UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

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

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

Commission file number: 000-51759

 

H&E Equipment Services, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		81-0553291
(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)

11100 Mead Road, Suite 200
Baton Rouge, Louisiana		70816
(Address of Principal Executive Offices)		(ZIP Code)

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

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

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

     Yes þ   No o

     Indicate by check mark whether the registrant 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):

     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 November 2, 2009, there were 34,908,871 shares of H&E Equipment Services, Inc. common stock, $0.01 par value, outstanding.

 

 

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
September 30, 2009

		Page
PART I. FINANCIAL INFORMATION			4
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008			4
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2009 and 2008			5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2009 and 2008			6
Notes to Condensed Consolidated Financial Statements (Unaudited)			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3. Quantitative and Qualitative Disclosures About Market Risk			37
Item 4. Controls and Procedures			38
PART II. OTHER INFORMATION			38
Item 1. Legal Proceedings			38
Item 1A. Risk Factors			38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 3. Defaults upon Senior Securities			39
Item 4. Submission of Matters to a Vote of Security Holders			39
Item 5. Other Information			39
Item 6. Exhibits			39
Signatures			40
EX-31.1
EX-31.2
EX-32.1

Forward-Looking Statements

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

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

	•		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;
	•		relationships with new equipment suppliers;
	•		increased maintenance and repair costs as we age our fleet and decreases in our equipment’s residual value;
	•		our indebtedness;
	•		the risks associated with the expansion of our business;
	•		our possible inability to integrate any businesses we acquire;
	•		competitive pressures;
	•		compliance with laws and regulations, including those relating to environmental matters and corporate governance matters; and
	•		other factors discussed under “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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

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

		Balances at
		September 30,				December 31,
		2009				2008
		(Unaudited)
ASSETS
Cash		$	8,699			$	11,266
Receivables, net of allowance for doubtful accounts of $5,905 and $5,524, respectively			89,722				150,293
Inventories, net of reserves for obsolescence of $870 and $920, respectively			109,544				129,240
Prepaid expenses and other assets			7,068				11,722
Rental equipment, net of accumulated depreciation of $217,798 and $210,961, respectively			460,459				554,457
Property and equipment, net of accumulated depreciation and amortization of $39,847 and $35,187, respectively			64,437				58,122
Deferred financing costs, net of accumulated amortization of $8,695 and $7,631, respectively			5,900				6,964
Intangible assets, net of accumulated amortization of $2,344 and $1,900, respectively			1,135				1,579
Goodwill			42,991				42,991
Total assets		$	789,955			$	966,634
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Amounts due on senior secured credit facility		$	3,020			$	76,325
Accounts payable			28,063				93,667
Manufacturer flooring plans payable			99,992				127,690
Accrued expenses payable and other liabilities			35,357				47,206
Related party obligation			—				145
Notes payable			1,937				1,959
Senior unsecured notes			250,000				250,000
Capital lease payable			2,211				2,300
Deferred income taxes			76,543				75,109
Deferred compensation payable			1,926				2,026
Total liabilities			499,049				676,427
Commitments and contingent liabilities
Stockholders’ equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued			—				—
Common stock, $0.01 par value, 175,000,000 shares authorized; 38,525,688 and 38,287,848 shares issued at September 30, 2009 and December 31, 2008, respectively, and 34,920,251 and 34,706,372 shares outstanding at September 30, 2009 and December 31, 2008, respectively			385				383
Additional paid-in capital			207,989				207,346
Treasury stock at cost, 3,605,437 and 3,581,476 shares of common stock held at September 30, 2009 and December 31, 2008, respectively			(56,115	)			(56,008	)
Retained earnings			138,647				138,486
Total stockholders’ equity			290,906				290,207
Total liabilities and stockholders’ equity		$	789,955			$	966,634

