Condensed Consolidating Financial Information of Guarantor Subsidiaries | (10) Condensed Consolidating Financial Information of Guarantor Subsidiaries All of the indebtedness of H&E Equipment Services, Inc. is guaranteed by GNE Investments, Inc. and its wholly‑owned subsidiary Great Northern Equipment, Inc., H&E Equipment Services (California), LLC, H&E California 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. are not included within the consolidating financial statements because H&E Finance Corp. has no assets or operations. CONDENSED CONSOLIDATING BALANCE SHEET As of June 30, 2017 H&E Services Guarantor Subsidiaries Elimination Consolidated (Amounts in thousands) Assets: Cash $ 6,995 $ — $ — $ 6,995 Receivables, net 113,323 28,152 — 141,475 Inventories, net 78,733 15,669 — 94,402 Prepaid expenses and other assets 9,203 221 — 9,424 Rental equipment, net 746,342 156,036 — 902,378 Property and equipment, net 93,476 11,156 — 104,632 Deferred financing costs, net 1,558 — — 1,558 Investment in guarantor subsidiaries 231,555 — (231,555 ) — Goodwill 1,671 29,526 — 31,197 Total assets $ 1,282,856 $ 240,760 $ (231,555 ) $ 1,292,061 Liabilities and Stockholders’ Equity: Amounts due on senior secured credit facility $ 164,852 $ — $ — $ 164,852 Accounts payable 73,912 7,141 — 81,053 Manufacturer flooring plans payable 24,233 1,591 — 25,824 Accrued expenses payable and other liabilities 61,801 (1,081 ) — 60,720 Dividends payable 132 (43 ) — 89 Senior unsecured notes 627,914 — — 627,914 Capital leases payable — 1,597 — 1,597 Deferred income taxes 186,922 — — 186,922 Deferred compensation payable 1,869 — — 1,869 Total liabilities 1,141,635 9,205 — 1,150,840 Stockholders’ equity 141,221 231,555 (231,555 ) 141,221 Total liabilities and stockholders’ equity $ 1,282,856 $ 240,760 $ (231,555 ) $ 1,292,061 CONDENSED CONSOLIDATING BALANCE SHEET As of December 31, 2016 H&E 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 June 30, 2017 H&E Services Guarantor Subsidiaries Elimination Consolidated (Amounts in thousands) Revenues: Equipment rentals $ 96,709 $ 21,661 $ — $ 118,370 New equipment sales 38,819 6,850 — 45,669 Used equipment sales 19,333 4,773 — 24,106 Parts sales 23,970 3,999 — 27,969 Services revenues 13,395 2,549 — 15,944 Other 14,078 3,227 — 17,305 Total revenues 206,304 43,059 — 249,363 Cost of revenues: Rental depreciation 34,542 7,296 — 41,838 Rental expense 16,740 3,422 — 20,162 New equipment sales 34,315 6,135 — 40,450 Used equipment sales 14,056 2,946 — 17,002 Parts sales 17,527 2,831 — 20,358 Services revenues 4,479 853 — 5,332 Other 13,752 3,129 — 16,881 Total cost of revenues 135,411 26,612 — 162,023 Gross profit: Equipment rentals 45,427 10,943 — 56,370 New equipment sales 4,504 715 — 5,219 Used equipment sales 5,277 1,827 — 7,104 Parts sales 6,443 1,168 — 7,611 Services revenues 8,916 1,696 — 10,612 Other 326 98 — 424 Gross profit 70,893 16,447 — 87,340 Selling, general and administrative expenses 52,766 7,041 — 59,807 Equity in earnings of guarantor subsidiaries 3,769 — (3,769 ) — Gain on sales of property and equipment, net 905 230 — 1,135 Income from operations 22,801 9,636 (3,769 ) 28,668 Other income (expense): Interest expense (7,407 ) (5,966 ) — (13,373 ) Other, net 274 99 — 373 Total other expense, net (7,133 ) (5,867 ) — (13,000 ) Income before income taxes 15,668 3,769 (3,769 ) 15,668 Income tax expense 5,790 — — 5,790 Net income $ 9,878 $ 3,769 $ (3,769 ) $ 9,878 CONDENSED CONSOLIDATING STATEMENT OF INCOME Three Months Ended June 30, 2016 H&E Services Guarantor Subsidiaries Elimination Consolidated (Amounts in thousands) Revenues: Equipment rentals $ 88,592 $ 20,058 $ — $ 108,650 New equipment sales 41,808 8,085 — 49,893 Used equipment sales 19,821 3,948 — 23,769 Parts sales 23,295 3,359 — 26,654 Services revenues 14,468 2,477 — 16,945 Other 13,121 3,063 — 16,184 Total revenues 201,105 40,990 — 242,095 Cost of revenues: Rental depreciation 32,831 6,844 — 39,675 Rental expense 14,960 3,061 — 18,021 New equipment sales 37,273 7,258 — 44,531 Used equipment sales 14,161 2,714 — 16,875 Parts sales 16,833 2,380 — 19,213 Services revenues 5,182 808 — 5,990 Other 13,106 2,976 — 16,082 Total cost of revenues 134,346 26,041 — 160,387 Gross profit: Equipment rentals 40,801 10,153 — 50,954 New equipment sales 4,535 827 — 5,362 Used equipment sales 5,660 1,234 — 6,894 Parts sales 6,462 979 — 7,441 Services revenues 9,286 1,669 — 10,955 Other 15 87 — 102 Gross profit 66,759 14,949 — 81,708 Selling, general and administrative expenses 46,989 10,060 — 57,049 Equity in earnings of guarantor subsidiaries 2,761 — (2,761 ) — Gain on sales of property and equipment, net 636 76 — 712 Income from operations 23,167 4,965 (2,761 ) 25,371 Other income (expense): Interest expense (11,084 ) (2,269 ) — (13,353 ) Other, net 624 65 — 689 Total other expense, net (10,460 ) (2,204 ) — (12,664 ) Income before income taxes 12,707 2,761 (2,761 ) 12,707 Income tax expense 5,204 — — 5,204 Net income $ 7,503 $ 2,761 $ (2,761 ) $ 7,503 CONDENSED CONSOLIDATING STATEMENT OF INCOME Six Months Ended June 30, 2017 H&E Services Guarantor Subsidiaries Elimination Consolidated (Amounts in thousands) Revenues: Equipment rentals $ 184,992 $ 40,695 $ — $ 225,687 New equipment sales 68,494 11,449 — 79,943 Used equipment sales 42,474 10,495 — 52,969 Parts sales 45,701 7,599 — 53,300 Services revenues 26,090 4,934 — 31,024 Other 27,240 6,028 — 33,268 Total revenues 394,991 81,200 — 476,191 Cost of revenues: Rental depreciation 68,290 14,451 — 82,741 Rental expense 31,976 6,560 — 38,536 New equipment sales 60,685 10,146 — 70,831 Used equipment sales 30,155 6,708 — 36,863 Parts sales 33,217 5,354 — 38,571 Services revenues 8,690 1,641 — 10,331 Other 27,040 6,266 — 33,306 Total cost of revenues 260,053 51,126 — 311,179 Gross profit (loss): Equipment rentals 84,726 19,684 — 104,410 New equipment sales 7,809 1,303 — 9,112 Used equipment sales 12,319 3,787 — 16,106 Parts sales 12,484 2,245 — 14,729 Services revenues 17,400 3,293 — 20,693 Other 200 (238 ) — (38 ) Gross profit 134,938 30,074 — 165,012 Selling, general and administrative expenses 103,001 14,124 — 117,125 Equity in earnings of guarantor subsidiaries 4,981 — (4,981 ) — Gain on sales of property and equipment, net 1,629 477 — 2,106 Income from operations 38,547 16,427 (4,981 ) 49,993 Other income (expense): Interest expense (14,970 ) (11,635 ) — (26,605 ) Other, net 621 189 — 810 Total other expense, net (14,349 ) (11,446 ) — (25,795 ) Income before income taxes 24,198 4,981 (4,981 ) 24,198 Income tax expense 8,930 — — 8,930 Net income $ 15,268 $ 4,981 $ (4,981 ) $ 15,268 CONDENSED CONSOLIDATING STATEMENT OF INCOME Six Months Ended June 30, 2016 H&E Services Guarantor Subsidiaries Elimination Consolidated (Amounts in thousands) Revenues: Equipment rentals $ 174,617 $ 36,871 $ — $ 211,488 New equipment sales 87,340 19,732 — 107,072 Used equipment sales 42,737 8,606 — 51,343 Parts sales 47,516 7,107 — 54,623 Services revenues 28,447 4,799 — 33,246 Other 25,547 5,786 — 31,333 Total revenues 406,204 82,901 — 489,105 Cost of revenues: Rental depreciation 65,944 13,228 — 79,172 Rental expense 29,008 5,776 — 34,784 New equipment sales 77,388 17,617 — 95,005 Used equipment sales 29,803 5,584 — 35,387 Parts sales 34,439 5,037 — 39,476 Services revenues 9,784 1,507 — 11,291 Other 25,353 5,785 — 31,138 Total cost of revenues 271,719 54,534 — 326,253 Gross profit: Equipment rentals 79,665 17,867 — 97,532 New equipment sales 9,952 2,115 — 12,067 Used equipment sales 12,934 3,022 — 15,956 Parts sales 13,077 2,070 — 15,147 Services revenues 18,663 3,292 — 21,955 Other 194 1 — 195 Gross profit 134,485 28,367 — 162,852 Selling, general and administrative expenses 96,591 19,832 — 116,423 Equity in earnings of guarantor subsidiaries 4,496 — (4,496 ) — Gain on sales of property and equipment, net 1,166 208 — 1,374 Income from operations 43,556 8,743 (4,496 ) 47,803 Other income (expense): Interest expense (22,386 ) (4,374 ) — (26,760 ) Other, net 992 127 — 1,119 Total other expense, net (21,394 ) (4,247 ) — (25,641 ) Income before income taxes 22,162 4,496 (4,496 ) 22,162 Income tax expense 9,085 — — 9,085 Net income $ 13,077 $ 4,496 $ (4,496 ) $ 13,077 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Six Months Ended June 30, 2017 H&E Services Guarantor Subsidiaries Elimination Consolidated (Amounts in thousands) Cash flows from operating activities: Net income $ 15,268 $ 4,981 $ (4,981 ) $ 15,268 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization on property and equipment 10,535 1,580 — 12,115 Depreciation of rental equipment 68,290 14,451 — 82,741 Amortization of deferred financing costs 526 — — 526 Accretion of note discount, net of premium amortization 84 — — 84 Provision for losses on accounts receivable 1,484 374 — 1,858 Provision for inventory obsolescence 71 — — 71 Change in deferred income taxes 9,968 — — 9,968 Stock-based compensation expense 1,894 — — 1,894 Gain from sales of property and equipment, net (1,629 ) (477 ) — (2,106 ) Gain from sales of rental equipment, net (11,595 ) (3,754 ) — (15,349 ) Equity in earnings of guarantor subsidiaries (4,981 ) — 4,981 — Changes in operating assets and liabilities: Receivables (2,027 ) (1,247 ) — (3,274 ) Inventories (36,815 ) (12,770 ) — (49,585 ) Prepaid expenses and other assets (1,860 ) (51 ) — (1,911 ) Accounts payable 37,724 3,897 — 41,621 Manufacturer flooring plans payable (6,666 ) 1,710 — (4,956 ) Accrued expenses payable and other liabilities 2,855 860 — 3,715 Deferred compensation payable 27 — — 27 Net cash provided by operating activities 83,153 9,554 — 92,707 Cash flows from investing activities: Purchases of property and