e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended
December 31, 2010 |
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
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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 or Other Jurisdiction
of Incorporation or Organization)
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(IRS Employer Identification No.) |
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11100 Mead Road, Suite 200,
Baton Rouge, Louisiana 70816
(Address of Principal Executive Offices,
including Zip Code)
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(225) 298-5200
(Registrants Telephone Number, Including Area Code) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered |
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Common Stock, par value $0.01 per share
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Nasdaq Global Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405) is not contained herein, and will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
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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
Act). Yes o No þ
The aggregate market value of the common stock held by non-affiliates of the registrant was
approximately $206,531,994 (computed by reference to the closing sale price of the registrants
common stock on the Nasdaq Global Market on June 30, 2010, the last business day of the
registrants most recently completed second fiscal quarter).
As of March 1, 2011, there were 35,029,804 shares of common stock, par value $0.01 per share, of
the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the document listed below have been incorporated by reference into the indicated parts
of this Form 10-K, as specified in the responses to the item numbers involved.
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Part III |
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The registrants definitive proxy statement, for use in
connection with the Annual Meeting of Stockholders, to be filed
within 120 days after the registrants fiscal year ended
December 31, 2010. |
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the
federal securities laws. Statements that are not historical facts, including statements about our
beliefs and expectations, are forward-looking statements. Forward-looking statements include
statements preceded by, followed by or that include the words may, could, would, should,
believe, expect, anticipate, plan, estimate, target, project, intend, foresee and
similar expressions. These statements include, among others, statements regarding our expected
business outlook, anticipated financial and operating results, our business strategy and means to
implement the strategy, our objectives, the amount and timing of capital expenditures, the
likelihood of our success in expanding our business, financing plans, budgets, working capital
needs and sources of liquidity.
Forward-looking statements are only predictions and are not guarantees of performance. These
statements are based on our 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 marketing 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
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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 depth and duration of the recent
macroeconomic downturn and related decreases in construction and industrial activities,
which may continue to significantly affect our revenues and operating results; |
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the impact of conditions in the global credit markets and their effect on construction
spending and the economy in general; |
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relationships with 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 Item 1A Risk Factors or elsewhere in this Annual Report
on Form 10-K. |
Except as required by applicable law, including the securities laws of the United States and
the rules and regulations of the Securities and Exchange Commission (SEC), we are under no
obligation to publicly update or revise any forward-looking statements after we file this Annual
Report on Form 10-K, whether as a result of any new information, future events or otherwise.
Investors, potential investors and other readers are urged to consider the above mentioned factors
carefully in evaluating the forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements. Although we believe that the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee future results or performance.
SPECIAL NOTE REGARDING THE REGISTRANT
In connection with our initial public offering of our common stock in February 2006, we
converted H&E Equipment Services L.L.C. (H&E LLC), a Louisiana limited liability company and the
wholly-owned operating subsidiary of H&E Holding L.L.C. (H&E Holdings), into H&E Equipment
Services, Inc., a Delaware corporation. Prior to our initial public offering, our business was
conducted through H&E LLC. In order to have an operating Delaware corporation as the issuer for
our initial public offering, H&E Equipment Services, Inc. was formed as a Delaware corporation and
a wholly-owned subsidiary of H&E Holdings, and immediately prior to the closing of the initial
public offering on February 3, 2006, H&E LLC and H&E Holdings merged with and into us (H&E
Equipment Services, Inc.), with us surviving the reincorporation merger as the operating company.
Effective February 3, 2006, H&E LLC and Holdings no longer existed under operation of law pursuant
to the reincorporation merger. In these transactions, holders of preferred limited liability
company interests and holders of common limited liability company interests in H&E Holdings
received shares of our common stock. We refer to these transactions collectively in this Annual
Report on Form 10-K as the Reorganization Transactions. Unless we state otherwise, the
information in this Annual Report on Form 10-K gives effect to these Reorganization Transactions.
Also, except where specifically noted, references in this Annual Report on Form 10-K to the
Company, we or us mean H&E Equipment Services L.L.C. for periods prior to February 3, 2006,
and H&E Equipment Services, Inc. for periods on or after February 3, 2006.
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PART I
Item 1. Business
The Company
We are one of the largest integrated equipment services companies in the United States focused
on heavy construction and industrial equipment. We rent, sell and provide parts and service support
for four core categories of specialized equipment: (1) hi-lift or aerial work platform equipment;
(2) cranes; (3) earthmoving equipment; and (4) industrial lift trucks. We engage in five principal
business activities in these equipment categories:
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equipment rentals; |
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new equipment sales; |
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used equipment sales; |
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parts sales; and |
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repair and maintenance services. |
By providing rental, sales, parts, repair and maintenance functions under one roof, we offer
our customers a one-stop solution for their equipment needs. This full-service approach provides us
with (1) multiple points of customer contact; (2) cross-selling opportunities among our rental, new
and used equipment sales, parts sales and services operations; (3) an effective method to manage
our rental fleet through efficient maintenance and profitable distribution of used equipment; and
(4) a mix of business activities that enables us to operate effectively throughout economic cycles.
We believe that the operating experience and extensive infrastructure we have developed throughout
our history as an integrated services company provide us with a competitive advantage over
rental-focused companies and equipment distributors. In addition, our focus on four core categories
of heavy construction and industrial equipment enables us to offer specialized knowledge and
support to our customers. For the year ended December 31, 2010, we generated total revenues of
approximately $574.2 million. The pie charts below illustrate a breakdown of our revenues and gross
profit (loss) for the year ended December 31, 2010 by business segment (see note 18 to our
consolidated financial statements for further information regarding our business segments):
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Revenue by Segment ($ in
millions)
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Gross Profit (Loss) in
Segments ($ in millions)
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We have operated, through our predecessor companies, as an integrated equipment services
company for approximately 50 years and have built an extensive infrastructure that includes 67
full-service facilities (as of March 1, 2011) located throughout the West Coast, Intermountain,
Southwest, Gulf Coast, Southeast and Mid-Atlantic regions of the United States. Our management,
from the corporate level down to the branch store level, has extensive industry experience. We
focus our rental and sales activities on, and organize our personnel principally by, our four core
equipment categories. We believe this allows us to provide specialized equipment knowledge, improve
the effectiveness of our rental and sales forces and strengthen our customer relationships. In
addition, we operate our day-to-day business on a branch basis, which we believe allows us to more
closely service our customers, fosters management accountability at local levels and strengthens
our local and regional relationships.
Products and Services
Equipment Rentals. We rent our heavy construction and industrial equipment to our customers on
a daily, weekly and monthly basis. We have a well-maintained rental fleet that, at December 31,
2010, consisted of 16,270 pieces of equipment having an original acquisition cost (which we define
as the cost originally paid to manufacturers or the original amount financed under operating
leases) of approximately $685.1 million and an average age of approximately 43.1 months. Our rental
business creates cross-selling opportunities for us in sales and service support activities.
New Equipment Sales. We sell new heavy construction and industrial equipment in all four core
equipment categories, and are a leading U.S. distributor for nationally recognized suppliers
including JLG Industries, Gehl, Genie Industries (Terex), Komatsu, and Bobcat. In addition, we are
the worlds largest distributor of Grove and Manitowoc crane equipment. Our new equipment sales
operation is a source of new customers for our parts sales and service support activities, as well
as for used equipment sales.
Used Equipment Sales. We sell used equipment primarily from our rental fleet, as well as
inventoried equipment that we acquire through trade-ins from our customers and selective purchases
of high-quality used equipment. For the year ended December 31, 2010, approximately 76.5% of our
used equipment sales revenues were derived from sales of rental fleet equipment. Used equipment
sales, like new equipment sales, generate parts and service business for us.
Parts Sales. We sell new and used parts to customers and also provide parts to our own rental
fleet. We maintain an extensive in-house parts inventory in order to provide timely parts and
service support to our customers as well as to our own rental fleet. In addition, our parts
operations enable us to maintain a high quality rental fleet and provide additional product support
to our end users.
Service Support. We provide maintenance and repair services for our customers owned equipment
and to our own rental fleet. In addition to repair and maintenance on an as-needed or scheduled
basis, we provide ongoing preventative maintenance services and warranty repairs for our customers.
We devote significant resources to training these technical service employees and over time, we
have built a full-scale services infrastructure that we believe would be difficult for companies
without the requisite resources and lead time to effectively replicate.
In addition to our principal business activities mentioned above, we provide ancillary
equipment support activities including transportation, hauling, parts shipping and loss damage
waivers.
Industry Background
The U.S. construction equipment distribution industry is fragmented and consists mainly of a
small number of multi-location regional or national operators and a large number of relatively
small, independent businesses serving discrete local markets. This industry is driven by a broad
range of economic factors including total U.S. non-residential construction trends, construction
machinery demand, and demand for rental equipment and has been adversely affected by the recent
economic downturn and the related decline in construction and industrial activities. Construction
equipment is largely distributed to end users through two channels: equipment rental companies and
equipment dealers. Examples of rental equipment companies include United Rentals, Hertz
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Equipment
Rental and Rental Service Corporation. Examples of equipment dealers include Finning and
Toromont. Unlike many of these companies which principally focus on one channel of
distribution, we operate substantially in both channels. As an integrated equipment services
company, we rent, sell and provide parts and service support. Although many of the historically
pure equipment rental companies also provide parts and service support to customers, their service
offerings are typically limited and may prove difficult to expand due to the infrastructure,
training and resources necessary to develop the breadth of offerings and depth of specialized
equipment knowledge that our service and sales staff provides.
Our Competitive Strengths
Integrated Platform of Products and Services. We believe that our operating experience and the
extensive infrastructure we have developed through years of operating as an integrated equipment
services company provide us with a competitive advantage over rental-focused companies and
equipment distributors. Key strengths of our integrated equipment services platform include:
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Ability to strengthen customer relationships by providing a full-range of products and services; |
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Purchasing power gained through purchases for our new equipment sales and rental operations; |
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High quality rental fleet supported by our strong product support capabilities; |
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Established retail sales network resulting in profitable disposal of our used equipment; and |
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Mix of business activities that enables us to effectively operate through economic cycles. |
Complementary, High Margin Parts and Service Operations. Our parts and service businesses
allow us to maintain our rental fleet in excellent condition and to offer our customers high
quality rental equipment. Our after-market parts and service businesses together provide us with a
high-margin revenue source that has proven to be relatively stable throughout a range of economic
cycles.
Specialized, High Quality Equipment Fleet. Our focus on four core types of heavy construction
and industrial equipment allows us to better provide the specialized knowledge and support that our
customers demand when renting and purchasing equipment. These four types of equipment are
attractive because they have a long useful life, high residual value and generally strong industry
demand.
Well-Developed Infrastructure. We have built an infrastructure that as of March 1, 2011
included a network of 67 full-service facilities, and a workforce that included a highly-skilled
group of approximately 509 service technicians and an aggregate of 228 sales people in our
specialized rental and equipment sales forces. We believe that our well-developed infrastructure
helps us to better serve large multi-regional customers than our historically rental-focused
competitors and provides an advantage when competing for lucrative fleet and project management
business.
Leading Distributor for Suppliers. We are a leading U.S. distributor for nationally-recognized
equipment suppliers, including JLG Industries, Gehl, Genie Industries (Terex), Komatsu and Bobcat.
In addition, we are the worlds largest distributor of Grove and Manitowoc crane equipment. These
relationships improve our ability to negotiate equipment acquisition pricing and allow us to
purchase parts at wholesale costs.
Customized Information Technology Systems. Our information systems allow us to actively manage
our business and our rental fleet. We have a customer relationship management system that provides
our sales force with real-time access to customer and sales information. In addition, our new
enterprise resource planning system (ERP) implemented in 2010 expands our ability to provide more
timely and meaningful information to manage our business.
Experienced Management Team. Our senior management team is led by John M. Engquist, our
President and Chief Executive Officer, who has approximately 36 years of industry experience. Our
senior and regional managers have an average of approximately 23 years of industry experience. Our
branch managers have extensive knowledge and industry experience as well.
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Our Business Strategy
During 2009 and 2010, we have faced unprecedented economic and business challenges, including
(i) a recessionary environment reflected by weak demand for our products and services and (ii)
unfavorable credit markets which limited our customers access to capital; and we face continuing
economic uncertainty into 2011. Please see Item 7-Managements Discussion and Analysis of
Financial Condition and Results of Operations-Overview for a discussion of some of the actions we
took in response to these economic challenges.
Our business strategy includes, among other things, leveraging our integrated business model,
managing the life cycle of our rental equipment, further developing our parts and services
operations and selectively entering new markets and pursuing acquisitions. However, the timing and
extent to which we implement these various aspects of our strategy depend on a variety of factors,
many of which are outside our control, such as general economic conditions and construction
activity in the United States.
Leverage Our Integrated Business Model. We intend to continue to actively leverage our
integrated business model to offer a one-stop solution to our customers varied needs with respect
to the four categories of heavy construction and industrial equipment on which we focus. We will
continue to cross-sell our services to expand and deepen our customer relationships. We believe
that our integrated equipment services model provides us with a strong platform for growth and
enables us to effectively operate through economic cycles.
Managing the Life Cycle of Our Rental Equipment. We actively manage the size, quality, age and
composition of our rental fleet, employing a cradle through grave approach. During the life of
our rental equipment, we (1) aggressively negotiate on purchase price; (2) use our customized
information technology systems to closely monitor and analyze, among other things, time utilization
(equipment usage based on customer demand), rental rate trends and targets and equipment demand;
(3) continuously adjust our fleet mix and pricing; (4) maintain fleet quality through regional
quality control managers and our on-site parts and services support; and (5) dispose of rental
equipment through our retail sales force. This allows us to purchase our rental equipment at
competitive prices, optimally utilize our fleet, cost-effectively maintain our equipment quality
and maximize the value of our equipment at the end of its useful life.
Grow Our Parts and Service Operations. Our strong parts and services operations are keystones
of our integrated equipment services platform and together provide us with a relatively stable
high-margin revenue source. Our parts and service operations help us develop strong, ongoing
customer relationships, attract new customers and maintain a high quality rental fleet. We intend
to further grow this product support side of our business and further penetrate our customer base.
Enter Carefully Selected New Markets. We intend to continue our strategy of selectively
expanding our network to solidify our presence in attractive and contiguous regions where we
operate. We look to add new locations in those markets that offer attractive growth opportunities,
high demand for construction and heavy equipment, and contiguity to our existing markets. During
2009, we opened new branch facilities in Sacramento, Nashville and Baltimore. During 2010, we
opened new branch facilities in Indianapolis, Louisville, Huntsville (Alabama) and Pasco
(Washington).
Make Selective Acquisitions. The equipment industry is fragmented and includes a large number
of relatively small, independent businesses servicing discrete local markets. Some of these
businesses may represent attractive acquisition candidates. We intend to evaluate and pursue
acquisitions on an opportunistic basis which meet our selection criteria, including favorable
financing terms, with the objective of increasing our revenues, improving our profitability,
entering additional attractive markets and strengthening our competitive position.
History
Through our predecessor companies, we have been in the equipment services business for
approximately 50 years. H&E Equipment Services L.L.C. was formed in June 2002 through the
combination of Head & Engquist Equipment, LLC (Head & Engquist), a wholly-owned subsidiary of
Gulf Wide Industries, L.L.C. (Gulf Wide), and ICM Equipment Company L.L.C. (ICM). Head &
Engquist, founded in 1961, and ICM, founded in 1971, were two leading regional, integrated
equipment service companies operating in contiguous geographic markets. In the June 2002
transaction, Head & Engquist and ICM were merged with and into Gulf Wide, which was renamed H&E
Equipment Services L.L.C. (H&E LLC). Prior to the combination, Head &
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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 reincorporation
merger.
We completed, effective as of February 28, 2006, the acquisition of all the outstanding
capital stock of Eagle High Reach Equipment, Inc. (now known as H&E California Holdings, Inc.) and
all of the outstanding equity interests of its subsidiary, Eagle High Reach Equipment, LLC (now
known as H&E Equipment Services (California) LLC) (collectively, Eagle or the Eagle
Acquisition). Prior to the acquisition, Eagle was a privately-held construction and industrial
equipment rental company serving the southern California construction and industrial markets out of
four branch locations.
We completed, effective as of September 1, 2007, the acquisition of all of the outstanding
capital stock of J.W. Burress, Incorporated (Burress or the Burress Acquisition) (now known as
H&E Equipment Services (Mid-Atlantic), Inc.). Prior to the acquisition, Burress was a
privately-held company operating primarily as a distributor in the construction and industrial
equipment markets out of 12 locations in four states in the Mid-Atlantic region of the United
States.
Customers
We serve approximately 28,500 customers in the United States, primarily in the West Coast,
Intermountain, Southwest, Gulf Coast, Southeast and Mid-Atlantic regions. Our customers include a
wide range of industrial and commercial companies, construction contractors, manufacturers, public
utilities, municipalities, maintenance contractors and a variety of other large industrial
accounts. They vary from small, single machine owners to large contractors and industrial and
commercial companies who typically operate under equipment and maintenance budgets. Our branches
enable us to closely service local and regional customers, while our well developed full-service
infrastructure enables us to effectively service multi-regional and national accounts. Our
integrated strategy enables us to satisfy customer requirements and increase revenues from
customers through cross-selling opportunities presented by the various products and services that
we offer. As a result, our five reporting segments generally derive their revenue from the same
customer base. In 2010, no single customer accounted for more than 1.8% of our total revenues, and
no single customer accounted for more than 10% of our revenue on a segmented basis. Our top ten
customers combined accounted for approximately 9.6% of our total revenues in 2010.
Sales and Marketing
We have two distinct, focused sales forces; one specializing in equipment rentals and one
focused specifically on new and used equipment sales. We believe maintaining separate sales forces
for equipment rental and equipment sales is important to our customer service, allowing us to
effectively meet the demands of different types of customers.
Both our rental sales force and equipment sales force are divided into smaller, product
focused teams which enhances the development of in-depth product application and technical
expertise. To further develop knowledge and experience, we provide our sales forces with extensive
training, including frequent factory and in-house training by manufacturer representatives
regarding the operational features, operator safety training and maintenance of new equipment. This
training is essential, as our sales personnel regularly call on customers job sites, often
assisting customers in assessing their immediate and ongoing equipment needs. In addition, we have
a commission-based compensation program for our sales forces.
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We maintain a company-wide customer relationship management system. We believe that this
comprehensive customer and sales management tool enhances our territory management program by
increasing the productivity and efficiency of our sales representatives and branch managers as they
are provided real-time access to sales and customer information.
We have developed strategies to identify target customers for our equipment services in all
markets. These strategies allow our sales force to identify frequent rental users, function as
advisors and problem solvers for our customers and accelerate the sales process in new operations.
While our specialized, well-trained sales force strengthens our customer relationships and
fosters customer loyalty, we also promote our business through marketing and advertising, including
industry publications, direct mail campaigns, the Internet and Yellow Pages.
Suppliers
We purchase a significant amount of equipment from the same manufacturers with whom we have
distribution agreements. We purchased approximately 73% of our new equipment and rental fleet from
three manufacturers (Grove/Manitowoc, Komatsu, and Genie) during the year ended December 31, 2010.
These relationships improve our ability to negotiate equipment acquisition pricing. As an
authorized distributor for a wide range of suppliers, we are also able to provide our customers
parts and service that in many cases are covered under the manufacturers warranty. We are a
leading U.S. distributor for nationally-recognized equipment suppliers including JLG Industries,
Gehl, Genie Industries (Terex), Komatsu, Bobcat, and Grove/Manitowoc. While we believe that we have
alternative sources of supply for the equipment we purchase in each of our principal product
categories, termination of one or more of our relationships with any of our major suppliers of
equipment could have a material adverse effect on our business, financial condition or results of
operations if we were unable to obtain adequate or timely rental and sales equipment.
Information Technology Systems
We have specialized information systems that track (1) rental inventory utilization
statistics; (2) maintenance and repair costs; (3) returns on investment for specific equipment
types; and (4) detailed operational and financial information for each piece of equipment. These
systems enable us to closely monitor our performance and actively manage our business, and include
features that were custom designed to support our integrated services platform. The point-of-sale
aspect of our systems enables us to link all of our facilities, permitting universal access to
real-time data concerning equipment located at the individual facility locations and the rental
status and maintenance history for each piece of equipment. In addition, our systems include, among
other features, on-line contract generation, automated billing, applicable sales tax computation
and automated rental purchase option calculation. We customized our customer relationship
management system to enable us to more effectively manage our sales territories and sales
representatives activity. This customer relationship management system provides sales and customer
information, available rental fleet and inventory information, a quote system and other
organizational tools to assist our sales forces. We maintain an extensive customer database which
allows us to monitor the status and maintenance history of our customers owned-equipment and
enables us to more effectively provide parts and service to meet their needs. All of our critical
systems run on servers and other equipment that is current technology and available from major
suppliers and serviceable through existing maintenance agreements.
In the first quarter of 2010, our new ERP system was implemented in 14 of the Companys
branches, as well as in the Companys centralized corporate accounting operations. During the
quarter ended June 30, 2010, the ERP system was implemented in our 53 remaining branches and it
will be implemented in new branches as they open.
Seasonality
Although our business is not significantly impacted by seasonality, the demand for our rental
equipment tends to be lower in the winter months. The level of equipment rental activities is
directly related to commercial and industrial construction and maintenance activities. Therefore,
equipment rental performance will be
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correlated to the levels of current construction activities. The severity of weather
conditions can have a temporary impact on the level of construction activities.
Equipment sales cycles are also subject to some seasonality with the peak selling period
during the spring season and extending through the summer. Parts and service activities are less
affected by changes in demand caused by seasonality.
Competition
The equipment industry is generally comprised of either pure rental equipment companies or
manufacturer dealer/distributorship companies. We are an integrated equipment services company and
rent, sell and provide parts and service support. Although there has been some past consolidation
within the equipment industry, the equipment industry remains fragmented and consists mainly of a
small number of multi-location regional or national operators and a large number of relatively
small, independent businesses serving discrete local markets. Many of the markets in which we
operate are served by numerous competitors, ranging from national and multi-regional equipment
rental companies (for example, United Rentals, Hertz Equipment Rental and RSC Equipment Rental) to
small, independent businesses with a limited number of locations.
We believe that participants in the equipment rental industry generally compete on the basis
of availability, quality, reliability, delivery and price. In general, large operators enjoy
substantial competitive advantages over small, independent rental businesses due to a distinct
price advantage. Many rental equipment companies parts and service offerings are limited and may
prove difficult to expand due to the training, infrastructure and management resources necessary to
develop the breadth of service offerings and depth of knowledge our service technicians are able to
provide. Some of our competitors have significantly greater financial, marketing and other
resources than we do.
Traditionally, equipment manufacturers distributed their equipment and parts through a network
of independent dealers with distribution agreements. As a result of consolidation and competition,
both manufacturers and distributors sought to streamline their operations, improve their costs and
gain market share. Our established, integrated infrastructure enables us to compete directly with
our competitors on either a local, regional or national basis. We believe customers place greater
emphasis on value-added services, teaming with equipment rental and sales companies who can meet
all of their equipment, parts and service needs.
Environmental and Safety Regulations
Our facilities and operations are subject to comprehensive and frequently changing federal,
state and local environmental and occupational health and safety laws. These laws regulate (1) the
handling, storage, use and disposal of hazardous materials and wastes and, if any, the associated
cleanup of properties affected by pollutants; (2) air quality; and (3) wastewater. We do not
currently anticipate any material adverse effect on our business or financial condition or
competitive position as a result of our efforts to comply with such requirements. Although we have
made and will continue to make capital and other expenditures to comply with environmental
requirements, we do not expect to incur material capital expenditures for environmental controls or
compliance.
In the future, federal, state or local governments could enact new or more stringent laws or
issue new or more stringent regulations concerning environmental and worker health and safety
matters, or effect a change in their enforcement of existing laws or regulations, that could affect
our operations. Also, in the future, contamination may be found to exist at our facilities or
off-site locations where we have sent wastes. There can be no assurance that we, or various
environmental regulatory agencies, will not discover previously unknown environmental
non-compliance or contamination. We could be held liable for such newly-discovered non-compliance
or contamination. It is possible that changes in environmental and worker health and safety laws or
liabilities from newly-discovered non-compliance or contamination could have a material adverse
effect on our business, financial condition and results of operations.
10
Employees
As of December 31, 2010, we had approximately 1,616 employees. Of these employees, 639 are
salaried personnel and 977 are hourly personnel. Our employees perform the following functions:
sales operations, parts operations, rental operations, technical service and office and
administrative support. Collective bargaining agreements relating to two branch locations cover
approximately 61 of our employees. We believe our relations with our employees are good, and we
have never experienced a work stoppage.
Generally, the total number of employees does not significantly fluctuate throughout the year.
However, acquisition activity or the opening of new branches may increase the number of our
employees or fluctuations in the level of our business activity could require some staffing level
adjustments in response to actual or anticipated customer demand.
Available Information
We file electronically with the SEC annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. The public may read and copy any
materials we have filed with or furnished to the SEC at the SECs Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-3330. The SEC maintains an Internet site
(www.sec.gov) that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. Copies of our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, ownership reports for insiders and any
amendments to these reports filed with or furnished to the SEC are available free of charge through
our internet website (www.he-equipment.com) as soon as reasonably practicable after filing with the
SEC. Additionally, we make available free of charge on our internet website:
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our Code of Conduct and Ethics; |
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the charter of our Corporate Governance and Nominating Committee; |
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the charter of our Compensation Committee; and |
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the charter of our Audit Committee. |
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Item 1A. Risk Factors
Investing in our securities involves a high degree of risk. You should consider carefully the
following risk factors and the other information in this Annual Report on Form 10-K, including our
consolidated financial statements and related notes, before making any investment decisions
regarding our securities. If any of the following risks actually occur, our business, financial
condition and operating results could be adversely affected. As a result, the trading price of our
securities could decline and you may lose part or all of your investment.
Our business has been adversely affected by the recent economic downturn and the related decline in
construction and industrial activities, and continued decreased demand for equipment or depressed
equipment rental rates and sales prices could result in additional declines in our revenues and
operating results.
Our equipment is principally used in connection with construction and industrial activities.
Consequently, the recent economic downturn, and particularly the weakness in the construction
industry and the decrease in industrial activity, has led to a significant decrease in the demand
for our new and used equipment and has depressed equipment rental rates and the sales prices for
the equipment we sell. Our business may also be negatively impacted, either temporarily or
long-term, by:
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a reduction in spending levels by customers; |
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unfavorable credit markets affecting end-user access to capital; |
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adverse changes in federal and local government infrastructure spending; |
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an increase in the cost of construction materials; |
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adverse weather conditions which may affect a particular region; |
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an increase in interest rates; or |
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terrorism or hostilities involving the United States. |
The recent economic downturn and the decline in construction and industrial related activity
has adversely affected our revenues and our operating results in 2009 and 2010, as reflected in
declining revenues and lower gross margins realized on our equipment rentals and on the sale of new
and used inventory. Although we have seen some recent improvements in our revenues and gross
margins, continued weakness or further deterioration in the non-residential construction and
industrial sectors caused by these or other factors could have a material adverse effect on our
financial position, results of operations and cash flows in the future and may also have a material
adverse effect on residual values realized on the disposition of our rental fleet.
The recent economic downturn makes it difficult for us to forecast trends, which may have an
adverse impact on our business and financial condition.
The recent economic downturn which has included, among other things, significant reductions
in available capital and liquidity from banks and other providers of credit, substantial reductions
and/or fluctuations in equity and currency values worldwide and concerns that the worldwide economy
may enter into a prolonged recessionary period make it increasingly difficult for us, our
customers and our suppliers to accurately forecast future product demand trends, which could cause
us to maintain excess equipment inventory and increase our equipment inventory carrying costs.
Alternatively, this forecasting difficulty could cause a shortage of equipment for sale or rental
that could result in an inability to satisfy demand for our products and a loss of market share as
the current economy improves.
Unfavorable conditions or further disruptions in the capital and credit markets may continue to
adversely impact business conditions and the availability of credit.
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Disruptions in the global capital and credit markets as a result of the recent economic
downturn, continuing economic uncertainty, changing or increased regulation, reduced alternatives
or failures of significant financial
institutions could adversely affect our customers ability to access capital and could
adversely affect our access to liquidity needed for business in the future. Additionally,
unfavorable market conditions could continue and impede the rate of economic recovery, which may
continue to depress demand for our products and services or make it more difficult for our
customers to obtain financing and credit on reasonable terms. Also more of our customers may be
unable to meet their payment obligations to us, increasing delinquencies and credit losses.
Moreover, our suppliers may be adversely impacted, causing disruption or delay of product
availability. These events could negatively impact our business, financial position, results of
operations and cash flows.
In addition, if the financial institutions that have extended line of credit commitments to us
are adversely affected by the conditions of the capital and credit markets, it may become unable to
fund borrowings under those credit commitments, which could have an adverse impact on our financial
condition and our ability to borrow funds, if needed, for working capital, acquisitions, capital
expenditures and other corporate purposes.
We have, and may incur, significant indebtedness and may be unable to service our debt. This
indebtedness could adversely affect our financial position, limit our available cash and our access
to additional capital and prevent us from growing our business.
We have a significant amount of indebtedness and may incur additional indebtedness. As of
December 31, 2010, our total indebtedness was $252.8 million, consisting of the aggregate amounts
outstanding under our senior unsecured notes ($250.0 million) and capital lease obligations ($2.8
million). Although the indenture for our senior unsecured notes limits our ability to incur
indebtedness, this limitation is subject to a number of significant exceptions and qualifications.
Moreover, the indenture does not impose any limitation on our incurrence of certain liabilities
that are not considered Indebtedness under the indenture (such as operating leases), nor does it
impose any limitation on the amount of liabilities incurred by our subsidiaries, if any, that might
be designated as Unrestricted Securities under the indenture.
At December 31, 2010, we had no outstanding borrowings under our secured credit facility and
had $312.0 million of borrowing availability. At March 1,
2011, we had no outstanding borrowings under our senior secured credit facility and had borrowing availability under the
senior secured credit facility of $313.0 million and we may be able to incur additional other
indebtedness. All borrowings under the senior secured credit facility as well as letters of credit
outstanding under the senior secured credit facility ($8.0 million at December 31, 2010) are
first-priority secured debt and effectively senior to our senior unsecured notes. Additionally, our
senior unsecured notes are effectively subordinated to our capital lease obligations and our
obligations under $75.1 million of first-priority secured manufacturer floor plan financings (to
the extent of the value of their collateral).
The level of our indebtedness could have important consequences, including:
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a portion of our cash flow from operations is dedicated to debt service and may not be
available for other purposes; |
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limiting our flexibility in planning for, or reacting to, changes in our business and
the industry in which we operate; |
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limiting our ability to obtain financing in the future for working capital, capital
expenditures and general corporate purposes, including acquisitions, and may impede our
ability to secure favorable lease terms; |
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making us more vulnerable to economic downturns and possibly limiting our ability to
withstand competitive pressures; and |
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placing us at a competitive disadvantage compared to our competitors with less
indebtedness. |
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To service our indebtedness, we will require a significant amount of cash. Our ability to generate
cash depends on many factors, some of which are beyond our control. An inability to service our
indebtedness could lead to a default under our senior secured credit facility and the indenture
governing our senior unsecured notes, which may result in an acceleration of our indebtedness.
To service our indebtedness, we will require a significant amount of cash. Our ability to pay
interest and principal in the future on our indebtedness and to fund our capital expenditures and
acquisitions will depend upon our future operating performance and the availability of refinancing
indebtedness, which will be affected by
prevailing economic conditions, the availability of capital, as well as financial, business
and other factors, some of which are beyond our control. For example, the recent economic downturn
and decline in construction and industrial activities have adversely affected our business and our
revenues.
Our future cash flow may not be sufficient to meet our obligations and commitments. If we are
unable to generate sufficient cash flow from operations in the future to service our indebtedness
and to meet our other commitments, we will be required to adopt one or more alternatives, such as
refinancing or restructuring our indebtedness, selling material assets or operations or seeking to
raise additional debt or equity capital. These actions may not be effected on a timely basis or on
satisfactory terms or at all, and these actions may not enable us to continue to satisfy our
capital requirements. In addition, our existing or future debt agreements, including the indenture
governing the senior unsecured notes and the senior secured credit facility agreement, may contain
restrictive covenants prohibiting us from adopting any of these alternatives. Our failure to comply
with these covenants could result in an event of default which, if not cured or waived, could
result in the acceleration of all of our indebtedness. See also Item 7Managements Discussion and
Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources.
Our senior secured credit facility and the indenture governing our senior unsecured notes contain
covenants that limit our ability to finance future operations or capital needs, or to engage in
other business activities.
The operating and financial restrictions and covenants in our debt agreements, including the
senior secured credit facility and the indenture governing our senior unsecured notes, may
adversely affect our ability to finance future operations or capital needs or to engage in other
business activities. Our senior secured credit facility requires us to maintain a minimum fixed
charge coverage ratio (as defined therein) and a maximum total leverage ratio (as defined therein),
in each case, in the event that our excess borrowing availability is below $40 million. Our
borrowing availability under the senior secured credit facility as of December 31, 2010 was $312.0
million, net of $8.0 million of letters of credit outstanding. The imposition of the minimum fixed
charge coverage ratio and maximum total leverage ratio may require that we limit our permitted
capital expenditures, take action to reduce debt or act in a manner contrary to our business
objectives. In addition, the senior secured credit facility and the indenture governing the senior
unsecured notes contain certain covenants that, among other things, restrict our and our restricted
subsidiaries ability to:
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incur additional indebtedness, assume a guarantee or issue preferred stock; |
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pay dividends or make other equity distributions or payments to or affecting our subsidiaries; |
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make certain investments; |
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create liens; |
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sell or dispose of assets or engage in mergers or consolidations; |
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engage in certain transactions with subsidiaries and affiliates; |
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enter into sale leaseback transactions; and |
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engage in certain business activities. |
These restrictions could limit our ability to obtain future financing, make strategic
acquisitions or needed capital expenditures, withstand economic downturns in our business or the
economy in general, conduct operations or otherwise take advantage of business opportunities that
may arise. A failure to comply with the
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restrictions contained in the senior secured credit
facility could lead to an event of default, which could result in an acceleration of our
indebtedness. Such an acceleration would constitute an event of default under the indenture
governing the senior unsecured notes. A failure to comply with the restrictions in the senior
unsecured notes indenture could result in an event of default under the indenture. Our future
operating results may not be sufficient to enable compliance with the covenants in the senior
secured credit facility, the indenture or other indebtedness or to remedy any such default. In
addition, in the event of an acceleration, we may not have or be able to obtain sufficient funds to
refinance our indebtedness or make any accelerated payments, including those under the senior
unsecured notes. Also, we may not be able to obtain new financing. Even if we were able to obtain
new financing, we cannot guarantee that the new financing will be on commercially reasonable terms
or terms that are acceptable to us. If we default on our indebtedness, our business financial
condition and results of
operations could be materially and adversely affected. We are currently in compliance with the
applicable covenants under our senior secured credit facility and our senior unsecured notes.
