UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 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 (Address of Principal Executive Offices)		70816 (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):

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

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

     Yes o No þ

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

     Number of shares of common stock outstanding as of the close of business on November 4, 2008: 34,706,913

 

 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
SEPTEMBER 30, 2008

		Page
PART I. FINANCIAL INFORMATION			4
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2008 (Unaudited) and December 31, 2007			4
Condensed Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2008 and 2007			5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 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			27
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			41
PART II. OTHER INFORMATION			42
Item 1. Legal Proceedings			42
Item 1A. Risk Factors			42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3. Defaults upon Senior Securities			43
Item 4. Submission of Matters to a Vote of Security Holders			43
Item 5. Other Information			43
Item 6. Exhibits			43
Signatures			44

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 indebtedness;
	•		the risks associated with the expansion of our business;
	•		our possible inability to integrate any businesses we acquire;
	•		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” in our Annual Report on Form 10-K for the year ended December 31, 2007 and under Item IA – “Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008.

     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 our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008, 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

		Balances at
		September 30,				December 31,
		2008				2007
		(Unaudited)
ASSETS
Cash		$	13,207			$	14,762
Receivables, net of allowance for doubtful accounts of $4,648 and $4,413, respectively			143,023				151,148
Inventories, net of reserves for obsolescence of $989 and $992, respectively			120,199				143,789
Prepaid expenses and other assets			10,076				6,111
Rental equipment, net of accumulated depreciation of $202,131 and $186,630, respectively			582,347				577,628
Property and equipment, net of accumulated depreciation and amortization of $33,919 and $26,591, respectively			53,013				45,414
Deferred financing costs, net of accumulated amortization of $7,308 and $6,216, respectively			7,287				8,628
Intangible assets, net of accumulated amortization of $1,784 and $1,046, respectively			8,534				10,642
Goodwill			58,873				54,731
Total assets		$	996,559			$	1,012,853
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Amounts due on senior secured credit facility		$	106,302			$	120,553
Accounts payable			83,207				84,895
Manufacturer flooring plans payable			141,341				162,939
Accrued expenses payable and other liabilities			43,611				48,957
Related party obligation			215				413
Notes payable			1,966				1,987
Senior unsecured notes			250,000				250,000
Capital lease payable			2,328				2,411
Deferred income taxes			75,165				50,681
Deferred compensation payable			1,992				1,939
Total liabilities			706,127				724,775
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; 38,288,389 and 38,192,094 shares issued at September 30, 2008 and December 31, 2007, respectively, and 34,706,913 and 37,467,848 shares outstanding at September 30, 2008 and December 31, 2007, respectively			383				382
Additional paid-in capital			206,936				205,937
Treasury stock at cost, 3,581,476 and 724,246 shares of common stock held at September 30, 2008 and December 31, 2007, respectively			(56,008	)			(13,431	)
Retained earnings			139,121				95,190
Total stockholders’ equity			290,432				288,078
Total liabilities and stockholders’ equity		$	996,559			$	1,012,853

