UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-51759
H&E Equipment Services, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
| 81-0553291 |
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
7500 Pecue Lane, |
| 70809 |
Baton Rouge, Louisiana |
| (ZIP Code) |
(Address of Principal Executive Offices) |
|
|
(225) 298‑5200
(Registrant’s Telephone Number, Including Area Code)Code: (225) 298-5200
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Common Stock, par value $0.01 per share | HEES | Nasdaq Global Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☑No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☑�� No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer | ☑ | Accelerated Filer |
| Non-Accelerated Filer | ☐ |
|
|
|
|
| |
Smaller Reporting Company | ☐ | Emerging Growth Company | ☐ |
| |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☑
As of October 19, 2017,July 21, 2022, there were 35,647,92836,159,738 shares of H&E Equipment Services, Inc. common stock, $0.01 par value, outstanding.
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
SeptemberJune 30, 20172022
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “may”, “could”, “would”, “should”, “believe”, “expect”, “anticipate”, “plan”, “estimate”, “target”, “project”, “intend”,“may,” “could,” “would,” “should,” “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project,” “intend,” “foresee” and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement the strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.
Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new marketing applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. In addition, even if our actual results are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, those results may not be indicative of results or developments in subsequent periods. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:
risks related to the impact of the COVID-19 global pandemic, such as the scope and duration of the outbreak, government actions and restrictive measures implemented in response to the pandemic, material delays and cancellations of construction or infrastructure projects, labor shortages, supply chain disruptions and other impacts to the business;
our ability to forecast trends in our business accurately, and the impact of economic downturns and economic uncertainty on the markets we serve;
the impact of conditions in the global credit and commodity markets (including as a result of current volatility and uncertainty in credit and commodity markets due to COVID-19) and their effect on construction spending and the economy in general;
trends in oil and natural gas which could adversely affect the demand for our services and products;
increased maintenance and repair costs as we age our fleet and decreases in our equipment’s residual value;
our indebtedness;
risks associated with the expansion of our business and any potential acquisitions we may make, including any related capital expenditures;
our possible inability to integrate any businesses we acquire;
competitive pressures;
security breaches and other disruptions in our information technology systems;
adverse weather events or natural disasters;
compliance with laws and regulations, including those relating to environmental matters, and corporate governance matters;matters and
other factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.
Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the Securities and Exchange Commission (“SEC”), we are under no obligation to publicly update or revise any forward-looking statements after we file this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise. Investors, potential investors and other readers are urged to consider the above mentioned factors carefully in evaluating the forward‑looking statements and are cautioned not to place undue reliance on such forward‑looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results or performance.
3
For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2021, as well as other reports and registration statements filed by us with the SEC. These factors should not be construed as exhaustive and should be read with other cautionary statements in this Quarterly Report on Form 10-Q and our other public filings. All of our annual, quarterly and current reports, and any amendments thereto, filed with or furnished to the SEC are available on our Internet website under the Investor Relations link. For more information about us and the announcements we make from time to time, visit our Internet website at www.he-equipment.com.
4
PART I—FINANCIALFINANCIAL INFORMATION
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
|
| Balances at |
| |||||
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
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| (Unaudited) |
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| |
ASSETS |
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Cash |
| $ | 6,184 |
|
| $ | 7,683 |
|
Receivables, net of allowance for doubtful accounts of $3,541 and $3,769, respectively |
|
| 152,823 |
|
|
| 140,037 |
|
Inventories, net of reserves for obsolescence of $946 and $900, respectively |
|
| 83,067 |
|
|
| 53,909 |
|
Prepaid expenses and other assets |
|
| 9,119 |
|
|
| 7,513 |
|
Rental equipment, net of accumulated depreciation of $485,735 and $437,522, respectively |
|
| 917,075 |
|
|
| 893,816 |
|
Property and equipment, net of accumulated depreciation and amortization of $127,882 and $118,812, respectively |
|
| 101,172 |
|
|
| 105,492 |
|
Deferred financing costs, net of accumulated amortization of $12,769 and $12,160, respectively |
|
| 1,576 |
|
|
| 1,964 |
|
Goodwill |
|
| 31,197 |
|
|
| 31,197 |
|
Total assets |
| $ | 1,302,213 |
|
| $ | 1,241,611 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
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Liabilities: |
|
|
|
|
|
|
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Amounts due on senior secured credit facility |
| $ | 77,197 |
|
| $ | 162,642 |
|
Accounts payable |
|
| 81,554 |
|
|
| 39,432 |
|
Manufacturer flooring plans payable |
|
| 23,286 |
|
|
| 30,780 |
|
Accrued expenses payable and other liabilities |
|
| 53,885 |
|
|
| 56,833 |
|
Dividends payable |
|
| 120 |
|
|
| 67 |
|
Senior unsecured notes, net of unaccreted discount of $10,180 and $952 and deferred financing costs of $1,598 and $1,339, respectively |
|
| 738,222 |
|
|
| 627,711 |
|
Capital leases payable |
|
| 1,542 |
|
|
| 1,704 |
|
Deferred income taxes |
|
| 184,706 |
|
|
| 177,835 |
|
Deferred compensation payable |
|
| 1,886 |
|
|
| 1,842 |
|
Total liabilities |
|
| 1,162,398 |
|
|
| 1,098,846 |
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Commitments and Contingencies |
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Stockholders’ equity: |
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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; 39,626,433 and 39,496,759 shares issued at September 30, 2017 and December 31, 2016, respectively, and 35,650,211 and 35,554,491 shares outstanding at September 30, 2017 and December 31, 2016, respectively |
|
| 395 |
|
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| 394 |
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Additional paid-in capital |
|
| 226,158 |
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|
| 223,544 |
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Treasury stock at cost, 3,976,222 and 3,942,268 shares of common stock held at September 30, 2017 and December 31, 2016, respectively |
|
| (61,720 | ) |
|
| (60,966 | ) |
Accumulated deficit |
|
| (25,018 | ) |
|
| (20,207 | ) |
Total stockholders’ equity |
|
| 139,815 |
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|
| 142,765 |
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Total liabilities and stockholders’ equity |
| $ | 1,302,213 |
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| $ | 1,241,611 |
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| Balances at |
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| June 30, |
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| December 31, |
| ||
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| 2022 |
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| 2021 |
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| (Unaudited) |
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ASSETS |
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Cash |
| $ | 278,831 |
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| $ | 357,296 |
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Receivables, net of allowance for doubtful accounts of $4,775 and $4,178, respectively |
|
| 183,520 |
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|
| 157,226 |
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Inventories, net of reserves for obsolescence of $54 and $73, respectively |
|
| 122,048 |
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| 75,299 |
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Prepaid expenses and other assets |
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| 27,818 |
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|
| 21,081 |
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Rental equipment, net of accumulated depreciation of $797,344 and $722,646, respectively |
|
| 1,190,778 |
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| 1,116,456 |
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Property and equipment, net of accumulated depreciation and amortization of $170,841 and $161,913, respectively |
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| 123,012 |
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| 112,281 |
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Operating lease right-of-use assets, net of accumulated amortization of $43,678 and $36,884, respectively |
|
| 157,538 |
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| 151,222 |
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Finance lease right-of-use assets, net of accumulated amortization of $24 |
|
| 1,626 |
|
|
| — |
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Deferred financing costs, net of accumulated amortization of $16,168 and $15,818, respectively |
|
| 1,108 |
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| 1,458 |
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Intangible assets, net of accumulated amortization of $16,694 and $14,709, respectively |
|
| 23,006 |
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| 24,991 |
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Goodwill |
|
| 63,137 |
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|
| 63,137 |
|
Total assets |
| $ | 2,172,422 |
|
| $ | 2,080,447 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Liabilities: |
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|
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Accounts payable |
|
| 136,874 |
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|
| 95,604 |
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Manufacturer flooring plans payable |
|
| 21,507 |
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|
| 20,924 |
|
Accrued expenses payable and other liabilities |
|
| 65,931 |
|
|
| 63,908 |
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Dividends payable |
|
| 57 |
|
|
| 128 |
|
Senior unsecured notes, net of unaccreted discount of $7,565 and $8,151 and deferred financing costs of $1,747 and $1,882, respectively |
|
| 1,240,688 |
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|
| 1,239,967 |
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Operating lease liabilities |
|
| 161,842 |
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|
| 155,303 |
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Finance lease right-of-use liabilities |
|
| 1,626 |
|
|
| — |
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Deferred income taxes |
|
| 215,042 |
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|
| 201,231 |
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Total liabilities |
|
| 1,843,567 |
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| 1,777,065 |
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Commitments and Contingencies |
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Stockholders’ equity: |
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Preferred stock, $0.01 par value, 25,000,000 shares authorized; 0 shares issued |
|
| — |
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|
| — |
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Common stock, $0.01 par value, 175,000,000 shares authorized; 40,380,308 and 40,353,299 shares issued at June 30, 2022 and December 31, 2021, respectively, and 36,159,738 and 36,141,667 shares outstanding at June 30, 2022 and December 31, 2021, respectively |
|
| 403 |
|
|
| 403 |
|
Additional paid-in capital |
|
| 247,627 |
|
|
| 244,638 |
|
Treasury stock at cost, 4,220,570 and 4,211,632 shares of common stock held at June 30, 2022 and December 31, 2021, respectively |
|
| (68,637 | ) |
|
| (68,294 | ) |
Retained earnings |
|
| 149,462 |
|
|
| 126,635 |
|
Total stockholders’ equity |
|
| 328,855 |
|
|
| 303,382 |
|
Total liabilities and stockholders’ equity |
| $ | 2,172,422 |
|
| $ | 2,080,447 |
|
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 INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
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| 2017 |
|
| 2016 |
| ||||
Revenues: |
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|
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|
|
|
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Equipment rentals |
| $ | 125,616 |
|
| $ | 118,535 |
|
| $ | 351,303 |
|
| $ | 330,023 |
|
New equipment sales |
|
| 48,940 |
|
|
| 44,764 |
|
|
| 128,883 |
|
|
| 151,836 |
|
Used equipment sales |
|
| 22,250 |
|
|
| 20,630 |
|
|
| 75,219 |
|
|
| 71,973 |
|
Parts sales |
|
| 27,763 |
|
|
| 27,335 |
|
|
| 81,063 |
|
|
| 81,958 |
|
Services revenues |
|
| 16,097 |
|
|
| 16,076 |
|
|
| 47,121 |
|
|
| 49,322 |
|
Other |
|
| 18,496 |
|
|
| 17,346 |
|
|
| 51,764 |
|
|
| 48,679 |
|
Total revenues |
|
| 259,162 |
|
|
| 244,686 |
|
|
| 735,353 |
|
|
| 733,791 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
| 43,255 |
|
|
| 41,528 |
|
|
| 125,996 |
|
|
| 120,700 |
|
Rental expense |
|
| 19,988 |
|
|
| 18,378 |
|
|
| 58,524 |
|
|
| 53,162 |
|
New equipment sales |
|
| 43,609 |
|
|
| 40,147 |
|
|
| 114,440 |
|
|
| 135,152 |
|
Used equipment sales |
|
| 15,116 |
|
|
| 14,364 |
|
|
| 51,979 |
|
|
| 49,751 |
|
Parts sales |
|
| 20,125 |
|
|
| 19,708 |
|
|
| 58,696 |
|
|
| 59,184 |
|
Services revenues |
|
| 5,567 |
|
|
| 5,445 |
|
|
| 15,898 |
|
|
| 16,736 |
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Other |
|
| 17,476 |
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|
| 16,991 |
|
|
| 50,782 |
|
|
| 48,129 |
|
Total cost of revenues |
|
| 165,136 |
|
|
| 156,561 |
|
|
| 476,315 |
|
|
| 482,814 |
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Gross profit |
|
| 94,026 |
|
|
| 88,125 |
|
|
| 259,038 |
|
|
| 250,977 |
|
Selling, general and administrative expenses |
|
| 55,203 |
|
|
| 55,962 |
|
|
| 172,328 |
|
|
| 172,385 |
|
Merger breakup fee proceeds, net of merger costs |
|
| 6,506 |
|
|
| — |
|
|
| 6,506 |
|
|
| — |
|
Gain on sales of property and equipment, net |
|
| 2,325 |
|
|
| 927 |
|
|
| 4,431 |
|
|
| 2,301 |
|
Income from operations |
|
| 47,654 |
|
|
| 33,090 |
|
|
| 97,647 |
|
|
| 80,893 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (15,060 | ) |
|
| (13,469 | ) |
|
| (41,665 | ) |
|
| (40,229 | ) |
Loss on early extinguishment of debt |
|
| (25,363 | ) |
|
| — |
|
|
| (25,363 | ) |
|
| — |
|
Other, net |
|
| 346 |
|
|
| 386 |
|
|
| 1,156 |
|
|
| 1,505 |
|
Total other expense, net |
|
| (40,077 | ) |
|
| (13,083 | ) |
|
| (65,872 | ) |
|
| (38,724 | ) |
Income before provision for income taxes |
|
| 7,577 |
|
|
| 20,007 |
|
|
| 31,775 |
|
|
| 42,169 |
|
Provision (Benefit) for income taxes |
|
| (885 | ) |
|
| 8,342 |
|
|
| 8,045 |
|
|
| 17,427 |
|
Net income |
| $ | 8,462 |
|
| $ | 11,665 |
|
| $ | 23,730 |
|
| $ | 24,742 |
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic |
| $ | 0.24 |
|
| $ | 0.33 |
|
| $ | 0.67 |
|
| $ | 0.70 |
|
Diluted |
| $ | 0.24 |
|
| $ | 0.33 |
|
| $ | 0.67 |
|
| $ | 0.70 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 35,543 |
|
|
| 35,424 |
|
|
| 35,494 |
|
|
| 35,373 |
|
Diluted |
|
| 35,715 |
|
|
| 35,504 |
|
|
| 35,656 |
|
|
| 35,461 |
|
Dividends declared per common share outstanding |
| $ | 0.275 |
|
| $ | 0.275 |
|
| $ | 0.825 |
|
| $ | 0.825 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment rentals |
| $ | 227,577 |
|
| $ | 175,611 |
|
| $ | 426,802 |
|
| $ | 328,830 |
|
Used equipment sales |
|
| 18,833 |
|
|
| 35,821 |
|
|
| 40,359 |
|
|
| 74,675 |
|
New equipment sales |
|
| 21,486 |
|
|
| 27,633 |
|
|
| 47,522 |
|
|
| 50,806 |
|
Parts sales |
|
| 16,172 |
|
|
| 16,880 |
|
|
| 32,231 |
|
|
| 32,436 |
|
Services revenues |
|
| 8,889 |
|
|
| 8,059 |
|
|
| 17,023 |
|
|
| 16,070 |
|
Other |
|
| 1,714 |
|
|
| 1,673 |
|
|
| 3,184 |
|
|
| 3,292 |
|
Total revenues |
|
| 294,671 |
|
|
| 265,677 |
|
|
| 567,121 |
|
|
| 506,109 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental depreciation |
|
| 62,288 |
|
|
| 56,513 |
|
|
| 122,309 |
|
|
| 109,966 |
|
Rental expense |
|
| 30,815 |
|
|
| 27,509 |
|
|
| 59,574 |
|
|
| 52,574 |
|
Rental other |
|
| 23,873 |
|
|
| 18,390 |
|
|
| 44,786 |
|
|
| 34,884 |
|
|
|
| 116,976 |
|
|
| 102,412 |
|
|
| 226,669 |
|
|
| 197,424 |
|
Used equipment sales |
|
| 9,871 |
|
|
| 22,683 |
|
|
| 22,419 |
|
|
| 49,043 |
|
New equipment sales |
|
| 18,271 |
|
|
| 24,231 |
|
|
| 40,600 |
|
|
| 44,630 |
|
Parts sales |
|
| 11,832 |
|
|
| 12,353 |
|
|
| 23,536 |
|
|
| 23,506 |
|
Services revenues |
|
| 3,143 |
|
|
| 2,578 |
|
|
| 5,957 |
|
|
| 5,193 |
|
Other |
|
| 2,244 |
|
|
| 1,600 |
|
|
| 4,026 |
|
|
| 3,081 |
|
Total cost of revenues |
|
| 162,337 |
|
|
| 165,857 |
|
|
| 323,207 |
|
|
| 322,877 |
|
Gross profit |
|
| 132,334 |
|
|
| 99,820 |
|
|
| 243,914 |
|
|
| 183,232 |
|
Selling, general and administrative expenses |
|
| 82,664 |
|
|
| 70,711 |
|
|
| 160,942 |
|
|
| 138,856 |
|
Merger and other |
|
| 0 |
|
|
| 6 |
|
|
| 0 |
|
|
| 106 |
|
Gain on sales of property and equipment, net |
|
| 996 |
|
|
| 631 |
|
|
| 2,382 |
|
|
| 785 |
|
Income from operations |
|
| 50,666 |
|
|
| 29,734 |
|
|
| 85,354 |
|
|
| 45,055 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| (13,500 | ) |
|
| (13,425 | ) |
|
| (26,947 | ) |
|
| (26,868 | ) |
Other, net |
|
| 893 |
|
|
| 750 |
|
|
| 1,773 |
|
|
| 1,411 |
|
Total other expense, net |
|
| (12,607 | ) |
|
| (12,675 | ) |
|
| (25,174 | ) |
|
| (25,457 | ) |
Income from operations before provision for income taxes |
|
| 38,059 |
|
|
| 17,059 |
|
|
| 60,180 |
|
|
| 19,598 |
|
Provision for income taxes |
|
| 10,189 |
|
|
| 4,808 |
|
|
| 16,014 |
|
|
| 5,492 |
|
Net income from continuing operations |
| $ | 27,870 |
|
| $ | 12,251 |
|
| $ | 44,166 |
|
| $ | 14,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Discontinued Operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) from discontinued operations before provision (benefit) for income taxes |
| $ | (2,049 | ) |
| $ | 4,683 |
|
| $ | (2,049 | ) |
| $ | 7,835 |
|
Provision (benefit) for income taxes |
|
| (525 | ) |
|
| 1,168 |
|
|
| (525 | ) |
|
| 2,024 |
|
Net income (loss) from discontinued operations |
| $ | (1,524 | ) |
| $ | 3,515 |
|
| $ | (1,524 | ) |
| $ | 5,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 26,346 |
|
| $ | 15,766 |
|
| $ | 42,642 |
|
| $ | 19,917 |
|
6
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)
(Amounts in thousands, except per share amounts)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net income from continuing operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.77 |
|
| $ | 0.34 |
|
| $ | 1.21 |
|
| $ | 0.39 |
|
Diluted |
| $ | 0.76 |
|
| $ | 0.34 |
|
| $ | 1.21 |
|
| $ | 0.39 |
|
Net income (loss) from discontinued operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | (0.04 | ) |
| $ | 0.10 |
|
| $ | (0.04 | ) |
| $ | 0.16 |
|
Diluted |
| $ | (0.04 | ) |
| $ | 0.10 |
|
| $ | (0.04 | ) |
| $ | 0.16 |
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.72 |
|
| $ | 0.44 |
|
| $ | 1.17 |
|
| $ | 0.55 |
|
Diluted |
| $ | 0.72 |
|
| $ | 0.43 |
|
| $ | 1.17 |
|
| $ | 0.55 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 36,382 |
|
|
| 36,216 |
|
|
| 36,373 |
|
|
| 36,200 |
|
Diluted |
|
| 36,541 |
|
|
| 36,437 |
|
|
| 36,540 |
|
|
| 36,412 |
|
Dividends declared per common share outstanding |
| $ | 0.275 |
|
| $ | 0.275 |
|
| $ | 0.550 |
|
| $ | 0.550 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
|
| Nine Months Ended September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
| $ | 23,730 |
|
| $ | 24,742 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment |
|
| 18,092 |
|
|
| 20,321 |
|
Depreciation of rental equipment |
|
| 125,996 |
|
|
| 120,700 |
|
Amortization of deferred financing costs |
|
| 785 |
|
|
| 789 |
|
Accretion of note discount, net of premium amortization |
|
| 239 |
|
|
| 124 |
|
Provision for losses on accounts receivable |
|
| 3,048 |
|
|
| 2,723 |
|
Provision for inventory obsolescence |
|
| 151 |
|
|
| 82 |
|
Change in deferred income taxes |
|
| 7,752 |
|
|
| 17,193 |
|
Stock-based compensation expense |
|
| 2,614 |
|
|
| 2,308 |
|
Loss on early extinguishment of debt |
|
| 25,363 |
|
|
| — |
|
Gain from sales of property and equipment, net |
|
| (4,431 | ) |
|
| (2,301 | ) |
Gain from sales of rental equipment, net |
|
| (22,196 | ) |
|
| (21,450 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
| (15,811 | ) |
|
| 5,772 |
|
Inventories |
|
| (38,930 | ) |
|
| (15,220 | ) |
Prepaid expenses and other assets |
|
| (1,606 | ) |
|
| 1,160 |
|
Accounts payable |
|
| 42,122 |
|
|
| (18,549 | ) |
Manufacturer flooring plans payable |
|
| (7,494 | ) |
|
| (24,207 | ) |
Accrued expenses payable and other liabilities |
|
| (3,075 | ) |
|
| (4,436 | ) |
Deferred compensation payable |
|
| 44 |
|
|
| (348 | ) |
Net cash provided by operating activities |
|
| 156,393 |
|
|
| 109,403 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (16,002 | ) |
|
| (16,753 | ) |
Purchases of rental equipment |
|
| (183,754 | ) |
|
| (152,644 | ) |
Proceeds from sales of property and equipment |
|
| 6,765 |
|
|
| 2,689 |
|
Proceeds from sales of rental equipment |
|
| 66,316 |
|
|
| 62,259 |
|
Net cash used in investing activities |
|
| (126,675 | ) |
|
| (104,449 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Purchases of treasury stock |
|
| (753 | ) |
|
| (546 | ) |
Borrowings on senior secured credit facility |
|
| 732,840 |
|
|
| 767,550 |
|
Payments on senior secured credit facility |
|
| (818,285 | ) |
|
| (742,645 | ) |
Dividends paid |
|
| (29,369 | ) |
|
| (29,287 | ) |
Principal payments on senior unsecured notes due 2022 |
|
| (630,000 | ) |
|
| — |
|
Costs paid to tender and redeem senior unsecured notes due 2022 |
|
| (23,336 | ) |
|
| — |
|
Proceeds from issuance of senior unsecured notes due 2025 |
|
| 750,000 |
|
|
| — |
|
Payments of deferred financing costs |
|
| (12,152 | ) |
|
|
|
|
Payments of capital lease obligations |
|
| (162 | ) |
|
| (151 | ) |
Net cash used in financing activities |
|
| (31,217 | ) |
|
| (5,079 | ) |
Net decrease in cash |
|
| (1,499 | ) |
|
| (125 | ) |
Cash, beginning of period |
|
| 7,683 |
|
|
| 7,159 |
|
Cash, end of period |
| $ | 6,184 |
|
| $ | 7,034 |
|
|
| Six Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 42,642 |
|
| $ | 19,917 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization of property and equipment |
|
| 13,881 |
|
|
| 14,001 |
|
Depreciation of rental equipment |
|
| 122,309 |
|
|
| 113,686 |
|
Amortization of finance lease right-of-use assets |
|
| 24 |
|
|
| 81 |
|
Amortization of intangible assets |
|
| 1,985 |
|
|
| 1,985 |
|
Amortization of deferred financing costs |
|
| 485 |
|
|
| 486 |
|
Accretion of note discount, net of premium amortization |
|
| 586 |
|
|
| 586 |
|
Non-cash operating lease expense |
|
| 6,794 |
|
|
| 7,426 |
|
Provision for losses on accounts receivable |
|
| 1,360 |
|
|
| 787 |
|
Provision for inventory obsolescence |
|
| — |
|
|
| 38 |
|
Change in deferred income taxes |
|
| 13,811 |
|
|
| 5,869 |
|
Stock-based compensation expense |
|
| 2,989 |
|
|
| 2,543 |
|
Loss on sale of discontinued operations |
|
| 1,917 |
|
|
| — |
|
Gain from sales of property and equipment, net |
|
| (2,382 | ) |
|
| (834 | ) |
Gain from sales of rental equipment, net |
|
| (17,341 | ) |
|
| (27,070 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Receivables |
|
| (27,252 | ) |
|
| 7,555 |
|
Inventories |
|
| (87,557 | ) |
|
| (73,651 | ) |
Prepaid expenses and other assets |
|
| (6,737 | ) |
|
| (7,137 | ) |
Accounts payable |
|
| 41,270 |
|
|
| 23,804 |
|
Manufacturer flooring plans payable |
|
| 583 |
|
|
| (2,289 | ) |
Accrued expenses payable and other liabilities |
|
| (5,178 | ) |
|
| (7,324 | ) |
Net cash provided by operating activities |
|
| 104,189 |
|
|
| 80,459 |
|
Cash flows from investing activities: |
|
|
|
|
|
| ||
Closing adjustment on sale of discontinued operations |
|
| (2,256 | ) |
|
| — |
|
Purchases of property and equipment |
|
| (24,457 | ) |
|
| (16,227 | ) |
Purchases of rental equipment |
|
| (174,775 | ) |
|
| (228,453 | ) |
Proceeds from sales of property and equipment |
|
| 2,794 |
|
|
| 1,088 |
|
Proceeds from sales of rental equipment |
|
| 36,293 |
|
|
| 75,302 |
|
Net cash used in investing activities |
|
| (162,401 | ) |
|
| (168,290 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Borrowings on senior secured credit facility |
|
| 573,197 |
|
|
| 620,584 |
|
Payments on senior secured credit facility |
|
| (573,197 | ) |
|
| (620,584 | ) |
Dividends paid |
|
| (19,886 | ) |
|
| (19,865 | ) |
Purchases of treasury stock |
|
| (343 | ) |
|
| (435 | ) |
Payments of deferred financing costs |
|
| — |
|
|
| (136 | ) |
Payments of finance lease obligations |
|
| (24 | ) |
|
| (128 | ) |
Net cash used in financing activities |
|
| (20,253 | ) |
|
| (20,564 | ) |
Net decrease in cash |
|
| (78,465 | ) |
|
| (108,395 | ) |
Cash, beginning of period |
|
| 357,296 |
|
|
| 310,882 |
|
Cash, end of period |
| $ | 278,831 |
|
| $ | 202,487 |
|
8
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Amounts in thousands)
|
| Nine Months Ended |
| |||||
|
| September 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
Supplemental schedule of noncash investing and financing activities: |
|
|
|
|
|
|
|
|
Noncash asset purchases: |
|
|
|
|
|
|
|
|
Assets transferred from new and used inventory to rental fleet |
| $ | 9,621 |
|
| $ | 37,958 |
|
Purchases of property and equipment included in accrued expenses payable and other liabilities |
| $ | (127 | ) |
| $ | (387 | ) |
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
| $ | 50,931 |
|
| $ | 50,180 |
|
Income taxes paid, net of refunds received |
| $ | 453 |
|
| $ | 271 |
|
|
| Six Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Supplemental schedule of noncash investing and financing activities: |
|
|
|
|
|
| ||
Noncash asset purchases: |
|
|
|
|
|
| ||
Assets transferred from used and new inventory to rental fleet |
| $ | 40,808 |
|
| $ | 17,679 |
|
Purchases of property and equipment included in accrued expenses payable and other liabilities |
| $ | (567 | ) |
| $ | 3 |
|
Operating lease assets obtained in exchange for new operating lease liabilities |
| $ | 13,110 |
|
| $ | 12,868 |
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
| ||
Cash paid during the period for: |
|
|
|
|
|
| ||
Interest |
| $ | 30,426 |
|
| $ | 25,946 |
|
Income taxes paid (refunds received), net |
| $ | 1,891 |
|
| $ | 1,545 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
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 month periodssix months ended SeptemberJune 30, 20172022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017,2022, 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, 2016,2021, from which the consolidated balance sheet amounts as of December 31, 20162021 were derived. All significant intercompany accounts and transactions have been eliminated in these condensed consolidated financial statements.