Our business could be hurt if we are unable to obtain additional capital as required, resulting in
a decrease in our revenues and profitability.
The cash that we generate from our business, together with cash that we may borrow under our
senior secured credit facility, may not be sufficient to fund our capital requirements. We may
require additional financing to obtain capital for, among other purposes, purchasing equipment,
completing acquisitions, establishing new locations and refinancing existing indebtedness. Any
additional indebtedness that we incur will make us more vulnerable to economic downturns and limit
our ability to withstand competitive pressures. Moreover, we may not be able to obtain additional
capital on acceptable terms, if at all. If we are unable to obtain sufficient additional financing
in the future, our business could be adversely affected by reducing our ability to increase
revenues and profitability.
Our revenue and operating results may fluctuate, which could result in a decline in our
profitability and make it more difficult for us to grow our business.
Our revenue and operating results have historically varied from quarter to quarter. Periods of
decline could result in an overall decline in profitability and make it more difficult for us to
make payments on our indebtedness and grow our business. We expect our quarterly results to
continue to fluctuate in the future due to a number of factors, including:
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general economic conditions in the markets where we operate; |
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the cyclical nature of our customers business, particularly our construction customers; |
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seasonal sales and rental patterns of our construction customers, with sales and rental
activity tending to be lower in the winter months; |
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severe weather and seismic conditions temporarily affecting the regions where we
operate; |
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changes in corporate spending for plants and facilities or changes in government
spending for infrastructure projects; |
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the effectiveness of integrating acquired businesses and new start-up locations; and |
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timing of acquisitions and new location openings and related costs. |
In addition, we incur various costs when integrating newly acquired businesses or opening new
start-up locations, and the profitability of a new location is generally expected to be lower in
the initial months of operation.
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Fluctuations in the stock market, as well as general economic and market conditions, may impact the
market price of our common stock.
The market price of our common stock has been and may continue to be subject to significant
fluctuations in response to general economic changes and other factors including, but not limited
to:
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variations in our quarterly operating results or results that vary from investor
expectations; |
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changes in the strategy and actions taken by our competitors, including pricing changes; |
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securities analysts elections to discontinue coverage of our common stock, changes in
financial estimates by analysts or a downgrade of our common stock or of our sector by
analysts; |
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announcements by us or our competitors of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments; |
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loss of a large supplier; |
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investor perceptions of us and the equipment rental and distribution industry; |
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our ability to successfully integrate acquisitions and consolidations; and |
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national or regional catastrophes or circumstances and natural disasters, hostilities
and acts of terrorism. |
Broad market and industry factors may materially reduce the market price of our common stock,
regardless of our operating performance. In addition, the stock market in recent years has
experienced price and volume fluctuations that often have been unrelated or disproportionate to the
operating performance of companies. These fluctuations, as well as general economic and market
conditions, including to those listed above and others, may harm the market price of our common
stock.
We are subject to competition, which may have a material adverse effect on our business by reducing
our ability to increase or maintain revenues or profitability.
The equipment rental and retail distribution industries are highly competitive and the
equipment rental industry is highly fragmented. Many of the markets in which we operate are served
by numerous competitors, ranging from national and multi-regional equipment rental companies to
small, independent businesses with a limited number of locations. We generally compete on the basis
of availability, quality, reliability, delivery and price. Some of our competitors have
significantly greater financial, marketing and other resources than we do, and may be able to
reduce rental rates or sales prices. The recent market downturn and increased competitive pressures
have caused us to significantly reduce our rates to maintain market share, resulting in lower
operating margins and profitability. We may encounter increased competition from existing
competitors or new market entrants in the future, which could have a material adverse effect on our
business, financial condition and results of operations.
We purchase a significant amount of our equipment from a limited number of manufacturers.
Termination of one or more of our relationships with any of those manufacturers could have a
material adverse effect on our business, as we may be unable to obtain adequate or timely rental
and sales equipment.
We purchase most of our rental and sales equipment from leading, nationally-known original
equipment manufacturers (OEMs). For the year ended December 31, 2010, we purchased approximately
73% of our rental and sales equipment from three manufacturers (Grove/Manitowoc, Komatsu, and
Genie). Although we believe that we have alternative sources of supply for the rental and sales
equipment we purchase in each of our core product categories, termination of one or more of our
relationships with any of these major suppliers could have a material adverse effect on our
business, financial condition or results of operations if we were unable to obtain adequate or
timely rental and sales equipment.
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Our suppliers of new equipment may appoint additional distributors, sell directly or unilaterally
terminate our distribution agreements, which could have a material adverse effect on our business
due to a reduction of, or inability to increase, our revenues.
We are a distributor of new equipment and parts supplied by leading, nationally-known OEMs.
Under our distribution agreements with these OEMs, manufacturers retain the right to appoint
additional dealers and sell directly to national accounts and government agencies. In most
instances, they may unilaterally terminate their distribution agreements with us at any time
without cause. We have both written and oral distribution agreements with our new equipment
suppliers. Under our oral agreements with the OEMs, we operate under our established course of
dealing with the supplier and are subject to the applicable state law regarding such relationship.
Any such actions could have a material adverse effect on our business, financial condition and
results of operations due to a reduction of, or an inability to increase, our revenues.
The cost of new equipment that we sell or purchase for use in our rental fleet may increase and
therefore we may spend more for such equipment, and in some cases, we may not be able to procure
equipment on a timely basis due to supplier constraints.
The cost of new equipment from manufacturers that we sell or purchase for use in our rental
fleet may increase as a result of increased raw material costs, including increases in the cost of
steel, which is a primary material used in most of the equipment we use. These increases could
materially impact our financial condition or results of operations in future periods if we are not
able to pass such cost increases through to our customers.
Our rental fleet is subject to residual value risk upon disposition.
The market value of any given piece of rental equipment could be less than its depreciated
value at the time it is sold. The market value of used rental equipment depends on several factors,
including:
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the market price for new equipment of a like kind; |
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wear and tear on the equipment relative to its age; |
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the time of year that it is sold (prices are generally higher during the construction season); |
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worldwide and domestic demands for used equipment; |
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the supply of used equipment on the market; and |
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general economic conditions. |
We include in operating income the difference between the sales price and the depreciated
value of an item of equipment sold. Although for the year ended December 31, 2010, we sold used
equipment from our rental fleet at an average selling price of approximately 137.2% of net book
value, we cannot assure you that used equipment selling prices will not decline. Any significant
decline in the selling prices for used equipment could have a material adverse affect on our
business, financial condition, results of operations or cash flows.
We incur maintenance and repair costs associated with our rental fleet equipment that could have a
material adverse effect on our business in the event these costs are greater than anticipated.
As our fleet of rental equipment ages, the cost of maintaining such equipment, if not replaced
within a certain period of time, generally increases. Determining the optimal age for our rental
fleet equipment is subjective and requires considerable estimates by management. We have made
estimates regarding the relationship between the age of our rental fleet equipment, and the
maintenance and repair costs, and the market value of used equipment. Our future operating results
could be adversely affected because our maintenance and repair costs may be higher than estimated
and market values of used equipment may fluctuate.
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Fluctuations in fuel costs or reduced supplies of fuel could harm our business.
We could be adversely affected by limitations on fuel supplies or significant increases in
fuel prices that result in higher costs to us of transporting equipment from one branch to another
branch or one region to another region. A significant or protracted disruption of fuel supplies
could have a material adverse effect on our financial condition and results of operations.
We may not be able to facilitate our growth strategy by identifying or completing transactions with
attractive acquisition candidates, which could impede our revenues and profitability.
An important element of our growth strategy is to selectively pursue on an opportunistic basis
acquisitions of additional businesses in order to add new customers within our existing markets. We
cannot assure you that we will be able to identify attractive acquisition candidates or complete
the acquisition of any identified candidates at favorable prices and upon advantageous terms and
conditions, including financing alternatives. Competition for attractive acquisition candidates may
limit the number of acquisition candidates or increase the overall costs of making acquisitions.
Furthermore, general economic conditions or unfavorable global capital and credit markets could
affect the timing and extent to which we implement our strategy and limit our ability to
successfully acquire new businesses. The difficulties we may face in identifying or completing
acquisitions could impede our revenues and profitability.
We may be unsuccessful in integrating any future acquisitions, which may decrease our profitability
and make it more difficult for us to grow our business.
We may not have sufficient management, financial and other resources to integrate and
consolidate any future acquisitions and we may be unable to operate profitably as a consolidated
company. Any significant diversion of managements attention or any major difficulties encountered
in the integration of the businesses we acquire in the future could have a material adverse effect
on our business, financial condition or results of operations, which could decrease our
profitability and make it more difficult for us to grow our business.
We may experience integration and consolidation risks associated with our growth strategy. Future
acquisitions may also result in significant transaction expenses and risks associated with entering
new markets and we may be unable to profitably operate our consolidated company.
We periodically engage in evaluations of potential acquisitions and start-up facilities. The
success of our growth strategy depends, in part, on selecting strategic acquisition candidates at
attractive prices and identifying strategic start-up locations. We expect to face competition for
acquisition candidates, which may limit the number of acquisition opportunities and lead to higher
acquisition costs. We may not have the financial resources necessary to consummate any acquisitions
or to successfully open any new facilities in the future or the ability to obtain the necessary
funds on satisfactory terms. Any future acquisitions or the opening of new facilities may result in
significant transaction expenses and risks associated with entering new markets in addition to the
integration and consolidation risks described above. We may also be subject to claims by third
parties related to the operations of these businesses prior to our acquisition and by sellers under
the terms of our acquisition agreements. We may not have sufficient management, financial and other
resources to integrate any such future acquisitions or to successfully operate new locations and we
may be unable to profitably operate our consolidated company.
We are dependent on key personnel. A loss of key personnel could have a material adverse effect on
our business, which could result in a decline in our revenues and profitability.
We are dependent on the experience and continued services of our senior management team,
including Mr. Engquist. Mr. Engquist has approximately 36 years of industry experience and has
served as an officer of Head and Engquist since 1990, a director of Gulf Wide since 1995, an
officer and director of H&E LLC since its formation in June 2002 and an officer and director of H&E
Equipment Services, Inc. since its inception. If we lose the services of any member of our senior
management team, particularly Mr. Engquist, and are unable to
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find a suitable replacement, we may
not have the depth of senior management resources required to efficiently manage our business and
execute our strategy.
Disruptions in our information technology systems, including our customer relationship management
system, could adversely affect our operating results by limiting our capacity to effectively
monitor and control our operations.
Our information technology systems facilitate our ability to monitor and control our
operations and adjust to changing market conditions. Any disruption in any of these systems,
including our customer management system, or the failure of any of these systems to operate as
expected could, depending on the magnitude of the problem, adversely affect our operating results
by limiting our capacity to effectively monitor and control our operations and adjust to changing
market conditions.
If the Company fails to maintain an effective system of internal controls, the Company may not be
able to accurately report financial results or prevent fraud.
Effective internal controls are necessary to provide reliable financial reports and to assist
in the effective prevention of fraud. Any inability to provide reliable financial reports or
prevent fraud could harm our business. We must annually evaluate our internal procedures to satisfy
the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires management and
auditors to assess the effectiveness of our internal controls. If we fail to remedy or maintain the
adequacy of our internal controls, as such standards are modified, supplemented or amended from
time to time, we could be subject to regulatory scrutiny, civil or criminal penalties or
shareholder litigation.
In addition, failure to maintain effective internal controls could result in financial
statements that do not accurately reflect our financial condition or results of operations. There
can be no assurance that we will be able to maintain a system of internal controls that fully
complies with the requirements of the Sarbanes-Oxley Act of 2002 or that our management and
independent registered public accounting firm will continue to conclude that our internal controls
are effective.
We are exposed to various risks related to legal proceedings or claims that could adversely affect
our operating results. The nature of our business exposes us to various liability claims, which
may exceed the level of our insurance coverage and thereby not fully protect us.
We are a party to lawsuits in the normal course of our business. Litigation in general can be
expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex
legal proceedings are difficult to predict. Responding to lawsuits brought against us, or legal
actions that we may initiate, can often be expensive and time-consuming. Unfavorable outcomes from
these claims and/or lawsuits could adversely affect our business, results of operations, or
financial condition, and we could incur substantial monetary liability and/or be required to change
our business practices.
Our business exposes us to claims for personal injury, death or property damage resulting from
the use of the equipment we rent or sell and from injuries caused in motor vehicle accidents in
which our delivery and service personnel are involved and other employee related matters.
Additionally, we could be subject to potential litigation associated with compliance with various
laws and governmental regulations at the federal, state or local levels, such as those relating to
the protection of persons with disabilities, employment, health, safety, security and other
regulations under which we operate.
We carry comprehensive insurance, subject to deductibles, at levels we believe are sufficient
to cover existing and future claims made during the respective policy periods. However, we may be
exposed to multiple claims that do not exceed our deductibles, and, as a result, we could incur
significant out-of-pocket costs that could adversely affect our financial condition and results of
operations. In addition, the cost of such insurance policies may increase significantly upon
renewal of those policies as a result of general rate increases for the type of insurance we carry
as well as our historical experience and experience in our industry. Although we have not
experienced any material losses that were not covered by insurance, our existing or future claims
may exceed the coverage level of our insurance, and such insurance may not continue to be available
on economically reasonable
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terms, or at all. If we are required to pay significantly higher
premiums for insurance, are not able to maintain insurance coverage at affordable rates or if we
must pay amounts in excess of claims covered by our insurance, we could experience higher costs
that could adversely affect our financial condition and results of operations.
Our future operating results and financial position could be negatively affected by impairment
charges to our goodwill, intangible assets or other long-lived assets.
When we acquire a business, we record goodwill equal to the excess of the amount we pay for
the business, including liabilities assumed, over the fair value of the identifiable tangible and
intangible assets of the business we acquire. At December 31, 2010, we had goodwill of
approximately $34.0 million. In accordance with Accounting Standards Codification 350,
IntangiblesGoodwill & Other, we test goodwill for impairment on October 1 of each year, and on an
interim date if factors or indicators become apparent that would require an interim test. In
connection with our annual impairment test as of October 1, 2009 and 2008, and as further discussed
in note 2 to the consolidated financial statements included herein, we recorded non-cash goodwill
impairments of $9.0 million and $15.9 million, respectively. Also in 2008, we recorded non-cash
intangible asset impairments of approximately $6.8 million (see note 2 to the consolidated
financial statements for additional information).
If economic conditions deteriorate and result in significant declines in the Companys stock
price, or if there are significant downward revisions in the present value of our estimated future
cash flows, additional impairments to one or more reporting units could occur in future periods,
and such impairments could be material. A downward revision in the present value of estimated
future cash flows could be caused by a number of factors, including, among others, adverse changes
in the business climate, negative industry or economic trends, decline in performance in our
industry sector, or a decline in market multiples for competitors. Our estimates regarding future
cash flows are inherently uncertain and changes in our underlying assumptions and the
impact of market conditions on those assumptions could materially affect the determination of
fair value and/or goodwill impairment. Future events and changing market conditions may impact our
assumptions as to revenues, costs or other factors that may result in changes in our estimates of
future cash flows. We can provide no assurance that a material impairment charge will not occur in
a future period. Such a charge could negatively affect our results of operations and financial
position. We will continue to monitor the recoverability of the carrying value of our goodwill and
other long-lived assets (see Critical Accounting Policies and Estimates in Part II, Item 7).
Labor disputes could disrupt our ability to serve our customers and/or lead to higher labor costs.
We currently have approximately 61 employees in Utah, a significant territory in our
geographic footprint, who are covered by collective bargaining agreements and approximately 1,515
employees who are not represented by unions or covered by collective bargaining agreements. Various
unions periodically seek to organize certain of our nonunion employees. Union organizing efforts or
collective bargaining negotiations could potentially lead to work stoppages and/or slowdowns or
strikes by certain of our employees, which could adversely affect our ability to serve our
customers. Further, settlement of actual or threatened labor disputes or an increase in the number
of our employees covered by collective bargaining agreements can have unknown effects on our labor
costs, productivity and flexibility. In addition, proposed federal legislation would make it easier
for unions to organize by requiring employers to recognize unions based on card check authorization
rather than by secret ballot election, and would impose arbitration to settle first-time collective
bargaining agreements if the parties have not reached agreement within 120 days of recognition. The
enactment of such legislation could significantly increase labor costs in ways that are difficult
to predict.
We have operations throughout the United States, which exposes us to multiple state and local
regulations. Changes in applicable law, regulations or requirements, or our material failure to
comply with any of them, can increase our costs and have other negative impacts on our business.
Our over 60 branch locations in the United States are located in 24 different states, which
exposes us to a host of different state and local regulations. These laws and requirements address
multiple aspects of our
20
operations, such as worker safety, consumer rights, privacy, employee
benefits and more, and can often have different requirements in different jurisdictions. Changes in
these requirements, or any material failure by our branches to comply with them, can increase our
costs, affect our reputation, limit our business, drain management time and attention and generally
otherwise impact our operations in adverse ways.
We could be adversely affected by environmental and safety requirements, which could force us to
increase significant capital and other operational costs and may subject us to unanticipated
liabilities.
Our operations, like those of other companies engaged in similar businesses, require the
handling, use, storage and disposal of certain regulated materials. As a result, we are subject to
the requirements of federal, state and local environmental and occupational health and safety laws
and regulations. We may not be in complete compliance with all such requirements at all times. We
are subject to potentially significant civil or criminal fines or penalties if we fail to comply
with any of these requirements. We have made and will continue to make capital and other
expenditures in order to comply with these laws and regulations. However, the requirements of these
laws and regulations are complex, change frequently, and could become more stringent in the future.
It is possible that these requirements will change or that liabilities will arise in the future in
a manner that could have a material adverse effect on our business, financial condition and results
of operations.
Environmental laws also impose obligations and liability for the cleanup of properties
affected by hazardous substance spills or releases. These liabilities can be imposed on the parties
generating or disposing of such substances or operator of the affected property, often without
regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous
substances. Accordingly, we may become liable, either contractually or by operation of law, for
remediation costs even if a contaminated property is not presently owned or operated by us, or if
the contamination was caused by third parties during or prior to our ownership or operation of the
property. Given the nature of our operations (which involve the use of petroleum products, solvents
and other hazardous substances for fueling and maintaining our equipment and vehicles), there can
be no assurance that prior site assessments or investigations have identified all potential
instances of soil or groundwater contamination. Future events, such as changes in existing laws or
policies or their enforcement, or
the discovery of currently unknown contamination, may give rise to additional remediation
liabilities which may be material.
Hurricanes, other adverse weather events, national or regional catastrophes or natural disasters
could negatively affect our local economies or disrupt our operations, which could have an adverse
effect on our business or results of operations.
Our market areas in the Gulf Coast and Mid-Atlantic regions of the United States are
susceptible to hurricanes. Such weather events can disrupt our operations, result in damage to our
properties and negatively affect the local economies in which we operate. Future hurricanes could
result in damage to certain of our facilities and the equipment located at such facilities, or
equipment on rent with customers in those areas. In addition, climate change could lead to an
increase in intensity or occurrence of hurricanes or other adverse weather events. Future
occurrences of these events, as well as regional or national catastrophes or natural disasters, and
their effects may adversely impact our business or results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of March 1, 2011, we had a network of 67 full-service facilities, serving approximately
28,500 customers across 24 states in the West Coast, Intermountain, Southwest, Gulf Coast,
Southeast and Mid-Atlantic regions of the United States.
In our facilities, we rent, display and sell equipment, including tools and supplies, and
provide maintenance and basic repair work. Of the 67 total facilities, we own nine of our locations
and lease 58 locations. Our leases
21
typically provide for varying terms and renewal options. The
following table provides data on our locations and the number of multiple branch locations in each
city is indicated by parentheses:
|
|
|
|
|
|
|
City/State |
|
Leased/Owned |
|
City/State |
|
Leased/Owned |
Alabama
|
|
|
|
Mississippi |
|
|
Birmingham
|
|
Leased
|
|
Jackson
|
|
Leased |
Huntsville
|
|
Leased
|
|
Montana |
|
|
Arizona
|
|
|
|
Billings
|
|
Leased |
Phoenix
|
|
Leased
|
|
Belgrade
|
|
Leased |
Tucson
|
|
Leased
|
|
Missoula
|
|
Leased |
Arkansas
|
|
|
|
New Mexico |
|
|
Little Rock
|
|
Owned
|
|
Albuquerque
|
|
Leased |
Springdale
|
|
Owned
|
|
Nevada |
|
|
California
|
|
|
|
Las Vegas
|
|
Leased |
Bakersfield
|
|
Leased
|
|
Reno
|
|
Leased |
La Mirada
|
|
Leased
|
|
North Carolina |
|
|
Sacramento
|
|
Leased
|
|
Arden
|
|
Leased |
San Diego
|
|
Leased
|
|
Burlington
|
|
Leased |
Santa Fe Springs
|
|
Owned
|
|
Charlotte(2)
|
|
Leased(2) |
Fontana
|
|
Leased
|
|
Raleigh
|
|
Leased |
Colorado
|
|
|
|
Winston-Salem
|
|
Leased |
Denver
|
|
Leased
|
|
Oklahoma |
|
|
Colorado Springs
|
|
Leased
|
|
Oklahoma City
|
|
Leased |
Florida
|
|
|
|
Tulsa
|
|
Leased |
Fort Myers
|
|
Leased
|
|
South Carolina |
|
|
Orlando
|
|
Leased
|
|
Columbia
|
|
Leased |
Pompano Beach
|
|
Leased
|
|
Greenville
|
|
Leased |
Tampa
|
|
Leased
|
|
Tennessee |
|
|
Georgia
|
|
|
|
Memphis
|
|
Leased |
Atlanta
|
|
Leased
|
|
Nashville
|
|
Leased |
Idaho
|
|
|
|
Texas |
|
|
Boise
|
|
Leased
|
|
Austin
|
|
Leased |
Coeur DAlene
|
|
Leased
|
|
Corpus Christi
|
|
Leased |
Indiana
|
|
|
|
Dallas(2)
|
|
Leased(1) Owned(1) |
Indianapolis
|
|
Leased
|
|
Houston(2)
|
|
Leased(2) |
Kentucky
|
|
|
|
San Antonio
|
|
Owned |
Louisville
|
|
Leased
|
|
Utah |
|
|
Louisiana
|
|
|
|
Salt Lake City
|
|
Leased |
Alexandria
|
|
Leased
|
|
St. George
|
|
Leased |
Baton Rouge
|
|
Leased
|
|
Virginia |
|
|
Belle Chasse
|
|
Leased
|
|
Norfolk
|
|
Leased |
Gonzales
|
|
Leased
|
|
Ashland
|
|
Owned |
Kenner
|
|
Owned
|
|
Roanoke
|
|
Owned |
Lafayette
|
|
Leased
|
|
Warrenton
|
|
Leased |
Lake Charles
|
|
Leased
|
|
Washington |
|
|
Shreveport(2)
|
|
Leased(2)
|
|
Pasco
|
|
Leased |
Maryland |
|
|
|
|
|
|
Baltimore(2)
|
|
Leased(1) Owned(1) |
|
|
|
|
Each facility location has a branch manager who is responsible for day-to-day operations. In
addition, branch operating facilities are typically staffed with approximately six to 92 people,
who may include technicians,
22
salespeople, rental operations staff and parts specialists. While
facility offices are typically open five days a week, we provide 24 hour, seven day per week
service.
Our corporate headquarters employs approximately 188 people. Our corporate headquarters are
located in four separate locations in Baton Rouge, Louisiana, where we occupy a total of
approximately 31,232 square feet under four separate leases that extend through varying dates
ending October 10, 2013. We believe that our existing facilities will be sufficient for the conduct
of our business during the next fiscal year.
Item 3. Legal Proceedings
From time to time, we are party to various legal actions in the normal course of our business.
We believe that we are not party to any litigation, that, if adversely determined, would have a
material adverse effect on our business, financial condition, results of operations or cash flows.
Item 4. (Removed and Reserved)
PART II
|
|
|
Item 5. |
|
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities |
Market Information
Our common stock, par value $0.01 per share, trades on the Nasdaq Global Market (Nasdaq)
under the symbol HEES. The following table sets forth, for the quarterly periods indicated, the
high and low closing sale prices per share for our common stock as reported by Nasdaq for the years
ended December 31, 2009 and 2010.
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
Low |
|
Year ended December 31, 2009 |
|
|
|
|
|
|
|
|
First quarter |
|
$ |
7.76 |
|
|
$ |
4.77 |
|
Second quarter |
|
|
9.49 |
|
|
|
6.16 |
|
Third quarter |
|
|
11.62 |
|
|
|
9.00 |
|
Fourth quarter |
|
|
12.50 |
|
|
|
9.26 |
|
Year ended December 31, 2010 |
|
|
|
|
|
|
|
|
First quarter |
|
$ |
11.55 |
|
|
$ |
9.15 |
|
Second quarter |
|
|
12.51 |
|
|
|
7.49 |
|
Third quarter |
|
|
9.80 |
|
|
|
6.78 |
|
Fourth quarter |
|
|
12.14 |
|
|
|
7.54 |
|
Holders
On
March 1, 2011, we had 201 stockholders of record of our common stock.
Dividends
We have never paid or declared any dividends on our common stock and do not anticipate paying
any dividends on our common stock in the foreseeable future. Any future determination relating to
our dividend policy will be made at the discretion of our board of directors and will depend on,
among other things, our results of operations, financial conditions, cash requirements, contractual
restrictions and other factors that our board of directors may deem relevant. In addition, our
ability to declare and pay dividends is restricted by covenants in our senior secured credit
facility and the indenture governing our senior unsecured notes and may be further limited by
instruments governing future outstanding indebtedness we or our subsidiaries may incur.
Securities Authorized for Issuance Under Equity Compensation Plans
23
For certain information concerning securities authorized for issuance under our equity
compensation plan, see Item 12 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
Performance Graph
The Performance Graph below compares the cumulative total stockholder return on H&E Equipment
Services, Inc. common stock for the period January 31, 2006, the date our initial public offering
was priced for initial sale and each subsequent quarter period end through and including December
31, 2010, with the cumulative return of the Russell 2000 Index and an industry peer group selected
by us. The peer group we selected is comprised of the following companies: United Rentals, Inc.,
RSC Holdings, Inc., Hertz Global Holdings, Inc., Toromont Industries, Ltd., Finning International,
Inc., and The Ashtead Group, PLC. RSC Holdings, Inc. is only included in the peer group beginning
on May 23, 2007, the date its initial public offering was priced for initial sale.
The Performance Graph comparison assumes $100 was invested in our common stock on January 31,
2006 and in each of the indices. Dividend reinvestment has been assumed and returns have been
weighted to reflect relative stock market capitalization. No cash dividends have been declared on
our common stock. The stock performance shown on the graph below is not necessarily indicative of
future price performance.
*$100
invested on 1/31/06 in stock or index, including reinvestment of
dividends.
Fiscal
year ending December 31.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/31/06 |
|
|
12/31/06 |
|
|
12/31/07 |
|
|
12/31/08 |
|
|
12/31/09 |
|
|
12/31/10 |
|
|
H&E Equipment Services, Inc. |
|
$ |
100.00 |
|
|
$ |
137.61 |
|
|
$ |
104.89 |
|
|
$ |
42.83 |
|
|
$ |
58.33 |
|
|
$ |
64.28 |
|
Russell 2000 Index |
|
|
100.00 |
|
|
|
108.63 |
|
|
|
106.93 |
|
|
|
70.80 |
|
|
|
90.04 |
|
|
|
114.21 |
|
Peer Group |
|
|
100.00 |
|
|
|
106.06 |
|
|
|
105.84 |
|
|
|
45.57 |
|
|
|
73.84 |
|
|
|
107.65 |
|
This stock performance information is furnished and shall not be deemed to be
soliciting material or subject to Rule 14A of the Securities Exchange Act of 1934, as amended
(the Exchange Act), shall not be deemed filed for purposes of Section 18 of the Exchange Act or
otherwise subject to the liabilities of that section, and shall not be deemed incorporated by
reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether
made before or after the date of this Annual Report on Form 10-K and irrespective of any general
incorporation by reference language in any such filing, except to the extent that we specifically
incorporate this information by reference.
Issuer Purchases of Equity Securities
There were no stock repurchases or other purchases of equity securities by the Company during
the fourth quarter ended December 31, 2010.
Item 6. Selected Financial Data
The following table sets forth our selected historical consolidated financial data as of the
dates and for the periods indicated. The selected historical consolidated financial data as of and
for the years ended December 31, 2010, 2009 and 2008 have been derived from our audited
consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The
selected historical consolidated financial data as of and for the years ended December 31, 2007 and
2006 have been derived from our audited consolidated financial information not included herein. Our
historical results are not necessarily indicative of future performance or results of operations.
You should read the consolidated historical financial data together with our consolidated financial
statements and related notes included in Item 8 of this Annual Report on Form 10-K and with Item
7Managements Discussion and Analysis of Financial Condition and Results of Operations.
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007(1) |
|
|
2006(2) |
|
|
|
(Amounts in thousands, except per share amounts) |
|
Statement of operations data(3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
177,970 |
|
|
$ |
191,512 |
|
|
$ |
295,398 |
|
|
$ |
286,573 |
|
|
$ |
251,374 |
|
New equipment sales |
|
|
167,303 |
|
|
|
208,916 |
|
|
|
374,068 |
|
|
|
355,178 |
|
|
|
241,281 |
|
Used equipment sales |
|
|
62,286 |
|
|
|
86,982 |
|
|
|
160,780 |
|
|
|
148,742 |
|
|
|
133,897 |
|
Parts sales |
|
|
86,686 |
|
|
|
100,500 |
|
|
|
118,345 |
|
|
|
102,300 |
|
|
|
82,106 |
|
Services revenues |
|
|
49,629 |
|
|
|
58,730 |
|
|
|
70,124 |
|
|
|
64,050 |
|
|
|
53,699 |
|
Other |
|
|
30,280 |
|
|
|
33,092 |
|
|
|
50,254 |
|
|
|
46,291 |
|
|
|
42,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
574,154 |
|
|
|
679,732 |
|
|
|
1,068,969 |
|
|
|
1,003,134 |
|
|
|
804,369 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
|
78,583 |
|
|
|
87,902 |
|
|
|
104,311 |
|
|
|
94,211 |
|
|
|
78,159 |
|
Rental expense |
|
|
40,194 |
|
|
|
42,086 |
|
|
|
49,481 |
|
|
|
45,374 |
|
|
|
40,582 |
|
New equipment sales |
|
|
150,665 |
|
|
|
183,885 |
|
|
|
324,472 |
|
|
|
307,897 |
|
|
|
211,158 |
|
Used equipment sales |
|
|
48,269 |
|
|
|
70,305 |
|
|
|
121,956 |
|
|
|
112,351 |
|
|
|
97,765 |
|
Parts sales |
|
|
63,902 |
|
|
|
72,786 |
|
|
|
83,561 |
|
|
|
71,791 |
|
|
|
57,909 |
|
Services revenues |
|
|
18,751 |
|
|
|
21,825 |
|
|
|
25,324 |
|
|
|
23,076 |
|
|
|
19,206 |
|
Other |
|
|
37,851 |
|
|
|
35,445 |
|
|
|
49,824 |
|
|
|
42,394 |
|
|
|
36,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
438,215 |
|
|
|
514,234 |
|
|
|
758,929 |
|
|
|
697,094 |
|
|
|
541,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
|
59,193 |
|
|
|
61,524 |
|
|
|
141,606 |
|
|
|
146,988 |
|
|
|
132,633 |
|
New equipment sales |
|
|
16,638 |
|
|
|
25,031 |
|
|
|
49,596 |
|
|
|
47,281 |
|
|
|
30,123 |
|
Used equipment sales |
|
|
14,017 |
|
|
|
16,677 |
|
|
|
38,824 |
|
|
|
36,391 |
|
|
|
36,132 |
|
Parts sales |
|
|
22,784 |
|
|
|
27,714 |
|
|
|
34,784 |
|
|
|
30,509 |
|
|
|
24,197 |
|
Services revenues |
|
|
30,878 |
|
|
|
36,905 |
|
|
|
44,800 |
|
|
|
40,974 |
|
|
|
34,493 |
|
Other |
|
|
(7,571 |
) |
|
|
(2,353 |
) |
|
|
430 |
|
|
|
3,897 |
|
|
|
5,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
|
135,939 |
|
|
|
165,498 |
|
|
|
310,040 |
|
|
|
306,040 |
|
|
|
263,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses(4) |
|
|
148,277 |
|
|
|
144,460 |
|
|
|
181,037 |
|
|
|
165,048 |
|
|
|
143,615 |
|
Impairment of goodwill and intangible assets(5) |
|
|
|
|
|
|
8,972 |
|
|
|
22,721 |
|
|
|
|
|
|
|
|
|
Gain from sales of property and equipment, net |
|
|
443 |
|
|
|
533 |
|
|
|
436 |
|
|
|
469 |
|
|
|
479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(11,895 |
) |
|
|
12,599 |
|
|
|
106,718 |
|
|
|
141,461 |
|
|
|
120,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense(6) |
|
|
(29,076 |
) |
|
|
(31,339 |
) |
|
|
(38,255 |
) |
|
|
(36,771 |
) |
|
|
(37,684 |
) |
Loss on early extinguishment of debt(7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(320 |
) |
|
|
(40,771 |
) |
Other, net |
|
|
591 |
|
|
|
619 |
|
|
|
934 |
|
|
|
1,045 |
|
|
|
818 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
|
(28,485 |
) |
|
|
(30,720 |
) |
|
|
(37,321 |
) |
|
|
(36,046 |
) |
|
|
(77,637 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(40,380 |
) |
|
|
(18,121 |
) |
|
|
69,397 |
|
|
|
105,415 |
|
|
|
42,408 |
|
Income tax provision (benefit) |
|
|
(14,920 |
) |
|
|
(6,178 |
) |
|
|
26,101 |
|
|
|
40,789 |
|
|
|
9,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(25,460 |
) |
|
$ |
(11,943 |
) |
|
$ |
43,296 |
|
|
$ |
64,626 |
|
|
$ |
32,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.73 |
) |
|
$ |
(0.35 |
) |
|
$ |
1.22 |
|
|
$ |
1.70 |
|
|
$ |
0.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.73 |
) |
|
$ |
(0.35 |
) |
|
$ |
1.22 |
|
|
$ |
1.70 |
|
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (8): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
34,668 |
|
|
|
34,607 |
|
|
|
35,575 |
|
|
|
38,065 |
|
|
|
36,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
34,668 |
|
|
|
34,607 |
|
|
|
35,583 |
|
|
|
38,065 |
|
|
|
36,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007(1) |
|
|
2006(2) |
|
|
|
(Amounts in thousands) |
|
Other financial data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization(9) |
|
$ |
92,266 |
|
|
$ |
99,293 |
|
|
$ |
117,677 |
|
|
$ |
104,281 |
|
|
$ |
85,122 |
|
Statement of cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
17,938 |
|
|
|
72,901 |
|
|
|
120,467 |
|
|
|
104,094 |
|
|
|
117,729 |
|
Net cash provided by (used in) investing
activities |
|
|
(29,669 |
) |
|
|
37,900 |
|
|
|
(36,675 |
) |
|
|
(188,647 |
) |
|
|
(191,988 |
) |
Net cash provided by (used in) financing
activities |
|
|
(4,456 |
) |
|
|
(76,731 |
) |
|
|
(87,288 |
) |
|
|
90,012 |
|
|
|
77,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007(1) |
|
|
2006(2) |
|
|
|
(Amounts in thousands) |
|
Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
29,149 |
|
|
$ |
45,336 |
|
|
$ |
11,266 |
|
|
$ |
14,762 |
|
|
$ |
9,303 |
|
Rental equipment, net |
|
|
426,637 |
|
|
|
437,407 |
|
|
|
554,457 |
|
|
|
577,628 |
|
|
|
440,454 |
|
Goodwill(5) |
|
|
34,019 |
|
|
|
34,019 |
|
|
|
42,991 |
|
|
|
54,731 |
|
|
|
30,573 |
|
Deferred financing costs, net |
|
|
7,027 |
|
|
|
5,545 |
|
|
|
6,964 |
|
|
|
8,628 |
|
|
|
9,296 |
|
Intangible assets, net(10) |
|
|
429 |
|
|
|
988 |
|
|
|
1,579 |
|
|
|
10,642 |
|
|
|
34 |
|
Total assets |
|
|
734,421 |
|
|
|
763,084 |
|
|
|
966,634 |
|
|
|
1,012,853 |
|
|
|
759,942 |
|
Total debt(11) |
|
|
252,754 |
|
|
|
254,110 |
|
|
|
330,584 |
|
|
|
374,951 |
|
|
|
265,965 |
|
Stockholders Equity |
|
|
254,250 |
|
|
|
278,882 |
|
|
|
290,207 |
|
|
|
288,078 |
|
|
|
235,584 |
|
|
|
|
(1) |
|
Our operating results for the years ended December 31, 2007, 2008, 2009 and
2010 include the operating results of H&E Equipment Services (Mid-Atlantic) since September 1,
2007, the date of our acquisition of J.W. Burress, Incorporated. |
|
(2) |
|
Our operating results for the years ended December 31, 2006, 2007, 2008, 2009 and
2010 include the operating results of H&E California Holdings, Inc. and H&E Equipment
Services (California), LLC since February 28, 2006, the date of our acquisition of Eagle High
Reach Equipment, Inc and Eagle High Reach Equipment, LLC. |
|
(3) |
|
See note 18 to the consolidated financial statements discussing segment information. |
|
(4) |
|
Effective January 1, 2006, we adopted the provisions of Financial Accounting
Standards Board Accounting Standards Codification 718, Stock Compensation. Stock-based
compensation expense included in selling, general and administrative expenses for the years
ended December 31, 2010, 2009, 2008, 2007 and 2006 totaled $1.0 million, $0.7 million, $1.5
million, $1.3 million and $1.0 million, respectively. |
|
(5) |
|
As more fully described in note 2 to the consolidated financial statements, and in
connection with our annual impairment test, we recorded in 2009 a non-cash goodwill impairment
of approximately $9.0 million, or $5.5 million after tax, related to our Equipment Rentals
Component 1 reporting unit. In 2008, we recorded non-cash goodwill impairments totaling
approximately $15.9 million, or $9.9 million after tax, related to our New Equipment and
Service Revenues reporting units. Also in 2008, and as more fully described in note 2 to the
consolidated financial statements, we recorded a non-cash impairment charge of $6.8 million,
or $4.2 million after tax, related to our customer relationship intangible asset. |
|
(6) |
|
Interest expense is comprised of cash-pay interest (interest recorded on debt and
other obligations requiring periodic cash payments) and non-cash pay interest. |
|
(7) |
|
On August 4, 2006, we used the net proceeds from the issuance of our senior
unsecured notes, together with cash on hand and borrowings under our senior secured credit
facility, to purchase $195.5 million in aggregate principal amount of our then outstanding
senior secured notes (representing approximately 97.8% of the previously outstanding senior
secured notes), and the $53.0 million in aggregate principal amount of |
27
|
|
our then outstanding senior subordinated notes (representing 100% of the
previously outstanding senior secured notes). In connection with these transactions, we
recorded a loss on the early extinguishment of debt of approximately $40.8 million.
