Form 8-k

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): 01/29/2013

 

 

H&E Equipment Services, Inc.

(Exact name of registrant as specified in its charter)

 

 

Commission File Number: 000-51759

 

Delaware     81-0553291

(State or other jurisdiction

of incorporation)

   

(IRS Employer

Identification No.)

7500 Pecue Lane

Baton Rouge, LA 70809

(Address of principal executive offices, including zip code)

(225) 298-5200

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 1.01. Entry into a Material Definitive Agreement

On January 29, 2013, H&E Equipment Services, Inc. (the “Company”) amended its existing $402.5 million senior secured credit facility with General Electric Capital Corporation as administrative agent by entering into Amendment No. 4 (the “Amendment”) to the Third Amended and Restated Credit Agreement by and among the Company, Great Northern Equipment, Inc., H&E Equipment Services (California), LLC, the other credit parties named therein, the lenders named therein, General Electric Capital Corporation, as administrative agent, Bank of America, N.A. as co-syndication agent and documentation agent, and Wells Fargo Capital Finance, LLC, as co-syndication agent.

The Amendment permits the issuance of the New Notes (as defined below).

The foregoing summary of the Amendment does not purport to be complete and is qualified in its entirety by the full text of the Amendment, which is attached hereto as Exhibit 10.1 and is incorporated by reference.

 

Item 7.01. Regulation FD Disclosure

The Company intends to offer $100 million in aggregate principal amount of 7% senior notes due 2022 (the “New Notes”). The New Notes will be issued as additional notes under an indenture dated as of August 20, 2012 pursuant to which the Company previously issued $530,000,000 of 7% senior notes due 2022 (the “Existing Notes”). The New Notes will rank equally with and form a part of a single class of securities with such Existing Notes for all purposes under the indenture. The New Notes will be senior unsecured obligations of the Company and will be guaranteed by the Company’s subsidiaries.

The Company expects to use the proceeds from the offering to repay indebtedness outstanding under its senior secured credit facility and for the payment of related fees and expenses.

The New Notes and related guarantees are being offered in a private placement, solely to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), or outside the United States to persons other than “U.S. persons” in compliance with Regulation S under the Securities Act. The New Notes and related guarantees have not been registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This filing does not constitute an offer to sell the New Notes or any other securities, nor a solicitation for an offer to purchase the New Notes or any other securities, and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer or solicitation would be unlawful. Any offer of the New Notes will be made only by means of a private offering memorandum. This Current Report is being filed pursuant to and in accordance with Rule 135c under the Securities Act.

Forward-Looking Statements

Certain statements contained herein are “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. Statements containing the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend” and similar expressions constitute forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, the following: (1) the Company’s ability to consummate the offering of the New Notes on terms acceptable to it; and (2) other factors discussed in our public filings, including the risk factors included in the Company’s most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. Readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we are under no obligation to publicly update or revise any forward-looking statements after the date hereof.


Certain Information

Attached as Exhibit 99.1 hereto are selected portions of information from an offering memorandum that the Company expects to disclose to investors in connection with the private placement. There can be no assurance that the placement will be completed as described in the offering memorandum or at all.

The information in Exhibit 99.1 is being furnished pursuant to Item 7.01 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act or the Exchange Act.

 

Item 8.01. Other Events

Management has determined to restate the Company’s condensed consolidating balance sheet and consolidating statement of cash flows in Footnote 18 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (the “Company’s Form 10-K”) and Footnote 10 of the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2012 (the “Company’s Form 10-Q”) to reclassify “Intercompany balances” to “Investment in guarantor subsidiaries.” The reclassification of intercompany balances to investment in guarantor subsidiaries is based on management’s determination that such intercompany transactions were more akin to capital contributions and therefore should be classified within the condensed consolidating balance sheet as an investment. As capital contributions, the condensed consolidating statement of cash flows now reflects such activity as an investing activity on the Company’s books and a financing activity on the guarantor subsidiaries’ books rather than the previous presentation as an operating activity on the books of both the Company and the guarantor subsidiaries.

The reclassifications only affect the consolidating financial information previously presented in the footnotes referred to above and do not have any effect on the Company’s consolidated financial statements. The Company is filing as Exhibits 99.2 and 99.3 hereto a full set of the financial statements previously filed as part of the Company’s Form 10-K and the Company’s Form 10-Q, respectively. No changes have been made to the consolidated financial statements previously filed. The only changes made to the previous filings consist of a restated Footnote 18 of the Company’s Form 10-K and a restated Footnote 10 of the Company’s Form 10-Q, in each case, solely to reflect the foregoing reclassifications. Except for such reclassifications, no part of Exhibit 99.2 or Exhibit 99.3 has otherwise been updated to reflect events subsequent to the filing of the Company’s Form 10-K or the Company’s Form 10-Q, as applicable, or otherwise modified or revised.

The table below presents the specific line items within the condensed consolidating balance sheet and the condensed consolidating statement of cash flows that changed as a result of the reclassifications discussed above.

CONDENSED CONSOLIDATING BALANCE SHEET

 

     H&E Equipment Services      Guarantor Subsidiaries      Elimination     Consolidated  
     As
Originally
Filed
    As
Amended
     As
Originally
Filed
    As
Amended
     As
Originally
Filed
     As
Amended
    As
Originally
Filed
     As
Amended
 

As of September 30, 2012

                    

Investment in guarantor subsidiaries

     (26,219     163,787         —          —           26,219         (163,787     —           —     

Total assets

     741,308        931,314         172,699        172,699         26,219         (163,787     940,226         940,226   

Intercompany balances

     (190,006     —           190,006        —           —           —          —           —     

Total liabilities

     704,015        894,021         198,918        8,912         —           —          902,933         902,933   

Stockholders’ equity (deficit)

     37,293        37,293         (26,219     163,787         26,219         (163,787     37,293         37,293   

Total liabilities and stockholders’ equity

     741,308        931,314         172,699        172,699         26,219         (163,787     940,226         940,226   

As of December 31, 2011

                    

Investment in guarantor subsidiaries

     (25,142     139,089         —          —           25,142         (139,089     —           —     

Total assets

     581,785        746,016         146,378        146,378         25,142         (139,089     753,305         753,305   

Intercompany balances

     (164,231     —           164,231        —           —           —          —           —     

Total liabilities

     317,578        481,809         171,520        7,289         —           —          489,098         489,098   

Stockholders’ equity (deficit)

     264,207        264,207         (25,142     139,089         25,142         (139,089     264,207         264,207   

Total liabilities and stockholders’ equity

     581,785        746,016         146,378        146,378         25,142         (139,089     753,305         753,305   

As of December 31, 2010

                    

Investment in guarantor subsidiaries

     (18,509     146,013         —          —           18,509         (146,013     —           —     

Total assets

     562,911        727,433         153,001        153,001         18,509         (146,013     734,421         734,421   

Intercompany balances

     (164,522     —           164,522        —           —           —          —           —     

Total liabilities

     308,661        473,183         171,510        6,988         —           —          480,171         480,171   

Stockholders’ equity (deficit)

     254,250        254,250         (18,509     146,013         18,509         (146,013     254,250         254,250   

Total liabilities and stockholders’ equity

     562,911        727,433         153,001        153,001         18,509         (146,013     734,421         734,421   


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

 

     H&E Equipment Services     Guarantor Subsidiaries     Elimination     Consolidated  
     As
Originally
Filed
    As
Amended
    As
Originally
Filed
    As
Amended
    As
Originally
Filed
     As
Amended
    As
Originally
Filed
    As
Amended
 

Nine Months Ended September 30, 2012

                 

Intercompany balances

     (25,775     —          25,775        —          —           —          —          —     

Net cash provided (used) by operating activities

     (3,454     22,321        25,131        (644     —           —          21,677        21,677   

Investment in subsidiaries

     —          (25,775     —          —          —           25,775        —          —     

Net cash provided by (used in) investing activities

     (147,471     (173,246     (25,013     (25,013     —           25,775        (172,484     (172,484

Capital contributions

     —          —          —          25,775        —           (25,775     —          —     

Net cash provided by (used in) financing activities

     129,960        129,960        (118     25,657        —           (25,775     129,842        129,842   

Nine Months Ended September 30, 2011

                 

Intercompany balances

     (6,589     —          6,589        —          —           —          —          —     

Net cash provided (used) by operating activities

     8,185        14,774        8,707        2,118        —           —          16,892        16,892   

Investment in subsidiaries

     —          (6,589     —          —          —           6,589        —          —     

Net cash provided by (used in) investing activities

     (45,723     (52,312     (8,596     (8,596     —           6,589        (54,319     (54,319

Capital contributions

     —          —          —          6,589        —           (6,589     —          —     

Net cash provided by (used in) financing activities

     13,283        13,283        (111     6,478        —           (6,589     13,172        13,172   

Year Ended December 31, 2011

                 

Intercompany balances

     291        —          (291     —          —           —          —          —     

Net cash provided (used) by operating activities

     50,455        50,164        9,930        10,221        —           —          60,385        60,385   

Investment in subsidiaries

     —          291        —          —          —           (291     —          —     

Net cash provided by (used in) investing activities

     (71,147     (70,856     (9,781     (9,781     —           (291     (80,928     (80,928

Capital contributions

     —          —          —          (291     —           291        —          —     

Net cash provided by (used in) financing activities

     15,758        15,758        (149     (440     —           291        15,609        15,609   

Year Ended December 31, 2010

                 

Intercompany balances

     4,691        —          (4,691     —          —           —          —          —     

Net cash provided (used) by operating activities

     12,266        7,575        5,672        10,363        —           —          17,938        17,938   

Investment in subsidiaries

     —          4,691        —          —          —           (4,691     —          —     

Net cash provided by (used in) investing activities

     (24,127     (19,436     (5,542     (5,542     —           (4,691     (29,669     (29,669

Capital contributions

     —          —          —          (4,691     —           4,691        —          —     

Net cash provided by (used in) financing activities

     (4,316     (4,316     (140     (4,831     —           4,691        (4,456     (4,456

Year Ended December 31, 2009

                 

Intercompany balances

     22,248        —          (22,248     —          —           —          —          —     

Net cash provided (used) by operating activities

     69,892        47,644        3,009        25,257        —           —          72,901        72,901   

Investment in subsidiaries

     —          22,248        —          —          —           (22,248     —          —     

Net cash provided by (used in) investing activities

     40,783        63,031        (2,883     (2,883     —           (22,248     37,900        37,900   

Capital contributions

     —          —          —          (22,248     —           22,248        —          —     

Net cash provided by (used in) financing activities

     (76,600     (76,600     (131     (22,379     —           22,248        (76,731     (76,731


Item 9.01. Financial Statements and Exhibits

 

10.1    Amendment No. 4, dated January 29, 2013, to the Third Amended and Restated Credit Agreement by and among the Company, Great Northern Equipment, Inc., and H&E Equipment Services (California), LLC (collectively, the borrowers), General Electric Capital Corporation, as agent for the lenders, Bank of America, N.A., as co-syndication agent and documentation agent, Wells Fargo Capital Finance, LLC, as co-syndication agent, and the lenders from time to time party thereto.
99.1    Selected portions of information from an offering memorandum that the Company expects to disclose to investors in connection with its private placement.
99.2    Audited consolidated financial statements of the Company from its Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as revised.
99.3    Unaudited consolidated financial statements of the Company from its Quarterly Report on Form 10-Q for the period ended September 30, 2012, as revised.

The information in Exhibit 99.1 shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section and shall not be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    H&E Equipment Services, Inc.
Date: January 30, 2013     By:    /s/ Leslie S. Magee
      Leslie S. Magee
      Chief Financial Officer
Amendment No. 4 to the Thired Amended and REstated Credit Agreement

Exhibit 10.1

EXECUTION COPY

AMENDMENT NO. 4

This AMENDMENT NO. 4 (this “Amendment”) to the Third Amended and Restated Credit Agreement, dated as of July 29, 2010 (as amended by Amendment No. 1, dated as of February 29, 2012, Amendment No. 2, dated as of August 9, 2012, and Amendment No. 3, dated as of August 17, 2012, the “Original Credit Agreement”), and the Original Credit Agreement is amended hereby and further amended, supplemented, amended and restated or otherwise modified from time to time, the “Credit Agreement”), by and among H&E EQUIPMENT SERVICES, INC., a Delaware corporation (“H&E Delaware”), GREAT NORTHERN EQUIPMENT, INC., a Montana corporation (“Great Northern”), H&E EQUIPMENT SERVICES (CALIFORNIA), LLC, a Delaware limited liability company (“H&E California” and, together with H&E Delaware and Great Northern, each, a “Borrower” and, collectively, the “Borrowers”), the other Credit Parties named therein, the Lenders named therein, GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, as Agent, BANK OF AMERICA, N.A., as Co-Syndication Agent and Documentation Agent, and WELLS FARGO CAPITAL FINANCE, LLC, as Co-Syndication Agent, is entered into as of January 29, 2013 by and among the Borrowers, the Lenders signatory hereto and the Agent. Unless otherwise provided, all capitalized terms used herein shall have the meanings ascribed thereto in the Credit Agreement.

R E C I T A L S:

WHEREAS, the Borrowers have requested that the Lenders amend the Credit Agreement in the manner set forth below; and

WHEREAS, the Lenders signatory hereto (which constitute the Requisite Lenders under the Credit Agreement) are willing to agree to such request, but only on the terms and conditions set forth in this Amendment.

NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, and subject to the terms and conditions hereof, the Borrowers, the Lenders whose signatures appear below and the Agent agree as follows:

Section 1.

AMENDMENTS

Subject to the satisfaction of the conditions to effectiveness referred to in Section 2 hereof, the Original Credit Agreement is hereby amended as follows:

(a) Annex A of the Original Credit Agreement is amended by adding the following new definitions in their proper alphabetical places:

“‘Additional Notes Issuance’ means the issuance on one occasion on or prior to the date that is ninety (90) days after the Amendment No. 4 Effective Date by H&E Delaware (and those Credit Parties that are obligors in accordance with this Agreement in respect of the Permitted Senior Unsecured Notes) of Additional Senior Unsecured Notes; provided that each of the following conditions are satisfied:

(a) the aggregate principal amount of the Indebtedness incurred in connection with such Additional Notes Issuance shall be no greater than the applicable Permitted Notes Amount for Additional Senior Unsecured Notes;


(b) such Indebtedness shall be substantially on the terms described in the Description of Additional Notes, and in any event shall provide for (i) no amortization prior to the date six months following the Commitment Termination Date and (ii) a final scheduled maturity date that is not prior to the date six months following the Commitment Termination Date;

(c) the Indebtedness incurred in connection with such issuance shall be unsecured; and

(d) the Additional Senior Unsecured Notes and the Indebtedness thereunder incurred (i) do not contravene any provision of such Credit Party’s certificate of formation, operating agreement, charter or bylaws, as applicable; (ii) do not violate any law or regulation, or any order or decree of any court or Governmental Authority where such violations individually or in the aggregate could reasonably be expected to have a Material Adverse Effect; (iii) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Credit Party is a party or by which such Credit Party or any of its property is bound that alone or in the aggregate could reasonably be expected to have a Material Adverse Effect; (iv) do not result in the creation or imposition of any Lien upon any of the property of such Credit Party; and (v) do not require the consent or approval of any Governmental Authority or any other Person (other than the Requisite Lenders), except any such consent or approval as has been obtained or where failure to obtain such consent or approval would not reasonably be expected to have a Material Adverse Effect, and the Agent shall have received a certificate (in form and substance reasonably satisfactory to the Agent) of an Authorized Officer to such effect.”

“‘Additional Senior Unsecured Notes’ means senior unsecured notes substantially on the terms of the Description of Additional Notes in the aggregate original principal amount not exceeding the Permitted Notes Amount, issued by H&E Delaware pursuant to the Additional Notes Issuance, together with any amendments, modifications or supplements thereto made or issued in accordance with the terms of the Permitted Refinancing Senior Unsecured Note Indenture and this Agreement.”

