UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2008

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

For the transition period from                     to

Commission file number: 000-51759

H&E Equipment Services, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State of Other Jurisdiction of Incorporation or Organization)		81-0553291 (I.R.S. Employer Identification No.)
11100 Mead Road, Suite 200, Baton Rouge, Louisiana		70816
(Address of Principal Executive Offices)		(ZIP Code)

(225) 298-5200
(Registrant’s Telephone Number, Including Area Code)

None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

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

     Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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):

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

     Yes o No þ

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

     Number of shares of common stock outstanding as of the close of business on May 5, 2008: 36,248,030

 

 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
MARCH 31, 2008

		Page
PART I. FINANCIAL INFORMATION		4
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 2008 (Unaudited) and December 31, 2007		4
Condensed Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2008 and 2007		5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2008 and 2007		6
Notes to Condensed Consolidated Financial Statements (Unaudited)		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 3. Quantitative and Qualitative Disclosures about Market Risk		33
Item 4. Controls and Procedures		33
PART II. OTHER INFORMATION		34
Item 1. Legal Proceedings		34
Item 1A. Risk Factors		34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 3. Defaults upon Senior Securities		35
Item 4. Submission of Matters to a Vote of Security Holders		35
Item 5. Other Information		35
Item 6. Exhibits		35
Signatures		36
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certfication Pursuant to Section 906

Forward-Looking Statements

     This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend,” “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount 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 and, in particular, the conditions in our Mid-Atlantic, Southern California and Florida regions as well as the impact of the current conditions of the capital markets and its effect on construction activity and the economy in general;
	•		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 “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007 and this Quarterly Report on Form 10-Q.

     Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above mentioned factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance. For a more detailed discussion of some of the foregoing risk and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007, and Item 1A — “Risk Factors” in this Quarterly Report on Form 10-Q, as well as other reports and registration statements filed by us with the SEC. All of our annual, quarterly and current reports and any amendments thereto, filed with or furnished to the SEC are available on our Internet website under the Investor Relations link. For more information about us and the announcements we make from time to time, visit our Internet website at www.he-equipment.com.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

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

		Balances at
		March 31,				December 31,
		2008				2007
		(Unaudited)
ASSETS
Cash		$	12,072			$	14,762
Receivables, net of allowance for doubtful accounts of $4,476 and $4,413, respectively			134,575				151,148
Inventories, net of reserves for obsolescence of $994 and $992, respectively			141,662				143,789
Prepaid expenses and other assets			7,081				6,111
Rental equipment, net of accumulated depreciation of $191,491 and $186,630, respectively			574,817				577,628
Property and equipment, net of accumulated depreciation and amortization of $29,096 and $26,591, respectively			45,499				45,414
Deferred financing costs, net of accumulated amortization of $6,580 and $6,216, respectively			8,264				8,628
Intangible assets, net of accumulated amortization of $1,760 and $1,046, respectively			9,928				10,642
Goodwill			55,117				54,731
Total assets		$	989,015			$	1,012,853
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Amounts due on senior secured credit facility		$	146,586			$	120,553
Accounts payable			66,525				84,895
Manufacturer flooring plans payable			140,926				162,939
Accrued expenses payable and other liabilities			43,068				48,957
Related party obligation			349				413
Notes payable			1,980				1,987
Senior unsecured notes			250,000				250,000
Capital lease payable			2,384				2,411
Deferred income taxes			56,136				50,681
Deferred compensation payable			1,975				1,939
Total liabilities			709,929				724,775
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued			—				—
Common stock, $0.01 par value, 175,000,000 shares authorized; 38,192,094 shares issued at March 31, 2008 and December 31, 2007 and 36,248,030 and 37,467,848 shares outstanding at March 31, 2008 and December 31, 2007, respectively			382				382
Additional paid-in capital			206,209				205,937
Treasury stock at cost, 1,944,064 shares of common stock held at March 31, 2008 and 724,246 shares of common stock held at December 31, 2007, respectively			(32,904	)			(13,431	)
Retained earnings			105,399				95,190
Total stockholders’ equity			279,086				288,078
Total liabilities and stockholders’ equity		$	989,015			$	1,012,853

