UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2007

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

For the transition period from                    to

 

H&E Equipment Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State of other jurisdiction of incorporation or organization)		81-0553291 (I.R.S. Employer Identification No.)
11100 Mead Road, Suite 200, Baton Rouge, Louisiana (Address of principal executive offices)		70816 (Zip code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yes þ     No o

Indicate by check mark whether the registrant 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 check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

     Yes o     No þ

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

     Number of shares of common stock outstanding as of the close of business on November 6, 2007: 38,176,339

 

 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
SEPTEMBER 30, 2007

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

Forward-Looking Statements

     This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend,” “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity.

     Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results 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:

	•		general economic conditions and construction activity in the markets where we operate in North America;
	•		relationships with new equipment suppliers;
	•		increased maintenance and repair costs;
	•		our substantial leverage;
	•		the risks associated with the expansion of our business;
	•		our possible inability to integrate any businesses we acquire, including our recently completed acquisition of J.W. Burress, Incorporated;
	•		competitive pressures;
	•		compliance with laws and regulations, including those relating to environmental matters and corporate governance matters; and
	•		other factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006 or elsewhere in this Quarterly Report on Form 10-Q.

     Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above mentioned factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance. For a more detailed discussion of some of the foregoing risk and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006, as well as other reports and registration statements filed by us with the SEC. All of our annual, quarterly and current reports and any amendments thereto, filed with the SEC are available on our website under the Investor Relations link. For more information about us and the announcements we make from time to time, visit our website at www.he-equipment.com.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)

		Balances at
		September 30,				December 31,
		2007				2006
		(Unaudited)
ASSETS
Cash		$	1,916			$	9,303
Receivables, net of allowance for doubtful accounts of $3,707 and $2,852, respectively			152,697				107,760
Inventories, net of reserve for obsolescence of $1,418 and $1,326, respectively			144,823				126,737
Prepaid expenses and other assets			8,336				6,122
Rental equipment, net of accumulated depreciation of $177,939 and $158,822, respectively			556,169				440,454
Property and equipment, net of accumulated depreciation and amortization of $29,638 and $27,112, respectively			42,948				29,663
Deferred financing costs, net of accumulated amortization of $5,860 and $4,983, respectively			9,023				9,296
Intangible assets, net of accumulated amortization of $258 and $103, respectively			11,430				34
Goodwill			54,401				30,573
Total assets		$	981,743			$	759,942
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Amounts due on senior secured credit facility		$	81,515			$	9,134
Accounts payable			108,929				61,486
Manufacturer flooring plans payable			160,498				148,028
Accrued expenses payable and other liabilities			49,622				33,150
Related party obligation			476				653
Notes payable			1,993				2,354
Senior secured notes, net of original issue discount of $23 at December 31, 2006			—				4,477
Senior unsecured notes			250,000				250,000
Capital lease payable			2,418				—
Deferred income taxes			40,702				11,805
Deferred compensation payable			1,902				3,271
Total liabilities			698,055				524,358
Commitments and contingencies
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 shares issued at September 30, 2007 and December 31, 2006 and 38,176,339 and 38,192,094 shares outstanding at September 30, 2007 and December 31, 2006, respectively			382				382
Additional paid-in capital			205,620				204,638
Treasury stock at cost, 15,755 shares of common stock held at September 30, 2007 and no shares held at December 31, 2006, respectively			(432	)			—
Retained earnings			78,118				30,564
Total stockholders’ equity			283,688				235,584
Total liabilities and stockholders’ equity		$	981,743			$	759,942