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Revenues:
Equipment rentals		$	78,181			$	75,598			$	224,626			$	208,371
New equipment sales			97,797				94,675				274,135				240,910
Used equipment sales			39,873				44,503				128,436				110,190
Parts sales			30,951				26,716				89,112				73,803
Services revenues			18,333				16,877				52,651				46,599
Other			13,512				12,218				38,097				33,595
Total revenues			278,647				270,587				807,057				713,468
Cost of revenues:
Rental depreciation			26,362				24,468				78,838				68,132
Rental expense			12,514				11,173				36,460				33,802
New equipment sales			84,739				81,523				237,449				208,875
Used equipment sales			30,578				33,730				97,960				82,604
Parts sales			21,809				18,895				62,815				52,224
Services revenues			6,592				6,131				19,016				16,899
Other			13,556				10,768				38,735				30,112
Total cost of revenues			196,150				186,688				571,273				492,648
Gross profit			82,497				83,899				235,784				220,820
Selling, general and administrative expenses			45,556				41,609				138,097				117,124
Gain on sales of property and equipment, net			219				97				515				444
Income from operations			37,160				42,387				98,202				104,140
Other income (expense):
Interest expense			(9,495	)			(9,007	)			(29,193	)			(26,597	)
Loss on early extinguishment of debt			—				(325	)			—				(325	)
Other, net			250				293				731				816
Total other expense, net			(9,245	)			(9,039	)			(28,462	)			(26,106	)
Income before provision for income taxes			27,915				33,348				69,740				78,034
Provision for income taxes			10,311				13,154				25,809				30,480
Net income		$	17,604			$	20,194			$	43,931			$	47,554
Net income per common share:
Basic		$	0.50			$	0.53			$	1.22			$	1.25
Diluted		$	0.50			$	0.53			$	1.22			$	1.25
Weighted average common shares outstanding:
Basic			35,075				38,095				35,912				38,090
Diluted			35,090				38,095				35,918				38,090

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)

		Nine Months Ended
		September 30,
		2008				2007
Cash flows from operating activities:
Net income		$	43,931			$	47,554
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization on property and equipment			8,329				6,110
Depreciation on rental equipment			78,838				68,132
Amortization of loan discounts and deferred financing costs			1,093				1,019
Amortization of intangible assets			2,108				270
Provision for losses on accounts receivable			1,743				1,712
Provision for inventory obsolescence			39				61
Provision for deferred income taxes			24,484				28,897
Stock-based compensation expense			1,043				938
Loss on early extinguishment of debt			—				325
Gain on sales of property and equipment, net			(515	)			(444	)
Gain on sales of rental equipment, net			(28,121	)			(25,594	)
Changes in operating assets and liabilities, net of impact of acquisition:
Receivables, net			7,792				(32,498	)
Inventories, net			(17,817	)			(53,719	)
Prepaid expenses and other assets			(3,807	)			(1,963	)
Accounts payable			(1,688	)			38,684
Manufacturer flooring plans payable			(21,598	)			(7,317	)
Accrued expenses payable and other liabilities			(308	)			5,817
Deferred compensation payable			53				(1,368	)
Net cash provided by operating activities			95,599				76,616
Cash flows from investing activities:
Acquisition of business, net of cash acquired			(10,461	)			(99,848	)
Purchases of property and equipment			(16,526	)			(12,325	)
Purchases of rental equipment			(113,316	)			(128,202	)
Proceeds from sales of property and equipment			1,113				651
Proceeds from sales of rental equipment			99,237				91,626
Net cash used in investing activities			(39,953	)			(148,098	)
Cash flows from financing activities:
Excess tax benefit (deficiency) from stock-based awards			(44	)			44
Purchases of treasury stock			(42,577	)			(432	)
Borrowings on senior secured credit facility			810,223				754,616
Payments on senior secured credit facility			(824,474	)			(681,964	)
Principal payment of senior secured notes			—				(4,478	)
Principal payment of senior subordinated notes			—				(278	)
Payments of deferred financing costs			—				(547	)
Payments of related party obligation			(225	)			(225	)
Payments of capital lease obligation			(83	)			(2,280	)
Principal payments on notes payable			(21	)			(361	)
Net cash provided by (used in) financing activities			(57,201	)			64,095
Net decrease in cash			(1,555	)			(7,387	)
Cash, beginning of period			14,762				9,303
Cash, end of period		$	13,207			$	1,916

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

		Nine Months Ended
		September 30,
		2008				2007
Supplemental schedule of noncash investing and financing activities:
Noncash asset purchases:
Assets transferred from new and used inventory to rental fleet		$	41,357			$	59,324
Capital lease obligation incurred		$	—			$	4,698
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	33,386			$	28,594
Income taxes, net of refunds received		$	1,659			$	1,873

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

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

(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 interim 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 nine months ended September 30, 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 included herein 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 their 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.