On October 1, 2021, the Company sold its crane business (the “Crane Sale”). The results of operations of the Crane Sale are reported in discontinued operations in the Condensed Consolidated Statements of Income for all periods presented. The Condensed Consolidated Statements of Cash Flows include cash flows related to the discontinued operations and accordingly, cash flow amounts for discontinued operations are disclosed in Note 3 “Acquisitions and Dispositions”. All results and information in the consolidated financial statements are presented as continuing operations and exclude the Crane Sale unless otherwise noted specifically as discontinued operations. For additional information, refer to Note 3.
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
AsFounded in 1961, H&E Equipment Services, Inc. is one of the largest integratedrental 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 categoriesnation, serving customers at our 106 branch locations across 25 states. The Company’s fleet is comprised of specialized equipment: (1) hi-lift or aerial work platform equipment; (2) cranes; (3)platforms, earthmoving, equipment;material handling, and (4) industrial lift trucks. By providing equipment rental, sales, on-site parts, repairother general and maintenance functions under one roof, we arespecialty lines. H&E serves a one-stop provider for our customers’ varied equipment needs. This full service approach provides us with multiple pointsdiverse set of customer contact, enables us to maintain a high quality rental fleet, as well as an effective distribution channel for fleet disposalend markets in many high-growth geographies including branches throughout the Pacific Northwest, West Coast, Intermountain, Southwest, Gulf Coast, Southeast, Midwest and provides cross‑selling opportunities among our new and used equipment sales, rental, parts sales and services operations.Mid-Atlantic regions.
(2) Significant Accounting Policies
We describe our significant accounting policies in noteNote 2 of the notes to consolidated financial statementsConsolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2016.2021. During the nine month periodthree and six months ended SeptemberJune 30, 2017,2022, there were no significant changes to those accounting policies.
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 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.
10
Recent Accounting PronouncementsRevenue Recognition
In May 2014, theWe recognize revenue in accordance with two different Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede Accounting Standards Codification (“ASC”) standards: 1) Topic 605, Revenue Recognition,606 and other legacy industry-specific revenue recognition guidance. In August 2015, the FASB deferred the effective date of this new standard by one year. The FASB later issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations, in March 2016, ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing, in April 2016, ASU 2016-12, Revenue from Contracts with Customers (Topic 606) – Narrow-Scope Improvements and Practical Expedients, in May 2016, and ASU 2016-20, Technical Corrections and Improvements to2) Topic 842.
Under Topic 606, Revenue from Contracts with Customers, in December 2016, allrevenue is recognized when control of which further clarified aspects of Topic 606.
Topic 606 requires an entity to recognize revenue when it transfersthe promised goods or services are transferred to our customers, in an amount that reflects the consideration to which the entity expectswe expect to be entitled to in exchange for those goods or services. In doing so, entities will need to use more judgment and make more estimates than under current guidance. These judgments and estimates may include identifying performance obligationsRevenue is measured based on the consideration specified in the contract estimatingwith the customer, and excludes any sales incentives and amounts collected on behalf of third parties. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. Our contracts with customers generally do not include multiple performance obligations. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The amount of variablerevenue recognized reflects the consideration we expect to includebe entitled to in exchange for such products or services.
Under Topic 842, Leases, we account for equipment rental contracts as operating leases. We recognize revenue from equipment rentals in the transaction priceperiod earned, regardless of the timing of billing to customers. A rental contract includes rates for daily, weekly or monthly use, and allocatingrental revenues are earned on a daily basis as rental contracts remain outstanding. Because the transaction pricerental contracts can extend across multiple reporting periods, we record unbilled rental revenues and deferred rental revenues at the end of reporting periods so rental revenues earned is appropriately stated for the periods presented.
In the table below, revenues as presented in our condensed consolidated statements of income for the three and six months ended June 30, 2022 and 2021 are summarized by type and by the applicable accounting standard.
|
| Three Months Ended June 30, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
|
| Topic 842 |
|
| Topic 606 |
|
| Total |
|
| Topic 842 |
|
| Topic 606 |
|
| Total |
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Owned equipment rentals |
| $ | 193,704 |
|
| $ | 77 |
|
| $ | 193,781 |
|
| $ | 147,894 |
|
| $ | 111 |
|
| $ | 148,005 |
|
Re-rent revenue |
|
| 7,462 |
|
|
| — |
|
|
| 7,462 |
|
|
| 9,206 |
|
|
| — |
|
|
| 9,206 |
|
Ancillary and other rental revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Delivery and pick-up |
|
| — |
|
|
| 13,899 |
|
|
| 13,899 |
|
|
| — |
|
|
| 9,749 |
|
|
| 9,749 |
|
Other |
|
| 12,435 |
|
|
| — |
|
|
| 12,435 |
|
|
| 8,651 |
|
|
| — |
|
|
| 8,651 |
|
Total ancillary rental revenues |
|
| 12,435 |
|
|
| 13,899 |
|
|
| 26,334 |
|
|
| 8,651 |
|
|
| 9,749 |
|
|
| 18,400 |
|
Total equipment rental revenues |
|
| 213,601 |
|
|
| 13,976 |
|
|
| 227,577 |
|
|
| 165,751 |
|
|
| 9,860 |
|
|
| 175,611 |
|
Used equipment sales |
|
| — |
|
|
| 18,833 |
|
|
| 18,833 |
|
|
| — |
|
|
| 35,821 |
|
|
| 35,821 |
|
New equipment sales |
|
| — |
|
|
| 21,486 |
|
|
| 21,486 |
|
|
| — |
|
|
| 27,633 |
|
|
| 27,633 |
|
Parts sales |
|
| — |
|
|
| 16,172 |
|
|
| 16,172 |
|
|
| — |
|
|
| 16,880 |
|
|
| 16,880 |
|
Service revenues |
|
| — |
|
|
| 8,889 |
|
|
| 8,889 |
|
|
| — |
|
|
| 8,059 |
|
|
| 8,059 |
|
Other |
|
| — |
|
|
| 1,714 |
|
|
| 1,714 |
|
|
| — |
|
|
| 1,673 |
|
|
| 1,673 |
|
Total revenues |
| $ | 213,601 |
|
| $ | 81,070 |
|
| $ | 294,671 |
|
| $ | 165,751 |
|
| $ | 99,926 |
|
| $ | 265,677 |
|
|
| Six Months Ended June 30, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||
|
| Topic 842 |
|
| Topic 606 |
|
| Total |
|
| Topic 842 |
|
| Topic 606 |
|
| Total |
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Owned equipment rentals |
| $ | 364,433 |
|
| $ | 186 |
|
| $ | 364,619 |
|
| $ | 277,359 |
|
| $ | 163 |
|
| $ | 277,522 |
|
Re-rent revenue |
|
| 13,806 |
|
|
| — |
|
|
| 13,806 |
|
|
| 16,835 |
|
|
| — |
|
|
| 16,835 |
|
Ancillary and other rental revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Delivery and pick-up |
|
| — |
|
|
| 24,999 |
|
|
| 24,999 |
|
|
| — |
|
|
| 17,935 |
|
|
| 17,935 |
|
Other |
|
| 23,378 |
|
|
| — |
|
|
| 23,378 |
|
|
| 16,538 |
|
|
| — |
|
|
| 16,538 |
|
Total ancillary rental revenues |
|
| 23,378 |
|
|
| 24,999 |
|
|
| 48,377 |
|
|
| 16,538 |
|
|
| 17,935 |
|
|
| 34,473 |
|
Total equipment rental revenues |
|
| 401,617 |
|
|
| 25,185 |
|
|
| 426,802 |
|
|
| 310,732 |
|
|
| 18,098 |
|
|
| 328,830 |
|
Used equipment sales |
|
| — |
|
|
| 40,359 |
|
|
| 40,359 |
|
|
| — |
|
|
| 74,675 |
|
|
| 74,675 |
|
New equipment sales |
|
| — |
|
|
| 47,522 |
|
|
| 47,522 |
|
|
| — |
|
|
| 50,806 |
|
|
| 50,806 |
|
Parts sales |
|
| — |
|
|
| 32,231 |
|
|
| 32,231 |
|
|
| — |
|
|
| 32,436 |
|
|
| 32,436 |
|
Service revenues |
|
| — |
|
|
| 17,023 |
|
|
| 17,023 |
|
|
| — |
|
|
| 16,070 |
|
|
| 16,070 |
|
Other |
|
| — |
|
|
| 3,184 |
|
|
| 3,184 |
|
|
| — |
|
|
| 3,292 |
|
|
| 3,292 |
|
Total revenues |
| $ | 401,617 |
|
| $ | 165,504 |
|
| $ | 567,121 |
|
| $ | 310,732 |
|
| $ | 195,377 |
|
| $ | 506,109 |
|
11
Revenues by reporting segment are presented in Note 11 of our Condensed Consolidated Financial Statements, using the revenue captions reflected in our consolidated statements of income. We believe that the disaggregation of our revenues from contracts to each separate performance obligation. Topic 606 also requires an entity to disclose sufficient qualitativecustomers as reflected above, coupled with further discussion below and quantitative information surroundingthe reporting segments in Note 11, depict how the nature, amount, timing and uncertainty of revenueour revenues and cash flows arising from contracts with customers.are affected by economic factors. For further information related to our accounting for revenues pursuant to Topic 606 permitsand Topic 842, see Significant Accounting Policies in Note 2 to our Annual Report on Form 10-K for the use of either a retrospective application to each prior period presented or retrospective applicationyear ended December 31, 2021.
Receivables and contract assets and liabilities
We manage credit risk associated with our accounts receivables at the cumulative effect of initially applyingcustomer level. Because the same customers typically generate the revenues that are accounted for under both Topic 606 atand Topic 842, the date of adoption.discussions below on credit risk and our allowance for doubtful accounts address our total revenues from Topic 606 will become effectiveand Topic 842.
We believe concentration of credit risk with respect to our receivables is limited because our customer base is comprised of a large number of geographically diverse customers. NaN single customer accounted for fiscal years,more than 10% of our revenues on an overall or segment basis for any of the periods presented in this Quarterly Report on Form 10-Q. We manage credit risk through credit approvals, credit limits and interim periods within those fiscal years, beginning after December 15, 2017. We will adoptother monitoring procedures.
Pursuant to Topic 606842 and Topic 326 for rental and non-rental receivables, respectively, we maintain an allowance for doubtful accounts that reflects our estimate of our expected credit losses. Our allowance is estimated using a loss rate model based on delinquency. The estimated loss rate is based on our historical experience with specific customers, our understanding of our current economic circumstances, reasonable and supportable forecasts, and our own judgment as to the likelihood of ultimate payment based upon available data. Our largest exposure to doubtful accounts is our rental operations, which as discussed above is accounted for under Topic 842 and as of January 1, 2018 using a full retrospective application to each prior period presented. Below is our evaluation of the impact from the adoption of Topic 606.
Revenues from equipment rentals accounted for 47.8%June 30, 2022 represents 75.3% of our total revenues and an approximate corresponding percentage of our receivables, net and associated allowance for doubtful accounts. We perform credit evaluations of customers and establish credit limits based on reviews of our customers’ current credit information and payment histories. We believe our credit risk is somewhat mitigated by our geographically diverse customer base and our credit evaluation procedures. The actual rate of future credit losses, however, may not be similar to past experience. Our estimate of doubtful accounts could change based on changing circumstances, including changes in the nineeconomy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance for doubtful accounts. Bad debt expense as a percentage of total revenues for six months ended SeptemberJune 30, 2017. Based2022 and 2021 were approximately 0.3% and 0.2%.
We do not have material contract assets, impairment losses associated therewith, or material contract liabilities associated with contracts with customers. Our contracts with customers do not generally result in material amounts billed to customers in excess of recognizable revenue. We did not recognize material revenues during the three months ended June 30, 2022 and 2021 that was included in the contract liability balance as of the beginning of such periods.
Recent Accounting Pronouncements
Pronouncements Not Yet Adopted
In March 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential burden in accounting for or recognizing the effects of reference rate reform, particularly, the risk of cessation of the London Interbank Offered Rate (“LIBOR”) on financial reporting. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are elective and are effective upon issuance for all entities through December 31, 2022. The amendments of this ASU should be applied on a prospective basis. We intend to continue to monitor the developments with respect to the planned phase-out out of LIBOR and work with our lenders to seek to ensure any transition away from LIBOR will have minimal impact on our analysis of Topic 606,financial condition. However, we have determined thatcan provide no assurances regarding the accounting for equipment rental revenues is outside the scope of Topic 606. Therefore, upon our adoptionimpact of the new revenue recognition guidancediscontinuation of LIBOR as there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR. Our exposure related to the expected cessation of LIBOR is limited to the interest expense and certain fees we incur on January 1, 2018, we will recognizebalances outstanding under our revenues pursuant to two different accounting standards. Revenues from equipment rentalsSenior Secured Credit Facility (the “Credit Facility”). As certain U.S. dollar LIBOR settings will continue to be accountedpublished until June 30, 2023, we amended our Credit Facility on September 14, 2021 to include benchmark language for pursuantan upcoming transition away from LIBOR. The potential impact from the cessation of LIBOR as a reference rate, as well as the applicability of ASU 2020-04, is not currently estimable.
12
(3) Acquisitions and Dispositions
2021 Dispositions
Crane Sale
On July 19, 2021, the Company entered into a definitive agreement to currentsell its crane business to a wholly-owned subsidiary of The Manitowoc Company, Inc. for $130.0 million in cash, which was subject to adjustment based on actual amounts of net working capital and crane rental fleet net book value delivered at transaction closing. The Company executed the transaction closing on October 1, 2021 subject to customary closing conditions, including regulatory approval under the Hart-Scott-Rodino Act, resulting in proceeds of $135.9 million, which was subject to the finalization of adjustments. During June 2022, closing adjustments of $1.9 million were finalized and recorded as discontinued operations on the consolidated statement of income.
This disposition represents the Company’s strategic shift to a pure-play rental business. In accordance with ASC 360, Property, Plant, and Equipment, the Company ceased recording depreciation and amortization for Crane Sale related rental fleet, property, plant and equipment, and right of use lease accounting guidance until our adoptionassets upon qualifying as held for sale. In accordance with ASC 205-20, the Company determined that discontinued operations presentation was met during the third quarter of fiscal year 2021. As part of the new lease accounting standard in 2019 (as further discussed belowdivestiture, we entered into a transition services agreement with the buyer to assist them in the Topic 842 pending leasetransition of certain functions, including, but not limited to, information technology, accounting guidance), while revenuesand human resources for a period of sixty days up to six months. Aside from new andthese customary transition services, there will be no continuing involvement with the crane business after its disposal.
The Company reported financial results of the crane business within all of our segments: equipment rentals, used equipment sales, new equipment sales, parts sales and services revenues and other revenues will be subject to Topic 606 upon adoption and are further described below.
Sales of new and used equipment accounted for 27.8% of our total revenues forservice revenues. Additionally, the nine months ended September 30, 2017. Parts and services revenues comprised 17.4% of our total revenues forcrane business was included within the nine months ended September 30, 2017. The primary impact to these revenue streams from the adoption of Topic 606 will relate to the accounting treatment of shipping and handling revenues, which we currently include in other revenues in our consolidated statements of income. Other revenues comprised approximately 7.0% of our total revenues for the nine months ended September 30, 2017. Our other revenues consist primarily of equipment support activities related to our equipment rental and distribution segments, such as hauling charges, parts freight, fuel charges, environmental fees and damage waiver charges. Pursuant to Topic 606, shipping and handling activities that are performed before the customer obtains control of the good are not a separate promised service to the customer. Rather, shipping and handling activities fulfill an entity’s promise to transfer the good. While the timing of our revenue recognition related to our shipping and handling activities, such as hauling revenues related to new andcomponent 2, used equipment sales, maintenance and repair services, as well as parts freight, will not change upon adoption of the new guidance, we believe that Topic 606 requires our revenues related to shipping and handling activities to be treated as fulfillment activities as the customer typically obtains control of the good after the shipping and handling activities are performed. As such, shipping and handling revenues will be included and presented within their respective new equipment sales, used equipmentparts sales partsand service revenues and services revenues consolidated statementgoodwill reporting units.
As a result of income line items rather than in the non-segmented other revenues line item. Related shipping and handling costs included inagreement to sell the non-segmented other costs of revenues line itemCompany’s crane business, its results are reported separately as discontinued operations in our consolidated statements of income should likewise be conformed and presented within their respective segment costs of revenues line items.
While this change will only impact how our shipping and handling activities are presented within our revenues (and costs of revenues) line items withinfor all periods presented. As permitted, the consolidated statements of income and does not impact total revenues or total costs of revenues, this change will have a slight impact to the calculated gross profit (and gross margin) for new equipment sales, used equipment sales, parts revenues, service revenues and other revenues in comparison to how we have historically calculated those measures. Shipping and handling type revenues related to our new and used equipment sales, parts revenues and service revenues were approximately $6.1 million for the nine month period ended September 30, 2017, or approximately 0.8% of total revenues.
We are in the process of implementing the above changes to our financial reporting processes and related internal controls over financial reporting. We do not expect these changes to result in a material impact to those reporting processes or internal controls.
With respect to shipping and handling activities related to our equipment rental operations, we have determined that such hauling activities are a separate performance obligation as control passes to the customer when the rental equipment leaves our facility. While Topic 606 provides a practical expedient that allows entities to make an accounting policy election to treat the separate performance obligation as a fulfillment activity, we will continue to account for our rental equipment hauling activities as a separate performance obligation, resulting in no change to our historical presentation of hauling activities in other revenues (and other costs of revenues) in our consolidated statements of income.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet, with the exception of leases with a term of 12 months or less, which permits a lessee to make an accounting policy election by class of underlying assetCompany elected not to recognize lease assets and liabilities. At inception, lessees must classify leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the effect on the statement of cash flows, differs depending on the lease classification. Also, certain qualitative and quantitative disclosures are required to enable users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. We will adopt ASU 2016-02 as of January 1, 2019. The new standard requires the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect to apply.
Our operating leases include the real estate where all but 11 of our 79 branch locations are located as of September 30, 2017. Additionally, the Company leases numerous types of non-rental equipment. Given the size of our lease portfolio, we expect that the new standard will have a material effect on our consolidated balance sheets as a result of recognizing new right-of-use assets and lease liabilities for our existing operating leases. We have begun accumulating the information related to these leases but have not completed our comprehensive analysis of those leases and are unable to quantify the impact to our consolidated financial statements at this time. We are also concurrently evaluating our internal processes and controls over financial reporting with respect to the impact that the new lease standard will have on our lease administration activities.
As mentioned in the Topic 606 discussion above, our equipment rental business involves rental agreements with customers whereby we are the lessor in the transaction and therefore, we believe that such transactions are subject to the lessor accounting guidance of Topic 842. While our evaluation of ASU 2016-02 is ongoing with respect to our equipment rental activities, we have tentatively concluded that no significant changes are expected to the accounting for our rental equipment revenues, as substantially all of our rental agreements with customers will continue to be treated as operating leases under the new standard. Accordingly, we do not expect material changes to our related rental agreement accounting processes or internal controls.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). This standard adds to U.S. GAAP an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which is intended to result in the more timely recognition of losses. Under the CECL model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications) from the date of initial recognition of the financial instrument. The scope of financial assets within the CECL methodology is broad and includes trade receivables from revenue transactions and certain off-balance sheet credit exposures. Different components of the guidance require modified retrospective or prospective adoption. ASU 2016-13 will be effective for us as of January 1, 2020. While our review is ongoing, we believe ASU 2016-13 will only have applicability to our trade accounts receivables. While we believe that our current methodology for estimating the allowance for doubtful accounts on our trade accounts receivables is reasonable, we have not concluded whether the application of the CECL model, when compared to our current methodology, will have a material impact to our allowance for doubtful accounts.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017, and interim periods within those annual periods. Based upon our review of ASU 2017-01, the Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be determined by the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019, with early adoption permitted. Based upon our review of ASU 2017-04, we do not expect the guidance to have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements Adopted in the First Quarter of 2017
In July 2015, the FASB issued ASU 2015-11, Inventory: Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 provides guidance on simplifying the measurement of inventory. The previous standard measured inventory at lower of cost or market; where market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. ASU 2015-11 updated this guidance to measure inventory at the lower of cost or net realizable value; where net realizable value is considered to be the estimated selling price in the ordinary course of business, less reasonably predictable cost of completion, disposal and transportation. We adopted ASU 2015-11 on January 1, 2017 on a prospective basis. The adoption of ASU 2015-11 did not result in a material impact on our financial position, results of operations, or cash flows for the three and nine month periods ended September 30, 2017.
In March 2016, the FASB Issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The updated guidance changed how companies previously accounted for certain aspects of stock-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of such awards in the statement of cash flows. ASU 2016-09 became effective for us on January 1, 2017. ASU 2016-09 requires that excess tax benefits and deficiencies resulting from the vesting or exercise of stock-based compensation awards to be recognized in the income statement on a prospective basis. Previously, these amounts were recognized in additional paid-in capital. Accordingly, excess tax benefits of approximately $0.1 million were recognized as a discrete item in our income tax expense in the three and nine month periods ended September 30, 2017. In addition, ASU 2016-09 requires excess tax benefits and deficiencies to be excluded from the assumed future proceeds in the calculation of diluted shares. This change did not have a material impact to the calculation of weighted average shares outstanding for the three and nine month periods ended September 30, 2017.
ASU 2016-09 eliminates the prior guidance requirement that allowed under certain circumstances the realization of excess tax benefits prior to recognition of those excess tax benefits. Under prior guidance, companies could not recognize excess tax benefits when an option was exercised or a share vested if the related tax deduction increased a net operating loss carryforward rather than reduced income taxes payable. ASU 2016-09 requires companies to apply this part of the guidance using a modified retrospective transition method and record a cumulative effect adjustment for previously unrecognized excess tax benefits. Accordingly, we recorded a cumulative effect adjustment to accumulated deficit as of January 1, 2017 of approximately $0.9 million for all excess tax benefits that had not been previously recognized because the related tax deduction had not reduced income taxes payable.
ASU 2016-09 also clarifies that an entity should classify excess tax benefits along with other income tax cash flows as an operating activity in the statement of cash flows. This change eliminates the prior practice of grossing up the statement of cash flows for the effect of windfalls, i.e. reporting windfalls as outflows in operating activities and as inflows in financing activities. Under ASU 2016-09, the effect of windfalls will generally be reflected in net income from continuing operations under the indirect method. We have adopted this portion of the guidance on a retrospective basis. ASU 2016-09 also clarifies that employee taxes paid when an employer withholds shares of stock for tax withholding purposes be reported as financing activities inadjust the consolidated statements of cash flows which is howto exclude cash flows attributable to discontinued operations. Accordingly, we disclosed the Company has historically presented such activities in our statement of cash flows.
We have elected to continue to estimate the number of stock-based awards expected to vest, as permitted by ASU 2016-09, rather than electing to account for forfeitures as they occur. Additional amendments to the accounting for statutory withholding tax requirements had no impact on our consolidated financial statements.
(3) Acquisitions
On July 14, 2017, wedepreciation, capital expenditures and Neff Corporation (“Neff”) announced that we had entered into a definitive merger agreement under which we would acquire Neff by way of merger. The merger agreement was subject to customary closing conditions,significant operating and also included a “go-shop” period expiring on August 20, 2017, during which Neff could solicit alternative proposals to acquire Neff. On August 13, 2017, Neff notified us that it had determined that an acquisition proposal Neff had received constituted a “Superior Proposal” (as defined in the merger agreement) to acquire Neff and that Neff intended to terminate the merger agreement with us to enter into an agreement for such acquisition proposal, subject to our right to match the proposal under the merger agreement. On
August 16, 2017, we announced that we had notified Neff that we did not intend to submit a revised proposal for the acquisition of Neff, , and on August 17, 2017, Neff terminated the merger agreement with us and immediately entered into a definitive agreement with United Rentals, Inc. (“United Rentals”) under which United Rentals would acquire Neff.
Pursuant to the terms of the merger agreement between us and Neff, Neff paid a termination fee to us of approximately $13.2 million concurrently with Neff’s termination of the merger agreement. We received the $13.2 million termination fee on August 16, 2017. Total estimated transaction costsinvesting non-cash items related to the proposed merger with Neff, including related financing costs, were approximately $6.7 million, resultingCrane Sale below.
