the plans can no longer defer compensation. Compensation
previously deferred under the plans is payable upon the
termination, disability or death of the participants. One of the
plans accumulates interest each year at a banks prime rate
in effect as of the beginning of January. This rate remains
constant throughout the year. The effective rate for the 2006
plan year was 7.25%. The aggregate deferred compensation payable
(including accrued interest of $1.8 million) at
December 31, 2006 was $2.7 million. The other plan
accumulates interest each year at 8.50%. The aggregate deferred
compensation payable (including accrued interest of
$0.3 million) at December 31, 2006 was
$0.5 million.
We also assumed in 2001, in connection with an acquisition, a
liability for subordinated deferred compensation for certain
officers and members of the Company. Under the deferred
compensation arrangement, compensation deferred was payable in
December 2013 with interest accrued quarterly at a rate of 13.0%
and was subordinate to all other debt. As further described in
note 3, we used a portion of the proceeds from our initial
public offering to pay the remaining $8.6 million then due
under the deferred compensation plan.
(17) Related
Party Transactions
John M. Engquist, our Chief Executive Officer and President, and
his sister, Kristan Engquist Dunne, each have a 16.7% beneficial
ownership interest in a joint venture, from which we lease our
Baton Rouge, Louisiana and Kenner, Louisiana facilities. Four
trusts in the names of the children of John M. Engquist and
Kristan Engquist Dunne hold in equal amounts the remaining 16.6%
of such joint venture. The remaining 50% interest is held by
Tomarlee Commercial Properties, L.L.C., for which
Mr. Engquist and Ms. Engquist Dunne each have a 25%
interest and Mr. Engquists mother has a 50% interest.
We paid such entity a total of approximately $0.3 million
in each of the years ended December 31, 2006, 2005 and 2004
in lease payments.
Mr. Engquist has a 62.5% ownership interest in T&J
Partnership and J&T Company, from which we lease our
Shreveport, Louisiana and Lake Charles, Louisiana facilities.
Mr. Engquists mother beneficially owns 25% of such
entities. Kristan Engquist Dunne owns the remaining 12.5% of
such entities. In 2006, 2005 and 2004, we paid such entities a
total of approximately $0.2 million each year in lease
payments. In January 2005, J&T Company sold the Lake
Charles, Louisiana parcel to an unaffiliated third party.
Mr. Engquist and his wife, Martha Engquist, hold a 51% and
49% ownership interest, respectively, in John Engquist LLC, from
which we lease our Alexandria, Louisiana facility. In 2006, 2005
and 2004, we paid such entity a total of $0.1 million each
year in lease payments.
We charter an aircraft from Gulf Wide Aviation, in which
Mr. Engquist has a 62.5% ownership interest.
Mr. Engquists mother and sister hold interests of 25%
and 12.5%, respectively, in this entity. We pay an hourly rate
to Gulf Wide Aviation for the use of the aircraft by various
members of our management. In addition, a portion of one
pilots salary is paid by us. In 2006, 2005 and 2004, our
payments in respect of charter costs to Gulf Wide Aviation and
salary to the pilot totaled approximately $0.5 million,
$0.4 million and $0.3 million, respectively. We had a
receivable from the charter aircraft company of approximately
$0.2 million as of December 31, 2005. We collected the
receivable in 2006.
Mr. Engquist has a 31.25% ownership interest in
Perkins-McKenzie Insurance Agency, Inc.
(Perkins-McKenzie), an insurance brokerage firm.
Mr. Engquists mother and sister each have a 12.5% and
6.25% interest, respectively, in Perkins-McKenzie.
Perkins-McKenzie brokers a substantial portion of our commercial
liability insurance. As the broker, Perkins-McKenzie receives
from our insurance provider as a commission a portion of the
premiums we paid to our insurance provider. In 2006, 2005 and
2004, commissions paid to Perkins-McKenzie on our behalf as
insurance broker totaled approximately $0.7 million,
$0.6 million and $0.6 million, respectively.
73
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We purchase products and services from, and sell products and
services to, B-C Equipment Sales, Inc., in which
Mr. Engquist has a 50% ownership interest. In each of the
years ended December 31, 2006, 2005 and 2004, our purchases
totaled approximately $0.1 million, and our sales totaled
approximately $37 thousand, $0.1 million,
$0.1 million, respectively.
Don M. Wheeler, an equity holder, has an ownership interest and
controls Silverado Investments, Wheeler Investments and WG LLC,
from which we lease our Salt Lake City, Utah, Phoenix, Arizona,
Tucson, Arizona and Denver, Colorado facilities. In each of the
years ended December 31, 2006, 2005 and 2004, our lease
payments to such entities totaled approximately
$1.4 million.
Dale W. Roesener, Vice President, Fleet Management, has a 47.6%
ownership interest in Aero SRD LLC, from which we lease our Las
Vegas, Nevada facility. In each of the years ended
December 31, 2006, 2005 and 2004, our lease payments to
such entity totaled approximately $0.5 million.
In connection with the recapitalization of Head &
Engquist in 1999, we entered into a $3.0 million consulting
and non-competition agreement with Thomas R. Engquist, the
father of John M. Engquist, our Chief Executive Officer and
President. The agreement provided for total payments over a
ten-year term, payable in increments of $25,000 per month.
Mr. Engquist was obligated to provide us consulting
services and was to comply with the non-competition provision
set forth in the Recapitalization Agreement between us and
others dated June 19, 1999. The parties specifically
acknowledged and agreed that in the event of the death of
Mr. Engquist during the term of the agreement, the payments
that otherwise would have been payable to Mr. Engquist
under the agreement shall be paid to his heirs (including John
M. Engquist). Due to Mr. Engquists passing away
during 2003, we will not be provided with any further consulting
services. Therefore, we recorded a liability of
$1.3 million during 2003 for the present value of the
remaining future payments. The total amount paid under this
agreement was $300 thousand for each of the years ended
December 31, 2006, 2005 and 2004. As of December 31,
2006, the present value of the balance for this obligation
amounted to approximately $0.5 million.
In 2001, we entered into a management agreement with BRS and its
affiliates payable in the lesser of $2 million
annually or 1.75% of annual earnings before interest, taxes,
depreciation and amortization, excluding operating lease
expense, plus all reasonable
out-of-pocket
expenses. The total amount paid to BRS and its affiliates under
the management agreement for the years ended December 31,
2006, 2005 and 2004 was $0.3 million, $2.0 million and
$1.5 million , respectively. In February 2006, we used a
portion of the proceeds from our initial public offering to pay
$8.0 million to terminate the BRS management agreement.
During the years ended December 31, 2006, 2005 and 2004, we
expensed a combined total of $0.1 million,
$1.0 million and $1.0 million, respectively for
interest earned under a deferred compensation plan for Gary W.
Bagley, our Chairman, and Kenneth R. Sharp, Jr., an
executive officer of the Company.
Mr. Engquists son is an employee and received
compensation of approximately $0.2 million in 2006 and
$0.1 million in each of 2005 and 2004.
Bradley W. Barbers brother is an employee and received
compensation of approximately $0.1 million in each of the
years ended December 31, 2006, 2005 and 2004.
74
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(18) Summarized
Quarterly Financial Data (Unaudited)
The following is a summary of our unaudited quarterly financial
results of operations for the years ended December 31, 2006
and 2005 (amounts in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
182,210
|
|
|
$
|
202,536
|
|
|
$
|
204,135
|
|
|
$
|
215,488
|
|
Operating income
|
|
|
15,079
|
|
|
|
34,971
|
|
|
|
34,870
|
|
|
|
35,125
|
|
Net income (loss)
|
|
|
3,920
|
|
|
|
19,803
|
|
|
|
(11,531
|
)
|
|
|
20,522
|
|
Basic net income (loss) per common
share
|
|
|
0.12
|
|
|
|
0.52
|
|
|
|
(0.30
|
)
|
|
|
0.54
|
|
Diluted net income (loss) per
common share
|
|
|
0.12
|
|
|
|
0.52
|
|
|
|
(0.30
|
)
|
|
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
128,550
|
|
|
$
|
137,730
|
|
|
$
|
148,456
|
|
|
$
|
185,474
|
|
Operating income
|
|
|
10,965
|
|
|
|
14,705
|
|
|
|
18,697
|
|
|
|
25,916
|
|
Net income
|
|
|
951
|
|
|
|
4,293
|
|
|
|
8,225
|
|
|
|
14,691
|
|
Basic net income per common share
|
|
|
0.04
|
|
|
|
0.17
|
|
|
|
0.32
|
|
|
|
0.58
|
|
Diluted net income per common share
|
|
|
0.04
|
|
|
|
0.17
|
|
|
|
0.32
|
|
|
|
0.58
|
|
Because of the method used in calculating per share data, the
quarterly per share data may not necessarily total to the per
share data computed for the entire year.
