Exhibit 99.3
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share amounts)
Balances at | ||||||||
September 30, 2012 | December 31, 2011 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Cash | $ | 3,250 | $ | 24,215 | ||||
Receivables, net of allowance for doubtful accounts of $4,677 and $5,581, respectively | 123,902 | 105,339 | ||||||
Inventories, net of reserves for obsolescence of $834 and $861, respectively | 109,751 | 65,151 | ||||||
Prepaid expenses and other assets | 5,108 | 5,223 | ||||||
Rental equipment, net of accumulated depreciation of $297,328 and $281,493, respectively | 571,936 | 450,877 | ||||||
Property and equipment, net of accumulated depreciation and amortization of $67,063 and $62,050, respectively | 79,406 | 62,775 | ||||||
Deferred financing costs, net of accumulated amortization of $8,943 and $11,844, respectively | 14,313 | 5,640 | ||||||
Intangible assets, net of accumulated amortization of $722 at December 31, 2011 | — | 66 | ||||||
Goodwill | 32,560 | 34,019 | ||||||
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Total assets | $ | 940,226 | $ | 753,305 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Liabilities: | ||||||||
Amounts due on senior secured credit facility | $ | 130,725 | $ | 16,055 | ||||
Accounts payable 1 | 75,708 | 63,006 | ||||||
Manufacturer flooring plans payable | 56,925 | 58,318 | ||||||
Dividends payable | 1,488 | — | ||||||
Accrued expenses payable and other liabilities | 37,564 | 38,490 | ||||||
Senior unsecured notes | 530,000 | 250,000 | ||||||
Capital leases payable | 2,487 | 2,605 | ||||||
Deferred income taxes | 66,076 | 58,616 | ||||||
Deferred compensation payable | 1,960 | 2,008 | ||||||
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Total liabilities | 902,933 | 489,098 | ||||||
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Commitments and Contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued | — | — | ||||||
Common stock, $0.01 par value, 175,000,000 shares authorized; 38,917,619 and 38,808,941 shares issued at September 30, 2012 and December 31, 2011, respectively and 35,143,886 and 35,084,737 shares outstanding at September 30, 2012 and December 31, 2011, respectively | 388 | 387 | ||||||
Additional paid-in capital | 212,211 | 210,695 | ||||||
Treasury stock at cost, 3,773,733 and 3,724,204 shares of common stock held at September 30, 2012 and December 31, 2011, respectively | (57,578 | ) | (56,884 | ) | ||||
Retained earnings (deficit) | (117,728 | ) | 110,009 | |||||
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Total stockholders’ equity | 37,293 | 264,207 | ||||||
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Total liabilities and stockholders’ equity | $ | 940,226 | $ | 753,305 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenues: | ||||||||||||||||
Equipment rentals | $ | 77,808 | $ | 61,190 | $ | 207,941 | $ | 165,440 | ||||||||
New equipment sales | 49,009 | 46,543 | 154,710 | 133,629 | ||||||||||||
Used equipment sales | 24,990 | 27,172 | 75,100 | 65,655 | ||||||||||||
Parts sales | 26,058 | 24,647 | 74,161 | 71,166 | ||||||||||||
Services revenues | 14,436 | 14,191 | 41,615 | 40,072 | ||||||||||||
Other | 12,208 | 10,546 | 33,671 | 27,570 | ||||||||||||
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Total revenues | 204,509 | 184,289 | 587,198 | 503,532 | ||||||||||||
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Cost of revenues: | ||||||||||||||||
Rental depreciation | 27,150 | 22,076 | 74,727 | 64,146 | ||||||||||||
Rental expense | 12,579 | 12,176 | 36,375 | 34,484 | ||||||||||||
New equipment sales | 43,367 | 41,123 | 136,945 | 118,271 | ||||||||||||
Used equipment sales | 18,399 | 20,824 | 53,426 | 50,444 | ||||||||||||
Parts sales | 19,092 | 18,073 | 53,826 | 52,174 | ||||||||||||
Services revenues | 5,615 | 5,451 | 15,907 | 15,499 | ||||||||||||
Other | 11,384 | 10,825 | 32,183 | 31,862 | ||||||||||||
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Total cost of revenues | 137,586 | 130,548 | 403,389 | 366,880 | ||||||||||||
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Gross profit | 66,923 | 53,741 | 183,809 | 136,652 | ||||||||||||
Selling, general and administrative expenses | 42,402 | 39,042 | 124,504 | 114,681 | ||||||||||||
Gain on sales of property and equipment, net | 514 | 372 | 1,478 | 521 | ||||||||||||
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Income from operations | 25,035 | 15,071 | 60,783 | 22,492 | ||||||||||||
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Other income (expense): | ||||||||||||||||
Interest expense | (9,825 | ) | (7,222 | ) | (23,668 | ) | (21,607 | ) | ||||||||
Loss on early extinguishment of debt | (10,180 | ) | — | (10,180 | ) | — | ||||||||||
Other, net | 243 | 118 | 751 | 626 | ||||||||||||
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Total other expense, net | (19,762 | ) | (7,104 | ) | (33,097 | ) | (20,981 | ) | ||||||||
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Income before provision for income taxes | 5,273 | 7,967 | 27,686 | 1,511 | ||||||||||||
Provision for income taxes | 1,564 | 3,119 | 9,554 | 447 | ||||||||||||
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Net income | $ | 3,709 | $ | 4,848 | $ | 18,132 | $ | 1,064 | ||||||||
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Net income per common share: | ||||||||||||||||
Basic | $ | 0.11 | $ | 0.14 | $ | 0.52 | $ | 0.03 | ||||||||
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Diluted | $ | 0.11 | $ | 0.14 | $ | 0.52 | $ | 0.03 | ||||||||
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Weighted average common shares outstanding: | ||||||||||||||||
Basic | 34,958 | 34,804 | 34,867 | 34,743 | ||||||||||||
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Diluted | 34,974 | 34,860 | 34,963 | 34,884 | ||||||||||||
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Dividends declared per common share outstanding | $ | 7.00 | $ | — | $ | 7.00 | $ | — | ||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Nine Months Ended September 30, | ||||||||
2012 | 2011 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 18,132 | $ | 1,064 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization on property and equipment | 9,997 | 9,310 | ||||||
Depreciation on rental equipment | 74,727 | 64,146 | ||||||
Amortization of loan discounts and deferred financing costs | 1,076 | 1,042 | ||||||
Amortization of intangible assets | 66 | 337 | ||||||
Provision for losses on accounts receivable | 2,565 | 2,186 | ||||||
Provision for inventory obsolescence | 124 | 170 | ||||||
Decrease in deferred income taxes | 7,460 | 69 | ||||||
Stock-based compensation expense | 1,223 | 994 | ||||||
Loss on early extinguishment of debt | 10,180 | — | ||||||
Gain on sales of property and equipment, net | (1,478 | ) | (521 | ) | ||||
Gain on sales of rental equipment, net | (20,842 | ) | (14,103 | ) | ||||
Writedown of goodwill for tax-deductible goodwill in excess of book goodwill | 1,458 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Receivables, net | (21,128 | ) | (2,784 | ) | ||||
Inventories, net | (72,334 | ) | (32,985 | ) | ||||
Prepaid expenses and other assets | 115 | 3,177 | ||||||
Accounts payable | 12,702 | 1,649 | ||||||
Manufacturer flooring plans payable | (1,393 | ) | (12,147 | ) | ||||
Accrued expenses payable and other liabilities | (925 | ) | (4,700 | ) | ||||
Deferred compensation payable | (48 | ) | (12 | ) | ||||
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Net cash provided by operating activities | 21,677 | 16,892 | ||||||
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Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (27,011 | ) | (11,950 | ) | ||||
Purchases of rental equipment | (212,337 | ) | (90,669 | ) | ||||
Proceeds from sales of property and equipment | 1,861 | 763 | ||||||
Proceeds from sales of rental equipment | 65,003 | 47,537 | ||||||
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Net cash used in investing activities | (172,484 | ) | (54,319 | ) | ||||
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Cash flows from financing activities: | ||||||||
Purchases of treasury stock | (694 | ) | (554 | ) | ||||
Excess tax benefit from stock-based awards | 293 | 257 | ||||||
Dividends paid | (244,381 | ) | — | |||||
Principal payments on senior unsecured notes | (257,576 | ) | — | |||||
