e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009.
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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)
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Delaware
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81-0553291 |
(State of Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.) |
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11100 Mead Road, Suite 200, |
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Baton Rouge, Louisiana
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70816 |
(Address of Principal Executive Offices)
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(ZIP Code) |
(225) 298-5200
(Registrants 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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
o 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):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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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
As of May 4, 2009,
there were 34,691,488 shares of H&E Equipment Services, Inc. common
stock, $0.01 par value, outstanding.
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
MARCH 31, 2009
2
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 managements beliefs and assumptions, which in turn are based on
currently available information. Important assumptions relating to the forward-looking statements
include, among others, assumptions regarding demand for our products, the expansion of product
offerings geographically or through new applications, the timing and cost of planned capital
expenditures, competitive conditions and general economic conditions. These assumptions could prove
inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties,
which could cause actual results to differ materially from those contained in any forward-looking
statement. Many of these factors are beyond our ability to control or predict. Such factors
include, but are not limited to, the following:
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general economic conditions and construction and industrial activity in the markets
where we operate in North America, as well as the current macroeconomic downturn and the
impact of current conditions in the global credit markets and its effect on construction
spending and the economy in general; |
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relationships with new equipment suppliers; |
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increased maintenance and repair costs as we age our fleet
and decreases in our equipments residual value; |
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our indebtedness; |
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the risks associated with the expansion of our business; |
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our possible inability to integrate any businesses we acquire; |
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competitive pressures; |
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compliance with laws and regulations, including those relating to environmental matters
and corporate governance matters; and |
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other factors discussed under Risk Factors in our Annual Report on Form 10-K for the
year ended December 31, 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, 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.
3
PART IFINANCIAL INFORMATION
Item 1. Financial Statements.
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
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Balances at |
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March 31, |
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December 31, |
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2009 |
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2008 |
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(Unaudited) |
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ASSETS |
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Cash |
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$ |
10,836 |
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$ |
11,266 |
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Receivables, net of allowance for doubtful accounts of $5,915 and $5,524,
respectively |
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109,867 |
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150,293 |
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Inventories, net of reserves for obsolescence of $929 and $920, respectively |
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134,903 |
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129,240 |
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Prepaid expenses and other assets |
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10,000 |
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11,722 |
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Rental equipment, net of accumulated depreciation of $218,552 and $210,961,
respectively |
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526,230 |
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554,457 |
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Property and equipment, net of accumulated depreciation and amortization of $37,748
and $35,187, respectively |
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62,389 |
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58,122 |
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Deferred financing costs, net of accumulated amortization of $7,986 and $7,631,
respectively |
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6,609 |
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6,964 |
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Intangible assets, net of accumulated amortization of $2,048 and $1,900, respectively |
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1,431 |
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1,579 |
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Goodwill |
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42,991 |
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42,991 |
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Total assets |
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$ |
905,256 |
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$ |
966,634 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Liabilities: |
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Amounts due on senior secured credit facility |
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$ |
67,936 |
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$ |
76,325 |
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Accounts payable |
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60,956 |
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93,667 |
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Manufacturer flooring plans payable |
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113,686 |
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127,690 |
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Accrued expenses payable and other liabilities |
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37,728 |
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47,206 |
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Related party obligation |
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75 |
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145 |
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Notes payable |
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1,952 |
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1,959 |
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Senior unsecured notes |
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250,000 |
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250,000 |
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Capital lease payable |
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2,271 |
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2,300 |
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Deferred income taxes |
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76,032 |
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75,109 |
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Deferred compensation payable |
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2,042 |
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2,026 |
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Total liabilities |
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612,678 |
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676,427 |
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Commitments and contingent liabilities |
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Stockholders equity: |
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Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued |
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Common stock, $0.01 par value, 175,000,000 shares authorized; 38,287,848 shares
issued at March 31, 2009 and December 31, 2008 and 34,691,488 and 34,706,372 shares
outstanding at March 31, 2009 and December 31, 2008, respectively |
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383 |
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383 |
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Additional paid-in capital |
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207,625 |
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207,346 |
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Treasury stock at cost, 3,596,360 shares of common stock held at March 31, 2009 and
3,581,476 shares of common stock held at December 31, 2008, respectively |
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(56,094 |
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(56,008 |
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Retained earnings |
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140,664 |
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138,486 |
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Total stockholders equity |
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292,578 |
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290,207 |
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Total liabilities and stockholders equity |
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$ |
905,256 |
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$ |
966,634 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
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Revenues: |
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Equipment rentals |
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$ |
55,484 |
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$ |
71,211 |
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New equipment sales |
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64,057 |
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76,353 |
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Used equipment sales |
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16,093 |
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41,411 |
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Parts sales |
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26,023 |
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28,914 |
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Services revenues |
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15,457 |
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16,588 |
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Other |
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9,082 |
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11,289 |
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Total revenues |
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186,196 |
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245,766 |
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Cost of revenues: |
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Rental depreciation |
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23,785 |
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26,428 |
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Rental expense |
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11,330 |
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11,816 |
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New equipment sales |
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55,315 |
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65,546 |
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Used equipment sales |
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12,688 |
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30,919 |
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Parts sales |
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18,522 |
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20,266 |
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Services revenues |
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5,703 |
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6,141 |
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Other |
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8,573 |
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11,926 |
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Total cost of revenues |
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135,916 |
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173,042 |
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Gross profit |
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50,280 |
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72,724 |
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Selling, general and administrative expenses |
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39,147 |
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46,684 |
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Gain (loss) on sales of property and equipment, net |
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(18 |
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139 |
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Income from operations |
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11,115 |
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26,179 |
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Other income (expense): |
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Interest expense |
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(8,181 |
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(10,167 |
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Other, net |
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215 |
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216 |
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Total other expense, net |
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(7,966 |
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(9,951 |
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Income before income taxes |
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3,149 |
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16,228 |
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Provision for income taxes |
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971 |
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6,019 |
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Net income |
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$ |
2,178 |
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$ |
10,209 |
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Net income per common share: |
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Basic |
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$ |
0.06 |
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$ |
0.28 |
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Diluted |
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$ |
0.06 |
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$ |
0.28 |
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Weighted average common shares outstanding: |
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Basic |
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34,581 |
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36,684 |
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Diluted |
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34,597 |
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36,684 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
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Cash flows from operating activities: |
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Net income |
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$ |
2,178 |
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$ |
10,209 |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Depreciation and amortization on property and equipment |
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2,795 |
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2,821 |
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Depreciation on rental equipment |
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23,785 |
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26,428 |
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Amortization of loan discounts and deferred financing costs |
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355 |
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365 |
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Amortization of intangible assets |
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148 |
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713 |
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Provision for losses on accounts receivable |
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1,232 |
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647 |
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Provision for inventory obsolescence |
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34 |
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16 |
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Provision for deferred income taxes |
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923 |
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5,455 |
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Stock-based compensation expense |
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279 |
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316 |
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(Gain) loss on sales of property and equipment, net |
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18 |
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(139 |
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Gain on sales of rental equipment, net |
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(3,101 |
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(9,885 |
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Changes in operating assets and liabilities: |
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Receivables, net |
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39,194 |
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15,927 |
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Inventories, net |
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(9,898 |
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(23,235 |
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Prepaid expenses and other assets |
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1,722 |
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(1,060 |
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Accounts payable |
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(32,711 |
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(18,370 |
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Manufacturer flooring plans payable |
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(14,004 |
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(22,013 |
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Accrued expenses payable and other liabilities |
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(9,473 |
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(6,174 |
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Deferred compensation payable |
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16 |
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36 |
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Net cash provided by (used in) operating activities |
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3,492 |
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(17,943 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(7,123 |
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(3,172 |
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Purchases of rental equipment |
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(1,538 |
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(22,649 |
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Proceeds from sales of property and equipment |
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43 |
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406 |
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Proceeds from sales of rental equipment |
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13,282 |
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34,263 |
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Net cash provided by investing activities |
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4,664 |
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8,848 |
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Cash flows from financing activities: |
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Excess tax benefit (deficiency) from stock-based awards |
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(44 |
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Purchases of treasury stock |
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(86 |
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(19,473 |
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Borrowings on senior secured credit facility |
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220,835 |
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294,974 |
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Payments on senior secured credit facility |
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(229,224 |
) |
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(268,943 |
) |
Payments of related party obligation |
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(75 |
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(75 |
) |
Payments of capital lease obligation |
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(29 |
) |
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(27 |
) |
Principal payments on notes payable |
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(7 |
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(7 |
) |
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Net cash provided by (used in) financing activities |
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(8,586 |
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6,405 |
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Net decrease in cash |
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(430 |
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(2,690 |
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Cash, beginning of period |
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11,266 |
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14,762 |
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Cash, end of period |
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$ |
10,836 |
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$ |
12,072 |
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6
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Amounts in thousands)
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Three Months Ended |
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March 31, |
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2009 |
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2008 |
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Supplemental schedule of noncash investing and financing activities: |
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Noncash asset purchases: |
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Assets transferred from new and used inventory to rental fleet |
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$ |
4,201 |
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$ |
25,346 |
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Supplemental disclosures of cash flow information: |
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Cash paid during the period for: |
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Interest |
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$ |
13,117 |
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$ |
15,098 |
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Income taxes paid, net of refunds received |
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$ |
(354 |
) |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
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., collectively referred to
herein as we or us or our or the Company.
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 three
months ended March 31, 2009 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2009, 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, 2008, from which the balance sheet amounts as of December 31, 2008 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, 2008.
During the three month period ended March 31, 2009, there were no significant changes to those
accounting policies.
Use of Estimates
We prepare our condensed consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America, which requires management to use its
judgment to make estimates and assumptions that affect the reported amounts of assets and
liabilities and related disclosures at the date of the 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.
8
Accounting Pronouncements Adopted in Fiscal Year 2009
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 141 (revised 2007), Business Combinations (SFAS
141R), which replaces SFAS No. 141 (SFAS 141). This Statement retains the fundamental
requirements in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the
purchase method) be used for all business combinations. SFAS 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.
Previously, under SFAS 141, changes in valuation allowances, as a result of income from
acquisitions, for certain deferred tax assets would serve to reduce goodwill whereas under SFAS
141R, 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 allowance is reversed.