“‘Amendment No. 4’ means Amendment No. 4, dated as of January 29, 2013, among the Borrowers, the Lenders signatory thereto and the Agent.”

“‘Amendment No. 4 Effective Date’ means the Effective Date, as such term is defined in Amendment No. 4.”

“‘Description of Additional Notes’ means the description of the Additional Senior Unsecured Notes in the form attached hereto as Exhibit F.”

“‘Existing Senior Unsecured Notes’ has the meaning assigned to it in the definition of “Permitted Refinancing Senior Unsecured Notes”.”

 

  (b) Annex A of the Original Credit Agreement is amended:

(i) by deleting the definition of “Permitted Notes Amount” therefrom and substituting in its place the following revised definition:

“‘Permitted Notes Amount’ means (i) with respect to Existing Senior Unsecured Notes, $530,000,000, and (ii) with respect to Additional Senior Unsecured Notes, $100,000,000.”


(ii) by deleting clause (a) of the definition of “Permitted Notes Refinancing” therefrom and substituting in its place the following revised clause (a):

“(a) the aggregate principal amount of the Indebtedness incurred in connection with such Permitted Notes Refinancing shall be no less than $200,000,000 and no greater than the Permitted Notes Amount for Existing Senior Unsecured Notes;”

(iii) by deleting the text “Permitted Refinancing Senior Unsecured Notes” in clause (d) of the definition of “Permitted Notes Refinancing” and substituting in its place the text “Existing Senior Unsecured Notes”

(iv) by deleting the text “Permitted Refinancing Unsecured Notes” in the definition of “Permitted Refinancing Senior Unsecured Note Indenture” and substituting in its place the text “Permitted Refinancing Senior Unsecured Notes”

(v) by deleting the definition of “Permitted Refinancing Senior Unsecured Notes” therefrom and substituting in its place the following revised definition:

“‘Permitted Refinancing Senior Unsecured Notes’ means (i) senior unsecured notes substantially on the terms of the Description of Notes in the aggregate original principal amount not exceeding the Permitted Notes Amount, issued on August 20, 2012 by H&E Delaware pursuant to the Permitted Notes Refinancing, together with any amendments, modifications or supplements thereto made or issued in accordance with the terms of the Permitted Refinancing Senior Unsecured Note Indenture and this Agreement (the “Existing Senior Unsecured Notes”), and (ii) Additional Senior Unsecured Notes.”

Section 2.

CONDITIONS TO EFFECTIVENESS

The amendments provided in Section 1 hereof shall become effective at the date and time (the “Effective Date”), which must be on or before January 30, 2013, that:

(a) the Agent shall have received one or more counterparts of (i) this Amendment, executed and delivered by the Borrowers, the Requisite Lenders and the Agent, and (ii) the Consent and Reaffirmation in the form of Exhibit I attached hereto, executed and delivered by the Guarantors; and

(b) there shall be no continuing Default or Event of Default (after giving effect to the amendments contemplated by this Amendment), and the representations and warranties of the Borrowers contained in this Amendment shall be true and correct in all material respects.

Section 3.

LIMITATION ON SCOPE

Except as expressly provided herein, the Loan Documents shall remain in full force and effect in accordance with their respective terms. The amendments set forth herein shall be limited precisely as provided for herein and shall not be deemed to be amendments or waivers of or consents to or modifications of any term or provision of the Loan Documents or any other document or instrument referred to therein or of any transaction or further or future action on the part of any Credit Party requiring the consent of the Agent or the Lenders except to the extent specifically provided for herein. The Agent and the Lenders have not and shall not be deemed to have waived any of their respective rights and remedies against any Credit Party for any existing or future Defaults or Events of Default.


Section 4.

MISCELLANEOUS

 

  (a) Each Borrower hereby represents and warrants as follows:

 

  (i) this Amendment has been duly authorized and executed by such Borrower and is the legal, valid and binding obligation of such Borrower, enforceable in accordance with its terms, except as (1) such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the rights of creditors in general and (2) the availability of equitable remedies may be limited by equitable principles of general applicability; and

 

  (ii) such Borrower repeats and restates the representations and warranties of such Borrower contained in the Credit Agreement as of the Effective Date, except to the extent such representations and warranties relate to a specific date; provided that references to the “Credit Agreement” or “this Agreement” in such representations and warranties shall be deemed to be references to the Credit Agreement as amended pursuant to this Amendment.

 

  (b) This Amendment is being delivered in the State of New York.

(c) Each Borrower ratifies and confirms that all Loan Documents remain in full force and effect notwithstanding the execution and delivery of this Amendment and that nothing contained in this Amendment shall constitute a defense to the enforcement of any Loan Document.

(d) This Amendment may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument.

(e) This Amendment is a “Loan Document” and each of the following provisions of the Credit Agreement is hereby incorporated herein by this reference with the same effect as though set forth in its entirety herein, mutatis mutandis, and as if “this Agreement” in any such provision read “this Amendment”: Section 11.6 (Severability), Section 11.9 (Governing Law), Section 11.10 (Notices), Section 11.11 (Electronic Transmissions), Section 11.12 (Section Titles), Section 11.14 (Waiver of Jury Trial), Section 11.17 (Advice of Counsel) and Section 11.18 (No Strict Construction).

[Signature page follows]


Witness the due execution of this Amendment by the respective duly authorized officers of the undersigned as of the date first written above.

 

H&E EQUIPMENT SERVICES, INC.
By:    /S/ LESLIE S. MAGEE
Name:   Leslie S. Magee
Title:   Chief Financial Officer

 

H&E EQUIPMENT SERVICES (CALIFORNIA), LLC
By:    /S/ LESLIE S. MAGEE
Name:   Leslie S. Magee
Title:   Chief Financial Officer

 

GREAT NORTHERN EQUIPMENT, INC.
By:    /S/ LESLIE S. MAGEE
Name:   Leslie S. Magee
Title:   Chief Financial Officer

[Signature Page to Amendment No. 4]


GENERAL ELECTRIC CAPITAL CORPORATION,

as Agent and a Lender

By:    /s/ TOM D. CHAPMAN
Name: Tom D. Chapman
Title:   Duly Authorized Signatory

[Signature Page to Amendment No. 4]


BANK OF AMERICA, N.A.,

as a Lender

By:    /s/ CHRISTOPHER GODFREY
Name: Christopher Godfrey
Title:   Senior Vice President

[Signature Page to Amendment No. 4]


PNC BANK, NATIONAL ASSOCIATION,

as a Lender

By:    /s/ JAY DANFORTH
Name: Jay Danforth
Title:   Vice President

[Signature Page to Amendment No. 4]


WELLS FARGO CAPITAL FINANCE, LLC,

as a Lender

By:    /s/ TODD NAKAMOTO
Name: Todd Nakamoto
Title:   Senior Relationship Manager

[Signature Page to Amendment No. 4]


REGIONS BANK,

as a Lender

By:    /s/ DANIEL WELLS
Name: Daniel Wells
Title:   Attorney in Fact

[Signature Page to Amendment No. 4]


CAPITAL ONE LEVERAGE FINANCE CORP.,

as a Lender

By:    /s/ JULIANNE LOW
Name: Julianne Low
Title:   Vice President

[Signature Page to Amendment No. 4]


JPMORGAN CHASE BANK, N.A.,

as a Lender

By:    /s/ MARIO QUINTANILLA
Name: Mario Quintanilla
Title:   Authorized Officer

[Signature Page to Amendment No. 4]


DEUTSCHE BANK TRUST COMPANY AMERICAS,

as a Lender

By:    /s/ FRANK FAZIO
Name: Frank Fazio
Title:   Managing Director
By:    /s/ STEPHEN R. LAPIDUS
Name: Stephen R. Lapidus
Title:   Director

[Signature Page to Amendment No. 4]


EXHIBIT I

CONSENT AND REAFFIRMATION

Each of the undersigned (the “Guarantors”) hereby (i) acknowledges receipt of a copy of Amendment No. 4, dated as of January 29, 2013 (“Amendment No. 4”), to the Third Amended and Restated Credit Agreement, dated as of July 29, 2010, among H&E Equipment Services, Inc., Great Northern Equipment, Inc., H&E Equipment Services (California), LLC (collectively, the “Borrowers”), the other Credit Parties named therein, the Lenders named therein, General Electric Capital Corporation, as Agent, Bank of America, N.A., as Co-Syndication Agent and Documentation Agent, and Wells Fargo Capital Finance, LLC, as Co-Syndication Agent; (ii) consents to the Borrowers’ execution and delivery thereof and approves and consents to the transactions contemplated thereby; (iii) agrees to be bound thereby; and (iv) affirms that nothing contained therein shall modify or diminish in any respect whatsoever its obligations under its Guaranty and the other Loan Documents to which it is a party and reaffirms that such Guaranty is and shall continue to remain in full force and effect. The acknowledgements contained herein by the Guarantors are made and delivered to induce the Agent and the Lenders to enter into Amendment No. 4, and the Guarantors acknowledge that the Agent and the Lenders would not enter into Amendment No. 4 in the absence of such acknowledgements. Although the Guarantors have been informed of the matters set forth herein and have acknowledged and agreed to same, the Guarantors understand that the Agent and the Lenders have no obligation to inform the Guarantors of such matters in the future or to seek the Guarantors’ acknowledgment or agreement to future amendments or waivers, and nothing herein shall create such a duty. Capitalized terms used herein without definition shall have the meanings given to such terms in Amendment No. 4.

[Signature page follows]


IN WITNESS WHEREOF, the undersigned have executed this Consent and Reaffirmation on and as of the date of Amendment No. 4.

 

GNE INVESTMENTS, INC.
By:     
Name:
Title:
H&E FINANCE CORP.
By:     
Name:
Title:
H&E CALIFORNIA HOLDING, INC.
By:     
Name:
Title:
H&E EQUIPMENT SERVICES (MID-ATLANTIC), INC.
By:     
Name:
Title:
Selected portions of information from an offering memorandum

Exhibit 99.1

SUMMARY HISTORICAL FINANCIAL DATA

The following tables set forth, for the periods and dates indicated, our summary historical financial data. The summary historical consolidated financial data for our fiscal years ended December 31, 2009, 2010 and 2011 have been derived from our audited consolidated financial statements. The summary historical financial data for the nine months ended September 30, 2011 and 2012 have been derived from our unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and, in the opinion of our management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for those periods. The results for any interim period are not necessarily indicative of the results that may be expected for a full year. The historical results included here are not necessarily indicative of future performance or results of operations.

 

1


You should read this information in conjunction with “Selected Financial Data” and the accompanying “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2011 and “Financial Statements” and the accompanying “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012.

 

     For the Year,
Ended December 31,
    For the Nine Months
Ended September 30,
 
     2009     2010     2011     2011     2012  
     (Amounts in thousands)     (Unaudited)  

Statement of operations data(1):

          

Revenues:

          

Equipment rentals

   $ 191,512      $ 177,970      $ 228,038      $ 165,440      $ 207,941   

New equipment sales

     208,916        167,303        220,211        133,629        154,710   

Used equipment sales

     86,982        62,286        85,347        65,655        75,100   

Parts sales

     100,500        86,686        94,511        71,166        74,161   

Services revenues

     58,730        49,629        53,954        40,072        41,615   

Other

     33,092        30,280        38,490        27,570        33,671   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     679,732        574,154        720,551        503,532        587,198   

Cost of revenues:

          

Rental depreciation

     87,902        78,583        86,781        64,146        74,727   

Rental expense

     42,086        40,194        46,599        34,484        36,375   

New equipment sales

     183,885        150,665        196,152        118,271        136,945   

Used equipment sales

     70,305        48,269        65,042        50,444        53,426   

Parts sales

     72,786        63,902        69,222        52,174        53,826   

Services revenues

     21,825        18,751        21,024        15,499        15,907   

Other

     35,445        37,851        43,028        31,862        32,183   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     514,234        438,215        527,848        366,880        403,389   

Gross profit (loss):

          

Equipment rentals

     61,524        59,193        94,658        66,810        96,839   

New equipment sales

     25,031        16,638        24,059        15,358        17,765   

Used equipment sales

     16,677        14,017        20,305        15,211        21,674   

Parts sales

     27,714        22,784        25,289        18,992        20,335   

Services revenues

     36,905        30,878        32,930        24,573        25,708   

Other

     (2,353     (7,571     (4,538     (4,292     1,488   

Total gross profit

     165,498        135,939        192,703        136,652        183,809   

Selling, general and administrative expenses(2)

     144,460        148,277        153,354        114,681        124,504   

Impairment of goodwill and intangible assets(3)

     8,972                               

Gain from sales of property and equipment, net

     533        443        793        521        1,478   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     12,599        (11,895     40,142        22,492        60,783   

Other income (expense):

          

Interest expense(4)

     (31,339     (29,076     (28,727     (21,607     (23,668

Loss on early extinguishment of debt(5)

                                 (10,180

Other, net

     619        591        726        626        751   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (30,720     (28,485     (28,001     (20,981     (33,097

Income (loss) before income taxes

     (18,121     (40,380     12,141        1,511        27,686   

Income tax provision (benefit)

     (6,178     (14,920     3,215        447        9,554   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (11,943   $ (25,460   $ 8,926      $ 1,064      $ 18,132   

 

2


     For the Year,
Ended December 31,
    For the Nine Months,
Ended September 30,
 
     2009     2010     2011     2011     2012  
     (Amounts in thousands, except
for ratios)
    (Unaudited)  

Other financial data:

          

EBITDA(6)

   $ 112,511      $ 80,962      $ 140,266      $ 96,911      $ 136,144   

Adjusted EBITDA(6)

     121,483        80,962        140,266        96,911        146,324   

Adjusted Net Income (loss)(7)

     (11,943     (25,460     8,926        1,064        24,800   

Depreciation and amortization(8)

     99,293        92,266        99,398        73,793        84,790   

Total capital expenditures (gross)(9)

     45,539        107,179        174,024        130,318        266,958   

Total capital expenditures (net)(10)

     (26,877     58,947        109,284        82,018        200,094   

Ratio of earnings to fixed charges(11)

                   1.4     1.1     2.0

 

     As of September 30, 2012  
     Actual      As Adjusted (13)  
     (Amounts in thousands)
(Unaudited)
 

Balance sheet data:

     

Cash

   $ 3,250       $ 3,250   

Rental equipment, net

     571,936         571,936   

Goodwill(3)

     32,560         32,560   

Deferred financing costs, net

     14,313         15,313   

Total assets

     940,226         941,226   

Total debt(12)

     663,212         664,212   

Stockholders’ Equity

     37,293         37,293   

 

     Twelve Months
Ended September 30, 2012
 
     (Amounts in thousands,
except for ratios)
 

Selected financial data and ratios:

  

Pro forma interest expense(14)

   $ 37,980   

Pro forma net income(14)

     21,118   

Adjusted EBITDA(6)

     189,679   

Ratio of Adjusted EBITDA to pro forma interest expense

     5.0

Ratio of As Adjusted total debt to Adjusted EBITDA

     3.5

 

(1) See note 17 to the audited consolidated financial statements discussing segment information.
(2) Stock-based compensation expense included in selling, general and administrative expenses for the years ended December 31, 2011, 2010 and 2009 totaled $1.3 million, $1.0 million and $0.7 million, respectively.
(3) As more fully described in note 2 to the audited 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.
(4) Interest expense is comprised of cash-pay interest (interest recorded on debt and other obligations requiring periodic cash payments) and non-cash pay interest comprised of amortization of deferred financing costs and accretion of loan discounts.
(5) In the third quarter of 2012, we repurchased or redeemed the entire $250 million aggregate principal amount of our senior notes due 2016. In connection with this repurchase and redemption, we recorded a loss on the on the early extinguishment of debt of approximately $10.2 million.
(6)

We define EBITDA as net income (loss) before interest expense, income taxes, depreciation and amortization. We define Adjusted EBITDA for the year ended December 31, 2009 as EBITDA adjusted for the $9.0 million goodwill impairment charge recorded in the fourth quarter of 2009. We define Adjusted EBITDA for the nine month period ended September 30, 2012 as EBITDA adjusted for the $10.2 million loss from early extinguishment of debt incurred in the third quarter ended September 30, 2012. We use EBITDA and Adjusted EBITDA in our business operations to, among other things, evaluate the performance of our business, develop budgets and measure our

 

3


  performance against those budgets. We also believe that analysts and investors use EBITDA and Adjusted EBITDA as supplemental measures to evaluate a company’s overall operating performance. However, EBITDA and Adjusted EBITDA have material limitations as analytical tools and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. We consider them useful tools to assist us in evaluating performance because they eliminate items related to capital structure, taxes and non-cash charges. The items that we have eliminated in determining EBITDA for the periods presented are interest expense, income taxes, depreciation of fixed assets (which includes rental equipment and property and equipment), and amortization of intangible assets and, in the case of Adjusted EBITDA, any goodwill and intangible asset impairment charges and the other items described above applicable to the particular period and the loss from early extinguishment of debt incurred in the third quarter ended September 30, 2012. However, some of these eliminated items are significant to our business. For example, (i) interest expense is a necessary element of our costs and ability to generate revenue because we incur a significant amount of interest expense related to our outstanding indebtedness; (ii) payment of income taxes is a necessary element of our costs; and (iii) depreciation is a necessary element of our costs and ability to generate revenue because rental equipment is the single largest component of our total assets and we recognize a significant amount of depreciation expense over the estimated useful life of this equipment. Any measure that eliminates components of our capital structure and costs associated with carrying significant amounts of fixed assets on our consolidated balance sheet has material limitations as a performance measure. In light of the foregoing limitations, we do not rely solely on EBITDA and Adjusted EBITDA as performance measures and also consider our GAAP results. EBITDA and Adjusted EBITDA are not measurements of our financial performance under GAAP and should not be considered alternatives to net income (loss), operating income (loss) or any other measures derived in accordance with GAAP. Because EBITDA and Adjusted EBITDA are not calculated in the same manner by all companies, they may not be comparable to other similarly titled measures used by other companies.