(19) Segment
Information
We have identified five reportable segments: equipment rentals,
new equipment sales, used equipment sales, parts sales and
service revenues. These segments are based upon how management
of the Company allocates resources and assesses performance.
Non-segmented revenues and non-segmented costs relate to
equipment support activities including transportation, hauling,
parts freight and damage-waiver charges and are not allocated to
the other reportable segments. There were no sales between
segments for any of the periods presented. Selling, general, and
administrative expenses as well as all other income and expense
items below gross profit are not generally allocated to
reportable segments.
75
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We do not compile discrete financial information by our segments
other than the information presented below. The following table
presents information about our reportable segments (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
$
|
251,374
|
|
|
$
|
190,794
|
|
|
$
|
160,342
|
|
New equipment sales
|
|
|
241,281
|
|
|
|
156,341
|
|
|
|
116,907
|
|
Used equipment sales
|
|
|
133,897
|
|
|
|
111,139
|
|
|
|
84,999
|
|
Parts sales
|
|
|
82,106
|
|
|
|
70,066
|
|
|
|
58,014
|
|
Service revenues
|
|
|
53,699
|
|
|
|
41,485
|
|
|
|
33,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segmented revenues
|
|
|
762,357
|
|
|
|
569,825
|
|
|
|
453,958
|
|
Non-segmented revenues
|
|
|
42,012
|
|
|
|
30,385
|
|
|
|
24,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
804,369
|
|
|
$
|
600,210
|
|
|
$
|
478,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
$
|
132,633
|
|
|
$
|
89,233
|
|
|
$
|
60,086
|
|
New equipment sales
|
|
|
30,123
|
|
|
|
19,172
|
|
|
|
12,796
|
|
Used equipment sales
|
|
|
36,132
|
|
|
|
26,443
|
|
|
|
17,093
|
|
Parts sales
|
|
|
24,197
|
|
|
|
20,451
|
|
|
|
16,514
|
|
Service revenues
|
|
|
34,493
|
|
|
|
26,068
|
|
|
|
20,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit from revenues
|
|
|
257,578
|
|
|
|
181,367
|
|
|
|
127,320
|
|
Non-segmented gross profit (loss)
|
|
|
5,603
|
|
|
|
234
|
|
|
|
(4,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
263,181
|
|
|
$
|
181,601
|
|
|
$
|
123,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Segment identified assets:
|
|
|
|
|
|
|
|
|
Equipment sales
|
|
$
|
104,648
|
|
|
$
|
62,344
|
|
Equipment rentals
|
|
|
440,454
|
|
|
|
308,036
|
|
Parts and service
|
|
|
22,089
|
|
|
|
18,749
|
|
|
|
|
|
|
|
|
|
|
Total segment identified assets
|
|
|
567,191
|
|
|
|
389,129
|
|
Non-segment identified assets
|
|
|
192,751
|
|
|
|
141,568
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
759,942
|
|
|
$
|
530,697
|
|
|
|
|
|
|
|
|
|
|
The Company operates primarily in the United States and had
minimal international revenues for the periods presented. No one
customer accounted for more than 10% of our revenues on an
overall or segment basis for any of the periods presented.
(20) Consolidating
Financial Information of Guarantor Subsidiaries
All of the indebtedness of H&E Equipment Services, Inc. is
guaranteed by GNE Investments, Inc. and its wholly-owned
subsidiary Great Northern Equipment, Inc., H&E Equipment
Services (California), LLC (formally known as Eagle High Reach
Equipment, LLC) and H&E California Holdings, Inc.
(formally known as Eagle High Reach Equipment, Inc.). The
guarantor subsidiaries are all wholly-owned and the guarantees,
made on a joint and
76
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
several basis, are full and unconditional (subject to
subordination provisions and subject to a standard limitation
which provides that the maximum amount guaranteed by each
guarantor will not exceed the maximum amount that can be
guaranteed without making the guarantee void under fraudulent
conveyance laws). There are no restrictions on H&E Equipment
Services, Inc.s ability to obtain funds from the guarantor
subsidiaries by dividend or loan.
The consolidating financial statements of H&E Equipment
Services, Inc. and its subsidiaries are included below. The
financial statements for H&E Finance Corp., the subsidiary
co-issuer, are not included within the consolidating financial
statements because H&E Finance Corp. has no assets or
operations. The financial statements of H&E Equipment
Services (California), LLC and H&E California Holdings, Inc.
included herein are from the date of our acquisition of Eagle,
February 28, 2006 to December 31, 2006 and as of
December 31, 2006.
CONDENSED
CONSOLIDATING BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
H&E
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Subsidiaries
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
9,214
|
|
|
$
|
89
|
|
|
$
|
|
|
|
$
|
9,303
|
|
Receivables, net
|
|
|
92,281
|
|
|
|
15,479
|
|
|
|
|
|
|
|
107,760
|
|
Inventories, net
|
|
|
123,695
|
|
|
|
3,042
|
|
|
|
|
|
|
|
126,737
|
|
Prepaid expenses and other assets
|
|
|
5,995
|
|
|
|
127
|
|
|
|
|
|
|
|
6,122
|
|
Rental equipment, net
|
|
|
377,910
|
|
|
|
62,544
|
|
|
|
|
|
|
|
440,454
|
|
Property and equipment, net
|
|
|
24,369
|
|
|
|
5,294
|
|
|
|
|
|
|
|
29,663
|
|
Deferred financing costs and other
intangible assets, net
|
|
|
9,330
|
|
|
|
|
|
|
|
|
|
|
|
9,330
|
|
Investment in guarantor
subsidiaries
|
|
|
86,575
|
|
|
|
|
|
|
|
(86,575
|
)
|
|
|
|
|
Goodwill
|
|
|
30,573
|
|
|
|
|
|
|
|
|
|
|
|
30,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
759,942
|
|
|
$
|
86,575
|
|
|
$
|
(86,575
|
)
|
|
$
|
759,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due on senior secured
credit facility
|
|
$
|
9,134
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,134
|
|
Accounts payable
|
|
|
61,982
|
|
|
|
(496
|
)
|
|
|
|
|
|
|
61,486
|
|
Manufacturer flooring plans payable
|
|
|
148,028
|
|
|
|
|
|
|
|
|
|
|
|
148,028
|
|
Accrued expenses payable and other
liabilities
|
|
|
32,248
|
|
|
|
902
|
|
|
|
|
|
|
|
33,150
|
|
Intercompany balance
|
|
|
(70,953
|
)
|
|
|
70,953
|
|
|
|
|
|
|
|
|
|
Related party obligation
|
|
|
653
|
|
|
|
|
|
|
|
|
|
|
|
653
|
|
Notes payable
|
|
|
1,607
|
|
|
|
747
|
|
|
|
|
|
|
|
2,354
|
|
Senior secured notes, net of
discount
|
|
|
4,477
|
|
|
|
|
|
|
|
|
|
|
|
4,477
|
|
Senior unsecured notes
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
Deferred income taxes
|
|
|
11,805
|
|
|
|
|
|
|
|
|
|
|
|
11,805
|
|
Deferred compensation payable
|
|
|
3,271
|
|
|
|
|
|
|
|
|
|
|
|
3,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
452,252
|
|
|
|
72,106
|
|
|
|
|
|
|
|
524,358
|
|
Stockholders equity
|
|
|
307,690
|
|
|
|
14,469
|
|
|
|
(86,575
|
)
|
|
|
235,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
759,942
|
|
|
$
|
86,575
|
|
|
$
|
(86,575
|
)
|
|
$
|
759,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005
|
|
|
|
H&E Equipment
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Subsidiaries
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5,610
|
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
5,627
|
|
Receivables, net
|
|
|
95,427
|
|
|
|
4,096
|
|
|
|
|
|
|
|
99,523
|
|
Inventories, net
|
|
|