13
The following tables (amounts in $6.5 million of net proceedsthousands) present the Crane Sale results as reported in income (loss) from the Neff transaction. The net breakup fee proceeds of $6.5 million are presented indiscontinued operations within our consolidated statements of incomeincome.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment rentals |
| $ | 0 |
|
| $ | 3,426 |
|
| $ | 0 |
|
| $ | 6,431 |
|
Used equipment sales |
|
| 0 |
|
|
| 5,537 |
|
|
| 0 |
|
|
| 8,449 |
|
New equipment sales |
|
| 0 |
|
|
| 22,286 |
|
|
| 0 |
|
|
| 36,858 |
|
Parts sales |
|
| 0 |
|
|
| 10,544 |
|
|
| 0 |
|
|
| 20,600 |
|
Services revenues |
|
| 0 |
|
|
| 6,918 |
|
|
| 0 |
|
|
| 13,417 |
|
Other |
|
| 0 |
|
|
| 1,375 |
|
|
| 0 |
|
|
| 2,344 |
|
Total revenues |
|
| 0 |
|
|
| 50,086 |
|
|
| 0 |
|
|
| 88,099 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental depreciation |
|
| 0 |
|
|
| 1,824 |
|
|
| 0 |
|
|
| 3,720 |
|
Rental expense |
|
| 0 |
|
|
| 572 |
|
|
| 0 |
|
|
| 1,195 |
|
Rental other |
|
| 0 |
|
|
| 341 |
|
|
| 0 |
|
|
| 570 |
|
|
|
| 0 |
|
|
| 2,737 |
|
|
| 0 |
|
|
| 5,485 |
|
Used equipment sales |
|
| 0 |
|
|
| 4,325 |
|
|
| 0 |
|
|
| 6,330 |
|
New equipment sales |
|
| 0 |
|
|
| 19,945 |
|
|
| 0 |
|
|
| 32,988 |
|
Parts sales |
|
| 0 |
|
|
| 8,003 |
|
|
| 0 |
|
|
| 15,597 |
|
Services revenues |
|
| 0 |
|
|
| 2,211 |
|
|
| 0 |
|
|
| 4,293 |
|
Other |
|
| 0 |
|
|
| 1,320 |
|
|
| 0 |
|
|
| 2,270 |
|
Total cost of revenues |
|
| 0 |
|
|
| 38,541 |
|
|
| 0 |
|
|
| 66,963 |
|
Gross profit |
|
| 0 |
|
|
| 11,545 |
|
|
| 0 |
|
|
| 21,136 |
|
Selling, general and administrative expenses |
|
| 0 |
|
|
| 6,295 |
|
|
| 0 |
|
|
| 12,103 |
|
Merger and other |
|
| 132 |
|
|
| 674 |
|
|
| 132 |
|
|
| 1,311 |
|
Gain on sales of property and equipment, net |
|
| 0 |
|
|
| 49 |
|
|
| 0 |
|
|
| 49 |
|
Income (loss) from discontinued operations |
|
| (132 | ) |
|
| 4,625 |
|
|
| (132 | ) |
|
| 7,771 |
|
Other, net |
|
| (1,917 | ) |
|
| 58 |
|
|
| (1,917 | ) |
|
| 64 |
|
Income (loss) before provision (benefit) for income taxes |
|
| (2,049 | ) |
|
| 4,683 |
|
|
| (2,049 | ) |
|
| 7,835 |
|
Provision (benefit) for income taxes |
|
| (525 | ) |
|
| 1,168 |
|
|
| (525 | ) |
|
| 2,024 |
|
Net income (loss) from discontinued operations |
| $ | (1,524 | ) |
| $ | 3,515 |
|
| $ | (1,524 | ) |
| $ | 5,811 |
|
Cash flows from discontinued operations was as follows (amounts in thousands):
|
| Six Months Ended |
| |||||
|
| June 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Operating activities of discontinued operations: |
|
|
|
|
|
| ||
Depreciation and amortization of property and equipment |
| $ | 0 |
|
| $ | 1,083 |
|
Depreciation of rental equipment |
|
| 0 |
|
|
| 3,720 |
|
Loss on sale of discontinued operations |
|
| 1,917 |
|
|
| 0 |
|
Gain from sales of property and equipment, net |
|
| 0 |
|
|
| (49 | ) |
Gain from sales of rental equipment, net |
|
| 0 |
|
|
| (1,641 | ) |
|
|
|
|
|
|
| ||
Investing activities of discontinued operations: |
|
|
|
|
|
| ||
Purchases of rental equipment |
|
| 0 |
|
|
| (2,073 | ) |
Proceeds from sales of property and equipment |
|
| 0 |
|
|
| 43 |
|
Proceeds from sales of rental equipment |
|
| 0 |
|
|
| 4,051 |
|
Arkansas Sale
On September 17, 2021, the Company sold our Little Rock, Arkansas and Springdale, Arkansas owned-branches to Bramco, Inc. (“Bramco”) for $9.0 million (the “Arkansas Sale”). The Arkansas Sale included the land, building, building improvements, office equipment, furniture and fixtures, and shop equipment for the three2 branches with a net book value of approximately $3.7 million. We recorded a gain of $5.3 million within sales from property and nine monthsequipment, net on the consolidated statement of operations for the quarter ended September 30, 20172021. As a condition of closing, we relinquished our territory distribution rights with equipment
14
manufacturers Komatsu, Wirtgen Group and Takeuchi. Our current distribution territory for these two branches includes the entire state of Arkansas, with the exception of 5 counties in southeast Arkansas (Miller, Lafayette, Columbia, Union and Little River). These five excluded counties are currently served by our Shreveport, Louisiana branch and we have no intention in the line item, “Merger breakup fee proceeds, netforeseeable future of merger costs”. Includedrelinquishing the Louisiana distribution territory. The Arkansas Sale did not qualify for discontinued operations as the divestiture does not meet the definition of a component.
The Company purchased a site in Little Rock, Arkansas to operate a rental-focused branch location in the $6.7 million estimated transaction costs above are merger costs of $2.2 million that were incurred and previously reflected in our selling, general & administrative expenses forarea. The branch opening coincided with the six month period ended June 30, 2017, and were reclassifiedsale to the merger breakup fee proceeds, net of merger costs line item in the three month period ended September 30, 2017.Bramco.
(4) Fair Value of Financial Instruments
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three broad levels of the fair value hierarchy are as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly
Level 3 – Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions
The carrying value of financial instruments reported in the 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 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 SeptemberJune 30, 20172022 and December 31, 20162021 are presented in the table below (amounts in thousands).
|
| June 30, 2022 |
| |||||
|
| Carrying |
|
| Fair |
| ||
Manufacturer flooring plans payable with interest computed at 5.0% (Level 3) |
| $ | 21,507 |
|
| $ | 18,579 |
|
Senior Unsecured Notes due 2028 with interest computed at 3.875% (Level 2) |
|
| 1,240,688 |
|
|
| 1,013,363 |
|
|
| December 31, 2021 |
| |||||
|
| Carrying |
|
| Fair |
| ||
Manufacturer flooring plans payable with interest computed at 3.5% (Level 3) |
| $ | 20,924 |
|
| $ | 19,533 |
|
Senior Unsecured Notes due 2028 with interest computed at 3.875% (Level 2) |
|
| 1,239,967 |
|
|
| 1,242,850 |
|
At June 30, 2022 and have been calculated based upon market quotes and presentDecember 31, 2021, the fair value calculationsof our senior unsecured notes due 2028 (the “Senior Unsecured Notes”) was based on quoted bond trading market rates.prices for those notes. For our Level 3 unobservable inputs, we calculate a discount rate for our manufacturing floor plans payable based on the U.S. prime rate plus the applicable margin on our Credit Facility. The discount rate is disclosed in the above table.
|
| September 30, 2017 |
| |||||
|
| Carrying Amount |
|
| Fair Value |
| ||
Manufacturer flooring plans payable with interest computed at 4.50% (Level 3) |
| $ | 23,286 |
|
| $ | 19,972 |
|
Senior unsecured notes with interest computed at 5.625% (Level 3) |
|
| 738,222 |
|
|
| 498,063 |
|
Capital leases payable with interest computed at 5.929% to 9.55% (Level 3) |
|
| 1,542 |
|
|
| 1,108 |
|
Letter of credit (Level 3) |
|
| — |
|
|
| 155 |
|
|
| December 31, 2016 |
| |||||
|
| Carrying Amount |
|
| Fair Value |
| ||
Manufacturer flooring plans payable with interest computed at 4.50% (Level 3) |
| $ | 30,780 |
|
| $ | 26,780 |
|
Senior unsecured notes with interest computed at 7.0% (Level 1) |
|
| 627,711 |
|
|
| 663,075 |
|
Capital leases payable with interest computed at 5.929% to 9.55% (Level 3) |
|
| 1,704 |
|
|
| 1,164 |
|
Letter of credit (Level 3) |
|
| — |
|
|
| 155 |
|
During the three and nine month periodssix months ended SeptemberJune 30, 20172022 and 2016,2021, there were no0 transfers of financial assets or liabilities in or out of Level 1, Level 2 or Level 3 of the fair value hierarchy.
15
(5) Stockholders’ Equity
The following table summarizes the activity in Stockholders’ Equity for the nine month periodthree and six months ended SeptemberJune 30, 20172022 and 2021, respectively (amounts in thousands, except share and per share data):
|
| Common Stock |
|
| Additional |
|
|
|
|
|
| Retained Earnings |
|
| Total |
| ||||||||
|
| Shares Issued |
|
| Amount |
|
| Paid-in Capital |
|
| Treasury Stock |
|
| (Accumulated Deficit) |
|
| Stockholders’ Equity |
| ||||||
Balances at December 31, 2016 |
|
| 39,496,759 |
|
| $ | 394 |
|
| $ | 223,544 |
|
| $ | (60,966 | ) |
| $ | (20,207 | ) |
| $ | 142,765 |
|
Cumulative effect adjustment for previously unrecognized excess tax benefits pursuant to the adoption of ASU 2016-09 (see note (2)) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 881 |
|
|
| 881 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2,614 |
|
|
| — |
|
|
| — |
|
|
| 2,614 |
|
Cash dividends declared on common stock ($0.275 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (29,422 | ) |
|
| (29,422 | ) |
Issuance of common stock |
|
| 129,674 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Repurchases of 33,954 shares of restricted common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (754 | ) |
|
| — |
|
|
| (754 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23,730 |
|
|
| 23,730 |
|
Balances at September 30, 2017 |
|
| 39,626,433 |
|
|
| 395 |
|
|
| 226,158 |
|
|
| (61,720 | ) |
|
| (25,018 | ) |
|
| 139,815 |
|
|
| Common Stock |
|
| Additional |
|
|
|
|
|
|
|
| Total |
| |||||||||
|
| Shares |
|
| Amount |
|
| Paid-in |
|
| Treasury |
|
| Retained Earnings |
|
| Stockholders’ |
| ||||||
Balances at December 31, 2021 |
|
| 40,353,299 |
|
| $ | 403 |
|
| $ | 244,638 |
|
| $ | (68,294 | ) |
| $ | 126,635 |
|
| $ | 303,382 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,678 |
|
|
| — |
|
|
| — |
|
|
| 1,678 |
|
Cash dividends declared on common stock ($0.275 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,851 | ) |
|
| (9,851 | ) |
Issuance of common stock, net of restricted stock forfeitures |
|
| 28,825 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Repurchase of 8,938 shares of restricted common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (343 | ) |
|
| — |
|
|
| (343 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16,296 |
|
|
| 16,296 |
|
Balances at March 31, 2022 |
|
| 40,382,124 |
|
|
| 403 |
|
|
| 246,316 |
|
|
| (68,637 | ) |
|
| 133,080 |
|
|
| 311,162 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,311 |
|
|
| — |
|
|
| — |
|
|
| 1,311 |
|
Cash dividends declared on common stock ($0.275 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,964 | ) |
|
| (9,964 | ) |
Restricted stock forfeitures |
|
| (1,816 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 26,346 |
|
|
| 26,346 |
|
Balances at June 30, 2022 |
|
| 40,380,308 |
|
| $ | 403 |
|
| $ | 247,627 |
|
| $ | (68,637 | ) |
| $ | 149,462 |
|
| $ | 328,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balances at December 31, 2020 |
|
| 40,242,711 |
|
| $ | 401 |
|
| $ | 240,206 |
|
| $ | (66,188 | ) |
| $ | 63,814 |
|
| $ | 238,233 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1,601 |
|
|
| — |
|
|
| — |
|
|
| 1,601 |
|
Cash dividends declared on common stock ($0.275 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,854 | ) |
|
| (9,854 | ) |
Issuance of common stock, net of restricted stock forfeitures |
|
| 45,427 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Repurchase of 12,624 shares of restricted common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (435 | ) |
|
| — |
|
|
| (435 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,151 |
|
|
| 4,151 |
|
Balances at March 31, 2021 |
|
| 40,288,138 |
|
|
| 401 |
|
|
| 241,807 |
|
|
| (66,623 | ) |
|
| 58,111 |
|
|
| 233,696 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 942 |
|
|
| — |
|
|
| — |
|
|
| 942 |
|
Cash dividends declared on common stock ($0.275 per share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,943 | ) |
|
| (9,943 | ) |
Restricted stock forfeitures |
|
| (9,295 | ) |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15,766 |
|
|
| 15,766 |
|
Balances at June 30, 2021 |
|
| 40,278,843 |
|
| $ | 402 |
|
| $ | 242,749 |
|
| $ | (66,623 | ) |
| $ | 63,934 |
|
| $ | 240,462 |
|
(6) Stock-Based Compensation
We account for our stock-based compensation plans using the fair value recognition provisions of Accounting Standards Codification (“ASC”) 718, Stock Compensation (“ASC 718”), as further updated by ASU 2016-09. Under the provisions of ASC 718, stock-basedStock Compensation. Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, net of an estimated forfeiture rate, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). SharesThe estimated forfeiture rate is based on historical experience and revised, if necessary, in subsequent periods for actual forfeitures. There were 1,186,944 shares available for future stock-based payment awards under our 2016 Stock-Based Incentive Compensation Plan were 1,843,924 shares as of SeptemberJune 30, 2017.2022.
16
Non-vested Stock
The following table summarizes our non-vested stock activity for the ninesix months ended SeptemberJune 30, 2017:2022:
|
| Number of Shares |
|
| Weighted Average Grant Date Fair Value |
| ||||||||||
Non-vested stock at December 31, 2016 |
|
| 400,801 |
|
| $ | 18.86 |
| ||||||||
|
| Number of |
|
| Weighted |
| ||||||||||
Non-vested stock at December 31, 2021 |
|
| 480,147 |
|
| $ | 25.56 |
| ||||||||
Granted |
|
| 190,134 |
|
| $ | 22.94 |
|
|
| 15,376 |
|
| $ | 41.63 |
|
Vested |
|
| (128,825 | ) |
| $ | 21.89 |
|
|
| (35,372 | ) |
| $ | 35.40 |
|
Forfeited |
|
| (10,504 | ) |
| $ | 19.21 |
|
|
| (38,594 | ) |
| $ | 29.37 |
|
Non-vested stock at September 30, 2017 |
|
| 451,606 |
|
| $ | 19.71 |
| ||||||||
Non-vested stock at June 30, 2022 |
|
| 421,557 |
|
| $ | 24.97 |
| ||||||||
As of SeptemberJune 30, 2017,2022, we had unrecognized compensation expense of approximately $5.8$6.5 million related to non-vested stock that we expect to be recognized over a weighted-average period of approximately 2.2 1.4 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 ninesix months ended SeptemberJune 30, 20172022 and 20162021 (amounts in thousands):
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| |||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
|
| 2016 |
| ||||
Compensation expense |
| $ | 720 |
|
| $ | 641 |
|
| $ | 2,614 |
|
|
| $ | 2,308 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Compensation expense |
| $ | 1,311 |
|
| $ | 943 |
|
| $ | 2,989 |
|
| $ | 2,543 |
|
Stock Options
At September 30 2017, there is no unrecognized compensation expense as all previously issued and outstanding stock option awards have expired. The following table represents stock option activity for the nine months ended September 30, 2017:
|
| Number of Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Contractual Life In Years |
| |||
Outstanding options at December 31, 2016 |
|
| 4,500 |
|
| $ | 19.27 |
|
|
|
|
|
Granted |
|
| — |
|
|
| — |
|
|
|
|
|
Exercised |
|
| — |
|
|
| — |
|
|
|
|
|
Canceled, forfeited or expired |
|
| (4,500 | ) |
| $ | 19.27 |
|
|
|
|
|
Outstanding options at September 30, 2017 |
|
| — |
|
|
| — |
|
|
| — |
|
Options exercisable at September 30, 2017 |
|
| — |
|
|
| — |
|
|
| — |
|
(7) Income per Share
Income per common share for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016 are2021 is 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. We include all common shares granted under our incentive compensation plan which remain unvested (“restricted common shares”) and contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid (“participating securities”), in the number of shares outstanding in our basic and diluted EPS calculations using the two-class method. All of our restricted common shares are currently participating securities.
Under the two-class method, earnings per common share are computed by dividing the sum of distributed earnings allocated to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding for the period. In applying the two-class method, distributed and undistributed earnings are allocated to both common shares and restricted common shares based on the total weighted average shares outstanding during the period. The number of restricted common shares outstanding was approximately 0.8%less than 1% of total outstanding shares for each of the three and nine month periodssix months ended SeptemberJune 30, 20172022 and 2016, respectively,2021 and, consequently, was immaterial to the basic and diluted EPS calculations for the periods presented.calculations. Therefore, use of the two-class method had no impact on our basic and diluted EPS calculations for the periods presented. The following table sets forth the computation of basic and diluted net income per common share for the three and ninesix months ended SeptemberJune 30, 20172022 and 20162021 (amounts in thousands, except per share amounts):
17
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Basic net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 8,462 |
|
| $ | 11,665 |
|
| $ | 23,730 |
|
| $ | 24,742 |
|
Weighted average number of common shares outstanding |
|
| 35,543 |
|
|
| 35,424 |
|
|
| 35,494 |
|
|
| 35,373 |
|
Net income per share of common stock – basic |
| $ | 0.24 |
|
| $ | 0.33 |
|
| $ | 0.67 |
|
| $ | 0.70 |
|
Diluted net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 8,462 |
|
| $ | 11,665 |
|
| $ | 23,730 |
|
| $ | 24,742 |
|
Weighted average number of common shares outstanding |
|
| 35,543 |
|
|
| 35,424 |
|
|
| 35,494 |
|
|
| 35,373 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Effect of dilutive non-vested restricted stock |
|
| 172 |
|
|
| 80 |
|
|
| 162 |
|
|
| 88 |
|
Weighted average number of common shares outstanding – diluted |
|
| 35,715 |
|
|
| 35,504 |
|
|
| 35,656 |
|
|
| 35,461 |
|
Net income per share of common stock – diluted |
| $ | 0.24 |
|
| $ | 0.33 |
|
| $ | 0.67 |
|
| $ | 0.70 |
|
Common shares excluded from the denominator as anti-dilutive: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Non-vested restricted stock |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 2 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net income from continuing operations |
| $ | 27,870 |
|
| $ | 12,251 |
|
| $ | 44,166 |
|
| $ | 14,106 |
|
Net income (loss) from discontinued operations |
|
| (1,524 | ) |
|
| 3,515 |
|
|
| (1,524 | ) |
|
| 5,811 |
|
Net income |
| $ | 26,346 |
|
| $ | 15,766 |
|
| $ | 42,642 |
|
| $ | 19,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 36,382 |
|
|
| 36,216 |
|
|
| 36,373 |
|
|
| 36,200 |
|
Effect of dilutive non-vested restricted stock |
|
| 159 |
|
|
| 221 |
|
|
| 167 |
|
|
| 212 |
|
Diluted |
|
| 36,541 |
|
|
| 36,437 |
|
|
| 36,540 |
|
|
| 36,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Continuing operations |
| $ | 0.77 |
|
| $ | 0.34 |
|
| $ | 1.21 |
|
| $ | 0.39 |
|
Discontinued operations |
|
| (0.04 | ) |
|
| 0.10 |
|
|
| (0.04 | ) |
|
| 0.16 |
|
Net income (loss) per share |
| $ | 0.72 |
|
| $ | 0.44 |
|
| $ | 1.17 |
|
| $ | 0.55 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Continuing operations |
| $ | 0.76 |
|
| $ | 0.34 |
|
| $ | 1.21 |
|
| $ | 0.39 |
|
Discontinued operations |
|
| (0.04 | ) |
|
| 0.10 |
|
|
| (0.04 | ) |
|
| 0.16 |
|
Net income (loss) per share |
| $ | 0.72 |
|
| $ | 0.43 |
|
| $ | 1.17 |
|
| $ | 0.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Common shares excluded from the denominator as anti-dilutive: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Non-vested restricted stock |
|
| 12 |
|
|
| 0 |
|
|
| 6 |
|
|
| 0 |
|
(8) Income Taxes
We recorded income tax expense of $8.0 million for the nine month period ended September 30, 2017 compared to income tax expense of $17.4 million for the nine month period ended September 30, 2016. Our effective income tax rate was 25.3% for the nine month period ended September 30, 2016 compared to 41.3% for the same nine month period last year, a decrease of 16.0%. The decrease in effective tax rate is primarily due to a net $5.3 million discrete tax benefit resulting from a reversal of an unrecognized tax benefit due to expiration of statute of limitations in the third quarter ended September 30, 2017. The gross amount of unrecognized tax benefits as of September 30, 2017 is $0.9 million. Based on available evidence, both positive and negative, we believe it is more likely than not that our federal deferred tax assets at September 30, 2017 are fully realizable through future reversals of existing taxable temporary differences and future taxable income, and are not subject to any limitations; however, for the quarter ended September 30, 2017, we increased our valuation allowance by $0.4 million for certain state net operating losses that may not be utilized.
(9) Senior Secured Credit Facility
We and our subsidiaries are parties to a $602.5$750.0 million senior secured credit facility (the “Credit Facility”)Credit Facility with Wells Fargo Capital Finance, LLC (“Wells Fargo”), as administrative agent, (as successor in such capacity to General Electric Capital Corporation (“GE Capital”)), and the lenders named therein (the “Lenders”).
On May 21, 2014, we amended, extended and restated the Credit Facility by entering into the Fourth Amended and Restated Credit Agreement (the “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, GE Capital, as administrative agent, Bank of America, N.A. as co-syndication agent and documentation agent, Wells Fargo, as co-syndication agent and Deutsche Bank Securities Inc. as joint lead arranger and joint bookrunner. In March 2016, Wells Fargo succeeded and was substituted for GE Capital as the administrative agent under the Amended and Restated Credit Agreement.
The Amended and Restated Credit Agreement, among other things, (i) extends the maturity datetherein. For further information related to significant terms of the Credit Facility, from February 29, 2017 to May 21, 2019, (ii) increases the uncommitted incremental revolving capacity from $130 million to $150 million, (iii) permits a like-kind exchange program under Section 1031 of the Internal Revenue Code of 1986, as amended, (iv) provides that the unused commitment fee margin will be either 0.50%, 0.375% or 0.25%, 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 monthsee Note 10 to the aggregate commitmentsCompany’s Consolidated Financial Statements included as Item 8 in the Company’s Annual Report on Form 10-K for the revolving loans, swing line loans and letters of credit, (v) lowers the interest rate (a) in the case of index rate revolving loans, to the index rate plus an applicable margin of 0.75% to 1.25% depending on the leverage ratio and (b) in the case of LIBOR revolving loans, to LIBOR plus an applicable margin of 1.75% to 2.25%, depending on the leverage ratio, (vi) lowers the margin applicable to the letter of credit fee to between 1.75% and 2.25%, depending on the leverage ratio, and (vii) permits, under certain conditions, for the payment of dividends and/or stock repurchases or redemptions on the capital stock of the Company of up to $75 million per calendar year and further additionally permits the payment of the special cash dividend of $7.00 per share previously declared by the Company on August 20, 2012 to the holders of outstanding restricted stock of the Company following the declared payment date with such permission not tied to the vesting of such restricted stock (which includes the Company’s payment in June 2014 of all amounts that remained payable to the holders of the restricted stock of the Company with respect to such special dividend that was otherwise payable following the applicable vesting dates in May and July 2014 and 2015).ended December 31, 2021.
On February 5, 2015, we entered into an amendment of the Credit Facility which, among other things, increased the total amount of revolving loan commitments under the Amended and Restated Credit Agreement from $402.5 million to $602.5 million.
As of SeptemberJune 30, 2017,2022, we were in compliance with our financial covenants under the Amended and Restated Credit Facility.Agreement. At SeptemberJune 30, 2017,2022, we had no amount of borrowings outstanding under the CompanyCredit Facility and could borrow up to an additional $517.6approximately $740.3 million, net of a $9.7 million outstanding letter of credit, and remain in compliance with the debt covenants under the Company’s Credit Facility.
At September 30, 2017, the interest rate on the Credit Facility was based on a 4.25% U.S. Prime Rate plus 100 basis points and LIBOR plus 200 basis points. The weighted average interest rate at September 30, 2017 was approximately 3.9%. At October 19, 2017, we had $526.6 million of available borrowings under our Credit Facility, net of $7.7 million of outstanding letters of credit.
(10)(9) Senior Unsecured NotesNotes
On August 24, 2017,December 14, 2020, we completed an offering of $750 million aggregate principal amount of 5.625% senior notes due 2025 (the “New Notes”) and the settlement of a cash tender offer (the “Tender Offer”) with respect to our previously outstanding 7% senior notes due 2022 (the “Old Notes”). 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, after deducting $10.3 million of estimated offering expenses, from the sale of the New Notes totaled approximately $739.7 million. We used a portion of the net proceeds from the sale of the New Notes to repurchase $329.7 million of its $630 million aggregate principal amount of the Old Notes in early settlement of the Tender Offer, which we launched on August 17, 2017. Holders who tendered their Old Notes prior to the early tender deadline received $1,038.90 per $1,000 principal amount of Old Notes tendered, plus accrued and unpaid interest up to, but not including, the payment date of August 24, 2017. Effective as of August 24, 2017, we (i) provided notice of the redemption of all remaining Old Notes that were not validly tendered in the Tender Offer at the expiration time and (ii) satisfied and discharged the indenture governing the Old Notes in accordance with its terms. On September 25, 2017, we redeemed the remaining $300.3 million principal amount outstanding of the Old Notes at a redemption price equal to 103.50% of the principal amount thereof, plus accrued and unpaid interest up to, but not including, the date of redemption.
In connection with the above transactions, we recorded a one-time loss on the early extinguishment of debt of approximately $25.4 million, or approximately $18.9 million after-tax, reflecting payment of $12.8 million of tender premiums and $10.5 million of premiums in accordance with the indenture governing the Old Notes to redeem the Old Notes that remained outstanding following completion of the Tender Offer, combined with the write-off of approximately $2.0 million of unamortized note discount related to the Old Notes. Additional transaction costs incurred in connection with the offering of our $1.25 billion, 3.875% Senior Unsecured Notes due 2028. For further information related to significant terms of the NewSenior Unsecured Notes, totaled approximately $1.6 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, 2018. No principal payments are due until maturity (September 1, 2025).
The New Notes are redeemable, in whole or in part, at any time on or after September 1, 2020 at specified redemption prices plus accrued and unpaid interestsee Note 9 to the date of redemption. We may redeem up to 40% ofCompany’s Consolidated Financial Statements included as Item 8 in the aggregate principal amount ofCompany’s Annual Report on Form 10-K for the New Notes before September 1, 2020 with the net cash proceeds from certain equity offerings. We may also redeem the New Notes prior to September 1, 2020 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 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.
If we experience a change of control, we will be required to offer to purchase the New Notes at a repurchase price equal to 101% of the principal amount, plus accrued and unpaid interest to the date of repurchase.
The indenture governing the New 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 consolidations; (vii) engage in certain 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.year ended December 31, 2021. As of SeptemberJune 30, 2017,2022, we were in compliance with these covenants.the covenants governing our 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 agreed to make an offer to exchange (the “Exchange Offer”) the New Notes and guarantees for registered, publicly tradable notes and guarantees that have terms identical in all material respects to the New Notes (except that the exchange notes will not contain any transfer restrictions) within a certain period of time following the completion of the offering.