Additionally, under SFAS 141R, transaction related expenses, which were previously capitalized as
direct costs of the acquisition, will be expensed as incurred under SFAS 141R. We will apply the
provisions of SFAS 141R prospectively to business combinations consummated after January 1, 2009.
The impact that SFAS 141R may have on our financial condition, results of operations or cash flows
will depend upon the nature, terms and size of the acquisition and changes to the valuation
allowances.
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 permitted a one-year deferral for the implementation of
the provisions of SFAS No. 157, Fair Value Measurements (SFAS 157), with regard to certain
non-financial assets and non-financial liabilities that are not recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually). FSP 157-2 became
effective for us on January 1, 2009 and did not have a material impact on our condensed
consolidated financial statements.
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 SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). The
intent of FSP 142-3 is to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS 141R and other generally accepted accounting principles. FSP 142-3
became effective for us on January 1, 2009 and did not have a material impact on our condensed
consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). SFAS 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. SFAS 162 will be effective 60 days following the SECs
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. Because
SFAS 162 applies only to establishing hierarchy, it will not have a material impact on our
financial position, results of operations, or cash flows.
In January 2009, the FASB released Proposed Staff Position SFAS 107-b and Accounting
Principles Board (APB) Opinion No. 28-a, Interim Disclosures about Fair Value of Financial
Instruments (SFAS 107-b and APB 28-a, respectively). This proposal amends FASB Statement No.
107, Disclosures about Fair Values of Financial Instruments, to require disclosures about fair
value of financial instruments in interim financial statements as well as in annual financial
statements. The proposal also amends APB Opinion No. 28, Interim Financial Reporting, to require
those disclosures in all interim financial statements. This proposal is effective for interim
periods ending after June 15, 2009, but early adoption is permitted for interim periods ending
after March 15, 2009. SFAS 107-b and APB 28-a are not expected to have a material impact on our
financial position, results of operations, or cash flows.
In March 2009, the FASB released Proposed Staff Position SFAS 157-e, Determining Whether a
Market Is Not Active and a Transaction Is Not Distressed (SFAS 157-e). This proposal provides
additional guidance in determining whether a market for a financial asset is not active and a
transaction is not distressed for fair value measurement purposes as defined in SFAS 157. SFAS
9
157-e is effective for interim periods ending after June 15, 2009, but early adoption is permitted
for interim periods ending after March 15, 2009. SFAS 157-e is not expected to have a material
impact on our financial position, results of operations, cash flows, or disclosures.
(3) Stockholders Equity
The following table summarizes the activity in Stockholders Equity for the three month period
ended March 31, 2009 (amounts in thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Shares |
|
|
|
|
|
|
Paid-in |
|
|
Stock |
|
|
Earnings |
|
|
Stockholders |
|
|
|
Issued |
|
|
Amount |
|
|
Capital |
|
|
Treasury |
|
|
Retained |
|
|
Equity |
|
Balances at December 31, 2008 |
|
|
38,287,848 |
|
|
$ |
383 |
|
|
$ |
207,346 |
|
|
$ |
(56,008 |
) |
|
$ |
138,486 |
|
|
$ |
290,207 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
279 |
|
Surrender of 14,884 shares(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86 |
) |
|
|
|
|
|
|
(86 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,178 |
|
|
|
2,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at March 31, 2009 |
|
|
38,287,848 |
|
|
$ |
383 |
|
|
$ |
207,625 |
|
|
$ |
(56,094 |
) |
|
$ |
140,664 |
|
|
$ |
292,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On February 22, 2009, 40,650 shares of non-vested stock that were issued in
2006 subsequently vested pursuant to the terms of the respective grant agreements. In accordance
with the provisions of our 2006 Stock-Based Incentive Compensation Plan, holders of those vested
shares returned 14,884 common shares to the Company as payment for their respective employee
withholding taxes. This resulted in an addition of 14,884 shares to Treasury Stock. |
(4) 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) (SFAS 123R), Share-Based
Payment. Under the provisions of SFAS 123R, 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 4,350,172 shares as of March
31, 2009.
Non-vested Stock
The following table summarizes our non-vested stock activity for the three months ended March
31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Number of |
|
|
Average Grant |
|
|
|
Shares |
|
|
Date Fair Value |
|
Non-vested stock at December 31, 2008 |
|
|
136,404 |
|
|
$ |
15.77 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(40,650 |
) |
|
$ |
24.60 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
stock at March 31, 2009 |
|
|
95,754 |
|
|
$ |
12.02 |
|
|
|
|
|
|
|
|
As of March 31, 2009, we have unrecognized compensation expense of $0.8 million related to
non-vested stock that we expect to be recognized over a weighted-average period of 2.3 years. The
following table summarizes compensation expense related to non-vested stock, which is included in
selling, general and administrative expenses in the accompanying condensed consolidated statements
of income for the three months ended March 31, 2009 and 2008 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
March 31, |
|
|
2009 |
|
2008 |
Compensation expense |
|
$ |
239 |
|
|
$ |
250 |
|
10
Stock Options
At March 31, 2009, there was approximately $26,000 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, 2009 and 2008 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
March 31, |
|
|
2009 |
|
2008 |
Compensation expense |
|
$ |
40 |
|
|
$ |
66 |
|
The following table represents stock option activity for the three months ended March 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Number of |
|
|
Weighted Average |
|
|
Contractual Life |
|
|
|
Shares |
|
|
Exercise Price |
|
|
In Years |
|
Outstanding options at December 31, 2008 |
|
|
51,000 |
|
|
$ |
24.80 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Canceled, forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options at March 31, 2009 |
|
|
51,000 |
|
|
$ |
24.80 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at March 31, 2009 |
|
|
47,000 |
|
|
$ |
24.67 |
|
|
|
6.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The closing price of our common stock on March 31, 2009 was $6.55. All options outstanding at
March 31, 2009 have grant date fair values which exceed the March 31, 2009 closing stock price.
The following table summarizes non-vested stock option activity for the three months ended
March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
Number of |
|
|
Grant Date Fair |
|
|
|
Shares |
|
|
Value |
|
Non-vested stock options at December 31, 2008 |
|
|
19,000 |
|
|
$ |
24.95 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(15,000 |
) |
|
$ |
24.60 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested stock options at March 31, 2009 |
|
|
4,000 |
|
|
$ |
26.27 |
|
|
|
|
|
|
|
|
|
(5) Closed Branch Facility Charges
We continuously monitor and identify branch facilities with revenues and operating margins
that consistently fall below Company performance standards. Once identified, we continue to monitor
these branches to determine if operating performance can be improved or if the performance is
attributable to economic factors unique to the particular market with unfavorable long-term
prospects. If necessary, branches with unfavorable long-term prospects are closed and the rental
fleet and new and used equipment inventory are deployed to more profitable branches within our
geographic footprint with higher demand.
On March 20, 2009, we closed our Charleston, South Carolina branch. Under SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), exit costs
include, but are not limited to, the following: (a) one-time termination benefits; (b) contract
termination costs, including costs that will continue to be incurred under operating leases that
have no future economic benefit; and (c) other associated costs. A liability for costs associated
with an exit or disposal activity is recognized and measured at its fair value in the period in
which the liability is incurred, except for one-time termination benefits that are incurred over
time. In connection with the branch closing, we recorded charges of approximately $0.2 million,
which consisted primarily of the writeoff of leasehold improvements and is included within Gain
(loss) on sales of property and equipment, net in our condensed consolidated statements of income.
No other significant lease termination costs, one-time termination benefit costs or other
associated
costs were incurred in connection with the branch closing.
11
In April 2009, we closed our branch location in Fort Pierce, Florida. We do not expect to
record significant exit or disposal costs during our second quarter ended June 30, 2009 related to
the closing of this branch location.
Although we do not expect to incur material charges for any additional branch facility
closings occurring prior to December 31, 2009, additional charges are possible to the extent that
actual settlements differ from our previous estimates of such costs. We cannot predict the extent
of future branch location closures or the financial impact of such closings, if any.
(6) Earnings per Share
Basic earnings per common share is computed by dividing net income by the weighted-average
number of common shares outstanding during the period. Diluted earnings per share reflects the
potential dilution that could occur upon vesting of restricted stock or exercise of stock options
into common stock. The following table sets forth the computation of basic and diluted net income
per common share for the three month periods ended March 31, 2009 and 2008 (amounts in thousands,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
Basic net income per share: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,178 |
|
|
$ |
10,209 |
|
Weighted average number of common shares outstanding |
|
|
34,581 |
|
|
|
36,684 |
|
Net income per common share basic |
|
$ |
0.06 |
|
|
$ |
0.28 |
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,178 |
|
|
$ |
10,209 |
|
Weighted average number of common shares outstanding |
|
|
34,581 |
|
|
|
36,684 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Effect of dilutive stock options |
|
|
|
|
|
|
|
|
Effect of dilutive non-vested stock |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding diluted |
|
|
34,597 |
|
|
|
36,684 |
|
Net income per common share diluted |
|
$ |
0.06 |
|
|
$ |
0.28 |
|
Common shares excluded from the denominator as anti-dilutive: |
|
|
|
|
|
|
|
|
Stock options |
|
|
51 |
|
|
|
51 |
|
Non-vested restricted stock |
|
|
96 |
|
|
|
64 |
|
(7) 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, 2009, the interest rate on the senior secured credit facility was LIBOR plus 125
basis points, or 2.76%. The senior secured credit facility is senior to all other outstanding debt,
secured by all assets of the Company (except for equipment that is collateralized under
manufacturer flooring plan arrangements) and is guaranteed by the Companys domestic subsidiaries
(see note 9 to the condensed consolidated financial statements). The balance outstanding on the
senior secured credit facility as of March 31, 2009 was approximately $67.9 million. Additional
borrowings available under the terms of the senior secured credit facility as of March 31, 2009,
net of $7.8 million of standby letters of credit outstanding, totaled $244.2 million. The average
interest rate on outstanding borrowings for the three months ended March 31, 2009 was approximately
2.54%. As of March 31, 2009, we were in compliance with our financial covenant under the senior
secured credit facility. As of May 4, 2009, we had $254.9 million of available borrowings under our
senior secured credit facility, net of $7.8 million of outstanding letters of credit.