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

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

		Three Months Ended
		March 31,
		2008				2007
Revenues:
Equipment rentals		$	71,211			$	63,201
New equipment sales			76,353				67,770
Used equipment sales			41,411				30,940
Parts sales			28,914				23,136
Services revenues			16,588				14,623
Other			11,289				10,066
Total revenues			245,766				209,736
Cost of revenues:
Rental depreciation			26,428				21,343
Rental expense			11,816				10,787
New equipment sales			65,546				58,974
Used equipment sales			30,919				22,520
Parts sales			20,266				16,269
Services revenues			6,141				5,140
Other			11,926				8,992
Total cost of revenues			173,042				144,025
Gross profit			72,724				65,711
Selling, general and administrative expenses			46,684				37,155
Gain on sales of property and equipment, net			139				308
Income from operations			26,179				28,864
Other income (expense):
Interest expense			(10,167	)			(8,703	)
Other, net			216				137
Total other expense, net			(9,951	)			(8,566	)
Income before provision for income taxes			16,228				20,298
Provision for income taxes			6,019				8,164
Net income		$	10,209			$	12,134
Net income per common share:
Basic		$	0.28			$	0.32
Diluted		$	0.28			$	0.32
Weighted average common shares outstanding:
Basic			36,684				38,087
Diluted			36,684				38,114

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

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

		Three Months Ended
		March 31,
		2008				2007
Cash flows from operating activities:
Net income		$	10,209			$	12,134
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization on property and equipment			2,821				1,914
Depreciation on rental equipment			26,428				21,343
Amortization of loan discounts and deferred financing costs			365				330
Amortization of intangible assets			713				12
Provision for losses on accounts receivable			647				513
Provision for inventory obsolescence			16				16
Provision for deferred income taxes			5,455				7,345
Stock-based compensation expense			316				310
Gain on sales of property and equipment, net			(139	)			(308	)
Gain on sales of rental equipment, net			(9,885	)			(8,142	)
Changes in operating assets and liabilities, net of impact of acquisition:
Receivables, net			15,927				(4,956	)
Inventories, net			(23,235	)			(39,152	)
Prepaid expenses and other assets			(1,060	)			(2,473	)
Accounts payable			(18,370	)			12,037
Manufacturer flooring plans payable			(22,013	)			(5,216	)
Accrued expenses payable and other liabilities			(6,174	)			216
Deferred compensation payable			36				(1,447	)
Net cash used in operating activities			(17,943	)			(5,524	)
Cash flows from investing activities:
Purchases of property and equipment			(3,172	)			(1,966	)
Purchases of rental equipment			(22,649	)			(12,746	)
Proceeds from sales of property and equipment			406				403
Proceeds from sales of rental equipment			34,263				28,080
Net cash provided by investing activities			8,848				13,771
Cash flows from financing activities:
Excess tax benefit (deficiency) from stock-based awards			(44	)			44
Purchases of treasury stock			(19,473	)			(432	)
Borrowings on senior secured credit facility			294,974				207,125
Payments on senior secured credit facility			(268,943	)			(211,156	)
Payments of related party obligation			(75	)			(75	)
Payments of capital lease obligation			(27	)			—
Principal payments on notes payable			(7	)			(348	)
Net cash provided by (used in) financing activities			6,405				(4,842	)
Net increase (decrease) in cash and cash equivalents			(2,690	)			3,405
Cash, beginning of period			14,762				9,303
Cash and cash equivalents, end of period		$	12,072			$	12,708

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

		Three Months Ended
		March 31,
		2008				2007
Supplemental schedule of noncash investing and financing activities:
Noncash asset purchases:
Assets transferred from new and used inventory to rental fleet		$	25,346			$	28,589
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	15,098			$	12,155
Income taxes		$	—			$	207

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

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

(1) Organization and Nature of Operations

Basis of Presentation

     Our condensed consolidated financial statements include the financial position and results of operations of H&E Equipment Services, Inc. and its wholly-owned subsidiaries H&E Finance Corp., GNE Investments, Inc., Great Northern Equipment, Inc., H&E California Holdings, Inc., H&E Equipment Services (California) LLC and H&E Equipment Services (Mid-Atlantic), Inc.

     The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interm financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008, and therefore, the results and trends in these interim condensed consolidated financial statements may not be the same for the entire year. These interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2007, from which the balance sheet amounts as of December 31, 2007 were derived.

     All significant intercompany accounts and transactions have been eliminated in these condensed consolidated financial statements. Business combinations accounted for as purchases are included in the condensed consolidated financial statements from the respective dates of acquisition.

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

Nature of Operations

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

(2) Significant Accounting Policies

     We describe our significant accounting policies in note 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2007. At March 31, 2007, a portion of our available cash on hand was invested in cash equivalents whereas no portion of our available cash on hand at March 31, 2008 or at December 31, 2007 was invested in cash equivalents. We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

     Use of Estimates

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

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

amounts of assets and liabilities and related disclosures at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reported period. These assumptions and estimates could have a material effect on our condensed consolidated financial statements. Actual results may differ materially from those estimates. We review our estimates on an ongoing basis based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.