The following table reconciles our Senior Unsecured Notes to our Condensed Consolidated Balance Sheets (amounts in thousands):
Balance at December 31, 2015 |
| $ | 627,306 |
|
Accretion of discount through December 31, 2016 |
|
| 1,055 |
|
Amortization of note premium through December 31, 2016 |
|
| (887 | ) |
Amortization of deferred financing costs through December 31, 2016 |
|
| 237 |
|
Balance at December 31, 2016 |
| $ | 627,711 |
|
Accretion of discount on Old Notes |
|
| 683 |
|
Amortization of note premium on Old Notes |
|
| (574 | ) |
Amortization of deferred financing costs on Old Notes |
|
| 153 |
|
Aggregate principal amount paid on Old Notes |
|
| (630,000 | ) |
Writeoff of unaccreted discount on Old Notes |
|
| 5,294 |
|
Writeoff of unamoritized note premium on Old Notes |
|
| (4,452 | ) |
Writeoff of deferred financing costs on Old Notes |
|
| 1,185 |
|
Aggregate principal amount issued on New Notes |
|
| 750,000 |
|
Note discount and deferred transaction costs on New Notes |
|
| (11,931 | ) |
Accretion of note discount on New Notes |
|
| 132 |
|
Amortization of deferred financing costs on New Notes |
|
| 21 |
|
Balance at September 30, 2017 |
| $ | 738,222 |
|
Balance at December 31, 2020 |
| $ | 1,238,660 |
|
Accretion of discount through December 31, 2021 |
|
| 1,172 |
|
Additional deferred financing costs through December 31, 2021 |
|
| (135 | ) |
Amortization of deferred financing costs through December 31, 2021 |
|
| 270 |
|
Balance at December 31, 2021 |
| $ | 1,239,967 |
|
Accretion of discount through June 30, 2022 |
|
| 586 |
|
Amortization of deferred financing costs through June 30, 2022 |
|
| 135 |
|
Balance at June 30, 2022 |
| $ | 1,240,688 |
|
18
(10) Leases
We adopted Topic 842 on January 1, 2019. For a discussion of our adoption of Topic 842 and related disclosures, see Note 2 and Note 11 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021.
At June 30, 2022, as disclosed in our condensed consolidated balance sheet, we had net operating lease right-of-use assets of $157.5 million and net finance lease right-of-use assets of $1.6 million. Our operating lease liabilities at June 30, 2022 were $161.8 million and finance lease liabilities were $1.6 million. The weighted average remaining lease term for operating leases was approximately 8.4 years and the weighted average remaining lease term for finance leases was approximately 10.0 years. The weighted average discount rate for operating leases and finance leases was approximately 6.0% and 5.0%, respectively.
The future minimum lease payments of operating leases executed but not commenced as of June 30, 2022 are estimated to be $0.7 million, $2.1 million, $2.4 million, $2.4 million and $2.5 million for the years ended December 31, 2022, 2023, 2024, 2025 and 2026, respectively, and $17.4 million thereafter. It is expected that the majority of these leases will commence during 2022 and 2023.
(11) Segment Information
We have identified five5 reportable segments: equipment rentals, newused equipment sales, usednew equipment sales, parts sales and services revenues. These segments are based upon revenue streams and how management of the Company allocates resources and assesses performance. Non-segmentedOur non-segmented revenues and non-segmented costs relate primarily to ancillary charges associated with equipment support activities including transportation, hauling, parts freightmaintenance and damage-waiver chargesrepair services, and are not generally 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 |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Segment Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment rentals |
| $ | 227,577 |
|
| $ | 175,611 |
|
| $ | 426,802 |
|
| $ | 328,830 |
|
Used equipment sales |
|
| 18,833 |
|
|
| 35,821 |
|
|
| 40,359 |
|
|
| 74,675 |
|
New equipment sales |
|
| 21,486 |
|
|
| 27,633 |
|
|
| 47,522 |
|
|
| 50,806 |
|
Parts sales |
|
| 16,172 |
|
|
| 16,880 |
|
|
| 32,231 |
|
|
| 32,436 |
|
Services revenues |
|
| 8,889 |
|
|
| 8,059 |
|
|
| 17,023 |
|
|
| 16,070 |
|
Total segmented revenues |
|
| 292,957 |
|
|
| 264,004 |
|
|
| 563,937 |
|
|
| 502,817 |
|
Non-segmented revenues |
|
| 1,714 |
|
|
| 1,673 |
|
|
| 3,184 |
|
|
| 3,292 |
|
Total revenues |
| $ | 294,671 |
|
| $ | 265,677 |
|
| $ | 567,121 |
|
| $ | 506,109 |
|
Segment Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment rentals |
| $ | 110,601 |
|
| $ | 73,199 |
|
| $ | 200,133 |
|
| $ | 131,406 |
|
Used equipment sales |
|
| 8,962 |
|
|
| 13,138 |
|
|
| 17,940 |
|
|
| 25,632 |
|
New equipment sales |
|
| 3,215 |
|
|
| 3,402 |
|
|
| 6,922 |
|
|
| 6,176 |
|
Parts sales |
|
| 4,340 |
|
|
| 4,527 |
|
|
| 8,695 |
|
|
| 8,930 |
|
Services revenues |
|
| 5,746 |
|
|
| 5,481 |
|
|
| 11,066 |
|
|
| 10,877 |
|
Total segmented gross profit |
|
| 132,864 |
|
|
| 99,747 |
|
|
| 244,756 |
|
|
| 183,021 |
|
Non-segmented gross profit (loss) |
|
| (530 | ) |
|
| 73 |
|
|
| (842 | ) |
|
| 211 |
|
Total gross profit |
| $ | 132,334 |
|
| $ | 99,820 |
|
| $ | 243,914 |
|
| $ | 183,232 |
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Segment Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 125,616 |
|
| $ | 118,535 |
|
| $ | 351,303 |
|
| $ | 330,023 |
|
New equipment sales |
|
| 48,940 |
|
|
| 44,764 |
|
|
| 128,883 |
|
|
| 151,836 |
|
Used equipment sales |
|
| 22,250 |
|
|
| 20,630 |
|
|
| 75,219 |
|
|
| 71,973 |
|
Parts sales |
|
| 27,763 |
|
|
| 27,335 |
|
|
| 81,063 |
|
|
| 81,958 |
|
Services revenues |
|
| 16,097 |
|
|
| 16,076 |
|
|
| 47,121 |
|
|
| 49,322 |
|
Total segmented revenues |
|
| 240,666 |
|
|
| 227,340 |
|
|
| 683,589 |
|
|
| 685,112 |
|
Non-segmented revenues |
|
| 18,496 |
|
|
| 17,346 |
|
|
| 51,764 |
|
|
| 48,679 |
|
Total revenues |
| $ | 259,162 |
|
| $ | 244,686 |
|
| $ | 735,353 |
|
| $ | 733,791 |
|
Segment Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 62,373 |
|
| $ | 58,629 |
|
| $ | 166,783 |
|
| $ | 156,161 |
|
New equipment sales |
|
| 5,331 |
|
|
| 4,617 |
|
|
| 14,443 |
|
|
| 16,684 |
|
Used equipment sales |
|
| 7,134 |
|
|
| 6,266 |
|
|
| 23,240 |
|
|
| 22,222 |
|
Parts sales |
|
| 7,638 |
|
|
| 7,627 |
|
|
| 22,367 |
|
|
| 22,774 |
|
Services revenues |
|
| 10,530 |
|
|
| 10,631 |
|
|
| 31,223 |
|
|
| 32,586 |
|
Total segmented gross profit |
|
| 93,006 |
|
|
| 87,770 |
|
|
| 258,056 |
|
|
| 250,427 |
|
Non-segmented gross profit |
|
| 1,020 |
|
|
| 355 |
|
|
| 982 |
|
|
| 550 |
|
Total gross profit |
| $ | 94,026 |
|
| $ | 88,125 |
|
| $ | 259,038 |
|
| $ | 250,977 |
|
19
|
| Balances at |
| |||||
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Segment identified assets: |
|
|
|
|
|
|
| |
Equipment sales |
| $ | 107,198 |
|
| $ | 62,652 |
|
Equipment rentals |
|
| 1,190,778 |
|
|
| 1,116,456 |
|
Parts and services |
|
| 14,850 |
|
|
| 12,647 |
|
Total segment identified assets |
|
| 1,312,826 |
|
|
| 1,191,755 |
|
Non-segment identified assets |
|
| 859,596 |
|
|
| 888,692 |
|
Total assets |
| $ | 2,172,422 |
|
| $ | 2,080,447 |
|
|
| Balances at |
| |||||
|
| September 30, |
|
| December 31, |
| ||
|
| 2017 |
|
| 2016 |
| ||
Segment identified assets: |
|
|
|
|
|
|
|
|
Equipment sales |
| $ | 65,532 |
|
| $ | 37,912 |
|
Equipment rentals |
|
| 917,075 |
|
|
| 893,816 |
|
Parts and services |
|
| 17,535 |
|
|
| 15,997 |
|
Total segment identified assets |
|
| 1,000,142 |
|
|
| 947,725 |
|
Non-segment identified assets |
|
| 302,071 |
|
|
| 293,886 |
|
Total assets |
| $ | 1,302,213 |
|
| $ | 1,241,611 |
|
The Company operates primarily in the United States and our sales to international customers for the three month periodsmonths ended SeptemberJune 30, 20172022 and 20162021 were 0.1%0.1% and 0.3%, respectively,0.2% of total revenues. Our sales to international customersrevenues, respectively, and for the nine month periodssix months ended SeptemberJune 30, 20172022 and 20162021 were 0.3%0.5% and 0.4%, respectively,0.2% of total revenues. Norevenues, respectively. NaN one customer accounted for more than 10% of our revenues on an overall or segment basis for any of the periods presented.
(12) Condensed Consolidating Financial Information of Guarantor Subsidiaries20
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., H&E Equipment Services (Mid-Atlantic), Inc. and H&E Finance Corp. 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. and Yellow Iron Merger Co. are not included within the consolidating financial statements because H&E Finance Corp. and Yellow Iron Merger Co. has no assets or operations.
CONDENSED CONSOLIDATING BALANCE SHEET
|
| As of September 30, 2017 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 6,184 |
|
| $ | — |
|
| $ | — |
|
| $ | 6,184 |
|
Receivables, net |
|
| 124,955 |
|
|
| 27,868 |
|
|
| — |
|
|
| 152,823 |
|
Inventories, net |
|
| 73,599 |
|
|
| 9,468 |
|
|
| — |
|
|
| 83,067 |
|
Prepaid expenses and other assets |
|
| 8,935 |
|
|
| 184 |
|
|
| — |
|
|
| 9,119 |
|
Rental equipment, net |
|
| 766,830 |
|
|
| 150,245 |
|
|
| — |
|
|
| 917,075 |
|
Property and equipment, net |
|
| 91,867 |
|
|
| 9,305 |
|
|
| — |
|
|
| 101,172 |
|
Deferred financing costs, net |
|
| 1,576 |
|
|
| — |
|
|
| — |
|
|
| 1,576 |
|
Investment in guarantor subsidiaries |
|
| 220,125 |
|
|
| — |
|
|
| (220,125 | ) |
|
| — |
|
Goodwill |
|
| 1,671 |
|
|
| 29,526 |
|
|
| — |
|
|
| 31,197 |
|
Total assets |
| $ | 1,295,742 |
|
| $ | 226,596 |
|
| $ | (220,125 | ) |
| $ | 1,302,213 |
|
Liabilities and Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due on senior secured credit facility |
| $ | 77,197 |
|
| $ | — |
|
| $ | — |
|
| $ | 77,197 |
|
Accounts payable |
|
| 77,858 |
|
|
| 3,696 |
|
|
| — |
|
|
| 81,554 |
|
Manufacturer flooring plans payable |
|
| 21,703 |
|
|
| 1,583 |
|
|
| — |
|
|
| 23,286 |
|
Accrued expenses payable and other liabilities |
|
| 54,190 |
|
|
| (305 | ) |
|
| — |
|
|
| 53,885 |
|
Dividends payable |
|
| 165 |
|
|
| (45 | ) |
|
| — |
|
|
| 120 |
|
Senior unsecured notes |
|
| 738,222 |
|
|
| — |
|
|
| — |
|
|
| 738,222 |
|
Capital leases payable |
|
| — |
|
|
| 1,542 |
|
|
| — |
|
|
| 1,542 |
|
Deferred income taxes |
|
| 184,706 |
|
|
| — |
|
|
| — |
|
|
| 184,706 |
|
Deferred compensation payable |
|
| 1,886 |
|
|
| — |
|
|
| — |
|
|
| 1,886 |
|
Total liabilities |
|
| 1,155,927 |
|
|
| 6,471 |
|
|
| — |
|
|
| 1,162,398 |
|
Stockholders’ equity |
|
| 139,815 |
|
|
| 220,125 |
|
|
| (220,125 | ) |
|
| 139,815 |
|
Total liabilities and stockholders’ equity |
| $ | 1,295,742 |
|
| $ | 226,596 |
|
| $ | (220,125 | ) |
| $ | 1,302,213 |
|
CONDENSED CONSOLIDATING BALANCE SHEET
|
| As of December 31, 2016 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 7,683 |
|
| $ | — |
|
| $ | — |
|
| $ | 7,683 |
|
Receivables, net |
|
| 112,758 |
|
|
| 27,279 |
|
|
| — |
|
|
| 140,037 |
|
Inventories, net |
|
| 49,509 |
|
|
| 4,400 |
|
|
| — |
|
|
| 53,909 |
|
Prepaid expenses and other assets |
|
| 7,343 |
|
|
| 170 |
|
|
| — |
|
|
| 7,513 |
|
Rental equipment, net |
|
| 743,759 |
|
|
| 150,057 |
|
|
| — |
|
|
| 893,816 |
|
Property and equipment, net |
|
| 93,866 |
|
|
| 11,626 |
|
|
| — |
|
|
| 105,492 |
|
Deferred financing costs, net |
|
| 1,964 |
|
|
| — |
|
|
| — |
|
|
| 1,964 |
|
Investment in guarantor subsidiaries |
|
| 220,209 |
|
|
| — |
|
|
| (220,209 | ) |
|
| — |
|
Goodwill |
|
| 1,671 |
|
|
| 29,526 |
|
|
| — |
|
|
| 31,197 |
|
Total assets |
| $ | 1,238,762 |
|
| $ | 223,058 |
|
| $ | (220,209 | ) |
| $ | 1,241,611 |
|
Liabilities and Stockholders’ Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due on senior secured credit facility |
| $ | 162,642 |
|
| $ | — |
|
| $ | — |
|
| $ | 162,642 |
|
Accounts payable |
|
| 36,188 |
|
|
| 3,244 |
|
|
| — |
|
|
| 39,432 |
|
Manufacturer flooring plans payable |
|
| 30,899 |
|
|
| (119 | ) |
|
| — |
|
|
| 30,780 |
|
Accrued expenses payable and other liabilities |
|
| 58,774 |
|
|
| (1,941 | ) |
|
| — |
|
|
| 56,833 |
|
Dividends payable |
|
| 106 |
|
|
| (39 | ) |
|
| — |
|
|
| 67 |
|
Senior unsecured notes |
|
| 627,711 |
|
|
| — |
|
|
| — |
|
|
| 627,711 |
|
Capital leases payable |
|
| — |
|
|
| 1,704 |
|
|
| — |
|
|
| 1,704 |
|
Deferred income taxes |
|
| 177,835 |
|
|
| — |
|
|
| — |
|
|
| 177,835 |
|
Deferred compensation payable |
|
| 1,842 |
|
|
| — |
|
|
| — |
|
|
| 1,842 |
|
Total liabilities |
|
| 1,095,997 |
|
|
| 2,849 |
|
|
| — |
|
|
| 1,098,846 |
|
Stockholders’ equity |
|
| 142,765 |
|
|
| 220,209 |
|
|
| (220,209 | ) |
|
| 142,765 |
|
Total liabilities and stockholders’ equity |
| $ | 1,238,762 |
|
| $ | 223,058 |
|
| $ | (220,209 | ) |
| $ | 1,241,611 |
|
CONDENSED CONSOLIDATING STATEMENT OF INCOME
|
| Three Months Ended September 30, 2017 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 103,618 |
|
| $ | 21,998 |
|
| $ | — |
|
| $ | 125,616 |
|
New equipment sales |
|
| 38,132 |
|
|
| 10,808 |
|
|
| — |
|
|
| 48,940 |
|
Used equipment sales |
|
| 17,818 |
|
|
| 4,432 |
|
|
| — |
|
|
| 22,250 |
|
Parts sales |
|
| 23,869 |
|
|
| 3,894 |
|
|
| — |
|
|
| 27,763 |
|
Services revenues |
|
| 13,559 |
|
|
| 2,538 |
|
|
| — |
|
|
| 16,097 |
|
Other |
|
| 15,112 |
|
|
| 3,384 |
|
|
| — |
|
|
| 18,496 |
|
Total revenues |
|
| 212,108 |
|
|
| 47,054 |
|
|
| — |
|
|
| 259,162 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
| 35,886 |
|
|
| 7,369 |
|
|
| — |
|
|
| 43,255 |
|
Rental expense |
|
| 16,630 |
|
|
| 3,358 |
|
|
| — |
|
|
| 19,988 |
|
New equipment sales |
|
| 33,933 |
|
|
| 9,676 |
|
|
| — |
|
|
| 43,609 |
|
Used equipment sales |
|
| 12,288 |
|
|
| 2,828 |
|
|
| — |
|
|
| 15,116 |
|
Parts sales |
|
| 17,410 |
|
|
| 2,715 |
|
|
| — |
|
|
| 20,125 |
|
Services revenues |
|
| 4,775 |
|
|
| 792 |
|
|
| — |
|
|
| 5,567 |
|
Other |
|
| 14,467 |
|
|
| 3,009 |
|
|
| — |
|
|
| 17,476 |
|
Total cost of revenues |
|
| 135,389 |
|
|
| 29,747 |
|
|
| — |
|
|
| 165,136 |
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
| 51,102 |
|
|
| 11,271 |
|
|
| — |
|
|
| 62,373 |
|
New equipment sales |
|
| 4,199 |
|
|
| 1,132 |
|
|
| — |
|
|
| 5,331 |
|
Used equipment sales |
|
| 5,530 |
|
|
| 1,604 |
|
|
| — |
|
|
| 7,134 |
|
Parts sales |
|
| 6,459 |
|
|
| 1,179 |
|
|
| — |
|
|
| 7,638 |
|
Services revenues |
|
| 8,784 |
|
|
| 1,746 |
|
|
| — |
|
|
| 10,530 |
|
Other |
|
| 645 |
|
|
| 375 |
|
|
| — |
|
|
| 1,020 |
|
Gross profit |
|
| 76,719 |
|
|
| 17,307 |
|
|
| — |
|
|
| 94,026 |
|
Selling, general and administrative expenses |
|
| 44,408 |
|
|
| 10,795 |
|
|
| — |
|
|
| 55,203 |
|
Equity in earnings of guarantor subsidiaries |
|
| 6,160 |
|
|
| — |
|
|
| (6,160 | ) |
|
| — |
|
Merger breakup fee proceeds, net of merger costs |
|
| 6,506 |
|
|
| — |
|
|
| — |
|
|
| 6,506 |
|
Gain on sales of property and equipment, net |
|
| 342 |
|
|
| 1,983 |
|
|
| — |
|
|
| 2,325 |
|
Income from operations |
|
| 45,319 |
|
|
| 8,495 |
|
|
| (6,160 | ) |
|
| 47,654 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (12,665 | ) |
|
| (2,395 | ) |
|
| — |
|
|
| (15,060 | ) |
Loss on early extinguishment of debt |
|
| (25,363 | ) |
|
| — |
|
|
| — |
|
|
| (25,363 | ) |
Other, net |
|
| 286 |
|
|
| 60 |
|
|
| — |
|
|
| 346 |
|
Total other expense, net |
|
| (37,742 | ) |
|
| (2,335 | ) |
|
| — |
|
|
| (40,077 | ) |
Income before income taxes |
|
| 7,577 |
|
|
| 6,160 |
|
|
| (6,160 | ) |
|
| 7,577 |
|
Income tax benefit |
|
| (885 | ) |
|
| — |
|
|
| — |
|
|
| (885 | ) |
Net income |
| $ | 8,462 |
|
| $ | 6,160 |
|
| $ | (6,160 | ) |
| $ | 8,462 |
|
CONDENSED CONSOLIDATING STATEMENT OF INCOME
|
| Three Months Ended September 30, 2016 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 96,310 |
|
| $ | 22,225 |
|
| $ | — |
|
| $ | 118,535 |
|
New equipment sales |
|
| 37,110 |
|
|
| 7,654 |
|
|
| — |
|
|
| 44,764 |
|
Used equipment sales |
|
| 16,778 |
|
|
| 3,852 |
|
|
| — |
|
|
| 20,630 |
|
Parts sales |
|
| 23,807 |
|
|
| 3,528 |
|
|
| — |
|
|
| 27,335 |
|
Services revenues |
|
| 13,693 |
|
|
| 2,383 |
|
|
| — |
|
|
| 16,076 |
|
Other |
|
| 14,072 |
|
|
| 3,274 |
|
|
| — |
|
|
| 17,346 |
|
Total revenues |
|
| 201,770 |
|
|
| 42,916 |
|
|
| — |
|
|
| 244,686 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
| 34,168 |
|
|
| 7,360 |
|
|
| — |
|
|
| 41,528 |
|
Rental expense |
|
| 15,127 |
|
|
| 3,251 |
|
|
| — |
|
|
| 18,378 |
|
New equipment sales |
|
| 33,206 |
|
|
| 6,941 |
|
|
| — |
|
|
| 40,147 |
|
Used equipment sales |
|
| 11,762 |
|
|
| 2,602 |
|
|
| — |
|
|
| 14,364 |
|
Parts sales |
|
| 17,221 |
|
|
| 2,487 |
|
|
| — |
|
|
| 19,708 |
|
Services revenues |
|
| 4,686 |
|
|
| 759 |
|
|
| — |
|
|
| 5,445 |
|
Other |
|
| 13,716 |
|
|
| 3,275 |
|
|
| — |
|
|
| 16,991 |
|
Total cost of revenues |
|
| 129,886 |
|
|
| 26,675 |
|
|
| — |
|
|
| 156,561 |
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
| 47,015 |
|
|
| 11,614 |
|
|
| — |
|
|
| 58,629 |
|
New equipment sales |
|
| 3,904 |
|
|
| 713 |
|
|
| — |
|
|
| 4,617 |
|
Used equipment sales |
|
| 5,016 |
|
|
| 1,250 |
|
|
| — |
|
|
| 6,266 |
|
Parts sales |
|
| 6,586 |
|
|
| 1,041 |
|
|
| — |
|
|
| 7,627 |
|
Services revenues |
|
| 9,007 |
|
|
| 1,624 |
|
|
| — |
|
|
| 10,631 |
|
Other |
|
| 356 |
|
|
| (1 | ) |
|
| — |
|
|
| 355 |
|
Gross profit |
|
| 71,884 |
|
|
| 16,241 |
|
|
| — |
|
|
| 88,125 |
|
Selling, general and administrative expenses |
|
| 45,810 |
|
|
| 10,152 |
|
|
| — |
|
|
| 55,962 |
|
Equity in earnings of guarantor subsidiaries |
|
| 3,892 |
|
|
| — |
|
|
| (3,892 | ) |
|
| — |
|
Gain on sales of property and equipment, net |
|
| 782 |
|
|
| 145 |
|
|
| — |
|
|
| 927 |
|
Income from operations |
|
| 30,748 |
|
|
| 6,234 |
|
|
| (3,892 | ) |
|
| 33,090 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (11,074 | ) |
|
| (2,395 | ) |
|
| — |
|
|
| (13,469 | ) |
Other, net |
|
| 333 |
|
|
| 53 |
|
|
| — |
|
|
| 386 |
|
Total other expense, net |
|
| (10,741 | ) |
|
| (2,342 | ) |
|
| — |
|
|
| (13,083 | ) |
Income before income taxes |
|
| 20,007 |
|
|
| 3,892 |
|
|
| (3,892 | ) |
|
| 20,007 |
|
Income tax expense |
|
| 8,342 |
|
|
| — |
|
|
| — |
|
|
| 8,342 |
|
Net income |
| $ | 11,665 |
|
| $ | 3,892 |
|
| $ | (3,892 | ) |
| $ | 11,665 |
|
CONDENSED CONSOLIDATING STATEMENT OF INCOME
|
| Nine Months Ended September 30, 2017 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 288,610 |
|
| $ | 62,693 |
|
| $ | — |
|
| $ | 351,303 |
|
New equipment sales |
|
| 106,626 |
|
|
| 22,257 |
|
|
| — |
|
|
| 128,883 |
|
Used equipment sales |
|
| 60,292 |
|
|
| 14,927 |
|
|
| — |
|
|
| 75,219 |
|
Parts sales |
|
| 69,569 |
|
|
| 11,494 |
|
|
| — |
|
|
| 81,063 |
|
Services revenues |
|
| 39,650 |
|
|
| 7,471 |
|
|
| — |
|
|
| 47,121 |
|
Other |
|
| 42,352 |
|
|
| 9,412 |
|
|
| — |
|
|
| 51,764 |
|
Total revenues |
|
| 607,099 |
|
|
| 128,254 |
|
|
| — |
|
|
| 735,353 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
| 104,177 |
|
|
| 21,819 |
|
|
| — |
|
|
| 125,996 |
|
Rental expense |
|
| 48,607 |
|
|
| 9,917 |
|
|
| — |
|
|
| 58,524 |
|
New equipment sales |
|
| 94,617 |
|
|
| 19,823 |
|
|
| — |
|
|
| 114,440 |
|
Used equipment sales |
|
| 42,442 |
|
|
| 9,537 |
|
|
| — |
|
|
| 51,979 |
|
Parts sales |
|
| 50,627 |
|
|
| 8,069 |
|
|
| — |
|
|
| 58,696 |
|
Services revenues |
|
| 13,464 |
|
|
| 2,434 |
|
|
| — |
|
|
| 15,898 |
|
Other |
|
| 41,507 |
|
|
| 9,275 |
|
|
| — |
|
|
| 50,782 |
|
Total cost of revenues |
|
| 395,441 |
|
|
| 80,874 |
|
|
| — |
|
|
| 476,315 |
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
| 135,826 |
|
|
| 30,957 |
|
|
| — |
|
|
| 166,783 |
|
New equipment sales |
|
| 12,009 |
|
|
| 2,434 |
|
|
| — |
|
|
| 14,443 |
|
Used equipment sales |
|
| 17,850 |
|
|
| 5,390 |
|
|
| — |
|
|
| 23,240 |
|
Parts sales |
|
| 18,942 |
|
|
| 3,425 |
|
|
| — |
|
|
| 22,367 |
|
Services revenues |
|
| 26,186 |
|
|
| 5,037 |
|
|
| — |
|
|
| 31,223 |
|
Other |
|
| 845 |
|
|
| 137 |
|
|
| — |
|
|
| 982 |
|
Gross profit |
|
| 211,658 |
|
|
| 47,380 |
|
|
| — |
|
|
| 259,038 |
|
Selling, general and administrative expenses |
|
| 140,522 |
|
|
| 31,806 |
|
|
| — |
|
|
| 172,328 |
|
Equity in earnings of guarantor subsidiaries |
|
| 11,141 |
|
|
| — |
|
|
| (11,141 | ) |
|
| — |
|
Merger breakup fee proceeds, net of merger costs |
|
| 6,506 |
|
|
| — |
|
|
| — |
|
|
| 6,506 |
|
Gain on sales of property and equipment, net |
|
| 1,971 |
|
|
| 2,460 |
|
|
| — |
|
|
| 4,431 |
|
Income from operations |
|
| 90,754 |
|
|
| 18,034 |
|
|
| (11,141 | ) |
|
| 97,647 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (34,522 | ) |
|
| (7,143 | ) |
|
| — |
|
|
| (41,665 | ) |
Loss on early extinguishment of debt |
|
| (25,363 | ) |
|
| — |
|
|
| — |
|
|
| (25,363 | ) |
Other, net |
|
| 906 |
|
|
| 250 |
|
|
| — |
|
|
| 1,156 |
|
Total other expense, net |
|
| (58,979 | ) |
|
| (6,893 | ) |
|
| — |
|
|
| (65,872 | ) |
Income before income taxes |
|
| 31,775 |
|
|
| 11,141 |
|
|
| (11,141 | ) |
|
| 31,775 |
|
Income tax expense |
|
| 8,045 |
|
|
| — |
|
|
| — |
|
|
| 8,045 |
|
Net income |
| $ | 23,730 |
|
| $ | 11,141 |
|
| $ | (11,141 | ) |
| $ | 23,730 |
|
CONDENSED CONSOLIDATING STATEMENT OF INCOME
|
| Nine Months Ended September 30, 2016 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 270,927 |
|
| $ | 59,096 |
|
| $ | — |
|
| $ | 330,023 |
|
New equipment sales |
|
| 124,450 |
|
|
| 27,386 |
|
|
| — |
|
|
| 151,836 |
|
Used equipment sales |
|
| 59,515 |
|
|
| 12,458 |
|
|
| — |
|
|
| 71,973 |
|
Parts sales |
|
| 71,323 |
|
|
| 10,635 |
|
|
| — |
|
|
| 81,958 |
|
Services revenues |
|
| 42,140 |
|
|
| 7,182 |
|
|
| — |
|
|
| 49,322 |
|
Other |
|
| 39,619 |
|
|
| 9,060 |
|
|
| — |
|
|
| 48,679 |
|
Total revenues |
|
| 607,974 |
|
|
| 125,817 |
|
|
| — |
|
|
| 733,791 |
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental depreciation |
|
| 100,111 |
|
|
| 20,589 |
|
|
| — |
|
|
| 120,700 |
|
Rental expense |
|
| 44,135 |
|
|
| 9,027 |
|
|
| — |
|
|
| 53,162 |
|
New equipment sales |
|
| 110,594 |
|
|
| 24,558 |
|
|
| — |
|
|
| 135,152 |
|
Used equipment sales |
|
| 41,565 |
|
|
| 8,186 |
|
|
| — |
|
|
| 49,751 |
|
Parts sales |
|
| 51,660 |
|
|
| 7,524 |
|
|
| — |
|
|
| 59,184 |
|
Services revenues |
|
| 14,470 |
|
|
| 2,266 |
|
|
| — |
|
|
| 16,736 |
|
Other |
|
| 39,069 |
|
|
| 9,060 |
|
|
| — |
|
|
| 48,129 |
|
Total cost of revenues |
|
| 401,604 |
|
|
| 81,210 |
|
|
| — |
|
|
| 482,814 |
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
|
| 126,681 |
|
|
| 29,480 |
|
|
| — |
|
|
| 156,161 |
|
New equipment sales |
|
| 13,856 |
|
|
| 2,828 |
|
|
| — |
|
|
| 16,684 |
|
Used equipment sales |
|
| 17,950 |
|
|
| 4,272 |
|
|
| — |
|
|
| 22,222 |
|
Parts sales |
|
| 19,663 |
|
|
| 3,111 |
|
|
| — |
|
|
| 22,774 |
|
Services revenues |
|
| 27,670 |
|
|
| 4,916 |
|
|
| — |
|
|
| 32,586 |
|
Other |
|
| 550 |
|
|
| — |
|
|
| — |
|
|
| 550 |
|
Gross profit |
|
| 206,370 |
|
|
| 44,607 |
|
|
| — |
|
|
| 250,977 |
|
Selling, general and administrative expenses |
|
| 142,402 |
|
|
| 29,983 |
|
|
| — |
|
|
| 172,385 |
|
Equity in earnings of guarantor subsidiaries |
|
| 8,388 |
|
|
| — |
|
|
| (8,388 | ) |
|
| — |
|
Gain on sales of property and equipment, net |
|
| 1,948 |
|
|
| 353 |
|
|
| — |
|
|
| 2,301 |
|
Income from operations |
|
| 74,304 |
|
|
| 14,977 |
|
|
| (8,388 | ) |
|
| 80,893 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (33,460 | ) |
|
| (6,769 | ) |
|
| — |
|
|
| (40,229 | ) |
Other, net |
|
| 1,325 |
|
|
| 180 |
|
|
| — |
|
|
| 1,505 |
|
Total other expense, net |
|
| (32,135 | ) |
|
| (6,589 | ) |
|
| — |
|
|
| (38,724 | ) |
Income before income taxes |
|
| 42,169 |
|
|
| 8,388 |
|
|
| (8,388 | ) |
|
| 42,169 |
|
Income tax expense |
|
| 17,427 |
|
|
| — |
|
|
| — |
|
|
| 17,427 |
|
Net income |
| $ | 24,742 |
|
| $ | 8,388 |
|
| $ | (8,388 | ) |
| $ | 24,742 |
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