Proceeds from issuance of senior unsecured notes | 530,000 | — | ||||||
Borrowings on senior secured credit facility | 776,171 | 352,711 | ||||||
Payments on senior secured credit facility | (661,501 | ) | (339,131 | ) | ||||
Payments of deferred financing costs | (12,352 | ) | — | |||||
Payments of capital lease obligations | (118 | ) | (111 | ) | ||||
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Net cash provided by financing activities | 129,842 | 13,172 | ||||||
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Net decrease in cash | (20,965 | ) | (24,255 | ) | ||||
Cash, beginning of period | 24,215 | 29,149 | ||||||
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Cash, end of period | $ | 3,250 | $ | 4,894 | ||||
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6
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Amounts in thousands)
Nine Months Ended | ||||||||
September 30, | ||||||||
2012 | 2011 | |||||||
Supplemental schedule of noncash investing and financing activities: | ||||||||
Noncash asset purchases: | ||||||||
Assets transferred from new and used inventory to rental fleet | $ | 27,610 | $ | 27,699 | ||||
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Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | 27,868 | $ | 25,793 | ||||
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Income taxes paid, net of refunds received | $ | 334 | $ | (1,635 | ) | |||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
H&E EQUIPMENT SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization and Nature of Operations
Basis of Presentation
Our condensed consolidated financial statements include the financial position and results of operations of H&E Equipment Services, Inc. and its wholly-owned subsidiaries H&E Finance Corp., GNE Investments, Inc., Great Northern Equipment, Inc., H&E California Holding, Inc., H&E Equipment Services (California), LLC and H&E Equipment Services (Mid-Atlantic), Inc., collectively referred to herein as “we” or “us” or “our” or the “Company.”
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments (consisting of all normal and recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012, and, therefore, the results and trends in these interim condensed consolidated financial statements may not be the same for the entire year. These interim condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2011, from which the balance sheet amounts as of December 31, 2011 were derived.
All significant intercompany accounts and transactions have been eliminated in these condensed consolidated financial statements. Business combinations accounted for as purchases are included in the condensed consolidated financial statements from their respective dates of acquisition.
The nature of our business is such that short-term obligations are typically met by cash flows generated from long-term assets. Consequently, and consistent with industry practice, the accompanying condensed consolidated balance sheets are presented on an unclassified basis.
Nature of Operations
As one of the largest integrated equipment services companies in the United States focused on heavy construction and industrial equipment, we rent, sell and provide parts and service support for four core categories of specialized equipment: (1) hi-lift or aerial work platform equipment; (2) cranes; (3) earthmoving equipment; and (4) industrial lift trucks. By providing equipment sales, rental, on-site parts, and repair and maintenance functions under one roof, we are a one-stop provider for our customers’ varied equipment needs. This full-service approach provides us with multiple points of customer contact, enables us to maintain a high quality rental fleet, as well as an effective distribution channel for fleet disposal and provides cross-selling opportunities among our new and used equipment sales, rental, parts sales and service operations.
(2) Significant Accounting Policies
We describe our significant accounting policies in note 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2011. During the three and nine month periods ended September 30, 2012, there were no significant changes to those accounting policies.
Use of Estimates
We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, which requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported period. These assumptions and estimates could have a material effect on our condensed consolidated financial statements. Actual results may differ materially from those estimates. We review our estimates on an ongoing basis based on information currently available, and changes in facts and circumstances may cause us to revise these estimates.
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Recent Accounting Pronouncements
There are no recently issued accounting pronouncements that are expected to affect the Company’s financial reporting.
(3) Fair Value of Financial Instruments
The carrying value of financial instruments reported in our accompanying condensed consolidated balance sheets for cash, accounts receivable, accounts payable and accrued expenses payable and other liabilities approximate fair value due to the immediate or short-term nature or maturity of these financial instruments. The carrying amount for our senior secured credit facility approximates fair value because the underlying instrument includes provisions that adjust our interest rates based on current market rates. The determination of the fair value of our letters of credit is based on fees currently charged for similar agreements. The carrying amounts and fair values of our other financial instruments subject to fair value disclosures have been calculated based upon market quotes and present value calculations based on our current estimated incremental borrowing rates for similar types of borrowing arrangements, which are presented in the table below (amounts in thousands):
September 30, 2012 | ||||||||
Carrying Amount | Fair Value | |||||||
Manufacturer flooring plans payable with interest computed at 5.25% | $ | 56,925 | $ | 50,243 | ||||
Senior unsecured notes with interest compounded at 7.0% | 530,000 | 552,525 | ||||||
Capital lease payable with interest computed at 5.929% to 9.55% | 2,487 | 1,921 | ||||||
Letters of credit | — | 130 | ||||||
December 31, 2011 | ||||||||
Carrying Amount | Fair Value | |||||||
Manufacturer flooring plans payable with interest computed at 5.38% | $ | 58,318 | $ | 52,069 | ||||
Senior unsecured notes with interest compounded at 8.375% | 250,000 | 252,500 | ||||||
Capital lease payable with interest computed at 5.929% to 9.55% | 2,605 | 1,839 | ||||||
Letters of credit | — | 192 |
(4) Stockholders’ Equity
The following table summarizes the activity in Stockholders’ Equity for the nine month period ended September 30, 2012 (amounts in thousands, except share data):
Common Stock | Additional | Retained | Total | |||||||||||||||||||||
Shares Issued | Amount | Paid-in Capital | Treasury Stock | Earnings (Deficit) | Stockholders’ Equity | |||||||||||||||||||
Balances at December 31, 2011 | 38,808,941 | $ | 387 | $ | 210,695 | $ | (56,884 | ) | $ | 110,009 | $ | 264,207 | ||||||||||||
Stock-based compensation | — | — | 1,223 | — | — | 1,223 | ||||||||||||||||||
Tax benefits associated with stock-based awards | — | — | 293 | — | — | 293 | ||||||||||||||||||
Issuance of non-vested restricted common stock | 108,678 | 1 | — | — | — | 1 | ||||||||||||||||||
Repurchases of 46,064 shares of restricted common stock | — | — | — | (694 | ) | — | (694 | ) | ||||||||||||||||
Cash dividend on common stock ($7.00 per share) | — | — | — | — | (245,869 | ) | (245,869 | ) | ||||||||||||||||
Net income | — | — | — | 18,132 | 18,132 | |||||||||||||||||||
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Balances at September 30, 2012 | 38,917,619 | $ | 388 | $ | 212,211 | $ | (57,578 | ) | $ | (117,728 | ) | $ | 37,293 | |||||||||||
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(5) Stock-Based Compensation
We account for our stock-based compensation plan using the fair value recognition provisions of ASC 718,Stock Compensation (“ASC 718”). Under the provisions of ASC 718, stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). Shares available for future stock-based payment awards under our 2006 Stock-Based Incentive Compensation Plan were 3,720,401 shares as of September 30, 2012.
