UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2007

OR

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 Incorporation)		81-0553291 (I.R.S. Employer Identification No.)

11100 Mead Road, Suite 200,
Baton Rouge, Louisiana 70816 (Address of Principal Executive Offices, including Zip Code)		(225) 298-5200 (Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share		Nasdaq Global Market

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 check mark 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 (§229.405) is not contained herein, and will not be contained, to the best of the registrant’s 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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act, (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by checkmark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o No þ

The aggregate market value of the common stock held by non-affiliates of the registrant was approximately $507,533,509 (computed by reference to the closing sale price of the registrant’s common stock on the Nasdaq Global Market on June 30, 2007, the last business day of the registrant’s most recently completed second fiscal quarter).

As of March 3, 2008, there were 36,495,058 shares of common stock, par value $0.01 per share, of the registrant outstanding.

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.

Part III		The registrant’s definitive proxy statement, for use in connection with the Annual Meeting of Stockholders, to be filed within 120 days after the registrant’s fiscal year ended December 31, 2007.

 

 

TABLE OF CONTENTS

PART I
		Item 1.		Business			4
		Item 1A.		Risk Factors			11
		Item 1B.		Unresolved Staff Comments			18
		Item 2.		Properties			18
		Item 3.		Legal Proceedings			20
		Item 4.		Submission of Matters to a Vote of Security Holders			20
PART II
		Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			20
		Item 6.		Selected Financial Data			23
		Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
		Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			50
		Item 8.		Financial Statements and Supplementary Data			52
		Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			95
		Item 9A.		Controls and Procedures			95
		Item 9B.		Other Information			99
PART III
		Item 10.		Directors, Executive Officers and Corporate Governance			99
		Item 11.		Executive Compensation			99
		Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			99
		Item 13.		Certain Relationships and Related Transactions, and Director Independence			99
		Item 14.		Principal Accountant Fees and Services			99
PART IV
		Item 15.		Exhibits, Financial Statement Schedules			100
SIGNATURES							102
EXHIBIT INDEX							103
BDO Seidman, LLP Preferability Letter.
Subsidiaries of the Registrant
Consent of BDO Seidman, LLP.
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification of CEO and CFO Pursuant to Section 906

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,” “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 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 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 (“Burress”);
	•		competitive pressures;
	•		compliance with laws and regulations, including those relating to environmental matters and corporate governance matters; and
	•		other factors discussed under Item 1A — Risk Factors or elsewhere in this Annual Report on Form 10-K.

     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 merger reincorporation as the operating company. Effective February 3, 2006, H&E LLC and Holdings no longer existed under operation of law pursuant to the reincorporation merger. 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.

PART I

Item 1. Business

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:

	•		equipment rental;
	•		new equipment sales;
	•		used equipment sales;
	•		parts sales; and
	•		repair and maintenance services.

     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, 2007, we generated total revenues of approximately $1.003 billion. The pie charts below illustrate a breakdown of our revenues and gross profits for the year ended December 31, 2007 by business segment (see note 21 to our consolidated financial statements for further information regarding our business segments):

Revenue by Segment		Gross Profit by Segment
($ in millions)		($ in millions)

     We have operated, through our predecessor companies, as an integrated equipment services company for approximately 47 years and have built an extensive infrastructure that includes 63 full-service facilities (as of March 3, 2008) located throughout the high growth West Coast, Intermountain, Southwest, Gulf Coast, Southeast and Mid-Atlantic 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 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, 2007, consisted of 20,079 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 $803.2 million and an average age of approximately 31.8 months. Our rental business creates cross-selling opportunities for us in sales and service support activities.

     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 world’s 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 customers and selective purchases of high-quality used equipment. For the year ended December 31, 2007, approximately 82.4% 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.

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:

	•		Ability to strengthen customer relationships by providing a full-range of products and services;
	•		Purchasing power gained through purchases for our new equipment sales and rental operations;
	•		High quality rental fleet supported by our strong product support capabilities;
	•		Established retail sales network resulting in profitable disposal of our used equipment; and
	•		Mix of business activities that enable us to effectively operate through economic cycles.

     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 March 3, 2008 includes a network of 63 full-service facilities, and a workforce that includes a highly-skilled group of approximately 850 service technicians and an aggregate of approximately 250 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 world’s 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 33 years of industry experience. Our senior and regional managers have an average of approximately 22 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 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 further 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. We have a proven track record of successfully entering new markets and we look to add new locations that offer attractive growth opportunities, high demand for construction and heavy equipment, and contiguity to our existing markets. In addition to the 12 locations we added through the acquisition of Burress, we also added three new start-up locations during the year ended December 31, 2007.

     Make Selective Acquisitions. The equipment industry is fragmented and includes 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 47 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. (“H&E LLC”). 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. Effective February 3, 2006, H&E LLC and Holdings no longer existed under operation of law pursuant to the reincorporation merger.

Customers

     We serve approximately 31,200 customers in the United States, primarily in the West Coast, Intermountain, Southwest, Gulf Coast, Southeast and Mid-Atlantic 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 2007, no single customer accounted for more than 2.0% 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 approximately 9.0% of our total revenues in 2007.

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 250 sales people as of December 31, 2007, 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 customers’ 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 maintain 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 sales 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.

Suppliers

     We purchase a significant amount of equipment from the same manufacturers with whom we have distribution agreements. We purchased approximately 60.1% of our new equipment and rental fleet from four manufacturers during the year ended December 31, 2007. 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 manufacturer’s 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 operations if we were unable to obtain adequate or timely rental and sales equipment.

Information Technology Systems

     We have specialized information systems that track (1) rental inventory utilization statistics; (2) maintenance and repair costs; (3) returns on investment for specific equipment types; and (4) 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, applicable sales tax computation and automated rental purchase option calculation. We 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 agreements.

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. Although there has been some past consolidation within the equipment industry, it remains 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 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 either announced plans to begin 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 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 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 (1) the handling, storage, use and disposal of hazardous materials and wastes and, if any, the associated cleanup of properties affected by pollutants; (2) air quality; and (3) 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 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, or various environmental regulatory agencies, 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, 2007, we had approximately 2,095 employees. Generally, the total number of employees does not significantly fluctuate throughout the year, although acquisition activity may significantly increase the number of our employees. Of these employees, 707 are salaried personnel and 1,388 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 branch locations cover approximately 105 of our employees. We believe our relations with our employees are good, and we have never experienced a work stoppage.

Recent Developments

     Burress 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”). The Burress purchase price was funded from available cash on hand and borrowings under our senior secured credit facility. 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 where Burress had existing operations and is consistent with our business strategy. See note 4 to the consolidated financial statements for further information on the Burress acquisition.

     Senior Secured Credit Facility Amendment. On September 1, 2007, and in connection with our acquisition of Burress, we entered into a Second Amended and Restated Credit Agreement, 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., Burress, 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 in connection with this transaction and $0.1 million in other transaction costs.

     Stock Repurchase Program. On November 8, 2007, our Board of Directors authorized a stock repurchase program, under which we may purchase, from time to time, in open market transactions at prevailing prices or through privately negotiated transactions as conditions permit, up to $100 million of our outstanding common stock. The repurchase program is expected to continue until December 31, 2008 unless extended or shortened by the Board of Directors. In connection with the stock repurchase program, on November 7, 2007, we amended our Second Amended and Restated Credit Agreement to allow such stock repurchase program, subject to certain restrictions. See also Item Part II, Item 5 of this Annual Report on Form 10-K, “Issuer Purchases of Equity Securities,” for further information on our stock repurchases.

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 SEC’s 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:

	•		our Code of Conduct and Ethics;
	•		the charter of our Nominating and Governing Committee;
	•		the charter of our Compensation Committee;
	•		the charter of our Audit Committee.