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Amounts in thousands, except per share amounts)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Revenues:
Equipment rentals		$	75,598			$	67,327			$	208,371			$	185,333
New equipment sales			94,675				60,673				240,910				173,333
Used equipment sales			44,503				29,668				110,190				97,387
Parts sales			26,716				21,024				73,803				61,574
Services revenues			16,877				14,074				46,599				39,782
Other			12,218				11,369				33,595				31,472
Total revenues			270,587				204,135				713,468				588,881
Cost of revenues:
Rental depreciation			24,468				20,644				68,132				56,674
Rental expense			11,173				10,339				33,802				31,427
New equipment sales			81,523				53,321				208,875				151,615
Used equipment sales			33,730				21,708				82,604				71,253
Parts sales			18,895				14,895				52,224				43,499
Services revenues			6,131				5,045				16,899				14,343
Other			10,768				9,436				30,112				27,005
Total cost of revenues			186,688				135,388				492,648				395,816
Gross profit			83,899				68,747				220,820				193,065
Selling, general and administrative expenses			41,609				34,118				117,124				108,545
Gain on sales of property and equipment, net			97				241				444				400
Income from operations			42,387				34,870				104,140				84,920
Other income (expense):
Interest expense			(9,007	)			(9,060	)			(26,597	)			(29,342	)
Loss on early extinguishment of debt			(325	)			(40,771	)			(325	)			(40,771	)
Other, net			293				245				816				675
Total other expense, net			(9,039	)			(49,586	)			(26,106	)			(69,438	)
Income (loss) before provision (benefit) for income taxes			33,348				(14,716	)			78,034				15,482
Provision (benefit) for income taxes			13,154				(3,185	)			30,480				3,290
Net income (loss)		$	20,194			$	(11,531	)		$	47,554			$	12,192
Net income (loss) per common share:
Basic		$	0.53			$	(0.30	)		$	1.25			$	0.33
Diluted		$	0.53			$	(0.30	)		$	1.25			$	0.33
Weighted average common shares outstanding:
Basic			38,095				38,070				38,090				36,550
Diluted			38,095				38,070				38,090				36,587

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

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

		Nine Months Ended
		September 30,
		2007				2006
Cash flows from operating activities:
Net income		$	47,554			$	12,192
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation on property and equipment			6,087				5,010
Amortization of property and equipment under capital lease			23				—
Depreciation on rental equipment			68,132				56,674
Amortization of loan discounts and deferred financing costs			1,019				2,056
Amortization of intangible assets			270				34
Provision for losses on accounts receivable			1,712				1,457
Provision for inventory obsolescence			61				18
Provision for deferred income taxes			28,897				2,692
Stock-based compensation expense			938				681
Loss on early extinguishment of debt			325				40,771
Gain on sales of property and equipment, net			(444	)			(400	)
Gain on sales of rental equipment, net			(25,594	)			(23,339	)
Changes in operating assets and liabilities, net of impact of acquisition:
Receivables, net			(32,498	)			(4,363	)
Inventories			(53,719	)			(58,315	)
Prepaid expenses and other assets			(1,963	)			(4,437	)
Accounts payable			38,684				5,513
Manufacturer flooring plans payable			(7,317	)			36,292
Accrued expenses payable and other liabilities			5,817				7,021
Deferred compensation payable			(1,368	)			(8,507	)
Net cash provided by operating activities			76,616				71,050
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired			(99,848	)			(56,961	)
Purchases of property and equipment			(12,325	)			(13,353	)
Purchases of rental equipment			(128,202	)			(174,372	)
Proceeds from sales of property and equipment			651				1,841
Proceeds from sales of rental equipment			91,626				76,068
Net cash used in investing activities			(148,098	)			(166,777	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issue costs			—				207,018
Excess tax benefits from stock-based awards			44				—
Purchase of treasury stock			(432	)			—
Borrowings on senior secured credit facility			754,616				718,819
Payments on senior secured credit facility			(681,964	)			(799,005	)
Proceeds from issuance of senior unsecured notes			—				250,000
Principal payment of senior secured notes			(4,478	)			(214,608	)
Principal payment of senior subordinated notes			(278	)			(59,155	)
Payments of deferred financing costs			(547	)			(8,816	)
Payments of related party obligation			(225	)			(225	)
Payments on capital lease obligations			(2,280	)			—
Proceeds from issuance of notes payable			—				1,271
Principal payments of notes payable			(361	)			(146	)
Net cash provided by financing activities			64,095				95,153
Net decrease in cash			(7,387	)			(574	)
Cash, beginning of period			9,303				5,627
Cash, end of period		$	1,916			$	5,053

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

		Nine Months Ended
		September 30,
		2007				2006
Supplemental schedule of noncash investing and financing activities:
Noncash asset purchases:
Assets transferred from new and used inventory to rental fleet		$	59,324			$	23,980
Capital lease obligations incurred		$	4,698			$	—
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	28,594			$	24,880
Income taxes		$	1,873			$	576

     As of September 30, 2007 and 2006, we had $160.5 million and $130.0 million, respectively, in manufacturer flooring plans payable outstanding, which are used to finance purchases of inventory and rental equipment.