76,533
|
|
|
|
4,560
|
|
|
|
|
|
|
|
81,093
|
|
Prepaid expenses and other assets
|
|
|
1,378
|
|
|
|
|
|
|
|
|
|
|
|
1,378
|
|
Rental equipment, net
|
|
|
298,708
|
|
|
|
9,328
|
|
|
|
|
|
|
|
308,036
|
|
Property and equipment, net
|
|
|
17,526
|
|
|
|
758
|
|
|
|
|
|
|
|
18,284
|
|
Deferred financing costs and other
intangible assets, net
|
|
|
8,184
|
|
|
|
|
|
|
|
|
|
|
|
8,184
|
|
Investment in guarantor
subsidiaries
|
|
|
7,025
|
|
|
|
|
|
|
|
(7,025
|
)
|
|
|
|
|
Goodwill
|
|
|
8,572
|
|
|
|
|
|
|
|
|
|
|
|
8,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
518,963
|
|
|
$
|
18,759
|
|
|
$
|
(7,025
|
)
|
|
$
|
530,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Members
Equity (Deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due on senior secured
credit facility
|
|
$
|
102,980
|
|
|
$
|
3,471
|
|
|
$
|
|
|
|
$
|
106,451
|
|
Accounts payable
|
|
|
56,173
|
|
|
|
|
|
|
|
|
|
|
|
56,173
|
|
Manufacturer flooring plans payable
|
|
|
93,728
|
|
|
|
|
|
|
|
|
|
|
|
93,728
|
|
Accrued expenses payable and other
liabilities
|
|
|
22,696
|
|
|
|
102
|
|
|
|
|
|
|
|
22,798
|
|
Intercompany balance
|
|
|
(8,161
|
)
|
|
|
8,161
|
|
|
|
|
|
|
|
|
|
Related party obligation
|
|
|
869
|
|
|
|
|
|
|
|
|
|
|
|
869
|
|
Notes payable
|
|
|
521
|
|
|
|
|
|
|
|
|
|
|
|
521
|
|
Senior secured notes, net of
discount
|
|
|
198,873
|
|
|
|
|
|
|
|
|
|
|
|
198,873
|
|
Senior subordinated notes, net of
discount
|
|
|
44,057
|
|
|
|
|
|
|
|
|
|
|
|
44,057
|
|
Deferred income taxes
|
|
|
645
|
|
|
|
|
|
|
|
|
|
|
|
645
|
|
Deferred compensation payable
|
|
|
11,722
|
|
|
|
|
|
|
|
|
|
|
|
11,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
524,103
|
|
|
|
11,734
|
|
|
|
|
|
|
|
535,837
|
|
Members equity (deficit)
|
|
|
(5,140
|
)
|
|
|
7,025
|
|
|
|
(7,025
|
)
|
|
|
(5,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
members equity (deficit)
|
|
$
|
518,963
|
|
|
$
|
18,759
|
|
|
$
|
(7,025
|
)
|
|
$
|
530,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
H&E
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Subsidiaries
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
$
|
215,900
|
|
|
$
|
35,474
|
|
|
$
|
|
|
|
$
|
251,374
|
|
New equipment sales
|
|
|
233,700
|
|
|
|
7,581
|
|
|
|
|
|
|
|
241,281
|
|
Used equipment sales
|
|
|
123,751
|
|
|
|
10,146
|
|
|
|
|
|
|
|
133,897
|
|
Parts sales
|
|
|
79,015
|
|
|
|
3,091
|
|
|
|
|
|
|
|
82,106
|
|
Service revenues
|
|
|
51,833
|
|
|
|
1,866
|
|
|
|
|
|
|
|
53,699
|
|
Other
|
|
|
37,201
|
|
|
|
4,811
|
|
|
|
|
|
|
|
42,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
741,400
|
|
|
|
62,969
|
|
|
|
|
|
|
|
804,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation
|
|
|
68,249
|
|
|
|
9,910
|
|
|
|
|
|
|
|
78,159
|
|
Rental expense
|
|
|
34,960
|
|
|
|
5,622
|
|
|
|
|
|
|
|
40,582
|
|
New equipment sales
|
|
|
204,691
|
|
|
|
6,467
|
|
|
|
|
|
|
|
211,158
|
|
Used equipment sales
|
|
|
90,787
|
|
|
|
6,978
|
|
|
|
|
|
|
|
97,765
|
|
Parts sales
|
|
|
55,826
|
|
|
|
2,083
|
|
|
|
|
|
|
|
57,909
|
|
Service revenues
|
|
|
18,644
|
|
|
|
562
|
|
|
|
|
|
|
|
19,206
|
|
Other
|
|
|
31,505
|
|
|
|
4,904
|
|
|
|
|
|
|
|
36,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
504,662
|
|
|
|
36,526
|
|
|
|
|
|
|
|
541,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
|
112,691
|
|
|
|
19,942
|
|
|
|
|
|
|
|
132,633
|
|
New equipment sales
|
|
|
29,009
|
|
|
|
1,114
|
|
|
|
|
|
|
|
30,123
|
|
Used equipment sales
|
|
|
32,964
|
|
|
|
3,168
|
|
|
|
|
|
|
|
36,132
|
|
Parts sales
|
|
|
23,189
|
|
|
|
1,008
|
|
|
|
|
|
|
|
24,197
|
|
Service revenues
|
|
|
33,189
|
|
|
|
1,304
|
|
|
|
|
|
|
|
34,493
|
|
Other
|
|
|
5,696
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
5,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
236,738
|
|
|
|
26,443
|
|
|
|
|
|
|
|
263,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
129,924
|
|
|
|
13,691
|
|
|
|
|
|
|
|
143,615
|
|
Equity in earnings of guarantor
subsidiaries
|
|
|
7,444
|
|
|
|
|
|
|
|
(7,444
|
)
|
|
|
|
|
Gain on sale of property and
equipment
|
|
|
325
|
|
|
|
154
|
|
|
|
|
|
|
|
479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
114,583
|
|
|
|
12,906
|
|
|
|
(7,444
|
)
|
|
|
120,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(32,202
|
)
|
|
|
(5,482
|
)
|
|
|
|
|
|
|
(37,684
|
)
|
Loss on early extinguishment of
debt
|
|
|
(40,771
|
)
|
|
|
|
|
|
|
|
|
|
|
(40,771
|
)
|
Other, net
|
|
|
798
|
|
|
|
20
|
|
|
|
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(72,175
|
)
|
|
|
(5,462
|
)
|
|
|
|
|
|
|
(77,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes
|
|
|
42,408
|
|
|
|
7,444
|
|
|
|
(7,444
|
)
|
|
|
42,408
|
|
Income tax provision
|
|
|
9,694
|
|
|
|
|
|
|
|
|
|
|
|
9,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
32,714
|
|
|
$
|
7,444
|
|
|
$
|
(7,444
|
)
|
|
$
|
32,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
H&E
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Subsidiaries
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
$
|
183,391
|
|
|
$
|
7,403
|
|
|
$
|
|
|
|
$
|
190,794
|
|
New equipment sales
|
|
|
150,593
|
|
|
|
5,748
|
|
|
|
|
|
|
|
156,341
|
|
Used equipment sales
|
|
|
103,961
|
|
|
|
7,178
|
|
|
|
|
|
|
|
111,139
|
|
Parts sales
|
|
|
67,877
|
|
|
|
2,189
|
|
|
|
|
|
|
|
70,066
|
|
Service revenues
|
|
|
40,176
|
|
|
|
1,309
|
|
|
|
|
|
|
|
41,485
|
|
Other
|
|
|
29,182
|
|
|
|
1,203
|
|
|
|
|
|
|
|
30,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
575,180
|
|
|
|
25,030
|
|
|
|
|
|
|
|
600,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation
|
|
|
52,177
|
|
|
|
2,357
|
|
|
|
|
|
|
|
54,534
|
|
Rental expense
|
|
|
45,995
|
|
|
|
1,032
|
|
|
|
|
|
|
|
47,027
|
|
New equipment sales
|
|
|
132,308
|
|
|
|
4,861
|
|
|
|
|
|
|
|
137,169
|
|
Used equipment sales
|
|
|
79,442
|
|
|
|
5,254
|
|
|
|
|
|
|
|
84,696
|
|
Parts sales
|
|
|
48,092
|
|
|
|
1,523
|
|
|
|
|
|
|
|
49,615
|
|
Service revenues
|
|
|
15,035
|
|
|
|
382
|
|
|
|
|
|
|
|
15,417
|
|
Other
|
|
|
28,940
|
|
|
|
1,211
|
|
|
|
|
|
|
|
30,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
401,989
|
|
|
|
16,620
|
|
|
|
|
|
|
|
418,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
|
85,219
|
|
|
|
4,014
|
|
|
|
|
|
|
|
89,233
|
|
New equipment sales
|
|
|
18,285
|
|
|
|
887
|
|
|
|
|
|
|
|
19,172
|
|
Used equipment sales
|
|
|
24,519
|
|
|
|
1,924
|
|
|
|
|
|
|
|
26,443
|
|
Parts sales
|
|
|
19,785
|
|
|
|
666
|
|
|
|
|
|
|
|
20,451
|
|
Service revenues
|
|
|
25,141
|
|
|
|
927
|
|
|
|
|
|
|
|
26,068
|
|
Other
|
|
|
242
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
173,191
|
|
|
|
8,410
|
|
|
|
|
|
|
|
181,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
105,982
|
|
|
|
5,427
|
|
|
|
|
|
|
|
111,409
|
|
Equity in earnings of guarantor
subsidiaries
|
|
|
1,787
|
|
|
|
|
|
|
|
(1,787
|
)
|
|
|
|
|
Gain on sale of property and
equipment
|
|
|
58
|
|
|
|
33
|
|
|
|
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
69,054
|
|
|
|
3,016
|
|
|
|
(1,787
|
)
|
|
|
70,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(40,583
|
)
|
|
|
(1,239
|
)
|
|
|
|
|
|
|
(41,822
|
)
|
Other, net
|
|
|