Item 1A. Risk Factors

     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, 2007, our total indebtedness was $375.0 million, consisting of the aggregate amounts outstanding under our senior secured credit facility ($120.6 million), senior unsecured notes ($250.0 million), notes payable ($2.0 million) and capital lease obligation ($2.4 million). Our borrowings under the senior secured credit facility as well as letters of credit outstanding under the senior secured credit facility ($6.0 million at December 31, 2007) are first-priority secured debt and effectively senior to our senior unsecured notes. Additionally, the senior unsecured notes were effectively subordinated to our notes payable obligations, capital lease obligation and our obligations under $162.9 million of first-priority secured manufacturer floor plan financings (to the extent of the value of their collateral).

     The level of our indebtedness could have important consequences, including:

	•		a substantial portion of our cash flow from operations will be dedicated to debt service and may not be available for other purposes;
	•		limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
	•		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;
	•		making us more vulnerable to economic downturns and possibly limiting our ability to withstand competitive pressures; and
	•		placing us at a competitive disadvantage compared to our competitors with less indebtedness.

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 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 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—Management’s 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 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 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 unsecured notes contain certain covenants that, among other things, restrict our and our restricted subsidiaries’ ability to:

	•		incur additional indebtedness, assume a guarantee or issue preferred stock;
	•		pay dividends or make other equity distributions or payments to or affecting our subsidiaries;
	•		make certain investments;
	•		create liens;
	•		sell or dispose of assets or engage in mergers or consolidations;

	•		engage in certain transactions with subsidiaries and affiliates;
	•		enter into sale leaseback transactions; and
	•		certain business activities.

     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 unsecured notes. A failure to comply with the restrictions in 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 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, 2007, Bruckman, Rosser, Sherill & Co. II, L.P. and Bruckman, Rosser, Sherill & Co., L.P. (collectively “BRS”) and their affiliates beneficially owned securities representing approximately 39.8% of the voting power of our outstanding common stock and our executives, directors and principal stockholders beneficially own, in the aggregate, securities representing approximately 53.1% 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:

	•		the timing and manner of any sales or distributions by these stockholders of all or any portion of its ownership interest in us;
	•		business opportunities that may be presented to BRS and its affiliates and to our directors associated with BRS; and
	•		competition between BRS and its affiliates and us within the same lines of business.

     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.

If the Company fails to maintain an effective system of internal controls, the Company may not be able to accurately report financial results or prevent fraud.

      Effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud. Any inability to provide reliable financial reports or prevent fraud could harm the Company’s business. The Company must annually evaluate its internal procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires management and auditors to assess the effectiveness of internal controls. If the Company fails to remedy or maintain the adequacy of its internal controls, as such standards are modified, supplemented or amended from time to time, the Company could be subject to regulatory scrutiny, civil or criminal penalties or shareholder litigation.

      In addition, failure to maintain adequate internal controls could result in financial statements that do not accurately reflect the Company’s financial condition. There can be no assurance that the Company will be able to complete the work necessary to fully comply with the requirements of the Sarbanes-Oxley Act or that the Company’s management and its independent registered public accounting firm will continue to conclude that the Company’s internal controls are effective.

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:

	•		a reduction in spending levels by customers;
	•		a slow-down of the economy over the long-term;
	•		adverse weather conditions which may affect a particular region;
	•		an increase in interest rates; or
	•		terrorism or hostilities involving the United States.

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:

	•		seasonal sales and rental patterns of our construction customers, with sales and rental activity tending to be lower in the winter months;
	•		severe weather and seismic conditions temporarily affecting the regions where we operate;
	•		cyclical nature of our customers’ business, particularly our construction customers;
	•		changes in corporate spending for plants and facilities or changes in government spending for infrastructure projects;
	•		general economic conditions in the markets where we operate;
	•		the effectiveness of integrating acquired businesses, including our recent Buress acquisition consummated on September 1, 2007, and new start-up locations; and
	•		timing of acquisitions and new location openings and related costs.

     In addition, we incur various costs when integrating newly acquired businesses or opening new start-up 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, 2007, we purchased approximately 60% of our rental and sales equipment from four manufacturers. 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:

	•		the market price for new equipment of a like kind;
	•		wear and tear on the equipment relative to its age;
	•		the time of year that it is sold (prices are generally higher during the construction season);
	•		worldwide and domestic demands for used equipment; and
	•		general economic conditions.

     Although for the year ended December 31, 2007, we sold used equipment from our rental fleet at an average selling price of approximately 137.6% of net 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 management’s attention or any major difficulties encountered in the integration of the businesses we acquire in the future 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.

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 may not be able to successfully integrate the recently acquired Burress business or achieve expected results.

     The Burress acquisition expands our presence into the Mid-Atlantic region in three states where we previously did not operate. We may experience difficulties in successfully operating in this new market and in integrating Burress’s business with our own, which could increase our costs or adversely impact our ability to operate our business.

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 33 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, 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. 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 or other adverse weather events.

Item 1B. Unresolved Staff Comments

     None.

Item 2. Properties

     As of March 3, 2008, we had a network of 63 full-service facilities, serving approximately 31,200 customers across 21 states in the West Coast, Intermountain, Southwest, Gulf Coast, Southeast and Mid-Atlantic regions of the United States.

     In our facilities, we rent, display and sell equipment, including tools and supplies, and provide maintenance and basic repair work. We own 7 of our locations and lease 56 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				Nevada
Bakersfield		Leased		Las Vegas		Leased
La Mirada		Leased		Reno		Leased
San Diego		Leased		North Carolina
Santa Fe Springs		Owned		Arden		Leased
Fontana		Leased		Charlotte(2)		Leased(2)
Colorado				Raleigh		Leased
Denver		Leased		Winston-Salem		Leased
Colorado Springs		Leased		Oklahoma
Florida				Oklahoma City		Leased
Fort Myers		Leased		Tulsa		Leased
Fort Pierce		Leased		South Carolina
Jacksonville		Leased		Charleston		Leased
Orlando		Leased		Columbia		Leased
Pompano Beach		Leased		Greenville		Leased
Tampa		Leased		Tennessee
Georgia				Memphis		Leased
Atlanta		Leased		Texas
Idaho				Austin		Leased
Boise		Leased		Corpus Christi		Leased
Coeur D’Alene		Leased		Dallas(2)		Leased(2)
Louisiana				Houston(2)		Leased(2)
Alexandria		Leased		San Antonio		Owned
Baton Rouge		Leased		Utah
Belle Chasse		Leased		Ogden		Leased
Gonzales		Leased		Salt Lake City		Leased
Kenner		Leased		St. George		Leased
Lafayette		Leased		Virginia
Lake Charles		Leased		Norfolk		Leased
Shreveport(2)		Leased(2)		Richmond		Owned
Maryland				Roanoke		Owned
Baltimore		Owned		Warrenton		Leased

     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 140 people, who may include technicians, salespeople, 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.

     Our corporate headquarters employs approximately 190 people. Our corporate headquarters are located in Baton Rouge, Louisiana, where we occupy approximately 22,400 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 or 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 2007.

PART II

Item 5.		Market for Registrant’s 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 years ended December 31, 2006 and 2007. In connection with our initial public offering in 2006, 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 ended December 31, 2007
First quarter		$	27.61			$	21.30
Second quarter			27.74				20.33
Third quarter			30.47				16.59
Fourth quarter			19.97				15.12

Holders

     On March 3, 2008, we had 44 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 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.

Performance Graph

     The Performance Graph below compares the cumulative total stockholder return on H&E Equipment Services, Inc. common stock for the period January 31, 2006, the date our initial public offering was priced for initial sale, through and including December 31, 2007, with the cumulative return of (1) the Russell 2000 Index; (2) a former peer group selected by us in our Annual Report on Form 10-K for the year ended December 31, 2006; and (3) a current peer group selected by us. We have elected to modify our former peer group because we believe the current peer group is more reflective of our business and provides a broader comparison group for stock performance.

     The former peer group consisted of only one company — United Rentals, Inc. The companies in the current peer group include United Rentals, Inc., RSC Holdings, Inc., Hertz Global Holdings, Inc., Toromont Industries, Ltd., Finning International, Inc., and The Ashtead Group, PLC. RSC Holdings, Inc. is included in the current peer group beginning on May 23, 2007, the date its initial public offering was priced for initial sale.