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) Organization and Nature of Operations

Basis of Presentation

     In connection with our initial public offering of common stock in February 2006 (see note 3 to the condensed consolidated financial statements), 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 H&E Holdings received shares of our common stock. All references to common stock share and per share amounts included in our condensed consolidated statements of operations for the three and nine months ended September 30, 2007 and 2006 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.

     Our condensed consolidated financial statements include the financial position and results of operations of H&E Equipment Services, Inc. and its wholly-owned subsidiaries H&E Finance Corp., GNE Investments, Inc., Great Northern Equipment, Inc., H&E California Holdings, Inc., H&E Equipment Services (California) LLC and our most recent acquisition, as described in note 4 to the condensed consolidated financial statements, of J.W. Burress, Incorporated (“Burress”) now known as H&E Equipment Services (Mid-Atlantic), Inc., consummated on September 1, 2007, collectively referred to herein as “we” or “us” or “our” or the “Company.”

     The accompanying unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included. Certain items in the prior periods have been reclassified to make the presentation consistent with the current reporting periods. Operating results for the three and nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007, and therefore, the results and trends in these interim condensed consolidated financial statements may not be the same for the entire year. These interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2006, from which the balance sheet amounts as of December 31, 2006 were derived.

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

Nature of Operations

     As one of the largest integrated equipment services companies in the United States focused on heavy construction and industrial equipment, we rent, sell and provide parts and service support for four core categories of specialized equipment: (1) hi-lift or aerial platform equipment; (2) cranes; (3) earthmoving equipment; and (4) industrial lift trucks. By providing equipment sales, rental, on-site parts and repair and maintenance functions under one roof, we are a one-stop provider for our customers’ varied equipment needs. This full-service approach provides us with multiple points of customer contact, enables us to maintain an extremely 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.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

(2) Significant Accounting Policies

     We describe our significant accounting policies in note 2 of the notes to consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2006.

     Use of Estimates

     We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the 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 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.

     Recently Adopted Accounting Pronouncements

     In June 2006, the Financial Accounting Standards Board (“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 issuance of FASB Staff Position No. FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48,” in May 2007 amends FIN 48 to provide guidance on how an enterprise should determine whether a tax position is effectively settled for the purposes of recognizing previously unrecognized tax benefits.

     FIN 48 provides that the cumulative effect of applying the provisions is reported as an adjustment to opening retained earnings in the period of adoption. We adopted the provisions of FIN 48 as of January 1, 2007, and in so doing, have analyzed filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. The cumulative effect of applying this interpretation did not result in any adjustment to our retained earnings as of January 1, 2007.

     Consistent with our historical financial reporting, to the extent we generate or incur interest income, interest expense, or penalties related to unrecognized income tax benefits, such items are recorded in “Other income or expense.” We did not incur any income tax related interest income, interest expense or penalties related to FIN 48 for the three and nine month periods ended September 30, 2007.

     As of January 1, 2007, we had an unrecognized tax benefit of $6.2 million. The net impact of recording this liability was a reclass between deferred income tax liabilities and deferred income tax assets, resulting in no adjustment to retained earnings. If recognized, there would be no impact to the 2007 effective income tax rate. There was no change in the unrecognized tax benefit for the three and nine months ended September 30, 2007. At this time, we do not expect to recognize significant increases or decreases in unrecognized tax benefits during the year ending December 31, 2007 related to FIN 48.

     Our U.S. federal tax returns for 2004 and subsequent years remain subject to examination by tax authorities. We are also subject to examination in various state jurisdictions for 2003 and subsequent years.

     Recently Issued Accounting Pronouncements

     In February 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115,” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the fair value option). SFAS 159 becomes effective for us on January 1, 2008. Management is currently determining

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

whether fair value accounting is appropriate for any of its eligible items and can not estimate the impact, if any, which SFAS 159 will have on its financial condition, results of operations and cash flows.