Non-vested Stock
The following table summarizes our non-vested stock activity for the nine months ended September 30, 2012:
Number of Shares | Weighted Average Grant Date Fair Value | |||||||
Non-vested stock at December 31, 2011 | 278,634 | $ | 10.77 | |||||
Granted | 108,678 | $ | 15.16 | |||||
Vested | (151,416 | ) | $ | 9.48 | ||||
Forfeited | (3,465 | ) | $ | 10.87 | ||||
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Non-vested stock at September 30, 2012 | 232,431 | $ | 13.66 | |||||
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As of September 30, 2012, we had unrecognized compensation expense of approximately $2.6 million related to non-vested stock that we expect to be recognized over a weighted-average period of 2.1 years. The following table summarizes compensation expense related to non-vested stock, which is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of income for the three and nine months ended September 30, 2012 and 2011 (amounts in thousands):
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Compensation expense | $ | 426 | $ | 334 | $ | 1,223 | $ | 994 |
Stock Options
At September 30, 2012, there is no unrecognized compensation expense as all stock option awards have fully vested. The following table represents stock option activity for the nine months ended September 30, 2012:
Number of Shares | Weighted Average Exercise Price (1) | Weighted Average Contractual Life In Years | ||||||||||
Outstanding options at December 31, 2011 | 51,000 | $ | 17.80 | |||||||||
Granted | – | – | ||||||||||
Exercised | – | – | ||||||||||
Canceled, forfeited or expired | – | – | ||||||||||
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Outstanding options at September 30, 2012 | 51,000 | $ | 17.80 | 3.8 | ||||||||
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Options exercisable at September 30, 2012 | 51,000 | $ | 17.80 | 3.8 | ||||||||
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(1) | Weighted average exercise prices shown above include a reduction of $7.00 per share to reflect the equitable adjustment to the exercise prices in connection with the declaration and payment of a $7.00 per share dividend in the third quarter. |
In connection with the Company’s payment of the $7.00 per share dividend, the exercise prices of all outstanding stock option grants were adjusted downward by $7.00 per share. The modification of stock options resulted in an additional $0.1 million of stock compensation expense.
The closing price of our common stock on September 30, 2012 was $12.12. All options outstanding at September 30, 2012 have grant date fair values (as adjusted for the $7.00 per share reduction in exercise price) which exceed the September 30, 2012 closing stock price.
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(6) Income per Share
Income per common share for the three and nine months ended September 30, 2012 and 2011 are based on the weighted average number of common shares outstanding during the period. The effects of potentially dilutive securities that are anti-dilutive are not included in the computation of dilutive income per share. The following table sets forth the computation of basic and diluted net income per common share for the three and nine month periods ended September 30, 2012 and 2011 (amounts in thousands, except per share amounts):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Basic net income per share: | ||||||||||||||||
Net income | $ | 3,709 | $ | 4,848 | $ | 18,132 | $ | 1,064 | ||||||||
Weighted average number of shares of common stock outstanding | 34,958 | 34,804 | 34,867 | 34,743 | ||||||||||||
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Net income per share of common stock – basic | $ | 0.11 | $ | 0.14 | $ | 0.52 | $ | 0.03 | ||||||||
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Diluted net income per share: | ||||||||||||||||
Net income | $ | 3,709 | $ | 4,848 | $ | 18,132 | $ | 1,064 | ||||||||
Weighted average number of shares of common stock outstanding | 34,958 | 34,804 | 34,867 | 34,743 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Effect of dilutive stock options | — | — | — | — | ||||||||||||
Effect of dilutive non-vested restricted stock | 16 | 56 | 96 | 141 | ||||||||||||
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Weighted average number of shares of common stock outstanding – diluted | 34,974 | 34,860 | 34,963 | 34,884 | ||||||||||||
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Net income per share of common stock – diluted | $ | 0.11 | $ | 0.14 | $ | 0.52 | $ | 0.03 | ||||||||
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Common shares excluded from the denominator as anti-dilutive: | ||||||||||||||||
Stock options | 51 | 51 | 51 | 51 | ||||||||||||
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Non-vested restricted stock | 86 | 52 | 20 | — | ||||||||||||
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(7) Senior Unsecured Notes
On August 20, 2012, the Company closed on its offering of $530 million aggregate principal amount of 7% senior notes due 2022 (the “New Notes”) in an unregistered offering. The New Notes and related guarantees were offered in a private placement solely to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), or outside the United States to persons other than “U.S. persons” in compliance with Regulation S under the Securities Act. The New Notes and related guarantees have not been registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements thereunder.
Net proceeds to the Company from the sale of the New Notes, after deducting the initial purchasers’ discount, totaled approximately $520.7 million. The Company used a portion of the net proceeds from the sale of the New Notes to repurchase $158.7 million of its $250 million aggregate principal amount of 8 3/8% Senior Notes due 2016 (the “Old Notes”) in early settlement of a tender offer and consent solicitation (the “Tender Offer”) that the Company launched on August 6, 2012. Holders who tendered their Old Notes prior to the early tender deadline received $1,031.67 per $1,000 principal amount of Old Notes tendered, plus accrued and unpaid interest to the redemption date. Having received the requisite consents from the holders of the Old Notes in the Tender Offer, the Company, certain of its subsidiaries and The Bank of New York Mellon Trust Company, N.A., as trustee, executed a supplemental indenture (the “Supplemental Indenture”) amending the indenture relating to the Old Notes. The Supplemental Indenture eliminated substantially all of the restrictive covenants and certain events of default from the indenture relating to the Old Notes. Also on August 20, 2012, the Company satisfied and discharged its obligations under the indenture relating to the Old Notes and issued a notice of redemption for the remaining outstanding principal amount of the Old Notes. On September 19, 2012, the Company redeemed the remaining $91.3 million principal amount outstanding of the Old Notes at a redemption price equal to 102.792% of the aggregate principal amount of the Old Notes to be redeemed, plus accrued and unpaid interest on the Old Notes to the redemption date.