Subsequently, on July 31, 2007, we redeemed with available cash on hand, all of our remaining
$4.5 million in aggregate principal amount outstanding of the senior secured notes. In
connection with the transaction, we recorded a loss on the early extinguishment of debt of
approximately $0.3 million. |
(8) |
|
In presenting shares of common stock outstanding, we have given retroactive effect
to the completion of the Reorganization Transactions as if the 2006 Reorganization
Transactions had occurred as of the beginning of the earliest year presented with respect to
the above statement of operations data. |
(9) |
|
Excludes amortization of deferred financing costs and accretion of loan discounts,
which are both included in interest expense. |
(10) |
|
As more fully described in note 2 to the consolidated financial statements, we
recorded a $6.8 million impairment, or $4.2 million after tax, in 2008 related to the acquired
Burress customer relationships intangible asset. |
(11) |
|
Total debt represents the amounts outstanding, as applicable for the periods
presented, under the senior secured credit facility, senior secured notes, senior subordinated
notes, senior unsecured notes, notes payable and capital leases. |
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Selected Financial Data and
our consolidated financial statements and the accompanying notes thereto included elsewhere in this
Annual Report on Form 10-K. 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 Annual Report on Form 10-K). 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 1ARisk Factors of this
Annual Report on Form 10-K.
Overview
During the last two years, we have faced unprecedented economic and business challenges,
including (i) a recessionary environment reflected by weak demand for our products and services and
(ii) unfavorable credit markets which limited our customers access to capital; and we face
continuing economic uncertainty into 2011. In response to these extraordinary challenges, we
focused our efforts in 2009 and the first half of 2010 to scale our business to adapt to market
conditions and strengthen our balance sheet through cash generation. These included (i) downsizing
our rental fleet by reducing capital expenditures on our rental fleet, (ii) monitoring and reducing
our inventory carrying levels based on lower demand, (iii) reducing operating and selling, general
and administrative costs, including workforce reductions, and (iv) using excess cash to pay down
debt and improve our leverage. As a result, we fully repaid our senior secured credit facility
during 2009. At December 31, 2010, we had $312.0 million of borrowing availability, net of $8.0
million of outstanding standby letters of credit (see Liquidity and Capital Resources below).
Beginning in the latter half of 2010, we saw signs that the general economy and the
non-residential construction industry were beginning to improve. For example, our rental business
began delivering year-over-year gains with improving utilization trends. Used equipment pricing is
improving and demand for earthmoving equipment, aerial work platform equipment and cranes is
increasing. Demand for new equipment is improving and our parts and service businesses also appear
to be stabilizing. While these signs are encouraging, there is no certainty that these favorable
trends will continue. The non-residential construction industry remained relatively weak at the end
of 2010. It is expected that non-residential construction will lag the recovery of the general
economy. Lending for non-residential construction projects and equipment purchases remains tight.
If the pace of the recent recovery slows or non-residential construction activities decline, our
revenues and operating results may be adversely affected (see also Item 1A, Risk Factors above in
this Annual Report on Form 10-K).
28
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 March 1, 2011, we operated 67 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 50 years. H&E Equipment Services L.L.C. (H&E LLC) was formed in June 2002 through
the business combination of Head & Engquist, a wholly-owned subsidiary of Gulf Wide, and ICM. Head
& Engquist, founded in 1961, and ICM, founded in 1971, were two leading regional, integrated
equipment service companies operating in contiguous geographic markets. In the June 2002
transaction, Head & Engquist and ICM were merged with and into Gulf Wide, which was renamed H&E
LLC. Prior to the combination, Head & Engquist operated 25 facilities in the Gulf Coast region, and
ICM operated 16 facilities in the Intermountain region of the United States.
In connection with our initial public offering in February 2006, we converted H&E LLC into H&E
Equipment Services, Inc. Prior to our initial public offering, our business was conducted through
H&E LLC. In order to have an operating Delaware corporation as the issuer for our initial public
offering, H&E Equipment Services, Inc. was formed as a Delaware corporation and wholly-owned
subsidiary of H&E Holdings, and immediately prior to the closing of our initial public offering, on
February 3, 2006, H&E LLC and H&E Holdings merged with and into us (H&E Equipment Services, Inc.),
with us surviving the reincorporation merger as the operating company. Effective February 3, 2006,
H&E LLC and Holdings no longer existed under operation of law pursuant to the merger
reincorporation.
We completed, effective as of February 28, 2006, the acquisition of all the outstanding
capital stock of Eagle High Reach Equipment, Inc. (now known as H&E California Holdings, Inc.) and
all of the outstanding equity interests of its subsidiary, Eagle High Reach Equipment, LLC (now
known as H&E Equipment Services (California) LLC) (collectively, Eagle or the Eagle
Acquisition). Prior to the acquisition, Eagle was a privately-held construction and industrial
equipment rental company serving the southern California construction and industrial markets out of
four branch locations.
We completed, effective as of September 1, 2007, the acquisition of all of the outstanding
capital stock of J.W. Burress, Incorporated (Burress or the Burress Acquisition) (now known as
H&E Equipment Services (Mid-Atlantic), Inc.). Prior to the acquisition, Burress was a
privately-held company operating primarily as a distributor in the construction and industrial
equipment markets out of 12 locations in four states in the Mid-Atlantic region of the United
States.
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
29
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 (which we analyze as equipment usage based on: (1) the number of rental
equipment units available for rent, and (2) as a percentage of original equipment cost),
rental rate trends and targets, rental equipment dollar utilization and maintenance and
repair costs, which we closely monitor. We maintain fleet quality through regional quality
control managers and our parts and services operations. |
|
|
|
|
New Equipment Sales. Our new equipment sales operation sells new equipment in all four
core product categories. We have a retail sales force focused by equipment type that is
separate from our rental sales force. Manufacturer purchase terms and pricing are managed
by our product specialists. |
|
|
|
|
Used Equipment Sales. Our used equipment sales are generated primarily from sales of
used equipment from our rental fleet, as well as from sales of inventoried equipment that
we acquire through trade-ins from our equipment customers and through selective purchases
of high quality used equipment. Used equipment is sold by our dedicated retail sales force.
Our used equipment sales are an effective way for us to manage the size and composition of
our rental fleet and provide a profitable distribution channel for disposal of rental
equipment. |
|
|
|
|
Parts Sales. Our parts business sells new and used parts for the equipment we sell and
also provides parts to our own rental fleet. To a lesser degree, we also sell parts for
equipment produced by manufacturers whose products we neither rent nor sell. In order to
provide timely parts and service support to our customers as well as our own rental fleet,
we maintain an extensive parts inventory. |
|
|
|
|
Services. Our services operation provides maintenance and repair services for our
customers equipment and to our own rental fleet at our facilities as well as at our
customers locations. As the authorized distributor for numerous equipment manufacturers,
we are able to provide service to that equipment that will be covered under the
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.
You can read more about our business segments under Item 1Business and in note 18 of the
consolidated financial statements in this Annual Report on Form 10-K.
Revenue Sources
We generate all of our total revenues from our five business segments and our non-segmented
equipment support activities. Equipment rentals and new equipment sales account for more than half
of our total revenues. For the year ended December 31, 2010, approximately 31.0% of our total
revenues were attributable to equipment rentals, 29.1% of our total revenues were attributable to
new equipment sales, 10.8% were attributable to used equipment sales, 15.1% were attributable to
parts sales, 8.6% were attributable to our service revenues and 5.4% were attributable to
non-segmented other revenues.
The pie charts below illustrate a breakdown of our revenues and gross profits for the year
ended December 31, 2010 by business segment (see note 18 to our consolidated financial statements
for further information regarding our business segments):
30
|
|
|
Revenue by Segment
($ in millions)
|
|
Gross Profit (Loss) in Segments
($ in millions) |
|
|
|
|
The equipment that we sell, rent and service is principally used in the construction industry,
as well as by companies for commercial and industrial uses such as plant maintenance and
turnarounds. As a result, our total revenues are affected by several factors including, but not
limited to, the demand for and availability of rental equipment, rental rates and other competitive
factors, the demand for new and used equipment, the level of construction and industrial
activities, spending levels by our customers, adverse weather conditions and general economic
conditions. For a discussion of the impact of seasonality on our revenues, see Seasonality below.
|
|
Equipment Rentals. 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 (which we analyze:
(1) as equipment usage based on the number of rental equipment units available for rent and (2)
as a percentage of original equipment cost), rental rate trends and targets, rental equipment
dollar utilization and maintenance and repair costs, which we closely monitor. We maintain fleet
quality through regional quality control managers and our parts and services operations. We
recognize revenue from equipment rentals in the period earned on a straight-line basis, over the
contract term, regardless of the timing of the billing to customers. |
|
|
New Equipment Sales. We seek to optimize revenues from new equipment sales by selling equipment
through a professional in-house retail sales force focused by product type. While sales of new
equipment are impacted by the availability of equipment from the manufacturer, we believe our
status as a leading distributor for some of our key suppliers improves our ability to obtain
equipment. New equipment sales are an important component of our integrated model due to
customer interaction and service contact and new equipment sales also lead to future parts and
service revenues. We recognize revenue from the sale of new equipment at the time of delivery
to, or pick-up by, the customer and when all obligations under the sales contract have been
fulfilled and collectibility is reasonably assured. |
|
|
Used Equipment Sales. We generate the majority of our used equipment sales revenues by selling
equipment from our rental fleet. The remainder of our 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 the disposal of rental equipment. We |
31
|
|
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 tend to affect our rental and
equipment sales operations. We recognize revenues from parts sales at the time of delivery to,
or pick-up by, the customer and when all obligations under the sales contract have been
fulfilled and collectibility is reasonably assured. |
|
|
Services. We derive our services revenues from maintenance and repair services to customers for
their owned equipment. In addition to repair and maintenance on an as-needed or scheduled basis,
we also provide ongoing preventative maintenance services to industrial customers. Our
after-market service provides a high-margin, relatively stable source of revenue through
changing economic cycles. We recognize services revenues at the time services are rendered and
collectibility is reasonably assured. |
|
|
Non-Segmented Revenues. Our non-segmented other revenue consists of billings to customers for
equipment support and activities including: transportation, hauling, parts freight,
environmental fees and loss damage waiver charges. We recognize non-segmented other revenues at
the time of billing and after the related 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 year ended
December 31, 2010, our total cost of revenues was approximately $438.2 million. Our operating
expenses consist principally of selling, general and administrative expenses. For the year ended
December 31, 2010, our selling, general and administrative expenses were approximately $148.3
million. In addition, we have interest expense related to our debt instruments. We are also subject
to federal and state income taxes. Operating expenses and all other income and expense items below
the gross profit line of our consolidated statements of income are not generally allocated to our
reportable segments.
Cost of Revenues:
|
|
Rental Depreciation. Depreciation of rental equipment represents the depreciation costs
attributable to rental equipment. Estimated useful lives vary based upon type of equipment.
Generally, we depreciate cranes and aerial work platforms over a ten year estimated useful life,
earthmoving over a five year estimated useful life with a 25% salvage value, and industrial
lift-trucks over a seven year estimated useful life. Attachments and other smaller type
equipment are depreciated over a three year estimated useful life. |
|
|
Rental Expense. Rental expense represents the costs associated with rental equipment, including,
among other things, the cost of servicing and maintaining our rental equipment, property taxes
on our fleet, equipment operating lease expense and other miscellaneous costs of rental
equipment. |
|
|
New Equipment Sales. Cost of new equipment sold primarily consists of the equipment cost of the
new equipment that is sold, net of any amount of credit given to the customer towards the
equipment for trade-ins. |
|
|
Used Equipment Sales. Cost of used equipment sold consists of the net book value of rental
equipment for used equipment sold from our rental fleet, the equipment costs for used equipment
we purchase for sale or the trade-in value of used equipment that we obtain from customers in
equipment sales transactions. |
|
|
Parts Sales. Cost of parts sales represents costs attributable to the sale of parts directly to
customers. |
32
|
|
Services Support. Cost of services revenues 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 expenses, 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, including indebtedness outstanding under our senior secured credit facility, senior
unsecured notes due 2016, notes payable and our capital lease obligations. See note 9 to the
consolidated financial statements for further information on our senior unsecured notes. Interest
expense also includes interest on our outstanding manufacturer flooring plans payable which are
used to finance inventory and rental equipment purchases. See note 6 to the consolidated financial
statements for further information on our manufacturer flooring plans payable. Non-cash interest
expense related to the amortization cost of deferred financing costs is also included in interest
expense.
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 inventory
and to fund working capital and capital expenditures (see also Liquidity and Capital Resources
below).
Rental Fleet
A significant portion of our overall value is in our rental fleet equipment. Net rental
equipment at December 31, 2010 was $426.6 million, or approximately 58.1% of our total assets. Our
rental fleet as of December 31, 2010, consisted of 16,270 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 $685.1 million. As of December 31, 2010, 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 |
|
|
12,178 |
|
|
|
74.8 |
% |
|
$ |
414.0 |
|
|
|
60.5 |
% |
|
|
47.6 |
|
Cranes |
|
|
356 |
|
|
|
2.2 |
% |
|
|
85.8 |
|
|
|
12.5 |
% |
|
|
37.5 |
|
Earthmoving |
|
|
1,722 |
|
|
|
10.6 |
% |
|
|
152.0 |
|
|
|
22.2 |
% |
|
|
29.3 |
|
Industrial Lift Trucks |
|
|
420 |
|
|
|
2.6 |
% |
|
|
16.6 |
|
|
|
2.4 |
% |
|
|
40.1 |
|
Other |
|
|
1,594 |
|
|
|
9.8 |
% |
|
|
16.7 |
|
|
|
2.4 |
% |
|
|
25.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
16,270 |
|
|
|
100.0 |
% |
|
$ |
685.1 |
|
|
|
100.0 |
% |
|
|
43.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 sales of equipment from the rental fleet, which are influenced by used
equipment pricing at the retail and secondary auction market levels, and the capital expenditures
to acquire new rental fleet equipment. In making equipment acquisition decisions, we
33
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.
As a result of our in-house service capabilities and extensive maintenance program, we believe our
rental fleet is well-maintained.
The original acquisition cost of our gross rental fleet increased by $10.0 million, or 1.5%,
for the year ended December 31, 2010, primarily due to rental equipment purchases during the third
and fourth quarters of 2010 in response to improved equipment time utilization. The average age of
our rental fleet equipment increased by approximately 3.1 months for the year ended December 31,
2010.
Our average rental rates for the year ended December 31, 2010 were 7.7% lower than the
comparative year ended December 31, 2009 (see further discussion on rental rates in Results of Operations
below). On a sequential basis, our average rental rates for the three month period ended December
31, 2010 increased 2.2% compared to the three month period ended September 30, 2010.
The rental equipment mix among our four core product lines for the year ended December 31,
2010 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.
Principal External Factors that Affect our Businesses
We are subject to a number of external factors that may adversely affect our businesses. These
factors, and other factors, are discussed below and under the heading Forward-Looking Statements,
and in Item 1ARisk Factors in this Annual Report on Form 10-K.
|
|
|
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. The recent macroeconomic downturn, including current
conditions in the global credit markets, is a principal factor currently affecting our
business. |
|
|
|
|
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. |
|
|
|
|
Adverse weather. Adverse weather in a geographic region in which we operate may depress
demand for equipment in that region. Our equipment is primarily used outdoors and, as a
result, prolonged adverse weather conditions may prohibit our customers from continuing
their work projects. Adverse weather also has a seasonal impact in parts of our
Intermountain region, primarily in the winter months. |
We believe that our integrated business tempers the effects of downturns in a particular
segment. For a discussion of seasonality, see Seasonality below.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America. The application of many accounting principles
requires us to make assumptions, estimates and/or judgments that affect the reported amounts of
assets, liabilities, revenues and expenses in our consolidated financial statements. We base our
estimates and judgments on historical experience and other assumptions that we believe are
reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are
often subjective and they and our actual results may change based on changing circumstances or
changes in our analyses. If actual amounts are ultimately different from our estimates, the
revisions are included in our results of operations for the period in which the actual amounts
first become known.
34
We believe the following critical accounting policies could potentially produce
materially different results if we were to change underlying assumptions, estimates and/or
judgments. See also note 2 to our consolidated financial statements for a summary of our
significant accounting policies.
Revenue Recognition. Our revenue recognition policies vary by reporting segment. Our policy is
to recognize revenue from equipment rentals in the period earned on a straight-line basis, over the
contract term, regardless of the timing of the billing to customers. A rental contract term can be
daily, weekly or monthly. Because the term of the contracts can extend across financial reporting
periods, we record unbilled rental revenue and deferred rental revenue at the end of reporting
periods so rental revenue earned is appropriately stated in the periods presented. We recognize
revenue from new equipment sales, used equipment sales and parts sales at the time of delivery to,
or pick-up by, the customer and when all obligations under the sales contract have been fulfilled
and collectibility is reasonably assured. We recognize services revenues at the time services are
rendered. We recognize other revenues for support services at the time we generate an invoice
including the charge for such completed services. See also Revenue Sources above.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts that reflects
our estimate of the amount of our receivables that we will be unable to collect. We develop our
estimate of this allowance based on our historical experience with specific customers, our
understanding of our current economic circumstances and our own judgment as to the likelihood of
ultimate payment. Our largest exposure to doubtful accounts is in our rental operations. We
perform credit evaluations of customers and establish credit limits based on reviews of customer
current credit information and payment histories. We believe our credit risk is somewhat mitigated
by our geographically diverse customer base and our credit evaluation procedures. During the year,
we write off customer account balances when we have exhausted reasonable collection efforts and
determined that the likelihood of collection is remote. Such write-offs are charged against our
allowance for doubtful accounts. Bad debt expense for the years ended December 31, 2010, 2009 and
2008 were 0.55%, 0.48% and 0.29%, respectively. The actual rate of future credit losses, however,
may not be similar to past experience. Our estimate of doubtful accounts could change based on
changing circumstances, including changes in the economy or in the particular circumstances of
individual customers. Accordingly, we may be required to increase or decrease our allowance for
doubtful accounts.
Useful Lives of Rental Equipment and Property and Equipment. We depreciate rental equipment
and property and equipment over their estimated useful lives (generally three to ten years), after
giving effect to an estimated salvage value ranging from 0% to 25% of cost. The useful life of
rental equipment is determined based on our estimate of the period the asset will generate
revenues, and the salvage value is determined based on our estimate of the minimum value we could
realize from the asset after such period. We periodically review the assumptions utilized in
computing rates of depreciation. We may be required to change these estimates based on changes in
our industry or other changing circumstances. If these estimates change in the future, we may be
required to recognize increased or decreased depreciation expense for these assets.
The amount of depreciation expense we record is highly dependent upon the estimated useful
lives and the salvage values assigned to each category of rental equipment. Generally, we assign
estimated useful lives to our rental fleet ranging from a three-year life, five-year life with a
25% salvage value, seven-year life and a ten-year life. Depreciation expense on our rental fleet
for the year ended December 31, 2010 was $78.6 million. For the year ended December 31, 2010, the
estimated impact of a change in estimated useful lives for each category of equipment by two years
was as follows:
35
|
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|
|
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|
|
|
|
|
|
|
|
|
|
Hi-Lift or |
|
|
|
|
|
|
|
|
|
Industrial |
|
|
|
|
|
|
|
|
|
Aerial Work |
|
|
|
|
|
|
Earth- |
|
|
Lift |
|
|
|
|
|
|
|
|
|
Platforms |
|
|
Cranes |
|
|
moving |
|
|
Trucks |
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
|
|
|
|
Impact of 2-year change in useful
life on results of operations for the
year ended December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
expense for the year ended December 31, 2010 |
|
$ |
41.7 |
|
|
$ |
9.2 |
|
|
$ |
22.1 |
|
|
$ |
2.5 |
|
|
$ |
3.1 |
|
|
$ |
78.6 |
|
Increase of 2 years in useful life |
|
|
34.2 |
|
|
|
6.9 |
|
|
|
15.3 |
|
|
|
1.9 |
|
|
|
3.9 |
|
|
|
62.2 |
|
Decrease of 2 years in useful life |
|
|
51.4 |
|
|
|
10.2 |
|
|
|
35.7 |
|
|
|
3.5 |
|
|
|
3.1 |
|
|
|
103.9 |
|
For purposes of the sensitivity analysis above, we elected not to decrease the useful lives of
other equipment, which are primarily three-year estimated useful life assets; rather, we have held
the depreciation expense constant at the actual amount of depreciation expense. We believe that
decreasing the life of the other equipment by two years is an unreasonable estimate and would
potentially lead to the decision to expense, rather than capitalize, a significant portion of the
subject asset class. As noted in this sensitivity table, in general terms, a one-year increase in
the estimated life across all classes of our rental equipment will give rise to an approximate
decrease in our annual depreciation expense of $8.2 million. Additionally, a one-year decrease in
the estimated life across all classes of our rental equipment (with the exception of other
equipment as discussed above) will give rise to an approximate increase in our annual depreciation
expense of $12.7 million.
Another significant assumption used in our calculation of depreciation expense is the
estimated salvage value assigned to our earthmoving equipment. Based on our recent experience, we
have used a 25% factor of the equipments original cost to estimate its salvage value. This factor
is highly subjective and subject to change upon future actual results at the time we dispose of the
equipment. A change of 5%, either increase or decrease, in the estimated salvage value would result
in a change in our annual depreciation expense of approximately $1.4 million.
Purchase Price Allocation. We have made significant acquisitions in the past and we may make
additional acquisitions in the future that meet our selection criteria that solidify our presence
in the contiguous regions where we operate with an objective of increasing our revenues, improving
our profitability, entering additional attractive markets and strengthening our competitive
position. Pursuant to Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) 350 (ASC 350), Intangibles-Goodwill and Other, we record as goodwill the
excess of the consideration transferred plus the fair value of any non-controlling interest in the
acquiree at the acquisition date over the fair values of the identifiable net assets acquired. Such
fair market value assessments require judgments and estimates that can be affected by various
factors over time, which may cause final amounts to differ materially from original estimates. For
acquisitions completed through December 31, 2010, adjustments to fair value assessments have been
recorded to goodwill over the purchase price allocation period (typically not exceeding 12 months).
With the exception of goodwill, long-lived fixed assets generally represent the largest
component of our acquisitions. Typically, the long-lived fixed assets that we acquire are
primarily comprised of rental fleet equipment. Historically, virtually all of the rental equipment
that we have acquired through purchase business combinations has been classified as To be Used,
rather than as To be Sold. Equipment that we acquire and classify as To be Used is recorded at
fair value, as determined by replacement cost of such equipment. Any significant inventories of
new and used equipment acquired in the transaction are valued at fair value, less cost to sell.
In addition to long-lived fixed assets, we also acquire other assets and assume liabilities.
These other assets and liabilities typically include, but are not limited to, parts inventory,
accounts receivable, accounts payable and other working capital items. Because of their short-term
nature, the fair values of these assets and liabilities generally approximate the carrying values
reflected on the acquired entities balance sheets. However, when appropriate, we adjust these
carrying values for factors such as collectibility and existence. The intangible assets that we
have acquired generally consist primarily of the goodwill recognized. Depending upon the applicable
purchase agreement and the particular facts and circumstances of the business acquired, we may
identify other
36
intangible assets, such as trade names or trademarks, non-compete agreements and
customer-related intangibles (specifically customer relationships). A trademark has a fair value
equal to the present value of the royalty income attributable to it. The royalty income
attributable to a trademark represents the hypothetical cost savings that are derived from owning
the trademark instead of paying royalties to license the trademark from another owner. When
specifically negotiated by the parties in the applicable purchase agreements, we base the value of
non-compete agreements on the amounts assigned to them in the purchase agreements as these amounts
represent the amounts negotiated in an arms length transaction. When not negotiated by the
parties in the applicable purchase agreements, the fair value of non-compete agreements is
estimated based on an income approach since their values are representative of the current and
future revenue and profit erosion protection they provide. Customer relationships are generally
valued based on an excess earnings or income approach with consideration to projected cash flows.
We use an independent third party valuation firm to assist us with estimating the fair values of
our acquired intangible assets.
Goodwill. We have made acquisitions in the past that included the recognition of goodwill.
Pursuant to ASC 350, goodwill is the excess of the consideration transferred plus the fair value of
any non-controlling interest in the acquiree at the acquisition date over the fair values of the
identifiable net assets acquired. We evaluate goodwill for impairment annually or more frequently
if triggering events occur or other impairment indicators arise which might impair recoverability.
Impairment of goodwill is evaluated at the reporting unit level. A reporting unit is defined
as an operating segment (i.e., before aggregation or combination), or one level below an operating
segment (i.e., a component). A component of an operating segment is a reporting unit if the
component constitutes a business for which discrete financial information is available and segment
management regularly reviews the operating results of that component. Pursuant to ASC 350 and ASC
280, Segment Reporting, and other relevant guidance, we have identified two components within our
Rental operating segment (Equipment Rentals Component 1 and Equipment Rentals Component 2) and have
determined that each of our other four operating segments (New Equipment, Used Equipment, Parts,
and Service segments) represents a reporting unit, resulting in six total reporting units.
We review goodwill for impairment utilizing a two-step process. As the first step of the
impairment test, we determine whether the fair value of our goodwill reporting units is greater
than their carrying value. If the fair value of the reporting unit exceeds the carrying value of
the net assets assigned to that reporting unit, goodwill is not impaired. However, if the fair
value of a reporting unit is less than its carrying value, then the second step of the impairment
test is performed to determine the implied fair value of goodwill. If the carrying value of a
reporting units goodwill exceeds its implied fair value, then we record an impairment loss for the
excess amount.
For purposes of performing the first step of the impairment test described above,,we estimate
the fair value of our reporting units using a discounted cash flow analysis and/or by applying
various market multiples. The principal factors used in the discounted cash flow analysis are our
internal projected results of operations, weighted average cost of capital (WACC) and terminal
value assumptions.
Our internal projected results of operations serve as key inputs for developing our cash flow
projections for a planning period of twelve years. Beyond this period, we also determine an assumed
long-term growth rate representing the expected rate at which a reporting units earnings stream is
expected to grow. These rates are used to calculate the terminal value of our reporting units and
are added to the cash flows projected during the twelve year planning period. In connection with
our fourth quarter 2010 goodwill impairment testing, we utilized a long-term growth rate of 3.0%,
which we believe is reasonable. The WACC is an estimate of the overall after-tax rate of return
required by equity and debt holders of a business enterprise and represents the expected cost of
new capital likely to be used by market participants. The WACC is used to discount our combined
future cash flows. In connection with our 2010 goodwill impairment testing, we utilized a WACC of
between 11.0% to 17.0%, which we believe is reasonable.
37
As of December 31, 2010, our goodwill was comprised of the following carrying values of three
reporting units (amounts in thousands):
|
|
|
|
|
|
|
Carrying Value |
|
Reporting Unit |
|
at 12/31/10 |
|
Equipment Rentals Component 2 |
|
$ |
20,427 |
|
Used Equipment Sales |
|
|
6,712 |
|
Parts Sales |
|
|
6,880 |
|
|
|
|
|
Total Goodwill |
|
$ |
34,019 |
|
|
|
|
|
As of our most recent goodwill impairment test, the estimated fair value of each of these
three reporting units exceeded its respective carrying value by the following percentages:
|
|
|
|
|
|
|
% Excess of Estimated |
|
|
|
Fair Value over Carrying |
|
Reporting Unit |
|
Value |
|
Equipment Rentals Component 2 |
|
|
142.4 |
% |
Used Equipment Sales |
|
|
163.4 |
% |
Parts Sales |
|
|
11.3 |
% |
|
|
|
|
Total |
|
|
128.6 |
% |
|
|
|
|
The inputs and variables used in determining the fair value of a reporting unit require
management to make certain assumptions regarding the impact of operating and macroeconomic changes,
as well as estimates of future cash flows. Our estimates regarding future cash flows are based on
historical experience and projections of future operating performance, including revenues, margins
and operating expenses. These estimates involve risk and are inherently uncertain. Changes in our
estimates and assumptions could materially affect the determination of fair value and/or the amount
of goodwill impairment to be recognized. However, we believe that our estimates and assumptions are
reasonable and represent our most likely future operating results based upon current information
available. Future deterioration in the macroeconomic environment, adverse changes within our
industry, further deterioration in our common stock price, downward revisions to our projected cash
flows based on new information, or other factors, some of which are beyond our ability to control,
could result in a future impairment charge that could materially impact our future results of operations and financial position in
the reporting period identified.
Long-lived Assets and Intangible Assets. Our long-lived assets principally consist of rental
equipment and property and equipment. Our intangible assets consist principally of the intangible
assets acquired in the September 1, 2007 Burress Acquisition. We review our long-lived assets and
intangible assets for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In reviewing for impairment, the carrying value
of such assets is compared to the estimated undiscounted future cash flows expected from the use of
the assets and their eventual disposition. If such cash flows are not sufficient to support the
assets recorded value, an impairment charge is recognized to reduce the carrying value of the
asset to its estimated fair value. The determination of future cash flows as well as the estimated
fair value of long-lived and intangible assets involves significant estimates and judgment on the
part of management. Our estimates and assumptions may prove to be inaccurate due to factors such as
changes in economic conditions, changes in our business prospects or other changing circumstances.
As further described in note 2 to the consolidated financial statements, we recorded in 2008 a
non-cash impairment charge of $6.8 million related to our Burress customer relationships intangible
asset.
We evaluate the remaining useful life of our intangible assets on a periodic basis to
determine whether events and circumstances warrant a revision to the remaining estimated
amortization period.
Inventories. We state our new and used equipment inventories at the lower of cost or market by
specific identification. Parts and supplies are stated at the lower of the weighted average cost or
market. We maintain
38
allowances for damaged, slow-moving and unmarketable inventory to reflect the
difference between the cost of the inventory and the estimated market value. Changes in product
demand may affect the value of inventory on hand and may require higher inventory allowances.
Uncertainties with respect to inventory valuation are inherent in the preparation of financial
statements.