     In September 2006, the FASB issued SFAS 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. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements. SFAS 157 becomes effective for us on January 1, 2008. Upon adoption, the provisions of SFAS 157 are to be applied prospectively with limited exceptions. The adoption of SFAS 157 is not expected to have a material impact on our consolidated financial statements.

(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 condensed consolidated financial statements);
	•		$30.3 million to purchase rental equipment under operating leases;
	•		$8.6 million to pay deferred compensation owed to one of our current executives and a former executive; and
	•		$96.6 million to repay outstanding principal indebtedness under our senior secured credit facility.

     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) Acquisitions

2007 Acquisition

     We completed, effective as of September 1, 2007, and funded on September 4, 2007, the previously announced acquisition of all of the outstanding capital stock of J.W. Burress, Incorporated (“Burress”) for an estimated consideration of approximately $143.8 million, consisting of cash paid of $97.8 million, liabilities assumed of $39.0 million, liabilities incurred of $5.0 million and transaction costs of approximately $2.0 million. The Burress purchase price was funded from available cash on hand and borrowings under our senior secured credit facility (see discussion below). Prior to the acquisition, Burress was a privately-held company operating primarily as a distributor in the construction and industrial equipment markets out of 12 locations in four states in the Mid-Atlantic region of the United States. We had no material relationship with Burress prior to the acquisition. The name of Burress was changed to H&E Equipment Services (Mid-Atlantic), Inc., effective September 4, 2007. This acquisition marks our initial entry into three of the four Mid-Atlantic states that Burress operates in and is consistent with our business strategy. For further information on our business strategy, see Item 1 of Part 1 of our Annual Report on Form 10-K for the year ended December 31, 2006.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

     The Burress 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 preliminary valuation performed by an independent national firm. We anticipate that the valuation will be finalized during the fourth quarter of fiscal 2007. 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 Burress to the overall corporate strategy. We estimate that approximately $18.8 million of the goodwill acquired will be tax deductible. Our purchase price allocation is subject to adjustment based on the finalization of the aforementioned valuation, post-closing adjustments and settlement of amounts currently held in escrow. We are in the process of evaluating the allocation of Burress goodwill to our operating segments. Our operating results for the three and nine months ended September 30, 2007 include the operating results of Burress since the date of acquisition, September 1, 2007.

     The purchase price of Burress, among other things, was based on a multiple of historical adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Among the items specifically excluded from the purchase price calculation was EBITDA derived from Burress’ distribution relationship with Hitachi. Upon the consummation of the acquisition, the Burress shareholders received notification from John Deere Construction & Forestry Company (“John Deere”), Hitachi’s North American representative, of termination of the Hitachi dealer agreement (the “Termination Letter”). Pursuant to the Termination Letter, all Hitachi related manufacturer flooring plans payable totaling approximately $9.2 million became due. The possibility that the Hitachi relationship would be terminated was anticipated by the Company and Burress at the time the parties entered into the acquisition agreement and the amount of the outstanding Hitachi manufacturer flooring plans payable was included in the calculation of the purchase price. We paid the approximate $9.2 million of payables during September 2007 with funds available under our senior secured credit facility. Additionally, certain Hitachi rental fleet, new equipment inventory and parts inventory were to be returned to John Deere or other designated Hitachi dealerships within 60 days of the termination notification. Upon the return of the equipment, approximately $3.2 million of manufacturer flooring plans payable associated with that equipment would be canceled and credits would be issued for the return of the equipment. Accordingly, these items are excluded from the allocation of purchase price to the net assets acquired of Burress.

     In conjunction with the termination of the Hitachi dealer agreement, the Burress shareholders filed for arbitration proceedings concerning John Deere’s contractual right to terminate the Hitachi dealer agreement. No decision has been reached in these proceedings to date. The Burress shareholders may be entitled to receive additional consideration of approximately $15.1 million payable over three years if the consent of Hitachi, meeting requirements of the acquisition agreement, is obtained on or before December 29, 2007. We have not recognized the contingent liability for the additional purchase price consideration that would be due the Burress shareholders should the Burress shareholders prevail in the arbitration proceedings.