The Company used the remaining net proceeds of the offering of the New Notes to pay on September 19, 2012 a one-time special dividend. Actual dividends paid totaled approximately $244.4 million, representing $7.00 per share paid on 34,911,455 outstanding shares of common stock of the Company. Dividends on 232,431 outstanding shares of non-vested common stock totaling an estimated $1.4 million are to be paid upon vesting of those shares pursuant to their respective stock awards’ terms and conditions.
11
In connection with the above transactions, the Company recorded a one-time loss on the early extinguishment of debt in the three month period ended September 30, 2012 of approximately $10.2 million, or approximately $7.2 million after-tax, reflecting payment of $5.0 million of tender premiums and $2.6 million to redeem the Old Notes that remained outstanding following completion of the Tender Offer, combined with the write off of approximately $2.6 million of unamortized deferred financing costs of the Old Notes. Transaction costs incurred totaled approximately $10.9 million.
The New Notes were issued at par and require semiannual interest payments on March 1st and September 1st of each year, commencing on March 1, 2013. No principal payments are due until maturity (September 1, 2022). We may redeem up to 35% of the aggregate principal amount of the New Notes before September 1, 2015 with the net cash proceeds from certain equity offerings. We may also redeem the New Notes prior to September 1, 2017 at a specified “make-whole” redemption price plus accrued and unpaid interest to the date of redemption.
The New Notes rank equally in right of payment to all of our existing and future senior indebtedness and rank senior to any of our subordinated indebtedness. The New Notes are unconditionally guaranteed on a senior unsecured basis by all of our current and future significant domestic restricted subsidiaries. In addition, the New Notes are effectively subordinated to all of our and the guarantors’ existing and future secured indebtedness, including the senior secured credit facility, to the extent of the assets securing such indebtedness, and are structurally subordinated to all of the liabilities and preferred stock of any of our subsidiaries that do not guarantee the New Notes.
Pursuant to a registration rights agreement entered into between the Company, the guarantors of the New Notes and the initial purchasers of the New Notes, we have agreed to make an offer to exchange the New Notes and guarantees for registered, publicly tradable notes and guarantees that have substantially identical items. A copy of the registration rights agreement is attached as Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the SEC on August 20, 2012.
(8) Senior Secured Credit Facility
We and our subsidiaries are parties to a senior secured credit facility (the “Credit Facility”) with General Electric Capital Corporation as agent, and the lenders named therein (the “Lenders”). On February 29, 2012, the Company amended its existing $320.0 million credit facility (“Amendment No. 1”) with its Lenders. Amendment No. 1 (i) permitted the refinancing of the Old Notes in an amount not less than $200.0 million and not greater than the outstanding principal amount of such notes at the time of such refinancing and with no amortization or final maturity prior to the date six months following the maturity of the Credit Agreement, (ii) extended the maturity date of the Credit Facility from July 29, 2015 to the earlier to occur of,inter alia, February 29, 2017, and, unless previously refinanced, the date that is six months prior to the maturity of the Old Notes (giving effect to any extensions thereof), (iii) provides that the unused commitment fee margin will be either 0.50% or 0.375%, depending on the ratio of the average of the daily closing balances of the aggregate revolving loans, swing line loans and letters of credit outstanding during each month to the aggregate commitments for the revolving loans, swing line loans and letters of credit, (iv) lowered the interest rate (a) in the case of index rate revolving loans, to the index rate plus an applicable margin of 1.00% to 1.50% depending on the leverage ratio and (b) in the case of LIBOR revolving loans, to LIBOR plus an applicable margin of 2.00% to 2.50%, depending on the leverage ratio, (v) lowered the margin applicable to the letter of credit fee to between 2.00% and 2.50%, depending on the leverage ratio, and (vi) adds provisions whereby the Company represents that it, its subsidiaries and other related parties are in compliance with federal anti-terrorism laws and regulations. Total transaction costs on Amendment No. 1 totaled approximately $0.8 million.
On August 9, 2012, the Company amended the Credit Facility by entering into Amendment No. 2 to the Credit Facility (“Amendment No. 2”). Amendment No. 2, among other things, (i) permitted the refinancing of the Old Notes in an amount not less than $200.0 million and not greater than $530 million and with no amortization or final scheduled maturity prior to the date six months following the maturity of the Credit Facility, (ii) changed the maturity date of the Credit Facility to the earlier to occur of February 29, 2017, and the date that is six months prior to the scheduled maturity of the New Notes (giving effect to any extensions thereof) (subject to earlier termination upon the occurrence of, under certain circumstances, an event of default or prepayment in full of the amounts owing under the Credit Facility), (iii) permitted the one-time dividend by the Company that was paid on September 19, 2012.
On August 17, 2012, the Company again amended the Credit Facility by entering into Amendment No. 3 to the Credit Facility (Amendment No. 3”), which, among other things, exercises the Credit Facility's existing incremental facility by $82.5 million, increasing the Lenders' aggregate revolving loan commitments from $320.0 million to $402.5 million. Total transaction costs related to Amendment No. 2 and Amendment No. 3 totaled approximately $0.7 million.
12
As amended, the Credit Facility provides, among other things, a $402.5 million senior secured asset based revolver which includes a $30.0 million letter of credit facility, and, after giving effect to the increase provided for in Amendment No. 3, a $47.5 million incremental facility. In addition, the borrowers under the Credit Facility remain the same, the Credit Facility remains secured by substantially all of the assets of the Company and its subsidiaries, and the Company and each of its subsidiaries continue to provide a guaranty of the obligations under the Credit Facility. The Credit Facility requires us to maintain a minimum fixed charge coverage ratio in the event that our excess borrowing availability is below approximately $50.3 million (as adjusted if the $47.5 million incremental facility is exercised). The Credit Facility also requires us to maintain a maximum total leverage ratio of 5.0 to 1.0, which is tested if excess availability is less than approximately $50.3 million (as adjusted if the $47.5 million incremental facility is exercised). As of September 30, 2012, we were in compliance with our financial covenants under the Credit Facility.
At September 30, 2012, the interest rate on the Credit Facility was based on a 3.25% U.S. Prime Rate plus 100 basis points and LIBOR plus 200 basis points. The weighted average interest rate at September 30, 2012 was 3.1%. At October 26, 2012, we had $253.3 million of available borrowings under our Credit Facility, net of $6.5 million of outstanding letters of credit.
(9) Segment Information
We have identified five reportable segments: equipment rentals, new equipment sales, used equipment sales, parts sales and service revenues. These segments are based upon how management of the Company allocates resources and assesses performance. Non-segmented revenues and non-segmented costs relate to equipment support activities including transportation, hauling, parts freight and damage-waiver charges and are not allocated to the other reportable segments. There were no sales between segments for any of the periods presented. Selling, general and administrative expenses as well as all other income and expense items below gross profit are not generally allocated to reportable segments.