362
|
|
|
|
10
|
|
|
|
|
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(40,221
|
)
|
|
|
(1,229
|
)
|
|
|
|
|
|
|
(41,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes
|
|
|
28,833
|
|
|
|
1,787
|
|
|
|
(1,787
|
)
|
|
|
28,833
|
|
Income tax provision
|
|
|
673
|
|
|
|
|
|
|
|
|
|
|
|
673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
28,160
|
|
|
$
|
1,787
|
|
|
$
|
(1,787
|
)
|
|
$
|
28,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004
|
|
|
|
H&E
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Subsidiaries
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
$
|
154,333
|
|
|
$
|
6,009
|
|
|
$
|
|
|
|
$
|
160,342
|
|
New equipment sales
|
|
|
112,790
|
|
|
|
4,117
|
|
|
|
|
|
|
|
116,907
|
|
Used equipment sales
|
|
|
80,248
|
|
|
|
4,751
|
|
|
|
|
|
|
|
84,999
|
|
Parts sales
|
|
|
56,331
|
|
|
|
1,683
|
|
|
|
|
|
|
|
58,014
|
|
Service revenue
|
|
|
32,607
|
|
|
|
1,089
|
|
|
|
|
|
|
|
33,696
|
|
Other
|
|
|
23,421
|
|
|
|
793
|
|
|
|
|
|
|
|
24,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
459,730
|
|
|
|
18,442
|
|
|
|
|
|
|
|
478,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation
|
|
|
47,650
|
|
|
|
1,940
|
|
|
|
|
|
|
|
49,590
|
|
Rental expense
|
|
|
49,520
|
|
|
|
1,146
|
|
|
|
|
|
|
|
50,666
|
|
New equipment sales
|
|
|
100,628
|
|
|
|
3,483
|
|
|
|
|
|
|
|
104,111
|
|
Used equipment sales
|
|
|
64,384
|
|
|
|
3,522
|
|
|
|
|
|
|
|
67,906
|
|
Parts sales
|
|
|
40,343
|
|
|
|
1,157
|
|
|
|
|
|
|
|
41,500
|
|
Service revenue
|
|
|
12,532
|
|
|
|
333
|
|
|
|
|
|
|
|
12,865
|
|
Other
|
|
|
27,084
|
|
|
|
1,162
|
|
|
|
|
|
|
|
28,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
342,141
|
|
|
|
12,743
|
|
|
|
|
|
|
|
354,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals
|
|
|
57,163
|
|
|
|
2,923
|
|
|
|
|
|
|
|
60,086
|
|
New equipment sales
|
|
|
12,162
|
|
|
|
634
|
|
|
|
|
|
|
|
12,796
|
|
Used equipment sales
|
|
|
15,864
|
|
|
|
1,229
|
|
|
|
|
|
|
|
17,093
|
|
Parts sales
|
|
|
15,988
|
|
|
|
526
|
|
|
|
|
|
|
|
16,514
|
|
Service revenue
|
|
|
20,075
|
|
|
|
756
|
|
|
|
|
|
|
|
20,831
|
|
Other
|
|
|
(3,663
|
)
|
|
|
(369
|
)
|
|
|
|
|
|
|
(4,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
117,589
|
|
|
|
5,699
|
|
|
|
|
|
|
|
123,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
93,499
|
|
|
|
4,026
|
|
|
|
|
|
|
|
97,525
|
|
Equity in earnings of guarantor
subsidiaries
|
|
|
774
|
|
|
|
|
|
|
|
(774
|
)
|
|
|
|
|
Gain on sale of property and
equipment
|
|
|
183
|
|
|
|
24
|
|
|
|
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
25,047
|
|
|
|
1,697
|
|
|
|
(774
|
)
|
|
|
25,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(38,919
|
)
|
|
|
(937
|
)
|
|
|
|
|
|
|
(39,856
|
)
|
Other, net
|
|
|
135
|
|
|
|
14
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(38,784
|
)
|
|
|
(923
|
)
|
|
|
|
|
|
|
(39,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(13,737
|
)
|
|
|
774
|
|
|
|
(774
|
)
|
|
|
(13,737
|
)
|
Income tax provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(13,737
|
)
|
|
$
|
774
|
|
|
$
|
(774
|
)
|
|
$
|
(13,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
H&E
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Subsidiaries
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
32,714
|
|
|
$
|
7,444
|
|
|
$
|
(7,444
|
)
|
|
$
|
32,714
|
|
Adjustments to reconcile net income
to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on property and
equipment
|
|
|
6,130
|
|
|
|
787
|
|
|
|
|
|
|
|
6,917
|
|
Depreciation on rental equipment
|
|
|
68,249
|
|
|
|
9,910
|
|
|
|
|
|
|
|
78,159
|
|
Amortization of other intangible
assets
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
Amortization of loan discounts and
deferred financing costs
|
|
|
2,232
|
|
|
|
|
|
|
|
|
|
|
|
2,232
|
|
Provision for losses on accounts
receivable
|
|
|
1,925
|
|
|
|
|
|
|
|
|
|
|
|
1,925
|
|
Provision for inventory obsolescence
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Gain on sale of property and
equipment
|
|
|
(325
|
)
|
|
|
(154
|
)
|
|
|
|
|
|
|
(479
|
)
|
Gain on sale of rental equipment
|
|
|
(29,759
|
)
|
|
|
(3,026
|
)
|
|
|
|
|
|
|
(32,785
|
)
|
Provision for deferred taxes
|
|
|
8,968
|
|
|
|
|
|
|
|
|
|
|
|
8,968
|
|
Non-cash compensation expense
|
|
|
991
|
|
|
|
|
|
|
|
|
|
|
|
991
|
|
Loss on early extinguishment of debt
|
|
|
40,771
|
|
|
|
|
|
|
|
|
|
|
|
40,771
|
|
Equity in earnings of guarantor
subsidiaries
|
|
|
(7,444
|
)
|
|
|
|
|
|
|
7,444
|
|
|
|
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
1,084
|
|
|
|
(3,945
|
)
|
|
|
|
|
|
|
(2,861
|
)
|
Inventories, net
|
|
|
(34,552
|
)
|
|
|
(35,397
|
)
|
|
|
|
|
|
|
(69,949
|
)
|
Prepaid expenses and other assets
|
|
|
(4,719
|
)
|
|
|
(1,469
|
)
|
|
|
|
|
|
|
(6,188
|
)
|
Accounts payable
|
|
|
5,809
|
|
|
|
(984
|
)
|
|
|
|
|
|
|
4,825
|
|
Manufacturer flooring plans payable
|
|
|
54,300
|
|
|
|
|
|
|
|
|
|
|
|
54,300
|
|
Accrued expenses payable and other
liabilities
|
|
|
5,770
|
|
|
|
800
|
|
|
|
|
|
|
|
6,570
|
|
Intercompany balance
|
|
|
(62,792
|
)
|
|
|
62,792
|
|
|
|
|
|
|
|
|
|
Deferred compensation payable
|
|
|
(8,451
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
80,971
|
|
|
|
36,758
|
|
|
|
|
|
|
|
117,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of businesses, net of
cash acquired
|
|
|
(14,880
|
)
|
|
|
(42,082
|
)
|
|
|
|
|
|
|
(56,962
|
)
|
Purchases of property and equipment
|
|
|
(14,663
|
)
|
|
|
(2,020
|
)
|
|
|
|
|
|
|
(16,683
|
)
|
Purchases of rental equipment
|
|
|
(226,652
|
)
|
|
|
559
|
|
|
|
|
|
|
|
(226,093
|
)
|
Proceeds from sale of property and
equipment
|
|
|
1,842
|
|
|
|
177
|
|
|
|
|
|
|
|
2,019
|
|
Proceeds from sale of rental
equipment
|
|
|
96,327
|
|
|
|
9,404
|
|
|
|
|
|
|
|
105,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(158,026
|
)
|
|
|
(33,962
|
)
|
|
|
|
|
|
|
(191,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common
stock, net of issue costs
|
|
|
207,018
|
|
|
|
|
|
|
|
|
|
|
|
207,018
|
|
Borrowings on senior secured credit
facility
|
|
|
917,028
|
|
|
|
|
|
|
|
|
|
|
|
917,028
|
|
Payments on senior secured credit
facility
|
|
|
(1,010,874
|
)
|
|
|
(3,471
|
)
|
|
|
|
|
|
|
(1,014,345
|
)
|
Proceeds from issuance of senior
unsecured notes
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
Principal payment of senior secured
and senior subordinated notes
|
|
|
(273,763
|
)
|
|
|
|
|
|
|
|
|
|
|
(273,763
|
)
|
Payments of deferred financing costs
|
|
|
(8,782
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,782
|
)
|
Payments of related party obligation
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
(300
|
)
|
Proceeds from issuance of notes
payable
|
|
|
1,271
|
|
|
|
|
|
|
|
|
|
|
|
1,271
|
|
Principal payments of notes payable
|
|
|
(939
|
)
|
|
|
747
|
|
|
|
|
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
80,659
|
|
|
|
(2,724
|
)
|
|
|
|
|
|
|
77,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
3,604
|
|
|
|
72
|
|
|
|
|
|
|
|
3,676
|
|
Cash, beginning of year
|
|
|
5,610
|
|
|
|
17
|
|
|
|
|
|
|
|
5,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
9,214
|