     In connection with the Burress acquisition, we entered into a Second Amended and Restated Credit Agreement on September 1, 2007, by and among the Company, Great Northern Equipment, Inc., GNE Investments, Inc., H&E Finance Corp., H&E Equipment Services (California), LLC, H&E California Holdings, Inc., J.W. Burress, Incorporated, General Electric Capital Corporation, as Agent, and the “Lenders” (as defined therein) amending and restating our Amended and Restated Credit Agreement, dated as of August 4, 2006, and pursuant to which, among other things, (i) the principal amount of availability of the credit facility was increased from $250.0 million to $320.0 million, (ii) an incremental facility, at Agent’s and Company’s mutual agreement, in an aggregate amount of up to $130.0 million at any time after the closing of the amendment, subject to existing and/or new lender approval, was added, and (iii) Burress was added as a guarantor. We paid $0.4 million to the lenders and also incurred approximately $0.1 million in other transaction costs in connection with the transaction.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

     The following table summarizes our purchase price allocation as of September 30, 2007, based on estimated fair values of the Burress assets acquired and liabilities assumed on September 1, 2007 (amounts in thousands):

Receivables		$	14,423
Inventories			23,751
Rental equipment			62,354
Property and equipment			7,277
Prepaid expenses and other assets			472
Intangible assets (1)			11,688
Goodwill			23,828
Accounts payable			(8,758	)
Manufacturer flooring plans payable			(19,787	)
Accrued expenses payable and other liabilities			(5,692	)
Due to Burress shareholders (2)			(5,010	)
Capital leases (3)			(4,698	)
Net assets acquired		$	99,848

										Balances at
						Weighted-Average				September 30, 2007
		Gross Carrying				Amortization Period				Accumulated				Net Intangible
Acquired Intangible Asset		Amount				(in Years)				Amortization				Assets
Trade name		$	1,370				1.0			$	114			$	1,256
Non-compete agreements			788				4.0				16				772
Customer relationships			9,530				6.0				128				9,402
Total		$	11,688				5.3			$	258			$	11,430

Amortization expense for the three and nine month periods ended September 30, 2007 amounted to $0.3 million. Amortization expense is computed over the estimated useful life of the intangible assets acquired on a straight-line basis.

(2)

Represents the amount payable to Burress shareholders for the gross up effect related to the Section 338 tax election pursuant to the acquisition agreement.

(3)

Represents the present value of our obligation under capital leases assumed on the date of acquisition. Subsequent to the acquisition date and during the third quarter ended September 30, 2007, we paid approximately $3.2 million to purchase all vehicles previously held under capital leases. The accompanying condensed consolidated balance sheet reflects the incremental cost basis of the vehicles from the lease buyouts in property and equipment and reflects no obligation under those vehicle leases as of September 30, 2007. Additionally, Burress previously leased four branch facility locations under capital leases. On August 31, 2007, three of those capital leases related to Burress branch facility locations were amended and these amendments resulted in a lease classification change, pursuant to Statement on Financial Accounting Standard No. 13, “Accounting for Leases”, from capital leases to operating leases as of September 1, 2007, the acquisition date. Therefore, the accompanying condensed consolidated balance sheet as of September 30, 2007 reflects only one capital lease obligation on a Burress branch facility for approximately $2.4 million and the related asset, net of accumulated amortization, of $2.3 million is included in property and equipment.

The following table contains unaudited pro forma condensed consolidated statements of operations information for the three and

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

nine month periods ended September 30, 2007 and 2006, as if the Burress transaction had occurred at the beginning of each respective period presented (amounts in thousands, except per share data):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Total revenues		$	301,529			$	241,326			$	827,183			$	718,630
Gross profit		$	92,997			$	84,632			$	247,882			$	228,666
Operating income		$	46,195			$	39,035			$	110,438			$	97,311
Net income (loss)		$	20,655			$	(9,314	)		$	47,979			$	17,718
Basic net income (loss) per common share		$	0.54			$	(0.24	)		$	1.26			$	0.48
Diluted net income (loss) per common share		$	0.54			$	(0.24	)		$	1.26			$	0.48

     Net income (loss) and the resulting net income (loss) per common share for the three and nine months ended September 30, 2006 includes the $40.8 million, or $32.0 million after tax, loss on early extinguishment of debt. See note 9 to the condensed consolidated financial statements for further information.