(8) 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
12
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, |
|
|
|
2009 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
55,484 |
|
|
$ |
71,211 |
|
New equipment sales |
|
|
64,057 |
|
|
|
76,353 |
|
Used equipment sales |
|
|
16,093 |
|
|
|
41,411 |
|
Parts sales |
|
|
26,023 |
|
|
|
28,914 |
|
Services revenues |
|
|
15,457 |
|
|
|
16,588 |
|
|
|
|
|
|
|
|
Total segmented revenues |
|
|
177,114 |
|
|
|
234,477 |
|
Non-segmented revenues |
|
|
9,082 |
|
|
|
11,289 |
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
186,196 |
|
|
$ |
245,766 |
|
|
|
|
|
|
|
|
Gross Profit (Loss): |
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
20,369 |
|
|
$ |
32,967 |
|
New equipment sales |
|
|
8,742 |
|
|
|
10,807 |
|
Used equipment sales |
|
|
3,405 |
|
|
|
10,492 |
|
Parts sales |
|
|
7,501 |
|
|
|
8,648 |
|
Services revenues |
|
|
9,754 |
|
|
|
10,447 |
|
|
|
|
|
|
|
|
Total segmented gross profit |
|
|
49,771 |
|
|
|
73,361 |
|
Non-segmented gross profit (loss) |
|
|
509 |
|
|
|
(637 |
) |
|
|
|
|
|
|
|
Total gross profit |
|
$ |
50,280 |
|
|
$ |
72,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at |
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Segment identified assets: |
|
|
|
|
|
|
|
|
Equipment sales |
|
$ |
115,373 |
|
|
$ |
108,109 |
|
Equipment rentals |
|
|
526,230 |
|
|
|
554,457 |
|
Parts and services |
|
|
19,530 |
|
|
|
21,131 |
|
|
|
|
|
|
|
|
Total segment identified assets |
|
|
661,133 |
|
|
|
683,697 |
|
Non-segment identified assets |
|
|
244,123 |
|
|
|
282,937 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
905,256 |
|
|
$ |
966,634 |
|
|
|
|
|
|
|
|
The Company operates primarily in the United States and our sales to international customers
for the three month periods ended March 31, 2009 and 2008 were 1.2% and 2.7% of total revenues,
respectively. No one customer accounted for more than 10% of our revenues on an overall or segment
basis for any of the periods presented.
(9) 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. are not included
within the consolidating financial statements because H&E Finance Corp. has no assets or
operations. The condensed consolidating balance sheet amounts as of December 31, 2008 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, 2008.
13
CONDENSED CONSOLIDATING BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009 |
|
|
|
H&E Equipment |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Services |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
10,820 |
|
|
$ |
16 |
|
|
$ |
|
|
|
$ |
10,836 |
|
Receivables, net |
|
|
95,542 |
|
|
|
14,325 |
|
|
|
|
|
|
|
109,867 |
|
Inventories, net |
|
|
108,040 |
|
|
|
26,863 |
|
|
|
|
|
|
|
134,903 |
|
Prepaid expenses and other assets |
|
|
9,741 |
|
|
|
259 |
|
|
|
|
|
|
|
10,000 |
|
Rental equipment, net |
|
|
425,299 |
|
|
|
100,931 |
|
|
|
|
|
|
|
526,230 |
|
Property and equipment, net |
|
|
50,256 |
|
|
|
12,133 |
|
|
|
|
|
|
|
62,389 |
|
Deferred financing costs, net |
|
|
6,609 |
|
|
|
|
|
|
|
|
|
|
|
6,609 |
|
Intangible assets, net |
|
|
|
|
|
|
1,431 |
|
|
|
|
|
|
|
1,431 |
|
Investment in guarantor subsidiaries |
|
|
4,769 |
|
|
|
|
|
|
|
(4,769 |
) |
|
|
|
|
Goodwill |
|
|
5,643 |
|
|
|
37,348 |
|
|
|
|
|
|
|
42,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
716,719 |
|
|
$ |
193,306 |
|
|
$ |
(4,769 |
) |
|
$ |
905,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due on senior secured credit facility |
|
$ |
67,936 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
67,936 |
|
Accounts payable |
|
|
60,956 |
|
|
|
|
|
|
|
|
|
|
|
60,956 |
|
Manufacturer flooring plans payable |
|
|
113,686 |
|
|
|
|
|
|
|
|
|
|
|
113,686 |
|
Accrued expenses payable and other liabilities |
|
|
36,348 |
|
|
|
1,380 |
|
|
|
|
|
|
|
37,728 |
|
Intercompany balances |
|
|
(184,164 |
) |
|
|
184,164 |
|
|
|
|
|
|
|
|
|
Related party obligation |
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
75 |
|
Notes payable |
|
|
1,230 |
|
|
|
722 |
|
|
|
|
|
|
|
1,952 |
|
Senior unsecured notes |
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
Capital lease payable |
|
|
|
|
|
|
2,271 |
|
|
|
|
|
|
|
2,271 |
|
Deferred income taxes |
|
|
76,032 |
|
|
|
|
|
|
|
|
|
|
|
76,032 |
|
Deferred compensation payable |
|
|
2,042 |
|
|
|
|
|
|
|
|
|
|
|
2,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
424,141 |
|
|
|
188,537 |
|
|
|
|
|
|
|
612,678 |
|
Stockholders equity |
|
|
292,578 |
|
|
|
4,769 |
|
|
|
(4,769 |
) |
|
|
292,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
716,719 |
|
|
$ |
193,306 |
|
|
$ |
(4,769 |
) |
|
$ |
905,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
CONDENSED CONSOLIDATING BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 |
|
|
|
H&E Equipment |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Services |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
11,251 |
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
11,266 |
|
Receivables, net |
|
|
124,757 |
|
|
|
25,536 |
|
|
|
|
|
|
|
150,293 |
|
Inventories, net |
|
|
103,540 |
|
|
|
25,700 |
|
|
|
|
|
|
|
129,240 |
|
Prepaid expenses and other assets |
|
|
11,467 |
|
|
|
255 |
|
|
|
|
|
|
|
11,722 |
|
Rental equipment, net |
|
|
453,320 |
|
|
|
101,137 |
|
|
|
|
|
|
|
554,457 |
|
Property and equipment, net |
|
|
45,517 |
|
|
|
12,605 |
|
|
|
|
|
|
|
58,122 |
|
Deferred financing costs, net |
|
|
6,964 |
|
|
|
|
|
|
|
|
|
|
|
6,964 |
|
Intangible assets, net |
|
|
|
|
|
|
1,579 |
|
|
|
|
|
|
|
1,579 |
|
Investment in guarantor subsidiaries |
|
|
8,448 |
|
|
|
|
|
|
|
(8,448 |
) |
|
|
|
|
Goodwill |
|
|
5,643 |
|
|
|
37,348 |
|
|
|
|
|
|
|
42,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
770,907 |
|
|
$ |
204,175 |
|
|
$ |
(8,448 |
) |
|
$ |
966,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due on senior secured credit facility |
|
$ |
76,325 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
76,325 |
|
Accounts payable |
|
|
93,667 |
|
|
|
|
|
|
|
|
|
|
|
93,667 |
|
Manufacturer flooring plans payable |
|
|
127,690 |
|
|
|
|
|
|
|
|
|
|
|
127,690 |
|
Accrued expenses payable and other liabilities |
|
|
45,965 |
|
|
|
1,241 |
|
|
|
|
|
|
|
47,206 |
|
Intercompany balances |
|
|
(191,461 |
) |
|
|
191,461 |
|
|
|
|
|
|
|
|
|
Related party obligation |
|
|
145 |
|
|
|
|
|
|
|
|
|
|
|
145 |
|
Notes payable |
|
|
1,234 |
|
|
|
725 |
|
|
|
|
|
|
|
1,959 |
|
Senior unsecured notes |
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
Capital lease payable |
|
|
|
|
|
|
2,300 |
|
|
|
|
|
|
|
2,300 |
|
Deferred income taxes |
|
|
75,109 |
|
|
|
|
|
|
|
|
|
|
|
75,109 |
|
Deferred compensation payable |
|
|
2,026 |
|
|
|
|
|
|
|
|
|
|
|
2,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
480,700 |
|
|
|
195,727 |
|
|
|
|
|
|
|
676,427 |
|
Stockholders equity |
|
|
290,207 |
|
|
|
8,448 |
|
|
|
(8,448 |
) |
|
|
290,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
770,907 |
|
|
$ |
204,175 |
|
|
$ |
(8,448 |
) |
|
$ |
966,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
H&E Equipment |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Services |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
46,773 |
|
|
$ |
8,711 |
|
|
$ |
|
|
|
$ |
55,484 |
|
New equipment sales |
|
|
55,073 |
|
|
|
8,984 |
|
|
|
|
|
|
|
64,057 |
|
Used equipment sales |
|
|
13,917 |
|
|
|
2,176 |
|
|
|
|
|
|
|
16,093 |
|
Parts sales |
|
|
22,261 |
|
|
|
3,762 |
|
|
|
|
|
|
|
26,023 |
|
Services revenues |
|
|
13,608 |
|
|
|
1,849 |
|
|
|
|
|
|
|
15,457 |
|
Other |
|
|
7,692 |
|
|
|
1,390 |
|
|
|
|
|
|
|
9,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
159,324 |
|
|
|
26,872 |
|
|
|
|
|
|
|
186,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
|
19,333 |
|
|
|
4,452 |
|
|
|
|
|
|
|
23,785 |
|
Rental expense |
|
|
9,397 |
|
|
|
1,933 |
|
|
|
|
|
|
|
11,330 |
|
New equipment sales |
|
|
47,662 |
|
|
|
7,653 |
|
|
|
|
|
|
|
55,315 |
|
Used equipment sales |
|
|
10,800 |
|
|
|
1,888 |
|
|
|
|
|
|
|
12,688 |
|
Parts sales |
|
|
15,806 |
|
|
|
2,716 |
|
|
|
|
|
|
|
18,522 |
|
Services revenues |
|
|
5,053 |
|
|
|
650 |
|
|
|
|
|
|
|
5,703 |
|
Other |
|
|
6,934 |
|
|
|
1,639 |
|
|
|
|
|
|
|
8,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
114,985 |
|
|
|
20,931 |
|
|
|
|
|
|
|
135,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
|
18,043 |
|
|
|
2,326 |
|
|
|
|
|
|
|
20,369 |
|
New equipment sales |
|
|
7,411 |
|
|
|
1,331 |
|
|
|
|
|
|
|
8,742 |
|
Used equipment sales |
|
|
3,117 |
|
|
|
288 |
|
|
|
|
|
|
|
3,405 |
|
Parts sales |
|
|
6,455 |
|
|
|
1,046 |
|
|
|
|
|
|
|
7,501 |
|
Services revenues |
|
|
8,555 |
|
|
|
1,199 |
|
|
|
|
|
|
|
9,754 |
|
Other |
|
|
758 |
|
|
|
(249 |
) |
|
|
|
|
|
|
509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
44,339 |
|
|
|
5,941 |
|
|
|
|
|
|
|
50,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