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

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenues:
Equipment rentals		$	45,108			$	78,181			$	150,669			$	224,626
New equipment sales			48,685				97,797				172,010				274,135
Used equipment sales			32,698				39,873				69,254				128,436
Parts sales			25,786				30,951				78,144				89,112
Services revenues			15,225				18,333				46,164				52,651
Other			8,126				13,512				25,824				38,097
Total revenues			175,628				278,647				542,065				807,057
Cost of revenues:
Rental depreciation			21,105				26,362				67,789				78,838
Rental expense			10,209				12,514				32,441				36,460
New equipment sales			43,549				84,739				150,519				237,449
Used equipment sales			27,069				30,578				56,482				97,960
Parts sales			18,952				21,809				56,339				62,815
Services revenues			5,646				6,592				17,059				19,016
Other			9,131				13,556				26,683				38,735
Total cost of revenues			135,661				196,150				407,312				571,273
Gross profit			39,967				82,497				134,753				235,784
Selling, general and administrative expenses			35,073				45,556				110,342				138,097
Gain on sales of property and equipment, net			289				219				472				515
Income from operations			5,183				37,160				24,883				98,202
Other income (expense):
Interest expense			(7,847	)			(9,495	)			(24,039	)			(29,193	)
Other, net			123				250				518				731
Total other expense, net			(7,724	)			(9,245	)			(23,521	)			(28,462	)
Income (loss) before provision (benefit) for income taxes			(2,541	)			27,915				1,362				69,740
Provision (benefit) for income taxes			(261	)			10,311				1,201				25,809
Net income (loss)		$	(2,280	)		$	17,604			$	161			$	43,931
Net income (loss) per common share:
Basic		$	(0.07	)		$	0.50			$	—			$	1.22
Diluted		$	(0.07	)		$	0.50			$	—			$	1.22
Weighted average common shares outstanding:
Basic			34,625				35,075				34,601				35,912
Diluted			34,625				35,090				34,638				35,918

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

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

		Nine Months Ended
		September 30,
		2009				2008
Cash flows from operating activities:
Net income		$	161			$	43,931
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization on property and equipment			8,250				8,329
Depreciation on rental equipment			67,789				78,838
Amortization of loan discounts and deferred financing costs			1,064				1,093
Amortization of intangible assets			444				2,108
Provision for losses on accounts receivable			2,761				1,743
Provision for inventory obsolescence			47				39
Provision for deferred income taxes			1,434				24,484
Stock-based compensation expense			645				1,043
Gain on sales of property and equipment, net			(472	)			(515	)
Gain on sales of rental equipment, net			(12,023	)			(28,121	)
Changes in operating assets and liabilities:
Receivables, net			57,810				7,792
Inventories, net			10,685				(17,817	)
Prepaid expenses and other assets			4,654				(3,807	)
Accounts payable			(65,604	)			(1,688	)
Manufacturer flooring plans payable			(27,698	)			(21,598	)
Accrued expenses payable and other liabilities			(11,844	)			(308	)
Deferred compensation payable			(100	)			53
Net cash provided by operating activities			38,003				95,599
Cash flows from investing activities:
Acquisition of business, net of cash acquired			—				(10,461	)
Purchases of property and equipment			(15,428	)			(16,526	)
Purchases of rental equipment			(10,222	)			(113,316	)
Proceeds from sales of property and equipment			1,335				1,113
Proceeds from sales of rental equipment			57,418				99,237
Net cash provided by (used in) investing activities			33,103				(39,953	)
Cash flows from financing activities:
Excess tax deficiency from stock-based awards			—				(44	)
Purchases of treasury stock			(107	)			(42,577	)
Borrowings on senior secured credit facility			534,373				810,223
Payments on senior secured credit facility			(607,678	)			(824,474	)
Payments of related party obligation			(150	)			(225	)
Payments of capital lease obligation			(89	)			(83	)
Principal payments on notes payable			(22	)			(21	)
Net cash used in financing activities			(73,673	)			(57,201	)
Net decrease in cash			(2,567	)			(1,555	)
Cash, beginning of period			11,266				14,762
Cash, end of period		$	8,699			$	13,207

