10-Q 1 a2155479z10-q.htm FORM 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

(Mark one)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file numbers:		333-99587
		333-99589

H&E EQUIPMENT SERVICES L.L.C.
(Exact name of registrant as specified in its charter)

Louisiana (State of Incorporation)		72-1287046 (I.R.S. Employer Identification No.)
11100 Mead Road, Suite 200, Baton Rouge, Louisiana (Address of principal executive offices)		70816 (Zip Code)

Registrant's telephone number, including area code (225) 298-5200

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 o No ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

H&E Holdings L.L.C. owns 100% of the registrant's limited liability company interests.

H&E EQUIPMENT SERVICES L.L.C.

TABLE OF CONTENTS

		Page

PART I.	FINANCIAL INFORMATION
Item 1.	Unaudited Financial Statements:
	Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004	3
	Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004 (Restated)	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004 (Restated)	5
	Notes to Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	30
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults upon Senior Securities	32
Item 4.	Submission of Matters to a Vote of Security Holders	32
Item 5.	Other Information	32
Item 6.	Exhibits	32

PART I—FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements.

H&E EQUIPMENT SERVICES L.L.C.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

			March 31, 2005			December 31, 2004
			(In thousands)
ASSETS
Cash			$	2,886		$	3,358
Receivables, net of allowance for doubtful accounts of $2,714 and $2,732, respectively				70,661			68,902
Inventories, net of reserve for obsolescence of $1,485 and $1,490, respectively				65,491			56,811
Prepaid expenses and other assets				3,275			1,044
Rental equipment, net of accumulated depreciation of $123,654 and $124,411, respectively				244,312			243,630
Property and equipment, net of accumulated depreciation of $18,212 and $17,674, respectively				16,539			16,101
Deferred financing costs and other intangible assets, net of accumulated amortization of $5,667 and $5,092, respectively				9,675			10,251
Goodwill, net of accumulated amortization of $758				8,572			8,572

		Total assets	$	421,411		$	408,669

LIABILITIES AND MEMBERS' DEFICIT
Liabilities:
	Amount due on senior secured credit facility		$	57,087		$	55,293
	Accounts payable			95,120			92,592
	Accrued expenses payable and other liabilities			28,400			20,919
	Accrued loss from litigation			17,434			17,434
	Related party obligation			1,015			1,062
	Notes payable			648			727
	Senior secured notes, net of discount			198,788			198,761
	Senior subordinated notes, net of discount			43,624			43,491
	Capital lease obligations			785			1,120
	Deferred compensation payable			10,858			10,570

		Total liabilities		453,759			441,969


Members' deficit				(32,348	)		(33,300	)

		Total liabilities and members' deficit	$	421,411		$	408,669

See notes to consolidated financial statements.

H&E EQUIPMENT SERVICES L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

			Three Months Ended March 31,
			2005			2004 (Restated)
			(In thousands)
Revenues:
	Equipment rentals		$	40,591		$	35,552
	New equipment sales			30,298			25,297
	Used equipment sales			25,619			23,262
	Parts sales			16,424			13,908
	Service revenues			9,163			8,610
	Other			6,455			5,327

		Total revenues		128,550			111,956

Cost of Revenues:
	Rental depreciation			12,164			12,329
	Rental expense			11,519			13,453
	New equipment sales			26,463			22,622
	Used equipment sales			19,796			18,816
	Parts sales			11,435			9,972
	Service revenues			3,246			3,282
	Other			7,197			6,721

		Total cost of revenues		91,820			87,195

		Gross profit		36,730			24,761
Selling, general and administrative expenses				25,806			23,976
Gain on sale of property and equipment				41			27

		Income from operations		10,965			812

Other Income (Expense):
	Interest expense			(10,104	)		(9,887	)
	Other, net			90			27

		Total other expense, net		(10,014	)		(9,860	)

		Net income (loss)	$	951		$	(9,048	)

See notes to consolidated financial statements.

H&E EQUIPMENT SERVICES L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

				Three Months Ended March 31,
				2005			2004 (Restated)
				(In thousands)
Cash flows from operating activities:
	Net income (loss)			$	951		$	(9,048	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
	Depreciation on property and equipment				1,070			831
	Depreciation on rental equipment				12,164			12,329
	Amortization of loan discounts and deferred financing costs				675			637
	Amortization of other intangible assets				61			—
	Provision for losses on accounts receivable				346			364
	Provision for obsolescence				19			42
	Gain on sale of property and equipment				(41	)		(27	)
	Gain on sale of rental equipment				(5,243	)		(4,016	)
	Changes in operating assets and liabilities:
		Receivables, net			(2,105	)		(4,233	)
		Inventories, net			(19,908	)		(2,716	)
		Prepaid expenses and other assets			(2,231	)		(1,510	)
		Accounts payable			2,526			(12,749	)
		Accrued expenses payable and other liabilities			7,512			8,673
		Deferred compensation payable			288			259

			Net cash used in operating activities		(3,916	)		(11,164	)

Cash flows from investing activities:
	Purchases of property and equipment				(1,645	)		(543	)
	Purchases of rental equipment				(17,608	)		(4,348	)
	Proceeds from sale of property and equipment				178			96
	Proceeds from sale of rental equipment				21,214			17,910

			Net cash provided by investing activities		2,139			13,115

Cash flows from financing activities:
	Borrowings on senior secured credit facility				128,453			107,708
	Payments on senior secured credit facility				(126,659	)		(106,385	)
	Payment of deferred financing costs				—			(887	)
	Payments of related party obligation				(75	)		(75	)
	Principal payments on notes payable				(79	)		(102	)
	Payments on capital lease obligations				(335	)		(3,265	)

			Net cash provided by (used in) financing activities		1,305			(3,006	)

Net decrease in cash					(472	)		(1,055	)
Cash, beginning of period					3,358			3,891

Cash, end of period				$	2,886		$	2,836

See notes to consolidated financial statements.