     The Performance Graph comparison assumes $100 was invested in our common stock on January 31, 2006 and in each of the indices. Dividend reinvestment has been assumed and returns have been weighted to reflect relative stock market capitalization. No cash dividends have been declared on our common stock. The stock performance shown on the graph below is not necessarily indicative of future price performance.

		1/31/06				3/31/06				6/30/06				9/30/06				12/31/06				3/31/07				6/30/07				9/30/07				12/31/07
H&E Equipment Services, Inc.		$	100.00			$	161.78			$	163.61			$	135.50			$	137.61			$	119.44			$	154.11			$	99.89			$	104.89
Russell 2000 Index			100.00				104.56				99.31				99.75				108.63				110.74				115.63				112.05				106.93
Current Peer Group			100.00				106.17				101.26				91.93				106.14				124.28				142.99				134.37				106.03
Former Peer Group			100.00				117.71				109.11				79.32				86.76				93.82				111.02				109.76				62.64

Issuer Purchases of Equity Securities.

     The following table provides information with respect to purchases we made of our common stock during the year ended December 31, 2007:

Total

Number of

Shares

Approximate

Purchased

Dollar Value

Total

as Part of

That May Yet

Number of

Average

Publicly

Be Purchased

Shares

Price Paid

Announced

Under the

Purchased

per Share

Program(1)

Program(1)

December 5, 2007 through December 31, 2007

708,491

$

18.27

708,491

$

87,059,326

Total

708,491

$

18.27

708,491

$

87,059,326

     Subsequent to December 31, 2007, and as of March 3, 2008, we had repurchased an additional 972,790 shares of our common stock totaling approximately $15.8 million under the stock repurchase program.

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, 2007, 2006 and 2005 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, 2004 and 2003 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—Management’s Discussion and Analysis of Financial Condition and Results of Operations.

		For the Year Ended December 31,
		2007(1)				2006(2)				2005				2004				2003
						(Amounts in thousands, except per share amounts)
Statement of income data(3):
Revenues:
Equipment rentals		$	286,573			$	251,374			$	190,794			$	160,342			$	153,851
New equipment sales			355,178				241,281				156,341				116,907				81,692
Used equipment sales			148,742				133,897				111,139				84,999				70,926
Parts sales			102,300				82,106				70,066				58,014				53,658
Services revenues			64,050				53,699				41,485				33,696				33,349
Other			46,291				42,012				30,385				24,214				20,510
Total revenues			1,003,134				804,369				600,210				478,172				413,986
Cost of revenues:
Rental depreciation			94,211				78,159				54,534				49,590				55,244
Rental expense			45,374				40,582				47,027				50,666				49,696
New equipment sales			307,897				211,158				137,169				104,111				73,228
Used equipment sales			112,351				97,765				84,696				67,906				58,145
Parts sales			71,791				57,909				49,615				41,500				39,086
Services revenues			23,076				19,206				15,417				12,865				13,043
Other			42,394				36,409				30,151				28,246				26,433
Total cost of revenues			697,094				541,188				418,609				354,884				314,875
Gross profit:
Equipment rentals			146,988				132,633				89,233				60,086				48,911
New equipment sales			47,281				30,123				19,172				12,796				8,464
Used equipment sales			36,391				36,132				26,443				17,093				12,781
Parts sales			30,509				24,197				20,451				16,514				14,572
Services revenues			40,974				34,493				26,068				20,831				20,306
Other			3,897				5,603				234				(4,032	)			(5,923	)
Total gross profit			306,040				263,181				181,601				123,288				99,111
Selling, general and administrative expenses(4)			165,048				143,615				111,409				97,525				93,054
Loss from litigation			—				—				—				—				17,434
Related party expense			—				—				—				—				1,275
Gain on sales of property and equipment			469				479				91				207				80
Income (loss) from operations			141,461				120,045				70,283				25,970				(12,572	)
Other income (expense):
Interest expense(5)			(36,771	)			(37,684	)			(41,822	)			(39,856	)			(39,394	)
Loss on early extinguishment of debt(6)			(320	)			(40,771	)			—				—				—
Other, net			1,045				818				372				149				221
Total other expense, net			(36,046	)			(77,637	)			(41,450	)			(39,707	)			(39,173	)
Income (loss) before income taxes			105,415				42,408				28,833				(13,737	)			(51,745	)
Income tax provision (benefit)			40,789				9,694				673				—				(5,694	)
Net income (loss)		$	64,626			$	32,714			$	28,160			$	(13,737	)		$	(46,051	)
Net income (loss) per common share:
Basic		$	1.70			$	0.89			$	1.10			$	(0.54	)		$	(1.81	)
Diluted		$	1.70			$	0.88			$	1.10			$	(0.54	)		$	(1.81	)
Weighted average common shares outstanding (7):
Basic			38,065				36,933				25,492				25,492				25,492
Diluted			38,065				36,982				25,492				25,492				25,492

		For the Year Ended December 31,
		2007(1)				2006(2)				2005				2004				2003
						(Amounts in thousands)
Other financial data:
Depreciation and amortization(8)		$	104,281			$	85,122			$	59,860			$	53,527			$	59,159
Statement of cash flows:
Net cash provided by operating activities			104,094				117,729				35,904				5,639				19,344
Net cash provided by (used in) investing activities			(188,647	)			(191,988	)			(83,075	)			(11,753	)			20,908
Net cash provided by (used in) financing activities			90,012				77,935				49,440				5,581				(39,759	)

		As of December 31,
		2007(1)				2006(2)				2005				2004				2003
						(Amounts in thousands)
Balance sheet data:
Cash		$	14,762			$	9,303			$	5,627			$	3,358			$	3,891
Rental equipment, net			577,628				440,454				308,036				243,630				261,154
Goodwill			54,731				30,573				8,572				8,572				8,572
Deferred financing costs, net			8,628				9,296				8,104				10,077				11,235
Intangible assets, net			10,642				34				80				174				—
Total assets			1,012,853				759,942				530,697				408,669				409,393
Total debt(9)			374,951				265,965				349,902				299,392				292,042
Stockholders’ Equity/Members’ (Deficit)			288,078				235,584				(5,140	)			(33,300	)			(19,563	)

Item 7. Management’s 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 3, 2008, we operated 63 full-service facilities throughout the Intermountain, Southwest, Gulf Coast, West Coast, Southeast and Mid-Atlantic regions of the United States, including the 12 facilities we acquired in the Burress acquisition (see note 4 to the consolidated financial statements for further information on the Burress acquisition). 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 47 years. H&E Equipment Services L.L.C. (“H&E LLC”) was formed in June 2002 through the business combination of Head & Engquist, a wholly-owned subsidiary of Gulf Wide, and 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 LLC. 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. Effective February 3, 2006, H&E LLC and Holdings no longer existed under operation of law pursuant to the merger reincorporation. See note 3 to the consolidated financial statements for further information on our initial public offering.

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 core product categories. We have a retail sales force focused by equipment type that is separate from our rental sales force. Manufacturer purchase terms and pricing are managed by our product specialists.
	•		Used Equipment Sales. Our used equipment sales are generated primarily from sales of used equipment from our rental fleet, as well as from sales of inventoried 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 manufacturer’s 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 21 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, 2007, approximately 28.6% of our total revenues were attributable to equipment rentals, 35.4% of our total revenues were attributable to new equipment sales, 14.8% were attributable to used equipment sales, 10.2% were attributable to parts sales, 6.4% were attributable to our service revenues and 4.6% were attributable to non-segmented other revenues.

Revenue by Segment ($ in millions)		Gross Profit by Segment ($ 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 and other competitive factors, 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.

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 and collectiblity is reasonably assured.

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 non-segmented other revenues at the time of billing and after 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, 2007, our total cost of revenues was approximately $697.1 million. Our operating expenses consist principally of selling, general and administrative expenses. For the fiscal year ended December 31, 2007, our selling, general and administrative expenses were approximately $165.0 million. In addition, we have interest expense related to our debt instruments. We are also subject to federal and state income taxes. Operating expenses and all other income and expense items below the gross profit line of our consolidated statements of income 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 sold primarily consists 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 sold consists of the net book value of rental equipment for used equipment sold from our rental fleet, the equipment costs for used equipment we purchase for sale or the trade-in value of used equipment that we obtain from customers in equipment sales transactions.