32,476 |
|
|
|
6,671 |
|
|
|
|
|
|
|
39,147 |
|
Equity in loss of guarantor subsidiaries |
|
|
(3,679 |
) |
|
|
|
|
|
|
3,679 |
|
|
|
|
|
Gain (loss) on sales of property and equipment, net |
|
|
81 |
|
|
|
(99 |
) |
|
|
|
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
8,265 |
|
|
|
(829 |
) |
|
|
3,679 |
|
|
|
11,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(5,311 |
) |
|
|
(2,870 |
) |
|
|
|
|
|
|
(8,181 |
) |
Other, net |
|
|
195 |
|
|
|
20 |
|
|
|
|
|
|
|
215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
|
(5,116 |
) |
|
|
(2,850 |
) |
|
|
|
|
|
|
(7,966 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes |
|
|
3,149 |
|
|
|
(3,679 |
) |
|
|
3,679 |
|
|
|
3,149 |
|
Provision for income taxes |
|
|
971 |
|
|
|
|
|
|
|
|
|
|
|
971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,178 |
|
|
$ |
(3,679 |
) |
|
$ |
3,679 |
|
|
$ |
2,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 |
|
|
|
H&E Equipment |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Services |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,178 |
|
|
$ |
(3,679 |
) |
|
$ |
3,679 |
|
|
$ |
2,178 |
|
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization on property and
equipment |
|
|
2,237 |
|
|
|
558 |
|
|
|
|
|
|
|
2,795 |
|
Depreciation on rental equipment |
|
|
19,333 |
|
|
|
4,452 |
|
|
|
|
|
|
|
23,785 |
|
Amortization of loan discounts and deferred
financing costs |
|
|
355 |
|
|
|
|
|
|
|
|
|
|
|
355 |
|
Amortization of intangible assets |
|
|
|
|
|
|
148 |
|
|
|
|
|
|
|
148 |
|
Provision for losses on accounts receivable |
|
|
1,088 |
|
|
|
144 |
|
|
|
|
|
|
|
1,232 |
|
Provision for inventory obsolescence |
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
34 |
|
Provision for deferred income taxes |
|
|
923 |
|
|
|
|
|
|
|
|
|
|
|
923 |
|
Stock-based compensation expense |
|
|
279 |
|
|
|
|
|
|
|
|
|
|
|
279 |
|
(Gain) loss on sales of property and equipment, net |
|
|
(81 |
) |
|
|
99 |
|
|
|
|
|
|
|
18 |
|
Gain on sales of rental equipment, net |
|
|
(775 |
) |
|
|
(2,326 |
) |
|
|
|
|
|
|
(3,101 |
) |
Equity in loss of guarantor subsidiaries |
|
|
3,679 |
|
|
|
|
|
|
|
(3,679 |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
|
28,127 |
|
|
|
11,067 |
|
|
|
|
|
|
|
39,194 |
|
Inventories, net |
|
|
(8,008 |
) |
|
|
(1,890 |
) |
|
|
|
|
|
|
(9,898 |
) |
Prepaid expenses and other assets |
|
|
1,726 |
|
|
|
(4 |
) |
|
|
|
|
|
|
1,722 |
|
Accounts payable |
|
|
(32,711 |
) |
|
|
|
|
|
|
|
|
|
|
(32,711 |
) |
Manufacturer flooring plans payable |
|
|
(14,004 |
) |
|
|
|
|
|
|
|
|
|
|
(14,004 |
) |
Accrued expenses payable and other liabilities |
|
|
(9,612 |
) |
|
|
139 |
|
|
|
|
|
|
|
(9,473 |
) |
Intercompany balances |
|
|
7,297 |
|
|
|
(7,297 |
) |
|
|
|
|
|
|
|
|
Deferred compensation payable |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
2,081 |
|
|
|
1,411 |
|
|
|
|
|
|
|
3,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(6,935 |
) |
|
|
(188 |
) |
|
|
|
|
|
|
(7,123 |
) |
Purchases of rental equipment |
|
|
1,560 |
|
|
|
(3,098 |
) |
|
|
|
|
|
|
(1,538 |
) |
Proceeds from sales of property and equipment |
|
|
40 |
|
|
|
3 |
|
|
|
|
|
|
|
43 |
|
Proceeds from sales of rental equipment |
|
|
11,377 |
|
|
|
1,905 |
|
|
|
|
|
|
|
13,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing
activities |
|
|
6,042 |
|
|
|
(1,378 |
) |
|
|
|
|
|
|
4,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
(86 |
) |
Borrowings on senior secured credit facility |
|
|
220,835 |
|
|
|
|
|
|
|
|
|
|
|
220,835 |
|
Payments on senior secured credit facility |
|
|
(229,224 |
) |
|
|
|
|
|
|
|
|
|
|
(229,224 |
) |
Payments of related party obligation |
|
|
(75 |
) |
|
|
|
|
|
|
|
|
|
|
(75 |
) |
Payments on capital lease obligations |
|
|
|
|
|
|
(29 |
) |
|
|
|
|
|
|
(29 |
) |
Principal payments of notes payable |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(8,554 |
) |
|
|
(32 |
) |
|
|
|
|
|
|
(8,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
(431 |
) |
|
|
1 |
|
|
|
|
|
|
|
(430 |
) |
Cash, beginning of period |
|
|
11,251 |
|
|
|
15 |
|
|
|
|
|
|
|
11,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period |
|
$ |
10,820 |
|
|
$ |
16 |
|
|
$ |
|
|
|
$ |
10,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
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 provided by (used in) operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation 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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefit (deficiency) 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 obligation |
|
|
|
|
|
|
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion summarizes the financial position of H&E Equipment Services, Inc. and
its subsidiaries as of March 31, 2009, and its results of operations for the three month period
ended March 31, 2009, and should be read in conjunction with (i) the unaudited condensed
consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on
Form 10-Q and (ii) the audited consolidated financial statements and accompanying notes to our
Annual Report on Form 10-K for the year ended December 31, 2008. The following discussion contains,
in addition to historical information, forward-looking statements that include risks and
uncertainties (see discussion of Forward-Looking Statements included elsewhere in this Quarterly
Report on Form 10-Q). Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those factors set forth under
Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2008.
Overview
Background
As one of the largest integrated equipment services companies in the United States focused on
heavy construction and industrial equipment, we rent, sell and provide parts and service support
for four core categories of specialized equipment: (1) hi-lift or aerial work platform equipment;
(2) cranes; (3) earthmoving equipment; and (4) industrial lift trucks. By providing equipment
rental, sales, on-site parts, repair and maintenance functions under one roof, we are a one-stop
provider for our customers varied equipment needs. This full service approach provides us with
multiple points of customer contact, enables us to maintain a high quality rental fleet, as well as
an effective distribution channel for fleet disposal, and provides cross-selling opportunities
among our new and used equipment sales, rental, parts sales and service operations.
As of May 4, 2009, we operated 62 full-service facilities throughout the Intermountain,
Southwest, Gulf Coast, West Coast, Southeast and Mid-Atlantic regions of the United States. Our
work force includes distinct, focused sales forces for our new and used equipment sales and rental
operations, highly-skilled service technicians, product specialists and regional managers. We focus
our sales and rental activities on, and organize our personnel principally by, our four core
equipment categories. We believe this allows us to provide specialized equipment knowledge, improve
the effectiveness of our rental and sales force and strengthen our customer relationships. In
addition, we have branch managers at each location who are responsible for managing their assets
and financial results. We believe this fosters accountability in our business, and strengthens our
local and regional relationships.
Through our predecessor companies, we have been in the equipment services business for
approximately 48 years. H&E Equipment Services L.L.C. (H&E LLC) was formed in June 2002 through
the business combination of Head & Engquist, a wholly-owned subsidiary of Gulf Wide, and ICM. Head
& Engquist, founded in 1961, and ICM, founded in 1971, were two leading regional, integrated
equipment services companies operating in contiguous geographic markets. In the June 2002
transaction, Head & Engquist and ICM were merged with and into Gulf Wide, which was renamed H&E
LLC. Prior to the combination, Head & Engquist operated 25 facilities in the Gulf Coast region, and
ICM operated 16 facilities in the Intermountain region of the United States.
In connection with our initial public offering in February 2006, we converted H&E LLC into H&E
Equipment Services, Inc. Prior to our initial public offering, our business was conducted through
H&E LLC. In order to have an operating Delaware corporation as the issuer for our initial public
offering, H&E Equipment Services, Inc. was formed as a Delaware corporation and wholly-owned
subsidiary of H&E Holdings, and immediately prior to the closing of our initial public offering, on
February 3, 2006, H&E LLC and H&E Holdings merged with and into us (H&E Equipment Services, Inc.),
with us surviving the reincorporation merger as the operating company. Effective February 3, 2006,
H&E LLC and H&E Holdings no longer existed under operation of law pursuant to the merger
reincorporation.