     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 prescribing the recognition threshold 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 consolidated statement of operations. We did not generate or incur any income tax related interest income, interest expense or penalties related to FIN 48 for the three and nine month periods ended September 30, 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 our 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 and nine month periods ended September 30, 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 2005 and subsequent years remain open to potential examination by tax authorities. The Company is currently under a limited scope examination by the Internal Revenue Service (the “IRS”) for the Company’s 2006 Federal Tax Return. We currently do not expect any material adjustments as a result of the IRS examination. We are also open to potential examination in various state jurisdictions for 2003 and subsequent years.

     In September 2006, the FASB issued Statement of Financial Accounting Standards 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 issued FASB Staff Position FAS 157-2 “Effective Date of FASB Statement No.157” (“FSP 157-2”). FSP 157-2 delays 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 pursuant to FAS 157 are to 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 as of January 1, 2008, 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 that FAS 157 may have on our future consolidated financial statements related to non-financial assets and liabilities.

     In February 2007, the FASB issued Statement of Financial Accounting Standards 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

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

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 FAS 159. We did not elect to measure any financial instruments or any other items at fair value as permitted by FAS 159 and consequently, 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 Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“FAS 141R”), which replaces Statement of Financial Accounting Standards 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 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 FAS 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.

     In April 2008, the FASB issued FASB Staff Position 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”). The intent of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible assets under FAS 142 and the period of expected cash flows used to measure the fair value of the asset under FAS 141R and other U.S. generally accepted accounting principles. FSP 142-3 is effective for our interim and annual financial statements beginning in fiscal 2009 and early adoption is prohibited. We do not expect the adoption of FSP 142-3 will have a material impact on our financial statements.

     In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“FAS 162”). FAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with accounting principles generally accepted in the United States of America. FAS 162 will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” We do not expect the adoption of FAS 162 to have a material impact on our financial statements.

     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 $149.6 million, consisting of cash paid of $108.3 million, liabilities assumed of $38.9 million and transaction costs of approximately $2.4 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

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

the acquisition was recognized given the expected contribution of Burress to our overall corporate strategy. We expect that all of the $28.3 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.

     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 pursuant to the terms of the Termination Letter. We have returned all such Hitachi 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.

     Pursuant to the terms of the acquisition agreement, 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 the final purchase price allocation of the Burress acquisition based on estimated fair values of the Burress assets acquired and liabilities assumed on September 1, 2007 (amounts in thousands):

Receivables		$	15,833
Inventories			23,740
Rental equipment			62,354
Property and equipment			7,277
Prepaid expenses and other assets			382
Intangible assets (a)			11,688
Goodwill			28,300
Accounts payable			(8,758	)
Manufacturer flooring plans payable			(19,787	)
Accrued expenses payable and other liabilities			(5,693	)
Capital leases (b)			(4,698	)
Net assets acquired (c)		$	110,638

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

(4) Goodwill and Intangible Assets

Goodwill

     The change in the carrying amount of goodwill for each of our reporting units for the nine months ended September 30, 2008 is as follows (amounts in thousands):

		Balance at								Balance at
		December 31,								September
Reporting Unit		2007				Additions				30, 2008
Equipment Rentals Component 1		$	8,972			$	—			$	8,972
Equipment Rentals Component 2			19,213				1,214				20,427
New Equipment Sales			7,828				939				8,767
Used Equipment Sales			6,113				599				6,712
Parts Sales			6,125				755				6,880
Service Revenues			6,480				635				7,115
Totals		$	54,731			$	4,142			$	58,873

     The additions above are a result of adjustments to the Burress purchase price allocation related to the Burress acquisition since December 31, 2007 (see note 3 to the condensed consolidated financial statements for further information regarding the Burress acquisition and related purchase price allocation).

     We review the valuation of goodwill in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”). Under the provisions of FAS 142, goodwill is required to be tested for impairment annually in lieu of being amortized. Our annual goodwill impairment testing date is October 1. Goodwill is required to be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. As more fully discussed in note 4 to our Form 10-Q for the three months ended June 30, 2008, we performed an interim goodwill impairment test as of June 30, 2008, which resulted in no impairment charge for any of our six reporting units.