| Nine Months Ended September 30, 2017 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 23,730 |
|
| $ | 11,141 |
|
| $ | (11,141 | ) |
| $ | 23,730 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization on property and equipment |
|
| 15,778 |
|
|
| 2,314 |
|
|
| — |
|
|
| 18,092 |
|
Depreciation of rental equipment |
|
| 104,177 |
|
|
| 21,819 |
|
|
| — |
|
|
| 125,996 |
|
Amortization of deferred financing costs |
|
| 785 |
|
|
| — |
|
|
| — |
|
|
| 785 |
|
Accretion of note discount, net of premium amortization |
|
| 239 |
|
|
| — |
|
|
| — |
|
|
| 239 |
|
Provision for losses on accounts receivable |
|
| 2,336 |
|
|
| 712 |
|
|
| — |
|
|
| 3,048 |
|
Provision for inventory obsolescence |
|
| 151 |
|
|
| — |
|
|
| — |
|
|
| 151 |
|
Change in deferred income taxes |
|
| 7,752 |
|
|
| — |
|
|
| — |
|
|
| 7,752 |
|
Stock-based compensation expense |
|
| 2,614 |
|
|
| — |
|
|
| — |
|
|
| 2,614 |
|
Loss on early extinguishment of debt |
|
| 25,363 |
|
|
| — |
|
|
| — |
|
|
| 25,363 |
|
Gain from sales of property and equipment, net |
|
| (1,971 | ) |
|
| (2,460 | ) |
|
| — |
|
|
| (4,431 | ) |
Gain from sales of rental equipment, net |
|
| (16,852 | ) |
|
| (5,344 | ) |
|
| — |
|
|
| (22,196 | ) |
Equity in earnings of guarantor subsidiaries |
|
| (11,141 | ) |
|
| — |
|
|
| 11,141 |
|
|
| — |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
| (14,510 | ) |
|
| (1,301 | ) |
|
| — |
|
|
| (15,811 | ) |
Inventories |
|
| (32,279 | ) |
|
| (6,651 | ) |
|
| — |
|
|
| (38,930 | ) |
Prepaid expenses and other assets |
|
| (1,592 | ) |
|
| (14 | ) |
|
| — |
|
|
| (1,606 | ) |
Accounts payable |
|
| 41,670 |
|
|
| 452 |
|
|
| — |
|
|
| 42,122 |
|
Manufacturer flooring plans payable |
|
| (9,196 | ) |
|
| 1,702 |
|
|
| — |
|
|
| (7,494 | ) |
Accrued expenses payable and other liabilities |
|
| (4,711 | ) |
|
| 1,636 |
|
|
| — |
|
|
| (3,075 | ) |
Deferred compensation payable |
|
| 44 |
|
|
| — |
|
|
| — |
|
|
| 44 |
|
Net cash provided by operating activities |
|
| 132,387 |
|
|
| 24,006 |
|
|
| — |
|
|
| 156,393 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (14,618 | ) |
|
| (1,384 | ) |
|
| — |
|
|
| (16,002 | ) |
Purchases of rental equipment |
|
| (154,057 | ) |
|
| (29,697 | ) |
|
| — |
|
|
| (183,754 | ) |
Proceeds from sales of property and equipment |
|
| 2,914 |
|
|
| 3,851 |
|
|
| — |
|
|
| 6,765 |
|
Proceeds from sales of rental equipment |
|
| 51,699 |
|
|
| 14,617 |
|
|
| — |
|
|
| 66,316 |
|
Investment in subsidiaries |
|
| 11,225 |
|
|
| — |
|
|
| (11,225 | ) |
|
| — |
|
Net cash used in investing activities. |
|
| (102,837 | ) |
|
| (12,613 | ) |
|
| (11,225 | ) |
|
| (126,675 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock |
|
| (753 | ) |
|
|
|
|
|
|
|
|
|
| (753 | ) |
Borrowings on senior secured credit facility |
|
| 732,840 |
|
|
| — |
|
|
| — |
|
|
| 732,840 |
|
Payments on senior secured credit facility |
|
| (818,285 | ) |
|
| — |
|
|
| — |
|
|
| (818,285 | ) |
Dividends paid |
|
| (29,363 | ) |
|
| (6 | ) |
|
| — |
|
|
| (29,369 | ) |
Principal payments on senior unsecured notes due 2022 |
|
| (630,000 | ) |
|
|
|
|
|
|
|
|
|
| (630,000 | ) |
Costs paid to tender and redeem senior unsecured notes due 2022 |
|
| (23,336 | ) |
|
|
|
|
|
|
|
|
|
| (23,336 | ) |
Proceeds from issuance of senior unsecured notes due 2025 |
|
| 750,000 |
|
|
|
|
|
|
|
|
|
|
| 750,000 |
|
Payments of deferred financing costs |
|
| (12,152 | ) |
|
|
|
|
|
|
|
|
|
| (12,152 | ) |
Payments on capital lease obligations |
|
| — |
|
|
| (162 | ) |
|
| — |
|
|
| (162 | ) |
Capital contributions |
|
| — |
|
|
| (11,225 | ) |
|
| 11,225 |
|
|
| — |
|
Net cash used in financing activities |
|
| (31,049 | ) |
|
| (11,393 | ) |
|
| 11,225 |
|
|
| (31,217 | ) |
Net decrease in cash |
|
| (1,499 | ) |
|
| — |
|
|
| — |
|
|
| (1,499 | ) |
Cash, beginning of period |
|
| 7,683 |
|
|
| — |
|
|
| — |
|
|
| 7,683 |
|
Cash, end of period |
| $ | 6,184 |
|
| $ | — |
|
| $ | — |
|
| $ | 6,184 |
|
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
|
| Nine Months Ended September 30, 2016 |
| |||||||||||||
|
| H&E Equipment Services |
|
| Guarantor Subsidiaries |
|
| Elimination |
|
| Consolidated |
| ||||
|
| (Amounts in thousands) |
| |||||||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 24,742 |
|
| $ | 8,388 |
|
| $ | (8,388 | ) |
| $ | 24,742 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization on property and equipment |
|
| 18,022 |
|
| �� | 2,299 |
|
|
| — |
|
|
| 20,321 |
|
Depreciation of rental equipment |
|
| 100,111 |
|
|
| 20,589 |
|
|
| — |
|
|
| 120,700 |
|
Amortization of deferred financing costs |
|
| 789 |
|
|
| — |
|
|
| — |
|
|
| 789 |
|
Accretion of note discount, net of premium amortization |
|
| 124 |
|
|
| — |
|
|
| — |
|
|
| 124 |
|
Provision for losses on accounts receivable |
|
| 2,507 |
|
|
| 216 |
|
|
| — |
|
|
| 2,723 |
|
Provision for inventory obsolescence |
|
| 82 |
|
|
| — |
|
|
| — |
|
|
| 82 |
|
Change in deferred income taxes |
|
| 17,193 |
|
|
| — |
|
|
| — |
|
|
| 17,193 |
|
Stock-based compensation expense |
|
| 2,308 |
|
|
| — |
|
|
| — |
|
|
| 2,308 |
|
Gain from sales of property and equipment, net |
|
| (1,948 | ) |
|
| (353 | ) |
|
| — |
|
|
| (2,301 | ) |
Gain from sales of rental equipment, net |
|
| (17,219 | ) |
|
| (4,231 | ) |
|
| — |
|
|
| (21,450 | ) |
Equity in earnings of guarantor subsidiaries |
|
| (8,388 | ) |
|
| — |
|
|
| 8,388 |
|
|
| — |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
| 8,759 |
|
|
| (2,987 | ) |
|
| — |
|
|
| 5,772 |
|
Inventories |
|
| (12,001 | ) |
|
| (3,219 | ) |
|
| — |
|
|
| (15,220 | ) |
Prepaid expenses and other assets |
|
| 1,188 |
|
|
| (28 | ) |
|
| — |
|
|
| 1,160 |
|
Accounts payable |
|
| (18,684 | ) |
|
| 135 |
|
|
| — |
|
|
| (18,549 | ) |
Manufacturer flooring plans payable |
|
| (24,377 | ) |
|
| 170 |
|
|
| — |
|
|
| (24,207 | ) |
Accrued expenses payable and other liabilities |
|
| (5,275 | ) |
|
| 839 |
|
|
| — |
|
|
| (4,436 | ) |
Deferred compensation payable |
|
| (348 | ) |
|
| — |
|
|
| — |
|
|
| (348 | ) |
Net cash provided by operating activities |
|
| 87,585 |
|
|
| 21,818 |
|
|
| — |
|
|
| 109,403 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (14,143 | ) |
|
| (2,610 | ) |
|
| — |
|
|
| (16,753 | ) |
Purchases of rental equipment |
|
| (112,346 | ) |
|
| (40,298 | ) |
|
| — |
|
|
| (152,644 | ) |
Proceeds from sales of property and equipment |
|
| 2,218 |
|
|
| 471 |
|
|
| — |
|
|
| 2,689 |
|
Proceeds from sales of rental equipment |
|
| 50,528 |
|
|
| 11,731 |
|
|
| — |
|
|
| 62,259 |
|
Investment in subsidiaries |
|
| (9,046 | ) |
|
| — |
|
|
| 9,046 |
|
|
| — |
|
Net cash used in investing activities. |
|
| (82,789 | ) |
|
| (30,706 | ) |
|
| 9,046 |
|
|
| (104,449 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock |
|
| (546 | ) |
|
| — |
|
|
| — |
|
|
| (546 | ) |
Borrowings on senior secured credit facility |
|
| 767,550 |
|
|
| — |
|
|
| — |
|
|
| 767,550 |
|
Payments on senior secured credit facility |
|
| (742,645 | ) |
|
| — |
|
|
| — |
|
|
| (742,645 | ) |
Dividends paid |
|
| (29,280 | ) |
|
| (7 | ) |
|
| — |
|
|
| (29,287 | ) |
Payments on capital lease obligations |
|
| — |
|
|
| (151 | ) |
|
| — |
|
|
| (151 | ) |
Capital contributions |
|
| — |
|
|
| 9,046 |
|
|
| (9,046 | ) |
|
| — |
|
Net cash provided by (used in) financing activities |
|
| (4,921 | ) |
|
| 8,888 |
|
|
| (9,046 | ) |
|
| (5,079 | ) |
Net decrease in cash |
|
| (125 | ) |
|
| — |
|
|
| — |
|
|
| (125 | ) |
Cash, beginning of period |
|
| 7,159 |
|
|
| — |
|
|
| — |
|
|
| 7,159 |
|
Cash, end of period |
| $ | 7,034 |
|
| $ | — |
|
| $ | — |
|
| $ | 7,034 |
|
ITEM 2. — MANAGEMENT’S DISCUSSION AND ANALYSIS OFOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion summarizes the financial position of H&E Equipment Services, Inc. and its subsidiaries as of SeptemberJune 30, 2017,2022, and its results of operations for the three and nine month periodssix months ended SeptemberJune 30, 2017,2022, and should be read in conjunction with (i) the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the year ended December 31, 2016.2021. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties (see discussion of “Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q). Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those factors set forth under Item 1A – “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016.2021.
Overview
Background
AsFounded in 1961, we have been in the equipment services business for 61 years and are one of the largest integratedrental equipment services companies in the United States focused on heavy constructionnation. H&E L.L.C. was formed in June 2002 through the business combination of Head & Engquist, a wholly-owned subsidiary of Gulf Wide, and industrialICM. Head & Engquist, founded in 1961, and ICM, founded in 1971, were two leading regional, integrated equipment service companies operating in contiguous geographic markets. In connection with our initial public offering in February 2006, we rent, sell and provide parts and services support for four core categoriesconverted H&E LLC into H&E Equipment Services, Inc., a Delaware corporation.
H&E serves a diverse set of specialized equipment: (1) hi-lift or aerial work platform equipment; (2) cranes; (3) earthmoving equipment; and (4) industrial lift trucks. By providing equipment rental, sales, on-site parts, repair and maintenance functions under one roof, we are a one-stop provider for our customers’ varied equipment needs. This full service approach provides us with multiple points of customer contact, enables us to maintain a high quality rental fleet, as well as an effective distribution channel for fleet disposal and provides cross-selling opportunities among our new and used equipment sales, rental, parts sales and services operations.
As of October 19, 2017, we operated 79 full-service facilitiesend markets in many high-growth geographies throughout the Pacific Northwest, West Coast, Intermountain, Southwest, Gulf Coast, West Coast, Southeast, Midwest and Mid-Atlantic regionsregions. As of June 30, 2022, we operated 106 branch locations across 25 states throughout the United States. Our work force includes distinct, focused sales forces for our new and
We engage in five principal business activities in these equipment categories: equipment rentals, used equipment sales, and rental operations, highly skilled service technicians, product specialists and regional managers. We focus ournew equipment sales, parts sales and repair and maintenance services. The Company’s construction rental activities on,fleet is among the industry’s youngest and organizeis comprised of aerial work platforms, earthmoving, material handling, and other general and specialty lines. We believe that the operating experience and extensive infrastructure we developed throughout our personnel principally by,history as an integrated equipment services company provides us with a competitive advantage to broaden our four core equipment categories.industry expansion and successfully transition to a pure-play rental company. Our management, from the corporate level down to the branch store level, has extensive industry experience. We believe this allows us to provide specialized equipment knowledge, improve the effectiveness of our rental and sales force and strengthen our customer relationships. In addition, we haveoperate our day-to-day business on a branch managers for each location who are responsible for managing their assets and financial results. We believe thisbasis, which allows us to more closely service our customers, fosters management accountability in our businessat local levels and strengthens our local and regional relationships.
Through our predecessor companies, we have been inEffective October 1, 2021, the equipment servicesCompany sold its crane business for approximately 56 years. H&E Equipment Services L.L.C. (“H&E LLC”) was formed in June 2002 through the business combination of Head & Engquist Equipment, LLC (“Head & Engquist”),to a wholly-owned subsidiary of Gulf Wide Industries, L.L.C.The Manitowoc Company, Inc. for $130 million in cash (“Gulf Wide”), and ICM Equipment Company L.L.C. (“ICM”the Crane Sale”). Head & Engquist, foundedThe Crane Sale met the criteria for discontinued operations presentation and as such, the results of operations of the Crane Sale are reported in 1961, and ICM, founded in 1971, were two leading regional, integrated equipment service companies operating in contiguous geographic markets. In the June 2002 transaction, Head & Engquist and ICM were merged with and into Gulf Wide, which was renamed H&E LLC. Prior to the combination, Head & Engquist operated 25 facilitiesdiscontinued operations in the Gulf Coast region,Consolidated Statements of Income for all periods presented. The financial results and ICM operated 16 facilities ininformation below are presented on a continuing operations basis and exclude the Intermountain region of the United States.Crane Sale, unless otherwise noted specifically as discontinued operations.
Prior to our initial public offering in February 2006, our business was conducted through H&E LLC. In connection with our initial public offering, we converted H&E LLC into H&E Equipment Services, Inc. In order to have an operating Delaware corporation as the issuer for our initial public offering, H&E Equipment Services, Inc. was formed as a Delaware corporation and wholly-owned subsidiary of H&E Holdings L.L.C. (“H&E Holdings”), and immediately prior to the closing of our initial public offering, on February 3, 2006, H&E LLC and H&E Holdings merged with and into H&E Equipment Services, Inc., which survived the reincorporation merger as the operating company. Effective February 3, 2006, H&E LLC and H&E Holdings no longer existed under operation of law pursuant to the reincorporation merger.
Critical Accounting Policies
Item 7, included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2016,2021, presents the accounting policies and related estimates that we believe are the most critical to understanding our consolidated financial statements, financial condition, and results of operations and cash flows, and which require complex management judgment and assumptions, or involve uncertainties. There have been no significant changes to these critical accounting policies and estimates during the nine month periodthree and six months ended SeptemberJune 30, 2017. These2022. Our critical accounting policies include, among others, revenue recognition, the adequacy of the allowance for doubtful accounts, the propriety of our estimated useful lifelives of rental equipment and property and equipment, the potential impairment ofacquisition accounting, goodwill, long-lived assets including goodwill and intangible assets, obsolescence reserves on inventory, the allocation of purchase price related to business combinations, reserves for claims, including self-insurance reserves, and deferred income taxes, including the valuation of any related deferred tax assets.taxes.
Information regarding our other significant accounting policies is included in noteNote 2 to our consolidated financial statementsConsolidated Financial Statements in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 20162021 and in noteNote 2 to the condensed consolidated financial statementsCondensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Business Segments
We have five reportable segments because we derive our revenues from five principal business activities: (1) equipment rentals; (2) newused equipment sales; (3) usednew equipment sales; (4) parts sales; and (5) repair and maintenance services. These segments are based upon how we allocate resources and assess performance. In addition, we also have non-segmented revenues and costs that relate to equipment support activities.
21
Equipment Rentals.Rentals. Our rental operation primarily rents our four core types of construction and industrial equipment. We have a well-maintained rental fleet and our own dedicated sales force, focused by equipment type. We actively manage the size, quality, age and composition of our rental fleet based on our analysis of key measures such as time utilization (which we analyze as equipment usage based on: (1) a percentage of original equipment cost,cost; and (2) the number of rental equipment units available for rent), rental rate trends and targets, rental equipment dollar utilization, and maintenance and repair costs, which we closely monitor. We maintain fleet quality through regional quality control managersinspections and our parts and services operations.
New Equipment Sales. Our new equipment sales operation sells new equipment in all of our four core product categories. We have a retail sales force focused by equipment type that is separate from our rental sales force. Manufacturer purchase terms and pricing are managed by our product specialists.
Used Equipment Sales.Sales. Our used equipment sales are generated primarily from sales of used equipment from our rental fleet, as well as from sales of inventoried equipment that we acquire through trade-ins from our equipment customers and through selective purchases of high quality used equipment.customers. Used equipment is sold by our dedicated retail sales force. Our usedSales of our rental fleet equipment sales are an effective way forallow us to manage the size, quality, composition and compositionage of our rental fleet, and provide us with a profitable distribution channel for the disposal of rental equipment.
New Equipment Sales. We seek to optimize revenues from new equipment sales by selling equipment through a professional in-house retail sales force. While sales of new equipment are impacted by the availability of equipment from the manufacturer, we believe our relationships with some of our key suppliers improves our ability to obtain equipment.
Services.Services. Our services operation provides maintenance and repair services for our customers’ equipment and to our own rental fleet and for our customers’ equipment at our facilities as well as at our customers’ locations. As the authorized distributor for numerous equipment manufacturers,In addition to repair and maintenance on an as-needed or scheduled basis, we are ablealso provide ongoing preventative maintenance services to provide service to that equipment that will be covered under the manufacturer’s warranty.
Our non-segmented revenues and costs relate primarily to ancillary charges associated with equipment support activities that we provide, such as transportation, hauling, parts freightmaintenance and damage waivers,repair services, and are not generally allocated to reportable segments.
For additional information about our business segments, see noteNote 11 to the condensed consolidated financial statementsCondensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Revenue Sources
We generate all of our total revenues from our five business segments and our non-segmented equipment support activities. Equipment rentals and new equipment sales account for more than half of our total revenues. For the nine month periodsix months ended SeptemberJune 30, 2017, approximately 47.8%2022, of our total revenues, approximately 75.3% were attributable to equipment rentals, 17.6% of our total revenues7.1% were attributable to used equipment sales, 8.4% were attributable to new equipment sales, 10.2% were attributable to used equipment sales, 11.0%5.7% were attributable to parts sales, 6.4%3.0% were attributable to our services revenues and 7.0%0.5% were attributable to our non-segmented other revenues.
The equipment that we rent, sell rent and service is principally used in the construction industry, as well as by companies for commercial and industrial uses such as plant maintenance and turnarounds, as well asand in the petrochemical and energy sectors. As a result, our total revenues are affected by several factors including, but not limited to, the demand for and availability of rental equipment, rental rates and other competitive factors, the demand for newused and usednew equipment, the level of construction and industrial activities, spending levels by our customers, adverse weather conditions, supply chain disruptions and general economic conditions. For a discussion of the impact of seasonality on our revenues, see “Seasonality” below.
Equipment Rentals.Our rental operation primarily rentsrepresents revenues from renting owned equipment of our four core types of construction and industrial equipment.equipment (aerial work platforms, earthmoving equipment, material handling equipment and other general and specialty lines). We primarily account for these rental contracts as operating leases. We recognize revenue from equipment rentals in the period earned, regardless of the timing of billing to customers. A rental contract includes rates for daily, weekly or monthly use, and rental revenues are earned on a daily basis as rental contracts remain outstanding. We have a well-maintained rental fleet and our own dedicated sales force, focused by equipment type. Wewe actively manage the size, quality, age and composition of our rental fleet based on our analysis of key measures such as time utilization (which we analyze as equipment usage based on: (1) a percentage of original equipment cost, and (2) the number of rental equipment units available for rent), rental rate trends and targets, rental equipment dollar utilization and maintenance and repair costs, which we closely monitor. We maintain fleet quality through regional quality control managers and our parts and services operations. We recognize revenue from equipment rentals in the period earned on a straight-line basis, over the contract term, regardless of the timing of the billing to customers.fleet.
New Equipment Sales. We seek to optimize revenues from new equipment sales by selling equipment through a professional in-house retail sales force focused by product type. While sales of new equipment are impacted by the availability of equipment from the manufacturer, we believe our status as a leading distributor for some of our key suppliers improves our ability to obtain equipment. New equipment sales are an important component of our integrated model due to customer interaction and service contact and new equipment sales also lead to future parts and services revenues. We recognize revenue from the sale of new equipment at the time of delivery to, or pick-up by, the customer and when all obligations under the sales contract have been fulfilled and collectibility is reasonably assured.
Used Equipment Sales.Sales. We generate the majority of our used equipment sales revenues by selling equipment from our rental fleet. The remainder of our used equipment sales revenues comes from the sale of inventoried equipment that we acquire through trade-ins from our equipment customers and selective purchases of high‑quality used equipment.customers.
New Equipment Sales. Our policy is not to offer specified price trade‑in arrangements onnew equipment for sale. Salessales operation sells new equipment across all of our rental fleetcore categories of equipment, allow us to manage the size, quality, composition and age ofprimarily in our rental fleet, and provide us with a profitable distribution channel for the disposal of rental equipment.earthmoving product category.
Parts Sales. We recognize revenue for the sale of used equipment at the time of delivery to, or pick-up by, the customer and when all obligations under the sales contract have been fulfilled and collectibility is reasonably assured.