Critical Accounting Policies
Item 7, included in Part II of our Annual Report on Form 10-K for the year ended December 31,
2008, presents the accounting policies and related estimates that we believe are the most critical
to understanding our consolidated financial statements, financial condition, and results of
operations and cash flows, and which require complex management judgment and assumptions, or
involve uncertainties. There have been no changes to these critical accounting policies and
estimates during the quarter ended March 31, 2009. These policies include, among others, revenue
recognition, the adequacy of the allowance for doubtful accounts, the propriety of our estimated
useful life of rental equipment and property and equipment, the potential impairment of long-lived
assets including goodwill and intangible assets, obsolescence reserves on inventory, the allocation
of purchase price related to business combinations, reserves for claims, including self-insurance
reserves, and deferred income taxes, including the valuation of any related deferred tax assets.
20
Information regarding our other significant accounting policies is included in note 2 to our
consolidated financial statements in Item 8 of Part II of our Annual Report on Form 10-K for the
year ended December 31, 2008 and in note 2 to the condensed consolidated financial statements in
this Quarterly Report on Form 10-Q.
Business Segments
We have five reportable segments because we derive our revenues from five principal business
activities: (1) equipment rentals; (2) new equipment sales; (3) used equipment sales; (4) parts
sales; and (5) repair and maintenance services. These segments are based upon how we allocate
resources and assess performance. In addition, we also have non-segmented revenues and costs that
relate to equipment support activities.
|
|
|
Equipment Rentals. Our rental operation primarily rents our four core types of
construction and industrial equipment. We have a well-maintained rental fleet and our own
dedicated sales force, focused by equipment type. We actively manage the size, quality,
age and composition of our rental fleet based on our analysis of key measures such as time
utilization (equipment usage based on customer demand), rental rate trends and targets,
and equipment demand, which we closely monitor. We maintain fleet quality through regional
quality control managers and our parts and services operations. |
|
|
|
|
New Equipment Sales. Our new equipment sales operation sells new equipment in all
four core product categories. We have a retail sales force focused by equipment type that
is separate from our rental sales force. Manufacturer purchase terms and pricing are
managed by our product specialists. |
|
|
|
|
Used Equipment Sales. Our used equipment sales are generated primarily from sales of
used equipment from our rental fleet, as well as from sales of inventoried equipment that
we acquire through trade-ins from our equipment customers and through selective purchases
of high quality used equipment. Used equipment is sold by our dedicated retail sales
force. Our used equipment sales are an effective way for us to manage the size and
composition of our rental fleet and provide a profitable distribution channel for the
disposal of rental equipment. |
|
|
|
|
Parts Sales. Our parts business sells new and used parts for the equipment we sell,
and also provides parts to our own rental fleet. To a lesser degree, we also sell parts
for equipment produced by manufacturers whose products we neither rent nor sell. In order
to provide timely parts and service support to our customers as well as our own rental
fleet, we maintain an extensive parts inventory. |
|
|
|
|
Services. Our services operation provides maintenance and repair services for our
customers equipment and to our own rental fleet at our facilities as well as at our
customers locations. As the authorized distributor for numerous equipment manufacturers,
we are able to provide service to that equipment that will be covered under the
manufacturers warranty. |
Our non-segmented revenues and costs relate to equipment support activities that we provide,
such as transportation, hauling, parts freight and damage waivers, and are not generally allocated
to reportable segments. For additional information about our business segments, see note 8 to the
condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Revenue Sources
We generate all of our total revenues from our five business segments and our non-segmented
equipment support activities. Equipment rentals and new equipment sales account for more than half
of our total revenues. For the three months ended March 31, 2009, approximately 29.8% of our total
revenues were attributable to equipment rentals, 34.4% of our total revenues were attributable to
new equipment sales, 8.6% were attributable to used equipment sales, 14.0% were attributable to
parts sales, 8.3% were attributable to our services revenues and 4.9% were attributable to
non-segmented other revenues.
The equipment that we sell, rent and service is principally used in the construction industry,
as well as by companies for commercial and industrial uses such as plant maintenance and
turnarounds. As a result, our total revenues are affected by several factors including, but not
limited to, the demand for and availability of rental equipment, rental rates and other competitive
factors, the demand for new and used equipment, the level of construction and industrial
activities, spending levels by our customers, adverse weather conditions and general economic
conditions. For a discussion of the impact of seasonality on our revenues, see Seasonality below.
21
Equipment Rentals. Revenues from equipment rentals depend on rental rates. Because rental
rates are impacted by competition in specific regions and markets, we continuously monitor and
adjust rental rates. Equipment rental revenue is also impacted by the availability of equipment
and by time utilization (equipment usage based on customer demand). We generate reports on,
among other things, time utilization, demand pricing (rental rate pricing based on physical
utilization), and rental rate trends on a piece-by-piece basis for our rental fleet. We
recognize revenues from equipment rentals in the period earned on a straight-line basis, over
the contract term, regardless of the timing of billing to customers.
New Equipment Sales. We seek to optimize revenues from new equipment sales by selling
equipment through a professional in-house retail sales force focused by product type. While
sales of new equipment are impacted by the availability of equipment from the manufacturer, we
believe our status as a leading distributor for some of our key suppliers improves our ability
to obtain equipment. New equipment sales are an important component of our integrated model due
to customer interaction and service contact and new equipment sales also lead to future parts
and services revenues. We recognize revenue from the sale of new equipment at the time of
delivery to, or pick-up by, the customer and when all obligations under the sales contract have
been fulfilled and collectibility is reasonably assured.
Used Equipment Sales. We generate the majority of our used equipment sales revenues by
selling equipment from our rental fleet through our existing branch network and, to a lesser
extent through other means, including equipment auctions. The remainder of used equipment sales
revenues comes from the sale of inventoried equipment that we acquire through trade-ins from our
equipment customers and selective purchases of high-quality used equipment. Our policy is not to
offer specified price trade-in arrangements on equipment for sale. Sales of our rental fleet
equipment allow us to manage the size, quality, composition and age of our rental fleet, and
provide a profitable distribution channel for disposal of rental equipment. We recognize revenue
for the sale of used equipment at the time of delivery to, or pick-up by, the customer and when
all obligations under the sales contract have been fulfilled and collectibility is reasonably
assured.
Parts Sales. We generate revenues from the sale of new and used parts for equipment that we
rent or sell, as well as for other makes of equipment. Our product support sales representatives
are instrumental in generating our parts revenues. They are product specialists and receive
performance incentives for achieving certain sales levels. Most of our parts sales come from our
extensive in-house parts inventory. Our parts sales provide us with a relatively stable revenue
stream that is less sensitive to the economic cycles that affect our rental and equipment sales
operations. We recognize revenues from parts sales at the time of delivery to, or pick-up by,
the customer and when all obligations under the sales contract have been fulfilled and
collectibility is reasonably assured.
Services. We derive our services revenues from maintenance and repair services to customers
for their owned equipment. In addition to repair and maintenance on an as-needed or scheduled
basis, we also provide ongoing preventative maintenance services to industrial customers. Our
after-market services provide a high-margin, relatively stable source of revenue through
changing economic cycles. We recognize services revenues at the time such services are rendered
and collectibility is reasonably assured.
Non-Segmented Other Revenues. Our non-segmented other revenues consist of billings to
customers for equipment support and activities including: transportation, hauling, parts freight
and loss damage waiver charges. We recognize non-segmented other revenues at the time of billing
and after the services have been provided.
Principal Costs and Expenses
Our largest expenses are the costs to purchase the new equipment we sell, the costs associated
with the used equipment we sell, rental expenses, rental depreciation and costs associated with
parts sales and services, all of which are included in cost of revenues. For the three months ended
March 31, 2009, our total cost of revenues was approximately $135.9 million. Our operating expenses
consist principally of selling, general and administrative expenses. For the three months ended
March 31, 2009, our selling, general and administrative expenses were approximately $39.1 million.
In addition, we have interest expense related to our debt instruments. We are also subject to
federal and state income taxes. Operating expenses and all other income and expense items below the
gross profit line of our condensed consolidated statements of income are not generally allocated to
our reportable segments.
Cost of Revenues:
Rental Depreciation. Depreciation of rental equipment represents the depreciation costs
attributable to rental equipment. Estimated useful lives vary based upon type of equipment.
Generally, we depreciate cranes and aerial work platforms over a ten
22
year estimated useful life, earthmoving equipment over a five year estimated useful life
with an estimated 25% salvage value, and industrial lift-trucks over a seven year estimated
useful life. Attachments and other smaller type equipment are depreciated over a three year
estimated useful life.
Rental Expense. Rental expense represents the costs associated with rental equipment,
including, among other things, the cost of servicing and maintaining our rental equipment,
property taxes on our fleet and other miscellaneous costs of rental equipment.
New Equipment Sales. Cost of new equipment sold primarily consists of the equipment cost of
the new equipment that is sold, net of any amount of credit given to the customer towards the
equipment for trade-ins.
Used Equipment Sales. Cost of used equipment sold consists of the net book value of rental
equipment for used equipment sold from our rental fleet, the equipment costs for used equipment
we purchase for sale or the trade-in value of used equipment that we obtain from customers in
equipment sales transactions.
Parts Sales. Cost of parts sales represents costs attributable to the sale of parts
directly to customers.
Services Support. Cost of services revenue represents costs attributable to service
provided for the maintenance and repair of customer-owned equipment and equipment then on-rent
by customers.
Non-Segmented Other. These expenses include costs associated with providing transportation,
hauling, parts freight, and damage waiver including, among other items, drivers wages, fuel
costs, shipping costs, and our costs related to damage waiver policies.
Selling, General and Administrative Expenses:
Our selling, general and administrative expenses (SG&A) include sales and marketing
expenses, payroll and related benefit costs, insurance expense, professional fees, property and
other taxes, administrative overhead, depreciation associated with property and equipment (other
than rental equipment) and amortization expense associated with intangible assets. These expenses
are not generally allocated to our reportable segments.
Interest Expense:
Interest expense for the periods presented represents the interest on our outstanding debt
instruments. Interest expense also includes non-cash interest expense related to the amortization
cost of deferred financing costs.
Principal Cash Flows
We generate cash primarily from our operating activities and historically we have used cash
flows from operating activities, manufacturer floor plan financings and available borrowings under
our revolving senior secured credit facility as the primary sources of funds to purchase our
inventory and to fund working capital and capital expenditures (see also Liquidity and Capital
Resources below).