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

Intangible Assets

     The gross carrying value and accumulated amortization of the major classes of intangible assets are as follows (amounts in thousands):

						Weighted-
						Average
		Gross				Amortization				Balances at September 30, 2008
		Carrying				Period (in				Accumulated				Net Carrying
Acquired Intangible Asset		Amount				Years)				Amortization				Amount
Trade name		$	1,370				1.0			$	1,370			$	—
Non-compete agreements			788				4.0				213				575
Customer relationships			9,530				6.0				1,571				7,959
Total		$	11,688				5.3			$	3,154			$	8,534

     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 the above intangible assets for the three and nine month periods ended September 30, 2008 was approximately $0.6 million and $2.1 million, respectively, compared to $0.3 million for the same periods last year. Last year’s expense includes one month of amortization from the acquisition date, September 1, 2007.

(5) Stockholders’ Equity

     The following table summarizes the activity in Stockholders’ Equity for the nine month period ended September 30, 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			—				—				1,043				—				—				1,043
Income tax deficiency from stock-based compensation			—				—				(44	)			—				—				(44	)
Surrender of 13,436 shares(1)			—				—				—				(215	)			—				(215	)
Repurchases of 2,843,794 shares of common stock(2)			—				—				—				(42,362	)			—				(42,362	)
Issuance of common stock(3)			96,295				1				—				—				—				1
Net income			—				—				—				—				43,931				43,931
Balances at September 30, 2008			38,288,389			$	383			$	206,936			$	(56,008	)		$	139,121			$	290,432

     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 4,328,363 shares as of September 30, 2008.

     The following table summarizes our non-vested stock activity for the nine months ended September 30, 2008:

						Weighted
		Number of				Average Grant
		Shares				Date Fair Value
Non-vested stock at December 31, 2007			81,300			$	24.60
Granted			96,295			$	12.02
Vested			(40,650	)		$	24.60
Forfeited			—				—
Non-vested stock at September 30, 2008			136,945			$	15.75

     As shown above, we issued non-vested stock grants for 96,295 shares on June 30, 2008. Compensation expense was determined based on the $12.02 market price of our common stock at the date of grant applied to the total number of shares that were anticipated to fully vest. As of September 30, 2008, we have unrecognized compensation expense of approximately $1.4 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 and nine month periods ended September 30, 2008 and 2007 (amounts in thousands):

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Compensation expense		$	344			$	250			$	845			$	750

Stock Options

     At September 30, 2008, there was $0.1 million of unrecognized compensation expense related to stock option awards that are expected to be recognized over a weighted-average period of 0.8 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 and nine month periods ended September 30, 2008 and 2007 (amounts in thousands):

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Compensation expense		$	68			$	67			$	198			$	188

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

     The following table represents stock option activity for the nine months ended September 30, 2008:

										Weighted Average
		Number of				Weighted Average				Contractual Life
		Shares				Exercise Price				in Years
Outstanding options at December 31, 2007			51,000				$24.80				8.3
Granted			—				—				—
Exercised			—				—				—
Canceled, forfeited or expired			—				—				—
Outstanding options at September 30, 2008			51,000				$24.80				7.6
Options exercisable at September 30, 2008			32,000				$24.70				7.5

     The closing price of our common stock on September 30, 2008 was $9.66. All options outstanding at September 30, 2008 have grant date fair values which exceed the September 30, 2008 closing stock price.

     The following table summarizes non-vested stock option activity for the nine months ended September 30, 2008:

						Weighted Average
		Number of				Grant Date Fair
		Shares				Value
Non-vested stock options at December 31, 2007			36,000				$24.88
Granted			—				—
Vested			(17,000	)			$24.80
Forfeited			—				—
Non-vested stock options at September 30, 2008			19,000				$24.95

(7) 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.