We do not compile discrete financial information by segments other than the information presented below. The following table presents information about our reportable segments (amounts in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenues: | ||||||||||||||||
Equipment rentals | $ | 77,808 | $ | 61,190 | $ | 207,941 | $ | 165,440 | ||||||||
New equipment sales | 49,009 | 46,543 | 154,710 | 133,629 | ||||||||||||
Used equipment sales | 24,990 | 27,172 | 75,100 | 65,655 | ||||||||||||
Parts sales | 26,058 | 24,647 | 74,161 | 71,166 | ||||||||||||
Services revenues | 14,436 | 14,191 | 41,615 | 40,072 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total segmented revenues | 192,301 | 173,743 | 553,527 | 475,962 | ||||||||||||
Non-segmented revenues | 12,208 | 10,546 | 33,671 | 27,570 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues | $ | 204,509 | $ | 184,289 | $ | 587,198 | $ | 503,532 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Gross Profit (Loss): | ||||||||||||||||
Equipment rentals | $ | 38,079 | $ | 26,938 | $ | 96,839 | $ | 66,810 | ||||||||
New equipment sales | 5,642 | 5,420 | 17,765 | 15,358 | ||||||||||||
Used equipment sales | 6,591 | 6,348 | 21,674 | 15,211 | ||||||||||||
Parts sales | 6,966 | 6,574 | 20,335 | 18,992 | ||||||||||||
Services revenues | 8,821 | 8,740 | 25,708 | 24,573 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total segmented gross profit | 66,099 | 54,020 | 182,321 | 140,944 | ||||||||||||
Non-segmented gross profit (loss) | 824 | (279 | ) | 1,488 | (4,292 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total gross profit | $ | 66,923 | $ | 53,741 | $ | 183,809 | $ | 136,652 | ||||||||
|
|
|
|
|
|
|
|
13
Balances at | ||||||||
September 30, 2012 | December 31, 2011 | |||||||
Segment identified assets: | ||||||||
Equipment sales | $ | 92,870 | $ | 52,572 | ||||
Equipment rentals | 571,936 | 450,877 | ||||||
Parts and services | 16,881 | 12,579 | ||||||
|
|
|
| |||||
Total segment identified assets | 681,687 | 516,028 | ||||||
Non-segment identified assets | 258,539 | 237,277 | ||||||
|
|
|
| |||||
Total assets | $ | 940,226 | $ | 753,305 | ||||
|
|
|
|
The Company operates primarily in the United States and our sales to international customers for the three and nine month periods ended September 30, 2012 were 0.9% and 2.8%, respectively, of total revenues compared to 1.5% and 2.4% for the three and nine month periods ended September 30, 2011. No one customer accounted for more than 10% of our revenues on an overall or segment basis for any of the periods presented.
(10) Condensed Consolidating Financial Information of Guarantor Subsidiaries (Restated)
All of the indebtedness of H&E Equipment Services, Inc. is guaranteed by GNE Investments, Inc. and its wholly-owned subsidiary Great Northern Equipment, Inc., H&E Equipment Services (California), LLC, H&E California Holding, Inc. and H&E Equipment Services (Mid-Atlantic), Inc. The guarantor subsidiaries are all wholly-owned and the guarantees, made on a joint and several basis, are full and unconditional (subject to subordination provisions and subject to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). There are no restrictions on H&E Equipment Services, Inc.’s ability to obtain funds from the guarantor subsidiaries by dividend or loan.
The condensed consolidating financial statements of H&E Equipment Services, Inc. and its subsidiaries are included below. The financial statements for H&E Finance Corp. are not included within the condensed consolidating financial statements because H&E Finance Corp. has no assets or operations. The condensed consolidating balance sheet amounts as of December 31, 2011 included herein were derived from our annual audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2011.
The condensed consolidating balance sheet and condensed consolidating statement of cash flows presented below have been restated to reclassify “Intercompany balances” to “Investment in guarantor subsidiaries.” Upon further review of the balances and related activity of intercompany transactions between H&E Equipment Services, Inc. and its subsidiaries, the Company determined that such transactions were more akin to capital contributions and has reclassified such amounts within the condensed consolidating balance sheet as an investment. As capital contributions, the condensed consolidating statement of cash flows below now reflects such activity as an investing activity on the parent’s books and a financing activity on the subsidiaries’ books rather than the previous presentation as an operating activity on the books of the both the parent and the guarantor subsidiaries.
14
CONDENSED CONSOLIDATING BALANCE SHEET
As of September 30, 2012 | ||||||||||||||||
H&E Equipment Services | Guarantor Subsidiaries | Elimination | Consolidated | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Cash | $ | 3,250 | $ | — | $ | — | $ | 3,250 | ||||||||
Receivables, net | 108,497 | 15,405 | — | 123,902 | ||||||||||||
Inventories, net | 94,863 | 14,888 | — | 109,751 | ||||||||||||
Prepaid expenses and other assets | 4,993 | 115 | — | 5,108 | ||||||||||||
Rental equipment, net | 471,099 | 100,837 | — | 571,936 | ||||||||||||
Property and equipment, net | 67,478 | 11,928 | — | 79,406 | ||||||||||||
Deferred financing costs, net | 14,313 | — | — | 14,313 | ||||||||||||
Investment in guarantor subsidiaries | 163,787 | — | (163,787 | ) | — | |||||||||||
Goodwill | 3,034 | 29,526 | — | 32,560 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 931,314 | $ | 172,699 | $ | (163,787 | ) | $ | 940,226 | |||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities and Stockholders’ Equity: | ||||||||||||||||
Amounts due on senior secured credit facility | $ | 130,725 | $ | — | $ | — | $ | 130,725 | ||||||||
Accounts payable | 70,484 | 5,224 | — | 75,708 | ||||||||||||
Manufacturer flooring plans payable | 56,545 | 380 | — | 56,925 | ||||||||||||
Dividends payable | 1,488 | — | — | 1,488 | ||||||||||||
Accrued expenses payable and other liabilities | 36,743 | 821 | �� | — | 37,564 | |||||||||||
Senior unsecured notes | 530,000 | — | — | 530,000 | ||||||||||||
Capital lease payable | — | 2,487 | — | 2,487 | ||||||||||||
Deferred income taxes | 66,076 | — | — | 66,076 | ||||||||||||
Deferred compensation payable | 1,960 | — | — | 1,960 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities | 894,021 | 8,912 | — | 902,933 | ||||||||||||
Stockholders’ equity (deficit) | 37,293 | 163,787 | (163,787 | ) | 37,293 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities and stockholders’ equity | $ | 931,314 | $ | 172,699 | $ | (163,787 | ) | $ | 940,226 | |||||||
|
|
|
|
|
|
|
|
15
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 2011 | ||||||||||||||||