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

		Nine Months Ended
		September 30,
		2009				2008
Supplemental schedule of noncash investing and financing activities:
Noncash asset purchases:
Assets transferred from new and used inventory to rental fleet		$	8,964			$	41,357
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	28,408			$	33,386
Income taxes, net of refunds received		$	275			$	1,659

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

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

(1) Organization and Nature of Operations

Basis of Presentation

     Our condensed consolidated financial statements include the financial position and results of operations of H&E Equipment Services, Inc. and its wholly-owned subsidiaries: H&E Finance Corp., GNE Investments, Inc., Great Northern Equipment, Inc., H&E California Holdings, Inc., H&E Equipment Services (California) LLC and H&E Equipment Services (Mid-Atlantic), Inc., 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 and nine months ended September 30, 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 acquisitions are included in the condensed consolidated financial statements from their respective dates of acquisition.

     We have evaluated all subsequent events through November 4, 2009, the date the condensed consolidated financial statements were issued.

     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.

     Use of Estimates

     We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, which require 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.

     Subsequent Events

     Pursuant to Financial Accounting Standards Board Accounting Standards Codification 855-10, we have evaluated all events or transactions that occurred from September 30, 2009 through November 4, 2009, the date our condensed consolidated financial statements were issued. We did not have any material recognizable subsequent events during this period.

     Accounting Pronouncements Adopted in Fiscal Year 2009

     In December 2007, the Financial Accounting Standards Board (“FASB”) issued guidance now codified as FASB Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). ASC 805 replaces prior guidance on business combinations and 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 prior guidance, changes in valuation allowances, as a result of income from acquisitions, for certain deferred tax assets would serve to reduce goodwill whereas under ASC 805, 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. Under ASC 805 transaction related expenses, which were previously capitalized as direct costs of the acquisition, will be expensed as incurred. We will apply the provisions of ASC 805 prospectively to business combinations consummated after January 1, 2009. The impact that ASC 805 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 April 2009, the FASB issued updated guidance related to business combinations, which is now codified as FASB ASC 805-20, Business Combinations — Identifiable Assets, Liabilities and Any Noncontrolling Interest (“ASC 805-20”). ASC 805-20 amends and clarifies ASC 805 to address application issues regarding initial recognition and measurement, subsequent measurement and accounting and disclosure of assets and liabilities arising from contingencies in a business combination. In circumstances where the acquisition date fair value for a contingency cannot be determined during the measurement period and it is concluded that it is probable that an asset or liability exists as of the acquisition date and the amount can be reasonably estimated, a contingency is recognized as of the acquisition date based on the estimated amount. ASC 805-20 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact that ASC 805-20 may have on our financial condition, results of operations or cash flows will depend upon the nature of the related acquisition contingency.

     In February 2008, the FASB issued updated guidance related to fair value measurements, which is included in the Codification in ASC 820-10, Fair Value Measurements and Disclosures — Overall — Implementation Guidance and Illustrations. The updated guidance provided a one year deferral of the effective date of ASC 820-10 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. We adopted the provisions of ASC 820-10 for non-financial assets and non-financial liabilities effective January 1, 2009, and such adoption did not have a material impact on our condensed consolidated results of operations or financial condition.

     Effective April 1, 2009, we adopted FASB ASC 820-10-65, Fair Value Measurements and Disclosures — Overall — Transition and Open Effective Date Information (“ASC 820-10-65”). ASC 820-10-65 provides additional guidance for estimating fair value in accordance with ASC 820-10 when the volume and level of activity for an asset or liability have significantly decreased. ASC 820-10-65 also includes guidance on identifying circumstances that indicate a transaction is not orderly. The adoption of ASC 820-10-65 did not have an impact on our condensed consolidated results of operations or financial condition.

     Effective July 1, 2009, we adopted FASB Accounting Standards Update (“ASU”) No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures — Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability.

ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on our condensed consolidated results of operations or financial condition.