|
|
$
|
89
|
|
|
$
|
|
|
|
$
|
9,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
H&E
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Subsidiaries
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
28,160
|
|
|
$
|
1,787
|
|
|
$
|
(1,787
|
)
|
|
$
|
28,160
|
|
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on property and
equipment
|
|
|
5,023
|
|
|
|
209
|
|
|
|
|
|
|
|
5,232
|
|
Depreciation on rental equipment
|
|
|
52,177
|
|
|
|
2,357
|
|
|
|
|
|
|
|
54,534
|
|
Amortization of other intangible
assets
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
94
|
|
Amortization of loan discounts and
deferred financing costs
|
|
|
2,744
|
|
|
|
|
|
|
|
|
|
|
|
2,744
|
|
Provision for losses on accounts
receivable
|
|
|
1,396
|
|
|
|
112
|
|
|
|
|
|
|
|
1,508
|
|
Provision for obsolescence
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
Gain on sale of property and
equipment
|
|
|
(124
|
)
|
|
|
33
|
|
|
|
|
|
|
|
(91
|
)
|
Gain on sale of rental equipment
|
|
|
(25,164
|
)
|
|
|
1,821
|
|
|
|
|
|
|
|
(23,343
|
)
|
Provision for deferred taxes
|
|
|
645
|
|
|
|
|
|
|
|
|
|
|
|
645
|
|
Equity in earnings of guarantor
subsidiaries
|
|
|
(1,787
|
)
|
|
|
|
|
|
|
1,787
|
|
|
|
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
(30,388
|
)
|
|
|
(1,740
|
)
|
|
|
|
|
|
|
(32,128
|
)
|
Inventories, net
|
|
|
(33,578
|
)
|
|
|
(10,581
|
)
|
|
|
|
|
|
|
(44,159
|
)
|
Prepaid expenses and other assets
|
|
|
(335
|
)
|
|
|
|
|
|
|
|
|
|
|
(335
|
)
|
Accounts payable
|
|
|
14,779
|
|
|
|
|
|
|
|
|
|
|
|
14,779
|
|
Manufacturer flooring plans payable
|
|
|
42,530
|
|
|
|
|
|
|
|
|
|
|
|
42,530
|
|
Accrued expenses payable and other
liabilities
|
|
|
1,999
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
1,986
|
|
Intercompany balance
|
|
|
2,463
|
|
|
|
(2,463
|
)
|
|
|
|
|
|
|
|
|
Accrued loss from litigation
|
|
|
(17,434
|
)
|
|
|
|
|
|
|
|
|
|
|
(17,434
|
)
|
Deferred compensation payable
|
|
|
1,152
|
|
|
|
|
|
|
|
|
|
|
|
1,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
44,382
|
|
|
|
(8,478
|
)
|
|
|
|
|
|
|
35,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(7,732
|
)
|
|
|
(551
|
)
|
|
|
|
|
|
|
(8,283
|
)
|
Purchases of rental equipment
|
|
|
(165,133
|
)
|
|
|
2,353
|
|
|
|
|
|
|
|
(162,780
|
)
|
Proceeds from sale of property and
equipment
|
|
|
923
|
|
|
|
37
|
|
|
|
|
|
|
|
960
|
|
Proceeds from sale of rental
equipment
|
|
|
80,396
|
|
|
|
6,632
|
|
|
|
|
|
|
|
87,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
(91,546
|
)
|
|
|
8,471
|
|
|
|
|
|
|
|
(83,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of deferred financing costs
|
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
(92
|
)
|
Borrowings on senior secured credit
facility
|
|
|
616,518
|
|
|
|
|
|
|
|
|
|
|
|
616,518
|
|
Payments on senior secured credit
facility
|
|
|
(565,360
|
)
|
|
|
|
|
|
|
|
|
|
|
(565,360
|
)
|
Payment of related party obligation
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
(300
|
)
|
Principal payments of notes payable
|
|
|
(206
|
)
|
|
|
|
|
|
|
|
|
|
|
(206
|
)
|
Payments on capital lease
obligations
|
|
|
(1,120
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
49,440
|
|
|
|
|
|
|
|
|
|
|
|
49,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
2,276
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
2,269
|
|
Cash, beginning of year
|
|
|
3,334
|
|
|
|
24
|
|
|
|
|
|
|
|
3,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
5,610
|
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
5,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
H&E
EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004
|
|
|
|
H&E
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Subsidiaries
|
|
|
Elimination
|
|
|
Consolidated
|
|
|
|
(Amounts in thousands)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(13,737
|
)
|
|
$
|
774
|
|
|
$
|
(774
|
)
|
|
$
|
(13,737
|
)
|
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on property and
equipment
|
|
|
3,493
|
|
|
|
149
|
|
|
|
|
|
|
|
3,642
|
|
Depreciation on rental equipment
|
|
|
46,666
|
|
|
|
2,924
|
|
|
|
|
|
|
|
49,590
|
|
Amortization of other intangible
assets
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
295
|
|
Amortization of loan discounts and
deferred financing costs
|
|
|
2,627
|
|
|
|
|
|
|
|
|
|
|
|
2,627
|
|
Provision for losses on accounts
receivable
|
|
|
1,341
|
|
|
|
54
|
|
|
|
|
|
|
|
1,395
|
|
Provision for obsolescence
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
240
|
|
Provision for deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of property and
equipment
|
|
|
(183
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
(207
|
)
|
Gain on sale of rental equipment
|
|
|
(14,112
|
)
|
|
|
(1,118
|
)
|
|
|
|
|
|
|
(15,230
|
)
|
Equity in earnings of guarantor
subsidiaries
|
|
|
(774
|
)
|
|
|
|
|
|
|
774
|
|
|
|
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
(6,457
|
)
|
|
|
(1,225
|
)
|
|
|
|
|
|
|
(7,682
|
)
|
Inventories, net
|
|
|
(14,752
|
)
|
|
|
(7,511
|
)
|
|
|
|
|
|
|
(22,263
|
)
|
Prepaid expenses and other assets
|
|
|
1,477
|
|
|
|
|
|
|
|
|
|
|
|
1,477
|
|
Accounts payable
|
|
|
1,717
|
|
|
|
|
|
|
|
|
|
|
|
1,717
|
|
Manufacturer flooring plans payable
|
|
|
(571
|
)
|
|
|
|
|
|
|
|
|
|
|
(571
|
)
|
Accrued expenses payable and other
liabilities
|
|
|
4,719
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
4,674
|
|
Intercompany balance
|
|
|
(7,800
|
)
|
|
|
7,800
|
|
|
|
|
|
|
|
|
|
Accrued loss from litigation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation payable
|
|
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
3,861
|
|
|
|
1,778
|
|
|
|
|
|
|
|
5,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(4,176
|
)
|
|
|
(382
|
)
|
|
|
|
|
|
|
(4,558
|
)
|
Purchases of rental equipment
|
|
|
(68,117
|
)
|
|
|
(4,823
|
)
|
|
|
|
|
|
|
(72,940
|
)
|
Proceeds from sale of property and
equipment
|
|
|
322
|
|
|
|
27
|
|
|
|
|
|
|
|
349
|
|
Proceeds from sale of rental
equipment
|
|
|
61,187
|
|
|
|
4,209
|
|
|
|
|
|
|
|
65,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(10,784
|
)
|
|
|
(969
|
)
|
|
|
|
|
|
|
(11,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of deferred financing costs
|
|
|
(887
|
)
|
|
|
|
|
|
|
|
|
|
|
(887
|
)
|
Borrowings on senior secured credit
facility
|
|
|
479,756
|
|
|
|
|
|
|
|
|
|
|
|
479,756
|
|
Payments on senior secured credit
facility
|
|
|
(467,613
|
)
|
|
|
(808
|
)
|
|
|
|
|
|
|
(468,421
|
)
|
Payment of related party obligation
|
|
|
(300
|
)
|
|
|
|
|
|
|
|
|
|
|
(300
|
)
|
Principal payments of notes payable
|
|
|
(336
|
)
|
|
|
|
|
|
|
|
|
|
|
(336
|
)
|
Payments on capital lease
obligations
|
|
|
(4,231
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
6,389
|
|
|
|
(808
|
)
|
|
|
|
|
|
|
5,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(534
|
)
|
|
|
1
|
|
|
|
|
|
|
|
(533
|
)
|
Cash, beginning of year
|
|
|
3,868
|
|
|
|
23
|
|
|
|
|
|
|
|
3,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year
|
|
$
|
3,334
|
|
|
$
|
24
|
|
|
$
|
|
|
|
$
|
3,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures.