		Three Months Ended March 31,
		2005		2004 (Restated)
		(In thousands)
Supplemental schedule of noncash investing activities:
	Assets transferred from new and used inventory to rental fleet	$	11,207	$	4,968
Supplemental disclosures of cash flow information:
	Cash paid during the period for:
	Interest	$	1,879	$	1,804
	Income taxes		—		—

As of March 31, 2005 and December 31, 2004, the Company had $52.3 and $51.2 million, respectively, in manufacturer flooring plans payable outstanding, which were used to finance purchases of inventory and rental equipment.

See notes to consolidated financial statements.

H&E EQUIPMENT SERVICES L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Operations

Basis of Presentation

H&E Equipment Services L.L.C. (H&E Equipment Services or the Company) is a wholly-owned subsidiary of H&E Holdings L.L.C. (H&E Holdings). H&E Holdings is principally a holding company conducting all of its operations through H&E Equipment Services. The consolidated financial statements include the results of operations of H&E Equipment Services and its wholly-owned subsidiaries H&E Finance Corp., GNE Investments, Inc. and Great Northern Equipment, Inc., collectively referred to herein as the Company.

The nature of the the Company's business is such that short-term obligations are typically met by cash flows generated from long-term assets. Consequently, consistent with industry practice, the accompanying 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 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, enabling us to maintain an extremely high quality rental fleet, as well as an effective distribution channel for fleet disposal and provides cross-selling opportunities among our used and new equipment sales, rental, parts sales and service operations.

The accompanying consolidated financial statements are unaudited and, in the opinion of management, such financial statements reflect all adjustments, consisting only of normal recurring adjustments necessary to present fairly the results of the interim periods presented. Interim financial statements do not require all disclosures normally presented in year-end financial statements prepared in accordance with accounting principles generally accepted in the United States, and, accordingly, certain disclosures have been omitted. Results of operations for the three-month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. The information included in this report should be read in conjunction with the financial statements and related notes included in the Company's Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission.

The Company prepares the financial statements in accordance with accounting principles generally accepted in the United States. In applying many accounting principles, management makes assumptions, estimates and/or judgments. These assumptions, estimates and/or judgments are often subjective and may change based on changing circumstances or changes in management's analysis. Material changes in these assumptions, estimates and/or judgments have the potential to materially alter the Company's results of operations.

2. Reclassifications and Restatements

Reclassifications

Certain amounts in the prior-period consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current-period consolidated financial statements.

Restatements of Previously Issued Consolidated Financial Statements

Our previously issued consolidated financial statements as of and for the years ended December 31, 2002 and 2003 have been restated to correct errors related to the treatment of deferred taxes in connection with the Company's combination with ICM Equipment Company on June 17, 2002. For further discussion regarding the restatements, see footnote 20 of our Form 10-K for the fiscal year ended December 31, 2004. Following is a summary of the effects of the restatement adjustments and reclassifications on the Company's consolidated statements of operations for the three months ended March 31, 2004.

		Consolidated Statements of Operations
		As Previously Reported		Restatement Adjustments		Reclassification Adjustments		As Restated
Three Months Ended March 31, 2004
	Other revenues	5,311				16		5,327
	Total revenues	111,940		—		16		111,956
	Rental depreciation	12,251		78		—		12,329
	Rental expense	13,404				49		13,453
	New equipment cost of revenues	22,874				(252	)	22,622
	Used equipment cost of revenues	18,564				252		18,816
	Other cost of revenues	5,114				1,607		6,721
	Total cost of revenues	85,461		78		1,656		87,195
	Selling, general and administration expenses	25,702		(86	)	(1,640	)	23,976
	Income from operations	804		8		—		812
	Loss before income taxes	(9,056	)	8		—		(9,048	)
	Net loss	(9,056	)	8		—		(9,048	)

3. Litigation

The Company is party to various litigation matters, in most cases (except for the legal proceeding referred to below) involving ordinary and routine claims incidental to the Company's business. The Company cannot estimate with certainty the ultimate legal and financial liability with respect to such pending matters (excluding the legal proceeding referred to below). However, management believes, based on their examination of such matters, that the Company's ultimate liability will not have a material adverse effect on its business or financial condition.

In July 2000, one of our competitors, Sunbelt Rentals, Inc., brought claims against us in the General Court of Justice, Superior Court Division, State of North Carolina, County of Mecklenburg alleging, among other things, that in connection with our hiring of former employees of the plaintiff there occurred a breach of fiduciary duty, misappropriation of trade secrets, unfair trade practices and interference with prospective advantages. In May 2003, the Court ruled in favor of the plaintiff in the amount of $17.4 million. Consequently, we recorded a $17.4 million loss in 2003. We subsequently appealed the judgment. In conjunction with the appeal and in accordance with the Court's ruling, we issued an irrevocable standby letter of credit for $19.8 million, representing the amount of the judgment plus $2.4 million in anticipated statutory interest (8%) for the twenty-four months while the judgment is being appealed. Going forward, we intend to expense any statutory interest as interest expense in the statement of operations. Currently, we pay a 225 basis point fee on the amount available for issuance. Oral arguments took place on March 3, 2005, and the appeal was then submitted for the

appellate court's decision. While we are appealing this judgment, we believe that even if there is a reduction in the amount of damages awarded to the plaintiff on appeal, the judgment could have a material adverse effect on our business or financial condition.