     In April 2008, the FASB issued updated guidance now codified as FASB ASC 350-30, Determination of the Useful Life of Intangible Assets (“ASC 350-30”). ASC 350-30 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 ASC 350-10, Goodwill and Other Intangible Assets. The intent of ASC 350-30 is to improve the consistency between the useful life of a recognized intangible asset under ASC 350-10 and the period of expected cash flows used to measure the fair value of the asset under ASC 350-10 and other generally accepted accounting principles. Our adoption of ASC 350-30 effective January 1, 2009 did not have a material impact on our condensed consolidated financial statements.

     Effective April 1, 2009, we adopted FASB ASC 825-10-65, Financial Instruments — Overall — Transition and Open Effective Date Information (“ASC 825-10-65”). ASC 825-10-65 amends ASC 825-10 to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements and also amends ASC 270-10 to require those disclosures in all interim financial statements. See note 3 to the condensed consolidated financial statements included herein for these related disclosures.

     Effective April 1, 2009, we adopted FASB ASC 855-10, Subsequent Events — Overall (“ASC 855-10”), which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this statement sets forth (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of ASC 855-10 did not have a material effect on our condensed consolidated financial statements. See note 1 to the condensed consolidated financial statements included herein for disclosure required under ASC 855-10.

     In June 2009, the FASB issued guidance now codified as FASB ASC Topic 105, Generally Accepted Accounting Principles (“ASC 105”) as the single source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP, aside from those issued by the SEC. ASC 105 does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. ASC 105 became effective for us in our third quarter ending September 30, 2009. The adoption of ASC 105 did not have a material impact on our financial position, results of operations or cash flows, but does impact our financial reporting process by eliminating all references to pre-codification standards.

     Accounting Pronouncements Not Yet Adopted

     In June 2009, the FASB issued Statement of FAS No. 167, Amendments to FASB Interpretation No. 46(R), which has not yet been codified in the ASC. This guidance is a revision to pre-existing guidance pertaining to the consolidation and disclosures of variable interest entities. Specifically, it changes how a reporting entity determines when or if an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. This guidance will require a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. This guidance will be effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009. Early application is not permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements, if any, upon adoption.

     In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements (amendments to FASB ASC Topic 605, Revenue Recognition) (“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. We are currently evaluating the impact, if any, the adoption of this statement will have on our consolidated financial statements.

(3) Fair Value of Financial Instruments

     Pursuant to our adoption of ASC 825-10-65, the following information provides additional disclosures concerning our financial instruments.

     The carrying value of financial instruments reported in our accompanying condensed consolidated balance sheets for cash, accounts receivable, accounts payable and accrued expenses payable and other liabilities approximate fair value due to the immediate or short-term nature or maturity of these financial instruments. The carrying amount for our senior secured credit facility approximates fair value because the underlying instrument includes provisions to adjust our interest rates based on current market rates. The determination of the fair value of our letters of credit is based on fees currently charged for similar agreements. The carrying amounts and fair values of our other financial instruments subject to fair value disclosures have been calculated based upon market quotes and present value calculations based on our current estimated incremental borrowing rates for similar types of borrowing arrangements, which are presented in the table below (amounts in thousands):

		September 30, 2009
		Carrying Amount				Fair Value
Manufacturer flooring plans payable with interest computed at 7.00%		$	99,992			$	84,873
Senior unsecured notes with interest compounded at 8.375%			250,000				232,500
Notes payable to lenders with interest computed at 7.25% to 9.55%			1,937				1,432
Capital lease payable with interest computed at 5.929%			2,211				2,011
Letters of credit			—				118

		December 31, 2008
		Carrying Amount				Fair Value
Manufacturer flooring plans payable with interest computed at 7.25%		$	127,690			$	105,053
Senior unsecured notes with interest compounded at 8.375%			250,000				132,500
Notes payable to lenders with interest computed at 7.25% to 9.55%			1,959				1,249
Capital lease payable with interest computed at 5.929%			2,300				2,210
Letters of credit			—				87

(4) Stockholders’ Equity

     The following table summarizes the activity in Stockholders’ Equity for the nine month period ended September 30, 2009 (amounts in thousands, except share data):