     The pro forma information above does not include the pro forma effects of our 2006 acquisition as presented below. The above pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred had the Burress 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.

2006 Acquisition

     We completed, effective as of February 28, 2006, the acquisition of all of the outstanding capital stock of Eagle High Reach Equipment, Inc. (now known as H&E California Holdings, Inc.) and all of the outstanding equity interests of its subsidiary, Eagle High Reach Equipment, LLC (now known as H&E Equipment Services (California) LLC) (collectively, “Eagle”) for 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 condensed 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 marked our initial entry into the southern California market and was consistent with our business strategy. For further information on our business strategy, see Item 1 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2006.

     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 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 corporate strategy. We estimate that approximately $9.9 million of the goodwill acquired will be tax deductible. Our operating results for the three and nine month periods ended September 30, 2007 and 2006 include the operating results of Eagle since the date of acquisition, February 28, 2006.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

     The following table summarizes our final 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 following table contains unaudited pro forma condensed consolidated statements of operations information for the three and nine month periods ended September 30, 2007 and 2006, as if the Eagle transaction had occurred at the beginning of each respective period presented (amounts in thousands, except per share data):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Total revenues		$	270,587			$	204,135			$	713,468			$	594,209
Gross profit		$	83,899			$	68,747			$	220,820			$	194,839
Operating income		$	42,387			$	34,870			$	104,140			$	84,212
Net income (loss)		$	20,194			$	(11,531	)		$	47,554			$	11,842
Basic net income (loss) per common share		$	0.53			$	(0.30	)		$	1.25			$	0.32
Diluted net income (loss) per common share		$	0.53			$	(0.30	)		$	1.25			$	0.32

     Net income (loss) and the resulting net income (loss) per common share for the three and nine months ended September 30, 2006 includes the $40.8 million, or $32.0 million after tax, loss on early extinguishment of debt. See note 9 to the condensed consolidated financial statements for further information.

     The pro forma information above does not include the pro forma effects of the Burress acquisition as presented above. The above pro forma information 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.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

(5) Stockholders’ Equity

     The following table summarizes the activity in Stockholders’ Equity for the nine month period ended September 30, 2007 (amounts in thousands, except share data):

										Additional												Total
		Common Stock								Paid-in				Treasury				Retained				Stockholders’
		Shares Issued				Amount				Capital				Stock				Earnings				Equity
Balances at December 31, 2006			38,192,094			$	382			$	204,638			$	—			$	30,564			$	235,584
Stock-based compensation			—				—				938				—				—				938
Tax benefits associated with stock-based awards			—				—				44				—				—				44
Surrender of 15,755 shares(1)			—				—				—				(432	)			—				(432	)
Net income			—				—				—				—				47,554				47,554
Balances at September 30, 2007			38,192,094			$	382			$	205,620			$	(432	)		$	78,118			$	283,688

(6) 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 in January 2006, 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 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. Shares available for future stock-based payment awards under our Stock Incentive Plan were 4,411,222 shares as of September 30, 2007.

     We account for our stock-based compensation plan using the fair value recognition provisions of Statement of Financial Accounting Standard No. 123 (revised), (“SFAS 123(R)”), “Share-Based Payment.” SFAS 123(R) became effective for us at the beginning of the first quarter of our 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).

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Non-vested Stock

     The following table summarizes our non-vested stock activity for the nine months ended September 30, 2007:

						Weighted Average
						Grant Date Fair
		Number of Shares				Value
Non-vested stock at January 1, 2007			121,950			$	24.60
Granted			—				—
Vested			(40,650	)		$	24.60
Forfeited			—				—
Non-vested stock at September 30, 2007			81,300			$	24.60

     As of September 30, 2007, we have unrecognized compensation expense of $1.4 million related to non-vested stock. Compensation expense related to these awards included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations was approximately $0.3 million for each of the three month periods ended September 30, 2007 and 2006. Compensation expense included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2007 and 2006 was $0.7 million and $0.6 million, respectively.