Reserves for Claims. We are exposed to various claims relating to our business, including
those for which we provide self-insurance. Claims for which we self-insure include: (1) workers
compensation claims; (2) general liability claims by third parties for injury or property damage
caused by our equipment or personnel; (3) automobile liability claims; and (4) employee health
insurance claims. These types of claims may take a substantial amount of time to resolve and,
accordingly, the ultimate liability associated with a particular claim, including claims incurred
but not reported as of a period-end reporting date, may not be known for an extended period of
time. Our methodology for developing self-insurance reserves is based on management estimates and
independent third party actuarial estimates. Our estimation process considers, among other
matters, the cost of known claims over time, cost inflation and incurred but not reported claims.
These estimates may change based on, among other things, changes in our claim history or receipt of
additional information relevant to assessing the claims. Further, these estimates may prove to be
inaccurate due to factors such as adverse judicial determinations or other claim settlements at
higher than estimated amounts. Accordingly, we may be required to increase or decrease our reserve
levels.
Income Taxes. We utilize the asset and liability approach to measuring deferred tax assets and
liabilities based on temporary differences existing at each balance sheet date using currently
enacted tax rates in accordance with ASC 740, Income Taxes (ASC 740), which takes into account
the differences between financial statement treatment and tax treatment of certain transactions.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Our deferred tax calculation requires management to make
certain estimates about future operations. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The effect of a change in tax rate is recognized as
income or expense in the period that includes the enactment date.
Effective January 1, 2007, we adopted the provisions of ASC 740 related to the accounting for
uncertainty in income taxes, which clarified the accounting for uncertainty in income taxes
recognized in financial statements. ASC 740 prescribes a two-step approach for recognizing and
measuring tax benefits, with tax benefits arising from uncertain positions only being recognized
when considered to be more likely than not sustained upon examination by the taxing authority. A
recognized tax position is then measured at the largest amount of benefit that is more than 50
percent likely to be realized upon settlement. ASC 740 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and transition issues.
We are subject to ongoing tax examinations and assessments in various jurisdictions.
Accordingly, we may incur additional tax expense based on probable outcomes of such matters.
Results of Operations
The tables included in the period-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 our financial results are not necessarily indicative of future
results. The revenue and gross profit/margin period-to-period comparisons below for the years ended
December 31, 2010 and 2009 have been negatively impacted by lower customer demand resulting from
several factors, including: (i) the decline in construction and industrial activities; (ii) the
recent macroeconomic downturn; and (iii) unfavorable credit markets affecting end-user access to
capital. Although our total gross profit margins have slowly trended downward since the year ended
December 31, 2006, the rate of total gross profit margin decline has been the most significant in
the year ended December 31, 2009, as further described in our 2009 Annual Report on Form 10-K, and
in the first quarter of fiscal 2010, as further described in our Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 2010, as a result of the above factors.
39
During the second, third and fourth quarters of 2010, our operating segments generally
realized either higher gross profit margins or improvements in the rate of gross profit margin
decline on a year-over-year comparative quarterly basis. Our time utilization on rental equipment
improved during the second, third and fourth quarters on a sequential basis. We cannot forecast
with certainty whether these gross profit margin improvements during the recent quarters are
indicative of the beginnings of a favorable trend in our business, nor can we forecast whether, or
to what extent, we may experience any further declines, or whether our responses to ongoing or
future unfavorable business conditions will be meaningful in mitigating or reversing the gross
profit margin declines for the foreseeable future.
Further deterioration or a continuation of current levels in the non-residential construction
industry and the industrial sectors we serve could result in continuing declining revenues and
gross profits/margins and may have a material adverse effect on our financial position, results of
operations and cash flows in the future. During the recent economic downturn, we proactively
responded to these unfavorable business factors in 2009 and early 2010 through various operational
and strategic measures, including closing underperforming branches and redeploying rental fleet
assets to existing branches with higher demand or to branches in new markets where demand is
higher; minimizing rental fleet capital expenditures; reducing headcount; implementing cost
reduction measures throughout the Company; and using some of the excess cash flow resulting from
our planned reduction in capital expenditures to repay outstanding debt. We believe that these
measures strengthened our balance sheet by improving our cash position. We will continue to
evaluate and respond to business conditions as appropriate. While we cannot predict the timing,
duration or the impact of an economic recovery and/or improved conditions within the construction
and industrial sectors, we believe that our efforts have positioned us to take advantage of future
opportunities when a prolonged economic and business recovery occurs.
Our operating results for the year ended December 31, 2009 reflect the sale of a substantial
portion of our Yale® lift truck assets. On July 31, 2009, the Company sold
certain of its Yale® lift truck assets in its rental fleet, new and used
equipment inventories and parts inventories located in the Intermountain region of the United
States to Arnold Machinery Company (the Arnold Transaction) for total cash proceeds of
approximately $15.7 million. At the time of the sale, these Yale® lift trucks
comprised approximately 71% of the total lift trucks in our rental fleet and approximately 3.5% of
our total rental fleet assets (based on net book value). The Yale brand accounted for less than 5%
of our total revenues in 2009 through the date of the Arnold Transaction. Details of the Arnold
Transaction are presented below (amounts in thousands):
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
New equipment sales |
|
$ |
1,161 |
|
|
Used equipment sales |
|
|
13,437 |
(1 |
) |
Parts sales |
|
|
1,061 |
|
|
Service revenues |
|
|
895 |
(2 |
) |
|
|
|
|
|
Total revenues |
|
$ |
16,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
New equipment sales |
|
$ |
1,125 |
|
|
Used equipment sales |
|
|
12,830 |
(1 |
) |
Parts sales |
|
|
1,011 |
|
|
|
|
|
|
|
Total cost of revenues |
|
|
14,966 |
|
|
|
|
|
|
|
Gross profit |
|
$ |
1,588 |
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts include revenues and cost of revenues related to Yale® lift
truck rental fleet assets of $12.7 million and $12.2 million, respectively. |
|
(2) |
|
Represents the recognition of deferred revenue associated with the termination of
related Yale® lift truck maintenance and repair contracts. |
40
Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009
Revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
Total |
|
|
Total |
|
|
|
December 31, |
|
|
Dollar |
|
|
Percentage |
|
|
|
2010 |
|
|
2009 |
|
|
Decrease |
|
|
Decrease |
|
|
|
|
|
|
(in thousands, except percentages) |
|
|
|
|
Segment Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
177,970 |
|
|
$ |
191,512 |
|
|
$ |
(13,542 |
) |
|
|
(7.1 |
)% |
New equipment sales |
|
|
167,303 |
|
|
|
208,916 |
|
|
|
(41,613 |
) |
|
|
(19.9 |
)% |
Used equipment sales |
|
|
62,286 |
|
|
|
86,982 |
|
|
|
(24,696 |
) |
|
|
(28.4 |
)% |
Parts sales |
|
|
86,686 |
|
|
|
100,500 |
|
|
|
(13,814 |
) |
|
|
(13.7 |
)% |
Services revenues |
|
|
49,629 |
|
|
|
58,730 |
|
|
|
(9,101 |
) |
|
|
(15.5 |
)% |
Non-Segmented revenues |
|
|
30,280 |
|
|
|
33,092 |
|
|
|
(2,812 |
) |
|
|
(8.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
574,154 |
|
|
$ |
679,732 |
|
|
$ |
(105,578 |
) |
|
|
(15.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues. Our total revenues were approximately $574.2 million for the year ended
December 31, 2010 compared to $679.7 million in 2009, a decrease of approximately $105.6 million,
or 15.5%. Included in total revenues for the year ended December 31, 2009 were revenues of $16.6
million from the Arnold Transaction as further described above. Revenues decreased for all
reportable segments as further discussed below.
Equipment Rental Revenues. Our revenues from equipment rentals for the year ended December 31,
2010 decreased $13.5 million, or 7.1%, to $178.0 million from $191.5 million in 2009. Revenues from
aerial work platforms decreased $11.9 million and cranes decreased $6.0 million. These decreases
were due to lower demand resulting from the macroeconomic downturn and the other factors discussed
above, which also negatively impacted our rental rates. Our average rental rates for the year ended
December 31, 2010 declined 7.7% compared to last year. In addition, rental revenues from lift
trucks decreased $5.5 million, primarily as a result of the Arnold Transaction. Partially
offsetting these decreases in equipment rental revenues were a $6.9 million increase in earthmoving
equipment rentals and a $3.0 million increase in other equipment rentals.
Rental equipment dollar utilization (annual rental revenues divided by the average original
rental fleet equipment costs) for the year ended December 31, 2010 was 26.7% compared to 26.4% in
2009, an increase of 0.3%. The increase in comparative rental equipment dollar utilization was the
net result of the 7.7% decrease in average rental rates in the comparative period and a 2.6%
increase in rental equipment time utilization (equipment usage based on the number of rental
equipment units available for rent). Rental equipment time utilization was 57.4% for the year ended
December 31, 2010 compared to 54.8% for the same period in 2009. Rental equipment time utilization
as a percentage of original equipment cost was 60.5% for the year ended December 31, 2010 compared
to 57.0% in 2009, an increase of 3.5%.
New Equipment Sales Revenues. Our new equipment sales for the year ended December 31, 2010
decreased $41.6 million, or 19.9%, to $167.3 million from $208.9 million for the comparable period
in 2009. The Arnold Transaction accounted for approximately $1.1 million of new lift truck
equipment sales revenues in the prior year period. Sales of new cranes decreased $58.2 million, reflecting lower demand due to the
macroeconomic downturn and the other factors discussed above. Sales of new lift trucks decreased
$3.0 million largely as a result of the Arnold Transaction, while sales of new other equipment
decreased approximately $0.5 million. Partially offsetting these new equipment sales decreases was
a $9.0 million increase in the sales of new aerial work platforms and an $11.1 million increase in
sales of new earthmoving equipment.
Used Equipment Sales Revenues. Our used equipment sales decreased $24.7 million, or 28.4%, to
$62.3 million for the year ended December 31, 2010, from $87.0 million for the same period in 2009,
primarily as a result of lower demand for used equipment. The Arnold Transaction accounted for
$13.4 million of used lift truck sales revenues in the prior year period. Sales of used cranes and
used aerial work platform equipment decreased $6.5 million and $2.9 million, respectively. Used
lift truck sales decreased $14.3 million, primarily as a result of the Arnold Transaction, and
other used equipment sales decreased approximately $0.5 million,
while sales of
41
used earthmoving equipment decreased $0.5 million.
Parts Sales Revenues. Our parts sales decreased $13.8 million, or 13.7%, to $86.7 million for
the year ended December 31, 2010 from $100.5 million for the same period in 2009. Parts revenues
related to the Arnold Transaction totaled $1.1 million in the prior year period. The decline in
parts revenues was due to a decrease in customer demand for parts due to the decline in
construction and industrial activity during the past year.
Services Revenues. Our services revenues for the year ended December 31, 2010 decreased $9.1
million, or 15.5%, to $49.6 million from $58.7 million for the same period last year. The Arnold
Transaction resulted in the recognition of $0.9 million in deferred services revenues in the prior
year period related to the termination of related lift truck maintenance and repair contracts. The
decline in service revenues was largely due to a decrease in demand for services due to the decline
in construction and industrial activity during the past 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 year ended December 31, 2010, our other revenues were $30.3 million, a decrease of
$2.8 million, or 8.5%, from $33.1 million in the same period last year. The decrease was primarily
due to a decrease in the volume of these services in conjunction with the decline of our primary
business activities.
Gross Profit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
|
|
|
Total |
|
|
|
December 31, |
|
|
Total Dollar |
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
2010 |
|
|
2009 |
|
|
Decrease |
|
|
Decrease |
|
|
|
|
|
|
(in thousands, except percentages) |
|
|
|
|
Segment Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
59,193 |
|
|
$ |
61,524 |
|
|
$ |
(2,331 |
) |
|
|
(3.8 |
)% |
New equipment sales |
|
|
16,638 |
|
|
|
25,031 |
|
|
|
(8,393 |
) |
|
|
(33.5 |
)% |
Used equipment sales |
|
|
14,017 |
|
|
|
16,677 |
|
|
|
(2,660 |
) |
|
|
(16.0 |
)% |
Parts sales |
|
|
22,784 |
|
|
|
27,714 |
|
|
|
(4,930 |
) |
|
|
(17.8 |
)% |
Services revenues |
|
|
30,878 |
|
|
|
36,905 |
|
|
|
(6,027 |
) |
|
|
(16.3 |
)% |
Non-Segmented gross loss |
|
|
(7,571 |
) |
|
|
(2,353 |
) |
|
|
(5,218 |
) |
|
|
(221.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
135,939 |
|
|
$ |
165,498 |
|
|
$ |
(29,559 |
) |
|
|
(17.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Profit. Our total gross profit was $135.9 million for the year ended December 31,
2010 compared to $165.5 million in 2009, a decrease of $29.6 million, or 17.9%. Total gross profit
margin for the year ended December 31, 2010 was approximately 23.7%, a decrease of 0.6% from a
gross profit margin of approximately 24.3% for the same period in 2009. The Arnold Transaction
contributed $1.6 million in gross profit on a total gross profit margin of 9.6% in the prior year
period. Gross profit (loss) and gross margin for all reportable segments and non-segmented revenues
are further described below:
Equipment Rentals Gross Profit. Our gross profit from equipment rentals for the year ended
December 31, 2010 decreased $2.3 million, or 3.8%, to $59.2 million from $61.5 million in the same
period in 2009. The decrease in equipment rentals gross profit is the net result of a $13.5 million
decrease in rental revenues for the year ended December 31, 2010, which was partially offset by a
$2.0 million decrease in rental expenses and a $9.3 million decrease in rental equipment
depreciation expense. The net decrease in rental expenses and rental equipment depreciation expense
was primarily due to a smaller average fleet size in 2010 compared to 2009. As a
percentage of equipment rental revenues, maintenance and repair costs were approximately 15.9%
for the year ended December 31, 2010 compared to 15.4% in 2009, an increase of 0.5%, primarily as a
result of the decline in comparative revenues. Depreciation expense was 44.2% for the year ended
December 31, 2010 compared to 45.9% for the same period in 2009, a decrease of 1.7%, primarily as a
result of a smaller average fleet size in 2010.
Gross profit margin for the year ended December 31, 2010 was approximately 33.2%, up 1.1% from
32.1% in 2009. This gross profit margin increase was due to lower depreciation expenses as a
percentage of equipment rental revenues and the product mix of equipment rented, which was
partially offset by the 7.7% decline in our
42
average rental rates and the increase in other rental
expenses as a percentage of equipment rental revenues.
New Equipment Sales Gross Profit. Our new equipment sales gross profit for the year ended
December 31, 2010 decreased $8.4 million, or 33.5%, to $16.6 million compared to $25.0 million for
the same period in 2009 on a total new equipment sales decline of $41.6 million. Gross profit
margin on new equipment sales for the year ended December 31, 2010 was 9.9%, a decrease of
approximately 2.1% from 12.0% in 2009, reflecting lower demand for new equipment and lower margins
on new crane sales. The Arnold Transaction accounted for new equipment sales gross profit of
$36,000 on a gross profit margin of 3.2% in the prior year period.
Used Equipment Sales Gross Profit. Our used equipment sales gross profit for the year ended
December 31, 2010 decreased $2.7 million, or 16.0%, to $14.0 million from $16.7 million for the
same period in 2009 on a used equipment sales decrease of $24.7 million. Gross profit margin for
the year ended December 31, 2010 was 22.5%, up 3.3% from 19.2% in 2009, as a result of the impact
of lower demand for used equipment and pass thrus of trade-in inventory in the prior year second
quarter combined with the impact of the Arnold Transaction in the third quarter of last year. The
Arnold Transaction accounted for $0.6 million in gross profit with a gross profit margin of 4.5%.
Our used equipment sales from the rental fleet, which comprised approximately 76.4% and 81.6% of
our used equipment sales for the years ended December 31, 2010 and 2009, respectively, were
approximately 137.2% of net book value for the year ended December 31, 2010 compared to 128.4% for
the same period in 2009.
Parts Sales Gross Profit. For the year ended December 31, 2010, our parts sales gross profit
decreased $4.9 million, or 17.8%, to $22.8 million from $27.7 million for the same period in 2009
on a $13.8 million decline in parts sales. Gross profit margin for the year ended December 31, 2010
was 26.3%, a decrease of 1.3% from 27.6% in 2009, as a result of the mix of parts sold. The Arnold
Transaction accounted for approximately $50,000 in gross profit on a gross profit margin of 4.7% in
the prior year period.
Services Revenues Gross Profit. For the year ended December 31, 2010, our services revenues
gross profit decreased $6.0 million, or 16.3%, to $30.9 million from $36.9 million for the same
period in 2009 on a $9.1 million decline in services revenues. Gross profit margin for the year
ended December 31, 2010 was 62.2%, down 0.6% from 62.8% in 2009 due to revenue mix. The Arnold
Transaction resulted in the recognition of $0.9 million in deferred services revenues in the prior
year period related to the termination of related lift truck maintenance and repair contracts.
Excluding the Arnold Transaction, gross profit margin was approximately 62.3% in the prior year
period.
Non-Segmented Other Revenues Gross Loss. For the year ended December 31, 2010, our
non-segmented other revenues realized a gross loss of approximately $7.6 million compared to a
gross loss of approximately $2.4 million for the same period in 2009, as a result of declines in
transportation, hauling and freight revenues and service related revenues associated with the lower
revenues in our primary business activities combined with an increase in field costs.
Selling, General and Administrative Expenses. SG&A expenses increased approximately $3.8
million, or 2.6%, to $148.3 million for the year ended December 31, 2010 compared to approximately
$144.5 million for the same period in 2009. The net increase in SG&A expenses was attributable to
several factors. Legal and professional fees increased $1.5 million in 2010, primarily as a result
of fees associated with data conversion costs and other consulting fees related to our ERP system
implementation. Additionally, depreciation expense increased $3.1 million, primarily related to the
depreciation of the ERP system, which was substantially complete and ready for its intended use in
January 2010. Facility expenses, primarily rent and utilities expenses related to our branch
facilities, increased $1.1 million and other corporate overhead expenses increased $1.1 million.
Partially offsetting these increases were a $2.3 decrease in employee salaries and wages and
related employee expenses as a result of cost control measures instituted by the Company, including
workforce headcount
reductions since the beginning of 2009, combined with lower commissions in the current twelve
month period that resulted from lower rental and sales revenues. Insurance expense decreased $0.5
million as a result of improvements in the number and severity of workers compensation and general
liability claims. Warranty expenses decreased $0.2 million. Stock-based compensation expense was
$1.0 million and $0.7 million for the years ended December 31, 2010 and 2009, respectively. As a
percent of total revenues, SG&A expenses were 25.8% for the year ended December 310, 2010, an
increase of 4.5% from 21.3% in 2009, reflecting the higher
43
expenses described above, the fixed cost
nature of certain SG&A expenses and the 15.5% decline in comparative total revenues.
Other Income (Expense). For the year ended December 31, 2010, our net other expenses decreased
$2.2 million to $28.5 million compared to $30.7 million for the same period in 2009. The decrease
was substantially due to a $2.2 million decrease in interest expense to approximately $29.1 million
for the year ended December 31, 2010 compared to $31.3 million for the same period in 2009. The
decrease in interest expense was due to several factors. Comparative interest expense incurred on
our senior secured credit facility was approximately $0.5 million lower in the year ended December
31, 2010 compared to the same period in 2009. We had no borrowings under our senior secured credit
facility for the year ended December 31, 2010, but incurred approximately $2.0 million in interest
costs related to the amortization of deferred financing costs, commitment fees and letter of credit
fees. For the year ended December 31, 2009, we incurred approximately $2.5 million in interest
expense related to the senior secured credit facility for borrowings under the facility,
amortization of deferred financing costs, commitment fees and letter of credit fees. Additionally,
interest expense on our manufacturing flooring plan payables used to finance inventory purchases
decreased approximately $1.6 million in the most recent year period, as a result of lower
outstanding balances on those manufacturing flooring plan payables.
Income Taxes. We recorded an income tax benefit of $14.9 million for the year ended December
31, 2010 compared to an income tax benefit of $6.2 million for the same period in 2009. Our
effective income tax rate for the year ended December 31, 2010 was approximately 37.0% compared to
34.1% for the same period in 2009. The lower effective tax rate for the year ended December 31,
2009 was the result of lower pre-tax income in relation to the permanent differences and the
decrease of a permanent benefit related to tax deductible goodwill amortization, for which no
deferred taxes can be recognized until realized, in accordance with FASB ASC Topic 740, Income
Taxes (ASC 740). Based on available evidence, both positive and negative, we believe it is more
likely than not that our deferred tax assets at December 31, 2010 are fully realizable through
future reversals of existing taxable temporary differences and future taxable income, and are not
subject to any limitations.
Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
Revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
Total |
|
|
Total |
|
|
|
December 31, |
|
|
Dollar |
|
|
Percentage |
|
|
|
2009 |
|
|
2008 |
|
|
Decrease |
|
|
Decrease |
|
|
|
|
|
|
(in thousands, except percentages) |
|
|
|
|
Segment Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
191,512 |
|
|
$ |
295,398 |
|
|
$ |
(103,886 |
) |
|
|
(35.2 |
)% |
New equipment sales |
|
|
208,916 |
|
|
|
374,068 |
|
|
|
(165,152 |
) |
|
|
(44.2 |
)% |
Used equipment sales |
|
|
86,982 |
|
|
|
160,780 |
|
|
|
(73,798 |
) |
|
|
(45.9 |
)% |
Parts sales |
|
|
100,500 |
|
|
|
118,345 |
|
|
|
(17,845 |
) |
|
|
(15.1 |
)% |
Services revenues |
|
|
58,730 |
|
|
|
70,124 |
|
|
|
(11,394 |
) |
|
|
(16.2 |
)% |
Non-Segmented revenues |
|
|
33,092 |
|
|
|
50,254 |
|
|
|
(17,162 |
) |
|
|
(34.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
679,732 |
|
|
$ |
1,068,969 |
|
|
$ |
(389,237 |
) |
|
|
(36.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues. Our total revenues were $679.7 million in 2009 compared to $1.069 billion in
2008, a decrease of approximately $389.2 million, or 36.4%. Included in total revenues for the year
ended December 31, 2009 were revenues of $16.6 million from the Arnold Transaction as further
described above. Revenues decreased for all reportable segments as further discussed below.
Equipment Rental Revenues. Our revenues from equipment rentals for the year ended December 31,
2009 decreased $103.9 million, or 35.2%, to $191.5 million from $295.4 million in 2008. Rental
revenues decreased for all four core product lines. Revenues from aerial work platforms decreased
$64.5 million, cranes decreased
$8.5 million, earthmoving equipment decreased $16.2 million, lift trucks decreased $7.7
million and other equipment rentals decreased $7.0 million. These decreases were due to lower
demand resulting from the macroeconomic downturn and the other factors discussed above, which also
negatively impacted our rental rates.
44
Our average rental rates for the year ended December 31, 2009
declined 15.5% compared to the same period in the prior year.
Rental equipment dollar utilization (annual rental revenues divided by the average original
rental fleet equipment costs) for the year ended December 31, 2009 was approximately 26.4% in 2009
compared to 36.8% in 2008, a decrease of approximately 10.4%. The decrease in comparative rental
equipment dollar utilization was the result of the 15.5% decrease in average rental rates in the
comparative period and an 11.1% decrease in rental equipment time utilization (equipment usage
based on customer demand). Rental equipment time utilization was 54.8% for the year ended December
31, 2009 compared to 65.9% for the same period in 2008, a decrease of 11.1%. Rental equipment time
utilization as a percentage of original equipment cost was 57.0% for the year ended December 31,
2009 compared to 67.5% in 2008, a decrease of 10.5%.
New Equipment Sales Revenues. Our new equipment sales for the year ended December 31, 2009
decreased $165.2 million, or 44.2%, to $208.9 million from $374.1 million for the comparable period
in 2008. Sales of new cranes decreased $92.3 million, sales of new aerial work platforms decreased
$18.4 million, sales of new earthmoving equipment decreased $37.5 million, sales of new lift trucks
decreased $9.9 million and sales of other new equipment decreased $7.1 million. The decrease in new
equipment sales reflects lower demand for these product lines due to the macroeconomic downturn and
the other factors discussed above.
Used Equipment Sales Revenues. Our used equipment sales decreased approximately $73.8 million,
or 45.9%, to $87.0 million for the year ended December 31, 2009, from $160.8 million for the same
period in 2008, primarily as a result of lower demand for used equipment. The Arnold Transaction
accounted for $13.4 million of used equipment sales revenues for the year ended December 31, 2009.
Sales of used cranes decreased $31.0 million while sales of used aerial work platform equipment and
used earthmoving equipment decreased $30.6 million and $17.7 million, respectively. Inclusive of
the sales revenues from the Arnold Transaction, used lift truck sales increased $7.4 million. Other
used equipment sales decreased $1.9 million.
Parts Sales Revenues. Our parts sales decreased $17.8 million, or 15.1%, to $100.5 million for
the year ended December 31, 2009 from $118.3 million for the same period in 2008. The decline in
parts revenues was due to a decrease in customer demand for parts due to the decline in
construction and industrial activity in 2009.
Services Revenues. Our services revenues for the year ended December 31, 2009 decreased $11.4
million, or 16.2%, to $58.7 million from $70.1 million for the same period in 2008. The Arnold
Transaction resulted in the recognition of $0.9 million in deferred services revenues in 2009
related to the termination of related lift truck maintenance and repair contracts. The decline in
service revenues was largely due to a decrease in demand for services due to the decline in
construction and industrial activity in the past 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 year ended December 31, 2009, our other revenues were $33.1 million, a decrease of
$17.2 million, or 34.2%, from $50.3 million in the same period in 2008. The decrease was primarily
due to a decrease in the volume of these services in conjunction with the decline of our primary
business activities.
45
Gross Profit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
|
|
|
Total |
|
|
|
December 31, |
|
|
Total Dollar |
|
|
Percentage |
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
2009 |
|
|
2008 |
|
|
Decrease |
|
|
Decrease |
|
|
|
|
|
|
(in thousands, except percentages) |
|
|
|
|
Segment Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
61,524 |
|
|
$ |
141,606 |
|
|
$ |
(80,082 |
) |
|
|
(56.6 |
)% |
New equipment sales |
|
|
25,031 |
|
|
|
49,596 |
|
|
|
(24,565 |
) |
|
|
(49.5 |
)% |
Used equipment sales |
|
|
16,677 |
|
|
|
38,824 |
|
|
|
(22,147 |
) |
|
|
(57.0 |
)% |
Parts sales |
|
|
27,714 |
|
|
|
34,784 |
|
|
|
(7,070 |
) |
|
|
(20.3 |
)% |
Services revenues |
|
|
36,905 |
|
|
|
44,800 |
|
|
|
(7,895 |
) |
|
|
(17.6 |
)% |
Non-Segmented gross profit (loss) |
|
|
(2,353 |
) |
|
|
430 |
|
|
|
(2,783 |
) |
|
|
(647.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
165,498 |
|
|
$ |
310,040 |
|
|
$ |
(144,542 |
) |
|
|
(46.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Profit. Our total gross profit was approximately $165.5 million for the year ended
December 31, 2009 compared to approximately $310.0 million in 2008, a decrease of $144.5 million,
or 46.6%. Total gross profit margin for the year ended December 31, 2009 was approximately 24.3%, a
decrease of 4.7% from the 29.0% gross profit margin for the same period in 2008. The Arnold
Transaction, inclusive of the $0.9 million of deferred services revenues recognized discussed
above, contributed $1.6 million in total gross profit on a total gross profit margin of 9.6% for
the year ended December 31, 2009. Gross profit (loss) and gross margin for all reportable segments
are further described below:
Equipment Rentals Gross Profit. Our gross profit from equipment rentals for the year ended
December 31, 2009 decreased $80.1 million, or 56.6%, to $61.5 million from $141.6 million in the
same period in 2008. The decrease in equipment rentals gross profit is the net result of a $103.9
million decrease in rental revenues for the year ended December 31, 2009, which was partially
offset by a $7.4 million net decrease in rental expenses and a $16.4 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 15.4% in 2009 compared
to 12.5% in 2008 and depreciation expense was 45.9% in 2009 compared to 35.3% in 2008. These
percentage increases were primarily attributable to the decline in comparative rental revenues.
Gross profit margin in 2009 was 32.1%, down 15.8% from 47.9% in the same period in 2008. This
gross profit margin decline was primarily due to the 15.5% decline in our average rental rates and
the product mix of equipment rented, combined with the increase in 2009 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 year ended
December 31, 2009 decreased $24.6 million, or 49.5%, to $25.0 million compared to $49.6 million for
the same period in 2008 on a total new equipment sales decline of $165.2 million. Gross profit
margin on new equipment sales for the year ended December 31, 2009 was 12.0%, a decrease of 1.3%
from 13.3% in the same period in 2008, reflecting lower demand for new equipment and lower margins
on new crane sales.
Used Equipment Sales Gross Profit. Our used equipment sales gross profit for the year ended
December 31, 2009 decreased $22.1 million, or 57.0%, to $16.7 million from $38.8 million for the
same period in 2008 on a used equipment sales decrease of $73.8 million. Gross profit margin in
2009 was 19.2%, down 5.0% from 24.2% in the same period in 2008, as a result of the product mix of
used equipment sold and margin contraction due to lower overall demand for used equipment, combined
with the impact of the Arnold Transaction. The Arnold Transaction accounted for $0.6 million in
gross profit with a gross profit margin of 4.5% on $13.4 million of used equipment sales. Our used
equipment sales from the rental fleet, which comprised approximately 81.6% and 76.6% of our used
equipment sales for the years ended December 31, 2009 and 2008, respectively, were approximately
128.4% of net book value for the year ended December 31, 2009 compared to 141.0% for the comparable
period in 2008.
Parts Sales Gross Profit. For the year ended December 31, 2009, our parts sales revenue gross
profit
46
decreased $7.1 million, or 20.3%, to $27.7 million from $34.8 million for the same period in
2008 on a $17.8 million decline in parts sales revenues. Gross profit margin for the year ended
December 31, 2009 was 27.6%, a decrease of 1.8% from 29.4% in the same period in 2008, as a result of the mix of parts sold.
Services Revenues Gross Profit. For the year ended December 31, 2009, our services revenues
gross profit decreased $7.9 million, or 17.6%, to $36.9 million from $44.8 million for the same
period in 2008 on an $11.4 million decline in services revenues. Gross profit margin in 2009 was
62.8%, down approximately 1.1% from 63.9% in the same period in 2008. The Arnold Transaction
resulted in the recognition of $0.9 million in deferred services revenues and gross profit in 2009
related to the termination of related lift truck maintenance and repair contracts.
Non-Segmented Other Revenues Gross Profit. For the year ended December 31, 2009, our
non-segmented other revenues realized a gross loss of approximately $2.4 million, a decrease of
$2.8 million compared to a gross profit of $0.4 million for the year ended December 31, 2008,
primarily as a result of declines in damage waiver income and environmental fees on lower equipment
rental revenues.
Selling, General and Administrative Expenses. SG&A expenses decreased $36.5 million, or 20.2%,
to $144.5 million for the year ended December 31, 2009 compared to $181.0 million for the same
period in 2008. The net decrease in SG&A expenses was attributable to several factors. Employee
salaries and wages and related employee expenses decreased $27.8 million as a result of workforce
reductions in late 2008 and 2009 and other cost control measures instituted by the Company,
including a 15.7% workforce headcount reduction since the beginning of 2009, combined with lower
commissions that resulted from lower rental and sales revenues. In addition, insurance expenses
decreased approximately $0.8 million due to reduced loss exposures, while warranty related expenses
decreased $1.6 million. Fuel costs and utility expenses decreased $2.3 million and supplies and
other corporate overhead expenses, including marketing and promotional expenses, decreased $3.6
million. Amortization expense related to intangible assets decreased $0.8 million. These decreases
were partially offset by a $1.6 million increase in legal and professional fees resulting primarily
from data conversion costs and other consulting fees related to our ERP system implementation.
Stock-based compensation expense was $0.7 million and $1.5 million for the years ended December 31,
2009 and 2008, respectively. As a percent of total revenues, SG&A expenses were 21.3% for the year
ended December 31, 2009, an increase of 4.4% from 16.9% in 2008, reflecting the fixed cost nature
of certain SG&A expenses and the 36.4% decline in comparative total revenues.
Impairment of Goodwill and Intangible Assets. We recorded a goodwill impairment charge of
$9.0 million in 2009 compared to total goodwill impairment charges in 2008 of approximately $15.9
million. Additionally, in 2008, we recorded a $6.8 million non-cash intangible asset impairment
charge related to Burress customer relationships.
In connection with our annual impairment test as of October 1, 2009 and as discussed further
in note 2 to the consolidated financial statements, we determined that the goodwill associated with
our Equipment Rentals Component 1 reporting unit was impaired and recorded a $9.0 million non-cash
goodwill impairment charge. In connection with our annual goodwill impairment test as of October 1,
2008, we determined that the goodwill associated with our New Equipment Sales and Services
reporting units were impaired and recorded, in total, a $15.9 million non-cash goodwill impairment
charge. The specific amounts of the goodwill impairment related to the New Equipment Sales and
Service Revenues reporting units were $8.8 million and $7.1 million, respectively.
These goodwill impairment charges were largely a result of worsening macroeconomic conditions,
declines in market multiples within our industry and an increase in our cost of capital as a result
of recent significant deterioration in the capital markets and the related decline in market value
of equity and debt securities. The impairment also reflected a reduction in our projected cash
flows. The impairment charges were non-cash items and did not affect our cash flows, liquidity or
borrowing capacity under our senior credit facility, and the charges were excluded from the
Companys financial results in evaluating our financial covenant under the senior secured credit
facility.
During the fourth quarter of 2008 and as a result of worsening macroeconomic conditions in the
Mid-Atlantic region where our Burress branch facilities operate, higher than expected customer
attrition rates and revised lower projected cash flows for our Burress operations, we tested the
Burress customer relationships
47
intangible asset for impairment as of October 1, 2008 and determined
that the intangible assets then-carrying value of approximately $7.9 million exceeded its
undiscounted future cash flows. We then determined, using a discounted cash flow analysis, the
intangible assets fair value to be approximately $1.1 million as of October 1, 2008, resulting in
a non-cash impairment loss of $6.8 million. Fair value of the customer relationships asset was
determined using a discounted cash flow analysis. The impairment charge was a non-cash item and did
not affect our cash flows, liquidity or borrowing capacity under our senior credit facility, and the
charge was excluded from our financial results in evaluating our financial covenant under the
senior secured credit facility
Other Income (Expense). For the year ended December 31, 2009, our net other expenses decreased
$6.6 million to $30.7 million compared to $37.3 million for the same period in 2008. The decrease
was the net result of a $6.9 million decrease in interest expense to $31.3 million for the year
ended December 31, 2009 compared to $38.3 million for the same period in 2008, which was partially
offset by a $0.3 million increase in other income. The decrease in interest expense was due to
several factors. Comparative interest expense incurred on our senior secured credit facility was
approximately $4.7 million lower in 2009, largely as a result of a $81.5 million 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 2009. Additionally, interest expense on our
manufacturing flooring plan payables used to finance inventory purchases and rental equipment
decreased approximately $2.2 million in 2009, as a result of lower outstanding balances on those
manufacturing flooring plan payables in 2009 and lower average interest rates, reflecting the
decline in the prime interest rate since 2008.