Parts Sales. Weprimarily generate revenues from the sale of new and used parts for equipment that we rent or sell, as well as for other makes of equipment. Our product support sales representatives are instrumental in generating our parts revenues. They are product specialists and receive performance incentives for achieving certain sales levels. Most of our parts sales come from our extensive in-house parts inventory. Our parts sales provide us with a relatively stable revenue stream that is generally less sensitive to the economic cycles that tend to affect our rental and equipment sales operations.sell.
Services. We recognize revenues from parts sales at the time of delivery to, or pick-up by, the customer and when all obligations under the sales contract have been fulfilled and collectibility is reasonably assured.
Services. Weprimarily derive our services revenues from maintenance and repair services to customers for theirequipment that we rent or sell and from customers' owned equipment. In addition to repair and maintenance on an as-needed or scheduled basis, we also provide ongoing preventative maintenance services to industrial customers. Our after‑market service provides a high-margin, relatively stable source of revenue through changing economic cycles. We recognize services revenues at the time services are rendered and collectibility is reasonably assured.
Our non-segmented other revenues for the periods presented in this Quarterly Report on Form 10-Q relate primarily to ancillary charges associated with equipment support activities that we provide, such as transportation, hauling, parts freightmaintenance and damage waivers,repair services, and are not generally allocated to reportable segments. We recognize non-segmented other revenues at the time of billing and after the related services have been provided.
22
Principal Costs and Expenses
Our largest expenses are the costs to purchase the new equipment we sell,rental expenses, rental depreciation, the costs associated with the used equipment we sell, rental expenses, rental depreciationthe costs to purchase new equipment we sell, and costs associated with parts sales and services, all of which are included in cost of revenues. For the nine month periodsix months ended SeptemberJune 30, 2017,2022, our total cost of revenues was $476.3$323.2 million. Our operating expenses consist principally of selling, general and administrative (“SG&A”) expenses. For the nine month periodsix months ended SeptemberJune 30, 2017,2022, our selling, general and administrativeSG&A expenses were $172.3$160.9 million. In addition, we have interest expense related to our debt instruments. Operating expenses and all other income and expense items below the gross profit line of our consolidated statements of income are not generally allocated to our reportable segments.
We are also subject to federal and state income taxes. Future income tax examinations by state and federal agencies could result in additional income tax expense based on probablepotential outcomes of such matters.
Cost of Revenues:Revenues
Rental Depreciation.Depreciation. Depreciation of rental equipment represents the depreciation costs attributable to rental equipment. Estimated useful lives vary based upon type of equipment. Generally, we depreciate cranes and aerial work platforms over a ten year estimated useful life, earthmoving equipment over a five year estimated useful life with a 25% salvage value, and industrial lift trucksmaterial handling equipment over a seven year estimated useful life. Attachments and other smaller type equipment are depreciated over a three year estimated useful life. We periodically evaluate the appropriateness of remaining depreciable lives assigned to rental equipment.
Rental Expense.Expense. Rental expense represents the costs associated with rental equipment, including, among other things, the cost of servicingrepairing and maintaining our rental equipment, property taxes on our fleet and other miscellaneous costs of owning rental equipment.
New Equipment SalesRental Other. CostRental other expenses consist primarily of new equipment sold primarily consists of thesupport activities that we provide our customers in connection with renting equipment, cost of the new equipment that is sold, net of any amount of credit given to the customer towards the equipment for trade-ins.such as hauling services, damage waiver policies, environmental fees and other recovery fees.
Used Equipment Sales.Sales. Cost of used equipment sold consists of the net book value of rental equipment for used equipment sold from our rental fleet, the equipment costs for used equipment we purchase for sale or the trade-in value of used equipment that we obtain from customers in equipment sales transactions.
New Equipment Sales. Cost of new equipment sold primarily consists of the equipment cost of the new equipment that is sold, net of any amount of credit given to the customer towards the equipment for trade-ins.
Parts Sales.Sales. Cost of parts sales represents costs attributable to the sale of parts used in the maintenance and repair of equipment on-rent by customers and directly to customers.customers for their owned equipment.
Services Support.Support. Cost of services revenues represents costs attributable to service provided for the maintenance and repair of customer-owned equipment and equipment then on-rent by customers.customers and of customer-owned equipment.
Non-Segmented Other. TheseOur non-segmented other expenses include costs associated with providing transportation, hauling, parts freight,ancillary charges associated with equipment maintenance and damage waiver including, among other items, drivers’ wages, fuel costs, shipping costs, and our costs related to damage waiver policies.repair services.
Selling, General and Administrative Expenses:Expenses
Our selling, general and administrative (“SG&A”)&A expenses include sales and marketing expenses, payroll and related benefit costs, including stock compensation expense, insurance expenses, legal and professional fees, rent and other occupancy costs, property and other taxes, administrative overhead, depreciation associated with property and equipment (other than rental equipment) and amortization expense associated with capital leases and software.intangible assets. These expenses are not generally allocated to our reportable segments.
Interest Expense:Expense
Interest expense for the periods presented represents the interest on our outstanding debt instruments, including aggregate amounts outstanding under our revolving $750.0 million senior secured credit facility (the “Credit Facility”), our $1.25 billion, 3.875% senior unsecured notes due 2028 (the “Senior Unsecured Notes”) and our capitalfinance lease obligations. Interest expense also includes interest on our outstanding manufacturer flooring plans payable, which are used to finance inventory and rental equipment purchases. Non-cash interest expense related to the amortization cost of deferred financing costs and accretion (amortization)the accretion/amortization of debt discount (premium)note discount/premium are also included in interest expense.
Principal Cash Flows
We generate cash primarily from our operating activities and, historically, we have used cash flows from operating activities, manufacturer floor plan financings and available borrowings under the Credit Facility as the primary sources of funds to purchase inventory and to fund working capital and capital expenditures, growth and expansion opportunities (see also “Liquidity and Capital
23
Resources” below). OurThe management of our working capital is closely tied to operating cash flows, as working capital can be significantly impacted by, among other things, our accounts receivable activities, the level of newused and usednew equipment inventories, which may increase or decrease in response to current and expected demand, and the size and timing of our trade accounts payable payment cycles.
Rental Fleet
A substantial portion of our overall value is in our rental fleet equipment. The net book value of our rental equipment at SeptemberJune 30, 20172022 was $917.1 million,$1.2 billion, or approximately 70.4%54.8% of our total assets. Our rental fleet as of SeptemberJune 30, 20172022 consisted of 31,01545,822 units having an original acquisition cost (which we define as the cost originally paid to manufacturers or the original amount financed under operating leases)manufacturers) of approximately $1.4$2.0 billion. As of SeptemberJune 30, 2017,2022, our rental fleet composition was as follows (dollars in millions):
|
| Units |
|
| % of Total Units |
|
| Original Acquisition Cost |
|
| % of Original Acquisition Cost |
|
| Average Age in Months |
|
| Units |
|
| % of |
|
| Original |
|
| % of |
|
| Average |
| ||||||||||
Hi-Lift or Aerial Work Platforms |
|
| 21,438 |
|
|
| 69.1 | % |
| $ | 911.3 |
|
|
| 64.9 | % |
|
| 37.2 |
|
|
| 22,692 |
|
|
| 49.5 | % |
| $ | 729.3 |
|
|
| 36.3 | % |
|
| 52.9 |
|
Cranes |
|
| 293 |
|
|
| 0.9 | % |
|
| 103.2 |
|
|
| 7.3 | % |
|
| 51.1 |
| ||||||||||||||||||||
Earthmoving |
|
| 3,322 |
|
|
| 10.7 | % |
|
| 285.9 |
|
|
| 20.4 | % |
|
| 24.0 |
|
|
| 6,427 |
|
|
| 14.0 | % |
|
| 552.8 |
|
|
| 27.6 | % |
|
| 23.2 |
|
Industrial Lift Trucks |
|
| 977 |
|
|
| 3.2 | % |
|
| 32.2 |
|
|
| 2.3 | % |
|
| 26.9 |
| ||||||||||||||||||||
Material Handling |
|
| 7,393 |
|
|
| 16.2 | % |
|
| 562.0 |
|
|
| 28.0 | % |
|
| 40.6 |
| ||||||||||||||||||||
Other |
|
| 4,985 |
|
|
| 16.1 | % |
|
| 71.1 |
|
|
| 5.1 | % |
|
| 28.9 |
|
|
| 9,310 |
|
|
| 20.3 | % |
|
| 163.6 |
|
|
| 8.1 | % |
|
| 25.5 |
|
Total |
|
| 31,015 |
|
|
| 100.0 | % |
| $ | 1,403.7 |
|
|
| 100.0 | % |
|
| 34.3 |
|
|
| 45,822 |
|
|
| 100 | % |
| $ | 2,007.7 |
|
|
| 100 | % |
|
| 41.2 |
|
Determining the optimal age and mix for our rental fleet equipment is subjective and requires considerable estimates and judgments by management. We constantly evaluate the mix, age and quality of the equipment in our rental fleet in response to current economic and market conditions, competition and customer demand. The mix and age of our rental fleet, as well as our cash flows, are impacted by sales of equipment from the rental fleet, which are influenced by used equipment pricing at the retail and secondary auction market levels, the demand for our rental fleet, the availability of new equipment and the capital expenditures to acquire new rental fleet equipment. In making equipment acquisition decisions, we evaluate current economic and market conditions, competition, manufacturers’ availability, pricing and return on investment over the estimated useful life of the specific equipment, among other things. As a result of our in-house service capabilities and extensive maintenance program, we believe our rental fleet is well-maintained.
The original acquisition cost of our gross rental fleet increased by approximately $70.1$147.8 million, or 5.3%7.9%, for the nine month periodsix months ended SeptemberJune 30, 2017.2022. The average age of our rental fleet equipment increased by approximately 1.30.9 months for the nine month periodsix months ended SeptemberJune 30, 2017.
2022. Our average rental rates for the nine month periodsix months ended SeptemberJune 30, 20172022 were approximately 0.01%8.1% higher than in the nine month period ended September 30, 2016last year (see further discussion on rental rates in “Results of Operations” below).
With the exception of the Crane Sale and approximately 1.0% higher than inour crane product line, the three month period ended June 30, 2017. Average rental rates for the three month period ended September 30, 2017 were 0.3% higher than in the three month period ended September 30, 2016.
The rental equipment mix among our four core product lines for the nine month periodsix months ended SeptemberJune 30, 20172022 was largely consistent with that of the prior year comparable period as a percentage of total units available for rent and as a percentage of original acquisition cost.
Principal External Factors that Affect our Businesses
We are subject to a number of external factors that may adversely affect our businesses. These factors, and other factors, are discussed below and under the heading “Forward‑Looking“Forward-Looking Statements,” and in Item 1A—Risk Factors in thisour Annual Report on Form 10‑K10-K for the year ended December 31, 2016.2021.
Economic downturns.downturns. The demand for our products is dependent on the general economy, the stability of the global credit markets, the industries in which our customers operate or serve, and other factors. Downturns in the general economy or in the construction and manufacturing industries,industrial markets, as well as adverse credit market conditions, can cause demand for our products to materially decrease.
Spending levels by customers.customers. Rentals and sales of equipment to the construction industry and to industrial companies constitute a significant portion of our total revenues. As a result, we depend upon customers in these businesses and their ability and willingness to make capital expenditures to rent or buy specialized equipment. Accordingly, our business is impacted by fluctuations in customers’ spending levels on capital expenditures and by the availability of credit to those customers.
Adverse weather.weather. Adverse weather in a geographic region in which we operate may depress demand for equipment in that region. Our equipment is primarily used outdoors and, as a result, prolonged adverse weather conditions may prohibit our customers from continuing their work projects. Adverse weather also has a seasonal impact in parts of our Intermountain region, particularly in the winter months.
24
Regional and Industry-Specific Activity and Trends.Trends. Expenditures by our customers may be impacted by the overall level of construction activity in the markets and regions in which they operate, the price of oil and other commodities, the price of materials, supply chain disruptions and other general economic trends impacting the industries in which our customers and end users operate. As our customers adjust their activity and spending levels in response to these external factors, our rentals and sales of equipment to those customers will be impacted. For example, high levels of industrial activity in our Gulf Coast and Intermountain regions have been a meaningful driver of growth in our revenues in recent years. However, the decline in oil and natural gas prices that began in the second half of 2014, and uncertainty regarding future price levels, has caused, and may continue to cause, some of our customers in those markets to adjust their activity and spending levels during recent years and continuing into 2017.
We believe that our integrated business tempers the effects of downturns in a particular segment. For a discussion of seasonality, see “Seasonality” on page 42 of this Quarterly Report on Form 10-Q.
Results of Operations
The tables included in the period-to-period comparisons below provide summaries of our revenues and gross profits for our business segments and non-segmented revenues for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016.2021. The period-to-period comparisons of our financial results are not necessarily indicative of future results. All financial results and metrics discussed below are on a continuing operations basis.
As discussed further in Note 1 and Note 3 to our Condensed Consolidated Financial Statements, on October 1, 2021, the Company sold its crane business. The results of operations of the Crane Sale are reported in discontinued operations in the Condensed Consolidated Statements of Income for all periods presented. The Condensed Consolidated Statements of Cash Flows includes cash flows related to the discontinued operations and accordingly, cash flow amounts for discontinued operations are disclosed in Note 3 “Acquisitions and Dispositions”.
Three Months Ended SeptemberJune 30, 20172022 Compared to the Three Months Ended SeptemberJune 30, 20162021
Revenues.
|
| Three Months Ended |
|
| Total |
|
| Total |
| |||||||
|
| June 30, |
|
| Dollar |
|
| Percentage |
| |||||||
|
| 2022 |
|
| 2021 |
|
| Increase |
|
| Increase |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Segment Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment rentals |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
| $ | 201,243 |
|
| $ | 157,211 |
|
| $ | 44,032 |
|
|
| 28.0 | % |
Rentals other |
|
| 26,334 |
|
|
| 18,400 |
|
|
| 7,934 |
|
|
| 43.1 | % |
Total equipment rentals |
|
| 227,577 |
|
|
| 175,611 |
|
|
| 51,966 |
|
|
| 29.6 | % |
Used equipment sales |
|
| 18,833 |
|
|
| 35,821 |
|
|
| (16,988 | ) |
|
| (47.4 | )% |
New equipment sales |
|
| 21,486 |
|
|
| 27,633 |
|
|
| (6,147 | ) |
|
| (22.2 | )% |
Parts sales |
|
| 16,172 |
|
|
| 16,880 |
|
|
| (708 | ) |
|
| (4.2 | )% |
Services revenues |
|
| 8,889 |
|
|
| 8,059 |
|
|
| 830 |
|
|
| 10.3 | % |
Non-Segmented revenues |
|
| 1,714 |
|
|
| 1,673 |
|
|
| 41 |
|
|
| 2.5 | % |
Total revenues |
| $ | 294,671 |
|
| $ | 265,677 |
|
| $ | 28,994 |
|
|
| 10.9 | % |
|
| Three Months Ended |
|
| Total |
|
| Total |
| |||||||
|
| September 30, |
|
| Dollar |
|
| Percentage |
| |||||||
|
| 2017 |
|
| 2016 |
|
| Increase (Decrease) |
|
| Increase (Decrease) |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Segment Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 125,616 |
|
| $ | 118,535 |
|
| $ | 7,081 |
|
|
| 6.0 | % |
New equipment sales |
|
| 48,940 |
|
|
| 44,764 |
|
|
| 4,176 |
|
|
| 9.3 | % |
Used equipment sales |
|
| 22,250 |
|
|
| 20,630 |
|
|
| 1,620 |
|
|
| 7.9 | % |
Parts sales |
|
| 27,763 |
|
|
| 27,335 |
|
|
| 428 |
|
|
| 1.6 | % |
Services revenues |
|
| 16,097 |
|
|
| 16,076 |
|
|
| 21 |
|
|
| 0.1 | % |
Non-Segmented revenues |
|
| 18,496 |
|
|
| 17,346 |
|
|
| 1,150 |
|
|
| 6.6 | % |
Total revenues |
| $ | 259,162 |
|
| $ | 244,686 |
|
| $ | 14,476 |
|
|
| 5.9 | % |
Total Revenues. Our total revenues were $259.2$294.7 million for the three month periodmonths ended SeptemberJune 30, 20172022 compared to $244.7$265.7 million for the three month periodmonths ended SeptemberJune 30, 2016,2021, an increase of $14.5$29.0 million, or 5.9%10.9%. Revenues for all reportable segments and non-segmented other revenues are further discussed below.
Equipment Rental Revenues. Our total revenues from equipment rentals for the three month periodmonths ended SeptemberJune 30, 20172022 increased $7.1$52.0 million, or 29.6%, to $125.6$227.6 million from $118.5$175.6 million in the three month periodmonths ended SeptemberJune 30, 2016.2021. The increase in equipment rental revenues was primarily due to our larger fleet, increased demand and increased rental rates as compared to the prior year. See Rentals and Rentals Other below for additional information.
Rentals: Rental revenues increased $44.0 million, or 28.0%, to $201.2 million for the three months ended June 30, 2022 compared to $157.2 million for the three months ended June 30, 2021. Rental revenues from earthmoving equipment increased $17.2 million, material handling equipment increased $12.1 million and aerial work platform equipment increased $7.4 million, while rental$9.9 million. Rental revenues fromon other equipment and lift trucks increased $1.3 million and approximately $0.1 million, respectively. These rental revenues increases were partially offset by a $1.7 million decrease in crane rental revenues.$4.8 million. Our average rental rates for the three month periodmonths ended SeptemberJune 30, 20172022 increased 0.3%9.4% compared to the same three month periodmonths last year and increased approximately 1.0%3.5% from the three month periodmonths ended June 30, 2017.
March 31, 2022. Rental equipment dollar utilization (annual rental revenues divided by the average original rental fleet equipment costs) for the three month periodmonths ended SeptemberJune 30, 20172022 was 36.0%40.9% compared to 35.4%35.9% in the three month periodmonths ended SeptemberJune 30, 2016,2021, an increase of 0.6%5.0%. The increase in comparative rental equipment dollar utilization was the result of the increase in equipment rental rates and an increase in rental equipment time utilization combined with a 0.3% increase in average rental rates, largely reflective of increased rental equipment demand.utilization. Rental equipment time utilization as a percentage of original equipment cost was approximately 73.3%73.2% for the three month periodmonths ended SeptemberJune 30, 20172022 compared to 72.1%68.7% in the three month periodmonths ended SeptemberJune 30, 2016,2021, an increase of 1.2%4.5%. OurThe increase in rental equipment time utilization based onas a percentage of original equipment cost was largely due to increased demand in the numbercurrent year.
25
Rentals Other: Our rentals other revenues consists primarily of rental equipment units available for rent was approximately 71.3%support activities that we provide to customers in connection with renting equipment, such as hauling charges, damage waiver policies, environmental and other recovery fees. Rental other revenues for the three month periodmonths ended SeptemberJune 30, 2017,2022 were $26.3 million compared to approximately 68.0% in$18.4 million for the same period last year,three months ended June 30, 2021, an increase of 3.3%approximately $7.9 million, or 43.1%.
Used Equipment Sales Revenues. Our used equipment sales decreased $17.0 million, or 47.4%, to $18.8 million for the three months ended June 30, 2022, from $35.8 million for the same three months in 2021. This decrease is reflective of the increased rental demand and our decision to capitalize on high equipment utilization during the quarter. Sales of used material handling equipment, used aerial work platform equipment and used earthmoving equipment decreased $7.8 million, $5.2 million and $3.1 million, respectively.
New Equipment Sales Revenues. Our new equipment sales for the three month periodmonths ended SeptemberJune 30, 2017 increased $4.22022 decreased $6.1 million, or 9.3%22.2%, to approximately $48.9$21.5 million from $44.8$27.6 million for the three month periodmonths ended SeptemberJune 30, 2016. New crane sales increased approximately $5.6 million and2021. Sales of new other equipment, sales increased $1.7 million. Sales ofnew earthmoving equipment and new aerial work platform equipment sales decreased $4.1 million, $1.5 million, and new lift trucks increased $0.7 million, and $0.1 million, respectively. These new equipment sales increases were partially offset by a $4.0 million decrease in new earthmoving equipment sales.
Used EquipmentParts Sales Revenues. Our used equipmentparts sales increased $1.6 million, or 7.9%, to approximately $22.2 millionrevenues for the three month periodmonths ended SeptemberJune 30, 2017,2022 decreased $0.7 million, or 4.2%, to $16.2 million from $20.6$16.9 million for the same three month period in 2016. Sales of used cranes increased approximately $1.9 million while sales of used earthmoving equipment and used other equipment each increased $0.6 million. Partially offsetting these used equipment sales increases were a $1.1 million sales decrease in used aerial work platform equipment and a $0.3 million decrease in sales of used lift trucks.
Parts Sales Revenues. Our parts sales for the three month period ended September 30, 2017 increased $0.4 million, or 1.6%, to approximately $27.8 million from $27.3 million for the same three month periodmonths last year. The increase in parts sales revenues was driven primarily by higher crane parts sales revenues.
Services Revenues. Our services revenues for the three month periodmonths ended SeptemberJune 30, 20172022 increased $21,000 and were approximately $16.1$0.8 million, in each ofor 10.3%, to $8.9 million from $8.1 million for the same three month periods ended September 30, 2017 and 2016.months last year.
Non-Segmented Other Revenues. Our non-segmented other revenues consisted primarily ofrelate to equipment support activities including transportation, hauling,that we provide to customers in connection with new and used equipment sales and parts freight and damage waiver charges.services revenues and are not generally allocated to reportable segments. For the three month periodmonths ended SeptemberJune 30, 2017,2022, our other revenues were approximately $18.5$1.7 million, an increase of approximately $1.2 million, or 6.6%,2.5% from $17.3 million in the same three month periodmonths in 2016. The increase in these revenues was primarily driven by higher hauling revenues, fuel charges and damage waiver income associated with our increased equipment rental activity.2021.
Gross Profit.
|
| Three Months Ended |
|
| Total |
|
| Total |
| |||||||
|
| June 30, |
|
| Dollar |
|
| Percentage |
| |||||||
|
| 2022 |
|
| 2021 |
|
| Increase |
|
| Increase |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Segment Gross Profit (Loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment rentals |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
| $ | 108,140 |
|
| $ | 73,189 |
|
| $ | 34,951 |
|
|
| 47.8 | % |
Rentals other |
|
| 2,461 |
|
|
| 10 |
|
|
| 2,451 |
|
|
| 24510.0 | % |
Total equipment rentals |
|
| 110,601 |
|
|
| 73,199 |
|
|
| 37,402 |
|
|
| 51.1 | % |
Used equipment sales |
|
| 8,962 |
|
|
| 13,138 |
|
|
| (4,176 | ) |
|
| (31.8 | )% |
New equipment sales |
|
| 3,215 |
|
|
| 3,402 |
|
|
| (187 | ) |
|
| (5.5 | )% |
Parts sales |
|
| 4,340 |
|
|
| 4,527 |
|
|
| (187 | ) |
|
| (4.1 | )% |
Services revenues |
|
| 5,746 |
|
|
| 5,481 |
|
|
| 265 |
|
|
| 4.8 | % |
Non-segmented revenues gross profit (loss) |
|
| (530 | ) |
|
| 73 |
|
|
| (603 | ) |
|
| (826.0 | )% |
Total gross profit |
| $ | 132,334 |
|
| $ | 99,820 |
|
| $ | 32,514 |
|
|
| 32.6 | % |
|
| Three Months Ended |
|
| Total |
|
| Total |
| |||||||
|
| September 30, |
|
| Dollar |
|
| Percentage |
| |||||||
|
| 2017 |
|
| 2016 |
|
| Increase (Decrease) |
|
| Increase (Decrease) |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Segment Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 62,373 |
|
| $ | 58,629 |
|
| $ | 3,744 |
|
|
| 6.4 | % |
New equipment sales |
|
| 5,331 |
|
|
| 4,617 |
|
|
| 714 |
|
|
| 15.5 | % |
Used equipment sales |
|
| 7,134 |
|
|
| 6,266 |
|
|
| 868 |
|
|
| 13.9 | % |
Parts sales |
|
| 7,638 |
|
|
| 7,627 |
|
|
| 11 |
|
|
| 0.1 | % |
Services revenues |
|
| 10,530 |
|
|
| 10,631 |
|
|
| (101 | ) |
|
| (1.0 | )% |
Non-Segmented revenues gross profit |
|
| 1,020 |
|
|
| 355 |
|
|
| 665 |
|
|
| 187.3 | % |
Total gross profit |
| $ | 94,026 |
|
| $ | 88,125 |
|
| $ | 5,901 |
|
|
| 6.7 | % |
Total Gross Profit. Our total gross profit was $94.0$132.3 million for the three month periodmonths ended SeptemberJune 30, 20172022 compared to $88.1$99.8 million for the same three month periodmonths in 2016,2021, an increase of $5.9$32.5 million, or 6.7%32.6%. Total gross profit margin for the three month periodmonths ended SeptemberJune 30, 20172022 was approximately 36.3%44.9%, an increase of 0.3%7.3% from the 36.0%37.6% gross profit margin for the same three month periodmonths in 2016.2021. Gross profit and gross margin for all reportable segments and non-segmented other revenues are further described below:below.
Equipment Rentals Gross Profit. Our total gross profit from equipment rentals for the three month periodmonths ended SeptemberJune 30, 20172022 increased $3.7$37.4 million, or 6.4%51.1%, to approximately $62.4$110.6 million from $58.6$73.2 million in the same three monthmonths in 2021. Total gross profit margin from equipment rentals for the three months ended June 30, 2022 was 48.6% compared to 41.7% for the same period in 2016.2021, an increase of approximately 6.9%. See Rentals and Rentals Other below for additional information.
Rentals: Rental revenues gross profit increased $35.0 million, or 47.8%, to $108.1 million for the three months ended June 30, 2022 compared to $73.2 million for the same three months in 2021. The increase in equipment rentalsincreased gross profit was the net result of a $7.1 million increase in equipmentdue to increased rental revenues of $44.0 million for the three months ended June 30, 2022 compared to the same period last year, partially offset by a $1.7$5.8 million increase in rental equipment depreciation expense and a $1.6$3.3 million increase in rental expenses. The increase in depreciation expense is primarily due to a larger fleet size in the current year as compared to the prior year. Our fleet size, based on original equipment cost, at June 30, 2022 was $228.2 million, or 12.8%, larger than our fleet at June 30, 2021. Gross profit margin on equipment rentals for the
26
three month periodmonths ended SeptemberJune 30, 20172022 was approximately 49.7%53.7% compared to 49.5%46.6% for the same period in 2016,2021, an increase of 0.2%7.1%. Depreciation expense was 34.4%31.0% of equipment rental revenues for the three month periodmonths ended SeptemberJune 30, 20172022 compared to 35.0%35.9% for the same period in 2016,2021, a decrease of 0.6%approximately 4.9%, resulting primarily as a result offrom the increase in rental fleet mix.revenues. As a percentage of equipment rental revenues, rental expenses were 15.9%15.3% for the three month periodmonths ended SeptemberJune 30, 20172022 compared to 15.5%17.5% for the same period last year, an increasea decrease of 0.4%2.2%, resulting primarily from higher repair costs onthe increase in rental revenues.
Rentals Other: Our rentals other revenues consists primarily of equipment support activities that we provide to customers in the current year period.