		Common Stock								Additional												Total
		Shares								Paid-in				Treasury				Retained				Stockholders’
		Issued				Amount				Capital				Stock				Earnings				Equity
Balances at December 31, 2008			38,287,848			$	383			$	207,346			$	(56,008	)		$	138,486			$	290,207
Stock-based compensation			—				—				643				—				—				643
Surrendered shares			—				—				—				(107	)			—				(107	)
Issuance of non-vested common stock			237,840				2				—				—				—				2
Net income			—				—				—				—				161				161
Balances at September 30, 2009			38,525,688			$	385			$	207,989			$	(56,115	)		$	138,647			$	290,906

(5) Stock-Based Compensation

     We account for our stock-based compensation plan using the fair value recognition provisions of FASB ASC Topic 718, Stock Compensation (“ASC 718”). Under the provisions of ASC 718, 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). There were 4,112,332 shares of common stock available for future stock-based payment awards under our Stock Incentive Plan as of September 30, 2009.

Non-vested Restricted Stock

     The following table summarizes our non-vested stock activity for the nine months ended September 30, 2009:

						Weighted
		Number of				Average Grant
		Shares				Date Fair Value
Non-vested restricted stock at December 31, 2008			136,404			$	15.77
Granted			237,840			$	6.64
Vested			(72,569	)		$	19.07
Forfeited			(6,798	)		$	7.75
Non-vested restricted stock at September 30, 2009			294,877			$	7.78

     On June 1 and June 2, 2009, we issued non-vested restricted stock grants for 227,260 shares and 10,580 shares, respectively. Compensation expense was determined based on the $6.62 and $7.09 quoted market price of our common stock on the June 1, 2009 and June 2, 2009 grant dates, respectively, applied to the total number of shares that were anticipated to fully vest. As of September 30, 2009, we have unrecognized compensation expense of $2.0 million related to non-vested restricted stock that is expected to be recognized over a weighted-average period of 2.4 years. The following table summarizes compensation expense included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations for the three and nine month periods ended September 30, 2009 and 2008 (amounts in thousands):

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Compensation expense		$	220			$	344			$	594			$	845

Stock Options

     At September 30, 2009, there was $15,000 of unrecognized compensation expense related to stock option awards that is expected to be recognized over a weighted-average period of 1.0 years. The following table summarizes compensation expense included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations for the three and nine month periods ended September 30, 2009 and 2008 (amounts in thousands):

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Compensation expense		$	6			$	68			$	51			$	198

     The following table represents stock option activity for the nine months ended September 30, 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 September 30, 2009			51,000			$	24.80				6.5
Options exercisable at September 30, 2009			49,000			$	24.74				6.5

     The closing price of our common stock on September 30, 2009 was $11.33. All options outstanding at September 30, 2009 have grant date fair values which exceed the September 30, 2009 closing stock price.

     The following table summarizes non-vested stock option activity for the nine months ended September 30, 2009:

						Weighted Average
						Grant Date Fair
		Number of Shares				Value
Non-vested stock options at December 31, 2008			19,000			$	24.95
Granted			—				—
Vested			(17,000	)		$	24.80
Forfeited			—				—
Non-vested stock options at September 30, 2009			2,000			$	26.27

(6) 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 inventories are deployed to more profitable branches within our geographic footprint where demand is higher.

     During the nine months ended September 30, 2009, we closed or consolidated four branches. Under FASB ASC Topic 420, Exit or Disposal Cost Obligations, 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 these branch closings, we recorded charges of approximately $0.2 million and $0.5 million, respectively, for the three and nine month periods ended September 30, 2009. These charges consist primarily of the writeoff of leasehold improvements and the estimated costs that will continue to be incurred under operating leases that have no future economic benefit to the Company. These estimated lease costs represent the fair value of the liability at the cease-use date. The fair value of the liability is determined based on the present value of remaining lease rentals, reduced by estimated sublease rentals that could be reasonably obtained for the property even if the Company does not intend to enter into a sublease. Although we do not expect to incur material charges for branch closures occurring prior to September 30, 2009, additional charges are possible to the extent that actual future settlements differ from our estimates of such costs.