Parts Sales. Cost of parts sales represents costs attributable to the sale of parts directly to customers.

Services Support. Cost of services 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. These expenses include 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.

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, depreciation associated with property and equipment (other than rental equipment) and amortization expense associated with the intangible assets acquired in the Burress acquisition (see note 4 to the consolidated financial statements for further information on the Burress acquisition). These expenses are not generally allocated to our reportable segments.

Interest Expense:

     Interest expense for the periods presented represents the interest on our outstanding debt instruments, including indebtedness outstanding under our senior secured credit facility, senior secured notes due 2012, senior subordinated notes due 2013, senior unsecured notes due 2016, notes payable and our capital lease obligation. See “Refinancing” below as well as note 12 to the consolidated financial statements for further information on the issuance of our senior unsecured notes and the redemption of our senior secured notes and senior subordinated notes. Interest expense also includes non-cash interest expense related to the amortization cost of (1) deferred financing costs and (2) original issue discount accretion related to our senior secured notes and senior subordinated notes for the respective periods those debt instruments were outstanding.

Refinancing

     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 completed the closing of our private offering of $250.0 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 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 New Notes were issued at par and require semiannual interest payments on January 15^th and July 15^th of each year, which began on January 15, 2007. No principal payments are due until maturity (January 15, 2016). The remaining $4.5 million in aggregate principal amount of the outstanding senior secured notes were subsequently redeemed on July 31, 2007. Also see note 12 to the consolidated financial statements for further information.

Principal Cash Flows

     We generate cash primarily from our operating activities and historically we have used cash flows from operating activities, manufacturer floor plan financings and available borrowings under our revolving 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, 2007, consisted of 20,079 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 $803.2 million. As of December 31, 2007, our rental fleet composition was as follows (dollars in millions):

						% of				Original				% of Original				Average
						Total				Acquisition				Acquisition				Age in
		Units				Units				Cost				Cost				Months
Hi-Lift or Aerial Work Platforms			14,486				72	%		$	476.9				60	%			36.2
Cranes			501				3	%			96.6				12	%			29.9
Earthmoving			1,611				8	%			155.6				19	%			17.5
Industrial Lift Trucks			1,455				7	%			42.1				5	%			24.7
Other			2,026				10	%			32.0				4	%			17.7
Total			20,079				100	%		$	803.2				100	%			31.8

     Determining the optimal age and mix for our rental fleet equipment is subjective and requires considerable estimates and judgements by management. We constantly evaluate the mix, age and quality of the equipment in our rental fleet in response to current economic and market conditions, competition and customer demand. On average, we decreased the average age of our rental fleet equipment by approximately 7.2 months during the year ended December 31, 2007, exclusive of the acquired Burress fleet. When combined with the acquired Burress fleet, we decreased the average age of our rental fleet equipment by approximately 7.6 months. The average age of the acquired Burress fleet on September 1, 2007, the acquisition date, was approximately 21.5 months. Since the acquisition of Burress, we also have de-aged the Burress fleet approximately 4.1 months as of December 31, 2007. The original acquisition cost of our overall gross rental fleet increased, through the normal course of business activities, by approximately $77.3 million during the year ended December 31, 2007, exclusive of Burress, and $148.0 million when combined with the acquired Burress fleet. We acquired on September 1, 2007, approximately $75.7 million of gross rental fleet in the Burress acquisition. Our average rental rates for the year ended December 31, 2007 were 0.7% lower than the comparative year ended December 31, 2006. The rental equipment mix among our four core product lines remained consistent with that of prior year comparable period as a percentage of total units available for rent. As a percentage of original acquisition cost, earthmoving equipment increased approximately 7.3% while hi-lift or aerial work platform equipment decreased 6.9% over the comparable periods, reflecting the predominance of earthmoving equipment in the Burress rental fleet. 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 equipment acquisition decisions, we evaluate current economic and 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.

•

Spending levels by customers. Rentals and sales of equipment to the construction industry and to industrial companies constitute a significant portion of our total revenues. As a result, we depend upon customers in these businesses and their ability and willingness to make capital expenditures to rent or buy specialized equipment. Accordingly, our business is impacted by fluctuations in customers’ spending levels on capital expenditures.

	•		Economic downturns. The demand for our products is dependent on the general economy, the industries in which our customers operate or serve, and other factors. Downturns in the general economy or in the construction and manufacturing industries can cause demand for our products to materially decrease.
	•		Adverse weather. Adverse weather in 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 of America. 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.

     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. We develop our estimate of this allowance based on our historical experience with specific customers, our understanding of our current economic circumstances and our own judgement as to the likihood of ultimate payment. 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 0.25% 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 ranging from 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, 2007 was $94.2 million. For the year ended December 31, 2007, the estimated impact of a change in estimated useful lives for each category of equipment by two years was as follows:

		Hi-Lift or												Industrial
		Aerial Work								Earth-				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, 2007
Depreciation expense for the year ended December 31, 2007		$	49.7			$	12.2			$	20.1			$	6.7			$	5.5			$	94.2
Increase of 2 years in useful life			39.7				8.0				16.7				4.7				6.4				75.5
Decrease of 2 years in useful life			59.6				12.1				38.9				8.4				32.0				151.0

     For purposes of the sensitivity analysis above, we 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 $2.8 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 equipment’s original cost to estimate its salvage value. This factor is highly subjective and subject 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 $0.8 million.

     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 its estimated 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 continguous regions where we operate with an objective of increasing our revenues, improving our profitability, entering additional attractive markets and strengthening our competitive position. Currently, 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. Any significant inventories of new and used equipment acquired in the transaction are valued at fair value, less cost to sell.

     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 trade names or trademarks, non-compete agreements and customer-related intangibles (specifically customer relationships). A trademark has a fair value equal to the present value of the royalty income attributable to it. The royalty income attributable to a trademark represents the hypothetical cost savings that are derived from owning the trademark instead of paying royalties to license the trademark from another owner. 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 arm’s length transaction. When not negotiated by the parties in the applicable purchase agreements, the fair value of non-compete agreements is estimated based on an income approach since their values are representative of the current and future revenue and profit erosion protection they provide. Customer relationships are generally valued based on an excess earnings or income approach with consideration to projected cash flows. We use an independent third party valuation firm to assist us with estimating the fair values of our acquired intangible assets.

     Impairment of Goodwill. We have made acquisitions in the past that included the recognition of goodwill. Goodwill is tested 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 significant decline in the projected cash flows used to determine fair value could result in a goodwill impairment charge.

     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. As further discussed in note 2 to our consolidated financial statements, 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: (1) workers compensation claims; (2) general liability claims by third parties for injury or property damage caused by our equipment or personnel; (3) automobile liability claims; and (4) 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, including claims incurred but not reported as of a period-end reporting date, may not be known for an extended period of time. Our methodology for developing self-insurance reserves is based on management estimates and independent third party actuarial 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, 2007 include the operating results of Burress since the date of acquisition, September 1, 2007. Therefore, our operating results for the year ended December 31, 2007, include only four months of Burress operations.

     Our operating results for the years ended December 31, 2007 and 2006 include the operating results of Eagle since the date of acquisition, February 28, 2006. Therefore, our operating results for 2007 include a full twelve months of Eagle’s operations compared to approximately ten months for the year ended December 31, 2006.

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006

     Revenues.