Income Taxes. We recorded an income tax benefit of approximately $6.2 million for the year
ended December 31, 2009 compared to income tax expense of $26.1 million for the year ended December
31, 2008. Our effective income tax rate for the year ended December 31, 2009 was approximately
34.1% compared to 37.6% for the year ended December 31, 2008. The effective income tax (benefit)
rate for 2009 of 34.1% approximates the federal statutory rate of 35.0%. The decrease in our
effective tax rate was the result of lower pre-tax income in relation to the permanent differences
and the decrease of a permanent benefit related to tax deductible goodwill amortization, for which
no deferred taxes can be recognized until realized, in accordance with ASC 740. Based on available
evidence, both positive and negative, we believe it is more likely than not that our deferred tax
assets at December 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. For the year ended December 31, 2010, our cash provided
by our operating activities was $17.9 million. Our reported net loss of approximately $25.5
million, which, when adjusted for non-cash income and expense items, such as depreciation and
amortization, deferred income taxes, provision for losses on receivables, stock-based compensation
expense and net gains on the sale of long-lived assets, provided positive cash flows of
approximately $46.1 million. These cash flows from operating activities were also positively
impacted by an increase of $29.6 million in accounts payable. Offsetting these positive cash flows
were a $17.8 million decrease in manufacturing flooring plans payable, a $30.3 million increase in
net accounts receivable, a $6.8 million increase in net inventories, a $1.7 million increase in
prepaid expenses and other assets and a $1.3 million decrease in accrued expenses payable and other
liabilities.
Our cash provided by operating activities for the year ended December 31, 2009 was $72.9
million. Our reported net loss of approximately $11.9 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, goodwill impairment and net
gains on the sale of long-lived assets, provided positive cash flows of approximately $79.6
million. These cash flows from operating activities were also positively impacted by a decrease of
$75.0 million in net accounts receivable, a $4.7 million decrease in prepaid expenses and other
assets and a $23.2 million decrease in inventories. Partially offsetting these positive cash flows
were a decrease of $64.8 million in accounts payable, a $34.8 million decrease in manufacturing
flooring plans payable, and a $9.9 million decrease in accrued expenses and other liabilities.
Cash Flow from Investing Activities. For the year ended December 31, 2010, our cash provided
by our investing activities was exceeded by our cash used in our investing activities, resulting in
net cash used in our investing activities of approximately $29.7 million. This was a net result of
purchases of rental and non-rental
48
equipment of $77.9 million and proceeds from the sales of rental
and non-rental equipment totaling $48.2 million.
For the year ended December 31, 2009, cash provided by our investing activities was $37.9
million. This was a net result of proceeds from the sale of rental and non-rental equipment of
$72.4 million, which includes approximately $13.3 million in cash proceeds related to the Arnold
Transaction. Partially offsetting these cash flows were purchases of rental and non-rental
equipment totaling $34.5 million.
Cash Flow from Financing Activities. For the year ended December 31, 2010, cash used in our
financing activities was approximately $4.5 million, representing payments of our notes payable and
capital lease obligation and purchases of treasury stock of $1.2 million, $0.1 million and $0.2
million, respectively, and transactions costs of $2.9 million associated with our amended and
restated senior secured credit facility (see note 10 to these consolidated financial statements for
further information).
For the year ended December 31, 2009, cash provided by our financing activities was offset by
cash used in financing activities, resulting in net cash used of approximately $76.7 million. Our
total borrowings under our senior secured credit facility during the year ended December 31, 2009
were $536.3 million and total payments under the senior secured credit facility in the same period
were $612.6 million. We also made payments under our related party obligation, notes payable and
capital lease obligation totaling $0.3 million and acquired $0.1 million of treasury stock.
Senior Secured Credit Facility
We and our subsidiaries are parties to a $320.0 million senior secured credit facility with
General Electric Capital Corporation as administrative agent, and the lenders named therein. On
July 29, 2010, we amended and restated the credit facility to, among other things, extend the
facilitys maturity date to July 29, 2015. The revolving loans under the credit facility bear
interest, at our option, either at (i) the index rate plus an applicable margin ranging from 1.50%
to 2.25% depending on our leverage ratio or (ii) the LIBOR rate plus an applicable margin of 2.50%
to 3.25% depending on our leverage ratio. The unused commitment fee under the senior secured credit
facility is 0.50%.
Our senior secured credit facility requires us to maintain a minimum fixed charge coverage
ratio in the event that our excess borrowing availability is below $40.0 million (as adjusted if
the incremental facility is exercised). The credit facility also requires us to maintain a maximum
total leverage ratio of 5.0 to 1.0, which is tested if excess availability is less than $40 million
(as adjusted if the incremental facility is exercised). We paid transaction costs of approximately
$2.9 million in connection with the amendment and restatement of the credit facility. At March 1,
2011, we had $313.0 million of available borrowings under our senior secured credit facility, net of
$7.0 million of outstanding letters of credit, and were in compliance with these covenants.
Senior Unsecured Notes
We currently have outstanding $250.0 million aggregate principal amount of 8 3/8% senior
unsecured notes due 2016. The senior unsecured notes are guaranteed, jointly and severally, on an
unsecured senior basis by all of our existing and future domestic restricted subsidiaries.
We may redeem the senior unsecured notes at any time on or after July 15, 2011 at specified
redemption prices plus accrued and unpaid interest and additional interest. In addition, if we
experience a change of control, we will be required to make an offer to repurchase the senior
unsecured notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and additional interest.
The indenture governing our senior secured notes contains certain covenants that, among other
things, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional
indebtedness, assume a guarantee or issue preferred stock; (ii) pay dividends or make other equity
distributions or payments to or affecting our subsidiaries; (iii) purchase or redeem our capital
stock; (iv) make certain investments; (v) create liens; (vi) sell or dispose of assets or engage in
mergers or consolidation; (vii) engage in certain transactions with subsidiaries or affiliates;
(viii) enter into sale leaseback transactions with subsidiaries or affiliates; (viii) enter into
sale leaseback
49
transactions; and (ix) engage in certain business activities. Each of the covenants
is subject to exceptions and qualifications.
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. In the future, we may pursue additional strategic
acquisitions. In addition, we may use cash from working capital and/or borrowings
under our senior secured credit facility should we repurchase Company securities. We
anticipate that the above described uses will be the principal demands on our cash in the future.
The amount of our future capital expenditures will depend on a number of factors including
general economic conditions and growth prospects. Our gross rental fleet capital expenditures for
the year ended December 31, 2010 were approximately $102.5 million, including $29.3 million of
non-cash transfers from new and used equipment to rental fleet inventory. Our gross property and
equipment capital expenditures for the year ended December 31, 2010 were approximately $4.7
million. In response to changing economic conditions (either positive or negative), we believe we
have the flexibility to modify our capital expenditures by adjusting them (either up or down) to
match our actual performance.
On July 31, 2009, the Company sold to Arnold Machinery Company its Yale® lift truck
assets in our rental fleet, new and used equipment inventories and parts inventories located in the
Intermountain region of the United States, resulting in total cash proceeds of approximately $15.7
million. At the time of the sale, these lift trucks comprised, based on net book value,
approximately 71% of our total lift trucks in the rental fleet and approximately 3.5% of our total
rental fleet. The Yale® brand accounted for less than 5.0% of our total revenues in 2009
through the date of the transaction.
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 our senior secured credit facility will be adequate to meet our
future liquidity needs for the foreseeable future. As of
March 1, 2011, we had $313.0 million of
available borrowings under our senior secured credit facility, net of $7.0 million of outstanding
letters of credit.
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 recent and 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 debt agreements, including the indenture governing our senior unsecured notes, and our
senior secured credit facility, as well as any future debt agreements, contain or may 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 acceleration of all of our debt.
50
Certain Information Concerning Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual
arrangement involving an unconsolidated entity under which a company has (1) made guarantees, (2) a
retained or a contingent interest in transferred assets, (3) an obligation under derivative
instruments classified as equity or (4) any obligation arising out of a material variable interest
in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support
to the Company, or that engages in leasing, hedging or research and development arrangements with
the Company.
We have no off-balance sheet arrangements as described above. Further, we do not have any
relationships with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have been established
for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. We are, therefore, not materially exposed to any financing, liquidity, market or
credit risk that could arise if we had engaged in such relationships. We have also
evaluated our relationships with related parties and determined that none of the related party
interests represent variable interest entities pursuant to ASC 810, Consolidation.
In the normal course of our business activities, we may lease real estate, rental equipment
and non-rental equipment under operating leases. See Contractual and Commercial Commitments
Summary below.
Contractual and Commercial Commitments Summary
Our contractual obligations and commercial commitments principally include obligations
associated with our outstanding indebtedness and interest payments as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Year |
|
|
|
Total |
|
|
2011 |
|
|
2012-2013 |
|
|
2014-2015 |
|
|
Thereafter |
|
|
|
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
Long-term debt (including senior unsecured
notes payable) |
|
$ |
250,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
250,000 |
|
Interest payments on senior unsecured notes (1) |
|
|
125,625 |
|
|
|
20,937 |
|
|
|
41,875 |
|
|
|
41,875 |
|
|
|
20,938 |
|
Capital lease obligations (including interest) (2) |
|
|
4,294 |
|
|
|
333 |
|
|
|
666 |
|
|
|
666 |
|
|
|
2,629 |
|
Operating leases (3) |
|
|
90,968 |
|
|
|
11,458 |
|
|
|
18,972 |
|
|
|
14,415 |
|
|
|
46,123 |
|
Other long-term obligations (4) |
|
|
75,316 |
|
|
|
6,521 |
|
|
|
52,403 |
|
|
|
16,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations (5) |
|
$ |
546,203 |
|
|
$ |
39,249 |
|
|
$ |
113,916 |
|
|
$ |
73,348 |
|
|
$ |
319,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Future interest payments are calculated based on the assumption that all debt remains
outstanding until maturity. |
|
(2) |
|
This includes a capital lease for which the related liability has been recorded (including
interest) at the present value of future minimum lease payments due under the lease. |
|
(3) |
|
This includes total operating lease rental payments having initial or remaining
non-cancelable lease terms longer than one year. |
|
(4) |
|
Amounts include $75.1 million in manufacturer flooring plans payable, which is used
to finance our purchases of inventory and rental equipment. |
|
(5) |
|
We had an unrecognized tax benefit of approximately $6.5 million at December 31, 2010. This
liability is not included in the table above as approximately $6.3 million of this amount
relates to federal income taxes and any liability subsequently determined and potentially
assessed by the Internal Revenue Service would be offset against our Net Operating Losses for
the related tax years and no cash payment would be required. The remaining $0.2 million
relates to state income taxes and would require cash payments should the state taxing
authorities determine and assess any tax liability with respect to the benefit. |
51
As of December 31, 2010, we had a standby letter of credit issued under our senior secured
credit facility totaling $8.0 million. On January 3, 2011, we amended and renewed that letter of
credit for approximately $7.0 million for a one-year term, expiring on January 3, 2012.
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. Adverse weather has a seasonal impact in parts of our Intermountain
region, particulary in the winter months.
Equipment sales cycles are also subject to some seasonality with the peak selling period
during the spring season and extending through the summer. Parts and service activities are less
affected by changes in demand caused by seasonality.
Inflation
Although we cannot accurately anticipate the effect of inflation on our operations, we believe
that inflation has not had for the three most recent fiscal years ended, and is not likely in the
foreseeable future to have, a material impact on our results of operations.
Acquisitions and Start-up Facilities
We periodically engage in evaluations of potential acquisitions and start-up facilities. The
success of our growth strategy depends, in part, on selecting strategic acquisition candidates at
attractive prices and identifying strategic start-up locations. We expect to face competition for
acquisition candidates, which may limit the number of acquisition opportunities and lead to higher
acquisition costs. We may not have the financial resources necessary to consummate any acquisitions
or to successfully open any new facilities in the future or the ability to obtain the necessary
funds on satisfactory terms. For further information regarding our risks related to acquisitions,
see Item 1A of Part I of this Annual Report on Form 10-K.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted in Fiscal Year 2010
In June 2009, the FASB issued Statement of FAS No. 167, Amendments to FASB Interpretation No.
46(R) (FAS 167), which has been codified into Accounting Standards Codification (ASC) 810:
Consolidations (ASC 810). This guidance is a revision to pre-existing guidance pertaining to the
consolidation and disclosure 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 entitys purpose and design and the reporting entitys ability to direct the activities of
the other entity that most significantly impact the other entitys economic performance. This
guidance requires 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 is required to disclose how its involvement with a variable interest entity
affects the reporting entitys financial statements. We adopted the provisions of ASC 810 effective
January 1, 2010, and such adoption did not have a material impact on our condensed consolidated
financial statements.
Accounting Pronouncements Not Yet Adopted
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements
(amendments to ASC 605, Revenue Recognition) (ASU 2009-13). ASU 2009-13 addresses how to
determine whether an
52
arrangement involving multiple deliverables contains more than one unit of accounting and
requires entities to allocate revenue in an arrangement containing more than one unit of accounting
using estimated selling prices of the delivered goods and services based on a selling price
hierarchy. These 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 do not expect that the
adoption of this statement will have a material impact on our consolidated financial statements.
In December 2010, the FASB issued updated accounting guidance related to the calculation of
the carrying amount of a reporting unit when performing the first step of a goodwill impairment
test. More specifically, this update will require an entity to use an equity premise when
performing the first step of a goodwill impairment test and if a reporting unit has a zero or
negative carrying amount, the entity must assess and consider qualitative factors and whether it is
more likely than not that a goodwill impairment exists. The new accounting guidance is effective
for public entities, for impairment tests performed during entities fiscal years (and interim
periods within those years) that begin after December 15, 2010. Early application is not permitted.
We plan to adopt the new disclosures in the first quarter of fiscal 2011, however, as we currently
do not have any reporting units with a zero or negative carrying amount, we do not expect the
adoption of this guidance to have an impact on our consolidated financial statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Our earnings may be affected by changes in interest rates since interest expense on our senior
secured credit facility is currently calculated based upon the index rate plus an applicable margin
of 1.50% to 2.25%, depending on the leverage ratio, in the case of index rate revolving loans and
LIBOR plus an applicable margin of 2.50% to 3.25%, depending on the leverage ratio, in the case of
LIBOR revolving loans. At December 31, 2010, we had no outstanding borrowings under our senior
secured credit facility. Further, we did not have significant exposure to changing interest rates
as of December 31, 2010 on our fixed-rate senior unsecured notes or on our other notes payable.
Historically, we have not engaged in derivatives or other financial instruments for trading,
speculative or hedging purposes, though we may do so from time to time if such instruments are
available to us on acceptable terms and prevailing market conditions are accommodating.
Item 8. Financial Statements and Supplementary Data
Index to consolidated financial statements of H&E Equipment Services, Inc. and Subsidiaries
See note 18 to the consolidated financial statements for summarized quarterly financial data.
53
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
H&E Equipment Services, Inc.
Baton Rouge, Louisiana
We have audited the accompanying consolidated balance sheets of H&E Equipment Services, Inc. and
subsidiaries as of December 31, 2010 and 2009 and the related consolidated statements of
operations, stockholders equity, and cash flows for each of the three years in the period ended
December 31, 2010. In connection with our audits of the financial statements, we have also audited
the financial statement schedule listed in Item 15(a) (2) of this annual report on Form 10-K.
These financial statements and schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements and
schedule. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of H&E Equipment Services, Inc. and subsidiaries at
December 31, 2010 and 2009, and the results of its operations and their cash flows for each of the
three years in the period ended December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), H&E Equipment Services, Inc.s internal control over financial reporting as
of December 31, 2010, based on criteria established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our
report dated March 3, 2011 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Dallas, Texas
March 3, 2011
54
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands, except share |
|
|
|
amounts) |
|
Assets |
|
|
|
|
|
|
|
|
Cash |
|
$ |
29,149 |
|
|
$ |
45,336 |
|
Receivables, net of allowance for doubtful accounts of $6,004 and $5,736,
respectively |
|
|
99,139 |
|
|
|
72,001 |
|
Inventories, net of reserves for obsolescence of $1,105 and $824, respectively |
|
|
72,156 |
|
|
|
94,987 |
|
Prepaid expenses and other assets |
|
|
8,679 |
|
|
|
6,999 |
|
Rental equipment, net of accumulated depreciation of $254,662 and $224,881,
respectively |
|
|
426,637 |
|
|
|
437,407 |
|
Property and equipment, net of accumulated depreciation and amortization of
$53,941 and $42,086, respectively |
|
|
57,186 |
|
|
|
65,802 |
|
Deferred financing costs, net of accumulated amortization of $10,456 and
$9,050, respectively |
|
|
7,027 |
|
|
|
5,545 |
|
Intangible assets, net of accumulated amortization of $3,050 and $2,492,
respectively |
|
|
429 |
|
|
|
988 |
|
Goodwill |
|
|
34,019 |
|
|
|
34,019 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
734,421 |
|
|
$ |
763,084 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
58,437 |
|
|
$ |
28,866 |
|
Manufacturer flooring plans payable |
|
|
75,058 |
|
|
|
92,868 |
|
Accrued expenses payable and other liabilities |
|
|
35,999 |
|
|
|
37,271 |
|
Note payable |
|
|
|
|
|
|
1,216 |
|
Senior unsecured notes |
|
|
250,000 |
|
|
|
250,000 |
|
Capital leases payable |
|
|
2,754 |
|
|
|
2,894 |
|
Deferred income taxes |
|
|
55,919 |
|
|
|
69,146 |
|
Deferred compensation payable |
|
|
2,004 |
|
|
|
1,941 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
480,171 |
|
|
|
484,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares
issued |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 175,000,000 shares authorized; 38,699,666
and 38,525,688 shares issued at December 31, 2010 and 2009, respectively,
and 35,029,804 and 34,904,597 shares outstanding at December 31, 2010 and
2009, respectively |
|
|
386 |
|
|
|
385 |
|
Additional paid-in capital |
|
|
209,111 |
|
|
|
208,072 |
|
Treasury stock at cost, 3,669,862 and 3,621,091 shares of common stock
held at December 31, 2010 and 2009, respectively |
|
|
(56,330 |
) |
|
|
(56,118 |
) |
Retained earnings |
|
|
101,083 |
|
|
|
126,543 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
254,250 |
|
|
|
278,882 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
734,421 |
|
|
$ |
763,084 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated statements.
55
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(Amounts in thousands, except per share amounts) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
177,970 |
|
|
$ |
191,512 |
|
|
$ |
295,398 |
|
New equipment sales |
|
|
167,303 |
|
|
|
208,916 |
|
|
|
374,068 |
|
Used equipment sales |
|
|
62,286 |
|
|
|
86,982 |
|
|
|
160,780 |
|
Parts sales |
|
|
86,686 |
|
|
|
100,500 |
|
|
|
118,345 |
|
Services revenues |
|
|
49,629 |
|
|
|
58,730 |
|
|
|
70,124 |
|
Other |
|
|
30,280 |
|
|
|
33,092 |
|
|
|
50,254 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
574,154 |
|
|
|
679,732 |
|
|
|
1,068,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
|
78,583 |
|
|
|
87,902 |
|
|
|
104,311 |
|
Rental expense |
|
|
40,194 |
|
|
|
42,086 |
|
|
|
49,481 |
|
New equipment sales |
|
|
150,665 |
|
|
|
183,885 |
|
|
|
324,472 |
|
Used equipment sales |
|
|
48,269 |
|
|
|
70,305 |
|
|
|
121,956 |
|
Parts sales |
|
|
63,902 |
|
|
|
72,786 |
|
|
|
83,561 |
|
Services revenues |
|
|
18,751 |
|
|
|
21,825 |
|
|
|
25,324 |
|
Other |
|
|
37,851 |
|
|
|
35,445 |
|
|
|
49,824 |
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
438,215 |
|
|
|
514,234 |
|
|
|
758,929 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
135,939 |
|
|
|
165,498 |
|
|
|
310,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
148,277 |
|
|
|
144,460 |
|
|
|
181,037 |
|
Impairment of goodwill and intangible assets |
|
|
|
|
|
|
8,972 |
|
|
|
22,721 |
|
Gain from sales of property and equipment, net |
|
|
443 |
|
|
|
533 |
|
|
|
436 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
(11,895 |
) |
|
|
12,599 |
|
|
|
106,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(29,076 |
) |
|
|
(31,339 |
) |
|
|
(38,255 |
) |
Other, net |
|
|
591 |
|
|
|
619 |
|
|
|
934 |
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
|
(28,485 |
) |
|
|
(30,720 |
) |
|
|
(37,321 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision (benefit) for income taxes |
|
|
(40,380 |
) |
|
|
(18,121 |
) |
|
|
69,397 |
|
Provision (benefit) for income taxes |
|
|
(14,920 |
) |
|
|
(6,178 |
) |
|
|
26,101 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(25,460 |
) |
|
$ |
(11,943 |
) |
|
$ |
43,296 |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.73 |
) |
|
$ |
(0.35 |
) |
|
$ |
1.22 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.73 |
) |
|
$ |
(0.35 |
) |
|
$ |
1.22 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
34,668 |
|
|
|
34,607 |
|
|
|
35,575 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
34,668 |
|
|
|
34,607 |
|
|
|
35,583 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated statements.
56
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(Amounts in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Shares |
|
|
|
|
|
|
Paid-in |
|
|
Treasury |
|
|
Retained |
|
|
Stockholders |
|
|
|
Issued |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Earnings |
|
|
Equity |
|
Balances at December 31,
2007 |
|
|
38,192,094 |
|
|
$ |
382 |
|
|
$ |
205,937 |
|
|
$ |
(13,141 |
) |
|
$ |
95,190 |
|
|
$ |
288,078 |
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
1,453 |
|
|
|
|
|
|
|
|
|
|
|
1,453 |
|
Income tax deficiency from
stock-based awards |
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
(44 |
) |
|
Repurchases of 13,436
shares of restricted
common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(215 |
) |
|
|
|
|
|
|
(215 |
) |
|
Repurchases of 2,843,794
shares of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,362 |
) |
|
|
|
|
|
|
(42,362 |
) |
|
Issuance of non-vested
restricted common stock |
|
|
96,295 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
Restricted stock
forfeitures of 541 shares
of common stock |
|
|
(541 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,296 |
|
|
|
43,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008 |
|
|
38,287,848 |
|
|
|
383 |
|
|
|
207,346 |
|
|
|
(56,008 |
) |
|
|
138,486 |
|
|
|
290,207 |
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
726 |
|
|
|
|
|
|
|
|
|
|
|
726 |
|
Surrendered restricted
common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(110 |
) |
|
|
|
|
|
|
(110 |
) |
Issuance of non-vested
restricted common stock |
|
|
237,840 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,943 |
) |
|
|
(11,943 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009 |
|
|
38,525,688 |
|
|
|
385 |
|
|
|
208,072 |
|
|
|
(56,118 |
) |
|
|
126,543 |
|
|
|
278,882 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
1,039 |
|
|
|
|
|
|
|
|
|
|
|
1,039 |
|
Issuance of non-vested
restricted common stock |
|
|
173,978 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Repurchases of 23,157
shares of restricted
common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(212 |
) |
|
|
|
|
|
|
(212 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,460 |
) |
|
|
(25,460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2010 |
|
|
38,699,666 |
|
|
$ |
386 |
|
|
$ |
209,111 |
|
|
$ |
(56,330 |
) |
|
$ |
101,083 |
|
|
$ |
254,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated statements.
57
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(Amounts in thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(25,460 |
) |
|
$ |
(11,943 |
) |
|
$ |
43,296 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment |
|
|
13,124 |
|
|
|
10,800 |
|
|
|
11,143 |
|
Depreciation of rental equipment |
|
|
78,583 |
|
|
|
87,902 |
|
|
|
104,311 |
|
Amortization of deferred financing costs |
|
|
1,406 |
|
|
|
1,419 |
|
|
|
1,417 |
|
Amortization of intangible assets |
|
|
559 |
|
|
|
591 |
|
|
|
2,223 |
|
Provision for losses on accounts receivable |
|
|
3,164 |
|
|
|
3,246 |
|
|
|
3,064 |
|
Provision for inventory obsolescence |
|
|
315 |
|
|
|
48 |
|
|
|
54 |
|
Provision for deferred income taxes |
|
|
(13,227 |
) |
|
|
(5,963 |
) |
|
|
24,428 |
|
Stock-based compensation expense |
|
|
1,039 |
|
|
|
726 |
|
|
|
1,453 |
|
Impairment of goodwill and intangible assets |
|
|
|
|
|
|
8,972 |
|
|
|
22,721 |
|
Gain from sales of property and equipment, net |
|
|
(443 |
) |
|
|
(533 |
) |
|
|
(436 |
) |
Gain from sales of rental equipment, net |
|
|
(12,931 |
) |
|
|
(15,676 |
) |
|
|
(35,793 |
) |
Changes in operating assets and liabilities, net of impact of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
|
(30,302 |
) |
|
|
75,046 |
|
|
|
(799 |
) |
Inventories, net |
|
|
(6,762 |
) |
|
|
23,182 |
|
|
|
(28,064 |
) |
Prepaid expenses and other assets |
|
|
(1,680 |
) |
|
|
4,722 |
|
|
|
(5,452 |
) |
Accounts payable |
|
|
29,571 |
|
|
|
(64,801 |
) |
|
|
8,772 |
|
Manufacturer flooring plans payable |
|
|
(17,810 |
) |
|
|
(34,822 |
) |
|
|
(35,249 |
) |
Accrued expenses payable and other liabilities |
|
|
(1,271 |
) |
|
|
(9,930 |
) |
|
|
3,291 |
|
Deferred compensation payable |
|
|
63 |
|
|
|
(85 |
) |
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
17,938 |
|
|
|
72,901 |
|
|
|
120,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of business, net of cash acquired |
|
|
|
|
|
|
|
|
|
|
(10,461 |
) |
Purchases of property and equipment |
|
|
(4,652 |
) |
|
|
(19,395 |
) |
|
|
(24,587 |
) |
Purchases of rental equipment |
|
|
(73,249 |
) |
|
|
(15,121 |
) |
|
|
(125,871 |
) |
Proceeds from sales of property and equipment |
|
|
587 |
|
|
|
1,448 |
|
|
|
1,172 |
|
Proceeds from sales of rental equipment |
|
|
47,645 |
|
|
|
70,968 |
|
|
|
123,072 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(29,669 |
) |
|
|
37,900 |
|
|
|
(36,675 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefit (deficiency) from stock-based awards |
|
|
|
|
|
|
|
|
|
|
(44 |
) |
Purchases of treasury stock |
|
|
(212 |
) |
|
|
(110 |
) |
|
|
(42,577 |
) |
Borrowings on senior secured credit facility |
|
|
|
|
|
|
536,311 |
|
|
|
1,042,821 |
|
Payments on senior secured credit facility |
|
|
|
|
|
|
(612,633 |
) |
|
|
(1,087,049 |
) |
Payments of deferred financing costs |
|
|
(2,888 |
) |
|
|
|
|
|
|
|
|
Payments of related party obligation |
|
|
|
|
|
|
(150 |
) |
|
|
(300 |
) |
Payments of capital lease obligations |
|
|
(140 |
) |
|
|
(131 |
) |
|
|
(123 |
) |
Principal payments on note payable |
|
|
(1,216 |
) |
|
|
(18 |
) |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(4,456 |
) |
|
|
(76,731 |
) |
|
|
(87,288 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
(16,187 |
) |
|
|
34,070 |
|
|
|
(3,496 |
) |
Cash, beginning of year |
|
|
45,336 |
|
|
|
11,266 |
|
|
|
14,762 |
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year |
|
$ |
29,149 |
|
|
$ |
45,336 |
|
|
$ |
11,266 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated statements.
58
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
|
(Amounts in thousands) |
|
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash asset purchases: |
|
|
|
|
|
|
|
|
|
|
|
|
Assets transferred from new and used inventory to rental fleet |
|
$ |
29,278 |
|
|
$ |
11,023 |
|
|
$ |
42,548 |
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
27,603 |
|
|
$ |
30,110 |
|
|
$ |
37,040 |
|
Income taxes, net of refunds received |
|
$ |
(149 |
) |
|
$ |
(567 |
) |
|
$ |
1,764 |
|
59
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
(1) Organization and Nature of Operations
Organization
In connection with our initial public offering of common stock in February 2006, we converted
H&E Equipment Services L.L.C. (H&E LLC), a Louisiana limited liability company and the
wholly-owned operating subsidiary of H&E Holding L.L.C. (Holdings), into H&E Equipment Services,
Inc., a Delaware corporation. Prior to our initial public offering, our business was conducted
through H&E LLC. In order to have an operating Delaware corporation as the issuer of our initial
public offering, immediately prior to the closing of the initial public offering, on February 3,
2006, H&E LLC and Holdings merged with and into us (H&E Equipment Services, Inc.), with us
surviving the reincorporation merger as the operating company. Effective February 3, 2006, H&E LLC
and Holdings no longer existed under operation of law pursuant to the reincorporation merger. In
these transactions (collectively, the Reorganization Transactions), holders of preferred limited
liability company interests and holders of common limited liability company interests in Holdings
received shares of our common stock.
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 work 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) Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
Our 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.
All significant intercompany accounts and transactions have been eliminated in these
consolidated financial statements. Business combinations are included in the 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 consolidated balance sheets are presented on an unclassified basis.
60
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Use of Estimates
We prepare our 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 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 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.
Reclassifications
We have reclassified one item in our consolidated balance sheets as of December 31, 2009 to
conform to the current year presentation. Specifically, a $0.7 million capital lease payable at
December 31, 2009 that was included in the Notes Payable line item in the consolidated balance
sheet included in our Annual Report on Form 10-K for the year ended December 31, 2009 has been
reclassified in this report to the Capital Leases Payable line item for the current and prior year
presentations. Applicable amounts as presented within our Consolidated Statement of Cash Flows and
related notes to the consolidated financial statements have been conformed to the current year
reclassification.
Revenue Recognition
In Staff Accounting Bulletin No. 104 (SAB 104), the SEC Staff believes that revenue
generally is realized or realizable and earned when all of the following criteria are met: (1)
persuasive evidence of an arrangement exist; (2) delivery has occurred or services have been
rendered; (3) the sellers price to the buyer is fixed or determinable; and (4) collectibility is
reasonably assured. Consistent with SAB 104, our policy recognizes revenue from equipment rentals
in the period earned on a straight-line basis, over the contract term, regardless of the timing of
the billing to customers. A rental contract term can be daily, weekly or monthly. Because the term
of the contracts can extend across multiple financial reporting periods, we record unbilled rental
revenue and deferred revenue at the end of reporting periods so that rental revenues earned are
appropriately stated in the periods presented. Revenue from the sale of new and used equipment and
parts is recognized at the time of delivery to, or pick-up by, the customer and when all
obligations under the sales contract have been fulfilled, risk of ownership has been transferred
and collectibility is reasonably assured. Services revenue is recognized at the time the services
are rendered. Other revenues consist primarily of billings to customers for rental equipment
delivery and damage waiver charges and are recognized at the time an invoice is generated and after
the service has been provided.
Inventories
New and used equipment inventories are stated at the lower of cost or market, with cost
determined by specific-identification. Inventories of parts and supplies are stated at the lower of
the average cost or market.
Long-lived Assets, Goodwill and Intangible Assets
Rental Equipment
The rental equipment we purchase is stated at cost and is depreciated over the estimated
useful lives of the equipment using the straight-line method. Estimated useful lives vary based
upon type of equipment. Generally, we depreciate cranes and aerial work platforms over a ten year
estimated useful life, earthmoving equipment over
a five year estimated useful life with a 25% salvage value, and industrial lift trucks over a
seven year estimated useful life. Attachments and other smaller type equipment are depreciated over
a three year estimated useful life. We periodically evaluate the appropriateness of remaining
depreciable lives and any salvage value assigned to rental equipment.
61
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Ordinary repair and maintenance costs and property taxes are charged to operations as
incurred. However, expenditures for additions or improvements that significantly extend the useful
life of the asset are capitalized in the period incurred. When rental equipment is sold or disposed
of, the related cost and accumulated depreciation are removed from the respective accounts and any
gains or losses are included in income. We receive individual offers for fleet on a continual
basis, at which time we perform an analysis on whether or not to accept the offer. The rental
equipment is not transferred to inventory under the held for sale model as the equipment is used to
generate revenues until the equipment is sold.
Property and Equipment
Property and equipment are recorded at cost and are depreciated over the assets estimated
useful lives using the straight-line method. Ordinary repair and maintenance costs are charged to
operations as incurred. However, expenditures for additions or improvements that significantly
extend the useful life of the asset are capitalized in the period incurred. At the time assets are
sold or disposed of, the cost and accumulated depreciation are removed from their respective
accounts and the related gains or losses are reflected in income.
We capitalize interest on qualified construction projects. Costs associated with internally
developed software are accounted for in accordance with Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 350-40, Internal-Use Software (ASC 350-40),
which provides guidance for the treatment of costs associated with computer software development
and defines the types of costs to be capitalized and those to be expensed.
We periodically evaluate the appropriateness of remaining depreciable lives assigned to
property and equipment. Leasehold improvements are amortized using the straight-line method over
their estimated useful lives or the remaining term of the lease, whichever is shorter. Generally,
we assign the following estimated useful lives to these categories:
|
|
|
|
|
|
|
Estimated |
|
Category |
|
Useful Life |
|
Transportation equipment |
|
5 years |
Buildings |
|
39 years |
Office equipment |
|
5 years |
Computer equipment |
|
3 years |
Machinery and equipment |
|
7 years |
In accordance with ASC 360, Property, Plant and Equipment (ASC 360), when events or changes
in circumstances indicate that the carrying amount of our rental fleet and property and equipment
might not be recoverable, the expected future undiscounted cash flows from the assets are estimated
and compared with the carrying amount of the assets. If the sum of the estimated undiscounted cash
flows is less than the carrying amount of the assets, an impairment loss is recorded. The
impairment loss is measured by comparing the fair value of the assets with their carrying amounts.
Fair value is determined based on discounted cash flows or appraised values, as appropriate. We did
not record any impairment losses related to our rental equipment or property and equipment during
2010, 2009 or 2008.