H&E Equipment Services | Guarantor Subsidiaries | Elimination | Consolidated | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Cash | $ | 24,215 | $ | — | $ | — | $ | 24,215 | ||||||||
Receivables, net | 93,840 | 11,499 | — | 105,339 | ||||||||||||
Inventories, net | 55,052 | 10,099 | — | 65,151 | ||||||||||||
Prepaid expenses and other assets | 5,098 | 125 | — | 5,223 | ||||||||||||
Rental equipment, net | 366,568 | 84,309 | — | 450,877 | ||||||||||||
Property and equipment, net | 52,021 | 10,754 | — | 62,775 | ||||||||||||
Deferred financing costs, net | 5,640 | — | — | 5,640 | ||||||||||||
Intangible assets, net | — | 66 | — | 66 | ||||||||||||
Investment in guarantor subsidiaries | 139,089 | — | (139,089 | ) | — | |||||||||||
Goodwill | 4,493 | 29,526 | — | 34,019 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 746,016 | $ | 146,378 | $ | (139,089 | ) | $ | 753,305 | |||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities and Stockholders’ Equity: | ||||||||||||||||
Amounts due on senior secured credit facility | $ | 16,055 | $ | — | $ | — | $ | 16,055 | ||||||||
Accounts payable | 59,095 | 3,911 | — | 63,006 | ||||||||||||
Manufacturer flooring plans payable | 58,249 | 69 | — | 58,318 | ||||||||||||
Accrued expenses payable and other liabilities | 37,786 | 704 | — | 38,490 | ||||||||||||
Intercompany balances | (164,231 | ) | 164,231 | — | — | |||||||||||
Senior unsecured notes | 250,000 | — | — | 250,000 | ||||||||||||
Capital lease payable | — | 2,605 | — | 2,605 | ||||||||||||
Deferred income taxes | 58,616 | — | — | 58,616 | ||||||||||||
Deferred compensation payable | 2,008 | — | — | 2,008 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities | 481,809 | 7,289 | — | 489,098 | ||||||||||||
Stockholders’ equity (deficit) | 264,207 | 139,089 | (139,089 | ) | 264,207 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities and stockholders’ equity | $ | 746,016 | $ | 146,378 | $ | (139,089 | ) | $ | 753,305 | |||||||
|
|
|
|
|
|
|
|
16
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2012 | ||||||||||||||||
H&E Equipment Services | Guarantor Subsidiaries | Elimination | Consolidated | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Equipment rentals | $ | 63,607 | $ | 14,201 | $ | — | $ | 77,808 | ||||||||
New equipment sales | 45,514 | 3,495 | — | 49,009 | ||||||||||||
Used equipment sales | 21,222 | 3,768 | — | 24,990 | ||||||||||||
Parts sales | 22,369 | 3,689 | — | 26,058 | ||||||||||||
Services revenues | 12,441 | 1,995 | — | 14,436 | ||||||||||||
Other | 9,943 | 2,265 | — | 12,208 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues | 175,096 | 29,413 | — | 204,509 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cost of revenues: | ||||||||||||||||
Rental depreciation | 21,912 | 5,238 | — | 27,150 | ||||||||||||
Rental expense | 10,083 | 2,496 | — | 12,579 | ||||||||||||
New equipment sales | 40,295 | 3,072 | — | 43,367 | ||||||||||||
Used equipment sales | 15,713 | 2,686 | — | 18,399 | ||||||||||||
Parts sales | 16,448 | 2,644 | — | 19,092 | ||||||||||||
Services revenues | 4,921 | 694 | — | 5,615 | ||||||||||||
Other | 9,024 | 2,360 | — | 11,384 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total cost of revenues | 118,396 | 19,190 | — | 137,586 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit (loss): | ||||||||||||||||
Equipment rentals | 31,612 | 6,467 | — | 38,079 | ||||||||||||
New equipment sales | 5,219 | 423 | — | 5,642 | ||||||||||||
Used equipment sales | 5,509 | 1,082 | — | 6,591 | ||||||||||||
Parts sales | 5,921 | 1,045 | — | 6,966 | ||||||||||||
Services revenues | 7,520 | 1,301 | — | 8,821 | ||||||||||||
Other | 919 | (95 | ) | — | 824 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 56,700 | 10,223 | — | 66,923 | ||||||||||||
Selling, general and administrative expenses | 34,350 | 8,052 | — | 42,402 | ||||||||||||
Equity in loss of guarantor subsidiaries | (228 | ) | — | 228 | — | |||||||||||
Gain on sales of property and equipment, net | 341 | 173 | — | 514 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from operations | 22,463 | 2,344 | 228 | 25,035 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (7,238 | ) | (2,587 | ) | — | (9,825 | ) | |||||||||
Loss on early extinguishment of debt | (10,180 | ) | — | — | (10,180 | ) | ||||||||||
Other, net | 228 | 15 | — | 243 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other expense, net | (17,190 | ) | (2,572 | ) | — | (19,762 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes | 5,273 | (228 | ) | 228 | 5,273 | |||||||||||
Income tax expense | 1,564 | — | — | 1,564 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) | $ | 3,709 | $ | (228 | ) | $ | 228 | $ | 3,709 | |||||||
|
|
|
|
|
|
|
|
17
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended September 30, 2011 | ||||||||||||||||
H&E Equipment Services, Inc. | Guarantor Subsidiaries | Elimination | Consolidated | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Equipment rentals | $ | 48,565 | $ | 12,625 | $ | — | $ | 61,190 | ||||||||
New equipment sales | 42,175 | 4,368 | — | 46,543 | ||||||||||||
Used equipment sales | 22,471 | 4,701 | — | 27,172 | ||||||||||||
Parts sales | 20,935 | 3,712 | — | 24,647 | ||||||||||||
Services revenues | 12,411 | 1,780 | — | 14,191 | ||||||||||||
Other | 8,610 | 1,936 | — | 10,546 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues | 155,167 | 29,122 | — | 184,289 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cost of revenues: | ||||||||||||||||
Rental depreciation | 17,328 | 4,748 | — | 22,076 | ||||||||||||
Rental expense | 9,520 | 2,656 | — | 12,176 | ||||||||||||
New equipment sales | 37,193 | 3,930 | — | 41,123 | ||||||||||||
Used equipment sales | 16,882 | 3,942 | — | 20,824 | ||||||||||||
Parts sales | 15,416 | 2,657 | — | 18,073 | ||||||||||||
Services revenues | 4,786 | 665 | — | 5,451 | ||||||||||||
Other | 8,580 | 2,245 | — | 10,825 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total cost of revenues | 109,705 | 20,843 | — | 130,548 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit (loss): | ||||||||||||||||
Equipment rentals | 21,717 | 5,221 | — | 26,938 | ||||||||||||
New equipment sales | 4,982 | 438 | — | 5,420 | ||||||||||||
Used equipment sales | 5,589 | 759 | — | 6,348 | ||||||||||||
Parts sales | 5,519 | 1,055 | — | 6,574 | ||||||||||||
Services revenues | 7,625 | 1,115 | — | 8,740 | ||||||||||||
Other | 30 | (309 | ) | — | (279 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 45,462 | 8,279 | — | 53,741 | ||||||||||||
Selling, general and administrative expenses | 32,217 | 6,825 | — | 39,042 | ||||||||||||
Equity in loss of guarantor subsidiaries | (759 | ) | — | 759 | — | |||||||||||
Gain on sales of property and equipment, net | 250 | 122 | — | 372 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from operations | 12,736 | 1,576 | 759 | 15,071 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (4,870 | ) | (2,352 | ) | — | (7,222 | ) | |||||||||