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the
reports that the Company files or furnishes under the Securities
Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and
communicated to the Companys management, including its
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
financial disclosure.
Our Chief Executive Officer and Chief Financial Officer (our
principal executive officer and principal financial officer,
respectively) have evaluated the effectiveness of our disclosure
controls and procedures (as defined in
Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended) as of the
end of the period covered by this Annual Report on
Form 10-K.
Based on this evaluation, our principal executive officer and
principal financial officer have concluded that, as of
December 31, 2006, our current disclosure controls and
procedures are effective to provide reasonable assurance that
material information required to be included in our periodic SEC
reports is recorded, processed, summarized and reported within
the time periods specified in the SEC rules and forms.
The design of any system of control is based upon certain
assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its
stated objectives under all future events, no matter how remote,
or that the degree of compliance with the policies or procedures
may not deteriorate. Because of its inherent limitations,
disclosure controls and procedures may not prevent or detect all
misstatements. Accordingly, even effective disclosure controls
and procedures can only provide reasonable assurance of
achieving their control objectives.
There have been no changes in our internal controls over
financial reporting that occurred during the three month period
ended December 31, 2006 that have materially affected, or
are reasonably likely to materially affect, the Companys
internal control over financial reporting.
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this Item is incorporated herein by
reference from the Companys definitive proxy statement for
use in connection with the 2007 Annual Meeting of Stockholders
(the Proxy Statement) to be filed within
120 days after the end of the Companys fiscal year
ended December 31, 2006.
We have adopted a code of conduct that applies to our Chief
Executive Officer and Chief Financial Officer. This code of
conduct is available on the Companys Web site at
www.he-equipment.com. The information on our website is not a
part of or incorporated by reference into this Annual Report on
Form 10-K. If the Company makes any amendments to this code
other than technical, administrative or other non-substantive
amendments, or grants any waivers, including implicit waivers,
from a provision of this code to the Companys Chief
Executive Officer or Chief Financial Officer, the Company will
disclose the nature of the amendment or waiver, its effective
date and to whom it applies in a Current Report on
Form 8-K
filed with the SEC.
85
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item is incorporated herein by
reference from the Proxy Statement.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item is incorporated herein by
reference from the Proxy Statement.
|
|
Item 13.
|
Certain
Relationships, Related Transactions, and Director
Independence
|
The information required by this Item is incorporated herein by
reference from the Proxy Statement.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item is incorporated herein by
reference from the Proxy Statement.
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) Documents filed as part of this report:
(1) Financial Statements
The Companys consolidated financial statements listed
below have been filed as part of this report:
|
|
|
|
|
|
|
Page
|
|
Report of Independent Registered
Public Accounting Firm
|
|
|
48
|
|
Consolidated Balance Sheets as of
December 31, 2006 and 2005
|
|
|
49
|
|
Consolidated Statements of
Operations for the years ended December 31, 2006, 2005 and
2004
|
|
|
50
|
|
Consolidated Statements of
Members Deficit and Stockholders Equity for the
years ended December 31, 2006, 2005 and 2004
|
|
|
51
|
|
Consolidated Statements of Cash
Flows for the years ended December 31, 2006, 2005 and 2004
|
|
|
52
|
|
Notes to Consolidated Financial
Statements
|
|
|
54
|
|
(2) Financial Statement Schedule for the years
ended December 31, 2006, 2005 and 2004
|
|
|
|
|
Schedule II
Valuation and Qualifying Accounts
|
|
|
90
|
|
All other schedules are omitted because they are not applicable
or not required, or the information appears in the
Companys consolidated financial statements or notes
thereto.
(3) Exhibits
See Exhibit Index on
pages 92-95
86
SCHEDULE II:
VALUATION AND QUALIFYING ACCOUNTS
FOR THE
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
Recoveries
|
|
|
Impact of
|
|
|
Balance at
|
|
Description
|
|
of Year
|
|
|
Expenses
|
|
|
(Deductions)
|
|
|
Acquistion
|
|
|
End of Year
|
|
|
|
(Amounts in thousands)
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
receivable
|
|
$
|
2,364
|
|
|
$
|
1,925
|
|
|
$
|
(1,574
|
)
|
|
$
|
137
|
|
|
$
|
2,852
|
|
Allowance for inventory
obsolescence
|
|
|
975
|
|
|
|
24
|
|
|
|
(152
|
)
|
|
|
479
|
|
|
|
1,326
|
|
Deferred tax asset reserve
|
|
|
8,246
|
|
|
|
|
|
|
|
(8,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,585
|
|
|
$
|
1,949
|
|
|
$
|
(9,972
|
)
|
|
$
|
616
|
|
|
$
|
4,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
receivable
|
|
$
|
2,732
|
|
|
$
|
1,508
|
|
|
$
|
(1,876
|
)
|
|
$
|
|
|
|
$
|
2,364
|
|
Allowance for inventory
obsolescence
|
|
|
1,490
|
|
|
|
30
|
|
|
|
(545
|
)
|
|
|
|
|
|
|
975
|
|
Deferred tax asset reserve
|
|
|
19,099
|
|
|
|
645
|
|
|
|
(11,498
|
)
|
|
|
|
|
|
|
8,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,321
|
|
|
$
|
2,183
|
|
|
$
|
(13,919
|
)
|
|
$
|
|
|
|
$
|
11,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
receivable
|
|
$
|
3,188
|
|
|
$
|
1,395
|
|
|
$
|
(1,851
|
)
|
|
$
|
|
|
|
$
|
2,732
|
|
Allowance for inventory
obsolescence
|
|
|
1,235
|
|
|
|
240
|
|
|
|
15
|
|
|
|
|
|
|
|
1,490
|
|
Deferred tax asset reserve
|
|
|
13,456
|
|
|
|
|
|
|
|
5,643
|
|
|
|
|
|
|
|
19,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,879
|
|
|
$
|
1,635
|
|
|
$
|
(3,807
|
)
|
|
$
|
|
|
|
$
|
23,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) or the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized on March 26, 2007.
H&E EQUIPMENT SERVICES, INC.