23
Rental Fleet
A significant portion of our overall value is in our rental fleet equipment. The net book
value of rental equipment at March 31, 2009 was $526.2 million, or approximately 58.1% of our total
assets. Our rental fleet, as of March 31, 2009, consisted of approximately 18,088 units having an
original acquisition cost (which we define as the cost originally paid to manufacturers or the
original amount financed under operating leases) of approximately $763.2 million. As of March 31,
2009, our rental fleet composition was as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
Original |
|
|
% of Original |
|
|
Average |
|
|
|
|
|
|
|
Total |
|
|
Acquisition |
|
|
Acquisition |
|
|
Age in |
|
|
|
Units |
|
|
Units |
|
|
Cost |
|
|
Cost |
|
|
Months |
|
Hi-Lift or Aerial Work Platforms |
|
|
13,088 |
|
|
|
72.4 |
% |
|
$ |
445.6 |
|
|
|
58.4 |
% |
|
|
37.3 |
|
Cranes |
|
|
437 |
|
|
|
2.4 |
% |
|
|
97.4 |
|
|
|
12.8 |
% |
|
|
32.3 |
|
Earthmoving |
|
|
1,562 |
|
|
|
8.6 |
% |
|
|
148.2 |
|
|
|
19.4 |
% |
|
|
24.3 |
|
Industrial Lift Trucks |
|
|
1,280 |
|
|
|
7.1 |
% |
|
|
42.3 |
|
|
|
5.5 |
% |
|
|
32.7 |
|
Other |
|
|
1,721 |
|
|
|
9.5 |
% |
|
|
29.7 |
|
|
|
3.9 |
% |
|
|
24.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
18,088 |
|
|
|
100.0 |
% |
|
$ |
763.2 |
|
|
|
100.0 |
% |
|
|
34.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Determining the optimal age and mix for our rental fleet equipment is subjective and requires
considerable estimates and judgments by management. We constantly evaluate the mix, age and quality
of the equipment in our rental fleet in response to current economic and market conditions,
competition and customer demand. The mix and age of our rental fleet, as well as our cash flows,
are impacted by the normal sales of equipment from the rental fleet and the capital expenditures to
acquire new rental fleet equipment. In making equipment acquisition decisions, we evaluate current
economic and market conditions, competition, manufacturers availability, pricing and return on
investment over the estimated useful life of the specific equipment, among other things.
On average, we increased the overall average age of our rental fleet equipment by
approximately 1.2 months for the three months ended March 31, 2009. The original acquisition cost
of our overall gross rental fleet decreased by $22.4 million for the three months ended March 31,
2009 as part of a planned elimination of rental fleet growth capital expenditures and selective
fleet replacement expenditures during the period in response to a challenging economic environment
and global credit market conditions (see also Liquidity and Capital Resources below).
Our average rental rates for the three months ended March 31, 2009 were 9.9% lower than the
comparative three month period ended March 31, 2008, and 7.5% lower than the previous three month
period ended December 31, 2008 (see further discussion on rental rates in Results of Operations
below). The rental equipment mix among our four core product lines for the three months ended March
31, 2009 was largely consistent with that of the prior year comparable period as a percentage of
total units available for rent and as a percentage of original acquisition cost. As a result of our
in-house service capabilities and extensive maintenance program, we believe our rental fleet is
well-maintained.
Principal External Factors that Affect our Businesses
We are subject to a number of external factors that may adversely affect our businesses. These
factors, and other factors, are discussed below and in Item 1A Risk Factors of our Annual
Report on Form 10-K for the year ended December 31, 2008:
|
|
|
Spending levels by customers. Rentals and sales of equipment to the construction
industry and to industrial companies constitute a significant portion of our total
revenues. As a result, we depend upon customers in these businesses and their ability and
willingness to make capital expenditures to rent or buy specialized equipment.
Accordingly, our business is impacted by fluctuations in customers spending levels on
capital expenditures and by the availability of credit to those customers. |
|
|
|
|
Economic downturns. The demand for our products is dependent on the general economy,
the stability of the global credit markets, the industries in which our customers operate
or serve, and other factors. Downturns in the general economy or in the construction and
manufacturing industries, as well as adverse credit market conditions, can cause demand
for our products to materially decrease. |
|
|
|
|
Adverse weather. Adverse weather in any geographic region in which we operate may
depress demand for equipment in that |
24
|
|
|
region. Our equipment is primarily used outdoors and, as a result, prolonged adverse weather
conditions may prohibit our customers from continuing their work projects. The adverse
weather also has a seasonal impact in parts of our Intermountain region, primarily in the
winter months. |
For a discussion of seasonality, see Seasonality below.
Results of Operations
The tables included in the period-to-period comparisons below provide summaries of our
revenues and gross profits for our business segments and non-segmented revenues. The
period-to-period comparisons of financial results are not necessarily indicative of future results.
The revenue and gross margin period-to-period comparisons below have been negatively impacted in
the current year by lower customer demand resulting from several factors, including: (i) the
decline in construction and industrial activities; (ii) the current macroeconomic downturn; and
(iii) unfavorable credit markets affecting end-user access to capital. Continued weakness or
further deterioration in the non-residential construction and industrial sectors could have a
material adverse effect on our financial position, results of operations and cash flows in the
future.
Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008
Revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Total |
|
|
Total |
|
|
|
March 31, |
|
|
Dollar |
|
|
Percentage |
|
|
|
2009 |
|
|
2008 |
|
|
Decrease |
|
|
Decrease |
|
|
|
(in thousands, except percentages) |
|
Segment Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
55,484 |
|
|
$ |
71,211 |
|
|
$ |
(15,727 |
) |
|
|
(22.1 |
)% |
New equipment sales |
|
|
64,057 |
|
|
|
76,353 |
|
|
|
(12,296 |
) |
|
|
(16.1 |
)% |
Used equipment sales |
|
|
16,093 |
|
|
|
41,411 |
|
|
|
(25,318 |
) |
|
|
(61.1 |
)% |
Parts sales |
|
|
26,023 |
|
|
|
28,914 |
|
|
|
(2,891 |
) |
|
|
(10.0 |
)% |
Services revenues |
|
|
15,457 |
|
|
|
16,588 |
|
|
|
(1,131 |
) |
|
|
(6.8 |
)% |
Non-Segmented revenues |
|
|
9,082 |
|
|
|
11,289 |
|
|
|
(2,207 |
) |
|
|
(19.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
186,196 |
|
|
$ |
245,766 |
|
|
$ |
(59,570 |
) |
|
|
(24.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues. Our total revenues were $186.2 million for the three months ended March 31,
2009 compared to $245.8 million for the same period in 2008, a decrease of $59.6 million, or 24.2%.
Revenues decreased for all reportable segments as further discussed below.
Equipment Rental Revenues. Our revenues from equipment rentals for the three months ended
March 31, 2009 decreased $15.7 million, or 22.1%, to approximately $55.5 million from $71.2 million
for the same three month period in 2008. Rental revenues decreased for all four core product lines.
Revenues from aerial work platforms decreased $10.3 million, cranes decreased $0.9 million,
earthmoving equipment decreased $0.8 million, lift trucks decreased $0.9 million and other
equipment rentals decreased $2.8 million. These decreases were due to lower demand resulting from
the factors discussed above, which resulted in a further decline in our rental rates. Our average
rental rates for the three month period ended March 31, 2009 declined 9.9% compared to the same
three month period last year.
Rental equipment dollar utilization (quarterly rental revenues divided by the average original
rental fleet equipment costs) for the three months ended March 31, 2009 was approximately 28.7% in
2009 compared to 35.5% in 2008, a decrease of approximately 6.8%. The decrease in comparative
rental equipment dollar utilization was the result of a 9.9% decrease in average rental rates for
the comparative periods and an 8.4% decrease in rental equipment time utilization (equipment usage
based on customer demand) from 64.5% in 2008 to 56.1% in 2009.
New Equipment Sales Revenues. Our new equipment sales for the three months ended March 31,
2009 decreased $12.3 million, or 16.1%, to $64.1 million from $76.4 million for the comparable
period in 2008. Sales of new cranes increased $3.7 million, largely as a result of crane orders in
2008 that were fulfilled in the first quarter of 2009. Sales of new aerial work
platforms decreased $5.2 million, sales of earthmoving equipment decreased $8.1 million, sales of
lift trucks decreased $0.8 million and sales of other new equipment decreased $1.9 million,
reflecting lower demand for these product lines.
Used Equipment Sales Revenues. Our used equipment sales decreased $25.3 million, or 61.1%, to
$16.1 million for the three
25
months ended March 31, 2009, from $41.4 million for the same period in 2008, primarily as a
result of lower demand for used equipment. Sales of used cranes decreased $8.6 million while sales
of used aerial work platform equipment, used earthmoving equipment and used lift trucks decreased
$9.1 million, $6.6 million and $1.0 million, respectively.
Parts Sales Revenues. Our parts sales decreased $2.9 million, or 10.0%, to approximately $26.0
million for the three months ended March 31, 2009 from approximately $28.9 million for the same
period in 2008. The decrease was due to a decrease in customer demand for parts due to the decline
in construction and industrial activity since last year.
Services Revenues. Our services revenues for the three months ended March 31, 2009 decreased
$1.1 million, or 6.8%, to $15.5 million from $16.6 million for the same period last year. The
decline was largely due to a decrease in demand for services due to the decline in construction and
industrial activity since last year.
Non-Segmented Other Revenues. Our non-segmented other revenues consisted primarily of
equipment support activities including transportation, hauling, parts freight and damage waiver
charges. For the three months ended March 31, 2009, our other revenues decreased $2.2 million, or
19.6%, over the same period last year. The decrease was primarily due to a decrease in the volume
in these services in conjunction with the decline of our primary business activities.
Gross Profit.