Other, net | 101 | 17 | — | 118 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other expense, net | (4,769 | ) | (2,335 | ) | — | (7,104 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes | 7,967 | (759 | ) | 759 | 7,967 | |||||||||||
Income tax expense | 3,119 | — | — | 3,119 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) | $ | 4,848 | $ | (759 | ) | $ | 759 | $ | 4,848 | |||||||
|
|
|
|
|
|
|
|
18
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2012 | ||||||||||||||||
H&E Equipment Services | Guarantor Subsidiaries | Elimination | Consolidated | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Equipment rentals | $ | 170,492 | $ | 37,449 | $ | — | $ | 207,941 | ||||||||
New equipment sales | 137,915 | 16,795 | — | 154,710 | ||||||||||||
Used equipment sales | 60,960 | 14,140 | — | 75,100 | ||||||||||||
Parts sales | 63,120 | 11,041 | — | 74,161 | ||||||||||||
Services revenues | 35,926 | 5,689 | — | 41,615 | ||||||||||||
Other | 27,595 | 6,076 | — | 33,671 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues | 496,008 | 91,190 | — | 587,198 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cost of revenues: | ||||||||||||||||
Rental depreciation | 60,264 | 14,463 | — | 74,727 | ||||||||||||
Rental expense | 29,181 | 7,194 | — | 36,375 | ||||||||||||
New equipment sales | 121,950 | 14,995 | — | 136,945 | ||||||||||||
Used equipment sales | 42,798 | 10,628 | — | 53,426 | ||||||||||||
Parts sales | 45,935 | 7,891 | — | 53,826 | ||||||||||||
Services revenues | 13,930 | 1,977 | — | 15,907 | ||||||||||||
Other | 25,702 | 6,481 | — | 32,183 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total cost of revenues | 339,760 | 63,629 | — | 403,389 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit (loss): | ||||||||||||||||
Equipment rentals | 81,047 | 15,792 | — | 96,839 | ||||||||||||
New equipment sales | 15,965 | 1,800 | — | 17,765 | ||||||||||||
Used equipment sales | 18,162 | 3,512 | — | 21,674 | ||||||||||||
Parts sales | 17,185 | 3,150 | — | 20,335 | ||||||||||||
Services revenues | 21,996 | 3,712 | — | 25,708 | ||||||||||||
Other | 1,893 | (405 | ) | — | 1,488 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 156,248 | 27,561 | — | 183,809 | ||||||||||||
Selling, general and administrative expenses | 102,625 | 21,879 | — | 124,504 | ||||||||||||
Equity in loss of guarantor subsidiaries | (1,077 | ) | — | 1,077 | — | |||||||||||
Gain on sales of property and equipment, net | 1,127 | 351 | — | 1,478 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from operations | 53,673 | 6,033 | 1,077 | 60,783 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (16,512 | ) | (7,156 | ) | — | (23,668 | ) | |||||||||
Loss on early extinguishment of debt | (10,180 | ) | — | — | (10,180 | ) | ||||||||||
Other, net | 705 | 46 | — | 751 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other expense, net | (25,987 | ) | (7,110 | ) | — | (33,097 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes | 27,686 | (1,077 | ) | 1,077 | 27,686 | |||||||||||
Income tax expense | 9,554 | — | — | 9,554 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) | $ | 18,132 | $ | (1,077 | ) | $ | 1,077 | $ | 18,132 | |||||||
|
|
|
|
|
|
|
|
19
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2011 | ||||||||||||||||
H&E Equipment Services, Inc. | Guarantor Subsidiaries | Elimination | Consolidated | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Revenues: | ||||||||||||||||
Equipment rentals | $ | 132,313 | $ | 33,127 | $ | — | $ | 165,440 | ||||||||
New equipment sales | 118,099 | 15,530 | — | 133,629 | ||||||||||||
Used equipment sales | 54,294 | 11,361 | — | 65,655 | ||||||||||||
Parts sales | 60,234 | 10,932 | — | 71,166 | ||||||||||||
Services revenues | 35,189 | 4,883 | — | 40,072 | ||||||||||||
Other | 22,532 | 5,038 | — | 27,570 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues | 422,661 | 80,871 | — | 503,532 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cost of revenues: | ||||||||||||||||
Rental depreciation | 50,317 | 13,829 | — | 64,146 | ||||||||||||
Rental expense | 27,595 | 6,889 | — | 34,484 | ||||||||||||
New equipment sales | 104,488 | 13,783 | — | 118,271 | ||||||||||||
Used equipment sales | 41,058 | 9,386 | — | 50,444 | ||||||||||||
Parts sales | 44,250 | 7,924 | — | 52,174 | ||||||||||||
Services revenues | 13,784 | 1,715 | — | 15,499 | ||||||||||||
Other | 25,128 | 6,734 | — | 31,862 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total cost of revenues | 306,620 | 60,260 | — | 366,880 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit (loss): | ||||||||||||||||
Equipment rentals | 54,401 | 12,409 | — | 66,810 | ||||||||||||
New equipment sales | 13,611 | 1,747 | — | 15,358 | ||||||||||||
Used equipment sales | 13,236 | 1,975 | — | 15,211 | ||||||||||||
Parts sales | 15,984 | 3,008 | — | 18,992 | ||||||||||||
Services revenues | 21,405 | 3,168 | — | 24,573 | ||||||||||||
Other | (2,596 | ) | (1,696 | ) | — | (4,292 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 116,041 | 20,611 | — | 136,652 | ||||||||||||
Selling, general and administrative expenses | 95,057 | 19,624 | — | 114,681 | ||||||||||||
Equity in loss of guarantor subsidiaries | (5,819 | ) | — | 5,819 | — | |||||||||||
Gain on sales of property and equipment, net | 378 | 143 | — | 521 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income from operations | 15,543 | 1,130 | 5,819 | 22,492 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other income (expense): | ||||||||||||||||
Interest expense | (14,629 | ) | (6,978 | ) | — | (21,607 | ) | |||||||||
Other, net | 597 | 29 | — | 626 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other expense, net | (14,032 | ) | (6,949 | ) | — | (20,981 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes | 1,511 | (5,819 | ) | 5,819 | 1,511 | |||||||||||
Income tax benefit | 447 | — | — | 447 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net income (loss) | $ | 1,064 | $ | (5,819 | ) | $ | 5,819 | $ | 1,064 | |||||||
|
|
|
|
|
|
|
|
20
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2012 | ||||||||||||||||
H&E Equipment Services | Guarantor Subsidiaries | Elimination | Consolidated | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income (loss) | $ | 18,132 | $ | (1,077 | ) | $ | 1,077 | $ | 18,132 | |||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation and amortization on property and equipment | 8,605 | 1,392 | — | 9,997 | ||||||||||||
Depreciation on rental equipment | 60,264 | 14,463 | — | 74,727 | ||||||||||||
Amortization of loan discounts and deferred financing costs | 1,076 | — | — | 1,076 | ||||||||||||
Amortization of intangible assets | — | 66 | — | 66 | ||||||||||||
Provision for losses on accounts receivable | 1,820 | 745 | — | 2,565 | ||||||||||||
Provision for inventory obsolescence | 124 | — | — | 124 | ||||||||||||