     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, we analyzed our 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 condensed consolidated statement of operations. We did not incur any income tax related interest income, interest expense or penalties related to FIN 48 for the three month periods ended March 31, 2008 or 2007.

     As of January 1, 2007, the adoption date, 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 during the 2007 fiscal year ended December 31, 2007 or during the three month period ended March 31, 2008. 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.

     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. FAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. In February 2008, the FASB deferred the effective date of FAS 157 by one year for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). 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. We adopted the provisions of FAS 157, except as it applies to those nonfinancial assets and nonfinancial liabilities for which the effective date has been delayed by one year. The adoption of FAS 157 did not have a material effect on our financial position or results of operations. We are currently evaluating the impact, if any, that FAS 157 may have on our future consolidated financial statements related to non-financial assets and liabilities.

     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 provides an entity the option to report selected financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. The fair value option: (i) may be applied instrument by instrument, with a few exceptions, such as investments accounted for by the equity method; (ii) is irrevocable (unless a new election date occurs); and (iii) is applied only to entire instruments and not to portions of instruments. On January 1, 2008, we adopted the provisions of

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

FAS 159. We did not elect to report any additional assets or liabilities at fair value and accordingly, the adoption of FAS 159 did not have a material effect on our financial position or results of operations.

     Recently Issued Accounting Pronouncements

     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: (i) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (ii) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (iii) 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. We are currently evaluating the impact of adopting FAS 141R will have upon adoption on our accounting for acquisitions. However, previously any changes in valuation allowances, as a result of income from acquisitions, for certain deferred tax assets would serve to reduce goodwill whereas under the new standard any changes in the valuation allowance related to income from acquisitions currently or in prior periods will serve to reduce income taxes in the period in which the reserve is reversed. Additionally, under SFAS 141R, transaction related expenses, which were previously capitalized as direct costs of the acquisition, will be expensed as incurred as transaction costs are not considered an element of the fair value of the company acquired under the new guidance. 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.

(3) 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”) for an estimated total consideration of approximately $144.1 million, consisting of cash paid of $97.8 million, liabilities assumed of $39.0 million, liabilities incurred of $5.3 million and transaction costs of approximately $2.7 million. 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.

     The Burress acquisition has been accounted for using the purchase method of accounting. The aggregate purchase price has been allocated to the assets acquired and liabilities assumed based on an estimate of their fair values. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired has been allocated to goodwill. Goodwill generated from the acquisition was recognized given the expected contribution of Burress to our overall corporate strategy. We expect that all of the $24.5 million of the recorded goodwill acquired, together with the value of certain other intangible assets, will be amortized over a 15-year period for tax purposes and ratably tax deductible over that period. Our purchase price allocation is subject to adjustment based on the finalization of any post-closing adjustments and settlement of amounts currently held in escrow. We expect to finalize our purchase price allocation in the second quarter of fiscal 2008. Our operating results for the three months ended March 31, 2008, include the operating results of Burress for the entire period.

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

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

rental fleet, new equipment inventory and parts inventory to John Deere pursuant to the termination notification and all related credits have been issued by John Deere. Upon our return of the aforementioned equipment to John Deere, approximately $3.2 million of manufacturer flooring plans payable associated with that equipment was canceled and credits were issued for the returned equipment. Accordingly, these items were excluded from the allocation of purchase price to the net assets acquired of Burress.

     In conjunction with the termination of the Hitachi dealer agreement, John Deere commenced an arbitration proceeding against Burress concerning John Deere’s contractual right to terminate the Hitachi dealer agreement and this arbitration proceeding is pending. No decision has been reached in these proceedings to date. The Burress shareholders would have been entitled to receive additional consideration of approximately $15.1 million payable over three years if the consent of Hitachi, meeting the requirements of the acquisition agreement, had been obtained on or before December 29, 2007. However, the consent of Hitachi was not obtained on or before that date; accordingly, the Burress shareholders will not be entitled to any additional consideration related to the previous distribution relationship with Hitachi.