John M. Engquist
Its: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons in
the capacities and on the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
Signature
|
|
Capacity
|
|
Date
|
|
By:
|
|
/s/ John
M. Engquist
John
M. Engquist
|
|
President, Chief Executive Officer
and Director (Principal Executive Officer)
|
|
March 26, 2007
|
|
|
|
|
|
|
|
By:
|
|
/s/ Leslie
S. Magee
Leslie
S. Magee
|
|
Chief Financial Officer (Principal
Financial and Accounting Officer)
|
|
March 26, 2007
|
|
|
|
|
|
|
|
By:
|
|
/s/ Gary
W. Bagley
Gary
W. Bagley
|
|
Chairman and Director
|
|
March 26, 2007
|
|
|
|
|
|
|
|
By:
|
|
/s/ Keith
E. Alessi
Keith
E. Alessi
|
|
Director
|
|
March 26, 2007
|
|
|
|
|
|
|
|
By:
|
|
/s/ Paul
N. Arnold
Paul
N. Arnold
|
|
Director
|
|
March 26, 2007
|
|
|
|
|
|
|
|
By:
|
|
Bruce
C. Bruckmann
|
|
Director
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Lawrence
C. Karlson
Lawrence
C. Karlson
|
|
Director
|
|
March 26, 2007
|
|
|
|
|
|
|
|
By:
|
|
/s/ John
T. Sawyer
John
T. Sawyer
|
|
Director
|
|
March 26, 2007
|
88
Exhibit Index
|
|
|
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger,
dated February 2, 2006, among the Company, H&E LLC and
Holdings (incorporated by reference to Exhibit 2.1 to
Current Report on
Form 8-K
of H&E Equipment Services, Inc. (File
No. 000-51759),
filed February 3, 2006).
|
|
2
|
.2
|
|
Acquisition Agreement, dated as of
January 4, 2005, among H&E Equipment Services, L.L.C.,
Eagle Merger Corp., Eagle High Reach Equipment, LLC, Eagle High
Reach Equipment, Inc., SBN Eagle LLC, SummitBridge National
Investments, LLC and the shareholders of Eagle High Reach
Equipment, Inc. (incorporated by reference to Exhibit 2.1
to
Form 8-K
of H&E Equipment Services L.L.C. (File
Nos. 333-99587
and
333-99589),
filed January 5, 2006).
|
|
3
|
.1
|
|
Amended and Restated Certificate
of Incorporation of H&E Equipment Services, Inc.
(incorporated by reference to Exhibit 3.4 to Registration
Statement on
Form S-1
of H&E Equipment Services, Inc. (File
No. 333-128996),
filed January 20, 2006).
|
|
3
|
.2
|
|
Amended and Restated Bylaws of
H&E Equipment Services, Inc. (incorporated by reference to
Exhibit 3.5 to Registration Statement on
Form S-1
of H&E Equipment Services, Inc. (File
No. 333-128996),
filed January 20, 2006).
|
|
3
|
.3
|
|
Amended and Restated Articles of
Organization of Gulf Wide Industries, L.L.C. (incorporated by
reference to Exhibit 3.2 to Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
3
|
.4
|
|
Amended Articles of Organization
of Gulf Wide Industries, L.L.C., Changing Its Name To H&E
Equipment Services L.L.C. (incorporated by reference to
Exhibit 3.3 to Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
3
|
.5
|
|
Amended and Restated Operating
Agreement of H&E Equipment Services L.L.C. (incorporated by
reference to Exhibit 3.8 to Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
3
|
.6
|
|
Certificate of Incorporation of
H&E Finance Corp. (incorporated by reference to
Exhibit 3.4 to Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
3
|
.7
|
|
Certificate of Incorporation of
Great Northern Equipment, Inc. (incorporated by reference to
Exhibit 3.5 to Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
3
|
.8
|
|
Articles of Incorporation of
Williams Bros. Construction, Inc. (incorporated by reference to
Exhibit 3.6 to Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
3
|
.9
|
|
Articles of Amendment to Articles
of Incorporation of Williams Bros. Construction, Inc. Changing
its Name to GNE Investments, Inc. (incorporated by reference to
Exhibit 3.7 to Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
3
|
.10
|
|
Bylaws of H&E Finance Corp.
(incorporated by reference to Exhibit 3.9 to Registration
Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
3
|
.11
|
|
Bylaws of Great Northern
Equipment, Inc. (incorporated by reference to Exhibit 3.10
to Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
3
|
.12
|
|
Bylaws of Williams Bros.
Construction, Inc. (incorporated by reference to
Exhibit 3.11 to Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
4
|
.1
|
|
Indenture, among H&E Equipment
Services L.L.C., H&E Finance Corp., the guarantors party
thereto and The Bank of New York, dated as of June 17, 2002
(incorporated by reference to Exhibit 4.1 to Registration
Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99587),
filed on September 13, 2002).
|
|
4
|
.2
|
|
Amended and Restated Security
Holders Agreement, dated as of February 3, 2006, among the
Company and certain other parties thereto (incorporated by
reference to Exhibit 4.1 to Current Report on
Form 8-K
of H&E Equipment Services, Inc. (File
No. 000-51759),
filed February 3, 2006).
|
89
|
|
|
|
|
|
4
|
.3
|
|
Amended and Restated Investor
Rights Agreement, dated as of February 3, 2006, among the
Company and certain other parties thereto (incorporated by
reference to Exhibit 4.2 to Current Report on
Form 8-K
of H&E Equipment Services, Inc. (File
No. 000-51759),
filed February 3, 2006).
|
|
4
|
.4
|
|
Amended and Restated Registration
Rights Agreement, dated as of February 3, 2006, among the
Company and certain other parties thereto (incorporated by
reference to Exhibit 4.3 to Current Report on
Form 8-K
of H&E Equipment Services, Inc. (File
No. 000-51759),
filed February 3, 2006).
|
|
4
|
.5
|
|
Supplemental Indenture, dated as
of February 3, 2006, among the Company, H&E LLC,
H&E Finance Corp. and The Bank of New York (incorporated by
reference to Exhibit 4.4 to Current Report on
Form 8-K
of H&E Equipment Services, Inc. (File
No. 000-51759),
filed February 3, 2006).
|
|
4
|
.6
|
|
Form of H&E Equipment
Services, Inc. common stock certificate (incorporated by
reference to Exhibit 4.3 to Registration Statement on
Form S-1
of H&E Equipment Services, Inc. (File
No. 333-128996),
filed January 5, 2006).
|
|
4
|
.7
|
|
Registration Rights Agreement,
dated as of August 4, 2006, by and among H&E Equipment
Services, Inc., GNE Investments, Inc., Great Northern Equipment,
Inc., H&E California Holdings, Inc., H&E Equipment
Services (California), LLC, H&E Finance Corp., Credit Suisse
Securities (USA) LLC and UBS Securities LLC (incorporated by
reference to Exhibit 4.2 to Current Report on
Form 8-K
of H&E Equipment Services, Inc. (File
No. 00-51759),
filed August 8, 2006).
|
|
10
|
.1
|
|
Credit Agreement among H&E
Equipment Services Inc.., Great Northern Equipment, Inc.,
H&E Equipment Services (California) LLC, General Electric
Capital Corporation, Bank of America, N.A., the Credit Parties
and Lenders party thereto dated as of August 4, 2006
(incorporated by reference to Exhibit 10.1 to Current
Report on
Form 8-K
of H&E Equipment Services, Inc. (File
No. 000-51759),
filed August 8, 2006).
|
|
10
|
.2
|
|
Contribution Agreement and Plan of
Reorganization, dated as of June 14, 2002, by and among
H&E Holdings, L.L.C., BRSEC Co-Investment II, LLC
(incorporated by reference to Exhibit 10.2 to Registration
Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
10
|
.3
|
|
First Amended and Restated
Management Agreement, dated as of June 17, 2002, Bruckmann,
Rosser, Sherrill & Co., Inc., Bruckmann, Rosser,
Sherrill & Co., L.L.C., H&E Holdings L.L.C. and
H&E Equipment Services, L.L.C. (incorporated by reference to
Exhibit 10.7 to Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
10
|
.4
|
|
Employment Agreement, dated as of
June 29, 1999, by and between Gulf Wide Industries, L.L.C.,
and John M. Engquist (incorporated by reference to
Exhibit 10.8 to Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
10
|
.5
|
|
First Amendment to the Employment
Agreement, dated as of August 10, 2001, by and among Gulf
Wide Industries, L.L.C. and John M. Engquist (incorporated by
reference to Exhibit 10.9 to Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
10
|
.6
|
|
Consulting and Noncompetition
Agreement, dated as of June 29, 1999, between
Head & Engquist Equipment, L.L.C. and Thomas R.