		For the Year Ended								Total				Total
		December 31,								Dollar				Percentage
		2007				2006				Change				Change
						(in thousands, except percentages)
Segment Revenues:
Equipment rentals		$	286,573			$	251,374			$	35,199				14.0	%
New equipment sales			355,178				241,281				113,897				47.2	%
Used equipment sales			148,742				133,897				14,845				11.1	%
Parts sales			102,300				82,106				20,194				24.6	%
Services revenues			64,050				53,699				10,351				19.3	%
Non-Segmented revenues			46,291				42,012				4,279				10.2	%
Total revenues		$	1,003,134			$	804,369			$	198,765				24.7	%

     Total Revenues. Our total revenues were $1.003 billion in 2007 compared to $804.4 million in 2006, an increase of approximately $198.7 million, or 24.7%. Total revenues related to Eagle for the years ended December 31, 2007 and 2006 were $36.8 million and $33.3 million, respectively. Total revenues related to Burress in the current year were $42.5 million. As discussed below, revenues increased for all reportable segments.

     Equipment Rental Revenues. Our revenues from equipment rentals for the year ended December 31, 2007 increased $35.2 million, or 14.0%, to approximately $286.6 million from $251.4 million in 2006. Rental revenues increased for all four core product lines. Revenues from aerial work platforms increased $10.9 million, cranes increased $3.9 million, earthmoving increased $13.4 million, lift trucks increased $2.7 million and other equipment rentals increased $4.3 million. Total equipment rental revenues for the year ended December 31, 2007 and 2006 related to Eagle were $27.6 million and $26.0 million, respectively. Total equipment rental revenues for the current year period related to Burress were $4.9 million. The remaining increase is primarily the result of a larger fleet size available for rent. At December 31, 2007, we had approximately 20,079 pieces of rental fleet equipment, or 19,603 pieces of rental equipment fleet net of Burress, compared to 18,132 pieces of rental fleet equipment at December 31, 2006.

     Rental equipment dollar utilization (annual rental revenues divided by the average quarterly original rental fleet equipment costs) for the year ended December 31 was approximately 40.3% in 2007 compared to 41.1% in 2006, a decrease of 0.8%. The decrease in comparative rental equipment dollar utilization is primarily the result of a 0.7% decrease in average rental rates for the comparative periods and a 1.2% decrease in rental equipment time utilization (equipment usage based on customer demand) from 69.2% in the prior year to 68.0% this year. We believe that the decrease in rental equipment time utilization is the result of several factors. Adverse weather conditions in the first quarter of the current year primarily in our Gulf Coast and Intermountain regions when compared to the prior year had a negative impact on our rental equipment time utilization. Rental revenues in the prior year first quarter also include the impact of strong demand for rental equipment related to the rebuilding efforts in the Gulf Coast region following hurricane Katrina.

     Additionally, our continued strategic focus on disposing of our older rental fleet has impacted rental equipment time utilization. We sometimes sell such equipment in “bulk packages” to international customers. During the second quarter ended June 30, 2007, the Asian markets provided us with an outlet for the profitable disposal of significant quantities of our older aerial work platform fleet. However, these package deals typically require a longer sales process due to additional documentation requirements and the time needed to prepare large quantities of machines for sale and transportation arrangements. This lag resulted in temporary softness in our rental equipment time utilization during the second quarter of 2007 as our equipment is typically not on rental contract during this “get ready” period.

     Also contributing to our lower equipment time utilization in the current year period was a softer than expected aerial work platform market in our Florida rental operations during the current year. As a result of this market decline, we moved a portion of our Florida aerial work platform rental fleet to other geographic areas

where we have operations and demand for that equipment is higher.

     New Equipment Sales Revenues. Our new equipment sales for the year ended December 31, 2007 increased approximately $113.9 million, or 47.2%, to $355.2 million from $241.3 million in 2006. Total new equipment sales revenues for the year ended December 31, 2007 and 2006 related to Eagle were $1.1 million and $0.8 million, respectively. Total new equipment sales revenues in the current year related to Burress were $16.3 million. Sales of new cranes increased $109.1 million, new earthmoving sales increased $2.3 million, new aerial work platforms increased $3.3 million and other new equipment sales increased $0.4 million. The increase in new crane sales is primarily as a result of an increase in demand for new cranes and improved availability from most of our manufacturers during the year. Partially offsetting these increases was a $1.2 million decrease in comparative new equipment sales of new lift trucks.

     Used Equipment Sales Revenues. Our used equipment sales increased $14.8 million, or 11.1%, to $148.7 million for the year ended December 31, 2007, from $133.9 million in 2006. Total used equipment sales revenues for the year ended December 31, 2007 and 2006 related to Eagle were $2.9 million and $2.5 million, respectively. Total used equipment sales revenues in the current year related to Burress were $11.0 million. The remaining increase was primarily attributable to an increase in used aerial work platform equipment in the current year.

     Parts Sales Revenues. Our parts sales increased $20.2 million, or 24.6%, to $102.3 million for the year ended December 31, 2007 from approximately $82.1 million in 2006. Total parts sales revenues for the year ended December 31, 2007 and 2006 related to Eagle were $0.9 million and $0.5 million, respectively. Total parts sales revenues in the current year related to Burress were $6.9 million. The remaining increase was primarily attributable to increased customer demand for equipment parts.

     Services Revenues. Our services revenues for the year ended December 31, 2007 increased $10.4 million, or 19.3%, to $64.1 million from $53.7 million in 2006 and is primarily attributable to increased customer demand. Total services revenues for the year ended December 31, 2007 and 2006 related to Eagle were $1.1 million and $0.3 million, respectively. Total services revenues related to Burress in the current year were $2.6 million.

     Non-Segmented Other Revenues. Our non-segmented other revenues consisted primarily of equipment support activities including transportation, hauling, parts freight and damage waiver charges. For the year ended December 31, 2007, our other revenues increased $4.3 million, or 10.2% from 2006. Total non-segmented revenues for the year ended December 31, 2007 and 2006 related to Eagle were $3.2 million in both periods. Total non-segmented other revenues in the current year related to Burress were $0.8 million. The remaining increase is due to an increase in the volume in these services as a result of increased customer demand and a strategic focus on offering these services to our customers.

     Gross Profit.

		For the Year Ended								Total				Total
		December 31,								Dollar				Percentage
		2007				2006				Change				Change
		(in thousands, except percentages)
Segment Gross Profit:
Equipment rentals		$	146,988			$	132,633			$	14,355				10.8	%
New equipment sales			47,281				30,123				17,158				57.0	%
Used equipment sales			36,391				36,132				259				0.7	%
Parts sales			30,509				24,197				6,312				26.1	%
Services revenues			40,974				34,493				6,481				18.8	%
Non-Segmented gross profit			3,897				5,603				(1,706	)			(30.4	)%
Total gross profit		$	306,040			$	263,181			$	42,859				16.3	%

     Total Gross Profit. Our total gross profit was $306.0 million for the year ended December 31, 2007 compared to $263.2 million in 2006, an approximately $42.8 million, or 16.3%, increase. Total gross profit related to Eagle for the year ended December 31, 2007 and 2006 was $15.1 million and $15.3 million, respectively. Total gross profit in the current year related to Burress was $8.9 million. Total gross profit margin

for the year ended December 31, 2007 was 30.5%, a decrease of 2.2% from the 32.7% gross profit margin in 2006. The decrease in gross profit margin is largely attributable to comparative revenue mix. The revenue mix of our business can have a significant impact on our related gross profit margins. For example, and as indicated below, our gross profit margin on equipment rentals is significantly higher than the gross profit margins we realize on new equipment sales. New equipment sales represented approximately 35.4% of our total revenues this year compared to 30.0% in the prior year. Conversely, equipment rentals represented approximately 28.6% of our total revenues this year compared to 31.3% in the prior year. This change in revenue mix had a negative impact on our comparative gross profit margins. While the shift in revenue mix had a negative impact on our comparative gross margins, we believe that the improvement in new equipment sales will lead to future incremental parts and services revenues. Our gross profit increase and gross profit margin decline are further described below:

     Equipment Rentals Gross Profit. Our gross profit from equipment rentals for the year ended December 31, 2007 increased $14.4 million, or 10.8%, to $147.0 million from $132.6 million in 2006. The increase is primarily a result of a $35.2 million increase in rental revenues, which was offset by a $4.8 million net increase in rental expenses and a $16.0 million increase in rental equipment depreciation expense. Eagle contributed $14.2 million and $14.4 million of the equipment rental gross profit for the years ended December 31, 2007 and 2006, respectively. Burress rental operations contributed $1.8 million of the gross profit in the current year. The increase in rental expenses is the net result of a $1.0 million decrease in operating lease costs and a $5.8 million increase in maintenance and repair costs and other costs as a result of maintaining a larger rental fleet. The decrease in operating lease costs is the result of our payoff of all rental fleet operating leases in the first quarter of 2006 from the proceeds of our initial public offering (see note 3 to the consolidated financial statements for further information on our initial public offering). As a percentage of equipment rental revenues, maintenance and repair costs were 12.0% in 2007, down from 12.5% in the prior year. The increase in current year rental depreciation expense is the result of the incremental depreciation expense incurred on the rental equipment purchased under those operating leases combined with the higher depreciation expense associated with a larger rental fleet size and a full 12 months of depreciation in 2007 related to Eagle compared to approximately 10 months in 2006, the impact of higher fleet replacement costs and incremental depreciation associated with the Burress rental equipment fleet. Gross profit margin in 2007 was 51.3%, down 1.5% from the 52.8% in the prior year. This gross profit margin decline is primarily due to higher cost of sales related to depreciation expense combined with lower rental equipment time utilization as discussed in the Equipment Rental Revenues section above. Rental depreciation expense as a percentage of total equipment rental revenues was 32.9% and 31.1% for years ended December 31, 2007 and 2006, respectively. Additionally, the growth in our distribution (sales) business has resulted in an increase in our rent-to-sell business. Our rent-to-sell business typically realizes a slightly lower margin that our rent-to-rent business.

     New Equipment Sales Gross Profit. Our new equipment sales gross profit for the year ended December 31, 2007 increased $17.2 million, or 57.0%, to $47.3 million compared to $30.1 million in 2006. Eagle contributed approximately $0.2 million and $0.1 million of the new equipment sales gross profit for the years ended December 31, 2007 and 2006, respectively. Burress new equipment sales contributed $2.2 million of the gross profit in the current year. The increase in new equipment sales gross profit is primarily attributable to higher new crane sales revenues from increased demand and improved availability of crane equipment during the year. Gross profit margin in 2007 was 13.3% compared to 12.5% in the prior year. The increase in comparative gross margin realized in the current year is primarily a result of improved margins on crane sales due to high market demand for crane equipment and the product mix of cranes sold.

     Used Equipment Sales Gross Profit. Our used equipment sales gross profit for the year ended December 31, 2007 increased $0.3 million, or 0.7%, to $36.4 million from the $36.1 million in 2006, of which Eagle contributed $0.7 million in both periods. Burress used equipment sales contributed $1.1 million of the gross profit in the current year. Gross profit margin in 2007 was 24.5%, down 2.5% from 27.0% in the prior year. This decrease in gross profit margin is related to the sale of older rental fleet used equipment with less resale value and the mix of used equipment sold, primarily used cranes, which carry a higher net book value (and lower gross profit margin) due to the de-aging of our crane rental fleet since last year and the significantly higher original equipment cost for cranes compared to our other equipment product lines. Also, the gross margin realized on the

crane equipment sold in the current year that was previously being rented under rental purchase option agreements is lower. Our used equipment sales from the fleet were approximately 137.6% of net book value in 2007 compared to 145.0% for the prior year ended December 31, 2006.

     Parts Sales Gross Profit. For the year ended December 31, 2007, our parts sales revenue gross profit increased $6.3 million, or 26.1%, to $30.5 million from $24.2 million in 2006, of which Eagle contributed $0.4 million and $0.2 million in the respective years. Burress parts sales contributed $2.1 million of the gross profit in the current year. The remaining increase was primarily attributable to higher parts sales. Gross profit margin in 2007 was 29.8%, an increase of 0.3% from 29.5% in the previous year, as a result of the mix of parts sold.

     Services Revenues Gross Profit. For the year ended December 31, 2007, our services revenues gross profit increased $6.5 million, or 18.8%, to $41.0 million from $34.5 million in 2006, of which Eagle contributed $0.7 million and $0.2 million in 2007 and 2006, respectively. Burress services revenue contributed $1.8 million of the gross profit in the current year. The remaining increase was primarily attributable to higher services revenues resulting from increased demand. Gross profit margin in 2007 was 63.9%, down 0.3% from 64.2% in the previous year, primarily as a result of the mix of services sold.

     Non-Segmented Other Revenues Gross Profit. For the year ended December 31, 2007, our non-segmented other revenues gross profit decreased $1.7 million, or (30.4)%, on a 10.2% improvement in revenues over the year ended December 31, 2006. This decrease is due to a $1.1 million gross loss in the current year related to Eagle’s non-segmented revenue operations combined with higher hauling costs associated with the de-aging of Eagle’s rental fleet through our fleet rotation process. Gross profit margin in 2007 was 8.4%, down 4.9% from 13.3% in the prior year.

     Selling, General and Administrative Expenses. SG&A expenses increased $21.4 million, or 14.9%, to $165.0 million for the year ended December 31, 2007 compared to $143.6 million for the prior year. Included in SG&A in the prior year first quarter is an $8.0 million expense to terminate a management services agreement in connection with our initial public offering of common stock in February 2006 (see note 3 to the consolidated financial statements for further information on our initial public offering). Included in 2007 SG&A is approximately $6.5 million of Burress SG&A costs since the date of acquisition, September 1, 2007, and an additional $1.0 million of expense associated with the amortization of the intangible assets acquired in the Burress acquisition (see note 4 to the consolidated financial statements for further information on the Burress acquisition and the acquired intangible assets). Exclusive of Burress, employee salaries and wages and related employee expenses increased $14.9 million and legal and professional fees increased $0.9 million. Stock-based compensation expense was $1.3 million and $1.0 million for the year ended December 31, 2007 and 2006, respectively. The remaining net increase primarily reflects additional SG&A costs attributable to the Company’s growth since last year. As a percent of total revenues, SG&A expenses for the year ended December 31, 2007 were 16.5%, down 1.4% from 17.9% in the prior year. The prior year $8.0 million expense described above comprised approximately 1.0% of total prior year SG&A as a percentage of total 2006 revenues. The remaining 0.4% decrease in comparative SG&A reflects 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). For the year ended December 31, 2007, our net other expenses decreased by $41.5 million to $36.1 million compared to $77.6 million in 2006. The $41.5 million decrease is primarily the result of a $40.8 million loss on the early extinguishment of debt associated with our Refinancing in 2006 compared to a $0.3 million loss on the early extinguishment of debt associated with the redemption of our senior secured notes on July 31, 2007 (see note 12 to the consolidated financial statements for further information on these transactions). Interest expense for the year ended December 31, 2007 was $36.8 million compared to $37.6 million in the prior year, a decrease of $0.8 million. The decrease in interest expense is due to several factors. The Refinancing transactions, as further described above, resulted in a net decrease in interest expense for the comparative periods of $5.2 million. These decreases in interest expense were offset by a $4.2 million increase in interest expense related to our manufacturer flooring plans payable used to finance inventory purchases, primarily due to higher average manufacturer flooring plans payable outstanding in the current year. Additionally, comparative interest expense incurred on our senior secured credit facility was approximately $0.4 million higher in the current year, as a result of an increase in our average borrowings under the senior secured

credit facility for the comparative years, which was partially offset by a decline in the average interest rate on our borrowings.

     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, 2007 increased approximately $31.1 million to $40.8 million compared to $9.7 million for the year ended December 31, 2006. The effective income tax rate for the year ended December 31, 2007 was 38.7% compared to 22.9% for the year ended December 31, 2006. The increase is a result of our increased taxable income in 2007 and higher state income taxes. Also, our 2006 effective income tax rate was lower due to the impact of the reversal of our deferred tax asset valuation allowance, which created a current year income tax benefit, thereby lowering our effective tax rate for 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, 2007 are fully realizable through future reversals of existing taxable temporary differences and future taxable income, and are not subject to any limitations.