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

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

Receivables		$	14,423
Inventories			23,751
Rental equipment			62,354
Property and equipment			7,277
Prepaid expenses and other assets			382
Intangible assets (1)			11,688
Goodwill			24,544
Accounts payable			(8,758	)
Manufacturer flooring plans payable			(19,787	)
Accrued expenses payable and other liabilities			(5,693	)
Due to Burress shareholders (2)			(5,306	)
Capital leases (3)			(4,698	)
Net assets acquired		$	100,177

						Weighted-
						Average				Balances at March 31, 2008
		Gross				Amortization								Net
		Carrying				Period				Accumulated				Carrying
Acquired Intangible Asset		Amount				(in Years)				Amortization				Amount
Trade name		$	1,370				1.0			$	799			$	571
Non-compete agreements			788				4.0				115				673
Customer relationships			9,530				6.0				846				8,684
Total		$	11,688				5.3			$	1,760			$	9,928

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

     Amortization expense for the trade name intangible asset and the non-compete agreements is computed over the estimated useful life of the intangible assets acquired on a straight-line basis. Amortization expense for the customer relationships intangible asset is computed over the estimated useful life of the asset acquired based on the relative annual contribution to estimated Adjusted Earnings Before Interest, Taxes and Amortization. Amortization expense on these intangible assets for the three month period ended March 31, 2008 was approximately $0.7 million.

	(2)		Represents the amount payable at March 31, 2008 to the Burress shareholders for the gross up effect related to the Section 338 tax election pursuant to the acquisition agreement, which was paid in the second quarter of fiscal 2008.
	(3)		Represents the present value of our obligations under various capital leases assumed on the date of acquisition. Subsequent to the acquisition date and during our third quarter ended September 30, 2007, we paid approximately $3.2 million to purchase all vehicles previously held under capital leases. The accompanying condensed consolidated balance sheets reflect the incremental cost basis of the vehicles, net of accumulated depreciation, from the lease buyouts in property and equipment and appropriately reflect no obligation under those vehicle leases. Additionally, Burress previously leased four branch facility locations under capital leases. On August 31, 2007, three of those capital leases related to Burress branch facility locations were amended and these amendments resulted in a lease classification change, pursuant to Statement on Financial Accounting Standard No. 13, “Accounting for Leases”, from capital leases to operating leases as of September 1, 2007, the acquisition date. Therefore, the accompanying condensed consolidated balance sheet as of March 31, 2008 reflects the one remaining capital lease obligation on a Burress branch facility for approximately $2.4 million.

     Our operating results for the three months ended March 31, 2008 include a full three months of Burress operations. The following table contains unaudited pro forma condensed consolidated statements of income information for the three months ended March 31, 2007, as if the Burress transaction had occurred at the beginning of the period, or January 1, 2007 (amounts in thousands, except per share data):

		Three Months Ended
		March 31, 2007
Total revenues		$	256,078
Gross profit		$	76,285
Income from operations		$	31,332
Net income		$	12,507
Basic net income per common share		$	0.33
Diluted net income per common share		$	0.33

     The above pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred had the Burress transaction occurred as presented. Further, the above pro forma amounts do not consider any potential synergies or integration costs that may result from the transaction. In addition, future results may vary significantly from the results reflected in such pro forma information.

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

(4) Stockholders’ Equity

     The following table summarizes the activity in Stockholders’ Equity for the three month period ended March 31, 2008 (amounts in thousands, except share data):

		Common Stock								Additional												Total
		Shares								Paid-in				Treasury				Retained				Stockholders’
		Issued				Amount				Capital				Stock				Earnings				Equity
Balances at December 31, 2007			38,192,094			$	382			$	205,937			$	(13,431	)		$	95,190			$	288,078
Stock-based compensation			—				—				316				—				—				316
Income tax deficiency from stock-based compensation			—				—				(44	)			—				—				(44	)
Surrender of 13,436 shares(1)			—				—				—				(213	)			—				(213	)
Repurchases of 1,206,382 shares of common stock(2)			—				—				—				(19,260	)			—				(19,260	)
Net income			—				—				—				—				10,209				10,209
Balances at March 31, 2008			38,192,094			$	382			$	206,209			$	(32,904	)		$	105,399			$	279,086

(5) Stock-Based Compensation

     We account for our stock-based compensation plan using the fair value recognition provisions of Statement of Financial Accounting Standard No. 123 (revised) (“FAS 123(R)”), “Share-Based Payment”. Under the provisions of FAS 123(R), stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). Shares available for future stock-based payment awards under our Stock Incentive Plan were 4,424,658 shares as of March 31, 2008.