4. Senior Secured Credit Facility

During the first quarter of 2005, the Company entered into three amendments to its senior credit agreement dated June 17, 2002, governing its senior secured credit facility. The amendments accomplished the following:

(a): increased the maximum annual property and equipment expenditures to $8.5 million;
(b): lowered interest rates according to a pricing grid based upon daily average excess availability for the immediately preceding fiscal month. We elect interest at either the Index Rate (the higher of the prime rate, as determined pursuant to the amended credit agreement, and the federal funds rate plus 50 basis points) plus the applicable revolver Index margin per annum or the applicable London Interbank Offered Rate, or LIBOR rate, plus the applicable revolver LIBOR margin per each calendar month. With daily average excess availability equal to or more than $40 million, the LIBOR margin will be 2.25% and the Index margin will be .75%. If availability falls below $40 million and equal to or more than $25 million, the senior secured credit facility bears interest at a LIBOR margin of 2.50% and the Index margin will be 1.00%. If availability is less than $25 million, the LIBOR margin will be 2.75% and the Index margin will be 1.25%. The commitment fee equal to .5% per annum in respect to un-drawn commitments remains unchanged;
(c): reduced the availability block on assets from $30 million to $15 million;
(d): increased the advance rate on orderly liquidation as defined in the senior secured credit agreement value of rental assets from 75% to 80%; and
(e): amended the requirement of delivery of audited financial statements for the fiscal year ended December 31, 2004 from March 31, 2005 to September 30, 2005.

The Company did not pay a loan amendment fee in exchange for execution of these amendments. As of March 31, 2005, we were in compliance with the financial covenants.

5. Segment Information

The Company has identified five reportable segments: equipment rentals, new equipment sales, used equipment sales, parts sales and service revenues. These segments are based upon how management 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. Selling, general, and administrative expenses and all other income and expense items below gross profit are not generally allocated to reportable segments. The Company does not compile discrete financial

information by its segments other than the information presented below. The following table presents unaudited information about the Company's reportable segments (in thousands):

			For the Three Months Ended March 31,
			2005			2004 (Restated)
Revenues:
	Equipment rentals		$	40,591		$	35,552
	New equipment sales			30,298			25,297
	Used equipment sales			25,619			23,262
	Parts sales			16,424			13,908
	Service revenues			9,163			8,610
	Other			6,455			5,327

		Total revenues	$	128,550		$	111,956

Gross Profit:
	Equipment rentals		$	16,908		$	9,770
	New equipment sales			3,835			2,675
	Used equipment sales			5,823			4,446
	Parts sales			4,989			3,936
	Service revenues			5,917			5,328
	Other			(742	)		(1,394	)

		Total gross profit	$	36,730		$	24,761

			As of March 31,		As of December 31,
			2005		2004
Segment Identified Assets:
	Equipment sales, net		$	47,490	$	39,929
	Equipment rentals, net			244,312		243,630
	Parts sales and service revenues			18,001		16,882

		Total segment identified assets		309,803		300,441
	Non-segment identified assets			111,608		108,228

		Total assets	$	421,411	$	408,669

The Company operates in the United States and had minimal international sales for any of the periods presented. No one customer accounted for more than 10% of the Company's annual sales on an overall basis for any of the periods presented.

6. Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), "Share-Based Payment", which is a revision of SFAS No. 123 and supercedes APB Opinion No. 25. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be valued at fair value on the date of grant, and to be expensed over the applicable vesting period. SFAS No. 123(R) is effective for all stock-based awards granted on or after July 1, 2005. In addition, companies must also recognize compensation expense related to any awards that are not fully vested as of the effective date. Compensation expense for the unvested awards will be measured based on the fair value of the awards previously calculated in developing the pro forma disclosures in

accordance with the provisions of SFAS No 123. Historically, we have not used share-based compensation schemes for compensation our employees. Therefore, the adoption of SFAS No. 123(R) is not expected to have any impact on our reported results of operations upon adoption. However, should we determine to employ share-based compensation schemes in the future, SFAS No. 123(R) would have a currently indeterminate impact on us.

In May 2005, the FASB issued Statement No. 154, "Accounting Changes and Error Corrections" (SFAS 154). SFAS 154 replaces APB Opinion No. 20. "Accounting Changes" and FASB Statement No. 3. "Reporting Accounting Changes in Interim Financial Statements." SFAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS 154 also provides that a correction of errors in previously issued financial statements should be termed a "restatement." The new standard is effective for accounting changes and correction of errors beginning July 1, 2005. The Company has incorporated the provisions of SFAS 154 in the presentation of our December 31, 2004 financial statements.

7. Impact of Recent Natural Disaster

The Company has four facilities located in the area most significantly affected by Hurricane Katrina and Rita. None of the facilities in the New Orleans, Louisiana area were forced to close for any extended period of time, and all of them are currently open and fully operational. Due to the most recent hurricane, we are in the process of returning the Lake Charles, Louisiana facility to a fully operational state. While the financial impact of Hurricane Katrina and Rita relating to these four facilities is not expected to be material to the Company, the Company remains in the process of assessing the potential overall impact of the hurricane on the Company's business.

8. Consolidating Financial Information of Guarantor Subsidiaries

All of the indebtedness of H&E Equipment Services is guaranteed by GNE Investments, Inc. and its wholly-owned subsidiary Great Northern Equipment, Inc. These guarantor subsidiaries are all wholly-owned and the guarantees are made on a joint and several basis and 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' ability to obtain funds from the guarantor subsidiaries by dividend or loan.

The consolidating financial information of H&E Equipment Services and its subsidiaries are included below. The consolidating financial statements for H&E Finance Corp., the subsidiary co-issuer, is not presented because H&E Finance Corp. has no assets or operations.