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 thousands, except percentages)
Segment Revenues:
Equipment rentals		$	251,374			$	190,794			$	60,580				31.8	%
New equipment sales			241,281				156,341				84,940				54.3	%
Used equipment sales			133,897				111,139				22,758				20.5	%
Parts sales			82,106				70,066				12,040				17.2	%
Service revenues			53,699				41,485				12,214				29.4	%
Non-Segmented revenues			42,012				30,385				11,627				38.3	%
Total revenues		$	804,369			$	600,210			$	204,159				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 54.3%, 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 17.2%, 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.

     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 38.3%, 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 thousands, except for percentages)
Segment Gross Profit:
Equipment rentals		$	132,633			$	89,233			$	43,400				48.6	%
New equipment sales			30,123				19,172				10,951				57.1	%
Used equipment sales			36,132				26,443				9,689				36.6	%
Parts sales			24,197				20,451				3,746				18.3	%
Service revenues			34,493				26,068				8,425				32.3	%
Non-Segmented revenues			5,603				234				5,369				2,294.4	%
Total gross profit		$	263,181			$	181,601			$	81,580				44.9	%

     Total Gross Profit. Our total gross profit was $263.2 million in 2006 compared to $181.6 million in 2005, an $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 $132.6 million in 2006 from approximately $89.2 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. Eagle’s 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 57.1%, 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 36.6%, 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. Our used equipment sales from the fleet were approximately 145.0% of net book value in 2006 compared to 136.6% for the prior year ended December 31, 2005.

     Parts Sales Gross Profit. Our parts sales revenue gross profit increased $3.7 million, or 18.3%, 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.

     Service Revenues Gross Profit. Our service revenues gross profit increased $8.4 million, or 32.3%, 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 Company’s 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.

     Refinancing. On August 4, 2006, we completed the 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 private offering of $250 million aggregate principal amount of its 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 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.

     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.

Liquidity and Capital Resources

     Cash flow from operating activities. Our cash provided by operating activities for the year ended December 31, 2007 was $104.1 million. Our reported net income of $64.6 million, which, when adjusted for non-cash expense items, such as depreciation and amortization, deferred income taxes, provision for losses on accounts receivable, loss on early extinguishment of debt, stock-based compensation expense, and net gains on the sale of long-lived assets, provided positive cash flows of approximately $179.0 million. These cash flows from operating activities were also positively impacted by an increase of $14.7 million in accounts payable, reflecting the growth in our rental fleet and inventories, and a $5.2 million increase in accrued expenses and other liabilities. Prepaid expenses and other assets decreased approximately $0.3 million. Partially offsetting these positive cash flows were increases in our inventories of $57.4 million, reflecting the growth in our inventories over the last year, and an increase of approximately $31.5 million in net accounts receivable due to higher sales volumes. Additionally, we paid obligations related to deferred compensation plans of $1.3 million and manufacturing flooring plans payable decreased $4.9 million.

     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.

     Cash flow from investing activities. For the year ended December 31, 2007, cash used in our investing activities was approximately $188.6 million. This is a net result of our acquisition of Burress (see note 4 to the consolidated financial statements for further information on the Burress acquisition) resulting in a cash outflow of $100.2 million, combined with rental and non-rental equipment purchases of $212.0 million, which was partially offset by proceeds from the sales of rental and non-rental equipment totaling approximately $123.6 million.

     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).

     Cash flow from financing activities. For the year ended December 31, 2007, cash provided by our financing activities was approximately $90.0 million. Our total borrowings during the period under our senior secured credit facility were $1.076 billion and total payments under the senior secured credit facility in the same period were $964.4 million. We also purchased $13.4 million of treasury stock and made payments under our related party obligation of $0.3 million. We made principal payments on our notes payable of $0.4 million and payments on capital lease obligations were $2.3 million, which includes our buyout of various capital leases assumed in the Burress acquisition (see note 4 to the consolidated financial statements for further information on the Burress acquisition). 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 (see note 12 to the consolidated financial statements for further information on our senior secured notes redemption). We also paid $0.5 million of deferred financing costs in connection with our Second Amended and Restated Credit Agreement (see discussion below regarding amendments to our senior secured credit facility).

     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).

     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. Total deferred financing costs paid in 2006 in connection with the issuance of our senior unsecured notes and amendments to our senior credit facility totaled $8.8 million. 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.

Senior Secured Credit Facility Amendments.

     The following information discusses amendments and other significant events during the years ended December 31, 2007 and 2006 that relate to our senior secured credit facility during the years ended December 31, 2007 and 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 $0.2 million.

     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 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.

     On September 1, 2007, and in connection with our acquisition of Burress, we entered into a Second Amended and Restated Credit Agreement, 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., Burress, 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 in connection with this transaction and $0.1 million in other transaction costs.

     On November 7, 2007, we amended the Second Amended and Restated Credit Agreement in connection with our stock repurchase program announced on November 8, 2007, to allow such stock repurchase program, subject to certain restrictions.

     As of March 3, 2008, we had $168.8 million of available borrowings under our senior secured credit facility, net of $7.0 million of outstanding letters of credit.

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, purchases of 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 and most recently, in September 2007, we completed the Burress acquisition (see note 4 to the consolidated financial statements for further information on each acquisition). In the future, we may pursue additional strategic acquisitions. In addition, we expect to use cash from working capital and/or borrowings under the senior secured credit facility to fund the repurchases of the Company’s common stock pursuant to the stock repurchase program announced on November 8, 2007, under which we may purchase up to $100 million of the Company’s outstanding common stock. Under the terms of the stock repurchase program, as of December 31, 2007, we may purchase up to an additional $87.1 million of our common stock. In connection with the stock repurchase program, we amended our senior secured credit facility to allow such stock repurchase program, subject to certain restrictions. The repurchase program is expected to continue until December 31, 2008 unless extended or shortened by the Board of Directors. We anticipate that the above described 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, 2007 were $258.1 million, including $64.0 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, 2007 were $18.0 million. We anticipate that our 2008 gross rental fleet capital expenditures will be used to primarily replace the rental fleet

equipment we anticipate selling during 2008 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. Should we pursue any other strategic acquisitions during 2008, we may need to access available borrowings under our senior secured credit facility.

     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 credit facility and our other indebtedness) 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.

Certain Information Concerning Off-Balance Sheet Arrangements

     An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or that engages in leasing, hedging or research and development arrangements with the Company.

     We have no off-balance sheet arrangements as described above. Further, 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. We have also 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 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, 2007.

		Payments Due by Year
		Total				2008				2009-2010				2011-2012				Thereafter
		(Amounts in thousands)
Long-term debt (including senior unsecured notes payable)		$	251,987			$	28			$	62			$	43			$	251,854
Interest payments on senior unsecured notes (1)			188,438				20,938				41,875				41,875				83,750
Senior secured credit facility			120,553				—				—				120,553				—
Interest payments on senior secured credit facility (1)			28,350				7,893				15,786				4,671				—
Related party obligation (including interest) (2)			450				300				150				—				—
Capital lease obligation (including interest) (3)			3,570				252				504				504				2,310
Operating leases (including interest) (4)			73,109				10,064				15,587				11,592				35,866
Other long-term obligations (5)			163,734				34,673				71,391				55,420				2,250
Total contractual cash obligations (6)		$	830,191			$	74,148			$	145,355			$	234,658			$	376,030

     As of December 31, 2007, we have standby letters of credit issued under our senior secured credit facility totaling $6.0 million that expire in January 2009.

Seasonality

     Although we believe our business is not materially 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.

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 September 1, 2007, and funded on September 4, 2007, the acquisition of all of the outstanding capital stock of J.W. Burress, Incorporated (“Burress”). The Burress purchase price was funded from available cash on hand and borrowings under our senior secured credit facility. 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. See note 4 to the consolidated financial statements of this Annual Report on Form 10-K for further information on this acquisition.

     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.