New Equipment Sales Gross Profit. Our newconnection with renting equipment, salessuch as hauling charges, damage waiver policies, environmental and other recovery fees. Rental other revenues gross profit for the three month periodmonths ended SeptemberJune 30, 2017 increased approximately $0.72022 was $2.5 million, or 15.5%, to $5.3an increase of $2.5 million as compared to approximately $4.6 millionthe same period in 2021. The gross margin was 9.3% for the three months ended June 30, 2022 compared to a gross margin of 0.1% for the same three month period in 2016 on a total new equipment sales increase of $4.2 million. Gross profit margin on new equipment sales was 10.9% for the three month period ended September 30, 2017 compared to 10.3% for the same three month period in 2016, an increase of 0.6%, primarily driven by the mix of new equipment sold and higher margins on new crane sales.last year.
Used Equipment Sales Gross Profit. Our used equipment sales gross profit for the three month periodmonths ended SeptemberJune 30, 2017 increased approximately $0.92022 decreased $4.2 million, or 13.9%31.8%, to $7.1$9.0 million from $6.3$13.1 million in the same period in 2016 on a2021, as used equipment sales increase of $1.6revenues decreased $17.0 million. Gross profit margin on used equipment sales for the three month periodmonths ended SeptemberJune 30, 20172022 was 32.1%approximately 47.6%, up 1.7%10.9% from 30.4%36.7% for the same three month periodmonths in 2016,2021, primarily as a result of the mix of used equipment sold.higher gross margins across all product lines. Our used equipment sales from the rental fleet, which comprised approximately 91.2%88.0% and 86.1%96.4% of our used equipment sales for the three month periodsmonths ended SeptemberJune 30, 20172022 and 2016,2021, respectively, were approximately 150.9%203.7% and 150.8%160.7% of net book value for the three month periodsmonths ended SeptemberJune 30, 20172022 and 2016,2021, respectively.
New Equipment Sales Gross Profit. Our new equipment sales gross profit for the three months ended June 30, 2022 decreased $0.2 million, or 5.5%, to $3.2 million compared to $3.4 million for the same three months in 2021. Gross profit margin on new equipment sales was 15.0% for the three months ended June 30, 2022, compared to 12.3% for the same period last year, an increase of 2.7%. The increase in gross profit was primarily due to increased gross profit in earthmoving equipment sales.
Parts Sales Gross Profit. For the three month period ended September 30, 2017, ourOur parts sales gross profit was approximately $7.6 million in each offor the three month periodsmonths ended SeptemberJune 30, 2017 and 20162022 was $4.3 million, a decrease of 4.1%, from gross profit of $4.5 million for the same period last year on a $0.4 million increase in parts sales revenues.that decreased $0.7 million. Gross profit margin for both the three months ended June 30, 2022 and 2021 was 26.8%.
Services Revenues Gross Profit. For the three months ended June 30, 2022, our services revenues gross profit increased $0.3 million, or 4.8%, to $5.7 million from $5.5 million for the same three months in 2021 on service revenues that increased $0.8 million. Gross profit margin for the three month periodmonths ended SeptemberJune 30, 20172022 was 27.5%64.6%, a decrease of approximately 0.4%3.4% from 27.9%68.0% in the same three month periodmonths in 2016, resulting from the mix of parts sold.
Services Revenues Gross Profit. For the three month period ended September 30, 2017, our services revenues gross profit decreased $0.1 million, or 1.0%, to approximately $10.5 million from $10.6 million for the same three month period in 2016. Gross profit margin for the three month period ended September 30, 2017 was approximately 65.4%, a decrease of 0.7% from 66.1% in the same three month period in 2016,2021, as a result of services revenues mix.
Non-Segmented Other Revenues Gross Profit. Our non-segmented other revenues gross profit increased $0.7 million, or 187.3%,relate to $1.0 million forequipment support activities that we provide to customers in connection with used and new equipment sales and parts and services revenues and are not generally allocated to reportable segments. For the three month periodmonths ended SeptemberJune 30, 20172022, our other revenues gross loss was $0.5 million compared to a gross profit of approximately $0.4$0.1 million, forin the same period in 2016 on2021, a $1.2 million increase in non-segmented other revenues. Gross margin for the three month period ended September 30, 2017 was 5.5% compared to a gross margindecrease of 2.0% in the same three month period last year, an increase of 3.5%, primarily reflective of improved margins on hauling revenues in the current period.$0.6 million.
Selling, General and Administrative Expenses (“SG&A”). Expenses. SG&A expenses decreased approximately $0.8increased $12.0 million, or approximately 1.4%16.9%, to $55.2$82.7 million for the three month periodmonths ended SeptemberJune 30, 20172022 compared to $56.0$70.7 million for the three month periodmonths ended SeptemberJune 30, 2016. The net decrease in SG&A2021. Employee salaries, wages, payroll taxes and other employee related expenses was attributableincreased $7.5 million due to several factors, including the reversal ofincreased commissions, wages, headcount and incentive pay. Facility expenses increased $1.1 million, professional fees increased $0.8 million and liability insurance costs increased $0.7 million. Approximately $2.2 million of merger and acquisition transaction costs related to the termination of our previously proposed acquisition of Neff Corporation (“Neff merger costs”) included in SG&A expenses for the three and six month periods ended June 30, 2017 and reclassified to “Merger Breakup Fee Proceeds, net of Merger Costs” in the third quarter ended September 30, 2017 (see discussion below for further information). Excluding this $2.2 million impact tocomparative incremental SG&A expenses in the three month periodmonths ended SeptemberJune 30, 2017, total SG&A expenses would have increased approximately $1.4 million compared2022 was attributable to the three month period ended September 30, 2016.
Employee salaries, wages, payroll taxes and related employee benefit expenses increased approximately $2.1 million. Facility expenses increased $0.4 million. Bad debt expense increased $0.4 million and liability insurance costs increased $0.2 million. Partially offsetting these increases in SG&A expenses were a $1.0 million decrease in depreciation and amortization expense, largely as a result of lower software amortization expense, and a $0.7 million decrease in legal and professional fees (exclusive of any of the aforementioned Neff merger costs).
Branchesbranches opened since JulyJanuary 1, 20162021 with less than three full months of comparable operations in the third quarterseither or both of 2016 and 2017 contributed to a $1.1 million increase in our SG&A expenses for the three month periodmonths ended SeptemberJune 30, 2017. As a percentage of total revenues, SG&A expenses were 21.3% for the three month period ended September 30, 2017, a decrease of 1.6% from 22.9% for the same three month period in 2016. Excluding the impact of the $2.2 million reclassification of Neff merger costs in the current year period as discussed above,2022 and 2021. SG&A expenses as a percentage of total revenues were 22.1%.
Other Income (Expense). Forfor the three month periodmonths ended SeptemberJune 30, 2017, our2022 and 2021 were 28.1% and 26.6%, respectively, an increase of 1.5%.
Gain on Sales of Property & Equipment (Net). We had net other expenses increased approximately $27.0 million to $40.1gains on sales of property and equipment of $1.0 million compared to $13.1 million for the same three month period in 2016. Included in Other Income (Expense) for the three month period ended September 30, 2017 is a $25.4 million loss on the early extinguishment of debt (see discussion immediately below regarding the issuance of the New Notes). Interest expense for the three month period ended September 30, 2017 was $15.1 million compared to approximately $13.5$0.6 million for the same period last year, an increase of $1.6$0.4 million. TheThis increase in interest expense is primarily relateddue to gains on the timingsale of the issuance of the New Notes in relation to the redemption of the Old Notes. Our New Notes were issued on August 24, 2017, while approximately $300.3 million of the Old Notes remained outstanding
until the September 25, 2017 redemption date. Miscellaneous other income was $0.3 millionproperty and equipment in the three month period ended September 30, 2017 compared to $0.4 million in the same period last year, a decreasenormal course of $0.1 million.business.
Loss on Early Extinguishment of DebtOther Income (Expense). As more fully described in note 10 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we recorded a one-time loss on the early extinguishment of debt inFor the three month period ended September 30, 2017 of approximately $25.4 million, reflecting payment of $12.8 million of tender premiums associated with our repurchase of the Old Notes and $10.5 million of premiums in accordance with the indenture governing the Old Notes to redeem the remaining untendered Old Notes, combined with the write off of approximately $2.0 million of unamortized note premium, unaccreted note discount and unamortized deferred financing costs, related to the Old Notes.
Merger Breakup Fee Proceeds, net of Merger Costs. As more fully described above and in note 3 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, pursuant to the terms of our merger agreement with Neff, we received a $13.2 million breakup fee concurrently with Neff’s termination of the merger agreement. Related estimated merger transaction fees totaled $6.7 million, resulting in estimated net proceeds of $6.5 million. As noted in the above SG&A Expenses discussion, approximately $2.2 million of the merger costs were originally recorded in SG&A Expenses in the six month periodmonths ended June 30, 2017 and were subsequently reclassified2022, our net other expenses decreased approximately $0.1 million to $12.6 million compared to $12.7 million for the same three months in the third quarter ended September 30, 2017 to the merger breakup fee line item.
Income Taxes. We recorded an income tax benefit of $0.92021. Interest expense was $13.5 million for the three month periodmonths ended SeptemberJune 30, 2017 compared to2022 and $13.4 million for the three months ended June 30, 2021.
Income Taxes. We recorded income tax expense of $8.3$10.2 million for the three month periodmonths ended SeptemberJune 30, 2016. The2022 compared to an income tax benefit is primarily due to a $5.7expense of $4.8 million discrete tax benefit resulting from a reversal of an unrecognized tax benefit due to expiration of statute of limitations infor the three monthmonths ended June 30, 2021. Our effective income tax rate for the three months ended June 30, 2022 was 26.8% compared to 28.2% for the same period ended September 30, 2017.in 2021. Based on available evidence, both positive and negative, we believe it is more likely than not that our federal deferred tax assets at SeptemberJune 30, 20172022 are fully realizable through future
27
reversals of existing taxable temporary differences and future taxable income, and are not subject to any limitations; however, for the quarter ended Septemberincome. As of June 30, 2017,2022, we increased ourhave a valuation allowance by $0.4of $7.6 million for certain state net operating lossestax credits that may not be utilized.realized.
NineSix Months Ended SeptemberJune 30, 20172022 Compared to the NineSix Months Ended SeptemberJune 30, 20162021
Revenues.
|
| Six Months Ended |
|
| Total |
|
| Total |
| |||||||
|
| June 30, |
|
| Dollar |
|
| Percentage |
| |||||||
|
| 2022 |
|
| 2021 |
|
| Increase |
|
| Increase |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Segment Revenues: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment rentals |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
| $ | 378,425 |
|
| $ | 294,357 |
|
| $ | 84,068 |
|
|
| 28.6 | % |
Rentals other |
|
| 48,377 |
|
|
| 34,473 |
|
|
| 13,904 |
|
|
| 40.3 | % |
Total equipment rentals |
|
| 426,802 |
|
|
| 328,830 |
|
|
| 97,972 |
|
|
| 29.8 | % |
Used equipment sales |
|
| 40,359 |
|
|
| 74,675 |
|
|
| (34,316 | ) |
|
| (46.0 | )% |
New equipment sales |
|
| 47,522 |
|
|
| 50,806 |
|
|
| (3,284 | ) |
|
| (6.5 | )% |
Parts sales |
|
| 32,231 |
|
|
| 32,436 |
|
|
| (205 | ) |
|
| (0.6 | )% |
Services revenues |
|
| 17,023 |
|
|
| 16,070 |
|
|
| 953 |
|
|
| 5.9 | % |
Non-Segmented revenues |
|
| 3,184 |
|
|
| 3,292 |
|
|
| (108 | ) |
|
| (3.3 | )% |
Total revenues |
| $ | 567,121 |
|
| $ | 506,109 |
|
| $ | 61,012 |
|
|
| 12.1 | % |
|
| Nine Months Ended |
|
| Total |
|
| Total |
| |||||||
|
| September 30, |
|
| Dollar |
|
| Percentage |
| |||||||
|
| 2017 |
|
| 2016 |
|
| Increase (Decrease) |
|
| Increase (Decrease) |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Segment Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 351,303 |
|
| $ | 330,023 |
|
| $ | 21,280 |
|
|
| 6.4 | % |
New equipment sales |
|
| 128,883 |
|
|
| 151,836 |
|
|
| (22,953 | ) |
|
| (15.1 | )% |
Used equipment sales |
|
| 75,219 |
|
|
| 71,973 |
|
|
| 3,246 |
|
|
| 4.5 | % |
Parts sales |
|
| 81,063 |
|
|
| 81,958 |
|
|
| (895 | ) |
|
| (1.1 | )% |
Services revenues |
|
| 47,121 |
|
|
| 49,322 |
|
|
| (2,201 | ) |
|
| (4.5 | )% |
Non-Segmented revenues |
|
| 51,764 |
|
|
| 48,679 |
|
|
| 3,085 |
|
|
| 6.3 | % |
Total revenues |
| $ | 735,353 |
|
| $ | 733,791 |
|
| $ | 1,562 |
|
|
| 0.2 | % |
Total Revenues. Revenues. Our total revenues were $735.4$567.1 million for the nine month periodsix months ended SeptemberJune 30, 20172022 compared to approximately $733.8$506.1 million for the nine month periodsix months ended SeptemberJune 30, 2016,2021, an increase of $1.6$61.0 million, or 0.2%12.1%. Revenues for all reportable segments and non-segmented other revenues are further discussed below.
Equipment Rental Revenues. Revenues. Our total revenues from equipment rentals for the nine month periodsix months ended SeptemberJune 30, 20172022 increased $21.3$98.0 million, or 6.4%29.8%, to $351.3$426.8 million from $330.0$328.8 million in the nine month periodsix months ended SeptemberJune 30, 2016.2021. The increase in equipment rental revenues was primarily due to our larger fleet, increased rental demand and increased rental rates as compared to the prior year.
Rentals. Rental revenues increased $84.1 million, or 28.6%, to $378.4 million for the six months ended June 30, 2022 compared to $294.4 million for the six months ended June 30, 2021. Rental revenues from earthmoving equipment increased $32.2 million, material handling equipment increased $22.6 million, aerial work platform equipment increased $19.7$19.4 million and earthmovingother equipment rental revenues increased $4.4$9.8 million. Other equipment rental revenues increased $1.6 million and lift truck rental revenues increased $0.1 million. Partially offsetting these rental revenue increases was a $4.5 million decrease in crane rental revenues. Our average rental rates for the nine month periodsix months ended SeptemberJune 30, 20172022 increased approximately 0.01%8.1% compared to the same nine month period last year.
Rental equipment dollar utilization (annual rental revenues divided by the average original rental fleet equipment costs) for the nine month periodsix months ended SeptemberJune 30, 20172022 was 34.5%39.3% compared to 33.9%34.3% in the nine month periodsix months ended SeptemberJune 30, 2016,2021, an increase of 0.6%5.0%. The increase in comparative rental equipment dollar utilization was primarily the result of an increase in rental
equipment time utilization.utilization and increase in equipment rental rates. Rental equipment time utilization as a percentage of original equipment cost was 71.4%71.8% for the nine month periodsix months ended SeptemberJune 30, 20162022 compared to approximately 69.5%66.4% in the same nine month period a year ago,six months ended June 30, 2021, an increase of 1.9%5.4%. The increase in rental equipment rental time utilization based onas a percentage of original equipment cost iswas largely reflectivedue to the increase in demand.
Rentals Other. Our rentals other revenue consists primarily of increased demand for rental equipment support activities that we provide to customers in connection with renting equipment, such as hauling charges, damage waiver policies, environmental and to a lesser extent, the prior year first quarter negative impact on earthmoving equipment rental activity from heavy rains and associated flooding in our Louisiana, Texas and Arkansas markets.other recovery fees. Rental equipment time utilization based on the number of rental equipment units available for rent was 69.1%other revenues for the nine month periodsix months ended SeptemberJune 30, 2017,2022 were $48.4 million compared to approximately 66.8% in$34.5 million for the same period last year,six months ended June 30, 2021, an increase of 2.3%$13.9 million, or 40.3%. The increase was primarily related to the increase in rental revenues discussed above.
Used Equipment Sales Revenues. Our used equipment sales decreased $34.3 million, or 46.0%, to $40.4 million for the six months ended June 30, 2022 from $74.7 million for the six months ended June 30, 2021. This decrease is reflective of the increased rental demand and our decision to capitalize on high equipment utilization during the quarter. Sales of used material handling equipment decreased $15.7 million, sales of used aerial work platform equipment decreased $9.5 million and sales of used earthmoving equipment decreased $8.0 million.
New Equipment Sales Revenues. Revenues. Our new equipment sales for the nine month periodsix months ended SeptemberJune 30, 20172022 decreased approximately $23.0$3.3 million, or 15.1%6.5%, to $128.9$47.5 million from $151.8$50.8 million for the nine month periodsix months ended SeptemberJune 30, 2016, largely driven by a $20.1 million decrease in new earthmoving equipment sales and an $8.0 million decrease in new crane sales. The decrease in new earthmoving equipment sales is primarily the result of higher earthmoving equipment sales in the prior year period resulting from certain manufacturer incentives. The decrease in new crane sales is due primarily to decreased demand for new cranes among the Company’s customers operating in the oil and gas-centric markets that the Company serves.2021. Sales of new lift trucks decreased $0.5 million. Partially offsetting these new equipment sales decreases were a $4.9 million increase in sales of new other equipment and a $0.8 million increase in sales of new aerial work platform equipment.equipment decreased $1.9 million, sales of new earthmoving equipment decreased $1.6 million and sales of other equipment decreased $1.2 million. Partially offsetting these decreases is the sales of material handling equipment which increased $1.5 million.
Used Equipment
28
Parts Sales Revenues. Revenues. Our used equipmentparts sales increased approximately $3.2revenues for the six months ended June 30, 2022 decreased $0.2 million, or 4.5%0.6%, to $75.2$32.2 million from $32.4 million for the nine month periodsix months ended SeptemberJune 30, 2017 from $72.0 million for the same nine month period2021. The decreased parts sales was primarily attributable to decreases in 2016. Sales of usedour earthmoving equipment increased $3.8 million, whileparts sales, of used cranes increased $2.4 million. Used other equipment sales and used lift truck sales increased $0.5 million and $0.3 million, respectively. Partially offsetting these used equipment sales increases was a $3.8 million decrease in usedpartially offset by our aerial work platform equipment parts sales.
Parts Sales Revenues. Our parts sales decreased $0.9 million, or 1.1%, to $81.1 million for the nine month period ended September 30, 2017 from approximately $82.0 million for the same nine month period in 2016. The decrease in parts revenues was driven primarily by lower crane parts sales revenues.
Services Revenues. Revenues. Our services revenues for the nine month periodsix months ended SeptemberJune 30, 2017 decreased $2.22022 increased approximately $1.0 million, or 4.5%5.9%, to $47.1$17.0 million from $49.3$16.1 million for the same nine month period last year.six months ended June 30, 2021. The decrease in services revenuesincreased service revenue was dueprimarily attributable to lower crane services revenuesour earthmoving equipment and lower othermaterial handling equipment services revenues.product lines.
Non-Segmented Other Revenues. Revenues. Our non-segmented other revenues consisted primarily ofrelate to equipment support activities including transportation, hauling,that we provide to customers in connection with used and new equipment sales and parts freight and damage waiver charges.services revenues and are not generally allocated to reportable segments. For the nine month periodsix months ended SeptemberJune 30, 2017,2022 and 2021, our non-segmented other revenues were $51.8$3.2 million an increaseand $3.3 million, respectively, a decrease of $3.1 million, or 6.3%, from $48.7 million in the same nine month period in 2016. The increase was primarily due to an increase in hauling revenues, fuel charges and damage waiver income associated with the increase in our equipment rental activity.$0.1 million.
Gross Profit.
|
| Six Months Ended |
|
| Total |
| �� | Total |
| |||||||
|
| June 30, |
|
| Dollar |
|
| Percentage |
| |||||||
|
| 2022 |
|
| 2021 |
|
| Increase |
|
| Increase |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Segment Gross Profit (Loss): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equipment rentals |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rentals |
| $ | 196,542 |
|
| $ | 131,817 |
|
| $ | 64,725 |
|
|
| 49.1 | % |
Rentals other |
|
| 3,591 |
|
|
| (411 | ) |
|
| 4,002 |
|
|
| 973.7 | % |
Total equipment rentals |
|
| 200,133 |
|
|
| 131,406 |
|
|
| 68,727 |
|
|
| 52.3 | % |
Used equipment sales |
|
| 17,940 |
|
|
| 25,632 |
|
|
| (7,692 | ) |
|
| (30.0 | )% |
New equipment sales |
|
| 6,922 |
|
|
| 6,176 |
|
|
| 746 |
|
|
| 12.1 | % |
Parts sales |
|
| 8,695 |
|
|
| 8,930 |
|
|
| (235 | ) |
|
| (2.6 | )% |
Services revenues |
|
| 11,066 |
|
|
| 10,877 |
|
|
| 189 |
|
|
| 1.7 | % |
Non-segmented revenues gross profit (loss) |
|
| (842 | ) |
|
| 211 |
|
|
| (1,053 | ) |
|
| (499.1 | )% |
Total gross profit |
| $ | 243,914 |
|
| $ | 183,232 |
|
| $ | 60,682 |
|
|
| 33.1 | % |
|
| Nine Months Ended |
|
| Total |
|
| Total |
| |||||||
|
| September 30, |
|
| Dollar |
|
| Percentage |
| |||||||
|
| 2017 |
|
| 2016 |
|
| Increase (Decrease) |
|
| Increase (Decrease) |
| ||||
|
| (in thousands, except percentages) |
| |||||||||||||
Segment Gross Profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rentals |
| $ | 166,783 |
|
| $ | 156,161 |
|
| $ | 10,622 |
|
|
| 6.8 | % |
New equipment sales |
|
| 14,443 |
|
|
| 16,684 |
|
|
| (2,241 | ) |
|
| (13.4 | )% |
Used equipment sales |
|
| 23,240 |
|
|
| 22,222 |
|
|
| 1,018 |
|
|
| 4.6 | % |
Parts sales |
|
| 22,367 |
|
|
| 22,774 |
|
|
| (407 | ) |
|
| (1.8 | )% |
Services revenues |
|
| 31,223 |
|
|
| 32,586 |
|
|
| (1,363 | ) |
|
| (4.2 | )% |
Non-Segmented revenues gross profit (loss) |
|
| 982 |
|
|
| 550 |
|
|
| 432 |
|
|
| 78.5 | % |
Total gross profit |
| $ | 259,038 |
|
| $ | 250,977 |
|
| $ | 8,061 |
|
|
| 3.2 | % |
Total Gross Profit. Profit. Our total gross profit was $259.0$243.9 million for the nine month periodsix months ended SeptemberJune 30, 20172022 compared to $251.0$183.2 million for the same nine month period in 2016,six months ended June 30, 2021, an increase of approximately $8.1$60.7 million, or 3.2%33.1%. Total gross profit margin for the nine month periodsix months ended SeptemberJune 30, 20172022 was 35.2%43.0%, an increase of 1.0%6.8% from the 34.2%36.2% gross profit margin for the same nine month period in 2016.six months ended June 30, 2021. Gross profit and gross margin for all reportable segments and non-segmented other revenues are further described below:below.
Equipment Rentals Gross Profit. Profit. Our total gross profit from equipment rentals for the nine month periodsix months ended SeptemberJune 30, 20172022 increased $10.6$68.7 million, or 6.8%52.3%, to $166.8$200.1 million from $156.2$131.4 million in the same nine month period in 2016. The increase in equipment rentalssix months ended June 30, 2021. Total gross profit was the net result of a $21.3 million increase in rental revenues for the nine month period ended September 30, 2017 and a $5.4 million increase in rental expenses and a $5.3 million increase in rental equipment depreciation expense. The increase in rental expenses is primarily due to higher repair costs and increased property taxes resultingmargin from a larger rental fleet size. The increase in rental equipment depreciation expense is largely due also to a larger rental fleet size. Gross profit margin on equipment rentals for the nine month periodsix months ended SeptemberJune 30, 20172022 was approximately 47.5%46.9% compared to 47.3%40.0% for the same period in 2016,2021, an increase of 0.2%6.9%.
Rentals: Rental revenues gross profit increased $64.7 million, or 49.1%, to $196.5 million for the six months ended June 30, 2022 compared to $131.8 million for the six months ended June 30, 2021. The increased gross profit was the result of increased rental revenues of $84.1 million for the six months ended June 30, 2022 compared to the same period last year, which was partially offset by a $12.3 million increase in rental depreciation and a $7.0 million increase in rental expenses. The increase in depreciation expense is primarily due to a larger fleet size in the current year as compared to the prior year. Gross profit margin on rentals for the six months ended June 30, 2022 was 51.9% compared to 44.8% for the six months ended June 30, 2021, an increase of 7.1%. Depreciation expense was 35.9%32.3% of equipment rental revenues for the nine month periodsix months ended SeptemberJune 30, 20172022 compared to 36.6%37.4% for the same period in 2016,2021, a decrease of 0.7%5.1%. As a percentage of equipment rental revenues, rental expenses were approximately 16.7%15.7% for the nine month periodsix months ended SeptemberJune 30, 20172022 compared to 16.1%17.9% for the same period last year, a decrease of 2.2%.
Rentals Other: Our rentals other revenue consists primarily of equipment support activities that we provide to customers in connection with renting equipment, such as hauling charges, damage waiver policies, environmental and other recovery fees. Rental other revenues gross profit for the six months ended June 30, 2022 was $3.6 million compared to a gross loss of $0.4 million for the same period in 2021, an increase of $4.0 million. Gross profit margin was 7.4% for the six months ended June 30, 2022 compared to a gross loss margin of 1.2% for the same period last year, an increase of 0.6%8.6%.
New Equipment Sales Gross Profit. Our new equipment sales gross profit for the nine month period ended September 30, 2017 decreased $2.2 million, or 13.4%, to $14.4 million compared to approximately $16.7 million for the same nine month period in 2016 on a total new equipment sales decrease of $23.0 million. Gross profit margin on new equipment sales for the nine month period ended September 30, 2017 was 11.2%, an increase of 0.2% from 11.0% in the same nine month period in 2016, as a result of the mix of new equipment sold and higher margins on new crane sales.
Used Equipment Sales Gross Profit. Our used equipment sales gross profit for the nine month periodsix months ended SeptemberJune 30, 2017 increased approximately $1.02022 decreased $7.7 million, or 4.6%30.0%, to approximately $23.2$17.9 million from $22.2$25.6 million in the same period in 20162021 on a decreased used equipment sales increase of $3.2$34.3 million. Gross profit margin on used equipment sales for the six months ended June 30, 2022 was 30.9% in eachapproximately 44.5%, up 10.2%
29
from 34.3% for the six months ended June 30, 2021, primarily as a result of the nine month periods ended September 30, 2017 and 2016.higher used equipment gross margins across our core product lines. Our used equipment sales from the rental fleet, which comprised approximately 88.2%89.9% and 86.5%95.4% of our used equipment sales for the nine month periodssix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively, were approximately 150.3%191.5% and 152.6%155.5% of net book value for the nine month periodssix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively.