Set forth below is a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the periods presented.

 

     For the Year Ended December 31,      For the Nine Months
Ended September 30,
 
     2009      2010      2011          2011              2012      
     (Amounts in thousands)      (Unaudited)  

Net income (loss)

   $ (11,943    $ (25,460    $ 8,926       $ 1,064       $ 18,132   

Income tax provision (benefit)

     (6,178      (14,920      3,215         447         9,554   

Interest expense

     31,339         29,076         28,727         21,607         23,668   

Depreciation and amortization(8)

     99,293         92,266         99,398         73,793         84,790   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

     112,511         80,962         140,266         96,911         136,144   

Impairment of goodwill

     8,972                                   

Loss on early extinguishment of debt

                                     10,180   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 121,483       $ 80,962       $ 140,266       $ 96,911       $ 146,324   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(7) We define Adjusted Net Income for the nine month period ended September 30, 2012 as Net Income adjusted for the loss from early extinguishment of debt, net of income taxes, incurred in the third quarter ended September 30, 2012. We use Adjusted Net Income in our business operations to, among other things, analyze our financial performance on a comparative period basis without the effects of significant one-time, non-recurring items. Additionally, we believe Adjusted Net Income provides useful information concerning future profitability. However, Adjusted Net Income is not a measure of financial performance under GAAP, and, accordingly, this measure should not be considered as an alternative to GAAP Net Income. Because Adjusted Net Income is not calculated in the same manner by all companies, it may not be comparable to other similarly titled measures used by other companies.

 

4


Set forth below is a reconciliation of net income to Adjusted Net Income for the periods presented.

 

    For the Year Ended  
    December 31, 2009     December 31, 2010     December 31, 2011  
    (Amounts in thousands)  
    As
Reported
    Adjustment     Adjusted     As
Reported
    Adjustment     Adjusted     As
Reported
    Adjustment     Adjusted  

Income (loss) before income taxes

  $ (18,121          $ (18,121   $ (40,380          $ (40,380   $ 12,141             $ 12,141   

Income tax provision (benefit)

    (6,178            (6,178     (14,920            (14,920     3,215               3,215   
 

 

 

     

 

 

   

 

 

     

 

 

   

 

 

     

 

 

 

Net income (loss)

  $ (11,943          $ (11,943   $ (25,460          $ (25,460   $ 8,926             $ 8,926   

 

     For the Nine Months Ended  
     September 30, 2011      September 30, 2012  
     (Amounts in thousands)  
     As Reported      Adjustment      Adjusted      As Reported      Adjustment      Adjusted  

Income before income taxes

   $ 1,511               $ 1,511       $ 27,686       $ 10,180       $ 37,866   

Income tax provision

     447                 447         9,554         3,512         13,066   
  

 

 

       

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 1,064               $ 1,064       $ 18,132       $ 6,668       $ 24,800   

 

(8) Excludes amortization of deferred financing costs and accretion of loan discounts, which are both included in interest expense.
(9) Total capital expenditures (gross) include rental equipment purchases, assets transferred from new and used inventory to rental fleet and property and equipment purchases.
(10) Total capital expenditures (net) include rental equipment purchases, assets transferred from new and used inventory to rental fleet and property and equipment purchases less proceeds from the sale of these assets.
(11) To achieve a coverage ratio of 1:1, we would need additional pre-tax earnings of $17,679 and $40,116 in 2009 and 2010, respectively.
(12) Total debt (Actual) represents the amounts outstanding, as applicable for the periods presented, under our senior secured credit facility, the Existing Notes, notes payable and capital leases. On September 19, 2012, we paid a special, one-time cash dividend of approximately $244.4 million in the aggregate to our stockholders. This dividend was paid using a portion of the proceeds from the issuance of the Existing Notes.
(13) The amounts shown in the “As Adjusted” column give pro forma effect to the offering of the New Notes and the use of proceeds therefrom as if such offering and use of proceeds had occurred on September 30, 2012.
(14) Pro forma interest expense and pro forma net income give effect to the offering of the New Notes and the use of proceeds therefrom as if such offering and use of proceeds had occurred on October 1, 2011.

 

5

Audited consolidated financial statements

Exhibit 99.2

Item 8.  Financial Statements and Supplementary Data

Index to consolidated financial statements of H&E Equipment Services, Inc. and Subsidiaries

See note 16 to the consolidated financial statements for summarized quarterly financial data.

 

     Page  

Report of Independent Registered Public Accounting Firm

     51   

Consolidated Balance Sheets as of December 31, 2011 and 2010

     52   

Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009

     53   

Consolidated Statements of Stockholders’ Equity for the years ended December  31, 2011, 2010 and 2009

     54   

Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009

     55   

Notes to Consolidated Financial Statements

     57   

 

50


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, 2011 and 2010 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011. 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 Company’s 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, 2011 and 2010, and the results of its operations and their cash flows for each of the three years in the period ended December 31, 2011, 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, 2011, 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 2, 2012 expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

Dallas, Texas

March 2, 2012

 

51


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31,

 

     2011     2010  
    

(Amounts in thousands, except

share amounts)

 

Assets

    

Cash

   $ 24,215      $ 29,149   

Receivables, net of allowance for doubtful accounts of $5,581 and $6,004, respectively

     105,339        99,139   

Inventories, net of reserves for obsolescence of $861 and $1,105, respectively

     65,151        72,156   

Prepaid expenses and other assets

     5,223        8,679   

Rental equipment, net of accumulated depreciation of $281,493 and $254,662, respectively

     450,877        426,637   

Property and equipment, net of accumulated depreciation and amortization of $62,050 and $53,941, respectively

     62,775        57,186   

Deferred financing costs, net of accumulated amortization of $11,844 and $10,456, respectively

     5,640        7,027   

Intangible assets, net of accumulated amortization of $722 and $3,050, respectively

     66        429   

Goodwill

     34,019        34,019   
  

 

 

   

 

 

 

Total assets

   $ 753,305      $ 734,421   
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Liabilities:

    

Amounts due on senior secured credit facility

   $ 16,055      $ —     

Accounts payable

     63,006        58,437   

Manufacturer flooring plans payable

     58,318        75,058   

Accrued expenses payable and other liabilities

     38,490        35,999   

Senior unsecured notes

     250,000        250,000   

Capital leases payable

     2,605        2,754   

Deferred income taxes

     58,616        55,919   

Deferred compensation payable

     2,008        2,004   
  

 

 

   

 

 

 

Total liabilities

     489,098        480,171   
  

 

 

   

 

 

 

Commitments and Contingencies (Note 12)

    

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; 38,808,941 and 38,699,666 shares issued at December 31, 2011 and 2010, respectively, and 35,084,737 and 35,029,804 shares outstanding at December 31, 2011 and 2010, respectively

     387        386   

Additional paid-in capital

     210,695        209,111   

Treasury stock at cost, 3,724,204 and 3,669,862 shares of common stock held at December 31, 2011 and 2010, respectively

     (56,884     (56,330

Retained earnings

     110,009        101,083   
  

 

 

   

 

 

 

Total stockholders’ equity

     264,207        254,250   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 753,305      $ 734,421   
  

 

 

   

 

 

 

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

 

52


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31,

 

     2011     2010     2009  
     (Amounts in thousands, except per
share amounts)
 

Revenues:

      

Equipment rentals

   $ 228,038      $ 177,970      $ 191,512   

New equipment sales

     220,211        167,303        208,916   

Used equipment sales

     85,347        62,286        86,982   

Parts sales

     94,511        86,686        100,500   

Services revenues

     53,954        49,629        58,730   

Other

     38,490        30,280        33,092   
  

 

 

   

 

 

   

 

 

 

Total revenues

     720,551        574,154        679,732   
  

 

 

   

 

 

   

 

 

 

Cost of revenues:

      

Rental depreciation

     86,781        78,583        87,902   

Rental expense

     46,599        40,194        42,086   

New equipment sales

     196,152        150,665        183,885   

Used equipment sales

     65,042        48,269        70,305   

Parts sales

     69,222        63,902        72,786   

Services revenues

     21,024        18,751        21,825   

Other

     43,028        37,851        35,445   
  

 

 

   

 

 

   

 

 

 

Total cost of revenues

     527,848        438,215        514,234   
  

 

 

   

 

 

   

 

 

 

Gross profit

     192,703        135,939        165,498   

Selling, general and administrative expenses

     153,354        148,277        144,460   

Impairment of goodwill and intangible assets

     —          —          8,972   

Gain from sales of property and equipment, net

     793        443        533   
  

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     40,142        (11,895     12,599   
  

 

 

   

 

 

   

 

 

 

Other income (expense):

      

Interest expense

     (28,727     (29,076     (31,339

Other, net

     726        591        619   
  

 

 

   

 

 

   

 

 

 

Total other expense, net

     (28,001     (28,485     (30,720
  

 

 

   

 

 

   

 

 

 

Income (loss) before provision (benefit) for income taxes

     12,141        (40,380     (18,121

Provision (benefit) for income taxes

     3,215        (14,920     (6,178
  

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 8,926      $ (25,460   $ (11,943
  

 

 

   

 

 

   

 

 

 

Net income (loss) per common share:

      

Basic

   $ 0.26      $ (0.73   $ (0.35
  

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.26      $ (0.73   $ (0.35
  

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding:

      

Basic

     34,759        34,668        34,607   
  

 

 

   

 

 

   

 

 

 

Diluted

     34,887        34,668        34,607   
  

 

 

   

 

 

   

 

 

 

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

 

53


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

(Amounts in thousands, except share amounts)

 

     Common Stock                            
     Shares
Issued
     Amount      Additional
Paid-in
Capital
     Treasury
Stock
    Retained
Earnings
    Total
Stockholders’
Equity
 

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   

Stock-based compensation

     —           —           1,327         —          —          1,327   

Tax benefits associated with stock-based awards

     —           —           257         —          —          257   

Issuance of non-vested restricted common stock

     109,275         1         —           —          —          1   

Repurchases of 42,016 shares of restricted common stock

     —           —           —           (554     —          (554

Net income

     —           —           —           —          8,926        8,926   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balances at December 31, 2011

     38,808,941       $ 387       $ 210,695       $ (56,884   $ 110,009      $ 264,207   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

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

 

54


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31,

 

     2011     2010     2009  
     (Amounts in thousands)  

Cash flows from operating activities:

      

Net income (loss)

   $ 8,926      $ (25,460   $ (11,943

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

      

Depreciation and amortization of property and equipment

     12,255        13,124        10,800   

Depreciation of rental equipment

     86,781        78,583        87,902   

Amortization of deferred financing costs

     1,388        1,406        1,419   

Amortization of intangible assets

     362        559        591   

Provision for losses on accounts receivable

     3,182        3,164        3,246   

Provision for inventory obsolescence

     210        315        48   

Provision for deferred income taxes

     2,697        (13,227     (5,963

Stock-based compensation expense

     1,327        1,039        726   

Impairment of goodwill and intangible assets

     —          —          8,972   

Gain from sales of property and equipment, net

     (793     (443     (533

Gain from sales of rental equipment, net

     (18,788     (12,931     (15,676

Changes in operating assets and liabilities, net of impact of acquisitions:

      

Receivables, net

     (9,382     (30,302     75,046   

Inventories, net

     (21,561     (6,762     23,182   

Prepaid expenses and other assets

     3,457        (1,680     4,722   

Accounts payable

     4,569        29,571        (64,801

Manufacturer flooring plans payable

     (16,740     (17,810     (34,822

Accrued expenses payable and other liabilities

     2,491        (1,271     (9,930

Deferred compensation payable

     4        63        (85
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     60,385        17,938        72,901   
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

      

Purchases of property and equipment

     (18,433     (4,652     (19,395

Purchases of rental equipment

     (127,235     (73,249     (15,121

Proceeds from sales of property and equipment

     1,382        587        1,448   

Proceeds from sales of rental equipment

     63,358        47,645        70,968   
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     (80,928     (29,669     37,900   
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

      

Excess tax benefit (deficiency) from stock-based awards

     257        —          —     

Purchases of treasury stock

     (554     (212     (110

Borrowings on senior secured credit facility

     557,884        —          536,311   

Payments on senior secured credit facility

     (541,829     —          (612,633

Payments of deferred financing costs

     —          (2,888     —     

Payments of related party obligation

     —          —          (150

Payments of capital lease obligations

     (149     (140     (131

Principal payments on note payable

     —          (1,216     (18
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     15,609        (4,456     (76,731
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     (4,934     (16,187     34,070   

Cash, beginning of year

     29,149        45,336        11,266   
  

 

 

   

 

 

   

 

 

 

Cash, end of year

   $ 24,215      $ 29,149      $ 45,336   
  

 

 

   

 

 

   

 

 

 

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

 

55


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

FOR THE YEARS ENDED DECEMBER 31,

 

     2011     2010     2009  
     (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

   $ 28,356      $ 29,278      $ 11,023   

Supplemental disclosures of cash flow information:

      

Cash paid during the year for:

      

Interest

   $ 27,345      $ 27,603      $ 30,110   

Income taxes, net of refunds received

   $ (1,694   $ (149   $ (567

 

56


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(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.

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.

 

57


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

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 seller’s 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 generally over a three year estimated useful life. We periodically evaluate the appropriateness of remaining depreciable lives and any salvage value assigned to rental equipment.

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.

 

58


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

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:

 

Category

   Estimated
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 2011, 2010 or 2009.

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), 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.