Goodwill
We have made acquisitions in the past that included the recognition of goodwill, which was
determined based upon previous accounting principles. Pursuant to ASC 350, Intangibles-Goodwill and
Other (ASC 350), effective January 1, 2009, goodwill is recorded as the excess of the
consideration transferred plus the fair value of any non-controlling interest in the acquiree at
the acquisition date over the fair value of any non-controlling interest in the acquiree at the
acquisition date over the fair values of the identifiable net assets acquired.
We evaluate goodwill for impairment at least annually, or more frequently if triggering events
occur or other impairment indicators arise which might impair recoverability. Impairment of
goodwill is evaluated at the reporting unit level. A reporting unit is defined as an operating
segment (i.e. before aggregation or combination),
62
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
or one level below an operating segment (i.e. a component). A component of an operating
segment is a reporting unit if the component constitutes a business for which discrete financial
information is available and segment management regularly reviews the operating results of that
component. We have identified two components within our Rental operating segment and have
determined that each of our other operating segments (New, Used, Parts and Service) represent a
reporting unit, resulting in six total reporting units. To determine if any of our reporting units
are impaired, we must determine whether the fair value of each of our reporting units is greater
than their respective carrying value. If the fair value of a reporting unit is less than its
carrying value, then the implied fair value of goodwill must be calculated and compared to its
carrying value to measure the amount of impairment. The implied fair value of goodwill is
calculated by allocating the fair value of the reporting unit to all assets and liabilities of that
unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a
business combination (purchase price allocation). The excess of the fair value of the reporting
unit over the amounts assigned is the implied fair value of goodwill. If the carrying amount of the
goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized for the
excess amount.
We determine the fair value of our reporting units using a discounted cash flow analysis or by
applying various market multiples or a combination thereof. As a result of last years annual
goodwill impairment test as of October 1, 2009, we determined that the goodwill associated with our
Equipment Rentals Component 1 reporting unit was impaired and recorded a $9.0 million, or $5.5
million after tax, non-cash goodwill impairment charge. In connection with our annual goodwill
annual impairment test as of October 1, 2008, we determined that the goodwill associated with our
New Equipment Sales and Services reporting units were impaired and recorded in total a $15.9
million, or $9.9 million after tax, non-cash goodwill impairment charge. The impairment charges
eliminated the pre-impairment remaining carrying value for these reporting units (see goodwill
reporting unit rollforward below). The impairment charges are largely due to worsening
macroeconomic conditions in 2008 and 2009 and declining market multiples within our industry in
2008. The impairments also reflect a decrease in projected cash flows as of the impairment testing
dates. The impairment charges are non-cash items and will not affect our cash flows, liquidity or
borrowing capacity under our senior credit facility, and the charge is excluded from our financial
results in evaluating our financial covenant under the senior secured credit facility. There were
no impairment charges for the year ended December 31, 2010.
The changes in the carrying amount of goodwill for our reporting units for the years ended
December 31, 2010 and 2009 were as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentals Component |
|
|
Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment Rentals 1 |
|
|
Component 2 |
|
|
New Equipment Sales |
|
|
Used Equipment Sales |
|
|
Parts Sales |
|
|
Service Revenues |
|
|
Total |
|
Balance at
January 1, 2009 |
|
$ |
8,972 |
|
|
$ |
20,427 |
|
|
$ |
|
|
|
$ |
6,712 |
|
|
$ |
6,880 |
|
|
$ |
|
|
|
$ |
42,991 |
|
Impairment charges |
|
|
(8,972 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,972 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2009 |
|
|
|
|
|
|
20,427 |
|
|
|
|
|
|
|
6,712 |
|
|
|
6,880 |
|
|
|
|
|
|
|
34,019 |
|
Impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December
31, 2010 |
|
$ |
|
|
|
$ |
20,427 |
|
|
$ |
|
|
|
$ |
6,712 |
|
|
$ |
6,880 |
|
|
$ |
|
|
|
$ |
34,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets
Our intangible assets are comprised of the intangible assets that we acquired in the September
1, 2007 Burress Acquisition. The gross carrying values, accumulated amortization and net carrying
amounts of our major classes of intangible assets as of December 31, 2010 were as follows (dollar
amounts in thousands):
63
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
Gross Carrying |
|
|
Amortization Period |
|
|
Accumulated |
|
|
|
|
|
|
Value |
|
|
(in years) |
|
|
Amortization |
|
|
Net Carrying Amount |
|
Non-compete agreements |
|
$ |
788 |
|
|
|
1.3 |
|
|
$ |
622 |
|
|
$ |
166 |
|
Customer relationships |
|
|
2,691 |
|
|
|
1.0 |
|
|
|
2,428 |
|
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,479 |
|
|
|
1.1 |
|
|
$ |
3,050 |
|
|
$ |
429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intangible asset related to various non-compete agreements are amortized on a
straight-line basis with estimated useful lives ranging from three to five years from the date of
the Burress Acquisition. The straight-line method of amortization of these intangible assets
reflects an appropriate allocation of the costs of these intangible assets to earnings in
proportion to the amount of economic benefits obtained in each reporting period.
Intangible assets are tested for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the
carrying amount of the asset exceeds the estimated undiscounted future cash flows expected to
result from the use of the asset and its eventual disposition. The impairment loss to be recorded
would be the excess of the assets carrying value over its fair value. Fair value is generally
determined using a discounted cash flow analysis or other valuation technique.
As a result of worsening macroeconomic conditions during 2008 in the Mid-Atlantic region where
our Burress branch facilities operate, higher than expected customer attrition rates and based on
revised lower projected revenues for Burress operations at that time, we tested the Burress
customer relationships intangible asset for impairment as of October 1, 2008 and determined that
the intangible assets then-carrying value of approximately $7.9 million exceeded its undiscounted
future cash flows. We then determined, using a discounted cash flow analysis, the intangible
assets fair value to be approximately $1.1 million as of October 1, 2008, resulting in a non-cash
impairment loss of $6.8 million, or $4.2 million after tax. The impairment charge was a non-cash
item and did not affect our cash flows, liquidity or borrowing capacity under our senior credit
facility, and the charge was excluded from our financial results in evaluating our financial
covenant under the senior secured credit facility.
At the date of the Burress Acquisition, September 1, 2007, we estimated the remaining useful
life of the Burress customer relationships to be approximately 6.0 years. Based on our analysis of
customer attrition rates and other data as of October 1, 2008, we determined that a revision to the
remaining estimated amortization period was appropriate and adjusted the intangible assets
estimated remaining useful life to approximately 3.3 years at October 1, 2008. Amortization of the
customer relationships intangible asset is based on the expected cash flows to be derived from the
acquired Burress customer base. There were no impairment charges to our intangible assets for the
years ended December 31, 2010 or 2009.
Total amortization expense for the years ended December 31, 2010, 2009 and 2008 totaled $0.6
million, $0.6 million and $2.2 million, respectively. The following table presents the expected
amortization expense for each of the next five years ending December 31 for those intangible assets
with remaining carrying value as of December 31, 2010 (dollar amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Compete |
|
|
Customer |
|
|
|
|
Year Ending December 31, |
|
Agreements |
|
|
Relationships |
|
|
Totals |
|
2011 |
|
$ |
99 |
|
|
$ |
263 |
|
|
$ |
362 |
|
2012 |
|
|
67 |
|
|
|
|
|
|
|
67 |
|
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
64
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
As a result of the recent downturn in construction and industrial activities and its impact on
our business, we closed or consolidated four branches during the year ended December 31, 2009 and
one branch during 2010 in markets where long-term prospects did not support continued operations.
Under ASC 420, Exit or Disposal Cost Obligations (ASC 420), 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. Although we do
not expect to incur material charges for the 2009 and 2010 branch closures, additional charges are
possible to the extent that actual future settlements differ from our estimates of such costs. As
of the date of this Annual Report on Form 10-K, the Company has not identified any other branch
facilities with a more than likely probability of closing where the associated costs pursuant to
ASC 420 are expected to be material.
Deferred Financing Costs and Initial Purchasers Discounts
Deferred financing costs include underwriting, legal, accounting and other direct costs
incurred in connection with the issuance, and amendments thereto, of the Companys debt. These
costs are amortized over the terms of the related debt using the straight-line method which
approximates amortization using the effective interest method. The amortization expense of deferred
financing costs and accretion of initial purchasers discounts is included in interest expense as
an overall cost of the related financings. As further described in note 10 to the consolidated
financial statements, we incurred approximately $2.9 million in transaction costs related to the
2010 amendment and restatement of our Senior Secured Credit Facility.
Reserves for Claims
We are exposed to various claims relating to our business, including those for which we
provide self-insurance. Claims for which we self-insure include: (1) workers compensation claims;
(2) general liability claims by third parties for injury or property damage caused by our equipment
or personnel; (3) automobile liability claims; and (4) employee health insurance claims. These
types of claims may take a substantial amount of time to resolve and, accordingly, the ultimate
liability associated with a particular claim, including claims incurred but not reported as of a
period-end reporting date, may not be known for an extended period of time. Our methodology for
developing self-insurance reserves is based on management estimates and independent third party
actuarial estimates. Our estimation process considers, among other matters, the cost of known
claims over time, cost inflation and incurred but not reported claims. These estimates may change
based on, among other things, changes in our claim history or receipt of additional information
relevant to assessing the claims. Further, these estimates may prove to be inaccurate due to
factors such as adverse judicial determinations or other claim settlements at higher than estimated
amounts. Accordingly, we may be required to increase or decrease our reserve levels. At December
31, 2010, our claims reserves related to workers compensation, general liability and automobile
liability, which are included in Accrued expenses and other liabilities in our consolidated
balance sheets, totaled $2.8 million and our health insurance reserves totaled $1.6 million. At
December 31, 2009, our claims reserves related to workers compensation, general liability and
automobile liability totaled $3.4 million and our health insurance reserves totaled $2.0 million.
Sales Taxes
We impose and collect significant amounts of sales taxes concurrent with our revenue-producing
transactions with customers and remit those taxes to the various governmental agencies as
prescribed by the taxing jurisdictions in which we operate. We present such taxes in our
consolidated statements of operations on a net basis.
65
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Advertising
Advertising costs are expensed as incurred and totaled $0.6 million, $0.6 million and $1.4
million for the years ended December 31, 2010, 2009 and 2008, respectively.
Shipping and Handling Fees and Costs
Shipping and handling fees billed to customers are recorded as revenues while the related
shipping and handling costs are included in other cost of revenues.
Income Taxes
The Company files a consolidated federal income tax return with its wholly-owned subsidiaries.
The Company is a C-Corporation under the provisions of the Internal Revenue Code. We utilize the
asset and liability approach to measuring deferred tax assets and liabilities based on temporary
differences existing at each balance sheet date using currently enacted tax rates in accordance
with ASC 740, Income Taxes (ASC 740). ASC 740 takes into account the differences between
financial statement treatment and tax treatment of certain transactions. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or
settled.
In accordance with ASC 740, the Company recognizes the effect of income tax positions only if
those positions are more likely than not of being sustained. Recognized income tax provisions are
measured at the largest amount that is greater than 50% likely of being realized. Changes in
recognition or measurement are reflected in the period in which the change in judgment occurs. The
Company recognizes both interest and penalties related to uncertain tax positions as part of the
income tax provision.
Our deferred tax calculation requires management to make certain estimates about future
operations. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred tax assets will not
be realized. The effect of a change in tax rate is recognized as income or expense in the period
that includes the enactment date.
Fair Value of Financial Instruments
The carrying value of financial instruments reported in the accompanying 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 fair value of our letter 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 as of December 31, 2010 and 2009 are presented in the table below
(amounts in thousands) and have been calculated based upon market quotes and present value
calculations based on market rates.
66
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
Manufacturer flooring plans payable with interest computed at 7.00% |
|
$ |
75,058 |
|
|
$ |
63,105 |
|
Senior unsecured notes with interest computed at 8.375% |
|
|
250,000 |
|
|
|
251,250 |
|
Capital leases payable with interest computed at 5.929 to 9.55% |
|
|
2,754 |
|
|
|
2,199 |
|
Letter of credit |
|
|
|
|
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
Carrying |
|
|
Fair |
|
|
|
Amount |
|
|
Value |
|
Manufacturer flooring plans payable with interest computed at 6.75% |
|
$ |
92,868 |
|
|
$ |
82,082 |
|
Senior unsecured notes with interest computed at 8.375% |
|
|
250,000 |
|
|
|
247,500 |
|
Note payable to lender with interest computed at 7.25% |
|
|
1,216 |
|
|
|
1,034 |
|
Capital leases payable with interest computed at 5.929 to 9.55% |
|
|
2,894 |
|
|
|
2,386 |
|
Letters of credit |
|
|
|
|
|
|
98 |
|
Concentrations of Credit and Supplier Risk
Financial instruments that potentially subject the Company to concentrations of credit risk
consist primarily of trade accounts receivable. Credit risk can be negatively impacted by adverse
changes in the economy or by disruptions in the credit markets. However, we believe that credit
risk with respect to trade accounts receivable is
somewhat mitigated by our large number of geographically diverse customers and our credit
evaluation procedures. Although generally no collateral is required, when feasible, mechanics
liens are filed and personal guarantees are signed to protect the Companys interests. We maintain
reserves for potential losses.
We record trade accounts receivables at sales value and establish specific reserves for
certain customer accounts identified as known collection problems due to insolvency, disputes or
other collection issues. The amounts of the specific reserves estimated by management are based on
the following assumptions and variables: the customers financial position, age of the customers
receivables and changes in payment schedules. In addition to the specific reserves, management
establishes a non-specific allowance for doubtful accounts by applying specific percentages to the
different receivable aging categories (excluding the specifically reserved accounts). The
percentage applied against the aging categories increases as the accounts become further past due.
The allowance for doubtful accounts is charged with the write-off of uncollectible customer
accounts.
We purchase a significant amount of equipment from the same manufacturers with whom we have
distribution agreements. During the year ended December 31, 2010, we purchased approximately 73%
from three manufacturers (Grove/Manitowoc, Komatsu, and Genie) providing our rental and sales
equipment. We believe that while there are alternative sources of supply for the equipment we
purchase in each of the principal product categories, termination of one or more of our
relationships with any of our major suppliers of equipment could have a material adverse effect on
our business, financial condition or results of operation if we were unable to obtain adequate or
timely rental and sales equipment.
67
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Earnings (Loss) per Share
Earnings (loss) per common share for the years ended December 31, 2010, 2009 and 2008 are based on
the weighted average number of common shares outstanding during the period. The effect of
potentially dilutive securities that are anti-dilutive are not included in the computation of
dilutive income (loss) per share. The following table sets forth the computation of basic and
diluted net income (loss) per common share for the years ended December 31, (amounts in thousands,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Basic net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(25,460 |
) |
|
$ |
(11,943 |
) |
|
$ |
43,296 |
|
Weighted average number of common shares outstanding |
|
|
34,668 |
|
|
|
34,607 |
|
|
|
35,575 |
|
Net income (loss) per common share basic |
|
$ |
(0.73 |
) |
|
$ |
(0.35 |
) |
|
$ |
1.22 |
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(25,460 |
) |
|
$ |
(11,943 |
) |
|
$ |
43,296 |
|
Weighted average number of common shares outstanding |
|
|
34,668 |
|
|
|
34,607 |
|
|
|
35,575 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive non-vested stock |
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
diluted |
|
|
34,668 |
|
|
|
34,607 |
|
|
|
35,583 |
|
Net income (loss) per common share diluted |
|
$ |
(0.73 |
) |
|
$ |
(0.35 |
) |
|
$ |
1.22 |
|
|
|
|
|
|
|
|
|
|
|
Common shares excluded from the denominator as anti-dilutive: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
51 |
|
|
|
51 |
|
|
|
51 |
|
Non-vested stock |
|
|
330 |
|
|
|
279. |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
Stock-Based Compensation
We adopted our 2006 Stock-Based Incentive Compensation Plan (the Stock Incentive Plan) in
January 2006 prior to our initial public offering of common stock. The Stock Incentive Plan was
further amended and restated with the approval of our stockholders at the 2006 annual meeting of
the stockholders of the Company to provide for the inclusion of non-employee directors as persons
eligible to receive awards under the Stock Incentive Plan. Prior to the adoption of the Stock
Incentive Plan in January 2006, no share-based payment arrangements existed. The Stock Incentive
Plan is administered by the Compensation Committee of our Board of Directors, which selects persons
eligible to receive awards and determines the number of shares and/or options subject to each
award, the terms, conditions, performance measures, if any, and other provisions of the award.
Under the Stock Incentive Plan, we may offer deferred shares or restricted shares of our common
stock and grant options, including both incentive stock options and nonqualified stock options, to
purchase shares of our common stock. Shares available for future stock-based payment awards under
our Stock Incentive Plan were 3,938,354 shares of common stock as of December 31, 2010.
We account for our stock-based compensation plan using the fair value recognition provisions
of ASC 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).
68
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Non-vested Stock
From time to time, we issue shares of non-vested stock typically with vesting terms of three
years. The following table summarizes our non-vested stock activity for the years ended December
31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
Grant Date Fair |
|
|
|
Number of Shares |
|
|
Value |
|
Non-vested stock at January 1, 2009 |
|
|
136,404 |
|
|
$ |
15.77 |
|
Granted |
|
|
237,840 |
|
|
$ |
6.64 |
|
Vested |
|
|
(72,569 |
) |
|
$ |
19.07 |
|
Forfeited |
|
|
(22,452 |
) |
|
$ |
7.60 |
|
|
|
|
|
|
|
|
|
Non-vested stock at December 31, 2009 |
|
|
279,223 |
|
|
$ |
7.79 |
|
Granted |
|
|
173,978 |
|
|
$ |
9.54 |
|
Vested |
|
|
(97,650 |
) |
|
$ |
8.20 |
|
Forfeited |
|
|
(25,614 |
) |
|
$ |
8.18 |
|
|
|
|
|
|
|
|
|
Non-vested stock at December 31, 2010 |
|
|
329,937 |
|
|
$ |
8.57 |
|
|
|
|
|
|
|
|
|
As of December 31, 2010, we had unrecognized compensation expense of approximately $1.8
million related to non-vested tock award payments that we expect to be recognized over a weighted
average period of 1.9 years.
The following table summarizes compensation expense related to stock-based awards included in
selling, general and administrative expenses in the accompanying consolidated statements of
operations for the years ended December 31, (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Compensation expense |
|
$ |
1,030 |
|
|
$ |
669 |
|
|
$ |
1,188 |
|
We receive a tax deduction when non-vested stock vests at a higher value than the value used
to recognize compensation expense at the date of grant. In accordance with ASC 718, we are required
to report excess tax benefits from the award of equity instruments as financing cash flows. Excess
tax benefits will be recorded when a deduction reported for tax return purposes for an award of
equity instruments exceeds the cumulative compensation cost for the instruments recognized for
financial reporting purposes.
Stock Options
No stock options were granted during 2010, 2009 or 2008. At December 31, 2010, we had no
unrecognized compensation expense related to prior stock option awards.
The following table summarizes compensation expense related to stock-based awards included in
selling, general and administrative expenses in the accompanying consolidated statements of
operations for the years ended December 31, (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Compensation expense |
|
$ |
9 |
|
|
$ |
57 |
|
|
$ |
265 |
|
69
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table represents stock option activity for the years ended December 31, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
Weighted Average |
|
|
Contractual Life |
|
|
|
Number of Shares |
|
|
Exercise Price |
|
|
In Years |
|
Outstanding options at January 1, 2009 |
|
|
51,000 |
|
|
$ |
24.80 |
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Canceled, forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options at December 31, 2009 |
|
|
51,000 |
|
|
$ |
24.80 |
|
|
|
6.3 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
|
|
|
|
Canceled, forfeited or expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options at December 31, 2010 |
|
|
51,000 |
|
|
$ |
24.80 |
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2010 |
|
|
51,000 |
|
|
$ |
24.80 |
|
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The closing price of our common stock on December 31, 2010 was $11.57. All options
outstanding at December 31, 2010 have grant date fair values which exceed our December 31, 2010
closing stock price.
The following table summarizes non-vested stock option activity for the years ended December
31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
Grant Date Fair |
|
|
|
Number of Shares |
|
|
Value |
|
Non-vested stock options at January 1, 2009 |
|
|
19,000 |
|
|
$ |
24.95 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(17,000 |
) |
|
$ |
24.80 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested stock options at December 31, 2009 |
|
|
2,000 |
|
|
$ |
26.27 |
|
Granted |
|
|
|
|
|
|
|
|
Vested |
|
|
(2,000 |
) |
|
$ |
26.27 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested stock options at December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We receive a tax deduction for stock option exercises during the period in which the options
are exercised, generally for the excess of the price at which the stock is sold over the exercise
price of the options.
Purchases of Company Common Stock
Purchases of our common stock are accounted for as treasury stock in the accompanying
consolidated balance sheets using the cost method. Repurchased stock is included in authorized
shares, but is not included in shares outstanding.
Segment Reporting
We have determined in accordance with ASC 280, Segment Reporting (ASC 280) that we have five
reportable segments. 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. See note 18 to the consolidated financial statements regarding our segment
information.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted in Fiscal Year 2010
In June 2009, the FASB issued Statement of FAS No. 167, Amendments to FASB Interpretation No.
46(R) (FAS 167), which has been codified into Accounting Standards Codification (ASC) 810:
Consolidations
70
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(ASC 810). This guidance is a revision to pre-existing guidance pertaining to the
consolidation and disclosure 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 entitys purpose and design and the reporting
entitys ability to direct the activities of the other entity that most significantly impact the
other entitys economic performance. This guidance requires 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 is required to disclose how
its involvement with a variable interest entity affects the reporting entitys financial
statements. We adopted the provisions of ASC 810 effective January 1, 2010, and such adoption did
not have a material impact on our condensed consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements
(amendments to ASC 605, Revenue Recognition) (ASU 2009-13). ASU 2009-13 addresses how to
determine whether an arrangement involving multiple deliverables contains more than one unit of
accounting and requires entities to allocate revenue in an arrangement containing more than one
unit of accounting 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 do not expect
that the adoption of this statement will have a material impact on our consolidated financial
statements.
In December 2010, the FASB issued updated accounting guidance related to the calculation of
the carrying amount of a reporting unit when performing the first step of a goodwill impairment
test. More specifically, this update will require an entity to use an equity premise when
performing the first step of a goodwill impairment test and if a reporting unit has a zero or
negative carrying amount, the entity must assess and consider qualitative factors and whether it is
more likely than not that a goodwill impairment exists. The new accounting guidance is effective
for public entities, for impairment tests performed during entities fiscal years (and interim
periods within those years) that begin after December 15, 2010. Early application is not permitted.
We plan to adopt the new disclosures in the first quarter of fiscal 2011, however, as we currently
do not have any reporting units with a zero or negative carrying amount, we do not expect the
adoption of this guidance to have an impact on our consolidated financial statements.
(3) Receivables
Receivables consisted of the following at December 31, (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Trade receivables |
|
$ |
100,357 |
|
|
$ |
74,972 |
|
Unbilled rental revenue |
|
|
2,735 |
|
|
|
2,240 |
|
Income tax receivables |
|
|
2,047 |
|
|
|
518 |
|
Other |
|
|
4 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
105,143 |
|
|
|
77,737 |
|
Less allowance for doubtful accounts |
|
|
(6,004 |
) |
|
|
(5,736 |
) |
|
|
|
|
|
|
|
Total receivables, net |
|
$ |
99,139 |
|
|
$ |
72,001 |
|
|
|
|
|
|
|
|
We charge off customer account balances when we have exhausted reasonable collection efforts
and determined that the likelihood of collection is remote.
71
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Inventories
Inventories consisted of the following at December 31, (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
New equipment |
|
$ |
50,586 |
|
|
$ |
71,017 |
|
Used equipment |
|
|
6,954 |
|
|
|
10,005 |
|
Parts, supplies and other |
|
|
14,616 |
|
|
|
13,965 |
|
|
|
|
|
|
|
|
Total inventories, net |
|
$ |
72,156 |
|
|
$ |
94,987 |
|
|
|
|
|
|
|
|
The above amounts are net of reserves for inventory obsolescence at December 31, 2010 and 2009
totaling $1.1 million and $0.8 million, respectively.
(5) Property and Equipment
Net property and equipment consisted of the following at December 31, (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Land |
|
$ |
5,947 |
|
|
$ |
5,947 |
|
Transportation equipment |
|
|
38,356 |
|
|
|
37,241 |
|
Building and leasehold improvements |
|
|
17,625 |
|
|
|
17,701 |
|
Office and computer equipment |
|
|
37,280 |
|
|
|
36,059 |
|
Machinery and equipment |
|
|
7,974 |
|
|
|
7,723 |
|
Property under capital leases |
|
|
3,217 |
|
|
|
3,217 |
|
Construction in progress |
|
|
728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,127 |
|
|
|
107,888 |
|
Less accumulated depreciation and amortization |
|
|
(53,941 |
) |
|
|
(42,086 |
) |
|
|
|
|
|
|
|
Total net property and equipment |
|
$ |
57,186 |
|
|
$ |
65,802 |
|
|
|
|
|
|
|
|
Total depreciation and amortization on property and equipment was $13.1 million, $10.8 million
and $11.1 million for the years ended December 31, 2010, 2009 and 2008, respectively. Included in
the office and computer equipment category above at December 31, 2010 and 2009 is approximately
$27.2 million and $27.1 million, respectively, of capitalized costs, including $0.6 million and
$0.4 million, respectively, of capitalized interest, related to the implementation of a new
employee resource planning system. Unamortized computer software costs related to the new employee
resource planning system at December 31, 2010 and 2009 was $23.3 million and $27.1 million,
respectively, while related amortization expense in 2010 totalled $3.9 million. No amortization
expense was incurred in 2009 related to the employee resource planning system, which was
substantially complete and ready for its intended use on or around January 19, 2010.
(6) Manufacturer Flooring Plans Payable
Manufacturer flooring plans payable are financing arrangements for inventory and rental
equipment. The interest cost incurred on the manufacturer flooring plans ranged between 0% to the
prime rate (3.25% at December 31, 2010) plus an applicable margin at December 31, 2010. Certain
manufacturer flooring plans provide for a one to twelve-month reduced interest rate term or a
deferred payment period. We recognize interest expense based on the effective interest method. We
make payments in accordance with the original terms of the financing agreements. However, we
routinely sell equipment that is financed under manufacturer flooring plans prior to the original
maturity date of the financing agreement. The related manufacturer flooring plan payable is then
paid at the time the equipment being financed is sold. The manufacturer flooring plans payable are
secured by the equipment being financed.
72
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Maturities (based on original financing terms) of the manufacturer flooring plans payable as
of December 31, 2010 for each of the next five years ending December 31 are as follows (amounts in
thousands):
|
|
|
|
|
2011 |
|
$ |
6,327 |
|
2012 |
|
|
34,345 |
|
2013 |
|
|
17,993 |
|
2014 |
|
|
16,284 |
|
2015 |
|
|
109 |
|
Thereafter |
|
|
|
|
|
|
|
|
Total |
|
$ |
75,058 |
|
|
|
|
|
(7) Accrued Expenses Payable and Other Liabilities
Accrued expenses payable and other liabilities consisted of the following at December 31,
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Payroll and related liabilities |
|
$ |
11,023 |
|
|
$ |
10,772 |
|
Sales, use and property taxes |
|
|
5,990 |
|
|
|
6,600 |
|
Accrued interest |
|
|
10,148 |
|
|
|
10,145 |
|
Accrued insurance |
|
|
2,996 |
|
|
|
3,723 |
|
Deferred revenue |
|
|
3,728 |
|
|
|
2,755 |
|
Other |
|
|
2,114 |
|
|
|
3,276 |
|
|
|
|
|
|
|
|
Total accrued expenses payable and other liabilities |
|
$ |
35,999 |
|
|
$ |
37,271 |
|
|
|
|
|
|
|
|
(8) Note Payable
The following table summarizes our note payable as of December 31, (dollar amounts in
thousands):
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
Note payable to lender maturing through 2016; payable in monthly
installments of approximately $8.8; interest is at 7.25%; note is
collateralized by real estate
|
$ |
|
|
$ |
1,216 |
|
|
|
|
|
|
The above note payable was paid in full during the year ended December 31, 2010.
(9) Senior Unsecured Notes
We currently have outstanding $250.0 million aggregate principal amount of 8 3/8% senior
unsecured notes due 2016. The senior unsecured notes are guaranteed, jointly and severally, on an
unsecured senior basis by all of our existing and future domestic restricted subsidiaries.
The senior unsecured notes were issued at par and require semiannual interest payments on
January 15th and July 15th of each year, beginning on January 15, 2007. No
principal payments are due until maturity (January 15, 2016). We may redeem the senior unsecured
notes at any time on or after July 15, 2011 at specified redemption prices plus accrued and unpaid
interest and additional interest. In addition, if we experience a change of control, we will be
required to make an offer to repurchase the senior unsecured notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and additional interest.
The senior unsecured notes rank equal in right of payment to all of our and our guarantors
existing and future unsecured senior indebtedness and senior in right of payment to any of our or
our guarantors future subordinated indebtedness and are effectively junior in priority to our and
our guarantors obligations under all of our existing and future secured indebtedness, including
borrowings under our senior secured credit facility and any other secured obligations, in each
case, to the extent of the value of the assets securing such obligations. The senior unsecured
notes are also effectively junior to all liabilities (including trade payables) of our
non-guarantor subsidiaries.
73
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The indenture governing our senior secured notes contains certain covenants that, among other
things, limit our ability and the ability of our restricted subsidiaries to: (i) incur additional
indebtedness, assume a guarantee or issue preferred stock; (ii) pay dividends or make other equity
distributions or payments to or affecting our subsidiaries; (iii) purchase or redeem our capital
stock; (iv) make certain investments; (v) create liens; (vi) sell or dispose of assets or engage in
mergers or consolidation; (vii) engage in certain transactions with subsidiaries or affiliates;
(viii) enter into sale leaseback transactions with subsidiaries or affiliates; (viii) enter into
sale leaseback transactions; and (ix) engage in certain business activities. Each of the covenants
is subject to exceptions and qualifications. As of December 31, 2010, we were in compliance with
these covenants.
(10) Senior Secured Credit Facility
We and our subsidiaries are parties to a $320.0 million senior secured credit facility with
General Electric Capital Corporation as administrative agent, and the lenders named therein. On
July 29, 2010, we amended and restated the credit facility to, among other things, (i) extend the
maturity date of the credit facility from August 4, 2011 to July 29, 2015, (ii) add a financial
covenant requiring maintenance of a maximum total leverage ratio of 5.0 to 1.0, which is tested if
excess availability is less than $40.0 million (as adjusted if the incremental facility is
exercised), (iii) modify the existing financial covenant requiring maintenance of a fixed charge
coverage ratio so that the excess availability level at which such ratio is tested increases from
excess availability of less than $25.0 million to excess availability of less than $40.0 million
(as adjusted if the incremental facility is exercised), (iv) require a daily sweep of cash from the
Companys blocked accounts in the event that excess availability is less than $65.0 million (as
adjusted if the incremental facility is exercised) and (v) increase the unused commitment fee from
0.25% to 0.50%. The amended and restated credit facility also increases the interest rate (a) in
the case of index rate revolving loans, to the index rate plus an applicable margin of 1.50% to
2.25% depending on the leverage ratio and (b) in the case of LIBOR revolving loans, to LIBOR plus
an applicable margin of 2.50% to 3.25%, depending on the leverage ratio.
The credit facility, as amended and restated, continues to provide, among other things, a
$320.0 million senior secured asset based revolver, including a $30.0 million letter of credit
facility, a $130.0 million incremental facility and a guaranty by the Company and each of its
subsidiaries of the obligations under the credit facility. In addition, the borrowers under the
credit facility remain the same and the credit facility remains secured by substantially all of the
assets of the Company and its subsidiaries. We paid transaction costs of approximately $2.9 million
in connection with the amendment and restatement of the credit facility.
We had no outstanding balances under our senior secured credit facility as of December 31,
2010. Borrowing availability under the terms of the senior secured credit facility as of December
31, 2010, net of $8.0 million of standby letters of credit outstanding, totaled $312.0 million.
74
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) Capital Lease Obligations
As of December 31, 2010, we had two capital lease obligations, expiring in 2022 and 2029,
respectively. Future minimum capital lease payments, in the aggregate, existing at December 31,
2010 for each of the next five years ending December 31 and thereafter are as follows (amounts in
thousands):
|
|
|
|
|
2011 |
|
$ |
333 |
|
2012 |
|
|
333 |
|
2013 |
|
|
333 |
|
2014 |
|
|
333 |
|
2015 |
|
|
333 |
|
Thereafter |
|
|
2,628 |
|
|
|
|
|
Total minimum lease payments |
|
|
4,293 |
|
Less: amount representing interest |
|
|
(1,539 |
) |
|
|
|
|
Present value of minimum lease payments |
|
$ |
2,754 |
|
|
|
|
|
(12) Income Taxes
Our income tax provision (benefit) for the years ended December 31, 2010, 2009 and 2008,
consists of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
Deferred |
|
|
Total |
|
Year ended December 31, 2010: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
|
|
|
$ |
(13,345 |
) |
|
$ |
(13,345 |
) |
State |
|
|
329 |
|
|
|
(1,904 |
) |
|
|
(1,575 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
329 |
|
|
$ |
(15,249 |
) |
|
$ |
(14,920 |
) |
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
(199 |
) |
|
$ |
(5,455 |
) |
|
$ |
(5,654 |
) |
State |
|
|
(16 |
) |
|
|
(508 |
) |
|
|
(524 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(215 |
) |
|
$ |
(5,963 |
) |
|
$ |
(6,178 |
) |
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
160 |
|
|
$ |
21,549 |
|
|
$ |
21,709 |
|
State |
|
|
1,513 |
|
|
|
2,879 |
|
|
|
4,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,673 |
|
|
$ |
24,428 |
|
|
$ |
26,101 |
|
|
|
|
|
|
|
|
|
|
|
75
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Significant components of our deferred income tax assets and liabilities as of December 31 are
as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
$ |
2,305 |
|
|
$ |
2,201 |
|
Inventories |
|
|
431 |
|
|
|
321 |
|
Net operating losses |
|
|
38,840 |
|
|
|
26,622 |
|
AMT and general business tax credits |
|
|
1,356 |
|
|
|
3,237 |
|
Sec 263A costs |
|
|
811 |
|
|
|
1,061 |
|
Accrued liabilities |
|
|
2,779 |
|
|
|
2,747 |
|
Deferred compensation |
|
|
394 |
|
|
|
441 |
|
Accrued interest |
|
|
543 |
|
|
|
519 |
|
Stock-based compensation |
|
|
385 |
|
|
|
260 |
|
Goodwill and intangible assets |
|
|
7,143 |
|
|
|
8,508 |
|
Other assets |
|
|
340 |
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
55,327 |
|
|
|
46,087 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Property and equipment |
|
|
(109,663 |
) |
|
|
(113,660 |
) |
Investments |
|
|
(1,583 |
) |
|
|
(1,573 |
) |
|
|
|
|
|
|
|
|
|
|
(111,246 |
) |
|
|
(115,233 |
) |
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
$ |
(55,919 |
) |
|
$ |
(69,146 |
) |
|
|
|
|
|
|
|
The reconciliation between income taxes computed using the statutory federal income tax rate
of 35% to the actual income tax expense (benefit) is below for the years ended December 31 (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Computed tax at statutory rates |
|
$ |
(14,133 |
) |
|
$ |
(6,342 |
) |
|
$ |
24,289 |
|
Permanent items other |
|
|
317 |
|
|
|
589 |
|
|
|
517 |
|
Permanent items excess of tax deductible goodwill |
|
|
|
|
|
|
|
|
|
|
(2,130 |
) |
Permanent items impairment of goodwill |
|
|
|
|
|
|
|
|
|
|
537 |
|
State income tax (benefit), net of federal tax effect |
|
|
(1,023 |
) |
|
|
(340 |
) |
|
|
2,710 |
|
Increase in uncertain tax positions |
|
|
|
|
|
|
|
|
|
|
222 |
|
Other |
|
|
(81 |
) |
|
|
(85 |
) |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(14,920 |
) |
|
$ |
(6,178 |
) |
|
$ |
26,101 |
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, we had available federal net operating loss carry forwards of
approximately $146.8 million, which expire in varying amounts from 2022 through 2030. We also had
federal alternative minimum tax credit carry forwards at December 31, 2010 of approximately $0.8
million which do not expire. We have a current receivable for a $2.0 million federal alternative
minimum tax credit as a result of electing to carryback 2009 alternative minimum tax net operating
loss under the provisions of Section 13 of the Worker, Homeownership, and Business Assistance Act
of 2009.