Engquist (incorporated by reference to Exhibit 10.20 to
Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
10
|
.7
|
|
Purchase Agreement by and among
H&E Equipment Services L.L.C., H&E Finance Corp., the
guarantors party thereto and Credit Suisse First Boston
Corporation, dated June 3, 2002 (incorporated by reference
to Exhibit 10.21 to Registration Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99587),
filed September 13, 2002).
|
|
10
|
.8
|
|
Purchase Agreement, among H&E
Equipment Services L.L.C., H&E Finance Corp., H&E
Holdings L.L.C., the guarantors party thereto and Credit Suisse
First Boston Corporation, Inc. dated June 17, 2002
(incorporated by reference to Exhibit 10.21 to Registration
Statement on
Form S-4
of H&E Equipment Services L.L.C. (File
No. 333-99589),
filed September 13, 2002).
|
|
10
|
.9
|
|
Security Agreement, dated
June 17, 2002, between H&E Equipment Services L.L.C.
and The Bank of New York (incorporated by reference to
Exhibit 10.24 to Annual Report on
Form 10-K
of H&E Equipment Services L.L.C. for the year ended
December 31, 2002 (File
No. 333-99587),
filed April 14, 2003).
|
90
|
|
|
|
|
|
10
|
.10
|
|
Pledge Agreement, dated
June 17, 2002, between H&E Equipment Services L.L.C.
and The Bank of New York (incorporated by reference to
Exhibit 10.25 to Annual Report on
Form 10-K
of H&E Equipment Services L.L.C. for the year ended
December 31, 2002 (File
No. 333-99587),
filed April 14, 2003).
|
|
10
|
.11
|
|
Trademark Security Agreement,
dated June 17, 2002, between H&E Equipment Services
L.L.C. and The Bank of New York (incorporated by reference to
Exhibit 10.26 to Annual Report on
Form 10-K
of H&E Equipment Services L.L.C. for the year ended
December 31, 2002 (File
No. 333-99587),
filed April 14, 2003).
|
|
10
|
.12
|
|
Security Agreement, dated
June 17, 2002, between H&E Finance Corp. and The Bank
of New York (incorporated by reference to Exhibit 10.27 to
Annual Report on
Form 10-K
of H&E Equipment Services L.L.C. for the year ended
December 31, 2002 (File
No. 333-99587),
filed April 14, 2003).
|
|
10
|
.13
|
|
Security Agreement, dated
June 17, 2002, between GNE Investments, Inc. and The Bank
of New York (incorporated by reference to Exhibit 10.28 to
Annual Report on
Form 10-K
of H&E Equipment Services L.L.C. for the year ended
December 31, 2002 (File
No. 333-99587),
filed April 14, 2003).
|
|
10
|
.14
|
|
Pledge Agreement, dated
June 17, 2002, between GNE Investments, Inc. and The Bank
of New York (incorporated by reference to Exhibit 10.29 to
Annual Report on
Form 10-K
of H&E Equipment Services L.L.C. for the year ended
December 31, 2002 (File
No. 333-99587),
filed April 14, 2003).
|
|
10
|
.15
|
|
Security Agreement, dated
June 17, 2002, between Great Northern Equipment, Inc. and
The Bank of New York (incorporated by reference to
Exhibit 10.30 to Annual Report on
Form 10-K
of H&E Equipment Services L.L.C. for the year ended
December 31, 2002 (File
No. 333-99587),
filed April 14, 2003).
|
|
10
|
.16
|
|
Trademark Security Agreement,
dated June 17, 2002, between Great Northern Equipment, Inc.
and The Bank of New York (incorporated by reference to
Exhibit 10.31 to Annual Report on
Form 10-K
of H&E Equipment Services L.L.C. for the year ended
December 31, 2002 (File
No. 333-99587),
filed April 14, 2003).
|
|
10
|
.17
|
|
Patent Security Agreement, dated
June 17, 2002, between Great Northern Equipment, Inc. and
The Bank of New York (incorporated by reference to
Exhibit 10.32 to Annual Report on
Form 10-K
of H&E Equipment Services L.L.C. for the year ended
December 31, 2002 (File
No. 333-99587),
filed April 14, 2003).
|
|
10
|
.18
|
|
Consulting and Non-competition
Agreement, dated July 31, 2004, between H&E Equipment
Services, L.L.C. and Gary W. Bagley (incorporated by reference
to Exhibit 10.34 to Annual Report
Form 10-K
of H&E Equipment Services L.L.C. for the year ended
December 31, 2004 (File Nos.
333-99587
and
333-99589)
filed September 29, 2005).
|
|
10
|
.19
|
|
Stipulation of Settlement dated
November 23, 2005 (incorporated by reference to
Exhibit 10.1 to
Form 8-K
of H&E Equipment Services L.L.C. (File
No. 333-99587),
filed November 29, 2005).
|
|
10
|
.20
|
|
H&E Equipment Services, Inc.
2006 Stock-Based Compensation Incentive Plan (incorporated by
reference to Exhibit 10.35 to Registration Statement on
Form S-1
of H&E Equipment Services, Inc. (File
No. 333-128996),
filed January 20, 2006).
|
|
10
|
.21
|
|
Form of Option Letter
(incorporated by reference to Exhibit 10.36 to Registration
Statement on
Form S-1
of H&E Equipment Services, Inc. (File
No. 333-128996),
filed January 20, 2006).
|
|
21
|
.1
|
|
Subsidiaries of the registrant.*
|
|
23
|
.1
|
|
Consent of BDO Seidman, LLP
|
|
31
|
.1
|
|
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
31
|
.2
|
|
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.*
|
|
32
|
.1
|
|
Certifications of Chief Executive
Officer and Chief Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.*
|
91
exv21w1
Exhibit 21.1
Table of Subsidiaries of Registrant
|
|
|
|
|
Name |
|
|
|
Jurisdiction of Incorporation |
H&E Finance Corp.
|
|
|
|
DE |
GNE Investments, Inc.
|
|
|
|
WA |
Great Northern Equipment, Inc.
|
|
|
|
MT |
H&E California Holding, LLC
|
|
|
|
CA |
H&E Equipment Services (California), LLC
|
|
|
|
DE |
exv23w1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
H&E Equipment Services, Inc.
Baton Rouge, Louisiana
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No.
333-138242) of H&E Equipment Services, Inc. of our report dated
March 26, 2007, relating to the
consolidated financial statements and financial statement schedule, which appear in this Form 10-K.
As more fully described in Note 2 to the Consolidated Financial Statements effective January 1,
2006, the Company adopted the provisions of SFAS 123(R), Share-Based Payment.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Dallas, Texas
March 26, 2007
exv31w1
Exhibit 31.1
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, John M. Engquist, President and Chief Executive Officer of H&E Equipment Services, Inc., certify
that:
|
1. |
|
I have reviewed this annual report on Form 10-K of H&E Equipment Services, Inc.; |
|
|
2 |
|
Based on my knowledge, this annual 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 annual 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 annual report; |
|
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e
and 15d-15e) for the registrant and have: |
|
(a) |
|
designed such disclosure controls and procedures, or caused such internal
control 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) |
|
[reserved] |
|
|
(c) |
|
evaluated the effectiveness of the registrants 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 |
|
|
(d) |
|
disclosed in this report any change in the registrants internal control over
financial reporting that occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrants
internal control over financial reporting; and |
|
5. |
|
The registrants other certifying officer and I have disclosed, based on our most
recent evaluation, to the registrants auditors and the audit committee of the
registrants Board of Directors (or persons performing the equivalent function): |
|
(a) |
|
all significant deficiencies in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the
registrants 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 registrants internal control over
financial reporting. |
|
|
|
|
|
|
|
|
Dated: March 26, 2007 |
By: |
/s/ John M. Engquist
|
|
|
|
John M. Engquist |
|
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
exv31w2
Exhibit 31.2
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Leslie S. Magee, Chief Financial Officer of H&E Equipment Services, Inc., certify that:
|
1. |
|
I have reviewed this annual report on Form 10-K of H&E Equipment Services,
Inc.; |
|
|
2 |
|
Based on my knowledge, this annual 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 annual report; |
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3. |
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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 annual report; |
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4. |
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The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: |
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(a) |
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designed such disclosure controls and procedures, or caused such
internal control 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; |
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(b) |
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[reserved] |
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(c) |
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evaluated the effectiveness of the registrants 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 |
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(d) |
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disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants most
recent fiscal quarter (the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting;
and |
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5. |
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The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of the
registrants Board of Directors (or persons performing the equivalent function): |
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(a) |
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all significant deficiencies in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial
information; and |
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(b) |
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any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal control
over financial reporting. |
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Dated: March 26, 2007 |
By: |
/s/ Leslie S. Magee
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Leslie S. Magee |
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Chief Financial Officer
(Principal Financial Officer) |
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exv32w1
Exhibit 32.1
Certifications of the Chief Executive Officer and
Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of H&E Equipment Services, Inc. (the Company) on Form
10-K for the period ending December 31, 2006 as filed with the Securities and Exchange Commission
on the date hereof (the Report), I, John M. Engquist, President and Chief Executive Officer of
the Company, and Leslie S. Magee, Chief Financial Officer of the Company, each certify, pursuant to
18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
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to my knowledge, the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and |
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(2) |
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the information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company. |
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Dated: March 26, 2007 |
By: |
/s/ John M. Engquist
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John M. Engquist |
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President and Chief Executive Officer
(Principal Executive Officer) |
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Dated: March 26, 2007 |
By: |
/s/ Leslie S. Magee
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Leslie S. Magee |
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Chief Financial Officer
(Principal Financial Officer) |
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