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Total |
|
|
|
Three Months Ended |
|
|
Dollar |
|
|
Percentage |
|
|
|
March 31, |
|
|
Change |
|
|
Change |
|
|
|
2009 |
|
|
2008 |
|
|
Incr/(Decr) |
|
|
Incr/(Decr) |
|
|
|
|
|
|
|
(in thousands, except percentages) |
|
|
|
|
|
Segment Gross Profit (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
20,369 |
|
|
$ |
32,967 |
|
|
$ |
(12,598 |
) |
|
|
(38.2 |
)% |
New equipment sales |
|
|
8,742 |
|
|
|
10,807 |
|
|
|
(2,065 |
) |
|
|
(19.1 |
)% |
Used equipment sales |
|
|
3,405 |
|
|
|
10,492 |
|
|
|
(7,087 |
) |
|
|
(67.5 |
)% |
Parts sales |
|
|
7,501 |
|
|
|
8,648 |
|
|
|
(1,147 |
) |
|
|
(13.3 |
)% |
Services revenues |
|
|
9,754 |
|
|
|
10,447 |
|
|
|
(693 |
) |
|
|
(6.6 |
)% |
Non-Segmented revenues |
|
|
509 |
|
|
|
(637 |
) |
|
|
1,146 |
|
|
|
179.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
50,280 |
|
|
$ |
72,724 |
|
|
$ |
(22,444 |
) |
|
|
(30.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Profit. Our total gross profit was $50.3 million for the three months ended March
31, 2009 compared to $72.7 million for the three months ended March 31, 2008, a decrease of $22.4
million, or 30.9%. Total gross profit margin for the three months ended March 31, 2009 was 27.0%, a
decrease of 2.6% from the 29.6% gross profit margin for the same three month period in 2008. Gross
profit and gross margin for all reportable segments are further described below:
Equipment Rentals Gross Profit. Our gross profit from equipment rentals for the three months
ended March 31, 2009 decreased $12.6 million, or 38.2%, to approximately $20.4 million from $33.0
million in the same period in 2008. The decrease in equipment rentals gross profit is the net
result of a $15.7 million decrease in rental revenues, which was partially offset by a $0.5 million
net decrease in rental expenses and a $2.6 million decrease in rental equipment depreciation
expense. The net decrease in rental expenses and rental equipment depreciation expense was
primarily due to a smaller fleet size in 2009 compared to 2008. As a percentage of equipment rental
revenues, maintenance and repair costs were 14.8% in 2009 compared to 12.3% in 2008 and
depreciation expense was 42.9% in 2009 compared to 37.1% in 2008. These percentage increases are
primarily attributable to the decline in comparative rental revenues.
Gross profit margin in 2009 was 36.7%, down 9.6% from 46.3% in the same period in 2008. This
gross profit margin decline was primarily due to a 9.9% decline in our average rental rates and the
product mix of equipment rented, combined with the increase in rental and depreciation expenses as
a percentage of equipment rental revenues.
New Equipment Sales Gross Profit. Our new equipment sales gross profit for the three months
ended March 31, 2009 decreased $2.1 million, or 19.1%, to $8.7 million compared to $10.8 million
for the same period in 2008 on a total new equipment sales decline of $12.3 million. Gross profit
margin on new equipment sales for the three months ended March 31, 2009 was 13.6%, a decrease of
0.6% from 14.2% in the same period last year. The decrease in comparative gross margin realized in
the current year period was largely the result of the product mix of equipment sold.
Used Equipment Sales Gross Profit. Our used equipment sales gross profit for the three months
ended March 31, 2009 decreased $7.1 million, or 67.5%, to $3.4 million from the $10.5 million for
the same period in 2008 on a used equipment sales decrease of
26
$25.3 million. Gross profit margin in 2009 was 21.2%, down 4.1% from 25.3% in the same period
last year, as a result of the product mix of used equipment sold and margin contraction due to
lower overall demand for used equipment. Our used equipment sales from the rental fleet, which
comprised approximately 83% of our used equipment sales for the three month periods ended March 31,
2009 and 2008, were approximately 130.5% of net book value for the three months ended March 31,
2009 compared to 140.6% for the comparable period last year.
Parts Sales Gross Profit. For the three months ended March 31, 2009, our parts sales revenue
gross profit decreased approximately $1.1 million, or 13.3%, to $7.5 million from $8.6 million for
the same period in 2008 on a $2.9 million decline in parts sales revenues. Gross profit margin for
the three months ended March 31, 2009 was 28.8%, a decrease of 1.1% from 29.9% in the same period
last year, as a result of the mix of parts sold.
Services Revenues Gross Profit. For the three months ended March 31, 2009, our services
revenues gross profit decreased approximately $0.7 million, or 6.6%, to $9.8 million from $10.5
million for the same period in 2008. Gross profit margin in 2009 was 63.1%, up 0.1% from 63.0% in
the same period last year.
Non-Segmented Other Revenues Gross Profit (Loss). For the three months ended March 31, 2009,
our non-segmented other revenues realized a gross profit of $0.5 million, up $1.1 million compared
to a gross loss of $(0.6) million for the three month period ended March 31, 2008, primarily as a
result of lower fuel and other transportation costs.
Selling, General and Administrative Expenses. SG&A expenses decreased approximately $7.6
million, or 16.1%, to $39.1 million for the three months ended March 31, 2009 compared to $46.7
million for the same period last year. The net decrease in SG&A expenses was attributable to
several factors. Employee salaries and wages and related employee expenses decreased $6.7 million
as a result of workforce reductions and other cost control measures instituted by the Company in
2008 combined with lower commissions that resulted from lower rental and sales revenues.
Amortization expense related to intangible assets decreased $0.6 million, and fuel, utilities and
other supply costs decreased approximately $1.0 million. These decreases were partially offset by a
$0.6 million increase in bad debt expense, reflecting some deterioration in our customer accounts
receivables, and a $0.6 million increase in outside services costs consisting primarily of
professional fees. Stock-based compensation expense was $0.3 million in each of the three months
ended March 31, 2009 and 2008. As a percent of total revenues, SG&A expenses were 21.0% for the
three months ended March 31, 2009, an increase of 2.0% from 19.0% in the prior year, reflecting the
fixed cost nature of certain SG&A expenses.
Other Income (Expense). For the three months ended March 31, 2009, our net other expenses
decreased by approximately $2.0 million to $8.0 million compared to $10.0 million for the same
period in 2008. The $2.0 million decrease was substantially the result of a $2.0 million decrease
in interest expense to $8.2 million for the three months ended March 31, 2009 compared to $10.2
million for the same period in 2008. The decrease in interest expense was due to several factors.
Comparative interest expense incurred on our senior secured credit facility was approximately $1.5
million lower in the current year period largely as a result of a decrease in our average
borrowings under the senior secured credit facility compared to the prior year and a lower
effective average interest rate on those borrowings in the current year. Additionally, other
interest expense decreased $0.5 in the current year period, primarily as a result of a $0.4 million
decrease in interest expense on our manufacturing flooring plan payables used to finance inventory
purchases, as a result of lower outstanding balances on those manufacturing flooring plan payables
in the current year period and lower average interest rates, reflecting the decline in the prime
interest rate since last year.
Income Taxes. Income tax expense for the three months ended March 31, 2009 decreased
approximately $5.0 million to approximately $1.0 million compared to $6.0 million for the three
months ended March 31, 2008. The effective income tax rate for the three months ended March 31,
2009 was 30.8% compared to 37.1% for the same period last year. The decrease in our effective tax
rate was the result of lower pre-tax income without a corresponding decrease in the permanent
differences, primarily our tax deductible goodwill permanent difference. Based on available
evidence, both positive and negative, we believe it is more likely than not that our deferred tax
assets at March 31, 2009 are fully realizable through future reversals of existing taxable
temporary differences and future taxable income, and are not subject to any limitations.
Liquidity and Capital Resources
Cash flow from operating activities. Our cash provided by operating activities for the three
months ended March 31, 2009 was $3.5 million. Our reported net income of $2.2 million, which, when
adjusted for non-cash income and expense items, such as depreciation and amortization, deferred
income taxes, provision for losses on accounts receivable, stock-based compensation expense, and
net gains on the sale of long-lived assets, provided positive cash flows of approximately $28.6
million. These cash flows from operating activities were also positively impacted by a decrease of
$39.2 million in net accounts receivable and a $1.7 million decrease
27
in prepaid expenses and other assets. Partially offsetting these positive cash flows were
increases in our inventories of $9.9 million, a decrease of $32.7 million in accounts payable, a
$14.0 million decrease in manufacturing flooring plans payable, and a $9.5 million decrease in
accrued expenses and other liabilities.
Our cash used in operating activities for the three months ended March 31, 2008 was $17.9
million. Our reported net income of $10.2 million, which, when adjusted for non-cash income and
expense items, such as depreciation and amortization, deferred income taxes, provision for losses
on accounts receivable, stock-based compensation expense, and net gains on the sale of long-lived
assets, provided positive cash flows of approximately $37.0 million. These cash flows from
operating activities were also positively impacted by a decrease of $15.9 million in net accounts
receivable. Partially offsetting these positive cash flows were increases in our inventories of
$23.2 million, an increase of $1.0 million in prepaid expenses and other assets, an $18.4 million
decrease in accounts payable, a $22.0 million decrease in manufacturing flooring plans payable, and
a $6.2 million decrease in accrued expenses and other liabilities.
Cash flow from investing activities. For the three months ended March 31, 2009, cash provided
by our investing activities was approximately $4.7 million. This is a net result of proceeds from
the sale of rental and non-rental equipment of approximately $13.3 million, which was partially
offset by purchases of rental and non-rental equipment totaling approximately $8.6 million.
For the three months ended March 31, 2008, cash provided by our investing activities was
approximately $8.8 million. This is a net result of proceeds from the sale of rental and non-rental
equipment of approximately $34.6 million, which was partially offset by purchases of rental and
non-rental equipment totaling $25.8 million.
Cash flow from financing activities. For the three months ended March 31, 2009, cash used in
our financing activities was approximately $8.6 million. Our total borrowings during the period
under our senior secured credit facility were $220.8 million and total payments under the senior
secured credit facility in the same period were $229.2 million. We also made payments under our
related party obligation of $0.1 million.
For the three months ended March 31, 2008, cash provided by our financing activities was
approximately $6.4 million. Our total borrowings during the period under our senior secured credit
facility were $295.0 million and total payments under the senior secured credit facility in the
same period were $268.9 million. We also purchased $19.5 million of treasury stock, which includes
$19.3 million of stock repurchases under the Companys stock repurchase program, which expired on
its terms on December 31, 2008, and made payments under our related party obligation of $0.1
million.