Management has concluded that it is more likely than not that the deferred tax assets are
fully realizable through future reversals of existing taxable temporary differences and future
taxable income. Therefore, a valuation allowance is not required to reduce the deferred tax assets
as of December 31, 2010.
A reconciliation of the beginning and ending balances of the total amounts of gross
unrecognized tax benefits is as follow (in thousands):
76
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Gross unrecognized tax benefits at January 1 |
|
$ |
6,478 |
|
|
$ |
6,456 |
|
|
$ |
6,220 |
|
Increases in tax positions taken in prior years |
|
|
20 |
|
|
|
23 |
|
|
|
228 |
|
Decreases in tax positions taken in prior years |
|
|
|
|
|
|
|
|
|
|
|
|
Increases in tax positions taken in current year |
|
|
|
|
|
|
|
|
|
|
8 |
|
Decreases for tax positions taken in current year |
|
|
|
|
|
|
|
|
|
|
|
|
Settlements with taxing authorities |
|
|
|
|
|
|
|
|
|
|
|
|
Lapse in statute of limitations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrecognized tax benefits at December 31 |
|
$ |
6,498 |
|
|
$ |
6,478 |
|
|
$ |
6,456 |
|
|
|
|
|
|
|
|
|
|
|
The gross amount of unrecognized tax benefits as of December 31, 2010 includes $0.2 million of
net unrecognized tax benefits that, if recognized, would affect the annual effective income tax
rate. Consistent with our historical financial reporting, to the extent we incur interest income,
interest expense, or penalties related to unrecognized income tax benefits, they are recorded in
Other net income or expense. At this time, we do not expect to recognize significant increases
or decreases in unrecognized tax benefits during the next twelve months.
Our U.S. federal tax returns for 2007 and subsequent years remain subject to examination by
tax authorities. We are also subject to examination in various state jurisdictions for 2006 and
subsequent years.
(13) Commitments and Contingencies
Operating Leases
As of December 31, 2010, we lease certain real estate related to our branch facilities and
corporate headquarters, as well as certain office equipment under non-cancelable operating lease
agreements expiring at various dates through 2031. Our real estate leases provide for varying
terms, including customary renewal options and base rental escalation clauses, for which the
related rent expense is accounted for on a straight-line basis during the terms of the respective
leases. Additionally, certain real estate leases may require us to pay maintenance, insurance,
taxes and other expenses in addition to the stated rental payments. Rent expense on property leases
and equipment leases under non-cancelable operating lease agreements for the years ended December
31, 2010, 2009 and 2008 amounted to approximately $11.8 million, $11.5 million and $11.3 million,
respectively.
Future minimum operating lease payments existing at December 31, 2010 for each of the next
five years ending December 31 and thereafter are as follows (amounts in thousands):
|
|
|
|
|
2011 |
|
$ |
11,458 |
|
2012 |
|
|
10,478 |
|
2013 |
|
|
8,494 |
|
2014 |
|
|
7,396 |
|
2015 |
|
|
7,019 |
|
Thereafter |
|
|
46,123 |
|
|
|
|
|
|
|
$ |
90,968 |
|
|
|
|
|
Legal Matters
We are also involved in various claims and legal actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel, the ultimate
disposition of these various matters will not have a material adverse effect on the Companys
consolidated financial position, results of operations or liquidity.
77
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Letters of Credit
The Company had outstanding letters of credit issued under its senior secured credit facility
totaling $8.0 million and $7.8 million as of December 31, 2010 and 2009, respectively. The 2010
letter of credit expired in January 2011 and was renewed for $7.0 million, expiring in January
2012.
(14) Employee Benefit Plan
We offer substantially all of our employees participation in a qualified
401(k)/profit-sharing plan in which we match employee contributions up to predetermined limits for
qualified employees as defined by the plan. For the years ended December 31, 2010, 2009 and 2008,
we contributed, net of employee forfeitures, to the plan $1.1 million, $0.6 million and $1.8
million, respectively.
(15) Deferred Compensation Plans
In 2001, we assumed in a business combination nonqualified employee deferred compensation
plans under which certain employees had previously elected to defer a portion of their annual
compensation. Upon assumption of the plans, the plans were amended to not allow further participant
compensation deferrals. Compensation previously deferred under the plans is payable upon the
termination, disability or death of the participants. At December 31, 2010, we had obligations
remaining under one deferred compensation plan. All other plans have terminated pursuant to the
provisions of each respective plan. The remaining plan accumulates interest each year at a banks
prime rate in effect at the beginning of January of each year. This rate remains constant
throughout the year. The effective rate for the 2010 calendar plan year was 3.25%. The aggregate
deferred compensation payable at December 31, 2010 and December 31, 2009 was $2.0 million and $1.9
million, respectively. Included in these amounts at December 31, 2010 and 2009 was accrued interest
of $1.4 million and $1.3 million, respectively.
(16) Related Party Transactions
John M. Engquist, our Chief Executive Officer and President, and his sister, Kristan Engquist
Dunne, each have a 29.2% beneficial ownership interest in a joint venture, from which we leased our
Baton Rouge, Louisiana and Kenner, Louisiana branch facilities during the years ended December 31,
2010, 2009 and 2008. Four trusts in the names of the children of John M. Engquist and Kristan
Engquist Dunne hold in equal amounts interests totaling 16.6% of such joint venture. The remaining
25% interest is beneficially owned by Mr. Engquists mother. We paid such entity a total of
approximately $0.3 million in each of the years ended December 31, 2010, 2009 and 2008 in lease
payments.
Mr. Engquist has a 62.5% ownership interest in T&J Partnership from which we lease our
Shreveport, Louisiana facility. Mr. Engquists mother beneficially owns 25% of the entity and
Kristan Engquist Dunne owns the remaining 12.5%. In 2010, 2009 and 2008, we paid T&J Partnership a
total of approximately $0.2 million each year in lease payments.
We charter an aircraft from Gulf Wide Aviation, in which Mr. Engquist has a 62.5% ownership
interest. Mr. Engquists mother and sister hold interests of 25% and 12.5%, respectively, in this
entity. We pay an hourly rate to Gulf Wide Aviation for the use of the aircraft by various members
of our management. In each of the years ended December 31, 2010, 2009 and 2008, our payments in
respect of charter costs to Gulf Wide Aviation totaled approximately $0.3 million, $0.4 million and
$0.5 million, respectively.
Mr. Engquist has a 31.25% ownership interest in Perkins-McKenzie Insurance Agency, Inc.
(Perkins-McKenzie), an insurance brokerage firm. Mr. Engquists mother and sister each have a
12.5% and 6.25% interest, respectively, in Perkins-McKenzie. Perkins-McKenzie brokers a substantial
portion of our commercial liability insurance. As the broker, Perkins-McKenzie receives from our
insurance provider as a commission a portion of the premiums we pay to the insurance provider. In
2010, 2009 and 2008, commissions paid to Perkins-McKenzie on our behalf as insurance broker totaled
approximately $0.7 million in each of the annual periods.
78
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We purchase products and services from, and sell products and services to, B-C Equipment
Sales, Inc., in which Mr. Engquist has a 50% ownership interest. In each of the years ended
December 31, 2010, 2009 and 2008, our purchases totaled approximately $0.2 million, $0.2 million
and $0.1 million, respectively, and our sales to B-C Equipment Sales, Inc. totaled approximately
$14,000, $0.6 million and $39,000, respectively.
On April 30, 2007, the Company entered into a Consulting Agreement with Gary W. Bagley,
Chairman of the Board of the Company (the Agreement). This Agreement supersedes the Consulting
and Noncompetition Agreement, dated July 31, 2004, between the Company and Mr. Bagley.
This Agreement provides for, among other things:
|
|
|
a term of five years; |
|
|
|
|
a consulting fee of $167,000 per year together with a cost-of-living increase of 4%
compounded annually, plus reimbursement of all reasonable and actual out-of-pocket
expenses; |
|
|
|
|
welfare benefits, including medical, dental, life and disability insurance; and |
|
|
|
|
the protection of confidential information obtained during employment. |
We expensed approximately $0.2 million for each of the years ended December 31, 2010, 2009 and
2008 related to this agreement.
79
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(17) Summarized Quarterly Financial Data (Unaudited)
The following is a summary of our unaudited quarterly financial results of operations for the
years ended December 31, 2010 and 2009 (amounts in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
2010: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
114,686 |
|
|
$ |
131,006 |
|
|
$ |
153,844 |
|
|
$ |
174,618 |
|
Operating income (loss) |
|
|
(11,925 |
) |
|
|
(4,251 |
) |
|
|
1,451 |
|
|
|
2,830 |
|
Loss before benefit for income taxes |
|
|
(19,166 |
) |
|
|
(11,348 |
) |
|
|
(5,826 |
) |
|
|
(4,040 |
) |
Net loss |
|
|
(12,078 |
) |
|
|
(7,093 |
) |
|
|
(3,780 |
) |
|
|
(2,509 |
) |
Basic net loss per common share(1) |
|
|
(0.35 |
) |
|
|
(0.20 |
) |
|
|
(0.11 |
) |
|
|
(0.07 |
) |
Diluted net loss per common share(1) |
|
|
(0.35 |
) |
|
|
(0.20 |
) |
|
|
(0.11 |
) |
|
|
(0.07 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
186,196 |
|
|
$ |
180,241 |
|
|
$ |
175,628 |
|
|
$ |
137,667 |
|
Operating income (loss)(2) |
|
|
11,115 |
|
|
|
8,585 |
|
|
|
5,183 |
|
|
|
(12,284 |
) |
Income (loss) before provision (benefit) for income
taxes(2) |
|
|
3,149 |
|
|
|
754 |
|
|
|
(2,541 |
) |
|
|
(19,483 |
) |
Net income (loss) (2) |
|
|
2,178 |
|
|
|
263 |
|
|
|
(2,280 |
) |
|
|
(12,104 |
) |
Basic net income (loss) per common share(1) |
|
|
0.06 |
|
|
|
0.01 |
|
|
|
(0.07 |
) |
|
|
(0.35 |
) |
Diluted net income (loss) per common
share(1) |
|
|
0.06 |
|
|
|
0.01 |
|
|
|
(0.07 |
) |
|
|
(0.35 |
) |
|
|
|
(1) |
|
Because of the method used in calculating per share data, the summation of
quarterly per share data may not necessarily total to the per share data computed for the entire
year. |
|
(2) |
|
During our fourth quarter ended December 31, 2009, we recorded a non-cash
impairment charge of approximately $9.0 million, or $5.5 million after tax, related to the
impairment of goodwill. See note 2 to the consolidated financial statements for additional
information on the impairment charge. |
|
(18) |
|
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 our
reportable segments.
We do not compile discrete financial information by our segments other than the information
presented below. The following table presents information about our reportable segments (amounts in
thousands):
80
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Segment Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
177,970 |
|
|
$ |
191,512 |
|
|
$ |
295,398 |
|
New equipment sales |
|
|
167,303 |
|
|
|
208,916 |
|
|
|
374,068 |
|
Used equipment sales |
|
|
62,286 |
|
|
|
86,982 |
|
|
|
160,780 |
|
Parts sales |
|
|
86,686 |
|
|
|
100,500 |
|
|
|
118,345 |
|
Services revenues |
|
|
49,629 |
|
|
|
58,730 |
|
|
|
70,124 |
|
|
|
|
|
|
|
|
|
|
|
Total segmented revenues |
|
|
543,874 |
|
|
|
646,640 |
|
|
|
1,018,715 |
|
Non-Segmented revenues |
|
|
30,280 |
|
|
|
33,092 |
|
|
|
50,254 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
574,154 |
|
|
$ |
679,732 |
|
|
$ |
1,068,969 |
|
|
|
|
|
|
|
|
|
|
|
Segment Gross Profit (Loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
59,193 |
|
|
$ |
61,524 |
|
|
$ |
141,606 |
|
New equipment sales |
|
|
16,638 |
|
|
|
25,031 |
|
|
|
49,596 |
|
Used equipment sales |
|
|
14,017 |
|
|
|
16,677 |
|
|
|
38,824 |
|
Parts sales |
|
|
22,784 |
|
|
|
27,714 |
|
|
|
34,784 |
|
Services revenues |
|
|
30,878 |
|
|
|
36,905 |
|
|
|
44,800 |
|
|
|
|
|
|
|
|
|
|
|
Total gross profit from revenues |
|
|
143,510 |
|
|
|
167,851 |
|
|
|
309,610 |
|
Non-Segmented gross profit (loss) |
|
|
(7,571 |
) |
|
|
(2,353 |
) |
|
|
430 |
|
|
|
|
|
|
|
|
|
|
|
Total gross profit |
|
$ |
135,939 |
|
|
$ |
165,498 |
|
|
$ |
310,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Segment identified assets: |
|
|
|
|
|
|
|
|
Equipment sales |
|
$ |
57,540 |
|
|
$ |
81,022 |
|
Equipment rentals |
|
|
426,637 |
|
|
|
437,407 |
|
Parts and service |
|
|
14,617 |
|
|
|
13,964 |
|
|
|
|
|
|
|
|
Total segment identified assets |
|
|
498,794 |
|
|
|
532,393 |
|
Non-Segmented identified assets |
|
|
235,627 |
|
|
|
230,691 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
734,421 |
|
|
$ |
763,084 |
|
|
|
|
|
|
|
|
The Company operates primarily in the United States and our sales to international customers
for the years ended December 31, 2010, 2009 and 2008 were 2.1%, 3.1% and 4.0%, respectively, of
total revenues for the periods presented. No one customer accounted for more than 10% of our
revenues on an overall or segmented basis for any of the periods presented.
(19) 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 consolidating financial statements of H&E Equipment Services, Inc. and its subsidiaries
are included below. The financial statements for H&E Finance Corp., the subsidiary co-issuer, are
not included within the consolidating financial statements because H&E Finance Corp. has no assets
or operations.
81
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
H&E Equipment |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Services |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
29,149 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
29,149 |
|
Receivables, net |
|
|
87,629 |
|
|
|
11,510 |
|
|
|
|
|
|
|
99,139 |
|
Inventories, net |
|
|
57,698 |
|
|
|
14,458 |
|
|
|
|
|
|
|
72,156 |
|
Prepaid expenses and other assets |
|
|
8,479 |
|
|
|
200 |
|
|
|
|
|
|
|
8,679 |
|
Rental equipment, net |
|
|
339,644 |
|
|
|
86,993 |
|
|
|
|
|
|
|
426,637 |
|
Property and equipment, net |
|
|
47,301 |
|
|
|
9,885 |
|
|
|
|
|
|
|
57,186 |
|
Deferred financing costs, net |
|
|
7,027 |
|
|
|
|
|
|
|
|
|
|
|
7,027 |
|
Intangible assets, net |
|
|
|
|
|
|
429 |
|
|
|
|
|
|
|
429 |
|
Investment in guarantor subsidiaries |
|
|
(18,509 |
) |
|
|
|
|
|
|
18,509 |
|
|
|
|
|
Goodwill |
|
|
4,493 |
|
|
|
29,526 |
|
|
|
|
|
|
|
34,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
526,911 |
|
|
$ |
153,001 |
|
|
$ |
18,509 |
|
|
$ |
734,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
55,482 |
|
|
$ |
2,955 |
|
|
$ |
|
|
|
$ |
58,437 |
|
Manufacturer flooring plans payable |
|
|
74,882 |
|
|
|
176 |
|
|
|
|
|
|
|
75,058 |
|
Accrued expenses payable and other liabilities |
|
|
34,896 |
|
|
|
1,103 |
|
|
|
|
|
|
|
35,999 |
|
Intercompany balance |
|
|
(164,522 |
) |
|
|
164,522 |
|
|
|
|
|
|
|
|
|
Senior unsecured notes |
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
Capital leases payable |
|
|
|
|
|
|
2,754 |
|
|
|
|
|
|
|
2,754 |
|
Deferred income taxes |
|
|
55,919 |
|
|
|
|
|
|
|
|
|
|
|
55,919 |
|
Deferred compensation payable |
|
|
2,004 |
|
|
|
|
|
|
|
|
|
|
|
2,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
308,661 |
|
|
|
171,510 |
|
|
|
|
|
|
$ |
480,171 |
|
Stockholders equity (deficit) |
|
|
254,250 |
|
|
|
(18,509 |
) |
|
|
18,509 |
|
|
|
254,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
562,911 |
|
|
$ |
153,001 |
|
|
$ |
18,509 |
|
|
$ |
734,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 |
|
|
|
H&E Equipment |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Services |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
45,326 |
|
|
$ |
10 |
|
|
$ |
|
|
|
$ |
45,336 |
|
Receivables, net |
|
|
58,405 |
|
|
|
13,596 |
|
|
|
|
|
|
|
72,001 |
|
Inventories, net |
|
|
72,508 |
|
|
|
22,479 |
|
|
|
|
|
|
|
94,987 |
|
Prepaid expenses and other assets |
|
|
6,876 |
|
|
|
123 |
|
|
|
|
|
|
|
6,999 |
|
Rental equipment, net |
|
|
346,107 |
|
|
|
91,300 |
|
|
|
|
|
|
|
437,407 |
|
Property and equipment, net |
|
|
54,672 |
|
|
|
11,130 |
|
|
|
|
|
|
|
65,802 |
|
Deferred financing costs, net |
|
|
5,545 |
|
|
|
|
|
|
|
|
|
|
|
5,545 |
|
Intangible assets, net |
|
|
|
|
|
|
988 |
|
|
|
|
|
|
|
988 |
|
Investment in guarantor subsidiaries |
|
|
(4,537 |
) |
|
|
|
|
|
|
4,537 |
|
|
|
|
|
Goodwill |
|
|
4,493 |
|
|
|
29,526 |
|
|
|
|
|
|
|
34,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
589,395 |
|
|
$ |
169,152 |
|
|
$ |
4,537 |
|
|
$ |
763,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due on senior secured credit facility |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Accounts payable |
|
|
28,866 |
|
|
|
|
|
|
|
|
|
|
|
28,866 |
|
Manufacturer flooring plans payable |
|
|
92,868 |
|
|
|
|
|
|
|
|
|
|
|
92,868 |
|
Accrued expenses payable and other liabilities |
|
|
35,689 |
|
|
|
1,582 |
|
|
|
|
|
|
|
37,271 |
|
Intercompany balance |
|
|
(169,213 |
) |
|
|
169,213 |
|
|
|
|
|
|
|
|
|
Note payable |
|
|
1,216 |
|
|
|
|
|
|
|
|
|
|
|
1,216 |
|
Senior unsecured notes |
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
Capital leases payable |
|
|
|
|
|
|
2,894 |
|
|
|
|
|
|
|
2,894 |
|
Deferred income taxes |
|
|
69,146 |
|
|
|
|
|
|
|
|
|
|
|
69,146 |
|
Deferred compensation payable |
|
|
1,941 |
|
|
|
|
|
|
|
|
|
|
|
1,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
310,513 |
|
|
|
173,689 |
|
|
|
|
|
|
|
484,202 |
|
Stockholders equity (deficit) |
|
|
278,882 |
|
|
|
(4,537 |
) |
|
|
4,537 |
|
|
|
278,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
589,395 |
|
|
$ |
169,152 |
|
|
$ |
4,537 |
|
|
$ |
763,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010 |
|
|
|
H&E Equipment |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Services |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
141,180 |
|
|
$ |
36,790 |
|
|
$ |
|
|
|
$ |
177,970 |
|
New equipment sales |
|
|
151,906 |
|
|
|
15,397 |
|
|
|
|
|
|
|
167,303 |
|
Used equipment sales |
|
|
53,789 |
|
|
|
8,497 |
|
|
|
|
|
|
|
62,286 |
|
Parts sales |
|
|
73,369 |
|
|
|
13,317 |
|
|
|
|
|
|
|
86,686 |
|
Services revenues |
|
|
43,602 |
|
|
|
6,027 |
|
|
|
|
|
|
|
49,629 |
|
Other |
|
|
24,786 |
|
|
|
5,494 |
|
|
|
|
|
|
|
30,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
488,632 |
|
|
|
85,522 |
|
|
|
|
|
|
|
574,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
|
61,507 |
|
|
|
17,076 |
|
|
|
|
|
|
|
78,583 |
|
Rental expense |
|
|
32,485 |
|
|
|
7,709 |
|
|
|
|
|
|
|
40,194 |
|
New equipment sales |
|
|
136,899 |
|
|
|
13,766 |
|
|
|
|
|
|
|
150,665 |
|
Used equipment sales |
|
|
41,789 |
|
|
|
6,480 |
|
|
|
|
|
|
|
48,269 |
|
Parts sales |
|
|
54,066 |
|
|
|
9,836 |
|
|
|
|
|
|
|
63,902 |
|
Services revenues |
|
|
16,699 |
|
|
|
2,052 |
|
|
|
|
|
|
|
18,751 |
|
Other |
|
|
29,878 |
|
|
|
7,973 |
|
|
|
|
|
|
|
37,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
373,323 |
|
|
|
64,892 |
|
|
|
|
|
|
|
438,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
|
47,188 |
|
|
|
12,005 |
|
|
|
|
|
|
|
59,193 |
|
New equipment sales |
|
|
15,007 |
|
|
|
1,631 |
|
|
|
|
|
|
|
16,638 |
|
Used equipment sales |
|
|
12,000 |
|
|
|
2,017 |
|
|
|
|
|
|
|
14,017 |
|
Parts sales |
|
|
19,303 |
|
|
|
3,481 |
|
|
|
|
|
|
|
22,784 |
|
Services revenues |
|
|
26,903 |
|
|
|
3,975 |
|
|
|
|
|
|
|
30,878 |
|
Other |
|
|
(5,092 |
) |
|
|
(2,479 |
) |
|
|
|
|
|
|
(7,571 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
115,309 |
|
|
|
20,630 |
|
|
|
|
|
|
|
135,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
123,279 |
|
|
|
24,998 |
|
|
|
|
|
|
|
148,277 |
|
Equity in loss of guarantor subsidiaries |
|
|
(13,972 |
) |
|
|
|
|
|
|
13,972 |
|
|
|
|
|
Gain from sales of property and equipment, net |
|
|
389 |
|
|
|
54 |
|
|
|
|
|
|
|
443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(21,553 |
) |
|
|
(4,314 |
) |
|
|
13,972 |
|
|
|
(11,895 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(19,403 |
) |
|
|
(9,673 |
) |
|
|
|
|
|
|
(29,076 |
) |
Other, net |
|
|
576 |
|
|
|
15 |
|
|
|
|
|
|
|
591 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
|
(18,827 |
) |
|
|
(9,658 |
) |
|
|
|
|
|
|
(28,485 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(40,380 |
) |
|
|
(13,972 |
) |
|
|
13,972 |
|
|
|
(40,380 |
) |
Income tax benefit |
|
|
(14,920 |
) |
|
|
|
|
|
|
|
|
|
|
(14,920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(25,460 |
) |
|
$ |
(13,972 |
) |
|
$ |
13,972 |
|
|
$ |
(25,460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
84
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
|
|
H&E Equipment |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Services |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
155,583 |
|
|
$ |
35,929 |
|
|
$ |
|
|
|
$ |
191,512 |
|
New equipment sales |
|
|
173,494 |
|
|
|
35,422 |
|
|
|
|
|
|
|
208,916 |
|
Used equipment sales |
|
|
75,862 |
|
|
|
11,120 |
|
|
|
|
|
|
|
86,982 |
|
Parts sales |
|
|
85,043 |
|
|
|
15,457 |
|
|
|
|
|
|
|
100,500 |
|
Services revenues |
|
|
51,657 |
|
|
|
7,073 |
|
|
|
|
|
|
|
58,730 |
|
Other |
|
|
27,076 |
|
|
|
6,016 |
|
|
|
|
|
|
|
33,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
568,715 |
|
|
|
111,017 |
|
|
|
|
|
|
|
679,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
|
69,791 |
|
|
|
18,111 |
|
|
|
|
|
|
|
87,902 |
|
Rental expense |
|
|
33,997 |
|
|
|
8,089 |
|
|
|
|
|
|
|
42,086 |
|
New equipment sales |
|
|
152,640 |
|
|
|
31,245 |
|
|
|
|
|
|
|
183,885 |
|
Used equipment sales |
|
|
61,264 |
|
|
|
9,041 |
|
|
|
|
|
|
|
70,305 |
|
Parts sales |
|
|
61,597 |
|
|
|
11,189 |
|
|
|
|
|
|
|
72,786 |
|
Services revenues |
|
|
19,403 |
|
|
|
2,422 |
|
|
|
|
|
|
|
21,825 |
|
Other |
|
|
27,855 |
|
|
|
7,590 |
|
|
|
|
|
|
|
35,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
426,547 |
|
|
|
87,687 |
|
|
|
|
|
|
|
514,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
|
51,795 |
|
|
|
9,729 |
|
|
|
|
|
|
|
61,524 |
|
New equipment sales |
|
|
20,854 |
|
|
|
4,177 |
|
|
|
|
|
|
|
25,031 |
|
Used equipment sales |
|
|
14,598 |
|
|
|
2,079 |
|
|
|
|
|
|
|
16,677 |
|
Parts sales |
|
|
23,446 |
|
|
|
4,268 |
|
|
|
|
|
|
|
27,714 |
|
Services revenues |
|
|
32,254 |
|
|
|
4,651 |
|
|
|
|
|
|
|
36,905 |
|
Other |
|
|
(779 |
) |
|
|
(1,574 |
) |
|
|
|
|
|
|
(2,353 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
142,168 |
|
|
|
23,330 |
|
|
|
|
|
|
|
165,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
119,920 |
|
|
|
24,540 |
|
|
|
|
|
|
|
144,460 |
|
Impairment of goodwill |
|
|
8,972 |
|
|
|
|
|
|
|
|
|
|
|
8,972 |
|
Equity in loss of guarantor subsidiaries |
|
|
(12,985 |
) |
|
|
|
|
|
|
12,985 |
|
|
|
|
|
Gain from sales of property and equipment, net |
|
|
455 |
|
|
|
78 |
|
|
|
|
|
|
|
533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
746 |
|
|
|
(1,132 |
) |
|
|
12,985 |
|
|
|
12.599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(19,415 |
) |
|
|
(11,924 |
) |
|
|
|
|
|
|
(31,339 |
) |
Other, net |
|
|
548 |
|
|
|
71 |
|
|
|
|
|
|
|
619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
|
(18,867 |
) |
|
|
(11,853 |
) |
|
|
|
|
|
|
(30,720 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(18,121 |
) |
|
|
(12,985 |
) |
|
|
12,985 |
|
|
|
(18,121 |
) |
Income tax benefit |
|
|
(6,178 |
) |
|
|
|
|
|
|
|
|
|
|
(6,178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(11,943 |
) |
|
$ |
(12,985 |
) |
|
$ |
12,985 |
|
|
$ |
(11,943 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
85
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
H&E Equipment |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Services |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
$ |
250,378 |
|
|
$ |
45,020 |
|
|
$ |
|
|
|
$ |
295,398 |
|
New equipment sales |
|
|
292,651 |
|
|
|
81,417 |
|
|
|
|
|
|
|
374,068 |
|
Used equipment sales |
|
|
124,076 |
|
|
|
36,704 |
|
|
|
|
|
|
|
160,780 |
|
Parts sales |
|
|
97,250 |
|
|
|
21,095 |
|
|
|
|
|
|
|
118,345 |
|
Services revenues |
|
|
60,519 |
|
|
|
9,605 |
|
|
|
|
|
|
|
70,124 |
|
Other |
|
|
42,364 |
|
|
|
7,890 |
|
|
|
|
|
|
|
50,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
867,238 |
|
|
|
201,731 |
|
|
|
|
|
|
|
1,068,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
|
85,218 |
|
|
|
19,093 |
|
|
|
|
|
|
|
104,311 |
|
Rental expense |
|
|
40,794 |
|
|
|
8,687 |
|
|
|
|
|
|
|
49,481 |
|
New equipment sales |
|
|
253,496 |
|
|
|
70,976 |
|
|
|
|
|
|
|
324,472 |
|
Used equipment sales |
|
|
90,467 |
|
|
|
31,489 |
|
|
|
|
|
|
|
121,956 |
|
Parts sales |
|
|
68,504 |
|
|
|
15,057 |
|
|
|
|
|
|
|
83,561 |
|
Services revenues |
|
|
21,948 |
|
|
|
3,376 |
|
|
|
|
|
|
|
25,324 |
|
Other |
|
|
40,131 |
|
|
|
9,693 |
|
|
|
|
|
|
|
49,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
600,558 |
|
|
|
158,371 |
|
|
|
|
|
|
|
785,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
|
124,366 |
|
|
|
17,240 |
|
|
|
|
|
|
|
141,606 |
|
New equipment sales |
|
|
39,155 |
|
|
|
10,441 |
|
|
|
|
|
|
|
49,596 |
|
Used equipment sales |
|
|
33,609 |
|
|
|
5,215 |
|
|
|
|
|
|
|
38,824 |
|
Parts sales |
|
|
28,746 |
|
|
|
6,038 |
|
|
|
|
|
|
|
34,784 |
|
Services revenues |
|
|
38,571 |
|
|
|
6,229 |
|
|
|
|
|
|
|
44,800 |
|
Other |
|
|
2,233 |
|
|
|
(1,803 |
) |
|
|
|
|
|
|
430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
266,680 |
|
|
|
43,360 |
|
|
|
|
|
|
|
310,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
144,604 |
|
|
|
36,433 |
|
|
|
|
|
|
|
181,037 |
|
Impairment of goodwill and intangible assets |
|
|
22,721 |
|
|
|
|
|
|
|
|
|
|
|
22,721 |
|
Equity in loss of guarantor subsidiaries |
|
|
(5,578 |
) |
|
|
|
|
|
|
5,578 |
|
|
|
|
|
Gain from sales of property and equipment, net |
|
|
408 |
|
|
|
28 |
|
|
|
|
|
|
|
436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
94,185 |
|
|
|
6,955 |
|
|
|
5,578 |
|
|
|
106,718 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(25,613 |
) |
|
|
(12,642 |
) |
|
|
|
|
|
|
(38,255 |
) |
Other, net |
|
|
825 |
|
|
|
109 |
|
|
|
|
|
|
|
934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
|
(24,788 |
) |
|
|
(12,533 |
) |
|
|
|
|
|
|
(37,321 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes |
|
|
69,397 |
|
|
|
(5,578 |
) |
|
|
5,578 |
|
|
|
69,397 |
|
Provision for income taxes |
|
|
26,101 |
|
|
|
|
|
|
|
|
|
|
|
26,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
43,296 |
|
|
$ |
(5,578 |
) |
|
$ |
5,578 |
|
|
$ |
43,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010 |
|
|
|
H&E Equipment |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Services |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(25,460 |
) |
|
$ |
(13,972 |
) |
|
$ |
13,972 |
|
|
$ |
(25,460 |
) |
Adjustments to reconcile net loss to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization on property and
equipment |
|
|
11,239 |
|
|
|
1,885 |
|
|
|
|
|
|
|
13,124 |
|
Depreciation on rental equipment |
|
|
61,507 |
|
|
|
17,076 |
|
|
|
|
|
|
|
78,583 |
|
Amortization of deferred financing costs |
|
|
1,406 |
|
|
|
|
|
|
|
|
|
|
|
1,406 |
|
Amortization of intangible assets |
|
|
|
|
|
|
559 |
|
|
|
|
|
|
|
559 |
|
Provision for losses on accounts receivable |
|
|
2,609 |
|
|
|
555 |
|
|
|
|
|
|
|
3,164 |
|
Provision for inventory obsolescence |
|
|
315 |
|
|
|
|
|
|
|
|
|
|
|
315 |
|
Provision for deferred income taxes |
|
|
(13,227 |
) |
|
|
|
|
|
|
|
|
|
|
(13,227 |
) |
Stock-based compensation expense |
|
|
1,039 |
|
|
|
|
|
|
|
|
|
|
|
1,039 |
|
Gain from sales of property and equipment, net |
|
|
(389 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
(443 |
) |
Gain from sales of rental equipment, net |
|
|
(11,010 |
) |
|
|
(1,921 |
) |
|
|
|
|
|
|
(12,931 |
) |
Equity in loss of guarantor subsidiaries |
|
|
13,972 |
|
|
|
|
|
|
|
(13,972 |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
|
(31,833 |
) |
|
|
1,531 |
|
|
|
|
|
|
|
(30,302 |
) |
Inventories, net |
|
|
(8,891 |
) |
|
|
2,129 |
|
|
|
|
|
|
|
(6,762 |
) |
Prepaid expenses and other assets |
|
|
(1,603 |
) |
|
|
(77 |
) |
|
|
|
|
|
|
(1,680 |
) |
Accounts payable |
|
|
26,616 |
|
|
|
2,955 |
|
|
|
|
|
|
|
29,571 |
|
Manufacturer flooring plans payable |
|
|
(17,986 |
) |
|
|
176 |
|
|
|
|
|
|
|
(17,810 |
) |
Accrued expenses payable and other liabilities |
|
|
(792 |
) |
|
|
(479 |
) |
|
|
|
|
|
|
(1,271 |
) |
Intercompany balances |
|
|
4,691 |
|
|
|
(4,691 |
) |
|
|
|
|
|
|
|
|
Deferred compensation payable |
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
12,266 |
|
|
|
5,672 |
|
|
|
|
|
|
|
17,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(4,067 |
) |
|
|
(585 |
) |
|
|
|
|
|
|
(4,652 |
) |
Purchases of rental equipment |
|
|
(60,504 |
) |
|
|
(12,745 |
) |
|
|
|
|
|
|
(73,249 |
) |
Proceeds from sales of property and equipment |
|
|
588 |
|
|
|
(1 |
) |
|
|
|
|
|
|
587 |
|
Proceeds from sales of rental equipment |
|
|
39,856 |
|
|
|
7,789 |
|
|
|
|
|
|
|
47,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(24,127 |
) |
|
|
(5,542 |
) |
|
|
|
|
|
|
(29,669 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(212 |
) |
|
|
|
|
|
|
|
|
|
|
(212 |
) |
Payments of deferred financing costs |
|
|
(2,888 |
) |
|
|
|
|
|
|
|
|
|
|
(2,888 |
) |
Payments on capital lease obligations |
|
|
|
|
|
|
(140 |
) |
|
|
|
|
|
|
(140 |
) |
Principal payments on note payable |
|
|
(1,216 |
) |
|
|
|
|
|
|
|
|
|
|
(1,216 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(4,316 |
) |
|
|
(140 |
) |
|
|
|
|
|
|
(4,456 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
|
(16,177 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
(16,187 |
) |
Cash, beginning of year |
|
|
45,326 |
|
|
|
10 |
|
|
|
|
|
|
|
45,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year |
|
$ |
29,149 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
29,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
|
|
H&E Equipment |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Services |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(11,943 |
) |
|
$ |
(12,985 |
) |
|
$ |
12,985 |
|
|
$ |
(11,943 |
) |
Adjustments to reconcile net loss to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization on property and equipment |
|
|
8,611 |
|
|
|
2,189 |
|
|
|
|
|
|
|
10,800 |
|
Depreciation on rental equipment |
|
|
69,791 |
|
|
|
18,111 |
|
|
|
|
|
|
|
87,902 |
|
Amortization of deferred financing costs |
|
|
1,419 |
|
|
|
|
|
|
|
|
|
|
|
1,419 |
|
Amortization of intangible assets |
|
|
|
|
|
|
591 |
|
|
|
|
|
|
|
591 |
|
Provision for losses on accounts receivable |
|
|
3,246 |
|
|
|
|
|
|
|
|
|
|
|
3,246 |
|
Provision for inventory obsolescence |
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
48 |
|
Provision for deferred income taxes |
|
|
(5,963 |
) |
|
|
|
|
|
|
|
|
|
|
(5,963 |
) |
Stock-based compensation expense |
|
|
726 |
|
|
|
|
|
|
|
|
|
|
|
726 |
|
Impairment of goodwill |
|
|
1,150 |
|
|
|
7,822 |
|
|
|
|
|
|
|
8,972 |
|
Gain from sales of property and equipment, net |
|
|
(455 |
) |
|
|
(78 |
) |
|
|
|
|
|
|
(533 |
) |
Gain from sales of rental equipment, net |
|
|
(13,735 |
) |
|
|
(1,941 |
) |
|
|
|
|
|
|
(15,676 |
) |
Equity in loss of guarantor subsidiaries |
|
|
12,985 |
|
|
|
|
|
|
|
(12,985 |
) |
|
|
|
|
Changes in operating assets and liabilities, net of
impact of acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
|
63,106 |
|
|
|
11,940 |
|
|
|
|
|
|
|
75,046 |
|
Inventories, net |
|
|
24,047 |
|
|
|
(865 |
) |
|
|
|
|
|
|
23,182 |
|
Prepaid expenses and other assets |
|
|
4,590 |
|
|
|
132 |
|
|
|
|
|
|
|
4,722 |
|
Accounts payable |
|
|
(64,801 |
) |
|
|
|
|
|
|
|
|
|
|
(64,801 |
) |
Manufacturer flooring plans payable |
|
|
(34,822 |
) |
|
|
|
|
|
|
|