     We receive a tax deduction when non-vested stock vests at a higher value than the value used to recognize compensation expense at the date of grant. Excess tax benefits are recorded when a deduction reported for tax return purposes for an award of equity instruments exceeds the cumulative compensation cost for the instruments recognized for financial reporting purposes. For the nine month period ended September 30, 2007, we recognized $44 thousand of excess tax benefits associated with the vesting of the above 40,650 shares on February 22, 2007.

Stock Options

     On June 5, 2007, we granted stock options for 6,000 shares of our common stock with an exercise price of $26.27 per share, the closing market price of our common 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. We use the Black-Scholes option pricing model to estimate the fair value of stock-based option awards with the following weighted-average assumptions for the three and nine month periods ended September 30, 2007:

Risk-free interest rate			5.0	%
Expected life of options (in years)			6.0
Expected volatility			33.0% — 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 we are a public entity with limited historical data on the price of our publicly traded common shares due to our initial public offering in 2006 and no prior history of share-based stock option 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 September 30, 2007, there was $0.4 million of unrecognized compensation cost related to these stock option awards that are expected to be recognized over a weighted-average period of 1.61 years. Compensation expense related to these awards included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations was $0.1 million in each of the three month periods ended September 30, 2007 and 2006. Compensation expense related to these awards included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations for the nine month periods ended September 30, 2007 and 2006 was $0.2 million and $0.1 million, respectively.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following table represents stock option activity for the nine month period ended September 30, 2007:

										Weighted Average
		Number of				Weighted Average				Contractual Life
		Shares				Exercise Price				In Years
Outstanding options at January 1, 2007			45,000			$	24.60
Granted			6,000			$	26.27
Exercised			—				—
Canceled, forfeited or expired			—				—
Outstanding options at September 30, 2007			51,000			$	24.80				8.55
Options exercisable at September 30, 2007			15,000			$	24.60				8.40

     The closing price of our common stock on September 30, 2007 was $17.98. All options outstanding at September 30, 2007 have grant date fair values which exceed the September 30, 2007 closing stock price.

     The following table summarizes non-vested stock option activity for the nine month period ended September 30, 2007:

						Weighted Average
		Number of				Grant Date Fair
		Shares				Value
Non-vested stock options at January 1, 2007			45,000			$	24.60
Granted			6,000			$	26.27
Vested			(15,000	)		$	24.60
Forfeited			—				—
Non-vested stock options at September 30, 2007			36,000			$	24.88

(7) Earnings per Share

     Earnings per common share for the three and nine month periods ended September 30, 2007 and 2006 are based on the weighted-average number of common shares outstanding during the respective periods and have been retroactively adjusted to reflect the Reorganization Transactions as if the Reorganization Transactions had occurred at the beginning of the earliest period presented. The following table sets forth the computation of basic and diluted net income (loss) per common share for the three and nine month periods ended September 30, 2007 and 2006 (amounts in thousands, except per share amounts):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2007				2006				2007				2006
Basic net income (loss) per share:
Net income (loss)		$	20,194			$	(11,531	)		$	47,554			$	12,192
Weighted average number of common shares outstanding			38,095				38,070				38,090				36,550
Net income (loss) per common share — basic		$	0.53			$	(0.30	)		$	1.25			$	0.33
Diluted net income (loss) per share:
Net income (loss)		$	20,194			$	(11,531	)		$	47,554			$	12,192
Weighted average number of common shares outstanding			38,095				38,070				38,090				36,550
Effect of dilutive securities:
Effect of dilutive stock options and non-vested stock			¯				¯				¯				37
Weighted average number of shares outstanding — diluted			38,095				38,070				38,090				36,587
Net income (loss) per common share — diluted		$	0.53			$	(0.30	)		$	1.25			$	0.33
Common shares excluded from the denominator as anti-dilutive:
Stock options			132				23				132				—
Non-vested stock			—				30				41				—
Total			132				53				173				—

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

(8) Senior Secured Notes

     On July 31, 2007, we redeemed all of our remaining outstanding 11 1/8% Senior Secured Notes due 2012, having an aggregate principal amount of $4.5 million. The redemption price of the Senior Secured Notes was $1,055.63 per $1,000 principal amount, or 105.563% of the principal amount of the Redeemed Notes, plus accrued interest through and including July 31, 2007. In connection with the transaction, we recorded a loss on the early extinguishment of debt in the three month period ended September 30, 2007 of approximately $0.3 million. On August 4, 2006, we redeemed $195.5 million in aggregate principal amount of the senior secured notes as discussed in Note 9 below.