CONSOLIDATING BALANCE SHEET

			As of March 31, 2005
			H&E Equipment Services			Guarantor Subsidiaries		Elimination			Consolidated
			(In thousands)
ASSETS
Cash			$	2,885		$	1	$	—		$	2,886
Receivables, net				68,078			2,583		—			70,661
Inventories, net				61,507			3,984		—			65,491
Prepaid expenses and other assets				3,275			—		—			3,275
Rental equipment, net				232,222			12,090		—			244,312
Property and equipment, net				15,969			570		—			16,539
Deferred financing costs and other intangible assets, net				9,675			—		—			9,675
Investment in guarantor subsidiaries				5,224			—		(5,224	)		—
Goodwill, net				8,572			—		—			8,572

		Total assets	$	407,407		$	19,228	$	(5,224	)	$	421,411

LIABILITIES AND MEMBERS' (DEFICIT) EQUITY
Liabilities:
	Amount due on senior secured credit facility		$	53,616		$	3,471	$			$	57,087
	Accounts payable			95,120			—					95,120
	Accrued expenses payable and other liabilities			28,269			131					28,400
	Inter-company balance			(10,402	)		10,402					—
	Accrued loss from litigation			17,434			—					17,434
	Related party obligation			1,015			—					1,015
	Notes payable			648			—					648
	Senior secured notes, net of discount			198,788			—					198,788
	Senior subordinated notes, net of discount			43,624			—					43,624
	Capital lease obligations			785			—					785
	Deferred compensation payable			10,858			—					10,858

		Total liabilities		439,755			14,004		—			453,759

Members' (deficit) equity				(32,348	)		5,224		(5,224	)		(32,348	)

		Total liabilities and members' (deficit) equity	$	407,407		$	19,228	$	(5,224	)	$	421,411

CONSOLIDATING BALANCE SHEET

			As of December 31, 2004
			H&E Equipment Services			Guarantor Subsidiaries		Elimination			Consolidated
			(In thousands)
ASSETS
Cash			$	3,334		$	24	$	—		$	3,358
Receivables, net				66,434			2,468		—			68,902
Inventories, net				52,641			4,170		—			56,811
Prepaid expenses and other assets				1,044			—		—			1,044
Rental equipment, net				231,330			12,300		—			243,630
Property and equipment, net				15,615			486		—			16,101
Deferred financing costs, net				10,251			—		—			10,251
Investment in guarantor subsidiaries				5,238			—		(5,238	)		—
Goodwill, net				8,572			—		—			8,572

		Total assets	$	394,459		$	19,448	$	(5,238	)	$	408,669

LIABILITIES AND MEMBERS' (DEFICIT) EQUITY
Liabilities:
	Amount due on senior secured credit facility		$	51,822		$	3,471	$	—		$	55,293
	Accounts payable			92,592			—		—			92,592
	Accrued expenses payable and other liabilities			20,804			115		—			20,919
	Intercompany balance			(10,624	)		10,624		—			—
	Accrued loss from litigation			17,434			—		—			17,434
	Related party obligation			1,062			—		—			1,062
	Notes payable			727			—		—			727
	Senior secured notes, net of discount			198,761			—		—			198,761
	Senior subordinated notes, net of discount			43,491			—		—			43,491
	Capital lease obligations			1,120			—		—			1,120
	Deferred compensation payable			10,570			—		—			10,570

		Total liabilities		427,759			14,210		—			441,969

Members' (deficit) equity				(33,300	)		5,238		(5,238	)		(33,300	)

		Total liabilities and members' (deficit) equity	$	394,459		$	19,448	$	(5,238	)	$	408,669

CONSOLIDATING STATEMENT OF OPERATIONS

			Three Months Ended March 31, 2005
			H&E Equipment Services			Guarantor Subsidiaries			Elimination		Consolidated
			(In thousands)
Revenues:
	Equipment rentals		$	39,380		$	1,211		$	—	$	40,591
	New equipment sales			29,544			754			—		30,298
	Used equipment sales			23,921			1,698			—		25,619
	Parts sales			16,009			415			—		16,424
	Service revenues			8,893			270			—		9,163
	Other			6,245			210			—		6,455

		Total revenues		123,992			4,558			—		128,550

Cost of Revenues:
	Rental depreciation			11,691			473			—		12,164
	Rental expense			11,228			291			—		11,519
	New equipment sales			25,853			610			—		26,463
	Used equipment sales			18,560			1,236			—		19,796
	Parts sales			11,149			286			—		11,435
	Service revenues			3,166			80			—		3,246
	Other			6,932			265			—		7,197

		Total cost of revenues		88,579			3,241			—		91,820

		Gross profit		35,413			1,317			—		36,730
Selling, general and administrative expenses				24,719			1,087			—		25,806
Gain on sale of property and equipment				32			9			—		41
Equity in earnings of guarantor subsidiaries				(14	)		—			14		—

		Income from operations		10,712			239			14		10,965

Other Income (Expense):
	Interest expense			(9,851	)		(253	)		—		(10,104	)
	Other, net			90						—		90

		Total other expense, net		(9,761	)		(253	)		—		(10,014	)

		Net income (loss)	$	951		$	(14	)	$	14	$	951

CONSOLIDATING STATEMENT OF OPERATIONS

			Three Months Ended March 31, 2004 (Restated)
			Parent			Guarantor Subsidiaries			Elimination		Consolidated
			(In thousands)
Revenues:
	Equipment rentals		$	34,499		$	1,053		$	—	$	35,552
	New equipment sales			24,618			679			—		25,297
	Used equipment sales			21,788			1,474			—		23,262
	Parts sales			13,609			299			—		13,908
	Service revenues			8,365			245			—		8,610
	Other			5,199			128			—		5,327