Cash Requirements Related to Operations
Our principal sources of liquidity have been from cash provided by operating activities and
the sales of new, used and rental fleet equipment, proceeds from the issuance of debt, and
borrowings available under our senior secured credit facility. Our principal uses of cash have been
to fund operating activities and working capital, purchases of rental fleet equipment and property
and equipment, fund payments due under facility operating leases and manufacturer flooring plans
payable, and to meet debt service requirements. We anticipate that the above described uses will be
the principal demands on our cash in the future.
The amount of our future capital expenditures will depend on a number of factors including
general economic conditions and growth prospects. Our gross rental fleet capital expenditures for
the three months ended March 31, 2009 were $5.7 million, including $4.2 million of non-cash
transfers from new and used equipment to rental fleet inventory. Our gross property and equipment
capital expenditures for the three months ended March 31, 2009 were $7.1 million, which includes
approximately $6.1 million related to the implementation of a new enterprise resource planning
system that is expected to be completed in the fourth quarter of 2009 or early 2010. In response to
changing economic conditions, we believe we have the flexibility to modify our capital expenditures
by adjusting them (either up or down) to match our actual performance. Given the challenging
economic environment in which we currently operate, as well as the global credit crisis, we expect
to eliminate growth capital expenditures for the rental fleet in the near term and employ a very
selective approach toward replacement rental fleet capital expenditures. We anticipate that this
approach will allow us to generate cash flow to permit the pay down of debt and/or other general
corporate purposes. As of May 4, 2009, we had $254.9 million of available borrowings under our
senior secured credit facility, net of $7.8 million of outstanding letters of credit.
To service our debt, we will require a significant amount of cash. Our ability to pay interest
and principal on our indebtedness (including the senior unsecured notes, the senior secured credit
facility and our other indebtedness), will depend upon our future operating performance and the
availability of borrowings under our senior secured credit facility and/or other debt and equity
financing alternatives available to us, which will be affected by prevailing economic conditions
and conditions in the global credit and capital markets, as well as financial, business and other
factors, some of which are beyond our control. Based on our current level of operations and given
the current state of the capital markets, we believe our cash flow from operations, available cash
and available
borrowings under the senior secured credit facility will be adequate to meet our future
liquidity needs for the foreseeable future.
28
We cannot provide absolute assurance that our future cash flow from operating activities will
be sufficient to meet our long-term obligations and commitments. If we are unable to generate
sufficient cash flow from operating activities in the future to service our indebtedness and to
meet our other commitments, we will be required to adopt one or more alternatives, such as
refinancing or restructuring our indebtedness, selling material assets or operations or seeking to
raise additional debt or equity capital. Given current economic and market conditions, including
the significant disruptions in the global capital markets, we cannot assure investors that any of
these actions could be affected on a timely basis or on satisfactory terms or at all, or that these
actions would enable us to continue to satisfy our capital requirements. In addition, our existing
or future debt agreements, including the indenture governing the senior unsecured notes, and the
senior secured credit facility, contain restrictive covenants, which may prohibit us from adopting
any of these alternatives. Our failure to comply with these covenants could result in an event of
default which, if not cured or waived, could result in the accelerations of all of our debt.
Seasonality
Although we believe our business is not materially impacted by seasonality, the demand for our
rental equipment tends to be lower in the winter months. The level of equipment rental activities
are directly related to commercial and industrial construction and maintenance activities.
Therefore, equipment rental performance will be correlated to the levels of current construction
activities. The severity of weather conditions can have a temporary impact on the level of
construction activities.
Equipment sales cycles are also subject to some seasonality with the peak selling period
during the spring season and extending through the summer. Parts and service activities are less
affected by changes in demand caused by seasonality.
Contractual and Commercial Commitments
There have been no material changes from the information included in our Annual Report on Form
10-K for the year ended December 31, 2008.
Off-Balance Sheet Arrangements
There have been no material changes from the information included in our Annual Report on Form
10-K for the year ended December 31, 2008.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our earnings
are affected by changes in interest rates due to the fact that interest on our
senior secured credit facility is calculated based upon LIBOR plus 125 basis points.
At March 31, 2009, we had $67.9 million of outstanding borrowings under our senior
secured credit facility. The interest rate in effect on those borrowings at March 31, 2009 was
approximately 2.76%. A 1.0% increase in the effective interest rate on our outstanding borrowings
at March 31, 2009 would increase our interest expense by approximately $0.7 million on an
annualized basis. We did not have significant exposure to changing interest rates as of March 31,
2009 on our fixed-rate senior unsecured notes or on our other notes payable. Historically, we have
not engaged in derivatives or other financial instruments for trading, speculative or hedging
purposes, though we may do so from time to time if such instruments are available to us on
acceptable terms and prevailing market conditions are accommodating.
Item 4. Controls and Procedures
Managements Quarterly Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and communicated to the Companys
management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required financial disclosure.
Our Chief Executive Officer and Chief Financial Officer (our principal executive officer and
principal financial officer, respectively) have evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(f) promulgated under the
Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly
Report on
29
Form 10-Q. Based on this evaluation, our principal executive officer and principal financial
officer have concluded that, as of March 31, 2009, our disclosure controls and procedures were
effective to provide reasonable assurance that material information required to be included in our
periodic SEC reports was recorded, processed, summarized and reported within the time periods
specified in rules and forms.
The design of any system of control is based upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated
objectives under all future events, no matter how remote, or that the degree of compliance with the
policies or procedures may not deteriorate. Because of its inherent limitations, disclosure
controls and procedures may not prevent or detect all misstatements. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of achieving their control
objectives.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting (as defined in
Exchange Act Rule 13a-15(f)) that occurred during the three month period ended March 31, 2009 that
have materially affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
We are party to various litigation matters, in most cases involving normal ordinary course and
routine claims incidental to our business. We cannot estimate with certainty our ultimate legal and
financial liability with respect to such pending matters. However, we believe, based on our
examination of such pending matters, that our ultimate liability for such matters will not have a
material adverse effect on our business, financial condition and/or operating results.
Item 1A. Risk Factors.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you
should carefully consider the factors discussed in Part I, Item 1A Risk Factors, in our Annual
Report on Form 10-K for the year ended December 31, 2008, which could materially affect our
business, financial condition or future results. The risks described in our Annual Report on Form
10-K are not the only risks facing our Company. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially adversely affect our
business, financial condition and/or operating results.
There have been no material changes with respect to the Companys risk factors previously
disclosed on Form 10-K for the year ended December 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
On February 22, 2009, 40,650 shares of non-vested stock that was issued in 2006 vested at
$5.75 per share. In accordance with the provisions of our 2006 Stock-Based Incentive Compensation
Plan, holders of those vested shares returned 14,884 common shares to the Company as payment for
their respective employee withholding taxes. This resulted in an addition of 14,884 shares to
Treasury Stock.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
30
Item 5. Other Information.
None.
Item 6. Exhibits.
A. Exhibits
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31.1 |
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
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|
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|
31.2 |
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
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|
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|
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|
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|
|
32.1 |
|
|
Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (furnished herewith). |
31
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
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|
|
H&E EQUIPMENT SERVICES, INC.
|
|
Dated: May 6, 2009 |
By: |
/s/ John M. Engquist
|
|
|
|
John M. Engquist |
|
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
Dated: May 6, 2009 |
By: |
/s/ Leslie S. Magee
|
|
|
|
Leslie S. Magee |
|
|
|
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer) |
|
|
32
EXHIBIT INDEX
|
|
|
31.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
|
|
31.2
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
|
|
|
32.1
|
|
Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 (furnished herewith). |
33
exv31w1
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, John M. Engquist, President and Chief Executive Officer of H&E Equipment Services, Inc., certify
that:
1. |
|
I have reviewed this quarterly report on Form 10-Q of H&E Equipment Services, Inc.; |
|
2. |
|
Based on my knowledge, this quarterly report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the
period covered by this quarterly report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
quarterly report; |
|
4. |
|
The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
|
designed such disclosure controls and procedures, or caused such internal control and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
|
|
(b) |
|
designed such internal control over financial reporting or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
|
|
(c) |
|
evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and |
|
|
(d) |
|
disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and |
5. |
|
The registrants other certifying officer and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit committee of the registrants Board of
Directors (or persons performing the equivalent function): |
|
(a) |
|
all significant deficiencies in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and |
|
|
(b) |
|
any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
|
|
|
|
|
|
|
|
Dated: May 6, 2009 |
By: |
/s/ John M. Engquist
|
|
|
|
John M. Engquist |
|
|
|
President and Chief Executive Officer
(Principal Executive Officer) |
|
|
exv31w2
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Leslie S. Magee, Chief Financial Officer and Secretary of H&E Equipment Services, Inc., certify
that:
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I have reviewed this quarterly report on Form 10-Q of H&E Equipment Services, Inc.; |
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Based on my knowledge, this quarterly report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the
period covered by this quarterly report; |
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Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this
quarterly report; |
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The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have: |
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designed such disclosure controls and procedures, or caused such internal control and
procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being
prepared; |
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designed such internal control over financial reporting or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles; |
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evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such
evaluation; and |
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disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrants internal control
over financial reporting; and |
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The registrants other certifying officer and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit committee of the registrants Board of
Directors (or persons performing the equivalent function): |
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all significant deficiencies in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and |
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(b) |
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any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrants internal control over financial reporting. |
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Dated: May 6, 2009 |
By: |
/s/ Leslie S. Magee
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Leslie S. Magee |
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Chief Financial Officer and Secretary
(Principal Financial Officer) |
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exv32w1
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of H&E Equipment Services, Inc. (the Company) on
Form 10-Q for the period ending March 31, 2009 as filed with the Securities and Exchange Commission
on the date hereof (the Report), I, John M. Engquist, President and Chief Executive Officer of
the Company, and Leslie S. Magee, Chief Financial Officer and Secretary of the Company, each
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of
2002, that:
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(1) |
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the Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
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(2) |
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the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
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Dated: May 6, 2009 |
By: |
/s/ John M. Engquist
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John M. Engquist |
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President and Chief Executive Officer
(Principal Executive Officer) |
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Dated: May 6, 2009 |
By: |
/s/ Leslie S. Magee
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Leslie S. Magee |
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Chief Financial Officer and Secretary
(Principal Financial Officer) |
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