(7) Earnings (Loss) Per Share

     Basic earnings (loss) per common share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the reported 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 potential dilution that could occur upon the vesting of restricted stock or exercise of stock options into common stock is not included in the computation of diluted loss per share. The

following table sets forth the computation of basic and diluted net income (loss) per common share for the three and nine month periods ended September 30, 2009 and 2008 (amounts in thousands, except per share amounts):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Basic net income (loss) per share:
Net income (loss)		$	(2,280	)		$	17,604			$	161			$	43,931
Weighted average number of shares of common stock outstanding			34,625				35,075				34,601				35,912
Net income (loss) per share of common stock — basic		$	(0.07	)		$	0.50			$	—			$	1.22
Diluted net income (loss) per share:
Net income (loss)		$	(2,280	)		$	17,604			$	161			$	43,931
Weighted average number of shares of common stock outstanding			34,625				35,075				34,601				35,912
Effect of dilutive securities:
Effect of dilutive stock options			—				—				—				—
Effect of dilutive non-vested stock			—				15				37				6
Weighted average number of shares of common stock outstanding — diluted			34,625				35,090				34,638				35,918
Net income (loss) per share of common stock — diluted		$	(0.07	)		$	0.50			$	—			$	1.22
Common shares excluded from the denominator as anti-dilutive:
Stock options			51				51				51				51
Non-vested restricted stock			291				96				61				32

(8) Senior Secured Credit Facility

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

     At September 30, 2009, the interest rate on the senior secured credit facility was LIBOR plus 150 basis points, or approximately 2.77%. 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 Company’s domestic subsidiaries (see note 10 to the condensed consolidated financial statements). The balance outstanding on the senior secured credit facility as of September 30, 2009 was approximately $3.0 million. Additional borrowings available under the terms of the senior secured credit facility as of September 30, 2009, net of approximately $7.8 million of standby letters of credit outstanding, totaled $309.2 million. The average interest rate on our outstanding borrowings for the three and nine month periods ended September 30, 2009 was approximately 2.35% and 2.33%, respectively. As of September 30, 2009, we were in compliance with our financial covenant under the senior secured credit facility.

(9) Segment Information

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

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

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenues:
Equipment rentals		$	45,108			$	78,181			$	150,669			$	224,626
New equipment sales			48,685				97,797				172,010				274,135
Used equipment sales			32,698				39,873				69,254				128,436
Parts sales			25,786				30,951				78,144				89,112
Services revenues			15,225				18,333				46,164				52,651
Total segmented revenues			167,502				265,135				516,241				768,960
Non-segmented revenues			8,126				13,512				25,824				38,097
Total revenues		$	175,628			$	278,647			$	542,065			$	807,057
Gross profit (loss):
Equipment rentals		$	13,794			$	39,305			$	50,439			$	109,328
New equipment sales			5,136				13,058				21,491				36,686
Used equipment sales			5,629				9,295				12,772				30,476
Parts sales			6,834				9,142				21,805				26,297
Services revenues			9,579				11,741				29,105				33,635
Total segmented gross profit			40,972				82,541				135,612				236,422
Non-segmented gross loss			(1,005	)			(44	)			(859	)			(638	)
Total gross profit		$	39,967			$	82,497			$	134,753			$	235,784

		Balances at
		September 30,				December 31,
		2009				2008
Segment identified assets:
Equipment sales		$	93,477			$	108,109
Equipment rentals			460,459				554,457
Parts and services			16,067				21,131
Total segment identified assets			570,003				683,697
Non-segment identified assets			219,952				282,937
Total assets		$	789,955			$	966,634

     The Company operates primarily in the United States and our sales to international customers for the three and nine month periods ended September 30, 2009 were approximately 1.2% and 4.9%, respectively, of total revenues compared to 4.9% and 4.3% for the three and nine month periods ended September 30, 2008. No one customer accounted for more than 10% of our revenues on an overall or segment basis for any of the periods presented.