		Total revenues		108,078			3,878			—		111,956

Cost of Revenues:
	Rental depreciation			11,898			431			—		12,329
	Rental expense			13,179			274			—		13,453
	New equipment sales			22,036			586			—		22,622
	Used equipment sales			17,714			1,102			—		18,816
	Parts sales			9,775			197			—		9,972
	Service revenues			3,210			72			—		3,282
	Other			6,422			299			—		6,721

		Total cost of revenues		84,234			2,961			—		87,195

		Gross profit		23,843			918			—		24,761
Selling, general and administrative expenses				22,966			1,010			—		23,976
Loss from litigation				—			—					0
Related party expense				—			—			—		0
Gain on sale of property and equipment				26			1			—		27
Equity in earnings of guarantor subsidiaries				(289	)		—			289		0

		Income (loss) from operations		614			(91	)		289		812

Other income (expense):
	Interest expense			(9,676	)		(211	)		—		(9,887	)
	Other, net			14			13			—		27

		Total other expense, net		(9,662	)		(198	)		—		(9,860	)

		Net loss	$	(9,048	)	$	(289	)	$	289	$	(9,048	)

CONSOLIDATING STATEMENT OF CASH FLOWS

				Three Months Ended March 31, 2005
				H&E Equipment Services		Guarantor Subsidiaries		Elimination			Consolidated
				(In thousands)
Cash flows from operating activities:
	Net income (loss)			951		(14	)		14		951
Adjustment to reconcile net (loss) income to net cash (used in) provided by operating activities:
	Depreciation on property and equipment			1,030		40			—		1,070
	Depreciation on rental equipment			11,691		473			—		12,164
	Amortization of loan discounts and deferred financing costs			675		—			—		675
	Amortization of other intangible assets			61		—			—		61
	Provision for losses on accounts receivable			314		32			—		346
	Provision for obsolescence			19		—			—		19
	Gain on sale of property and equipment			(32	)	(9	)		—		(41	)
	Gain on sale of rental equipment			(4,809	)	(434	)		—		(5,243	)
	Deficit in earnings of guarantor subsidiaries			14		—			(14	)	—
	Changes in operating assets and liabilities:
		Receivables, net		(1,958	)	(147	)		—		(2,105	)
		Inventories, net		(18,732	)	(1,176	)		—		(19,908	)
		Prepaid expenses and other assets		(2,231	)	—			—		(2,231	)
		Accounts payable		2,526		—			—		2,526
		Accrued expenses payable and other liabilities		7,383		129			—		7,512
		Intercompany balance		335		(335	)		—		—
		Deferred compensation payable		288		—			—		288

			Net cash used in operating activities	(2,475	)	(1,441	)		—		(3,916	)

Cash flows from investing activities:
	Purchases of property and equipment			(1,521	)	(124	)		—		(1,645	)
	Purchases of rental equipment			(17,553	)	(55	)		—		(17,608	)
	Proceeds from sale of property and equipment			169		9			—		178
	Proceeds from sale of rental equipment			19,626		1,588			—		21,214

			Net cash provided by investing activities:	721		1,418			—		2,139

Cash flows from financing activities:
	Borrowings on senior secured credit facility			128,453		—			—		128,453
	Payments on senior secured credit facility			(126,659	)				—		(126,659	)
	Payment of deferred financing costs			—		—			—		—
	Payments of related party obligation			(75	)	—			—		(75	)
	Principal payments on notes payable			(79	)	—			—		(79	)
	Payments on capital lease obligations			(335	)	—			—		(335	)

			Net cash provided by financing activities	1,305		—			—		1,305

Net decrease in cash				(449	)	(23	)		—		(472	)
Cash, beginning of period				3,334		24			—		3,358

Cash, end of period				2,885		1		$	—		2,886

CONSOLIDATING STATEMENT OF CASH FLOWS

				Three Months Ended March 31, 2004 (Restated)
				Parent			Guarantor Subsidiaries			Elimination			Consolidated
				(In thousands)
Cash flows from operating activities:
	Net loss			$	(9,048	)	$	(289	)	$	289		$	(9,048	)
	Adjustment to reconcile net loss to net cash provided by operating activities:
		Depreciation on property and equipment			799			32			—			831
		Depreciation on rental equipment			11,898			431			—			12,329
		Amortization of loan discounts and deferred financing costs			637			—			—			637
		Provision for losses on accounts receivable			311			53			—			364
		Provision for obsolescence			42			—			—			42
		Gain on sale of property and equipment			(26	)		(1	)		—			(27	)
		Gain on sale of rental equipment			(3,678	)		(338	)		—			(4,016	)
		Deficit in earnings of guarantor subsidiaries			289			—			(289	)		—
	Changes in operating assets and liabilities:
		Receivables, net			(3,490	)		(743	)		—			(4,233	)
		Inventories, net			(3,129	)		413			—			(2,716	)
		Prepaid expenses and other assets			(1,510	)		—			—			(1,510	)
		Accounts payable			(12,749	)		—			—			(12,749	)
		Accrued expenses payable and other liabilities			8,752			(79	)		—			8,673
		Intercompany balance			(1,131	)		1,131			—			—
		Accrued loss from litigation			—			—			—			—
		Deferred compensation payable			259			—			—			259

			Net cash (used in) provided by operating activities		(11,774	)		610			—			(11,164	)

Cash flows from investing activities:
	Purchases of property and equipment				(473	)		(70	)		—			(543	)
	Purchases of rental equipment				(2,613	)		(1,735	)		—			(4,348	)
	Proceeds from sale of property and equipment				95			1			—			96
	Proceeds from sale of rental equipment				16,570			1,340			—			17,910

			Net cash provided by (used in) investing activities:		13,579			(464	)		—			13,115