equipment (10,915 ) (1,222 ) — (12,137 ) Purchases of rental equipment (87,518 ) (25,428 ) — (112,946 ) Proceeds from sales of property and equipment 2,548 589 — 3,137 Proceeds from sales of rental equipment 35,760 10,253 — 46,013 Investment in subsidiaries (6,365 ) — 6,365 — Net cash used in investing activities. (66,490 ) (15,808 ) 6,365 (75,933 ) Cash flows from financing activities: Borrowings on senior secured credit facility 484,252 — — 484,252 Payments on senior secured credit facility (482,042 ) — — (482,042 ) Dividends paid (19,561 ) (4 ) — (19,565 ) Payments on capital lease obligations — (107 ) — (107 ) Capital contributions — 6,365 (6,365 ) — Net cash provided by (used in) financing activities (17,351 ) 6,254 (6,365 ) (17,462 ) Net increase (decrease) in cash (688 ) — — (688 ) Cash, beginning of period 7,683 — — 7,683 Cash, end of period $ 6,995 $ — $ — $ 6,995 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Six Months Ended June 30, 2016 H&E Services Guarantor Subsidiaries Elimination Consolidated (Amounts in thousands) Cash flows from operating activities: Net income $ 13,077 $ 4,496 $ (4,496 ) $ 13,077 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization on property and equipment 11,952 1,512 — 13,464 Depreciation of rental equipment 65,944 13,228 — 79,172 Amortization of deferred financing costs 526 — — 526 Accretion of note discount, net of premium amortization 83 — — 83 Provision for losses on accounts receivable 1,979 29 — 2,008 Provision for inventory obsolescence 14 — — 14 Change in deferred income taxes 9,182 — — 9,182 Stock-based compensation expense 1,667 — — 1,667 Gain from sales of property and equipment, net (1,166 ) (208 ) — (1,374 ) Gain from sales of rental equipment, net (12,481 ) (2,986 ) — (15,467 ) Equity in earnings of guarantor subsidiaries (4,496 ) — 4,496 — Changes in operating assets and liabilities: Receivables 10,639 (3,529 ) — 7,110 Inventories (38,755 ) (13,712 ) — (52,467 ) Prepaid expenses and other assets 547 (58 ) — 489 Accounts payable 14,511 7,811 — 22,322 Manufacturer flooring plans payable (16,466 ) — — (16,466 ) Accrued expenses payable and other liabilities 3,855 745 — 4,600 Deferred compensation payable (363 ) — — (363 ) Net cash provided by operating activities 60,249 7,328 — 67,577 Cash flows from investing activities: Purchases of property and equipment (9,903 ) (1,562 ) — (11,465 ) Purchases of rental equipment (44,643 ) (24,501 ) — (69,144 ) Proceeds from sales of property and equipment 1,417 266 — 1,683 Proceeds from sales of rental equipment 36,342 8,159 — 44,501 Investment in subsidiaries (10,414 ) — 10,414 — Net cash used in investing activities. (27,201 ) (17,638 ) 10,414 (34,425 ) Cash flows from financing activities: Borrowings on senior secured credit facility 482,513 — — 482,513 Payments on senior secured credit facility (492,866 ) — — (492,866 ) Dividends paid (19,501 ) (4 ) — (19,505 ) Payments on capital lease obligations — (100 ) — (100 ) Capital contributions — 10,414 (10,414 ) — Net cash provided by (used in) financing activities (29,854 ) 10,310 (10,414 ) (29,958 ) Net increase in cash 3,194 — — 3,194 Cash, beginning of period 7,159 — — 7,159 Cash, end of period $ 10,353 $ — $ — $ 10,353 |