Non-vested Stock

     The following table summarizes our non-vested stock activity for the three months ended March 31, 2008:

						Weighted
						Average
		Number of				Grant Date
		Shares				Fair Value
Non-vested stock at December 31, 2007			81,300			$	24.60
Granted			—				—
Vested			(40,650	)		$	24.60
Forfeited			—				—
Non-vested stock at March 31, 2008			40,650			$	24.60

     As of March 31, 2008, we have unrecognized compensation expense of $0.9 million related to non-vested stock. The following table summarizes compensation expense included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income for the three months ended March 31, 2008 and 2007 (amounts in thousands):

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

		For the Three Months Ended
		March 31,
		2008				2007
Compensation expense		$	250			$	250

Stock Options

     At March 31, 2008, there was $0.3 million of unrecognized compensation expense related to stock option awards that are expected to be recognized over a weighted-average period of 1.2 years. The following table summarizes compensation expense included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income for the three months ended March 31, 2008 and 2007 (amounts in thousands):

		For the Three Months Ended
		March 31,
		2008				2007
Compensation expense		$	66			$	61

     The following table represents stock option activity for the three months ended March 31, 2008:

										Weighted
						Weighted				Average
						Average				Contractual
		Number of				Exercise				Life
		Shares				Price				In Years
Outstanding options at December 31, 2007			51,000			$	24.80
Granted			—				—
Exercised			—				—
Canceled, forfeited or expired			—				—
Outstanding options at March 31, 2008			51,000			$	24.80				8.05
Options exercisable at March 31, 2008			30,000			$	24.60				7.90

     The closing price of our common stock on March 31, 2008 was $12.57. All options outstanding at March 31, 2008 have grant date fair values which exceed the March 31, 2008 closing stock price.

     The following table summarizes non-vested stock option activity for the three months ended March 31, 2008:

						Weighted
						Average
		Number of				Grant Date
		Shares				Fair Value
Non-vested stock options at December 31, 2007			36,000			$	24.88
Granted			—				—
Vested			15,000			$	24.60
Forfeited			—				—
Non-vested stock options at March 31, 2008			21,000			$	25.08

(6) Purchases of Company Common Stock

     On November 8, 2007, our Board of Directors authorized a stock repurchase program, under which the Company 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 the Company’s outstanding common stock through December 31, 2008, unless extended or shortened by the Board of Directors. The Company’s management determines the timing and amount of stock repurchase based on market conditions and other factors. Repurchases of our common stock are funded with working capital and/or available borrowings under our existing senior secured credit facility. On November 7, 2007, we amended the Second Amended and Restated Credit Agreement to permit the stock repurchase program, subject to certain restrictions.

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

     We purchased during the fourth quarter of 2007 a total of 708,491 shares of our common stock totaling approximately $13.0 million under the stock repurchase program. During the three month period ended March 31, 2008, we repurchased an additional 1,206,382 shares of our common stock totaling approximately $19.3 million under the stock repurchase program. Purchases of our common stock are accounted for as treasury stock in the accompanying condensed consolidated balance sheets using the cost method. Repurchased stock is included in authorized shares, but is not included in shares outstanding.

(7) Earnings per Share

     Earnings per common share for the three month periods ended March 31, 2008 and 2007 are based on the weighted average number of common shares outstanding during the respective periods. The following table sets forth the computation of basic and diluted net income per common share for the three month periods ended March 31, 2008 and 2007 (amounts in thousands, except per share amounts):

		Three Months Ended
		March 31,
		2008				2007
Basic net income per share:
Net income		$	10,209			$	12,134
Weighted average number of common shares outstanding			36,684				38,087
Net income per common share — basic		$	0.28			$	0.32
Diluted net income per share:
Net income		$	10,209			$	12,134
Weighted average number of common shares outstanding			36,684				38,087
Effect of dilutive securities:
Effect of dilutive stock options			—				—
Effect of dilutive non-vested stock			—				27
Weighted average number of common shares outstanding — diluted			36,684				38,114
Net income per common share — diluted		$	0.28			$	0.32
Common shares excluded from the denominator as anti-dilutive:
Stock options			51				45
Non-vested restricted stock			64				—

(8) Senior Secured Credit Facility

     In accordance with our Second Amended and Restated Credit Agreement, as amended, or the senior secured credit facility, we may borrow up to $320.0 million depending upon the availability of borrowing base collateral consisting of eligible trade receivables, inventories, property and equipment, and other assets. Additionally, upon the appropriate lender approval, the Company has access to an incremental facility in an aggregate amount of up to $130.0 million during the term of the senior secured credit facility, which matures August 4, 2011. If at any time an event of default exists, the interest rate on the senior secured credit facility will increase by 2.0% per annum. We are also required to pay a commitment fee equal to $0.25% per annum in respect of undrawn commitments.