     During the nine month period ended September 30, 2008, we repurchased 2,843,794 shares of our common stock totaling approximately $42.4 million (including trade commissions of approximately $0.1 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.

(8) Earnings per Share

     Earnings per share of common stock for the three and nine month periods ended September 30, 2008 and 2007 are based on the weighted average number of shares of common stock outstanding during the respective periods. The following table sets forth the computation of basic and diluted net income per common share for the three and nine month periods ended September 30, 2008 and 2007 (amounts in thousands, except per share amounts):

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Basic net income per share:
Net income		$	17,604			$	20,194			$	43,931			$	47,554
Weighted average number of shares of common stock outstanding			35,075				38,095				35,912				38,090
Net income per share of common stock – basic		$	0.50			$	0.53			$	1.22			$	1.25
Diluted net income per share:
Net income		$	17,604			$	20,194			$	43,931			$	47,554
Weighted average number of shares of common stock outstanding			35,075				38,095				35,912				38,090
Effect of dilutive securities:
Effect of dilutive stock options			—				—				—				—
Effect of dilutive non-vested stock			15				—				6				—
Weighted average number of shares of common stock outstanding – diluted			35,090				38,095				35,918				38,090
Net income per share of common stock – diluted		$	0.50			$	0.53			$	1.22			$	1.25
Common shares excluded from the denominator as anti-dilutive:
Stock options			51				132				51				132
Non-vested restricted stock			96				—				32				41

(9) 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 September 30, 2008, the interest rate on the senior secured credit facility was LIBOR plus 125 basis points, or 4.31%. 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 11 to the condensed consolidated financial statements). The balance outstanding on the senior secured credit facility as of September 30, 2008 was approximately $106.3 million. Additional borrowings available under the terms of the senior secured credit facility as of September 30, 2008, net of $7.0 million of standby letters of credit outstanding, totaled $206.7 million. The average interest rate on our outstanding net borrowings during the nine month period ended September 30, 2008 was approximately 4.90%. As of September 30, 2008, we were in compliance with our financial covenant under the senior secured credit facility. As of November 4, 2008, we had $207.4 million of available borrowings under our senior secured credit facility, net of $7.0 million of outstanding letters of credit.

(10) Segment Information

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

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

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Revenues:
Equipment rentals		$	78,181			$	75,598			$	224,626			$	208,371
New equipment sales			97,797				94,675				274,135				240,910
Used equipment sales			39,873				44,503				128,436				110,190
Parts sales			30,951				26,716				89,112				73,803
Services revenues			18,333				16,877				52,651				46,599
Total segmented revenues			265,135				258,369				768,960				679,873
Non-segmented revenues			13,512				12,218				38,097				33,595
Total revenues		$	278,647			$	270,587			$	807,057			$	713,468
Gross Profit:
Equipment rentals		$	39,305			$	39,957			$	109,328			$	106,437
New equipment sales			13,058				13,152				36,686				32,035
Used equipment sales			9,295				10,773				30,476				27,586
Parts sales			9,142				7,821				26,297				21,579
Services revenues			11,741				10,746				33,635				29,700
Total segmented gross profit			82,541				82,449				236,422				217,337
Non-segmented gross profit (loss)			(44	)			1,450				(638	)			3,483
Total gross profit		$	82,497			$	83,899			$	235,784			$	220,820

		Balances at
		September 30,				December 31,
		2008				2007
Segment identified assets:
Equipment sales		$	95,766			$	117,920
Equipment rentals			582,347				577,628
Parts and services			24,433				25,869
Total segment identified assets			702,546				721,417
Non-segment identified assets			294,013				291,436
Total assets		$	996,559			$	1,012,853

     The Company operates primarily in the United States and our sales to international customers for the three and nine month periods ended September 30, 2008 were 4.9% and 4.3%, respectively, of total revenues compared to 1.7% and 1.2% for the three and nine month periods ended September 30, 2007. No one customer accounted for more than 10% of our revenues on an overall or segment basis for any of the periods presented.