Cash flows from financing activities:
	Borrowings on senior secured credit facility				107,708			—			—			107,708
	Payments on senior secured credit facility				(106,229	)		(156	)		—			(106,385	)
	Payment of deferred financing costs				(887	)		—			—			(887	)
	Payments on related party obligation				(75	)		—			—			(75	)
	Principal payments on notes payable				(102	)		—			—			(102	)
	Payments on capital lease obligations				(3,265	)		—			—			(3,265	)

			Net cash used in financing activities		(2,850	)		(156	)		—			(3,006	)

Net decrease in cash					(1,045	)		(10	)		—			(1,055	)
Cash, beginning of period					3,868			23			—			3,891

Cash, end of period				$	2,823		$	13		$	—		$	2,836

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion reviews our operations for the three months ended March 31, 2005 and 2004 and should be read in conjunction with the unaudited consolidated financial statements and related notes included herein. The following discussion and analysis should be read in conjunction with the financial statements and management's discussion and analysis of financial condition and results of operations included in our Form 10-K for the year ended December 31, 2004, filed with the Securities and Exchange Commission. The following discussion contains, in addition to historical information, forward-looking statements that include risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the heading "Forward-Looking Statements."

As more fully described in the notes to our consolidated financial statements, we have restated our previously issued consolidated financial statements to primarily correct our accounting treatment of deferred taxes in connection with our combination with ICM Equipment Company on June 17, 2002. All financial information contained herein has been revised to reflect the restatements.

Overview

Background

As one of the largest integrated equipment services companies in the United States focused on heavy construction and industrial equipment, we rent, sell and provide parts and service support for four core categories of specialized equipment: (1) hi-lift or aerial work platform equipment, (2) cranes, (3) earthmoving equipment and (4) industrial lift trucks. By providing equipment rental, sales, on-site parts, 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 an extremely 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.

We operate 41 full service facilities throughout the Intermountain, Southwest, Gulf Coast and Southeast regions of the United States. Our work force includes distinct, focused sales forces for our new and used equipment sales and rental operations, highly-skilled service technicians, product specialists, and regional managers. We focus our sales and rental activities on, and organize our personnel principally by our four equipment categories. We believe this allows us to provide specialized equipment knowledge, improve the effectiveness of our rental and sales force and strengthen our customer relationships. In addition, we have branch managers at each location who are responsible for managing their assets and financial results. We believe this fosters accountability in our business, and strengthens our local and regional relationships.

Through our predecessor companies, we have been in the equipment services business for approximately 44 years. We were formed in June 2002 through the combination of Head & Engquist Equipment, L.L.C. (H&E) (a wholly-owned subsidiary of Gulf Wide Industries, L.L.C.) and ICM Equipment Company L.L.C. (ICM). H&E, founded in 1961, and ICM, founded in 1971, were two leading regional, integrated rental, sales and equipment service companies operating in contiguous geographic markets. H&E and ICM were merged with and into H&E's parent company, Gulf Wide Industries, L.L.C., which was renamed H&E Equipment Services L.L.C. Prior to the combination, H&E operated 25 facilities in the Gulf Coast region, and ICM operated 16 facilities in the Intermountain region of the United States.

Business Segments

We have five reportable segments because we derive our revenues from five principal business activities: (1) equipment rentals; (2) new equipment sales; (3) used equipment sales; (4) parts sales and (5) services. These segments are based upon how we allocate resources and assess performance. In addition, we also have non-segmented other revenues and costs that relate to equipment support activities.

•: Equipment Rentals. Our rental operations primarily rent our four core types of construction and industrial equipment. We have an extremely 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 utilization, rental rate trends and targets, and equipment demand which we closely monitor. We maintain fleet quality through regional quality control managers and our parts and services operations.
•: New Equipment Sales. Our new equipment sales operation sells new equipment in all four product categories. We have a retail sales force focused by equipment type that is separate from our rental sales force. Manufacturer purchase terms and pricing are managed by our product specialists.
•: Used Equipment Sales. Our used equipment sales are generated primarily from sales of used equipment from our rental fleet, as well as from sales of inventoried equipment that we acquire through trade-ins from our equipment customers and through selective purchases of high quality used equipment. Used equipment is sold by our dedicated retail sales force. Our used equipment sales are an effective way for us to manage the size and composition of our rental fleet and provides a profitable distribution channel for disposal of rental equipment.
•: Parts Sales. Our parts business sells new and used parts for the equipment we sell and also provides parts to our own rental fleet. To a lesser degree, we also sell parts for equipment produced by manufacturers whose products we neither rent nor sell. In order to provide timely parts and service support to our customers as well as our own rental fleet, we maintain an extensive parts inventory.
•: Services. Our services operation provides maintenance and repair services for our customers' equipment and to our own rental fleet at our facilities as well as at our customers' locations. As the authorized distributor for numerous equipment manufacturers, we are able to provide service to that equipment that will be covered under the manufacturer's warranty. We have approximately 500 highly skilled service technicians.

Our non-segmented other revenues and costs relate to equipment support activities that we provide, such as transportation, hauling, parts freight, and damage waivers, and are not generally allocated to reportable segments.

Revenue Sources

Total Revenues. 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 three months ended March 31, 2005, approximately 31.6% of our total revenues were attributable to equipment rentals, 23.6% of our total revenues were attributable to new equipment sales, 19.9% were attributable to used equipment sales, 12.8% were attributable to parts sales, 7.1% were attributable to our service revenues and 5.0% were attributable to non-segmented other revenues.

The equipment that we sell, rent and service is principally used in the construction industry, as well as by companies for commercial and industrial uses such as plant maintenance and turnarounds. As a

result, our total revenues are affected by several factors including, but not limited to, the demand for and availability of rental equipment, rental rates, the demand for new and used equipment, the level of construction and industrial activities, spending levels by our customers, adverse weather conditions and general economic conditions. For a discussion of the impact of seasonality on our revenues, see "Seasonality" below.