(10) Condensed Consolidating Financial Information of Guarantor Subsidiaries

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

     The condensed consolidating financial statements of H&E Equipment Services, Inc. and its subsidiaries are included below. The financial statements for H&E Finance Corp. 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.

CONDENSED CONSOLIDATING BALANCE SHEET

		As of September 30, 2009
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
						(Amounts in thousands)
Assets:
Cash		$	8,689			$	10			$	—			$	8,699
Receivables, net			76,611				13,111				—				89,722
Inventories, net			81,520				28,024				—				109,544
Prepaid expenses and other assets			6,921				147				—				7,068
Rental equipment, net			354,365				106,094				—				460,459
Property and equipment, net			52,772				11,665				—				64,437
Deferred financing costs, net			5,900				—				—				5,900
Intangible assets, net			—				1,135				—				1,135
Investment in guarantor subsidiaries			(949	)			—				949				—
Goodwill			5,643				37,348				—				42,991
Total assets		$	591,472			$	197,534			$	949			$	789,955
Liabilities and Stockholders’ Equity (Deficit):
Amount due on senior secured credit facility		$	3,020			$	—			$	—			$	3,020
Accounts payable			27,561				502				—				28,063
Manufacturer flooring plans payable			99,992				—				—				99,992
Accrued expenses payable and other liabilities			33,912				1,445				—				35,357
Intercompany balances			(193,609	)			193,609				—				—
Notes payable			1,221				716				—				1,937
Senior unsecured notes			250,000				—				—				250,000
Capital lease payable			—				2,211				—				2,211
Deferred income taxes			76,543				—				—				76,543
Deferred compensation payable			1,926				—				—				1,926
Total liabilities			300,566				198,483				—				499,049
Stockholders’ equity (deficit)			290,906				(949	)			949				290,906
Total liabilities and stockholders’ equity		$	591,472			$	197,534			$	949			$	789,955

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

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

		Three Months Ended September 30, 2009
		H&E Equipment				Guarantor
		Services				Subsidiaries				Elimination				Consolidated
		(Amounts in thousands)
Revenues:
Equipment rentals		$	35,724			$	9,384			$	—			$	45,108
New equipment sales			37,087				11,598				—				48,685
Used equipment sales			30,338				2,360				—				32,698
Parts sales			21,503				4,283				—				25,786
Services revenues			13,441				1,784				—				15,225
Other			6,516				1,610				—				8,126
Total revenues			144,609				31,019				—				175,628
Cost of revenues:
Rental depreciation			16,425				4,680				—				21,105
Rental expense			8,142				2,067				—				10,209
New equipment sales			32,944				10,605				—				43,549
Used equipment sales			25,014				2,055				—				27,069
Parts sales			15,835				3,117				—				18,952
Services revenues			5,026				620				—				5,646
Other			7,077				2,054				—				9,131
Total cost of revenues			110,463				25,198				—				135,661
Gross profit (loss):
Equipment rentals			11,157				2,637				—				13,794
New equipment sales			4,143				993				—				5,136
Used equipment sales			5,324				305				—				5,629
Parts sales			5,668				1,166				—				6,834
Services revenues			8,415				1,164				—				9,579
Other			(561	)			(444	)			—				(1,005	)
Gross profit			34,146				5,821				—				39,967
Selling, general and administrative expenses			29,137				5,936				—				35,073
Equity in loss of guarantor subsidiaries			(3,086	)			—				3,086				—
Gain on sales of property and equipment, net			180				109				—				289
Income (loss) from operations			2,103				(6	)			3,086				5,183
Other income (expense):
Interest expense			(4,729	)			(3,118	)			—				(7,847	)
Other, net			85				38				—				123
Total other expense, net			(4,644	)			(3,080	)			—				(7,724	)
Loss before benefit for income taxes			(2,541	)			(3,086	)			3,086				(2,541	)
Benefit for income taxes			(261	)			—				—				(261	)
Net loss		$	(2,280	)		$	(3,086	)		$	3,086			$	(2,280	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

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