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 (“FAS 109”). FIN 48 clarifies the application of FAS 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” in our consolidated statement of operations. We did not incur any income tax related interest income, interest expense or penalties related to FIN 48 for the year ended December 31, 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 effective income tax rate. There was no change in the unrecognized tax benefit for the year ended December 31, 2007. At this time, we do not expect to recognize significant increases or decreases in unrecognized tax benefits during the next twelve months 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 September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“FAS 157”). FAS 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 do not require any new fair value measurements, but rather, it provides enhanced guidance to other accounting pronouncements that require or permit fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. All valuation adjustments will be recognized as cumulative-effect adjustments to the opening balance of retained earnings for the fiscal year in which FAS 157 is initially applied. FAS 157 became effective for us on January 1, 2008. On February 12, 2008, the FASB issued Financial Statement of Position (“FSP”) No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which delays the effective date of FAS 157 for one year for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis, at least annually. In addition, the FASB has agreed to issue a second FSP that will exclude from the scope of FAS 157 certain leasing transactions accounted for under SFAS No. 13, “Accounting for Leases” and its related interpretative accounting pronouncements that address leasing transactions. The exclusion does not apply to fair value measurements of assets and liabilities recorded as a result of a lease transaction but measured pursuant to other pronouncements within the scope of FAS 157. We are still evaluating the potential impact of adopting FAS 157, but do not expect it to have a material impact to our consolidated results of operations, cash flows or financial position.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115” (“FAS 159”). FAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement of certain financial assets and liabilities under an instrument-by-instrument election. Subsequent measurements for the financial assets and liabilities an entity elects to fair value will be recognized in the results of operations. FAS 159 is effective for fiscal years beginning after November 15, 2007, but is not required to be adopted. We are in the process of determining the financial impact that this will have on our results of operations and financial position, if the fair value option is elected.

     In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“FAS 141R”), which replaces SFAS No. 141 (“FAS 141”). This Statement retains the fundamental requirements in FAS 141 that the acquisition method of accounting (which FAS 141 called the purchase method) be used for all business combinations. FAS 141R also establishes principles and requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS 141R is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008. Early adoption is prohibited. Management is currently evaluating the impact of adopting FAS 141R, which also requires acquisition transaction costs to be expensed as incurred rather than capitalized as a direct cost of the acquisition, as transaction costs are not considered an element of the fair value of the company acquired. Depending upon the size, nature and complexity of a future acquisition transaction, such transaction costs could be material to our results of operations under FAS 141R.

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 our amended senior secured credit facility is calculated based upon LIBOR plus 125 basis points as of December 31, 2007. At December 31, 2007, we had $120.6 million of outstanding borrowings under our senior secured credit facility. The interest rate in effect on those borrowings at December 31, 2007 was approximately 6.6%. A 1.0% increase in the effective interest rate on our outstanding borrowings at December 31, 2007, would increase our interest expense by approximately $1.2 million on an annualized basis. We do not have significant exposure to changing interest rates as of December 31, 2007 on our fixed-rate senior unsecured notes or on our other notes payable.

Historically, we have not engaged in derivatives or other financial instruments for trading, speculative or hedging purposes, though we may do so from time to time if such instruments are available to us on acceptable terms and prevailing market conditions are accommodating.

Item 8. Financial Statements and Supplementary Data

     Index to consolidated financial statements of H&E Equipment Services, Inc. and Subsidiaries

     See note 20 to the consolidated financial statements for summarized quarterly financial data.

		Page
Report of Independent Registered Public Accounting Firm		53
Consolidated Balance Sheets as of December 31, 2007 and 2006		54
Consolidated Statements of Income for the years ended December 31, 2007, 2006 and 2005		55
Consolidated Statements of Members’ Deficit and Stockholders’ Equity for the years ended December 31, 2007, 2006 and 2005		56
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005		57
Notes to Consolidated Financial Statements		59

Report of Independent Registered Public Accounting Firm

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, 2007 and 2006 and the related consolidated statements of income, members’ deficit and stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. In connection with our audits of the financial statements, we have also audited the financial statement schedules listed in Item 15(a)(2) of this annual report on Form 10-K. These consolidated financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules 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 are free of material misstatement. Our audits includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedules. 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 at December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As more fully described in Note 2 to the consolidated financial statements, in 2006 the Company changed its method of accounting for share-based payments and in 2007 the Company changed its method of accounting for uncertain tax positions. Also, as more fully described in Note 2 to the consolidated financial statements, in 2007, the Company changed the date of their annual goodwill impairment test.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), H&E Equipment Services, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 6, 2008 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP

Dallas, Texas

March 6, 2008

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND 2006

		2007				2006
		(Amounts in thousands, except
		share amounts)
Assets
Cash		$	14,762			$	9,303
Receivables, net of allowance for doubtful accounts of $4,413 and $2,852, respectively			151,148				107,760
Inventories, net of reserve for obsolescence of $992 and $1,326, respectively			143,789				126,737
Prepaid expenses and other assets			6,111				6,122
Rental equipment, net of accumulated depreciation of $186,630 and $158,822, respectively			577,628				440,454
Property and equipment, net of accumulated depreciation and amortization of $26,591 and $27,112, respectively			45,414				29,663
Deferred financing costs, net of accumulated amortization of $6,216 and $4,983, respectively			8,628				9,296
Intangible assets, net of accumulated amortization of $1,046 and $103, respectively			10,642				34
Goodwill			54,731				30,573
Total assets		$	1,012,853			$	759,942
Liabilities and Stockholders’ Equity
Liabilities:
Amounts due on senior secured credit facility		$	120,553			$	9,134
Accounts payable			84,895				61,486
Manufacturer flooring plans payable			162,939				148,028
Accrued expenses payable and other liabilities			48,957				33,150
Related party obligation			413				653
Notes payable			1,987				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			2,411				—
Deferred income taxes			50,681				11,805
Deferred compensation payable			1,939				3,271
Total liabilities			724,775				524,358
Commitments and contingent liabilities
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 December 31, 2007 and 2006 and 37,467,848 and 38,192,094 shares outstanding at December 31, 2007 and 2006, respectively			382				382
Additional paid-in capital			205,937				204,638
Treasury stock at cost, 724,246 shares of common stock held at December 31, 2007 and no shares held at December 31, 2006, respectively			(13,431	)			—
Retained earnings			95,190				30,564
Total stockholders’ equity			288,078				235,584
Total liabilities and stockholders’ equity		$	1,012,853			$	759,942

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005

		2007				2006				2005
		(Amounts in thousands, except per share
		amounts)
Revenues:
Equipment rentals		$	286,573			$	251,374			$	190,794
New equipment sales			355,178				241,281				156,341
Used equipment sales			148,742				133,897				111,139
Parts sales			102,300				82,106				70,066
Services revenues			64,050				53,699				41,485
Other			46,291				42,012				30,385
Total revenues			1,003,134				804,369				600,210
Cost of revenues:
Rental depreciation			94,211				78,159				54,534
Rental expense			45,374				40,582				47,027
New equipment sales			307,897				211,158				137,169
Used equipment sales			112,351				97,765				84,696
Parts sales			71,791				57,909				49,615
Services revenues			23,076				19,206				15,417
Other			42,394				36,409				30,151
Total cost of revenues			697,094				541,188				418,609
Gross profit			306,040				263,181				181,601
Selling, general and administrative expenses			165,048				143,615				111,409
Gain on sales of property and equipment, net			469				479				91
Income from operations			141,461				120,045				70,283
Other income (expense):
Interest expense			(36,771	)			(37,684	)			(41,822	)
Loss on early extinguishment of debt			(320	)			(40,771	)			—
Other, net			1,045				818				372
Total other expense, net			(36,046	)			(77,637	)			(41,450	)
Income before provision for income taxes			105,415				42,408				28,833
Provision for income taxes			40,789				9,694				673
Net income		$	64,626			$	32,714			$	28,160
Net income per common share:
Basic		$	1.70			$	0.89			$	1.10
Diluted		$	1.70			$	0.88			$	1.10
Weighted average common shares outstanding:
Basic			38,065				36,933				25,492
Diluted			38,065				36,982				25,492