In September 2011, the FASB issued ASU 2011-08, Intangibles-Goodwill and Other (Topic 350)-Testing Goodwill for Impairment (“ASU 2011-08”), to allow entities to first use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not ( a likelihood of greater than 50%) that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, the currently prescribed two-step goodwill test must be performed. Otherwise, the two-step goodwill impairment test is not required. We adopted ASU 2011-08 in conjunction with our annual impairment test as of October 1, 2011. As a result of our adoption of this guidance, we performed a qualitative assessment and determined that it is more likely than not that the fair value of our reporting units exceed their respective carrying values at the October 1, 2011 valuation date and, therefore, did not perform the prescribed two-step goodwill impairment test. We considered various factors in performing the qualitative test, including macroeconomic conditions, industry and market considerations, the overall financial performance of our reporting units, the Company’s stock price and the excess amount or “cushion” between our reporting unit’s fair value and carrying value as indicated on our most recent quantitative assessment.

 

59


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Based upon improving macroeconomic conditions and positive trends within our industry and market, combined with recent positive operating results in comparison to prior periods and our internal forecasts, and with consideration of the cushion between the reporting unit’s fair value and carrying value from our most recent quantitative analysis, we determined that it is more likely than not that the fair value of our reporting units exceeds their respective carrying values at the October 1, 2011 valuation date and there was no goodwill impairment at October 1, 2011.

To determine if any of our reporting units are impaired under the prescribed two-step goodwill test, 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 our 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 The impairment charges are largely due to worsening macroeconomic conditions in 2009. The impairments also reflect a decrease in projected cash flows as of the impairment testing date. 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 is excluded from our financial results in evaluating our financial covenant under the senior secured credit facility.

There were no changes in the carrying amount of goodwill for our reporting units for the years ended December 31, 2011 and 2010.

Intangible Assets

Our intangible assets are comprised of the intangible assets that we acquired in the September 1, 2007 Burress Acquisition. Specifically, we recognized intangible assets for (i) non-compete agreements; (ii) tradenames; and (iii) customer relationships. At December 31, 2011, the tradename and customer relationships intangible assets were fully amortized. The net carrying amount our our non-compete agreements intangible asset as of December 31, 2011 was approximately $66,000 and will be fully amortized during our fiscal year ending December 31, 2012.

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 asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis or other valuation technique.

 

60


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

There were no impairment charges to our intangible assets for the years ended December 31, 2011, 2010 or 2009. Total amortization expense for the years ended December 31, 2011, 2010, 2009 totaled $0.4 million, $0.6 million, and $0.6 million, respectively.

Closed Branch Facility Charges

We continuously monitor and identify branch facilities with revenues and operating margins that consistently fall below Company performance standards. Once identified, we continue to monitor these branches to determine if operating performance can be improved or if the performance is attributable to economic factors unique to the particular market with unfavorable long-term prospects. If necessary, branches with unfavorable long-term prospects are closed and the rental fleet and new and used equipment inventories are deployed to more profitable branches within our geographic footprint where demand is higher.

As a result of the 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, one branch during 2010 and three branches during 2011 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 related to branch closures, additional charges are possible to the extent that actual future settlements differ from our estimates of such costs. Costs incurred for the closed branches in 2009, 2010 and 2011 did not have a material impact on the Company’s consolidated financial statements. 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 Company’s 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 9 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, 2011, 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 $2.9 million and our health insurance reserves totaled $1.2 million. At December 31, 2010, our claims reserves related to workers compensation, general liability and automobile liability totaled $2.8 million and our health insurance reserves totaled $1.6 million.

 

61


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

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.

Advertising

Advertising costs are expensed as incurred and totaled $0.2 million, $0.6 million and $0.6 million for the years ended December 31, 2011, 2010 and 2009, 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. 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. The effect of a change in tax rate is recognized as income or expense in the period that includes the enactment date of that rate.

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.

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, 2011 and 2010 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.

 

62


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

     December 31, 2011  
     Carrying
Amount
     Fair
Value
 

Manufacturer flooring plans payable with interest computed at 5.38%

   $ 58,318       $ 52,069   

Senior unsecured notes with interest computed at 8.375%

     250,000         252,500   

Capital leases payable with interest computed at 5.929 to 9.55%

     2,605         1,839   

Letter of credit

     —           192   

 

     December 31, 2010  
     Carrying
Amount
     Fair
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   

Letters of credit

     —           216   

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 Company’s 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 customer’s financial position, age of the customer’s 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, 2011, we purchased approximately 64% from three manufacturers (Grove/Manitowoc, Komatsu, and Genie Industries (Terex)) 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.

 

63


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, 2011, 2010 and 2009 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):

 

     2011      2010     2009  

Basic net income (loss) per share:

       

Net income (loss)

   $ 8,926       $ (25,460   $ (11,943

Weighted average number of common shares outstanding

     34,759         34,668        34,607   

Net income (loss) per common share — basic

   $ 0.26       $ (0.73   $ (0.35
  

 

 

    

 

 

   

 

 

 

Diluted net income (loss) per share:

       

Net income (loss)

   $ 8,926       $ (25,460   $ (11,943

Weighted average number of common shares outstanding

     34,759         34,668        34,607   

Effect of dilutive securities:

       

Effect of dilutive non-vested stock

     128         —          —     
  

 

 

    

 

 

   

 

 

 

Weighted average number of common shares outstanding — diluted

     34,887         34,668        34,607   

Net income (loss) per common share — diluted

   $ 0.26       $ (0.73   $ (0.35
  

 

 

    

 

 

   

 

 

 

Common shares excluded from the denominator as anti-dilutive:

       

Stock options

     51         51        51   

Non-vested stock

     —           330        279   
  

 

 

    

 

 

   

 

 

 

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 3,829,079 shares of common stock as of December 31, 2011.

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).

 

64


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, 2011 and 2010:

 

     Number of
Shares
    Weighted
Average Grant
Date Fair Value
 

Non-vested stock at January 1, 2010

     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   

Granted

     109,275      $ 14.46   

Vested

     (148,252   $ 8.69   

Forfeited

     (12,326   $ 9.54   
  

 

 

   

Non-vested stock at December 31, 2011

     278,634      $ 10.77   
  

 

 

   

As of December 31, 2011, we had unrecognized compensation expense of approximately $2.0 million related to non-vested stock award payments that we expect to be recognized over a weighted average period of 2.0 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):

 

     2011      2010      2009  

Compensation expense

   $ 1,328       $ 1,030       $ 669   

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 2011, 2010 or 2009. At December 31, 2011, 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):

 

     2011      2010      2009  

Compensation expense

   $ —         $ 9       $ 57   

 

65


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, 2011 and 2010:

 

     Number of
Shares
     Weighted Average
Exercise Price
     Weighted Average
Contractual Life

In Years
 

Outstanding options at January 1, 2010

     51,000       $ 24.80      

Granted

     —           —        

Exercised

     —           —        

Canceled, forfeited or expired

     —           —        
  

 

 

       

Outstanding options at December 31, 2010

     51,000       $ 24.80         5.5   

Granted

     —           —        

Exercised

     —           —        

Canceled, forfeited or expired

     —           —        
  

 

 

       

Outstanding options at December 31, 2011

     51,000       $ 24.80         4.5   
  

 

 

       

Options exercisable at December 31, 2011

     51,000       $ 24.80         4.5   
  

 

 

       

The closing price of our common stock on December 31, 2011 was $13.42. All options outstanding at December 31, 2011 have grant date fair values which exceed our December 31, 2011 closing stock price.

The following table summarizes non-vested stock option activity for the years ended December 31, 2011 and 2010:

 

     Number of
Shares
    Weighted Average
Grant Date Fair
Value
 

Non-vested stock options at January 1, 2010

     2,000      $ 26.27   

Granted

     —          —     

Vested

     (2,000   $ 26.27   

Forfeited

     —          —     
  

 

 

   

Non-vested stock options at December 31, 2010

     —          —     

Granted

     —          —     

Vested

     —          —     

Forfeited

     —          —     
  

 

 

   

Non-vested stock options at December 31, 2011

     —          —     
  

 

 

   

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 17 to the consolidated financial statements regarding our segment information.

 

66


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

Recent Accounting Pronouncements

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. We adopted the provisions of ASU 2009-13 effective January 1, 2011, and such adoption did not have a material impact on our consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other (Topic 350)—Testing Goodwill for Impairment (“ASU 2011-08”), to allow entities to first use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not (a likelihood of greater than 50%) that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, the currently prescribed two-step goodwill impairment test must be performed. Otherwise, the two-step goodwill impairment test is not required. Entities are not required to perform the qualitative assessment and are permitted to skip the qualitative assessment for any reporting unit in any period and proceed directly to Step 1 of the two-step goodwill impairment test. ASU 2011-08 is effective for us in fiscal 2012 and earlier adoption is permitted. We adopted ASU 2011-08 in conjunction with our annual impairment test as of October 1, 2011. As a result of our adoption of this guidance, we performed a qualitative assessment and determined that it is more likely than not that the fair value of a reporting unit is not less than its carrying value and therefore, did not perform the prescribed two-step goodwill impairment test. See also Critical Accounting Policies in Item 7-Management’s Discussion and Analysis of Financial Condition and Operating Results for further information on goodwill impairment testing.

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 requires 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 became effective for us on January 1, 2011 for impairment tests performed during fiscal 2011. We adopted the new disclosures in conjunction with our annual impairment test as of October 1, 2011. As we currently do not have any reporting units with a zero or negative carrying amount, the application of this guidance did not have an impact on our consolidated financial statements.

(3)    Receivables

Receivables consisted of the following at December 31, (amounts in thousands):

 

     2011     2010  

Trade receivables

   $ 107,907      $ 100,357   

Unbilled rental revenue

     2,989        2,735   

Income tax receivables

     14        2,047   

Other

     10        4   
  

 

 

   

 

 

 
     110,920        105,143   

Less allowance for doubtful accounts

     (5,581     (6,004
  

 

 

   

 

 

 

Total receivables, net

   $ 105,339      $ 99,139   
  

 

 

   

 

 

 

We charge off customer account balances when we have exhausted reasonable collection efforts and determined that the likelihood of collection is remote.

 

67


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):

 

     2011      2010  

New equipment

   $ 45,939       $ 50,586   

Used equipment

     6,633         6,954   

Parts, supplies and other

     12,579         14,616   
  

 

 

    

 

 

 

Total inventories, net

   $ 65,151       $ 72,156   
  

 

 

    

 

 

 

The above amounts are net of reserves for inventory obsolescence at December 31, 2011 and 2010 totaling $0.9 million and $1.1 million, respectively.

(5)    Property and Equipment

Net property and equipment consisted of the following at December 31, (amounts in thousands):

 

     2011     2010  

Land

   $ 6,833      $ 5,947   

Transportation equipment

     43,303        38,356   

Building and leasehold improvements

     18,444        17,625   

Office and computer equipment

     39,095        37,280   

Machinery and equipment

     8,552        7,974   

Property under capital leases

     3,217        3,217   

Construction in progress

     5,381        728   
  

 

 

   

 

 

 
     124,825        111,127   

Less accumulated depreciation and amortization

     (62,050     (53,941
  

 

 

   

 

 

 

Total net property and equipment

   $ 62,775      $ 57,186   
  

 

 

   

 

 

 

Total depreciation and amortization on property and equipment was $12.3 million, $13.1 million and $10.8 million for the years ended December 31, 2011, 2010 and 2009, respectively. Included in the office and computer equipment category above at December 31, 2011 and 2010 is approximately $26.9 million of capitalized costs, including $0.6 million, of capitalized interest, related to the implementation of our employee resource planning system. Unamortized computer software costs related to the new employee resource planning system at December 31, 2011 and 2010 was $19.1 million and $23.3 million, respectively, while related amortization expense in 2011 and 2010 totalled $3.8 million and $3.9 million, respectively. The employee resource planning system was substantially complete and ready for its intended use on or around January 19, 2010. Amounts of construction in progress at December 31, 2011 and 2010 represent costs incurred related to the construction of the Company’s new corporate office in Baton Rouge, Louisiana, which is expected to be completed during the third quarter of 2012. Interest costs capitalized for the year ended December 31, 2011 were $0.1 million. Total costs for the facility are expected to approximate $15 million.

(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, 2011) plus an applicable margin at December 31, 2011. 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.

 

68


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, 2011 for each of the next five years ending December 31 are as follows (amounts in thousands):

 

2012

   $ 24,931   

2013

     32,990   

2014

     397   

2015

     —     

2016

     —     

Thereafter

     —     
  

 

 

 

Total

   $ 58,318   
  

 

 

 

(7)    Accrued Expenses Payable and Other Liabilities

Accrued expenses payable and other liabilities consisted of the following at December 31, (amounts in thousands):

 

     2011      2010  

Payroll and related liabilities

   $ 13,384       $ 11,023   

Sales, use and property taxes

     5,452         5,990   

Accrued interest

     10,078         10,148   

Accrued insurance

     2,782         2,996   

Deferred revenue

     3,640         3,728   

Other

     3,154         2,114   
  

 

 

    

 

 

 

Total accrued expenses payable and other liabilities

   $ 38,490       $ 35,999   
  

 

 

    

 

 

 

(8)    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. No principal payments are due until maturity (January 15, 2016). We may redeem the senior unsecured notes 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.

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, 2011, we were in compliance with these covenants.

 

69


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

(9)    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 agent, and the lenders named therein. On February 29, 2012, we amended the credit facility (the “Amendment”). The Amendment (i) permits the refinancing of the Company’s 8 3/8% senior unsecured notes due 2016 in an amount not less than $200.0 million and not greater than the outstanding principal amount of such notes at the time of such refinancing and with no amortization or final maturity prior to the date six months following the maturity of the Credit Agreement, (ii) extends the maturity date of the credit facility from July 29, 2015 to the earlier to occur of, inter alia, February 29, 2017, and, unless previously refinanced, the date that is six months prior to the maturity of the senior unsecured notes (giving effect to any extensions thereof), (iii) provides that the unused commitment fee margin will be either 0.50% or 0.375%, depending on the ratio of the average of the daily closing balances of the aggregate revolving loans, swing line loans and letters of credit outstanding during each month to the aggregate commitments for the revolving loans, swing line loans and letters of credit, (iv) lowers the interest rate (a) in the case of index rate revolving loans, to the index rate plus an applicable margin of 1.00% to 1.50% depending on the leverage ratio and (b) in the case of LIBOR revolving loans, to LIBOR plus an applicable margin of 2.00% to 2.50%, depending on the leverage ratio, (v) lowers the margin applicable to the letter of credit fee to between 2.00% and 2.50%, depending on the leverage ratio, and (vi) adds provisions whereby the Company represents that it, its subsidiaries and other related parties are in compliance with federal anti-terrorism laws and regulations.

The credit facility continues to provide, among other things, a $320.0 million senior secured asset based revolver, which includes a $30.0 million letter of credit facility and a $130.0 million incremental facility. In addition, the borrowers under the credit facility remain the same, the credit facility remains secured by substantially all of the assets of the Company and its subsidiaries, and the Company and each of its subsidiaries continue to provide a guaranty of the obligations under the credit facility. The 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). As of December 31, 2011, we were in compliance with our financial covenants under the senior secured credit facility.

We had $16.1 million outstanding under our senior secured credit facility as of December 31, 2011. Borrowing availability under the terms of the senior secured credit facility as of December 31, 2011, net of $7.0 million of standby letters of credit outstanding, totaled $296.9 million.