PartsNew Equipment Sales Gross Profit. For the nine month period ended September 30, 2017, our partsOur new equipment sales revenue gross profit decreased $0.4for the six months ended June 30, 2022 increased $0.7 million, or 1.8%12.1%, to $22.4$6.9 million from $22.8compared to $6.2 million duringfor the same nine month period in 2016six months ended June 30, 2021 on a $0.9 million decrease in partsdecreased new equipment sales revenues.of $3.3 million. Gross profit margin on new equipment sales was 14.6% for the nine month periodsix months ended SeptemberJune 30, 2017 was 27.6%, a decrease of 0.2% from 27.8% in the same nine month period in 2016, as a result of the mix of parts sold.
Services Revenues Gross Profit. For the nine month period ended September 30, 2017, our services revenues gross profit decreased $1.4 million, or 4.2%,2022, compared to $31.2 million from $32.6 million12.2% for the same nine month period in 2016 on a $2.2 million decrease in services revenues. Gross profit margin for the nine month period ended September 30, 2017 was 66.3% for the nine month period ended September 30, 2017 compared to 66.1% in the same nine month period last year, an increase of 0.2% due to2.4%.
Parts Sales Gross Profit. Our parts sales gross profit for the six months ended June 30, 2022 was $8.7 million, a decrease of $0.2 million, or 2.6%, from a gross profit of $8.9 million for the same period last year on decreased parts sales of $0.2 million. Gross profit margin for the six months ended June 30, 2022 and 2021 was 27.0% and 27.5%, respectively.
Services Revenues Gross Profit. For the six months ended June 30, 2022, our services revenues gross profit increased $0.2 million, or 1.7%, to $11.1 million from $10.9 million for the six months ended June 30, 2021 on increased services revenues of $1.0 million. Gross profit margin for the six months ended June 30, 2022 was 65.0%, a decrease of 2.7% from 67.7% in the six months ended June 30, 2021, as a result of services revenues mix.
Non-Segmented Other Revenues Gross Profit. Our non-segmented other revenues relate to equipment support activities that we provide to customers in connection with used and new equipment sales and parts and services revenues and are not generally allocated to reportable segments. For the six months ended June 30, 2022, our other revenues gross loss was $0.8 million compared to a gross profit increased approximately $0.4of $0.2 million or 78.5%, to $1.0 million for the nine month period ended September 30, 2017, compared to $0.6 million in gross profit for the same period in 2016, on2021, a $3.1decrease of $1.1 million.
Selling, General and Administrative Expenses. SG&A expenses increased $22.1 million, or 15.9%, to $160.9 million for the six months ended June 30, 2022 compared to $138.9 million for the six months ended June 30, 2021. Employee salaries, wages, payroll taxes and other employee related expenses increased $13.6 million, primarily as a result of increased incentive pay combined with higher headcount and commissions and increased employee hours. Facility rent expenses and repairs and maintenance costs increased $2.5 million, professional fees increased $1.7 million, liability insurance costs increased $1.2 million and fuel and utilities costs increased $0.6 million. Approximately $6.5 million of the total increase in non-segmented other revenues. Gross marginSG&A expenses was attributable to branches opened since January 1, 2021 with less than six months of comparable operations in either or both of the six months ended June 30, 2022 and 2021. SG&A expenses as a percentage of total revenues for the nine month periodsix months ended SeptemberJune 30, 2017 was 1.9%2022 and 2021 were 28.4% and 27.4%, respectively.
Gain on Sales of Property & Equipment (Net). We had net gains on sales of property and equipment of $2.4 million for the six months ended June 30, 2022 compared to a gross margin of 1.1% in$0.8 million for the same nine month period last year, an increase of 0.8%, primarily reflective of improved margins on hauling revenues compared to last year.
Selling, General and Administrative Expenses. SG&A expenses decreased $0.1 million to $172.3 million for the nine month period ended September 30, 2017 compared to $172.4 million for the nine month period ended September 30, 2016. Employee salaries, wages, payroll taxes and related employee benefit expenses increased approximately $2.8$1.6 million. Facility costs increased $1.0 million, comprised primarily of additional rent expense related to new branches opened since the third quarter of last year. Bad debt expense increased approximately $0.5 million. Offsetting these increases in SG&A expenses were a $2.9 million decrease in depreciation and amortization expenseThis increase is due to lower software amortization costs. Legalgains on the sale of property and professional fees decreased $0.9 million. General liability insurance costs decreased $0.7 million.
Branches opened since January 1, 2016 with less than nine full months of comparable operationsequipment in the first three quartersnormal course of 2016 and 2017 contributed to a $2.4 million increase in our SG&A for the nine month period ended September 30, 2017.business.
As a percentage of total revenues, SG&A expenses were approximately 23.4% for each of the nine month periods ended September 30, 2017 and 2016.
Other Income (Expense). For the nine month periodsix months ended SeptemberJune 30, 2017,2022, our net other expenses increased $27.2 million to $65.9were $25.2 million compared to $38.7$25.5 million for the same nine month period in 2016. Included in Other Income (Expense) for the nine month periodsix months ended SeptemberJune 30, 2017 is a $25.4 million loss on the early extinguishment of debt (see discussion immediately below
regarding the issuance of the New Notes).2021. Interest expense was approximately $41.7$26.9 million for the nine month period ended September 30, 2017 compared to approximately $40.2 million for the nine month period ended September 30, 2016, an increase of $1.5 million. The increase in interest expense is primarily related to the timingboth of the issuance of the New Notes in relation to the redemption of the Old Notes. Our New Notes were issued on August 24, 2017, while approximately $300.3 million of the Old Notes remained outstanding until the September 25, 2017 redemption date. Miscellaneous other income was $1.2 million in the nine month periodsix months ended SeptemberJune 30, 2017 compared to $1.5 million in the same period last year, a decrease of $0.3 million.2022 and 2021.
Loss on Early Extinguishment of Debt. As more fully described in note 10 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we recorded a one-time loss on the early extinguishment of debt in the nine month period ended September 30, 2017 of approximately $25.4 million, reflecting payment of $12.8 million of tender premiums associated with our repurchase of the Old Notes and $10.5 million of premiums in accordance with the indenture governing the Old Notes to redeem the remaining untendered Old Notes, combined with the write off of approximately $2.0 million of unamortized note premium, unaccreted note discount and unamortized deferred financing costs, related to the Old Notes.
Merger Breakup Fee, net of Merger Costs. As more fully described above and in note 3 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, pursuant to the terms of our merger agreement with Neff, in August, 2017, we received a $13.2 million breakup fee concurrently with Neff’s termination of the merger agreement. Related estimated merger transaction fees totaled $6.7 million, resulting in estimated net proceeds of $6.5 million.
Income Taxes. We recorded an income tax expense of $8.0$16.0 million for the nine month periodsix months ended SeptemberJune 30, 20172022 compared to an income tax expense of $17.4$5.5 million for the nine month periodsix months ended SeptemberJune 30, 2016.2021. Our effective income tax rate was 25.3% for the nine month periodsix months ended SeptemberJune 30, 20162022 was 26.6% compared to 41.3%28.0% for the same nine month period last year, a decrease of 16.0%. The decrease in effective tax rate is primarily due to a net $5.3 million discrete tax benefit resulting from a reversal of an unrecognized tax benefit due to expiration of statute of limitations in the third quarter ended September 30, 2017.2021. Based on available evidence, both positive and negative, we believe it is more likely than not that our federal deferred tax assets at SeptemberJune 30, 20172022 are fully realizable through future reversals of existing taxable temporary differences and future taxable income, and are not subject to any limitations; however, for the quarter ended Septemberincome. As of June 30, 2017,2022, we increased ourhave a valuation allowance by $0.4of $7.6 million for certain state net operating lossestax credits that may not be utilized.realized.
Liquidity and Capital Resources
Cash flow from operating activities. Flow From Operating Activities. For the nine month periodsix months ended SeptemberJune 30, 2017,2022, the net cash provided by our operating activities was $156.4$104.2 million. Our reported net income of $23.7$42.6 million, when adjusted for non-cash income and expense items, such as depreciation and amortization, deferred income taxes, net amortization (accretion) of note discount (premium), provision for losses on accounts receivable, impairment of goodwill, provision for inventory obsolescence, stock-based compensation expense, loss on early extinguishmentsale of debt,discontinued operations and net gains on the sale of long-lived assets, provided positive cash flows of approximately $181.1$189.1 million. These cash flows from operating activities were also positively impacted by a $42.1$41.3 million increase in accounts payable and a $0.6 million increase in manufacturing flooring plans payable. Partially offsetting these positive cash flows were a $38.9an $87.6 million increase in inventories, a $15.8$27.3 million increase in accounts receivables, a $6.7 million increase in prepaid expenses and other assets and a $7.5$5.2 million decrease in manufacturing flooring plans payable, while accrued expenses payable and other liabilities decreased $3.1 million and prepaid expenses and other assets increased $1.6 million.liabilities.
30
For the nine month periodsix months ended SeptemberJune 30, 2016,2021, the net cash provided by our operating activities was $109.4$80.5 million. Our reported net income of $24.7$19.9 million, when adjusted for non-cash income and expense items, such as depreciation and amortization, deferred income taxes, net amortization (accretion) of note discount (premium), provision for losses on accounts receivable, impairment of goodwill, provision for inventory obsolescence, stock-based compensation expense and net gains on the sale of long-lived assets, provided positive cash flows of approximately $165.2$139.5 million. These cash flows from operating activities were also positively impacted by a $5.8$7.6 million decrease in accounts receivables and a $1.2$23.8 million decreaseincrease in prepaid expenses and other assets.accounts payable. Partially offsetting these positive cash flows were a $24.2$73.7 million increase in inventories, a $7.1 million increase in prepaid expenses and other assets, a $2.3 million decrease in manufacturing flooring plans payable, and an $18.5a $7.3 million decrease in accounts payable. Also, inventories increased $15.2 million and accrued expenses payable and other liabilities decreased $4.4 million. Deferred compensation payable decreased $0.3 million.
Cash flowliabilities. Net cash provided from investing activities. For the nine month period ended September 30, 2017, theoperating activities was not adjusted to exclude net cash provided by discontinued operations. Discontinued operations accounted for $8.0 million of depreciation and amortization and $5.1 million of net gains on the sale of long-lived assets included above.
Cash Flow From Investing Activities. For the six months ended June 30, 2022, our investing activities was exceeded by cash used in our investing activities, resulting in net cash used in our investing activities of $126.7was $162.4 million. This was a result of purchasesPurchases of rental and non-rental equipment totaling $199.8were $199.2 million and proceeds from the sale of rental and non-rental equipment were $39.1 million. A $2.3 million payment related to the sale of approximately $73.1 million.discontinued operations was made upon the execution of the final closing statement.
For the nine month periodsix months ended SeptemberJune 30, 2016, the cash provided by2021, our investing activities was exceeded by cash used in our investing activities, resulting in net cash used in our investing activities of approximately $104.4was $168.3 million. This was a result of
purchasesPurchases of rental and non-rental equipment totaling $169.4were $244.7 million and proceeds from the sale of rental and non-rental equipment were $76.4 million. Net cash provided by our investing activities was not adjusted to exclude net cash provided by discontinued operations. Discontinued operations accounted for $7.6 million of approximately $64.9 million.purchases of rental equipment and $11.7 million of proceeds from the sale of rental and non-rental equipment included above.
Cash flow from financing activities. Flow From Financing Activities. For the nine month periodsix months ended SeptemberJune 30, 2017, the2022, our net cash provided by our financing activities was exceeded by our cash used in our financing activities, resulting in net cash used in our financing activities of approximately $31.2$20.3 million. We netted borrowings and payments under our Credit Facility for the six months ended June 30, 2022. Dividends totaling approximately $29.4paid totaled $19.9 million, or $0.825$0.55 per common share, were paid during the nine month period ended September 30, 2017. Net payments under the Credit Facility were $85.4and treasury stock purchases totaled $0.3 million. Payments on capital lease obligations were $0.2 million. In connection with the redemption of our Old Notes, we paid $653.3 million, representing aggregate principal payments of $630.0 million and tender and redemption premiums totaling approximately $23.3 million. In connection with the issuance of our New Notes, net proceeds after deducting underwriting expenses of $10.3 million, were $739.7 million. Other transaction costs related to the New Notes were approximately $1.6 million.
For the nine month periodsix months ended SeptemberJune 30, 2016, the2021, our net cash provided by our financing activities was exceeded by our cash used in our financing activities, resulting in net cash used in our financing activities of approximately $5.1$20.6 million. We netted borrowings and payments under our Credit Facility for the six months ended June 30, 2021. Dividends totaling approximately $29.3paid totaled $19.9 million, or $0.825$0.55 per common share,share. Treasury stock purchases totaled $0.4 million, payments of deferred financing costs were paid during the nine month period ended September 30, 2016. Payments on capital lease obligations were $0.2$0.1 million and finance lease principal payments were $0.1 million.
Senior Unsecured Notes
On December 14, 2020, we purchased treasury stock totaling approximately $0.5 million. Partially offsetting these usescompleted the offering of cashour Senior Unsecured Notes of $1.25 billion. No principal payments on the Senior Unsecured Notes are due until their scheduled maturity date of December 15, 2028.
The Senior Unsecured Notes were net borrowings under the Credit Facility of $24.9 million.
Senior Secured Credit Facility
Weissued by H&E Equipment Services, Inc. (the parent company) and ourare guaranteed by GNE Investments, Inc. and its wholly-owned subsidiaries are parties to a $602.5 million senior secured credit facility (the “Credit Facility”) with Wells Fargo Capital Finance, LLC (“Wells Fargo”), agent (as successor in such capacity to General Electric Capital Corporation (“GE Capital”)) , and the lenders named therein (the “Lenders”).
On May 21, 2014, we amended, extended and restated the Credit Facility by entering into the Fourth Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) by and among the Company, Great Northern Equipment, Inc., H&E Equipment Services (California), LLC, H&E California Holding, Inc., H&E Equipment Services (Mid-Atlantic), Inc. and H&E Finance Corp (collectively, the other creditguarantor subsidiaries). 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. There are no registration rights associated with the notes or the subsidiary guarantees.
Senior Secured Credit Facility
We and our subsidiaries are parties named therein,to a $750.0 million Credit Facility with Wells Fargo Capital Finance, LLC as administrative agent, and the lenders named therein, GE Capital, as administrative agent, Bank of America, N.A. as co-syndication agent and documentation agent, Wells Fargo, as co-syndication agent and Deutsche Bank Securities Inc. as joint lead arranger and joint bookrunner. In March 2016, Wells Fargo succeeded and was substituted for GE Capital as the administrative agenttherein. At June 30, 2022, we had no outstanding borrowings under the Amended and Restated Credit Agreement.
The Amended and Restated Credit Agreement, among other things, (i) extends the maturity date of the Credit Facility from February 29, 2017and we could borrow up to May 21, 2019, (ii) increases$740.3 million, which with cash on hand amounted to a liquidity position of $1.0 billion. On October 1, 2021, we sold our crane business and the uncommitted incremental revolving capacity from $130 million to $150 million, (iii) permits a like-kind exchange program under Section 1031 of the Internal Revenue Code of 1986, as amended, (iv) provides that the unused commitment fee margin will be either 0.50%, 0.375% or 0.25%, dependingdisposition had no impact on our borrowing availability. For further information 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 monthCrane Sale, see Note 3 to the aggregate commitments for the revolving loans, swing line loans and letters of credit, (v) lowers the interest rate (a) in the case of index rate revolving loans,our Condensed Consolidated Financial Statements. We did not have any negative impacts to the index rate plus an applicable margin of 0.75% to 1.25% depending on the leverage ratio and (b) in the case of LIBOR revolving loans, to LIBOR plus an applicable margin of 1.75% to 2.25%, depending on the leverage ratio, (vi) lowers the margin applicable to the letter of credit fee to between 1.75% and 2.25%, depending on the leverage ratio, and (vii) permits,our liquidity position under certain conditions, for the payment of dividends and/or stock repurchases or redemptions on the capital stock of the Company of up to $75 million per calendar year and further additionally permits the payment of the special cash dividend of $7.00 per share previously declared by the Company on August 20, 2012 to the holders of outstanding restricted stock of the Company following the declared payment date with such permission not tied to the vesting of such restricted stock (which includes the Company’s payment in June 2014 of all amounts that remained payable to the holders of the restricted stock of the Company with respect to such special dividend that was otherwise payable following the applicable vesting dates in May and July 2014 and 2015).
On February 5, 2015, we entered into an amendment to the Credit Facility which, among other things, increasedas a result of discontinued operations or the total amount of revolving loan commitments under the Amended and Restated Credit Agreement from $402.5 millionCOVID-19 pandemic, nor do we have any covenant violations related to $602.5 million.
As of September 30, 2017, we were in compliance with our financial covenants under the Credit Facility. At September 30, 2017, the Company could borrow up to an additional $517.6 million and remain in compliance with the debt covenants under the Company’s Credit Facility.
At September 30, 2017, the interest rate on the Credit Facility was based on either a 4.00% U.S. Prime Rate plus 100 basis points or LIBOR plus 200 basis points, as applicable with respect to the type of revolving loan. The weighted average interest rate at September 30, 2017 was approximately 3.9%. At October 19, 2017,July 21, 2022, we had $526.6$740.3 million of available borrowings under our Credit Facility, net of $7.7a $9.7 million of outstanding lettersletter of credit.
Senior Notes due 2025
On August 24, 2017, we completed an offering of $750 million aggregate principal amount of 5.6250% senior notes due 2025 (the “New Notes”) and the settlement of a cash tender offer (the “Tender Offer”) with respect to our 7% senior notes due 2022 (the “Old Notes”). Net proceeds, after deducting $10.3 million of estimated offering expenses, from the sale of the New Notes totaled approximately $739.7 million. We used a portion of the net proceeds from the sale of the New Notes to repurchase $329.7 million of aggregate principal amount of the Old Notes in early settlement of the Tender Offer, which the Company launched on August 17, 2017. Holders who tendered their Old Notes prior to the early tender deadline received $1,038.90 per $1,000 principal amount of Old Notes tendered, plus accrued and unpaid interest up to, but not including, the payment date of August 24, 2017. Effective as of August 24, 2017, we (i) provided notice of the redemption of all remaining Old Notes that were not validly tendered in the Tender Offer at the expiration time and (ii) satisfied and discharged the indenture governing the Old Notes in accordance with its terms. On September 25, 2017, we redeemed the remaining $300.3 million principal amount outstanding of the Old Notes at a redemption price equal to 103.50% of the principal amount thereof, plus accrued and unpaid interest up to, but not including, the date of redemption.
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, 2018. No principal payments are due until maturity (September 1, 2025).31
The New Notes are redeemable, in whole or in part, at any time on or after September 1, 2020 at specified redemption prices plus accrued and unpaid interest to the date of redemption. We may redeem up to 40% of the aggregate principal amount of the New Notes before September 1, 2020 with the net cash proceeds from certain equity offerings. We may also redeem the New Notes prior to September 1, 2020 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 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.
If we experience a change of control, we will be required to offer to purchase the New Notes at a repurchase price equal to 101% of the principal amount, plus accrued and unpaid interest to the date of repurchase.
The indenture governing the New 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 consolidations; (vii) engage in certain 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 September 30, 2017, we were in compliance with these covenants.
Pursuant to a registration rights agreement entered into between us, the guarantors of the New Notes and the initial purchasers of the New Notes, we agreed to make an offer to exchange (the “Exchange Offer”) the New Notes and guarantees for registered, publicly tradable notes and guarantees that have terms identical in all material respects to the New Notes (except that the exchange notes will not contain any transfer restrictions) within a certain period of time following the completion of the offering.
Cash Requirements Related to Operations
Our principal sources of liquidity have been from cash provided by operating activities and the sales of used, new used and rental fleet equipment, proceeds from the issuance of debt, and borrowings available under the Credit Facility. Our principal uses of cash historically have been to fund operating activities and working capital (including newused and usednew equipment inventories), purchases of rental fleet equipment and property and equipment, open new branch locations, fund payments due under facility operating leases and manufacturer flooring plans payable, and to meet debt service requirements. In the future, we may pursue additional strategic acquisitions and seek to open new start-up locations. We anticipate that the above described uses will be the principal demands on our cash in the future.acquisitions.
The amount of our future capital expenditures will depend on a number of factors including general economic conditions and growth prospects. Our gross rental fleet capital expenditures for the nine month period ended September 30, 2017 were approximately $193.4 million, including $9.6 million of non-cash transfers from new and used equipment to rental fleet inventory. Our gross property and equipment capital expenditures for the nine month period ended September 30, 2017 were $16.0 million. In response to changing economic conditions, we believe we have the flexibility to modify our capital expenditures by adjusting them (either up or down) to match our actual performance. Our gross rental fleet capital expenditures for the six months ended June 30, 2022 and for both continuing and discontinued operations for the six months ended June 30, 2021 were approximately $215.6 million and $246.1 million, respectively, including $40.8 million and $17.7 million, respectively, of non-cash transfers from used and new equipment to rental fleet inventory. This increase in rental fleet capital expenditures reflects our response to improved rental demand. Our gross property and equipment capital expenditures for the six months ended June 30, 2022 and for both continuing and discontinued operations for the six months ended June 30, 2021 were $24.5 million and $16.2 million, respectively.
To service our debt, we will require a significant amount of cash. Our ability to pay interest and principal on our indebtedness (including the Credit Facility, the Senior Unsecured Notes and our other indebtedness), will depend upon our future operating performance and the availability of borrowings under the Credit Facility and/or other debt and equity financing alternatives available to us, which will be affected by prevailing economic conditions and conditions in the global credit and capital markets, as well as financial, business and other factors, some of which are beyond our control. Based on our current level of operations and given the current state of the capital markets, we believe our cash flow from operations, available cash and available borrowings under the Credit Facility will be adequate to meet our future liquidity needs for the foreseeable future. As of October 19, 2017,At June 30, 2022, we had $526.6cash on hand of $278.8 million and had available borrowings of $740.3 million, net of $9.7 million of outstanding letters of credit. At July 21, 2022, we had $740.3 million of available borrowings under the Credit Facility, net of $7.7$9.7 million of outstanding letters of credit.
We cannot provide absolute assurance that our future cash flow from operating activities will be sufficient to meet our long-term obligations and commitments. If we are unable to generate sufficient cash flow from operating activities in the future to service our indebtedness and to meet our other commitments, we will be required to adopt one or more alternatives, such as refinancing or restructuring our indebtedness, selling material assets or operations or seeking to raise additional debt or equity capital. We cannot assure investors that any of these actions could be effected on a timely basis or on satisfactory terms or at all, or that these actions would enable us to continue to satisfy our capital requirements. In addition, our existing debt agreements, including the Credit Facility and the indenture governing the Senior Notes, contain or may contain restrictive covenants, which may prohibit us from adopting any of these alternatives. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debt.
Quarterly Dividend
On August 21, 2017,May 13, 2022, the Company announced a quarterly dividend of $0.275 per share to stockholders of record, which was paid on September 11, 2017,June 10, 2022, totaling approximately $9.9 million. The Company intends to continue to pay regular quarterly cash dividends; however, the declaration of any subsequent dividends is discretionary and will be subject to a final determination by the Board of Directors each quarter after its review of, among other things, business and market conditions.
Seasonality
Although we believe our business is not materially impacted by seasonality, the demand for our rental equipment tends to be lower in the winter months. The level of equipment rental activities is directly related to commercial and industrial construction and maintenance activities. Therefore, equipment rental performance will be correlated to the levels of current construction activities. The severity of weather conditions can have a temporary impact on the level of construction activities. Adverse weather has a seasonal impact in parts of the markets we serve, including our Intermountain region, particularly in the winter months.
Equipment sales cycles are also subject to some seasonality with the peak selling period during the spring season and extending through the summer. Parts and services activities are typically less affected by changes in demand caused by seasonality.
Contractual and Commercial Commitments
Except as otherwise reported in this Quarterly Report on Form 10-Q, there have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2016.
Off-Balance Sheet Arrangements
There have been no material changes from the information included in our Annual Report on Form 10-K for the year ended December 31, 2016.2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our earnings may be affected byThere have been no significant changes in interest rates since interest expense on the Credit Facility is currently calculated based upon the index rate plus an applicable margin of 1.00% to 1.50%, depending on the leverage ratio, in the case of index rate revolving loans and LIBOR plus an applicable margin of 2.00% to 2.50%, depending on the leverage ratio, in the case of LIBOR revolving loans. At September 30, 2017, we had total borrowings outstanding under the Credit Facility of approximately $77.2 million. A 1.0% increase in the interest rate on the Credit Facility would result in approximately a $0.8 million increase in interest expense on an annualized basis. At October 19, 2017, we had $526.6 million of available borrowings under the Credit Facility, net of $7.7 million of outstanding letters of credit. We did not have significantour exposure to changing interest rates asmarket risk during the three months ended June 30, 2022. For a discussion of September 30, 2017our exposure to market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in our Annual Report on Form 10-K for the fixed-rate Senior Notes. Historically, we have not engaged in derivatives or other financial instruments for trading, speculative or hedging
purposes, though we may do so from time to time if such instruments are available to us on acceptable terms and prevailing market conditions are accommodating.fiscal year ended December 31, 2021.
Item 4. Controls and Procedures
Management’s Quarterly Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or furnishes under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure.
Our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively) have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a‑15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended)Act) as of the end of the period covered by this Quarterly Report on Form 10‑Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of SeptemberJune 30, 2017,2022, our current disclosure controls and procedures were effective.
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The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Because of its inherent limitations, disclosure controls and procedures may not prevent or detect all misstatements. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that occurred during the quarterthree months ended SeptemberJune 30, 20172022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
From time to time, we are involved in various claims and legal actions arising in the ordinary course of our 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. We are exposed to various claims relating to our business, including those for which we retain portions of the losses through the application of deductibles and self-insured retentions, or self-insurance. Losses that exceed our deductibles and self-insured retentions are insured through various commercial lines of insurance policies.
We are also involved in various other 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.
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A - “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2016,2021, which could materially affect our business, financial condition or future results.
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes with respect to the Company’s risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On August 1, 2017, 18,153 shares of non-vested stock that were issued in 2014 vested at $21.97 per share. Certain holders of those vested shares returned an aggregate of 5,750 shares of common stock to the Company during the quarter ended September 30, 2017 as payment for their respective withholding taxes. This resulted in an addition of 5,750 shares to treasury stock.None.
On August 1, 2017, 40,633 shares of non-vested stock that were issued in 2016 vested at $21.97 per share. Certain holders of those vested shares returned an aggregate of 12,917 shares of common stock to the Company during the quarter ended September 30, 2017 as payment for their respective withholding taxes. This resulted in an addition of 12,917 shares to treasury stock.
On August 3, 2017, 48,381 shares of non-vested stock that were issued in 2015 vested at $22.46 per share. Certain holders of those vested shares returned an aggregate of 15,287 shares of common stock to the Company during the quarter ended September 30, 2017 as payment for their respective withholding taxes. This resulted in an addition of 15,287 shares to treasury stock.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Dated: | By: | /s/ |
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Chief Executive Officer and Director (Principal Executive Officer) |
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Dated: | By: | /s/ Leslie S. Magee |
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| Leslie S. Magee Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) |
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