     At March 31, 2008, the interest rate on the senior secured credit facility was LIBOR plus 150 basis points, or 5.01%. The senior secured credit facility is senior to all other outstanding debt, secured by substantially all the assets of the Company, and is guaranteed by the Company’s domestic subsidiaries (see note 10 to the condensed consolidated financial statements). The balance outstanding on the senior secured credit facility as of March 31, 2008 was approximately $146.6 million. Additional borrowings available under the terms of the senior secured credit facility as of March 31, 2008, net of $7.0 million of standby letters of credit outstanding, totaled $166.4 million. The average interest rate on outstanding borrowings for the three months ended March 31, 2008 was approximately 4.73%. As of March 31, 2008, we were in compliance with our financial covenant under the senior secured credit facility. As of May 5, 2008, we had $177.4 million of available borrowings under our senior secured credit facility, net of $7.0 million of outstanding letters of credit.

(9) Segment Information

     We have identified five reportable segments: equipment rentals, new equipment sales, used equipment sales, parts sales and service revenues. These segments are based upon how management of the Company allocates resources and assesses performance.

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

Non-segmented revenues and non-segmented costs relate to equipment support activities including transportation, hauling, parts freight and damage-waiver charges and are not allocated to the other reportable segments. There were no sales between segments for any of the periods presented. Selling, general and administrative expenses as well as all other income and expense items below gross profit are not generally allocated to reportable segments.

     We do not compile discrete financial information by segments other than the information presented below. The following table presents information about our reportable segments (amounts in thousands):

		Three Months Ended
		March 31,
		2008				2007
Revenues:
Equipment rentals		$	71,211			$	63,201
New equipment sales			76,353				67,770
Used equipment sales			41,411				30,940
Parts sales			28,914				23,136
Services revenues			16,588				14,623
Total segmented revenues			234,477				199,670
Non-segmented revenues			11,289				10,066
Total revenues		$	245,766			$	209,736
Gross Profit:
Equipment rentals		$	32,967			$	31,071
New equipment sales			10,807				8,796
Used equipment sales			10,492				8,420
Parts sales			8,648				6,867
Services revenues			10,447				9,483
Total segmented gross profit			73,361				64,637
Non-segmented gross profit (loss)			(637	)			1,074
Total gross profit		$	72,724			$	65,711

		Balances at
		March 31,				December 31,
		2008				2007
Segment identified assets:
Equipment sales		$	115,574			$	117,920
Equipment rentals			574,817				577,628
Parts and services			26,088				25,869
Total segment identified assets			716,479				721,417
Non-segment identified assets			272,536				291,436
Total assets		$	989,015			$	1,012,853

     The Company operates primarily in the United States and our sales to international customers for the three month comparative periods ended March 31, 2008 and 2007 were no greater than 2.7% of total revenues. No one customer accounted for more than 10% of our revenues on an overall or segment basis for any of the periods presented.

(10) Condensed Consolidating Financial Information of Guarantor Subsidiaries

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

     The condensed consolidating financial statements of H&E Equipment Services, Inc. and its subsidiaries are included below. The financial statements for H&E Finance Corp., the subsidiary co-issuer, are not included within the consolidating financial statements

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

because H&E Finance Corp. has no assets or operations. The financial statements of H&E Equipment Services (Mid-Atlantic), Inc., are included from the date of our acquisition of Burress on September 1, 2007. The condensed consolidating balance sheet amounts as of December 31, 2007 included herein were derived from our annual audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2007.

CONDENSED CONSOLIDATING BALANCE SHEET

		As of March 31, 2008
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
		(Amounts in thousands)
Assets:
Cash		$	11,981			$	91			$	—			$	12,072
Receivables, net			118,339				16,236				—				134,575
Inventories, net			123,520				18,142				—				141,662
Prepaid expenses and other assets			6,827				254				—				7,081
Rental equipment, net			453,734				121,083				—				574,817
Property and equipment, net			31,984				13,515				—				45,499
Deferred financing costs, net			8,264				—				—				8,264
Intangible assets, net			9,928				—				—				9,928
Investment in guarantor subsidiaries			9,523				—				(9,523	)			—
Goodwill			8,571				46,546				—				55,117
Total assets		$	782,671			$	215,867			$	(9,523	)		$	989,015
Liabilities and Stockholders’ Equity:
Amount due on senior secured credit facility		$	146,586			$	—			$	—			$	146,586
Accounts payable			60,428				6,097				—				66,525
Manufacturer flooring plans payable			140,926				—				—				140,926
Accrued expenses payable and other liabilities			41,734				1,334				—				43,068
Intercompany balances			(195,795	)			195,795				—				—
Related party obligation			349				—				—				349
Notes payable			1,246				734				—				1,980
Senior unsecured notes			250,000				—				—				250,000
Capital lease payable			—				2,384				—				2,384
Deferred income taxes			56,136				—				—				56,136
Deferred compensation payable			1,975				—				—				1,975
Total liabilities			503,585				206,344				—				709,929
Stockholders’ equity			279,086				9,523				(9,523	)			279,086
Total liabilities and stockholders’ equity		$	782,671			$	215,867			$	(9,523	)		$	989,015