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

(11) Condensed Consolidating Financial Information of Guarantor Subsidiaries

     All of the indebtedness of H&E Equipment Services, Inc. is guaranteed by GNE Investments, Inc. and its wholly-owned subsidiary Great Northern Equipment, Inc., H&E Equipment Services (California), LLC, 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 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.

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

CONDENSED CONSOLIDATING BALANCE SHEET

		As of September 30, 2008
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
						(Amounts in thousands)
Assets:
Cash		$	13,124			$	83			$	—			$	13,207
Receivables, net			117,825				25,198				—				143,023
Inventories, net			85,673				34,526				—				120,199
Prepaid expenses and other assets			9,935				141				—				10,076
Rental equipment, net			480,115				102,232				—				582,347
Property and equipment, net			40,078				12,935				—				53,013
Deferred financing costs, net			7,287				—				—				7,287
Intangible assets, net			—				8,534				—				8,534
Investment in guarantor subsidiaries			9,334				—				(9,334	)			—
Goodwill			8,571				50,302				—				58,873
Total assets		$	771,942			$	233,951			$	(9,334	)		$	996,559
Liabilities and Stockholders’ Equity:
Amount due on senior secured credit facility		$	106,302			$	—			$	—			$	106,302
Accounts payable			83,995				(788	)			—				83,207
Manufacturer flooring plans payable			141,341				—				—				141,341
Accrued expenses payable and other liabilities			42,285				1,326				—				43,611
Intercompany balances			(221,023	)			221,023				—				—
Related party obligation			215				—				—				215
Notes payable			1,238				728				—				1,966
Senior unsecured notes			250,000				—				—				250,000
Capital lease payable			—				2,328				—				2,328
Deferred income taxes			75,165				—				—				75,165
Deferred compensation payable			1,992				—				—				1,992
Total liabilities			481,510				224,617				—				706,127
Stockholders’ equity			290,432				9,334				(9,334	)			290,432
Total liabilities and stockholders’ equity		$	771,942			$	233,951			$	(9,334	)		$	996,559

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 September 30, 2008
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
						(Amounts in thousands)
Revenues:
Equipment rentals		$	65,090			$	13,091			$	—			$	78,181
New equipment sales			75,500				22,297				—				97,797
Used equipment sales			30,953				8,920				—				39,873
Parts sales			25,426				5,525				—				30,951
Services revenues			15,707				2,626				—				18,333
Other			11,310				2,202				—				13,512
Total revenues			223,986				54,661				—				278,647
Cost of revenues:
Rental depreciation			21,496				4,866				—				26,362
Rental expense			10,228				2,286				—				12,514
New equipment sales			65,335				19,404				—				84,739
Used equipment sales			22,989				7,589				—				30,578
Parts sales			17,812				3,997				—				21,809
Services revenues			5,701				891				—				6,592
Other			10,737				2,819				—				13,556
Total cost of revenues			154,298				41,852				—				196,150
Gross profit (loss):
Equipment rentals			33,366				5,939				—				39,305
New equipment sales			10,165				2,893				—				13,058
Used equipment sales			7,964				1,331				—				9,295
Parts sales			7,614				1,528				—				9,142
Services revenues			10,006				1,735				—				11,741
Other			573				(617	)			—				(44	)
Gross profit			69,688				12,809				—				82,497
Selling, general and administrative expenses			35,291				10,265				—				45,556
Equity in loss of guarantor subsidiaries			(512	)			—				512				—
Gain on sales of property and equipment, net			182				37				—				219
Income from operations			34,067				2,581				512				37,160
Other income (expense):
Interest expense			(6,365	)			(3,130	)			—				(9,495	)
Other, net			213				37				—				250
Total other expense, net			(6,152	)			(3,093	)			—				(9,245	)
Income (loss) before provision for income taxes			27,915				(512	)			512				27,915
Provision for income taxes			10,311				—				—				10,311
Net income (loss)		$	17,604			$	(512	)		$	512			$	17,604

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

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