Equipment Rentals Revenues. Revenues from equipment rentals depend on rental rates. Because rental rates are impacted by competition in specific regions and markets, we continuously monitor and adjust rental rates. We have a rental rate initiative driven by management to increase rental rates. Equipment rental revenue is also impacted by the availability of equipment and by time utilization (equipment usage based on customer demand). We generate reports to monitor time utilization, demand pricing (rental rate pricing based on physical utilization) and rental rate trends on a piece-by-piece basis for our rental fleet. We recognize revenues from equipment rentals in the period earned, over the contract term, regardless of the timing of billing to customers.

New Equipment Sales. We 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; new equipment sales also lead to future parts and service revenues. We recognize revenue from the sale of new equipment at the time of delivery to, or pick-up by, the customer and when all obligations under the sales contract have been fulfilled and collectibility is reasonably assured.

Used Equipment Sales. We generate the majority of our used equipment sales revenues by selling equipment from our rental fleet. The remainder of used equipment sales revenues comes from the sale of inventoried equipment that we acquire through trade-ins from our new equipment customers and selective purchases of high-quality used equipment. Sales of our rental fleet equipment allow us to manage the size, quality, composition and age of our rental fleet, and provide a profitable distribution channel for disposal of rental equipment. We recognize revenue for the sale of used equipment in the same manner that we recognize revenue from new equipment sales.

Parts Sales. We generate revenues from the sale of new and used parts for equipment that we rent or sell, as well as for other makes of equipment. Our product support sales representatives are instrumental in generating our parts revenues. They are product specialists and receive performance incentives for achieving certain sales levels. Most of our parts sales come from our extensive in-house parts inventory. Our parts sales provide us with a relatively stable revenue stream that is not as sensitive to the economic cycles that affect our rental and equipment sales operations. We recognize revenues from parts sales at the time of delivery to, or pick-up by, the customer and when all obligations under the sales contract have been fulfilled and collectibility is reasonably assured.

Service Revenues. We derive our service revenues from maintenance and repair services to customers for their owned equipment. In addition to repair and maintenance on an as-needed or scheduled basis, we also provide ongoing preventative maintenance services to industrial customers. These preventative maintenance services accounted for approximately 11.3% of our services revenues for the three months ended March 31, 2005. Our after-market service provides a high-margin, relatively stable source of revenue through changing economic cycles. We recognize service revenues at the time services are rendered.

Non-Segmented Other Revenues. Our non-segmented other revenues consist of billings to customers for equipment support and activities including: transportation, hauling, parts freight and loss damage waiver charges. We recognize revenue for support services at the time we generate an invoice for such services.

Principal Costs and Expenses

Our largest expenses are the costs to purchase the new equipment we sell, the costs associated with the used equipment we sell, rental expense, rental depreciation and costs associated with parts sales and services, which are all included in costs of revenues. For the three months ended March 31, 2005, our total cost of revenues was approximately $91.8 million. Our operating expenses consist principally of selling, general and administrative expenses. For the three months ended March 31, 2005, our operating expenses were approximately $25.8 million. In addition, we have interest expense related to our debt instruments. Operating expenses and all other income and expense items below gross profit are not generally allocated to our reportable segments.

Cost of Revenues:

Rental Depreciation. Depreciation of rental equipment represents the depreciation costs attributable to rental equipment. Estimated useful lives vary based upon type of equipment. Generally, the Company depreciates cranes and aerial work platforms over a ten year useful life, earthmoving over a five year useful life with a 25% salvage value, and industrial lift trucks over a seven year useful life. Attachments and other smaller type equipment are fully depreciated over a three year useful life.

Rental Expense. Rental expense represents the costs associated with rental equipment, including, among other things, the cost of servicing and maintaining our rental equipment, property taxes on our fleet, equipment operating lease expense and other miscellaneous costs of rental equipment.

New Equipment Sales. Cost of new equipment sold consists of the equipment cost of the new equipment that is sold.

Used Equipment Sales. Cost of used equipment sold consists of the net book value of rental equipment for used equipment sold from our rental fleet, amount of credit given to the customer towards the new equipment for trade-ins and the equipment cost for used equipment purchased for sale.

Parts Sales. Cost of parts sales represents costs attributable to the sale of parts directly to customers.

Service. Cost of service revenue represents costs attributable to service provided for the maintenance and repair of customer-owned equipment and equipment then on-rent by customers.

Non-Segmented Other. Costs associated with providing transportation, hauling, parts freight, and damage waiver including, among other things, drivers wages, fuel costs, shipping costs and our costs related to damage waiver policies.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses include sales and marketing expenses, payroll and related costs, insurance expense, professional fees, property and other taxes, administrative overhead, and depreciation associated with property and equipment (other than rental equipment). These expenses are not generally allocated to our reportable segments.

Interest Expense. Interest expense represents the interest on our outstanding debt instruments, including indebtedness outstanding under our senior credit facility, senior secured

notes due 2012, senior subordinated notes due 2013 and statutory interest on the judgment from the Court in the Sunbelt Rentals, Inc. litigation.

Principal Cash Flows

We generate cash primarily from our operating activities, and historically, we have used cash flows from operating activities and our revolving credit facility as the primary sources of funds to purchase our inventory and fund working capital and capital expenditures.

Rental Fleet

A significant portion of our overall value is in our rental fleet equipment. Our rental fleet (including rental equipment financed with operating leases) as of March 31, 2005, consists of 13,162 units having an original acquisition cost (which is the cost originally paid to manufacturers or the original amount financed under operating leases) of approximately $459.8 million and an average age of 43.8 months.