Provision for deferred income taxes | 7,460 | — | — | 7,460 | ||||||||||||
Stock-based compensation expense | 1,223 | — | — | 1,223 | ||||||||||||
Loss on early extinguishment of debt | 10,180 | — | — | 10,180 | ||||||||||||
Gain on sales of property and equipment, net | (1,127 | ) | (351 | ) | — | (1,478 | ) | |||||||||
Gain on sales of rental equipment, net | (17,341 | ) | (3,501 | ) | — | (20,842 | ) | |||||||||
Writedown of goodwill for tax-deductible goodwill in excess of book goodwill | 1,458 | — | — | 1,458 | ||||||||||||
Equity in loss of guarantor subsidiaries | 1,077 | — | (1,077 | ) | — | |||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Receivables, net | (16,477 | ) | (4,651 | ) | — | (21,128 | ) | |||||||||
Inventories, net | (62,853 | ) | (9,481 | ) | — | (72,334 | ) | |||||||||
Prepaid expenses and other assets | 105 | 10 | — | 115 | ||||||||||||
Accounts payable | 11,389 | 1,313 | — | 12,702 | ||||||||||||
Manufacturer flooring plans payable | (1,704 | ) | 311 | — | (1,393 | ) | ||||||||||
Accrued expenses payable and other liabilities | (1,042 | ) | 117 | — | (925 | ) | ||||||||||
Deferred compensation payable | (48 | ) | — | — | (48 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash provided by (used in) operating activities | 22,321 | (644 | ) | — | 21,677 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of property and equipment | (24,543 | ) | (2,468 | ) | — | (27,011 | ) | |||||||||
Purchases of rental equipment | (176,019 | ) | (36,318 | ) | — | (212,337 | ) | |||||||||
Proceeds from sales of property and equipment | 1,608 | 253 | — | 1,861 | ||||||||||||
Proceeds from sales of rental equipment | 51,483 | 13,520 | — | 65,003 | ||||||||||||
Investment in subsidiaries | (25,775 | ) | — | 25,775 | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash used in investing activities | (173,246 | ) | (25,013 | ) | 25,775 | (172,484 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Cash flows from financing activities: | ||||||||||||||||
Purchases of treasury stock | (694 | ) | — | — | (694 | ) | ||||||||||
Excess tax benefit from stock-based awards | 293 | — | — | 293 | ||||||||||||
Dividends paid | (244,381 | ) | — | — | (244,381 | ) | ||||||||||
Principal payments on senior unsecured notes | (257,576 | ) | — | — | (257,576 | ) | ||||||||||
Proceeds from issuance of senior unsecured notes | 530,000 | — | — | 530,000 | ||||||||||||
Borrowings on senior secured credit facility | 776,171 | — | — | 776,171 | ||||||||||||
Payments on senior secured credit facility | (661,501 | ) | — | — | (661,501 | ) | ||||||||||
Payments of deferred financing costs | (12,352 | ) | — | — | (12,352 | ) | ||||||||||
Payments on capital lease obligations | — | (118 | ) | — | (118 | ) | ||||||||||
Capital contributions | — | 25,775 | (25,775 | ) | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash provided by (used in) financing activities | 129,960 | 25,657 | (25,775 | ) | 129,842 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net decrease in cash | (20,965 | ) | — | — | (20,965 | ) | ||||||||||
Cash, beginning of period | 24,215 | — | — | 24,215 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash, end of period | $ | 3,250 | $ | — | $ | — | $ | 3,250 | ||||||||
|
|
|
|
|
|
|
|
21
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 2011 | ||||||||||||||||
H&E Equipment Services, Inc. | Guarantor Subsidiaries | Elimination | Consolidated | |||||||||||||
(Amounts in thousands) | ||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income (loss) | $ | 1,064 | $ | (5,819 | ) | $ | 5,819 | $ | 1,064 | |||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization on property and equipment | 7,948 | 1,362 | — | 9,310 | ||||||||||||
Depreciation on rental equipment | 50,317 | 13,829 | — | 64,146 | ||||||||||||
Amortization of loan discounts and deferred financing costs | 1,042 | — | — | 1,042 | ||||||||||||
Amortization of intangible assets | — | 337 | — | 337 | ||||||||||||
Provision for losses on accounts receivable | 2,849 | (663 | ) | — | 2,186 | |||||||||||
Provision for inventory obsolescence | 170 | — | — | 170 | ||||||||||||
Provision for deferred income taxes | 69 | — | — | 69 | ||||||||||||
Stock-based compensation expense | 994 | — | — | 994 | ||||||||||||
Gain on sales of property and equipment, net | (378 | ) | (143 | ) | — | (521 | ) | |||||||||
Gain on sales of rental equipment, net | (12,121 | ) | (1,982 | ) | — | (14,103 | ) | |||||||||
Equity in loss of guarantor subsidiaries | 5,819 | — | (5,819 | ) | — | |||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Receivables, net | (1,417 | ) | (1,367 | ) | — | (2,784 | ) | |||||||||
Inventories, net | (29,242 | ) | (3,743 | ) | — | (32,985 | ) | |||||||||
Prepaid expenses and other assets | 3,129 | 48 | — | 3,177 | ||||||||||||
Accounts payable | 1,132 | 517 | — | 1,649 | ||||||||||||
Manufacturer flooring plans payable | (12,091 | ) | (56 | ) | — | (12,147 | ) | |||||||||
Accrued expenses payable and other liabilities | (4,498 | ) | (202 | ) | — | (4,700 | ) | |||||||||
Deferred compensation payable | (12 | ) | — | — | (12 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash provided by operating activities | 14,774 | 2,118 | — | 16,892 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of property and equipment | (9,982 | ) | (1,968 | ) | — | (11,950 | ) | |||||||||
Purchases of rental equipment | (73,897 | ) | (16,772 | ) | — | (90,669 | ) | |||||||||
Proceeds from sales of property and equipment | 616 | 147 | — | 763 | ||||||||||||
Proceeds from sales of rental equipment | 37,540 | 9,997 | — | 47,537 | ||||||||||||
Investment in subsidiaries | (6,589 | ) | — | 6,589 | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash used in investing activities | (52,312 | ) | (8,596 | ) | 6,589 | (54,319 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Cash flows from financing activities: | ||||||||||||||||
Excess tax benefit from stock-based awards | 257 | — | — | 257 | ||||||||||||
Purchases of treasury stock | (554 | ) | — | — | (554 | ) | ||||||||||
Borrowings on senior secured credit facility | 352,711 | — | — | 352,711 | ||||||||||||
Payments on senior secured credit facility | (339,131 | ) | — | — | (339,131 | ) | ||||||||||
Payments on capital lease obligations | — | (111 | ) | — | (111 | ) | ||||||||||
Capital contributions | — | 6,589 | (6,589 | ) | — | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net cash provided by (used in) financing activities | 13,283 | 6,478 | (6,589 | ) | 13,172 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Net decrease in cash | (24,255 | ) | — | — | (24,255 | ) | ||||||||||
Cash, beginning of period | 29,149 | — | — | 29,149 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Cash, end of period | $ | 4,894 | $ | — | $ | — | $ | 4,894 | ||||||||
|
|
|
|
|
|
|
|
22