|
|
|
(34,822 |
) |
Accrued expenses payable and other liabilities |
|
|
(10,271 |
) |
|
|
341 |
|
|
|
|
|
|
|
(9,930 |
) |
Intercompany balances |
|
|
22,248 |
|
|
|
(22,248 |
) |
|
|
|
|
|
|
|
|
Deferred compensation payable |
|
|
(85 |
) |
|
|
|
|
|
|
|
|
|
|
(85 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
69,892 |
|
|
|
3,009 |
|
|
|
|
|
|
|
72,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(18,816 |
) |
|
|
(579 |
) |
|
|
|
|
|
|
(19,395 |
) |
Purchases of rental equipment |
|
|
(4,080 |
) |
|
|
(11,041 |
) |
|
|
|
|
|
|
(15,121 |
) |
Proceeds from sales of property and equipment |
|
|
1,505 |
|
|
|
(57 |
) |
|
|
|
|
|
|
1,448 |
|
Proceeds from sales of rental equipment |
|
|
62,174 |
|
|
|
8,794 |
|
|
|
|
|
|
|
70,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
40,783 |
|
|
|
(2,883 |
) |
|
|
|
|
|
|
37,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(110 |
) |
|
|
|
|
|
|
|
|
|
|
(110 |
) |
Borrowings on senior secured credit facility |
|
|
536,311 |
|
|
|
|
|
|
|
|
|
|
|
536,311 |
|
Payments on senior secured credit facility |
|
|
(612,633 |
) |
|
|
|
|
|
|
|
|
|
|
(612,633 |
) |
Payments of related party obligation |
|
|
(150 |
) |
|
|
|
|
|
|
|
|
|
|
(150 |
) |
Payments on capital lease obligations |
|
|
|
|
|
|
(131 |
) |
|
|
|
|
|
|
(131 |
) |
Principal payments on note payable |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(76,600 |
) |
|
|
(131 |
) |
|
|
|
|
|
|
(76,731 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
34,075 |
|
|
|
(5 |
) |
|
|
|
|
|
|
34,070 |
|
Cash, beginning of year |
|
|
11,251 |
|
|
|
15 |
|
|
|
|
|
|
|
11,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year |
|
$ |
45,326 |
|
|
$ |
10 |
|
|
$ |
|
|
|
$ |
45,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
H&E Equipment |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
Services |
|
|
Subsidiaries |
|
|
Elimination |
|
|
Consolidated |
|
|
|
(Amounts in thousands) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
43,296 |
|
|
$ |
(5,578 |
) |
|
$ |
5,578 |
|
|
$ |
43,296 |
|
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation on property and equipment |
|
|
8,401 |
|
|
|
2,742 |
|
|
|
|
|
|
|
11,143 |
|
Depreciation on rental equipment |
|
|
85,218 |
|
|
|
19,093 |
|
|
|
|
|
|
|
104,311 |
|
Amortization of deferred financing costs |
|
|
1,417 |
|
|
|
|
|
|
|
|
|
|
|
1,417 |
|
Amortization of intangible assets |
|
|
2,223 |
|
|
|
|
|
|
|
|
|
|
|
2,223 |
|
Provision for losses on accounts receivable |
|
|
3,064 |
|
|
|
|
|
|
|
|
|
|
|
3,064 |
|
Provision for inventory obsolescence |
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
54 |
|
Provision for deferred income taxes |
|
|
24,428 |
|
|
|
|
|
|
|
|
|
|
|
24,428 |
|
Stock-based compensation expense |
|
|
1,453 |
|
|
|
|
|
|
|
|
|
|
|
1,453 |
|
Impairment of goodwill and intangible assets |
|
|
22,721 |
|
|
|
|
|
|
|
|
|
|
|
22,721 |
|
Gain from sales of property and equipment, net |
|
|
(408 |
) |
|
|
(28 |
) |
|
|
|
|
|
|
(436 |
) |
Gain from sales of rental equipment, net |
|
|
(31,108 |
) |
|
|
(4,685 |
) |
|
|
|
|
|
|
(35,793 |
) |
Equity in loss of guarantor subsidiaries |
|
|
5,578 |
|
|
|
|
|
|
|
(5,578 |
) |
|
|
|
|
Changes in operating assets and liabilities, net of
impact of acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net |
|
|
3,264 |
|
|
|
(4,063 |
) |
|
|
|
|
|
|
(799 |
) |
Inventories, net |
|
|
3,963 |
|
|
|
(32,027 |
) |
|
|
|
|
|
|
(28,064 |
) |
Prepaid expenses and other assets |
|
|
(5,690 |
) |
|
|
238 |
|
|
|
|
|
|
|
(5,452 |
) |
Accounts payable |
|
|
9,990 |
|
|
|
(1,218 |
) |
|
|
|
|
|
|
8,772 |
|
Manufacturer flooring plans payable |
|
|
(29,247 |
) |
|
|
(6,002 |
) |
|
|
|
|
|
|
(35,249 |
) |
Accrued expenses payable and other liabilities |
|
|
394 |
|
|
|
2,897 |
|
|
|
|
|
|
|
3,291 |
|
Intercompany balances |
|
|
11,528 |
|
|
|
(11,528 |
) |
|
|
|
|
|
|
|
|
Deferred compensation payable |
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
160,626 |
|
|
|
(40,159 |
) |
|
|
|
|
|
|
120,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of business, net of cash acquired |
|
|
|
|
|
|
(10,461 |
) |
|
|
|
|
|
|
(10,461 |
) |
Purchases of property and equipment |
|
|
(22,902 |
) |
|
|
(1,685 |
) |
|
|
|
|
|
|
(24,587 |
) |
Purchases of rental equipment |
|
|
(190,655 |
) |
|
|
64,784 |
|
|
|
|
|
|
|
(125,871 |
) |
Proceeds from sales of property and equipment |
|
|
949 |
|
|
|
223 |
|
|
|
|
|
|
|
1,172 |
|
Proceeds from sales of rental equipment |
|
|
148,045 |
|
|
|
(24,973 |
) |
|
|
|
|
|
|
123,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(64,563 |
) |
|
|
27,888 |
|
|
|
|
|
|
|
(36,675 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefit (deficiency) from stock-based awards |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
(44 |
) |
Purchases of treasury stock |
|
|
(42,577 |
) |
|
|
|
|
|
|
|
|
|
|
(42,577 |
) |
Borrowings on senior secured credit facility |
|
|
1,042,821 |
|
|
|
|
|
|
|
|
|
|
|
1,042,821 |
|
Payments on senior secured credit facility |
|
|
(1,096,701 |
) |
|
|
9,652 |
|
|
|
|
|
|
|
(1,087,049 |
) |
Payments of related party obligation |
|
|
(300 |
) |
|
|
|
|
|
|
|
|
|
|
(300 |
) |
Payments on capital lease obligations |
|
|
|
|
|
|
(123 |
) |
|
|
|
|
|
|
(123 |
) |
Principal payments on note payable |
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
(96,817 |
) |
|
|
9,529 |
|
|
|
|
|
|
|
(87,288 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash |
|
|
(754 |
) |
|
|
(2,742 |
) |
|
|
|
|
|
|
(3,496 |
) |
Cash, beginning of year |
|
|
12,005 |
|
|
|
2,757 |
|
|
|
|
|
|
|
14,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of year |
|
$ |
11,251 |
|
|
$ |
15 |
|
|
$ |
|
|
|
$ |
11,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
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 the Company files or furnishes 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(e) promulgated under the
Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual
Report on Form 10-K. Based on this evaluation, our principal executive officer and principal
financial officer have concluded that, as of December 31, 2010, our current disclosure controls and
procedures were effective.
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 were no changes in the Companys internal control over financial reporting (as defined
in Exchange Act Rule 13a-15(f)) that occurred during the fourth quarter ended December 31, 2010
that have materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
90
Managements Report on Internal Control Over Financial Reporting
The management of H&E Equipment Services, Inc. is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f). Our internal control system was designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Any evaluation or projection of
effectiveness to future periods is also subject to risk that controls may become inadequate due to
changes in conditions, or that the degree of compliance with the policies and procedures may
deteriorate.
Under the supervision and with the participation of management, including our Chief Executive
Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting as of December 31, 2010, based on the framework in
Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on that evaluation, management concluded that, as of December
31, 2010, our internal control over financial reporting was effective based on these criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2010,
has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in
their report, which is included herein.
Date: March 3, 2011
|
|
|
|
|
|
|
/s/ John M. Engquist
|
|
John M. Engquist |
|
President and Chief Executive Officer |
|
|
/s/ Leslie S. Magee
|
|
Leslie S. Magee |
|
Chief Financial Officer |
|
91
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
H&E Equipment Services, Inc.
Baton Rouge, Louisiana
We have audited H&E Equipment Services, Inc.s internal control over financial reporting as of
December 31, 2010, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). H&E
Equipment Services, Inc.s management is responsible for maintaining effective internal control
over financial reporting and for their assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Item 9A, Managements Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the companys internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed 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. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, H&E Equipment Services, Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of H&E Equipment Services, Inc. and
subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of
operations, stockholders equity, and cash flows for each of the three years in the period ended
December 31, 2010 and our report dated March 3, 2011 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Dallas, Texas
March 3, 2011
92
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated herein by reference from the Companys
definitive proxy statement for use in connection with the 2011 Annual Meeting of Stockholders (the
Proxy Statement) to be filed within 120 days after the end of the Companys fiscal year ended
December 31, 2010.
We have adopted a code of conduct that applies to our Chief Executive Officer and Chief
Financial Officer. This code of conduct is available on the Companys internet website at
www.he-equipment.com. The information on our website is not a part of or incorporated by reference
into this Annual Report on Form 10-K. If the Company makes any amendments to this code other than
technical, administrative or other non-substantive amendments, or grants any waivers, including
implicit waivers, from a provision of this code to the Companys Chief Executive Officer or Chief
Financial Officer, the Company will disclose the nature of the amendment or waiver, its effective
date and to whom it applies by posting such information on the Companys internet website at
www.he-equipment.com.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference from the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item is incorporated herein by reference from the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference from the Proxy
Statement.
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated herein by reference from the Proxy
Statement.
93
PART I
Item 15. Exhibits and Financial Statement Schedules
(a) |
|
Documents filed as part of this report: |
|
|
The Companys consolidated financial statements listed below have been filed as part of this
report: |
|
|
|
|
|
|
|
Page |
|
|
|
|
92 |
|
|
|
|
54 |
|
|
|
|
55 |
|
|
|
|
56 |
|
|
|
|
57 |
|
|
|
|
58 |
|
|
|
|
60 |
|
|
|
|
|
|
(2) Financial Statement Schedule for the years ended December 31, 2010, 2009 and 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
95 |
|
|
|
|
|
|
All other schedules are omitted because they are not applicable or not required, or the
information appears in the Companys consolidated financial
statements or notes thereto. |
|
|
|
|
|
|
|
|
|
(3) Exhibits |
|
|
|
|
|
|
|
|
|
See
Exhibit Index on pages 97-99. |
|
|
|
|
94
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Charged to |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
Beginning |
|
|
Costs and |
|
|
Recoveries |
|
|
Impact of |
|
|
End |
|
Description |
|
of Year |
|
|
Expenses |
|
|
(Deductions) |
|
|
Acquisition |
|
|
of Year |
|
|
|
(Amounts in thousands) |
|
Year Ended December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts receivable |
|
$ |
5,736 |
|
|
$ |
3,164 |
|
|
$ |
(2,896 |
) |
|
$ |
|
|
|
$ |
6,004 |
|
Allowance for inventory obsolescence |
|
|
824 |
|
|
|
315 |
|
|
|
(34 |
) |
|
|
|
|
|
|
1,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,560 |
|
|
$ |
3,479 |
|
|
$ |
(2,930 |
) |
|
$ |
|
|
|
$ |
7,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts receivable |
|
$ |
5,524 |
|
|
$ |
3,245 |
|
|
$ |
(3,033 |
) |
|
$ |
|
|
|
$ |
5,736 |
|
Allowance for inventory obsolescence |
|
|
920 |
|
|
|
48 |
|
|
|
(144 |
) |
|
|
|
|
|
|
824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,444 |
|
|
$ |
3,293 |
|
|
$ |
(3,177 |
) |
|
$ |
|
|
|
$ |
6,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts receivable |
|
$ |
4,413 |
|
|
$ |
3,064 |
|
|
$ |
(1,953 |
) |
|
$ |
|
|
|
$ |
5,524 |
|
Allowance for inventory obsolescence |
|
|
992 |
|
|
|
54 |
|
|
|
(126 |
) |
|
|
|
|
|
|
920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,405 |
|
|
$ |
3,118 |
|
|
$ |
(2,079 |
) |
|
$ |
|
|
|
$ |
6,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized, on March 3, 2011.
|
|
|
|
|
|
H&E EQUIPMENT SERVICES, INC.
|
|
|
By: |
/s/ John M. Engquist
|
|
|
|
John M. Engquist |
|
|
|
Its: President and Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature |
|
Capacity |
|
Date |
|
|
|
|
|
|
|
By:
|
|
/s/ John M. Engquist
|
|
President, Chief Executive Officer and Director
|
|
March 3, 2011 |
|
|
|
|
|
|
|
|
|
John M. Engquist
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Leslie S. Magee
|
|
Chief Financial Officer
|
|
March 3, 2011 |
|
|
|
|
|
|
|
|
|
Leslie S. Magee
|
|
(Principal Financial and
Accounting Officer) |
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Gary W. Bagley
|
|
Chairman and Director
|
|
March 3, 2011 |
|
|
Gary W. Bagley |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Keith E. Alessi
|
|
Director
|
|
March 3, 2011 |
|
|
Keith E. Alessi |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Paul N. Arnold
|
|
Director
|
|
March 3, 2011 |
|
|
Paul N. Arnold |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Bruce C. Bruckmann
|
|
Director
|
|
March 3, 2011 |
|
|
Bruce C. Bruckmann |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Lawrence C. Karlson
|
|
Director
|
|
March 3, 2011 |
|
|
Lawrence C. Karlson |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ John T. Sawyer
|
|
Director
|
|
March 3, 2011 |
|
|
John T. Sawyer |
|
|
|
|
96
Exhibit Index
|
|
|
2.1
|
|
Agreement and Plan of Merger, dated February 2, 2006, among the Company,
H&E LLC and Holdings (incorporated by reference to Exhibit 2.1 to
Current Report on Form 8-K of H&E Equipment Services, Inc. (File No.
000-51759), filed February 3, 2006). |
|
|
|
2.2
|
|
Agreement and Plan of Merger, dated as of May 15, 2007, by and among H&E
Equipment Services, Inc., HE-JWB Acquisition, Inc., J.W. Burress,
Incorporated, the Burress Shareholders (as defined therein), and Richard
S. Dudley, as Burress Shareholders Representative (as defined therein)
(incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K
of H&E Equipment Services, Inc. (File No. 000-51759), filed on May 17,
2007. |
|
|
|
2.3
|
|
Amendment No. 1 to Agreement and Plan of Merger, dated as of August 31,
2007, by and among H&E Equipment Services, Inc., HE-JWB Acquisition,
Inc., J.W. Burress, Incorporated, the Burress Shareholders (as defined
therein), and Richard S. Dudley, as Burress Shareholders Representative
(as defined therein) (incorporated by reference to Exhibit 2.1 to
Current Report on Form 8-K of H&E Equipment Services, Inc. (File No.
000-51759), filed on September 4, 2007). |
|
|
|
2.4
|
|
Acquisition Agreement, dated as of January 4, 2005, among H&E Equipment
Services, L.L.C., Eagle Merger Corp., Eagle High Reach Equipment, LLC,
Eagle High Reach Equipment, Inc., SBN Eagle LLC, SummitBridge National
Investments, LLC and the shareholders of Eagle High Reach Equipment,
Inc. (incorporated by reference to Exhibit 2.1 to Form 8-K of H&E
Equipment Services L.L.C. (File Nos. 333-99587 and 333-99589), filed
January 5, 2006). |
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of H&E Equipment
Services, Inc. (incorporated by reference to Exhibit 3.4 to Registration
Statement on Form S-1 of H&E Equipment Services, Inc. (File No.
333-128996), filed January 20, 2006). |
|
|
|
3.2
|
|
Amended and Restated Bylaws of H&E Equipment Services, Inc.
(incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K
of H&E Equipment Services, Inc. (File No. 000-51759), filed June 5,
2007). |
|
|
|
3.3
|
|
Amended and Restated Articles of Organization of Gulf Wide Industries,
L.L.C. (incorporated by reference to Exhibit 3.2 to Registration
Statement on Form S-4 of H&E Equipment Services L.L.C. (File No.
333-99589), filed September 13, 2002). |
|
|
|
3.4
|
|
Amended Articles of Organization of Gulf Wide Industries, L.L.C.,
Changing Its Name To H&E Equipment Services L.L.C. (incorporated by
reference to Exhibit 3.3 to Registration Statement on Form S-4 of H&E
Equipment Services L.L.C. (File No. 333-99589), filed September 13,
2002). |
|
|
|
3.5
|
|
Amended and Restated Operating Agreement of H&E Equipment Services
L.L.C. (incorporated by reference to Exhibit 3.8 to Registration
Statement on Form S-4 of H&E Equipment Services L.L.C. (File No.
333-99589), filed September 13, 2002). |
|
|
|
3.6
|
|
Certificate of Incorporation of H&E Finance Corp. (incorporated by
reference to Exhibit 3.4 to Registration Statement on Form S-4 of H&E
Equipment Services L.L.C. (File No. 333-99589), filed September 13,
2002). |
|
|
|
3.7
|
|
Certificate of Incorporation of Great Northern Equipment, Inc.
(incorporated by reference to Exhibit 3.5 to Registration Statement on
Form S-4 of H&E Equipment Services L.L.C. (File No. 333-99589), filed
September 13, 2002). |
|
|
|
3.8
|
|
Articles of Incorporation of Williams Bros. Construction, Inc.
(incorporated by reference to Exhibit 3.6 to Registration Statement on
Form S-4 of H&E Equipment Services L.L.C. (File No. 333-99589), filed
September 13, 2002). |
|
|
|
3.9
|
|
Articles of Amendment to Articles of Incorporation of Williams Bros.
Construction, Inc. Changing its Name to GNE Investments, Inc.
(incorporated by reference to Exhibit 3.7 to Registration Statement on
Form S-4 of H&E Equipment Services L.L.C. (File No. 333-99589), filed
September 13, 2002). |
|
|
|
3.10
|
|
Bylaws of H&E Finance Corp. (incorporated by reference to Exhibit 3.9 to
Registration Statement on Form S-4 of H&E Equipment Services L.L.C.
(File No. 333-99589), filed September 13, 2002). |
97
|
|
|
3.11
|
|
Bylaws of Great Northern Equipment, Inc. (incorporated by reference to
Exhibit 3.10 to Registration Statement on Form S-4 of H&E Equipment
Services L.L.C. (File No. 333-99589), filed September 13, 2002). |
|
|
|
3.12
|
|
Bylaws of Williams Bros. Construction, Inc. (incorporated by reference
to Exhibit 3.11 to Registration Statement on Form S-4 of H&E Equipment
Services L.L.C. (File No. 333-99589), filed September 13, 2002). |
|
|
|
4.1
|
|
Amended and Restated Security Holders Agreement, dated as of February 3,
2006, among the Company and certain other parties thereto (incorporated
by reference to Exhibit 4.1 to Current Report on Form 8-K of H&E
Equipment Services, Inc. (File No. 000-51759), filed February 3, 2006). |
|
|
|
4.2
|
|
Amended and Restated Investor Rights Agreement, dated as of February 3,
2006, among the Company and certain other parties thereto (incorporated
by reference to Exhibit 4.2 to Current Report on Form 8-K of H&E
Equipment Services, Inc. (File No. 000-51759), filed February 3, 2006). |
|
|
|
4.3
|
|
Amended and Restated Registration Rights Agreement, dated as of February
3, 2006, among the Company and certain other parties thereto
(incorporated by reference to Exhibit 4.3 to Current Report on Form 8-K
of H&E Equipment Services, Inc. (File No. 000-51759), filed February 3,
2006). |
|
|
|
4.4
|
|
Form of H&E Equipment Services, Inc. common stock certificate
(incorporated by reference to Exhibit 4.3 to Registration Statement on
Form S-1 of H&E Equipment Services, Inc. (File No. 333-128996), filed
January 5, 2006). |
|
|
|
4.5
|
|
Indenture, dated as of August 4, 2006, by and among H&E Equipment
Services, Inc., the Guarantors named therein and The Bank of New York
Trust Company, N.A., as Trustee, relating to the 8 3/8% senior notes due
2016 (incorporated by reference to Exhibit 4.1 to Current Report on Form
8-K of H&E Equipment Services, Inc. (File No. 00-51759), filed August 8,
2006). |
|
|
|
4.6
|
|
Registration Rights Agreement, dated as of August 4, 2006, by and among
H&E Equipment Services, Inc., GNE Investments, Inc., Great Northern
Equipment, Inc., H&E California Holdings, Inc., H&E Equipment Services
(California), LLC, H&E Finance Corp., Credit Suisse Securities (USA) LLC
and UBS Securities LLC (incorporated by reference to Exhibit 4.2 to
Current Report on Form 8-K of H&E Equipment Services, Inc. (File No.
00-51759), filed August 8, 2006). |
|
|
|
10.1
|
|
Consulting Agreement, dated April 10, 2007, between the Company and Gary
W. Bagley (incorporated by reference to Exhibit 10.1 to Current Report
on Form 8-K of H&E Equipment Services, Inc. (File No. 000-51759), filed
April 30, 2007).** |
|
|
|
10.2
|
|
Third Amended and Restated Credit Agreement, dated as of July 29,
2010, by and among H&E Equipment Services, Inc., Great Northern
Equipment, Inc., GNE Investments, Inc., H&E Finance Corp., H&E Equipment
Services (California), LLC, H&E California Holdings, Inc., H&E Equipment
Services (Mid-Atlantic), Inc., General Electric Capital Corporation, as
Agent, Bank of America, N.A. as co-syndication agent, documentation
agent, joint lead arranger and joint bookrunner and the lenders party
thereto (incorporated by reference from Exhibit 10.1 to Current Report
on Form 8-K of H&E Equipment Services, Inc. (File No. 000-51759), filed
August 3, 2010). |
|
|
|
10.3
|
|
Consulting and Noncompetition Agreement, dated as of June 29, 1999,
between Head & Engquist Equipment, L.L.C. and Thomas R. Engquist
(incorporated by reference to Exhibit 10.20 to Registration Statement on
Form S-4 of H&E Equipment Services L.L.C. (File No. 333-99589), filed
September 13, 2002).** |
|
|
|
10.4
|
|
Purchase Agreement by and among H&E Equipment Services L.L.C., H&E
Finance Corp., the guarantors party thereto and Credit Suisse First
Boston Corporation, dated June 3, 2002 (incorporated by reference to
Exhibit 10.21 to Registration Statement on Form S-4 of H&E Equipment
Services L.L.C. (File No. 333-99587), filed September 13, 2002). |
|
|
|
10.5
|
|
Purchase Agreement, among H&E Equipment Services L.L.C., H&E Finance
Corp., H&E Holdings L.L.C., the guarantors party thereto and Credit
Suisse First Boston Corporation, Inc. dated June 17, 2002 (incorporated
by reference to Exhibit 10.21 to Registration Statement on Form S-4 of
H&E Equipment Services L.L.C. (File No. 333-99589), filed September 13,
2002). |
98
|
|
|
10.6
|
|
H&E Equipment Services, Inc. Amended and Restated 2006 Stock-Based
Incentive Compensation Plan (incorporated by reference to Appendix B to
the Definitive Proxy Statement of H&E Equipment Services, Inc. (File No.
000-51759), filed April 28, 2006).** |
|
|
|
10.7
|
|
Amendment No. 1 to the H&E Equipment Services, Inc. Amended and Restated
2006 Stock-Based Incentive Compensation Plan. * |
|
|
|
10.8
|
|
Form of Option Letter (incorporated by reference to Exhibit 10.36 to
Registration Statement on Form S-1 of H&E Equipment Services, Inc. (File
No. 333-128996), filed January 20, 2006).** |
|
|
|
10.9
|
|
Form of Restricted Stock Award Agreement for Officers of H&E Equipment
Services, Inc. (incorporated by reference from Exhibit 10.9 to Form 10-K
of H&E Equipment Services, Inc. (File No. 000-51759), filed March 5,
2010. ** |
|
|
|
18.1
|
|
BDO Seidman, LLP Preferability Letter. (incorporated by reference to
Exhibit 18.1 to Form 10-K of H&E Equipment Services, Inc. (File No.
000-51759), filed March 7, 2008). |
|
|
|
21.1
|
|
Subsidiaries of the registrant.* |
|
|
|
23.1
|
|
Consent of BDO USA, LLP.* |
|
|
|
31.1
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
|
|
|
31.2
|
|
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
|
|
|
32.1
|
|
Certifications of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
|
|
|
* |
|
Filed herewith |
|
** |
|
Management contract or compensatory plan or arrangement |
99
exv10w7
Exhibit 10.7
H&E EQUIPMENT SERVICES, INC.
AMENDED AND RESTATED
2006 STOCK-BASED INCENTIVE COMPENSATION PLAN
AMENDMENT NO. 1
Pursuant to the authority reserved to it in Section X of the 2006 Stock-Based Incentive
Compensation Plan, as amended and restated, effective June 6, 2006 (the Plan), the Board
of Directors of H&E Equipment Services, Inc. (the Company) hereby amends the Plan as
follows, effective February 18, 2011:
1. |
|
Section VII.B is amended and restated in its entirety to read as follows: |
|
|
|
B. Upon determination of the number of shares of Restricted Stock to be granted to
the Participant, the Committee shall direct that a certificate or certificates
representing the number of shares of Company Stock be issued to the Participant or
placed in a restricted stock account (including an electronic account) with a
transfer agent and, in either case, the Participant shall be designated as the
registered owner. The certificates representing such shares shall be physically or
electronically legended, as applicable, as to sale, transfer, assignment, pledge or
other encumbrances during the Restriction Period and, if issued to the Participant,
deposited by the Participant, together with a stock power endorsed in blank, with
the Company, to be held in escrow during the Restriction Period. |
2. |
|
Section XII is amended by adding the following Subsection G to the end thereof: |
|
|
|
G. Notwithstanding any provision herein to the contrary, upon the issuance of
Company Stock in connection with the grant, vesting or exercise of any Award, the
Committee may direct that a certificate or certificates representing such shares of
Company Stock be issued to the Participant or placed in an account (including an
electronic account) with a transfer agent and, in either case, designating the
Participant as the registered owner. If required under the Plan, such certificates
shall be physically or electronically legended, as applicable, as to sale, transfer,
assignment, pledge or other encumbrances during the relevant period and, if issued
to the Participant, deposited by the Participant, together with a stock power
endorsed in blank, with the Company, to be held in escrow during such period. |
* * * * *
To record the adoption of this Amendment No. 1 to the Plan, the Company has caused its authorized
officers to affix its corporate name and seal this 18th day of February, 2011.
|
|
|
|
|
[CORPORATE SEAL] |
H&E Equipment Services, Inc.
|
|
|
Attest: /s/ Leslie S. Magee
|
By: |
/s/ John M. Engquist |
|
Name: Leslie S. Magee |
|
Name: |
John M. Engquist |
|
Title: Chief Financial Officer &
Secretary |
|
Title: |
President, CEO & Director |
|
|
2
exv21w1
Exhibit 21.1
Table of Subsidiaries of Registrant
|
|
|
Name |
|
Jurisdiction of Incorporation |
H&E Finance Corp. |
|
DE |
GNE Investments, Inc. |
|
WA |
Great Northern Equipment, Inc. |
|
MT |
H&E California Holdings, Inc. |
|
CA |
H&E Equipment Services (California), LLC |
|
DE |
H&E Equipment Services (Mid-Atlantic), Inc. |
|
VA |
exv23w1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
H&E Equipment Services, Inc.
Baton Rouge, Louisiana
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8
(No. 333-138242) of H&E Equipment Services, Inc. of our reports dated March 3, 2011, relating to
the consolidated financial statements and financial statement schedule and the effectiveness of H&E
Equipment Services, Inc.s internal control over financial reporting, which appear in this Form
10-K.
|
|
|
|
|
|
|
|
|
/s/ BDO USA, LLP
|
|
|
BDO USA, LLP |
|
|
Dallas, Texas |
|
March 3, 2011
exv31w1
Exhibit 31.1
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, John M. Engquist, certify that:
|
1. |
|
I have reviewed this annual report on Form 10-K of H&E Equipment Services, Inc.; |
|
|
2 |
|
Based on my knowledge, this annual 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 annual 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 annual 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-15e
and 15d-15e) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15f and 15d-15f) for the registrant and have: |
|
(a) |
|
designed such disclosure controls and procedures, or caused such disclosure
controls 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 of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants Board of Directors (or persons
performing the equivalent functions): |
|
(a) |
|
all significant deficiencies and material weaknesses in the design or
operation of internal controls 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. |
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Dated: March 3, 2011 |
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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exv31w2
Exhibit 31.2
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Leslie S. Magee, certify that:
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1. |
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I have reviewed this annual report on Form 10-K of H&E Equipment Services,
Inc.; |
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2 |
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Based on my knowledge, this annual 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 annual report; |
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3. |
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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 annual report; |
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4. |
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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-15e and 15d-15e) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15f and 15d-15f) for the registrant and have: |
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(a) |
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designed such disclosure controls and procedures, or caused such
disclosure controls 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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(b) |
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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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(c) |
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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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(d) |
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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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5. |
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The registrants other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants Board of Directors
(or persons performing the equivalent functions): |
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(a) |
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all significant deficiencies and material weaknesses in the design
or operation of internal controls 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: March 3, 2011 |
By: |
/s/ Leslie S. Magee
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Leslie S. Magee |
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Chief Financial Officer (Principal Financial Officer) |
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exv32w1
Exhibit 32.1
Certifications of the Chief Executive Officer and
Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of H&E Equipment Services, Inc. (the Company) on Form
10-K for the period ending December 31, 2010 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 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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to my knowledge, 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: March 3, 2011 |
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: March 3, 2011 |
By: |
/s/ Leslie S. Magee
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Leslie S. Magee |
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Chief Financial Officer
(Principal Financial Officer) |
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