(10)    Capital Lease Obligations

As of December 31, 2011, we had two capital lease obligations, expiring in 2022 and 2029, respectively. Future minimum capital lease payments, in the aggregate, existing at December 31, 2011 for each of the next five years ending December 31 and thereafter are as follows (amounts in thousands):

 

2012

   $ 333   

2013

     333   

2014

     333   

2015

     333   

2016

     333   

Thereafter

     2,296   
  

 

 

 

Total minimum lease payments

     3,961   

Less: amount representing interest

     (1,356
  

 

 

 

Present value of minimum lease payments

   $ 2,605   
  

 

 

 

 

70


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

(11)    Income Taxes

Our income tax provision (benefit) for the years ended December 31, 2011, 2010 and 2009, consists of the following (amounts in thousands):

 

     Current     Deferred     Total  

Year ended December 31, 2011:

      

U.S. Federal

   $ —        $ 2,621      $ 2,621   

State

     262        332        594   
  

 

 

   

 

 

   

 

 

 
   $ 262      $ 2,953      $ 3,215   
  

 

 

   

 

 

   

 

 

 

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
  

 

 

   

 

 

   

 

 

 

Significant components of our deferred income tax assets and liabilities as of December 31 are as follows (amounts in thousands):

 

     2011     2010  

Deferred tax assets:

    

Accounts receivable

   $ 2,140      $ 2,305   

Inventories

     336        431   

Net operating losses

     32,308        38,840   

AMT and general business tax credits

     1,356        1,356   

Sec 263A costs

     731        811   

Accrued liabilities

     3,236        2,779   

Deferred compensation

     645        394   

Accrued interest

     567        543   

Stock-based compensation

     398        385   

Goodwill and intangible assets

     5,756        7,143   

Other assets

     123        340   
  

 

 

   

 

 

 
     47,596        55,327   

Deferred tax liabilities:

    

Property and equipment

     (104,623     (109,663

Investments

     (1,589     (1,583
  

 

 

   

 

 

 
     (106,212 ))      (111,246
  

 

 

   

 

 

 

Net deferred tax liabilities

     (58,616   $ (55,919
  

 

 

   

 

 

 

 

71


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

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):

 

     2011     2010     2009  

Computed tax at statutory rates

   $ 4,249      $ (14,133   $ (6,342

Permanent items—other

     415        317        589   

Permanent items—excess of tax deductible goodwill

     (2,130     —          —     

State income tax (benefit), net of federal tax effect

     342        (1,023     (340

Increase in uncertain tax positions

     339        —          —     

Other

     —          (81     (85
  

 

 

   

 

 

   

 

 

 
   $ 3,215      $ (14,920   $ (6,178
  

 

 

   

 

 

   

 

 

 

At December 31, 2011, we had available federal net operating loss carry forwards of approximately $130.6 million, which expire in varying amounts from 2022 through 2030. We also had federal alternative minimum tax credit carry forwards at December 31, 2011 of approximately $0.8 million which do not expire and $0.5 general business credit carryforwards that expire in varying amounts from 2025 and 2026.

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, 2011.

A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follow (in thousands):

 

     2011     2010  

Gross unrecognized tax benefits at January 1

   $ 6,498      $ 6,478   

Increases in tax positions taken in prior years

     434        20   

Decreases in tax positions taken in prior years

     —          —     

Increases in tax positions taken in current year

     —          —     

Decreases for tax positions taken in current year

     —          —     

Settlements with taxing authorities

     (269     —     

Lapse in statute of limitations

     —          —     
  

 

 

   

 

 

 

Gross unrecognized tax benefits at December 31

   $ 6,663      $ 6,498   
  

 

 

   

 

 

 

The gross amount of unrecognized tax benefits as of December 31, 2011 includes $0.3 million of net unrecognized tax benefits that, if recognized, would affect the 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 2005 and subsequent years remain subject to examination by tax authorities. We are also subject to examination in various state jurisdictions for 2007 and subsequent years. Our Federal Tax Returns for the tax years 2005 through 2009 are currently under examination by the IRS. We currently do not expect any material adjustment resulting from the IRS examination.

(12)    Commitments and Contingencies

Operating Leases

As of December 31, 2011, 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

 

72


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

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, 2011, 2010 and 2009 amounted to approximately $12.6 million, $11.8 million and $11.5 million, respectively.

Future minimum operating lease payments existing at December 31, 2011 for each of the next five years ending December 31 and thereafter are as follows (amounts in thousands):

 

2012

   $ 11,851   

2013

     10,078   

2014

     8,510   

2015

     7,208   

2016

     6,435   

Thereafter

     41,313   
  

 

 

 
   $ 85,395   
  

 

 

 

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 Company’s consolidated financial position, results of operations or liquidity.

Letters of Credit

The Company had outstanding letters of credit issued under its senior secured credit facility totaling $7.0 million and $8.0 million as of December 31, 2011 and 2010, respectively. The 2011 letter of credit expired in January 2012 and was renewed for $6.5 million, and now expires in January 2013.

(13)    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, 2011, 2010 and 2009, we contributed to the plan, net of employee forfeitures, $1.2 million, $1.1 million and $0.6 million, respectively.

(14)    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, 2011, 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 bank’s prime rate in effect at the beginning of January of each year. This rate remains constant throughout the year. The effective rate for the 2011 calendar plan year was 3.25%. The aggregate deferred compensation payable at December 31, 2011 and December 31, 2010 was $2.0 million. Included in these amounts at December 31, 2011 and 2010 was accrued interest of $1.5 million and $1.4 million, respectively.

 

73


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

(15)    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, 2011, 2010 and 2009. 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. Engquist’s mother. We paid such entity a total of $0.2 million, $0.3 million and $0.3 million in lease payments for the years ended December 31, 2011, 2010 and 2009, respectively. On January 11, 2011, we purchased the Kenner, Louisiana branch facility from the joint venture for approximately $1.6 million.

Mr. Engquist has a 50.0% ownership interest in T&J Partnership from which we lease our Shreveport, Louisiana facility. Mr. Engquist’s mother beneficially owns 50% of the entity. In 2011, 2010 and 2009, we paid T&J Partnership a total of approximately $0.2 million each year in lease payments.

We are party to aircraft charter arrangements with Gulf Wide Aviation, in which Mr. Engquist has a 62.5% ownership interest. Mr. Engquist’s mother and sister hold interests of 25% and 12.5%, respectively, in this entity. We pay an hourly rate plus fuel and expenses to Gulf Wide Aviation as well as a management service fee to an unrelated third party for the use of the aircraft by various members of our management. In each of the years ended December 31, 2011, 2010 and 2009, our payments in respect of charter (and related) costs to Gulf Wide Aviation totaled approximately $0.4 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. Engquist’s 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. Commissions paid to Perkins-McKenzie on our behalf as insurance broker totaled approximately $0.5 million, $0.7 million and $0.7 million for the years ended December 31, 2011, 2010 and 2009, respectively.

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, 2011, 2010 and 2009, our purchases totaled approximately $0.2 million, $0.2 million and $0.2 million, respectively, and our sales to B-C Equipment Sales, Inc. totaled approximately $20,000, $14,000 and $0.6 million, 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, 2011, 2010 and 2009 related to this agreement.

 

74


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

(16)    Summarized Quarterly Financial Data (Unaudited)

The following is a summary of our unaudited quarterly financial results of operations for the years ended December 31, 2011 and 2010 (amounts in thousands, except per share amounts):

 

     First
Quarter
    Second
Quarter
     Third
Quarter
     Fourth
Quarter
 

2011:

          

Total revenues

   $ 134,908      $ 184,335       $ 184,289       $ 217,019   

Operating income (loss)

     (2,880     10,301         15,071         17,650   

Income (loss) before provision (benefit) for income taxes

     (9,764     3,308         7,967         10,630   

Net income (loss)

     (6,473     2,689         4,848         7,862   

Basic net income (loss) per common share(1)

     (0.19     0.08         0.14         0.23   

Diluted net income (loss) per common share(1)

     (0.19     0.08         0.14         0.23   

 

     First
Quarter
    Second
Quarter
    Third
Quarter
    Fourth
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 (2)

     (12,078     (7,093     (3,780     (2,509

Basic net loss per common share

     (0.35     (0.20     (0.11     (0.07

Diluted net loss per common share

     (0.35     (0.20     (0.11     (0.07

 

(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.

(17)    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.

 

75


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

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):

 

     Years Ended December 31,  
     2011     2010     2009  

Segment Revenues:

      

Equipment rentals

   $ 228,038      $ 177,970      $ 191,512   

New equipment sales

     220,211        167,303        208,916   

Used equipment sales

     85,347        62,286        86,982   

Parts sales

     94,511        86,686        100,500   

Services revenues

     53,954        49,629        58,730   
  

 

 

   

 

 

   

 

 

 

Total segmented revenues

     682,061        543,874        646,640   

Non-Segmented revenues

     38,490        30,280        33,092   
  

 

 

   

 

 

   

 

 

 

Total revenues

   $ 720,551      $ 574,154      $ 679,732   
  

 

 

   

 

 

   

 

 

 

Segment Gross Profit (Loss):

      

Equipment rentals

   $ 94,658      $ 59,193      $ 61,524   

New equipment sales

     24,059        16,638        25,031   

Used equipment sales

     20,305        14,017        16,677   

Parts sales

     25,289        22,784        27,714   

Services revenues

     32,930        30,878        36,905   
  

 

 

   

 

 

   

 

 

 

Total gross profit from revenues

     197,241        143,510        167,851   

Non-Segmented gross profit (loss)

     (4,538     (7,571     (2,353
  

 

 

   

 

 

   

 

 

 

Total gross profit

   $ 192,703      $ 135,939      $ 165,498   
  

 

 

   

 

 

   

 

 

 

 

     December 31,  
     2011      2010  

Segment identified assets:

     

Equipment sales

   $ 52,572       $ 57,540   

Equipment rentals

     450,877         426,637   

Parts and service

     12,579         14,617   
  

 

 

    

 

 

 

Total segment identified assets

     516,028         498,794   

Non-Segmented identified assets

     237,277         235,627   
  

 

 

    

 

 

 

Total assets

   $ 753,305       $ 734,421   
  

 

 

    

 

 

 

The Company operates primarily in the United States and our sales to international customers for the years ended December 31, 2011, 2010 and 2009 were 1.9%, 2.1% and 3.1%, 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.

(18)    Consolidating Financial Information of Guarantor Subsidiaries (Restated)

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.

The condensed consolidating balance sheet and condensed consolidating statement of cash flows presented below have been restated to reclassify “Intercompany balances” to “Investment in guarantor subsidiaries.” Upon further review of the balances and related activity of intercompany transactions between H&E Equipment Services, Inc. and its subsidiaries, the Company determined that such transactions were more akin to capital contributions and has reclassified such amounts within the condensed consolidating balance sheet as an investment. As capital contributions, the condensed consolidating statement of cash flows below now reflects such activity as an investing activity on the parent’s books and a financing activity on the subsidiaries’ books rather than the previous presentation as an operating activity on the books of the both the parent and the guarantor subsidiaries.

 

76


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

CONDENSED CONSOLIDATING BALANCE SHEET

 

     As of December 31, 2011  
     H&E  Equipment
Services
     Guarantor
Subsidiaries
     Elimination     Consolidated  
     (Amounts in thousands)  

Assets:

             

Cash

      $ 24,215       $ —         $ —        $ 24,215   

Receivables, net

        93,840         11,499         —          105,339   

Inventories, net

        55,052         10,099         —          65,151   

Prepaid expenses and other assets

        5,098         125         —          5,223   

Rental equipment, net

        366,568         84,309         —          450,877   

Property and equipment, net

        52,021         10,754         —          62,775   

Deferred financing costs, net

        5,640         —           —          5,640   

Intangible assets, net

        —           66         —          66   

Investment in guarantor subsidiaries

        139,089         —           (139,089     —     

Goodwill

        4,493         29,526         —          34,019   
     

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

      $ 746,016       $ 146,378       $ (139,089   $ 753,305   
     

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and Stockholders’ Equity:

             

Amount due on senior secured credit facility

      $ 16,055       $ —         $ —        $ 16,055   

Accounts payable

        59,095         3,911         —          63,006   

Manufacturer flooring plans payable

        58,249         69         —          58,318   

Accrued expenses payable and other liabilities

        37,786         704         —          38,490   

Senior unsecured notes

        250,000         —           —          250,000   

Capital leases payable

        —           2,605         —          2,605   

Deferred income taxes

        58,616         —           —          58,616   

Deferred compensation payable

        2,008         —           —          2,008   
     

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

        481,809         7,289         —          489,098   

Stockholders’ equity (deficit)

        264,207         139,089         (139,089     264,207   
     

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

      $ 746,016       $ 146,378       $ (139,089   $ 753,305   
     

 

 

    

 

 

    

 

 

   

 

 

 

 

77


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
Services
     Guarantor
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

        146,013         —           (146,013     —     

Goodwill

        4,493         29,526         —          34,019   
     

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

      $ 727,433       $ 153,001       $ (146,013   $ 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   

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

        473,183         6,988         —          480,171   

Stockholders’ equity (deficit)

        254,250         146,013         (146,013     254,250   
     

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

      $ 727,433       $ 153,001       $ (146,013   $ 734,421   
     

 

 

    

 

 

    

 

 

   

 

 

 

 

78


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

 

     Year Ended December 31, 2011  
     H&E  Equipment
Services
    Guarantor
Subsidiaries
    Elimination      Consolidated  
     (Amounts in thousands)  

Revenues:

            

Equipment rentals

      $ 182,822      $ 45,216      $ —         $ 228,038   

New equipment sales

        200,298        19,913        —           220,211   

Used equipment sales

        70,485        14,862        —           85,347   

Parts sales

        80,153        14,358        —           94,511   

Services revenues

        47,325        6,629        —           53,954   

Other

        31,573        6,917        —           38,490   
     

 

 

   

 

 

   

 

 

    

 

 

 

Total revenues

        612,656        107,895        —           720,551   
     

 

 

   

 

 

   

 

 

    

 

 

 

Cost of revenues:

            

Rental depreciation

        68,327        18,454        —           86,781   

Rental expense

        37,264        9,335        —           46,599   

New equipment sales

        178,413        17,739        —           196,152   

Used equipment sales

        52,978        12,064        —           65,042   

Parts sales

        58,827        10,395        —           69,222   

Services revenues

        18,658        2,366        —           21,024   

Other

        34,066        8,962        —           43,028   
     

 

 

   

 

 

   

 

 

    

 

 

 

Total cost of revenues

        448,533        79,315        —           527,848   
     

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit (loss):

            

Equipment rentals

        77,231        17,427        —           94,658   

New equipment sales

        21,885        2,174        —           24,059   

Used equipment sales

        17,507        2,798        —           20,305   

Parts sales

        21,326        3,963        —           25,289   

Services revenues

        28,667        4,263        —           32,930   

Other

        (2,493     (2,045     —           (4,538
     

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

        164,123        28,580        —           192,703   
     

 

 

   

 

 

   

 

 

    

 

 

 

Selling, general and administrative expenses

        126,880        26,474        —           153,354   

Equity in loss of guarantor subsidiaries

        (6,633     —          6,633         —     

Gain from sales of property and equipment, net

        384        409        —           793   
     

 

 

   

 

 

   

 

 

    

 

 

 

Income from operations

        30,994        2,515        6,633         40,142   

Other income (expense):

            

Interest expense

        (19,536     (9,191     —           (28,727

Other, net

        683        43        —           726   
     

 

 

   

 

 

   

 

 

    

 

 

 

Total other expense, net

        (18,853     (9,148     —           (28,001
     

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) before income taxes

        12,141        (6,633     6,633         12,141   

Income tax expense

        3,215        —          —           3,215   
     

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

      $ 8,926      $ (6,633   $ 6,633       $ (8,926
     

 

 

   

 

 

   

 

 

    

 

 

 

 

79


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
Services
    Guarantor
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
     

 

 

   

 

 

   

 

 

    

 

 

 

 

80


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

 

     Year Ended December 31, 2009  
     H&E  Equipment
Services
    Guarantor
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
     

 

 

   

 

 

   

 

 

    

 

 

 

 

81


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

 

     Year Ended December 31, 2011  
     H&E  Equipment
Services
    Guarantor
Subsidiaries
    Elimination     Consolidated  
     (Amounts in thousands)  

Cash flows from operating activities:

           

Net income (loss)