(9) Senior Unsecured Notes

     On August 4, 2006, we completed a cash tender offer and consent solicitation for our 11 1/8% senior secured notes due 2012 and 12 ¹/2% senior subordinated notes due 2013 (collectively, the “Notes”). Additionally, we announced the closing of our previously announced private offering of $250 million aggregate principal amount of our 8 3/8% 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 the early extinguishment of debt in the three month period ended September 30, 2006 of approximately $40.8 million, or approximately $32.0 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 15^th and July 15^th of each year, beginning on January 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 certain 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 existing and future secured indebtedness, including borrowings under our senior secured credit facility, the $4.5 million of senior secured notes outstanding at September 30, 2006 (and subsequently redeemed on July 31, 2007), 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.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

     Concurrently with the closing of the private offering, we entered into an Amended and Restated 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 as a borrower. Furthermore, the measurement frequency of our computed “Leverage Ratio” was changed from a monthly calculation to a quarterly calculation. We paid $1.4 million to the “Lenders” in connection with this transaction and incurred other transaction costs of approximately $0.2 million. On September 1, 2007, and in connection with the Burress acquisition, we entered into a Second Amended and Restated Credit Agreement. See note 4 to the condensed consolidated financial statements for further information.

     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.

(10) Segment Information

     We have identified five reportable segments: equipment rentals, new equipment sales, used equipment sales, parts sales and service revenues. These segments are based upon how management of the Company allocates resources and assesses performance. Non-segmented revenues and non-segmented costs relate to equipment support activities including transportation, hauling, parts freight and damage-waiver charges and are not allocated to the other reportable segments. There were no sales between segments for any of the periods presented. Selling, general and administrative expenses as well as all other income and expense items below gross profit are not generally allocated to reportable segments. We do not compile discrete financial information by segments other than the information presented below. The following table presents information about our reportable segments (amounts in thousands):

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

		Balances at
		September 30,				December 31,
		2007				2006
Segment identified assets:
Equipment sales		$	117,628			$	104,648
Equipment rentals			556,169				440,454
Parts and services			27,195				22,089
Total segment identified assets			700,992				567,191
Non-segment identified assets			280,751				192,751
Total assets		$	981,743			$	759,942

     We operate primarily in the United States. Our sales to international customers were no greater than 1.2% of total revenues for all periods presented in this Quarterly Report on Form 10-Q. No one customer accounted for more than 10% of our revenues on an overall or segment basis for any of the periods presented.

(11) Condensed Consolidating Financial Information of Guarantor Subsidiaries

     All of the indebtedness of H&E Equipment Services, Inc. is guaranteed by GNE Investments, Inc. and its wholly-owned subsidiary Great Northern Equipment, Inc., H&E Equipment Services (California), LLC (formerly known as Eagle High Reach Equipment, LLC), H&E California Holdings, Inc. (formerly known as Eagle High Reach Equipment, Inc.) and J.W. Burress, Incorporated (“Burress”), now known as H&E Equipment Services (Mid-Atlantic), Inc. The guarantor subsidiaries are all wholly-owned and the guarantees, made on a joint and several basis, are full and unconditional (subject to subordination provisions and subject to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). There are no restrictions on the Company’s ability to obtain funds from the guarantor subsidiaries by dividend or loan.

     The condensed consolidating financial statements of H&E Equipment Services, Inc. and its subsidiaries are included below. The financial statements for H&E Finance Corp., 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. are included in the periods presented from the date of our acquisition of Eagle on February 28, 2006. The financial statements of Burress, now known as H&E Equipment Services (Mid-Atlantic), Inc., are included from the date of acquisition, September 1, 2007 to September 30, 2007 and as of September 30, 2007.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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, net			9,296				—				—				9,296
Intangible assets, net			34				—				—				34
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 balances			(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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

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