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

CONDENSED CONSOLIDATING BALANCE SHEET

		As of December 31, 2007
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
		(Amounts in thousands)
Assets:
Cash		$	12,005			$	2,757			$	—			$	14,762
Receivables, net			131,085				20,063				—				151,148
Inventories, net			118,912				24,877				—				143,789
Prepaid expenses and other assets			5,528				583				—				6,111
Rental equipment, net			453,465				124,163				—				577,628
Property and equipment, net			31,557				13,857				—				45,414
Deferred financing costs, net			8,628				—				—				8,628
Intangible assets, net			10,642				—				—				10,642
Investment in guarantor subsidiaries			14,026				—				(14,026	)			—
Goodwill			8,571				46,160				—				54,731
Total assets		$	794,419			$	232,460			$	(14,026	)		$	1,012,853
Liabilities and Stockholders’ Equity:
Amount due on senior secured credit facility		$	130,205			$	(9,652	)		$	—			$	120,553
Accounts payable			83,677				1,218				—				84,895
Manufacturer flooring plans payable			156,937				6,002				—				162,939
Accrued expenses payable and other liabilities			45,603				3,354				—				48,957
Intercompany balances			(214,364	)			214,364				—				—
Related party obligation			413				—				—				413
Notes payable			1,250				737				—				1,987
Senior unsecured notes			250,000				—				—				250,000
Capital lease payable			—				2,411				—				2,411
Deferred income taxes			50,681				—				—				50,681
Deferred compensation payable			1,939				—				—				1,939
Total liabilities			506,341				218,434				—				724,775
Stockholders’ equity			288,078				14,026				(14,026	)			288,078
Total liabilities and stockholders’ equity		$	794,419			$	232,460			$	(14,026	)		$	1,012,853

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

		Three Months Ended March 31, 2008
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
		(Amounts in thousands)
Revenues:
Equipment rentals		$	61,919			$	9,292			$	—			$	71,211
New equipment sales			62,435				13,918				—				76,353
Used equipment sales			34,030				7,381				—				41,411
Parts sales			23,137				5,777				—				28,914
Services revenues			14,152				2,436				—				16,588
Other			9,602				1,687				—				11,289
Total revenues			205,275				40,491				—				245,766
Cost of revenues:
Rental depreciation			21,632				4,796				—				26,428
Rental expense			9,972				1,844				—				11,816
New equipment sales			53,296				12,250				—				65,546
Used equipment sales			24,600				6,319				—				30,919
Parts sales			16,178				4,088				—				20,266
Services revenues			5,215				926				—				6,141
Other			9,538				2,388				—				11,926
Total cost of revenues			140,431				32,611				—				173,042
Gross profit:
Equipment rentals			30,315				2,652				—				32,967
New equipment sales			9,139				1,668				—				10,807
Used equipment sales			9,430				1,062				—				10,492
Parts sales			6,959				1,689				—				8,648
Services revenues			8,937				1,510				—				10,447
Other			64				(701	)			—				(637	)
Gross profit			64,844				7,880				—				72,724
Selling, general and administrative expenses			37,624				9,060				—				46,684
Equity in loss of guarantor subsidiaries			(4,503	)			—				4,503				—
Gain on sales of property and equipment, net			110				29				—				139
Income (loss) from operations			22,827				(1,151	)			4,503				26,179
Other income (expense):
Interest expense			(6,794	)			(3,373	)			—				(10,167	)
Other, net			195				21				—				216
Total other expense, net			(6,599	)			(3,352	)			—				(9,951	)
Income (loss) before provision for income taxes			16,228				(4,503	)			4,503				16,228
Provision for income taxes			6,019				—				—				6,019
Net income (loss)		$	10,209			$	(4,503	)		$	4,503			$	10,209