      $ 8,926      $ (6,633   $ 6,633      $ 8,926   

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

           

Depreciation and amortization on property and equipment

        10,498        1,757        —          12,255   

Depreciation on rental equipment

        68,327        18,454        —          86,781   

Amortization of deferred financing costs

        1,388        —          —          1,388   

Amortization of intangible assets

        —          362        —          362   

Provision for losses on accounts receivable

        2,172        1,010        —          3,182   

Provision for inventory obsolescence

        210        —          —          210   

Provision for deferred income taxes

        2,697        —          —          2,697   

Stock-based compensation expense

        1,327        —          —          1,327   

Gain from sales of property and equipment, net

        (384     (409     —          (793

Gain from sales of rental equipment, net

        (16,002     (2,786     —          (18,788

Equity in loss of guarantor subsidiaries

        6,633        —          (6,633     —     

Changes in operating assets and liabilities:

           

Receivables, net

        (8,383     (999     —          (9,382

Inventories, net

        (20,500     (1,061     —          (21,561

Prepaid expenses and other assets

        3,381        76        —          3,457   

Accounts payable

        3,613        956        —          4,569   

Manufacturer flooring plans payable

        (16,633     (107     —          (16,740

Accrued expenses payable and other liabilities

        2,890        (399     —          2,491   

Deferred compensation payable

        4        —          —          4   
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

        50,164        10,221        —          60,385   
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

           

Purchases of property and equipment

        (15,757     (2,676     —          (18,433

Purchases of rental equipment

        (106,490     (20,745     —          (127,235

Proceeds from sales of property and equipment

        923        459        —          1,382   

Proceeds from sales of rental equipment

        50,177        13,181        —          63,358   

Investment in subsidiaries

        291        —          (291     —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

        (70,856     (9,781     (291     (80,928
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

           

Excess tax benefit (deficiency) from stock-based awards

        257        —          —          257   

Purchases of treasury stock

        (554     —          —          (554

Borrowing on senior secured credit facility

        557,884        —          —          557,884   

Payments on senior secured credit facility

        (541,829     —          —          (541,829

Payments on capital lease obligations

        —          (149     —          (149

Capital contributions

        —          (291     291        —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

        15,758        (440     291        15,609   
     

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash

        (4,934     —          —          (4,934

Cash, beginning of year

        29,149        —          —          29,149   
     

 

 

   

 

 

   

 

 

   

 

 

 

Cash, end of year

      $ 24,215      $ —        $ —        $ 24,215   
     

 

 

   

 

 

   

 

 

   

 

 

 

 

82


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

 

     Year Ended December 31, 2010  
     H&E  Equipment
Services
    Guarantor
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

Deferred compensation payable

        63        —          —          63   
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

        7,575        10,363        —          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   

Investment in subsidiaries

        4,691        —          (4,691     —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

        (19,436     (5,542     (4,691     (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

Capital contributions

        —          (4,691     4,691        —     
     

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

        (4,316     (4,831     4,691        (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   
     

 

 

   

 

 

   

 

 

   

 

 

 

 

83


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

 

     Year Ended December 31, 2009  
     H&E  Equipment
Services
    Guarantor
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

Deferred compensation payable

     (85     —          —          (85
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     47,644        25,257        —          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   

Investment in subsidiaries

     22,248        —          (22,248     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     63,031        (2,883     (22,248     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

Capital contributions

     —          (22,248     22,248        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (76,600     (22,379     (22,248     (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   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

84

Unaudited consolidated financial statements

Exhibit 99.3

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share amounts)

 

     Balances at  
     September 30,
2012
    December 31,
2011
 
     (Unaudited)        
ASSETS     

Cash

   $ 3,250      $ 24,215   

Receivables, net of allowance for doubtful accounts of $4,677 and $5,581, respectively

     123,902        105,339   

Inventories, net of reserves for obsolescence of $834 and $861, respectively

     109,751        65,151   

Prepaid expenses and other assets

     5,108        5,223   

Rental equipment, net of accumulated depreciation of $297,328 and $281,493, respectively

     571,936        450,877   

Property and equipment, net of accumulated depreciation and amortization of $67,063 and $62,050, respectively

     79,406        62,775   

Deferred financing costs, net of accumulated amortization of $8,943 and $11,844, respectively

     14,313        5,640   

Intangible assets, net of accumulated amortization of $722 at December 31, 2011

     —          66   

Goodwill

     32,560        34,019   
  

 

 

   

 

 

 

Total assets

   $ 940,226      $ 753,305   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Liabilities:

    

Amounts due on senior secured credit facility

   $ 130,725      $ 16,055   

Accounts payable 1

     75,708        63,006   

Manufacturer flooring plans payable

     56,925        58,318   

Dividends payable

     1,488        —     

Accrued expenses payable and other liabilities

     37,564        38,490   

Senior unsecured notes

     530,000        250,000   

Capital leases payable

     2,487        2,605   

Deferred income taxes

     66,076        58,616   

Deferred compensation payable

     1,960        2,008   
  

 

 

   

 

 

 

Total liabilities

     902,933        489,098   
  

 

 

   

 

 

 

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; 38,917,619 and 38,808,941 shares issued at September 30, 2012 and December 31, 2011, respectively and 35,143,886 and 35,084,737 shares outstanding at September 30, 2012 and December 31, 2011, respectively

     388        387   

Additional paid-in capital

     212,211        210,695   

Treasury stock at cost, 3,773,733 and 3,724,204 shares of common stock held at September 30, 2012 and December 31, 2011, respectively

     (57,578     (56,884

Retained earnings (deficit)

     (117,728     110,009   
  

 

 

   

 

 

 

Total stockholders’ equity

     37,293        264,207   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 940,226      $ 753,305   
  

 

 

   

 

 

 

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

 

4


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Amounts in thousands, except per share amounts)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012     2011  

Revenues:

        

Equipment rentals

   $ 77,808      $ 61,190      $ 207,941      $ 165,440   

New equipment sales

     49,009        46,543        154,710        133,629   

Used equipment sales

     24,990        27,172        75,100        65,655   

Parts sales

     26,058        24,647        74,161        71,166   

Services revenues

     14,436        14,191        41,615        40,072   

Other

     12,208        10,546        33,671        27,570   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     204,509        184,289        587,198        503,532   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues:

        

Rental depreciation

     27,150        22,076        74,727        64,146   

Rental expense

     12,579        12,176        36,375        34,484   

New equipment sales

     43,367        41,123        136,945        118,271   

Used equipment sales

     18,399        20,824        53,426        50,444   

Parts sales

     19,092        18,073        53,826        52,174   

Services revenues

     5,615        5,451        15,907        15,499   

Other

     11,384        10,825        32,183        31,862   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     137,586        130,548        403,389        366,880   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     66,923        53,741        183,809        136,652   

Selling, general and administrative expenses

     42,402        39,042        124,504        114,681   

Gain on sales of property and equipment, net

     514        372        1,478        521   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     25,035        15,071        60,783        22,492   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest expense

     (9,825     (7,222     (23,668     (21,607

Loss on early extinguishment of debt

     (10,180     —          (10,180     —     

Other, net

     243        118        751        626   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense, net

     (19,762     (7,104     (33,097     (20,981
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before provision for income taxes

     5,273        7,967        27,686        1,511   

Provision for income taxes

     1,564        3,119        9,554        447   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 3,709      $ 4,848      $ 18,132      $ 1,064   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share:

        

Basic

   $ 0.11      $ 0.14      $ 0.52      $ 0.03   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.11      $ 0.14      $ 0.52      $ 0.03   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding:

        

Basic

     34,958        34,804        34,867        34,743   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     34,974        34,860        34,963        34,884   
  

 

 

   

 

 

   

 

 

   

 

 

 

Dividends declared per common share outstanding

   $ 7.00      $ —        $ 7.00      $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

5


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

 

     Nine Months Ended
September 30,
 
     2012     2011  

Cash flows from operating activities:

    

Net income

   $ 18,132      $ 1,064   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization on property and equipment

     9,997        9,310   

Depreciation on rental equipment

     74,727        64,146   

Amortization of loan discounts and deferred financing costs

     1,076        1,042   

Amortization of intangible assets

     66        337   

Provision for losses on accounts receivable

     2,565        2,186   

Provision for inventory obsolescence

     124        170   

Decrease in deferred income taxes

     7,460        69   

Stock-based compensation expense

     1,223        994   

Loss on early extinguishment of debt

     10,180        —     

Gain on sales of property and equipment, net

     (1,478     (521

Gain on sales of rental equipment, net

     (20,842     (14,103

Writedown of goodwill for tax-deductible goodwill in excess of book goodwill

     1,458        —     

Changes in operating assets and liabilities:

    

Receivables, net

     (21,128     (2,784

Inventories, net

     (72,334     (32,985

Prepaid expenses and other assets

     115        3,177   

Accounts payable

     12,702        1,649   

Manufacturer flooring plans payable

     (1,393     (12,147

Accrued expenses payable and other liabilities

     (925     (4,700

Deferred compensation payable

     (48     (12
  

 

 

   

 

 

 

Net cash provided by operating activities

     21,677        16,892   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchases of property and equipment

     (27,011     (11,950

Purchases of rental equipment

     (212,337     (90,669

Proceeds from sales of property and equipment

     1,861        763   

Proceeds from sales of rental equipment

     65,003        47,537   
  

 

 

   

 

 

 

Net cash used in investing activities

     (172,484     (54,319
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Purchases of treasury stock

     (694     (554

Excess tax benefit from stock-based awards

     293        257   

Dividends paid

     (244,381     —     

Principal payments on senior unsecured notes

     (257,576     —     

Proceeds from issuance of senior unsecured notes

     530,000        —     

Borrowings on senior secured credit facility

     776,171        352,711   

Payments on senior secured credit facility

     (661,501     (339,131

Payments of deferred financing costs

     (12,352     —     

Payments of capital lease obligations

     (118     (111
  

 

 

   

 

 

 

Net cash provided by financing activities

     129,842        13,172   
  

 

 

   

 

 

 

Net decrease in cash

     (20,965     (24,255

Cash, beginning of period

     24,215        29,149   
  

 

 

   

 

 

 

Cash, end of period

   $ 3,250      $ 4,894   
  

 

 

   

 

 

 

 

6


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(Amounts in thousands)

 

     Nine Months Ended  
     September 30,  
     2012      2011  

Supplemental schedule of noncash investing and financing activities:

     

Noncash asset purchases:

     

Assets transferred from new and used inventory to rental fleet

   $ 27,610       $ 27,699   
  

 

 

    

 

 

 

Supplemental disclosures of cash flow information:

     

Cash paid during the period for:

     

Interest

   $ 27,868       $ 25,793   
  

 

 

    

 

 

 

Income taxes paid, net of refunds received

   $ 334       $ (1,635
  

 

 

    

 

 

 

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

 

7


H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Organization and Nature of Operations

Basis of Presentation

Our condensed consolidated financial statements include the financial position and results of operations of H&E Equipment Services, Inc. and its wholly-owned subsidiaries H&E Finance Corp., GNE Investments, Inc., Great Northern Equipment, Inc., H&E California Holding, Inc., H&E Equipment Services (California), LLC and H&E Equipment Services (Mid-Atlantic), Inc., collectively referred to herein as “we” or “us” or “our” or the “Company.”

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012, and, therefore, the results and trends in these interim condensed consolidated financial statements may not be the same for the entire year. These interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2011, from which the balance sheet amounts as of December 31, 2011 were derived.

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

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

Nature of Operations

As one of the largest integrated equipment services companies in the United States focused on heavy construction and industrial equipment, we rent, sell and provide parts and service support for four core categories of specialized equipment: (1) hi-lift or aerial 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) Significant Accounting Policies

We describe our significant accounting policies in note 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2011. During the three and nine month periods ended September 30, 2012, there were no significant changes to those accounting policies.

 

Use of Estimates

We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. These assumptions and estimates could have a material effect on our condensed consolidated financial statements. Actual results may differ materially from those estimates. We review our estimates on an ongoing basis based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.

 

8


 

Recent Accounting Pronouncements

There are no recently issued accounting pronouncements that are expected to affect the Company’s financial reporting.

(3) Fair Value of Financial Instruments

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

 

     September 30, 2012  
     Carrying
Amount
     Fair
Value
 

Manufacturer flooring plans payable with interest computed at 5.25%

   $ 56,925       $ 50,243   

Senior unsecured notes with interest compounded at 7.0%

     530,000         552,525   

Capital lease payable with interest computed at 5.929% to 9.55%

     2,487         1,921   

Letters of credit

     —           130   
     December 31, 2011  
     Carrying
Amount
     Fair
Value
 

Manufacturer flooring plans payable with interest computed at 5.38%

   $ 58,318       $ 52,069   

Senior unsecured notes with interest compounded at 8.375%

     250,000         252,500   

Capital lease payable with interest computed at 5.929% to 9.55%

     2,605         1,839   

Letters of credit

     —           192   

(4) Stockholders’ Equity

The following table summarizes the activity in Stockholders’ Equity for the nine month period ended September 30, 2012 (amounts in thousands, except share data):

 

     Common Stock      Additional            Retained     Total  
     Shares
Issued
     Amount      Paid-in
Capital
     Treasury
Stock
    Earnings
(Deficit)
    Stockholders’
Equity
 

Balances at December 31, 2011

     38,808,941       $ 387       $ 210,695       $ (56,884   $ 110,009      $ 264,207   

Stock-based compensation

     —           —           1,223         —          —          1,223   

Tax benefits associated with stock-based awards

     —           —           293         —          —          293   

Issuance of non-vested restricted common stock

     108,678         1         —           —          —          1   

Repurchases of 46,064 shares of restricted common stock

     —           —           —           (694     —          (694

Cash dividend on common stock ($7.00 per share)

     —           —           —           —          (245,869     (245,869

Net income

     —           —           —             18,132        18,132   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balances at September 30, 2012

     38,917,619       $ 388       $ 212,211       $ (57,578   $ (117,728   $ 37,293   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

9


(5) Stock-Based Compensation

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). Shares available for future stock-based payment awards under our 2006 Stock-Based Incentive Compensation Plan were 3,720,401 shares as of September 30, 2012.

Non-vested Stock

The following table summarizes our non-vested stock activity for the nine months ended September 30, 2012:

 

     Number of
Shares
    Weighted
Average Grant
Date Fair Value
 

Non-vested stock at December 31, 2011

     278,634      $ 10.77   

Granted

     108,678      $ 15.16   

Vested

     (151,416   $ 9.48   

Forfeited

     (3,465   $ 10.87   
  

 

 

   

Non-vested stock at September 30, 2012

     232,431      $ 13.66   
  

 

 

   

As of September 30, 2012, we had unrecognized compensation expense of approximately $2.6 million related to non-vested stock that we expect to be recognized over a weighted-average period of 2.1 years. The following table summarizes compensation expense related to non-vested stock, which is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income for the three and nine months ended September 30, 2012 and 2011 (amounts in thousands):

 

     For the Three Months  Ended
September 30,
     For the Nine Months  Ended
September 30,
 
     2012      2011      2012      2011  

Compensation expense

   $ 426       $ 334       $ 1,223       $ 994   

Stock Options

At September 30, 2012, there is no unrecognized compensation expense as all stock option awards have fully vested. The following table represents stock option activity for the nine months ended September 30, 2012:

 

     Number of
Shares
     Weighted Average
Exercise Price (1)
     Weighted Average
Contractual Life

In Years
 

Outstanding options at December 31, 2011

     51,000       $ 17.80      

Granted

                  

Exercised

                  

Canceled, forfeited or expired

                  
  

 

 

       

Outstanding options at September 30, 2012

     51,000       $ 17.80         3.8   
  

 

 

       

Options exercisable at September 30, 2012

     51,000       $ 17.80         3.8   
  

 

 

       

 

(1) Weighted average exercise prices shown above include a reduction of $7.00 per share to reflect the equitable adjustment to the exercise prices in connection with the declaration and payment of a $7.00 per share dividend in the third quarter.

In connection with the Company’s payment of the $7.00 per share dividend, the exercise prices of all outstanding stock option grants were adjusted downward by $7.00 per share. The modification of stock options resulted in an additional $0.1 million of stock compensation expense.

The closing price of our common stock on September 30, 2012 was $12.12. All options outstanding at September 30, 2012 have grant date fair values (as adjusted for the $7.00 per share reduction in exercise price) which exceed the September 30, 2012 closing stock price.

 

10


(6) Income per Share

Income per common share for the three and nine months ended September 30, 2012 and 2011 are based on the weighted average number of common shares outstanding during the period. The effects of potentially dilutive securities that are anti-dilutive are not included in the computation of dilutive income per share. The following table sets forth the computation of basic and diluted net income per common share for the three and nine month periods ended September 30, 2012 and 2011 (amounts in thousands, except per share amounts):

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2012      2011      2012      2011  

Basic net income per share:

           

Net income

   $ 3,709       $ 4,848       $ 18,132       $ 1,064   

Weighted average number of shares of common stock outstanding

     34,958         34,804         34,867         34,743   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per share of common stock – basic

   $ 0.11       $ 0.14       $ 0.52       $ 0.03   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income per share:

           

Net income

   $ 3,709       $ 4,848       $ 18,132       $ 1,064   

Weighted average number of shares of common stock outstanding

     34,958         34,804         34,867         34,743   

Effect of dilutive securities:

           

Effect of dilutive stock options

     —           —           —           —     

Effect of dilutive non-vested restricted stock

     16         56         96         141   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of shares of common stock outstanding – diluted

     34,974         34,860         34,963         34,884   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income per share of common stock – diluted

   $ 0.11       $ 0.14       $ 0.52       $ 0.03   
  

 

 

    

 

 

    

 

 

    

 

 

 

Common shares excluded from the denominator as anti-dilutive:

           

Stock options

     51         51         51         51   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-vested restricted stock

     86         52         20         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

(7) Senior Unsecured Notes

On August 20, 2012, the Company closed on its offering of $530 million aggregate principal amount of 7% senior notes due 2022 (the “New Notes”) in an unregistered offering. The New Notes and related guarantees were offered in a private placement solely to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), or outside the United States to persons other than “U.S. persons” in compliance with Regulation S under the Securities Act. The New Notes and related guarantees have not been registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements thereunder.

Net proceeds to the Company from the sale of the New Notes, after deducting the initial purchasers’ discount, totaled approximately $520.7 million. The Company used a portion of the net proceeds from the sale of the New Notes to repurchase $158.7 million of its $250 million aggregate principal amount of 8 3/8% Senior Notes due 2016 (the “Old Notes”) in early settlement of a tender offer and consent solicitation (the “Tender Offer”) that the Company launched on August 6, 2012. Holders who tendered their Old Notes prior to the early tender deadline received $1,031.67 per $1,000 principal amount of Old Notes tendered, plus accrued and unpaid interest to the redemption date. Having received the requisite consents from the holders of the Old Notes in the Tender Offer, the Company, certain of its subsidiaries and The Bank of New York Mellon Trust Company, N.A., as trustee, executed a supplemental indenture (the “Supplemental Indenture”) amending the indenture relating to the Old Notes. The Supplemental Indenture eliminated substantially all of the restrictive covenants and certain events of default from the indenture relating to the Old Notes. Also on August 20, 2012, the Company satisfied and discharged its obligations under the indenture relating to the Old Notes and issued a notice of redemption for the remaining outstanding principal amount of the Old Notes. On September 19, 2012, the Company redeemed the remaining $91.3 million principal amount outstanding of the Old Notes at a redemption price equal to 102.792% of the aggregate principal amount of the Old Notes to be redeemed, plus accrued and unpaid interest on the Old Notes to the redemption date.

The Company used the remaining net proceeds of the offering of the New Notes to pay on September 19, 2012 a one-time special dividend. Actual dividends paid totaled approximately $244.4 million, representing $7.00 per share paid on 34,911,455 outstanding shares of common stock of the Company. Dividends on 232,431 outstanding shares of non-vested common stock totaling an estimated $1.4 million are to be paid upon vesting of those shares pursuant to their respective stock awards’ terms and conditions.

 

11


In connection with the above transactions, the Company recorded a one-time loss on the early extinguishment of debt in the three month period ended September 30, 2012 of approximately $10.2 million, or approximately $7.2 million after-tax, reflecting payment of $5.0 million of tender premiums and $2.6 million to redeem the Old Notes that remained outstanding following completion of the Tender Offer, combined with the write off of approximately $2.6 million of unamortized deferred financing costs of the Old Notes. Transaction costs incurred totaled approximately $10.9 million.

The New Notes were issued at par and require semiannual interest payments on March 1st and September 1st of each year, commencing on March 1, 2013. No principal payments are due until maturity (September 1, 2022). We may redeem up to 35% of the aggregate principal amount of the New Notes before September 1, 2015 with the net cash proceeds from certain equity offerings. We may also redeem the New Notes prior to September 1, 2017 at a specified “make-whole” redemption price plus accrued and unpaid interest to the date of redemption.

The New Notes rank equally in right of payment to all of our existing and future senior indebtedness and rank senior to any of our subordinated indebtedness. The New Notes are unconditionally guaranteed on a senior unsecured basis by all of our current and future significant domestic restricted subsidiaries. In addition, the New Notes are effectively subordinated to all of our and the guarantors’ existing and future secured indebtedness, including the senior secured credit facility, to the extent of the assets securing such indebtedness, and are structurally subordinated to all of the liabilities and preferred stock of any of our subsidiaries that do not guarantee the New Notes.

Pursuant to a registration rights agreement entered into between the Company, the guarantors of the New Notes and the initial purchasers of the New Notes, we have agreed to make an offer to exchange the New Notes and guarantees for registered, publicly tradable notes and guarantees that have substantially identical items. A copy of the registration rights agreement is attached as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 20, 2012.

(8) Senior Secured Credit Facility

We and our subsidiaries are parties to a senior secured credit facility (the “Credit Facility”) with General Electric Capital Corporation as agent, and the lenders named therein (the “Lenders”). On February 29, 2012, the Company amended its existing $320.0 million credit facility (“Amendment No. 1”) with its Lenders. Amendment No. 1 (i) permitted the refinancing of the Old Notes in an amount not less than $200.0 million and not greater than the outstanding principal amount of such notes at the time of such refinancing and with no amortization or final maturity prior to the date six months following the maturity of the Credit Agreement, (ii) extended the maturity date of the Credit Facility from July 29, 2015 to the earlier to occur of, inter alia, February 29, 2017, and, unless previously refinanced, the date that is six months prior to the maturity of the Old Notes (giving effect to any extensions thereof), (iii) provides that the unused commitment fee margin will be either 0.50% or 0.375%, depending on the ratio of the average of the daily closing balances of the aggregate revolving loans, swing line loans and letters of credit outstanding during each month to the aggregate commitments for the revolving loans, swing line loans and letters of credit, (iv) lowered the interest rate (a) in the case of index rate revolving loans, to the index rate plus an applicable margin of 1.00% to 1.50% depending on the leverage ratio and (b) in the case of LIBOR revolving loans, to LIBOR plus an applicable margin of 2.00% to 2.50%, depending on the leverage ratio, (v) lowered the margin applicable to the letter of credit fee to between 2.00% and 2.50%, depending on the leverage ratio, and (vi) adds provisions whereby the Company represents that it, its subsidiaries and other related parties are in compliance with federal anti-terrorism laws and regulations. Total transaction costs on Amendment No. 1 totaled approximately $0.8 million.

On August 9, 2012, the Company amended the Credit Facility by entering into Amendment No. 2 to the Credit Facility (“Amendment No. 2”). Amendment No. 2, among other things, (i) permitted the refinancing of the Old Notes in an amount not less than $200.0 million and not greater than $530 million and with no amortization or final scheduled maturity prior to the date six months following the maturity of the Credit Facility, (ii) changed the maturity date of the Credit Facility to the earlier to occur of February 29, 2017, and the date that is six months prior to the scheduled maturity of the New Notes (giving effect to any extensions thereof) (subject to earlier termination upon the occurrence of, under certain circumstances, an event of default or prepayment in full of the amounts owing under the Credit Facility), (iii) permitted the one-time dividend by the Company that was paid on September 19, 2012.

On August 17, 2012, the Company again amended the Credit Facility by entering into Amendment No. 3 to the Credit Facility (Amendment No. 3”), which, among other things, exercises the Credit Facility's existing incremental facility by $82.5 million, increasing the Lenders' aggregate revolving loan commitments from $320.0 million to $402.5 million. Total transaction costs related to Amendment No. 2 and Amendment No. 3 totaled approximately $0.7 million.

 

12


As amended, the Credit Facility provides, among other things, a $402.5 million senior secured asset based revolver which includes a $30.0 million letter of credit facility, and, after giving effect to the increase provided for in Amendment No. 3, a $47.5 million incremental facility. In addition, the borrowers under the Credit Facility remain the same, the Credit Facility remains secured by substantially all of the assets of the Company and its subsidiaries, and the Company and each of its subsidiaries continue to provide a guaranty of the obligations under the Credit Facility. The Credit Facility requires us to maintain a minimum fixed charge coverage ratio in the event that our excess borrowing availability is below approximately $50.3 million (as adjusted if the $47.5 million 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 approximately $50.3 million (as adjusted if the $47.5 million incremental facility is exercised). As of September 30, 2012, we were in compliance with our financial covenants under the Credit Facility.

At September 30, 2012, the interest rate on the Credit Facility was based on a 3.25% U.S. Prime Rate plus 100 basis points and LIBOR plus 200 basis points. The weighted average interest rate at September 30, 2012 was 3.1%. At October 26, 2012, we had $253.3 million of available borrowings under our Credit Facility, net of $6.5 million of outstanding letters of credit.

(9) Segment Information

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

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

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012      2011     2012      2011  

Revenues:

          

Equipment rentals

   $ 77,808       $ 61,190      $ 207,941       $ 165,440   

New equipment sales

     49,009         46,543        154,710         133,629   

Used equipment sales

     24,990         27,172        75,100         65,655   

Parts sales

     26,058         24,647        74,161         71,166   

Services revenues

     14,436         14,191        41,615         40,072   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total segmented revenues

     192,301         173,743        553,527         475,962   

Non-segmented revenues

     12,208         10,546        33,671         27,570   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total revenues

   $ 204,509       $ 184,289      $ 587,198       $ 503,532   
  

 

 

    

 

 

   

 

 

    

 

 

 

Gross Profit (Loss):

          

Equipment rentals

   $ 38,079       $ 26,938      $ 96,839       $ 66,810   

New equipment sales

     5,642         5,420        17,765         15,358   

Used equipment sales

     6,591         6,348        21,674         15,211   

Parts sales

     6,966         6,574        20,335         18,992   

Services revenues

     8,821         8,740        25,708         24,573   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total segmented gross profit

     66,099         54,020        182,321         140,944   

Non-segmented gross profit (loss)

     824         (279     1,488         (4,292
  

 

 

    

 

 

   

 

 

    

 

 

 

Total gross profit

   $ 66,923       $ 53,741      $ 183,809       $ 136,652   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

13


     Balances at  
     September 30,
2012
     December 31,
2011
 

Segment identified assets:

     

Equipment sales

   $ 92,870       $ 52,572   

Equipment rentals

     571,936         450,877   

Parts and services

     16,881         12,579   
  

 

 

    

 

 

 

Total segment identified assets

     681,687         516,028   

Non-segment identified assets

     258,539         237,277   
  

 

 

    

 

 

 

Total assets

   $ 940,226       $ 753,305   
  

 

 

    

 

 

 

The Company operates primarily in the United States and our sales to international customers for the three and nine month periods ended September 30, 2012 were 0.9% and 2.8%, respectively, of total revenues compared to 1.5% and 2.4% for the three and nine month periods ended September 30, 2011. No one customer accounted for more than 10% of our revenues on an overall or segment basis for any of the periods presented.

(10) Condensed Consolidating Financial Information of Guarantor Subsidiaries (Restated)

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

The condensed consolidating financial statements of H&E Equipment Services, Inc. and its subsidiaries are included below. The financial statements for H&E Finance Corp. are not included within the condensed consolidating financial statements because H&E Finance Corp. has no assets or operations. The condensed consolidating balance sheet amounts as of December 31, 2011 included herein were derived from our annual audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2011.

The condensed consolidating balance sheet and condensed consolidating statement of cash flows presented below have been restated to reclassify “Intercompany balances” to “Investment in guarantor subsidiaries.” Upon further review of the balances and related activity of intercompany transactions between H&E Equipment Services, Inc. and its subsidiaries, the Company determined that such transactions were more akin to capital contributions and has reclassified such amounts within the condensed consolidating balance sheet as an investment. As capital contributions, the condensed consolidating statement of cash flows below now reflects such activity as an investing activity on the parent’s books and a financing activity on the subsidiaries’ books rather than the previous presentation as an operating activity on the books of the both the parent and the guarantor subsidiaries.

 

14


CONDENSED CONSOLIDATING BALANCE SHEET

 

     As of September 30, 2012  
     H&E Equipment
Services
     Guarantor
Subsidiaries
     Elimination     Consolidated  
     (Amounts in thousands)  

Assets:

          

Cash

   $ 3,250       $ —         $ —        $ 3,250   

Receivables, net

     108,497         15,405         —          123,902   

Inventories, net

     94,863         14,888         —          109,751   

Prepaid expenses and other assets

     4,993         115         —          5,108   

Rental equipment, net

     471,099         100,837         —          571,936   

Property and equipment, net

     67,478         11,928         —          79,406   

Deferred financing costs, net

     14,313         —           —          14,313   

Investment in guarantor subsidiaries

     163,787         —           (163,787     —     

Goodwill

     3,034         29,526         —          32,560   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 931,314       $ 172,699       $ (163,787   $ 940,226   
  

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and Stockholders’ Equity:

          

Amounts due on senior secured credit facility

   $ 130,725       $ —         $ —        $ 130,725   

Accounts payable

     70,484         5,224         —          75,708   

Manufacturer flooring plans payable

     56,545         380         —          56,925   

Dividends payable

     1,488         —           —          1,488   

Accrued expenses payable and other liabilities

     36,743         821         —          37,564   

Senior unsecured notes

     530,000         —           —          530,000   

Capital lease payable

     —           2,487         —          2,487   

Deferred income taxes

     66,076         —           —          66,076   

Deferred compensation payable

     1,960         —           —          1,960   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     894,021         8,912         —          902,933   

Stockholders’ equity (deficit)

     37,293         163,787         (163,787     37,293   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 931,314       $ 172,699       $ (163,787   $ 940,226   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

15


CONDENSED CONSOLIDATING BALANCE SHEET

 

     As of December 31, 2011  
     H&E Equipment
Services
    Guarantor
Subsidiaries
     Elimination     Consolidated  
     (Amounts in thousands)  

Assets:

         

Cash

   $ 24,215      $ —         $ —        $ 24,215   

Receivables, net

     93,840        11,499         —          105,339   

Inventories, net

     55,052        10,099         —          65,151   

Prepaid expenses and other assets

     5,098        125         —          5,223   

Rental equipment, net

     366,568        84,309         —          450,877   

Property and equipment, net

     52,021        10,754         —          62,775   

Deferred financing costs, net

     5,640        —           —          5,640   

Intangible assets, net

     —          66         —          66   

Investment in guarantor subsidiaries

     139,089        —           (139,089     —     

Goodwill

     4,493        29,526         —          34,019   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 746,016      $ 146,378       $ (139,089   $ 753,305   
  

 

 

   

 

 

    

 

 

   

 

 

 

Liabilities and Stockholders’ Equity:

         