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

		Three Months Ended March 31, 2007
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
		(Amounts in thousands)
Revenues:
Equipment rentals		$	54,180			$	9,021			$	—			$	63,201
New equipment sales			66,548				1,222				—				67,770
Used equipment sales			28,785				2,155				—				30,940
Parts sales			22,154				982				—				23,136
Services revenues			13,887				736				—				14,623
Other			8,900				1,166				—				10,066
Total revenues			194,454				15,282				—				209,736
Cost of revenues:
Rental depreciation			18,354				2,989				—				21,343
Rental expense			9,009				1,778				—				10,787
New equipment sales			57,894				1,080				—				58,974
Used equipment sales			20,961				1,559				—				22,520
Parts sales			15,634				635				—				16,269
Services revenues			4,937				203				—				5,140
Other			7,422				1,570				—				8,992
Total cost of revenues			134,211				9,814				—				144,025
Gross profit:
Equipment rentals			26,817				4,254				—				31,071
New equipment sales			8,654				142				—				8,796
Used equipment sales			7,824				596				—				8,420
Parts sales			6,520				347				—				6,867
Services revenues			8,950				533				—				9,483
Other			1,478				(404	)			—				1,074
Gross profit			60,243				5,468				—				65,711
Selling, general and administrative expenses			33,435				3,720				—				37,155
Equity in loss of guarantor subsidiaries			(90	)			—				90				—
Gain on sales of property and equipment, net			226				82				—				308
Income from operations			26,944				1,830				90				28,864
Other income (expense):
Interest expense			(6,778	)			(1,925	)			—				(8,703	)
Other, net			132				5				—				137
Total other expense, net			(6,646	)			(1,920	)			—				(8,566	)
Income (loss) before provision for income taxes			20,298				(90	)			90				20,298
Provision for income taxes			8,164				—				—				8,164
Net income (loss)		$	12,134			$	(90	)		$	90			$	12,134

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

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

		Three Months Ended March 31, 2008
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
		(Amounts in thousands)
Cash flows from operating activities:
Net income (loss)		$	10,209			$	(4,503	)		$	4,503			$	10,209
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization on property and equipment			1,999				822				—				2,821
Depreciation on rental equipment			21,632				4,796				—				26,428
Amortization of loan discounts and deferred financing costs			751				(386	)			—				365
Amortization of intangible assets			713				—				—				713
Provision for losses on accounts receivable			647				—				—				647
Provision for inventory obsolescence			16				—				—				16
Provision for deferred income taxes			5,455				—				—				5,455
Stock-based compensation expense			316				—				—				316
Gain on sales of property and equipment, net			(110	)			(29	)			—				(139	)
Gain on sales of rental equipment, net			(8,884	)			(1,001	)			—				(9,885	)
Equity in loss of guarantor subsidiaries			4,503				—				(4,503	)			—
Changes in operating assets and liabilities, net of impact of acquisition:
Receivables, net			12,100				3,827				—				15,927
Inventories, net			(23,383	)			148				—				(23,235	)
Prepaid expenses and other assets			(1,389	)			329				—				(1,060	)
Accounts payable			(23,249	)			4,879				—				(18,370	)
Manufacturer flooring plans payable			(16,011	)			(6,002	)			—				(22,013	)
Accrued expenses payable and other liabilities			(4,154	)			(2,020	)			—				(6,174	)
Intercompany balances			18,569				(18,569	)			—				—
Deferred compensation payable			36				—				—				36
Net cash used in operating activities			(234	)			(17,709	)			—				(17,943	)
Cash flows from investing activities:
Purchases of property and equipment			(2,697	)			(475	)			—				(3,172	)
Purchases of rental equipment			(34,312	)			11,663				—				(22,649	)
Proceeds from sales of property and equipment			382				24				—				406
Proceeds from sales of rental equipment			40,054				(5,791	)			—				34,263
Net cash provided by investing activities			3,427				5,421				—				8,848
Cash flows from financing activities:
Tax deficiencies from stock-based awards			(44	)			—				—				(44	)
Purchase of treasury stock			(19,473	)			—				—				(19,473	)
Borrowings on senior secured credit facility			294,974				—				—				294,974
Payments on senior secured credit facility			(278,595	)			9,652				—				(268,943	)
Payments of related party obligation			(75	)			—				—				(75	)
Payments on capital lease obligations			—				(27	)			—				(27	)
Principal payments of notes payable			(4	)			(3	)			—				(7	)
Net cash provided by (used in) financing activities			(3,217	)			9,622				—				6,405
Net decrease in cash			(24	)			(2,666	)			—				(2,690	)
Cash, beginning of period			12,005				2,757				—				14,762
Cash, end of period		$	11,981			$	91			$	—			$	12,072