Amounts due on senior secured credit facility

   $ 16,055      $ —         $ —        $ 16,055   

Accounts payable

     59,095        3,911         —          63,006   

Manufacturer flooring plans payable

     58,249        69         —          58,318   

Accrued expenses payable and other liabilities

     37,786        704         —          38,490   

Intercompany balances

     (164,231     164,231         —          —     

Senior unsecured notes

     250,000        —           —          250,000   

Capital lease payable

     —          2,605         —          2,605   

Deferred income taxes

     58,616        —           —          58,616   

Deferred compensation payable

     2,008        —           —          2,008   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     481,809        7,289         —          489,098   

Stockholders’ equity (deficit)

     264,207        139,089         (139,089     264,207   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 746,016      $ 146,378       $ (139,089   $ 753,305   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

16


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

 

     Three Months Ended September 30, 2012  
     H&E  Equipment
Services
    Guarantor
Subsidiaries
    Elimination      Consolidated  
     (Amounts in thousands)  

Revenues:

         

Equipment rentals

   $ 63,607      $ 14,201      $ —         $ 77,808   

New equipment sales

     45,514        3,495        —           49,009   

Used equipment sales

     21,222        3,768        —           24,990   

Parts sales

     22,369        3,689        —           26,058   

Services revenues

     12,441        1,995        —           14,436   

Other

     9,943        2,265        —           12,208   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total revenues

     175,096        29,413        —           204,509   
  

 

 

   

 

 

   

 

 

    

 

 

 

Cost of revenues:

         

Rental depreciation

     21,912        5,238        —           27,150   

Rental expense

     10,083        2,496        —           12,579   

New equipment sales

     40,295        3,072        —           43,367   

Used equipment sales

     15,713        2,686        —           18,399   

Parts sales

     16,448        2,644        —           19,092   

Services revenues

     4,921        694        —           5,615   

Other

     9,024        2,360        —           11,384   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total cost of revenues

     118,396        19,190        —           137,586   
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit (loss):

         

Equipment rentals

     31,612        6,467        —           38,079   

New equipment sales

     5,219        423        —           5,642   

Used equipment sales

     5,509        1,082        —           6,591   

Parts sales

     5,921        1,045        —           6,966   

Services revenues

     7,520        1,301        —           8,821   

Other

     919        (95     —           824   
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

     56,700        10,223        —           66,923   

Selling, general and administrative expenses

     34,350        8,052        —           42,402   

Equity in loss of guarantor subsidiaries

     (228     —          228         —     

Gain on sales of property and equipment, net

     341        173        —           514   
  

 

 

   

 

 

   

 

 

    

 

 

 

Income from operations

     22,463        2,344        228         25,035   
  

 

 

   

 

 

   

 

 

    

 

 

 

Other income (expense):

         

Interest expense

     (7,238     (2,587     —           (9,825

Loss on early extinguishment of debt

     (10,180     —          —           (10,180

Other, net

     228        15        —           243   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total other expense, net

     (17,190     (2,572     —           (19,762
  

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) before income taxes

     5,273        (228     228         5,273   

Income tax expense

     1,564        —          —           1,564   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

   $ 3,709      $ (228   $ 228       $ 3,709   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

17


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

 

     Three Months Ended September 30, 2011  
     H&E Equipment
Services, Inc.
    Guarantor
Subsidiaries
    Elimination      Consolidated  
     (Amounts in thousands)  

Revenues:

         

Equipment rentals

   $ 48,565      $ 12,625      $ —         $ 61,190   

New equipment sales

     42,175        4,368        —           46,543   

Used equipment sales

     22,471        4,701        —           27,172   

Parts sales

     20,935        3,712        —           24,647   

Services revenues

     12,411        1,780        —           14,191   

Other

     8,610        1,936        —           10,546   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total revenues

     155,167        29,122        —           184,289   
  

 

 

   

 

 

   

 

 

    

 

 

 

Cost of revenues:

         

Rental depreciation

     17,328        4,748        —           22,076   

Rental expense

     9,520        2,656        —           12,176   

New equipment sales

     37,193        3,930        —           41,123   

Used equipment sales

     16,882        3,942        —           20,824   

Parts sales

     15,416        2,657        —           18,073   

Services revenues

     4,786        665        —           5,451   

Other

     8,580        2,245        —           10,825   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total cost of revenues

     109,705        20,843        —           130,548   
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit (loss):

         

Equipment rentals

     21,717        5,221        —           26,938   

New equipment sales

     4,982        438        —           5,420   

Used equipment sales

     5,589        759        —           6,348   

Parts sales

     5,519        1,055        —           6,574   

Services revenues

     7,625        1,115        —           8,740   

Other

     30        (309     —           (279
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

     45,462        8,279        —           53,741   

Selling, general and administrative expenses

     32,217        6,825        —           39,042   

Equity in loss of guarantor subsidiaries

     (759     —          759         —     

Gain on sales of property and equipment, net

     250        122        —           372   
  

 

 

   

 

 

   

 

 

    

 

 

 

Income from operations

     12,736        1,576        759         15,071   
  

 

 

   

 

 

   

 

 

    

 

 

 

Other income (expense):

         

Interest expense

     (4,870     (2,352     —           (7,222

Other, net

     101        17        —           118   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total other expense, net

     (4,769     (2,335     —           (7,104
  

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) before income taxes

     7,967        (759     759         7,967   

Income tax expense

     3,119        —          —           3,119   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

   $ 4,848      $ (759   $ 759       $ 4,848   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

18


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

 

     Nine Months Ended September 30, 2012  
     H&E Equipment
Services
    Guarantor
Subsidiaries
    Elimination      Consolidated  
     (Amounts in thousands)  

Revenues:

         

Equipment rentals

   $ 170,492      $ 37,449      $ —         $ 207,941   

New equipment sales

     137,915        16,795        —           154,710   

Used equipment sales

     60,960        14,140        —           75,100   

Parts sales

     63,120        11,041        —           74,161   

Services revenues

     35,926        5,689        —           41,615   

Other

     27,595        6,076        —           33,671   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total revenues

     496,008        91,190        —           587,198   
  

 

 

   

 

 

   

 

 

    

 

 

 

Cost of revenues:

         

Rental depreciation

     60,264        14,463        —           74,727   

Rental expense

     29,181        7,194        —           36,375   

New equipment sales

     121,950        14,995        —           136,945   

Used equipment sales

     42,798        10,628        —           53,426   

Parts sales

     45,935        7,891        —           53,826   

Services revenues

     13,930        1,977        —           15,907   

Other

     25,702        6,481        —           32,183   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total cost of revenues

     339,760        63,629        —           403,389   
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit (loss):

         

Equipment rentals

     81,047        15,792        —           96,839   

New equipment sales

     15,965        1,800        —           17,765   

Used equipment sales

     18,162        3,512        —           21,674   

Parts sales

     17,185        3,150        —           20,335   

Services revenues

     21,996        3,712        —           25,708   

Other

     1,893        (405     —           1,488   
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

     156,248        27,561        —           183,809   

Selling, general and administrative expenses

     102,625        21,879        —           124,504   

Equity in loss of guarantor subsidiaries

     (1,077     —          1,077         —     

Gain on sales of property and equipment, net

     1,127        351        —           1,478   
  

 

 

   

 

 

   

 

 

    

 

 

 

Income from operations

     53,673        6,033        1,077         60,783   
  

 

 

   

 

 

   

 

 

    

 

 

 

Other income (expense):

         

Interest expense

     (16,512     (7,156     —           (23,668

Loss on early extinguishment of debt

     (10,180     —          —           (10,180

Other, net

     705        46        —           751   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total other expense, net

     (25,987     (7,110     —           (33,097
  

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) before income taxes

     27,686        (1,077     1,077         27,686   

Income tax expense

     9,554        —          —           9,554   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

   $ 18,132      $ (1,077   $ 1,077       $ 18,132   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

19


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

 

     Nine Months Ended September 30, 2011  
     H&E Equipment
Services, Inc.
    Guarantor
Subsidiaries
    Elimination      Consolidated  
     (Amounts in thousands)  

Revenues:

         

Equipment rentals

   $ 132,313      $ 33,127      $ —         $ 165,440   

New equipment sales

     118,099        15,530        —           133,629   

Used equipment sales

     54,294        11,361        —           65,655   

Parts sales

     60,234        10,932        —           71,166   

Services revenues

     35,189        4,883        —           40,072   

Other

     22,532        5,038        —           27,570   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total revenues

     422,661        80,871        —           503,532   
  

 

 

   

 

 

   

 

 

    

 

 

 

Cost of revenues:

         

Rental depreciation

     50,317        13,829        —           64,146   

Rental expense

     27,595        6,889        —           34,484   

New equipment sales

     104,488        13,783        —           118,271   

Used equipment sales

     41,058        9,386        —           50,444   

Parts sales

     44,250        7,924        —           52,174   

Services revenues

     13,784        1,715        —           15,499   

Other

     25,128        6,734        —           31,862   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total cost of revenues

     306,620        60,260        —           366,880   
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit (loss):

         

Equipment rentals

     54,401        12,409        —           66,810   

New equipment sales

     13,611        1,747        —           15,358   

Used equipment sales

     13,236        1,975        —           15,211   

Parts sales

     15,984        3,008        —           18,992   

Services revenues

     21,405        3,168        —           24,573   

Other

     (2,596     (1,696     —           (4,292
  

 

 

   

 

 

   

 

 

    

 

 

 

Gross profit

     116,041        20,611        —           136,652   

Selling, general and administrative expenses

     95,057        19,624        —           114,681   

Equity in loss of guarantor subsidiaries

     (5,819     —          5,819         —     

Gain on sales of property and equipment, net

     378        143        —           521   
  

 

 

   

 

 

   

 

 

    

 

 

 

Income from operations

     15,543        1,130        5,819         22,492   
  

 

 

   

 

 

   

 

 

    

 

 

 

Other income (expense):

         

Interest expense

     (14,629     (6,978     —           (21,607

Other, net

     597        29        —           626   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total other expense, net

     (14,032     (6,949     —           (20,981
  

 

 

   

 

 

   

 

 

    

 

 

 

Income (loss) before income taxes

     1,511        (5,819     5,819         1,511   

Income tax benefit

     447        —          —           447   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income (loss)

   $ 1,064      $ (5,819   $ 5,819       $ 1,064   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

20


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

 

     Nine Months Ended September 30, 2012  
     H&E Equipment
Services
    Guarantor
Subsidiaries
    Elimination     Consolidated  
     (Amounts in thousands)  

Cash flows from operating activities:

        

Net income (loss)

   $ 18,132      $ (1,077   $ 1,077      $ 18,132   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

        

Depreciation and amortization on property and equipment

     8,605        1,392        —          9,997   

Depreciation on rental equipment

     60,264        14,463        —          74,727   

Amortization of loan discounts and deferred financing costs

     1,076        —          —          1,076   

Amortization of intangible assets

     —          66        —          66   

Provision for losses on accounts receivable

     1,820        745        —          2,565   

Provision for inventory obsolescence

     124        —          —          124   

Provision for deferred income taxes

     7,460        —          —          7,460   

Stock-based compensation expense

     1,223        —          —          1,223   

Loss on early extinguishment of debt

     10,180        —          —          10,180   

Gain on sales of property and equipment, net

     (1,127     (351     —          (1,478

Gain on sales of rental equipment, net

     (17,341     (3,501     —          (20,842

Writedown of goodwill for tax-deductible goodwill in excess of book goodwill

     1,458        —          —          1,458   

Equity in loss of guarantor subsidiaries

     1,077        —          (1,077     —     

Changes in operating assets and liabilities:

        

Receivables, net

     (16,477     (4,651     —          (21,128

Inventories, net

     (62,853     (9,481     —          (72,334

Prepaid expenses and other assets

     105        10        —          115   

Accounts payable

     11,389        1,313        —          12,702   

Manufacturer flooring plans payable

     (1,704     311        —          (1,393

Accrued expenses payable and other liabilities

     (1,042     117        —          (925

Deferred compensation payable

     (48     —          —          (48
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     22,321        (644     —          21,677   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Purchases of property and equipment

     (24,543     (2,468     —          (27,011

Purchases of rental equipment

     (176,019     (36,318     —          (212,337

Proceeds from sales of property and equipment

     1,608        253        —          1,861   

Proceeds from sales of rental equipment

     51,483        13,520        —          65,003   

Investment in subsidiaries

     (25,775     —          25,775        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (173,246     (25,013     25,775        (172,484
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Purchases of treasury stock

     (694     —          —          (694

Excess tax benefit from stock-based awards

     293        —          —          293   

Dividends paid

     (244,381     —          —          (244,381

Principal payments on senior unsecured notes

     (257,576     —          —          (257,576

Proceeds from issuance of senior unsecured notes

     530,000        —          —          530,000   

Borrowings on senior secured credit facility

     776,171        —          —          776,171   

Payments on senior secured credit facility

     (661,501     —          —          (661,501

Payments of deferred financing costs

     (12,352     —          —          (12,352

Payments on capital lease obligations

     —          (118     —          (118

Capital contributions

     —          25,775        (25,775     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     129,960        25,657        (25,775     129,842   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash

     (20,965     —          —          (20,965

Cash, beginning of period

     24,215        —          —          24,215   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 3,250      $ —        $ —        $ 3,250   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

21


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

 

     Nine Months Ended September 30, 2011  
     H&E Equipment
Services, Inc.
    Guarantor
Subsidiaries
    Elimination     Consolidated  
     (Amounts in thousands)  

Cash flows from operating activities:

        

Net income (loss)

   $ 1,064      $ (5,819   $ 5,819      $ 1,064   

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

        

Depreciation and amortization on property and equipment

     7,948        1,362        —          9,310   

Depreciation on rental equipment

     50,317        13,829        —          64,146   

Amortization of loan discounts and deferred financing costs

     1,042        —          —          1,042   

Amortization of intangible assets

     —          337        —          337   

Provision for losses on accounts receivable

     2,849        (663     —          2,186   

Provision for inventory obsolescence

     170        —          —          170   

Provision for deferred income taxes

     69        —          —          69   

Stock-based compensation expense

     994        —          —          994   

Gain on sales of property and equipment, net

     (378     (143     —          (521

Gain on sales of rental equipment, net

     (12,121     (1,982     —          (14,103

Equity in loss of guarantor subsidiaries

     5,819        —          (5,819     —     

Changes in operating assets and liabilities:

        

Receivables, net

     (1,417     (1,367     —          (2,784

Inventories, net

     (29,242     (3,743     —          (32,985

Prepaid expenses and other assets

     3,129        48        —          3,177   

Accounts payable

     1,132        517        —          1,649   

Manufacturer flooring plans payable

     (12,091     (56     —          (12,147

Accrued expenses payable and other liabilities

     (4,498     (202     —          (4,700

Deferred compensation payable

     (12     —          —          (12
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     14,774        2,118        —          16,892   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Purchases of property and equipment

     (9,982     (1,968     —          (11,950

Purchases of rental equipment

     (73,897     (16,772     —          (90,669

Proceeds from sales of property and equipment

     616        147        —          763   

Proceeds from sales of rental equipment

     37,540        9,997        —          47,537   

Investment in subsidiaries

     (6,589     —          6,589        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (52,312     (8,596     6,589        (54,319
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Excess tax benefit from stock-based awards

     257        —          —          257   

Purchases of treasury stock

     (554     —          —          (554

Borrowings on senior secured credit facility

     352,711        —          —          352,711   

Payments on senior secured credit facility

     (339,131     —          —          (339,131

Payments on capital lease obligations

     —          (111     —          (111

Capital contributions

     —          6,589        (6,589     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     13,283        6,478        (6,589     13,172   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash

     (24,255     —          —          (24,255

Cash, beginning of period

     29,149        —          —          29,149   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash, end of period

   $ 4,894      $ —        $ —        $ 4,894   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

 

22