Determining the optimal age and mix for our rental fleet equipment is subjective and requires considerable estimates by management. We constantly evaluate the mix, age and quality of the equipment in our rental fleet in response to current economic conditions, competition and customer demand. We reduced our overall gross rental fleet, through the normal course of business activities, by approximately $13.6 million over the last twelve months. While we reduced the size of our rental fleet, the mix among our four core product lines remained consistent with that of prior years. As a result of our in-house service capabilities and extensive maintenance program, our fleet is extremely well-maintained.

The mix and age of our rental fleet, as well as our cash flows, are impacted by the normal sales of equipment from the rental fleet and the capital expenditures to acquire new rental fleet equipment. In making acquisition decisions, we evaluate current market conditions, competition, manufacturers' availability, pricing and return on investment over the estimated life of the specific equipment, among other things.

Principal External Factors that Affect our Businesses

We are subject to a number of external factors that may adversely affect our businesses. These factors, which are discussed below and under the headings "Forward-Looking Statements."

•: Spending levels by customers. Rental and sales of equipment to the construction industry and to industrial companies constitute a significant portion of our revenues. As a result, we depend upon customers in these businesses and their ability and willingness to make capital expenditures. Accordingly, our business is impacted by fluctuations in customers' spending levels on capital expenditures.
•: Economic downturns. The demand for our products is dependent on the general economy, the industries in which our customers operate or serve, and other factors. Downturns in the general economy or in the construction and manufacturing industries can cause demand for our products to materially decrease. Until recently, our business and profit margins were adversely affected by unfavorable economic conditions which resulted, among other things, in a decline in construction activity and overcapacity of available equipment.
•: Adverse weather. Adverse weather in a geographic region in which we operate may depress demand for equipment in that region. Our equipment is primarily used outdoors and, as a result, prolonged adverse weather conditions may prohibit our customers from continuing their work projects. The adverse weather also has a seasonal impact in parts of our Intermountain region.

We believe that our integrated business tempers the effects to us of downturns in a particular segment. For a discussion of seasonality, see "Seasonality."

Critical Accounting Policies; Use of Estimates

We prepare our financial statements in accordance with accounting principles generally accepted in the United States. In applying many accounting principles, we need to make assumptions, estimates and/or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates and/or judgments, however, are often subjective and they and our actual results may change based on changing circumstances or changes in our analyses. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe the following critical accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. (See our notes to our consolidated financial statements for a summary of our significant accounting policies.)

Revenue Recognition. Our revenue recognition varies by segment. Our policy is to recognize revenue from equipment rentals in the period earned, over the contract term, regardless of the timing of the billing to customers. A rental contract term can be daily, weekly or monthly. Because the term of the contracts can extend across financial reporting periods, we record unbilled rental revenue and deferred rental revenue at the end of reporting periods so rental revenue is appropriately reported in the periods presented. We recognize revenue from new equipment sales, used equipment sales and parts sales at the time of delivery to, or pick-up by, the customer and when all obligations under the sales contract have been fulfilled and collectibility is reasonably assured. We recognize services revenues at the time services are rendered. We recognize other revenues for support services at the time we generate an invoice including the charge for such services.

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts that reflects our estimate of the amount of our receivables that we will be unable to collect. Our largest exposure to doubtful accounts is in our rental operations. We perform credit evaluations of customers and establish credit limits based on reviews of current credit information and payment histories. Our credit risk is mitigated by our geographically diverse customer base and our credit evaluation procedures. The rate of future credit losses, however, may not be similar to past experience. Our estimate of doubtful accounts could change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance.

Useful Lives of Rental Equipment and Property and Equipment. We depreciate rental equipment and property and equipment over their estimated useful lives (generally three to ten years), after giving effect to an estimated salvage value of 0% to 25% of cost. The useful life of an asset is determined based on our estimate of the period the asset will generate revenues, and the salvage value is determined based on our estimate of the minimum value we could realize from the asset after such period. We routinely review the assumptions utilized in computing rates of depreciation of our rental equipment and property and equipment. We may be required to change these estimates based on changes in our industry or other changing circumstances. If these estimates change in the future, we may be required to recognize increased or decreased depreciation expense for these assets.

Impairment of Long-Lived Assets. Long-lived assets are recorded at the lower of amortized cost or fair value. We review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying

amount of an asset to future undiscounted cash flows expected to be generated by the asset over the remaining useful life. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Inventories. We state our new and used equipment inventories at the lower of cost or market, with cost determined by specific identification. Parts and supplies are stated on the lower of the weighted average cost or market. We maintain allowances for damaged, slow-moving and unmarketable inventory to reflect the difference between the cost of the inventory and the estimated market value. Changes in product demand may affect the value of inventory on hand and may require higher inventory allowances. Uncertainties with respect to inventory valuation are inherent in the preparation of financial statements.

Results of Operations

The tables included in the period comparisons below provide summaries of revenues and gross profits for our business segments. The period-to-period comparisons of financial results are not necessarily indicative of future results.

Three months ended March 31, 2005 compared to three months ended March 31, 2004 (restated)

Revenues

			Three Months Ended March 31,
			2005		2004 (Restated)		Total Dollar Change		Total Percent Change
Segment Revenues:
	Equipment rentals		$	40.6	$	35.6	$	5.0	14.0	%
	New equipment sales			30.3		25.3		5.0	19.8	%
	Used equipment sales			25.6		23.3		2.3	9.9	%
	Parts sales			16.4		13.9		2.5	18.0	%
	Service revenues			9.2		8.6		0.6	7.0	%
	Non-segmented revenues			6.5		5.3		1.2	22.6	%

		Total revenues	$	128.6	$	112.0	$	16.6	14.8	%

Total Revenues. Our first quarter 2005 total revenues were $128.6 million compared to $112.0 million in the first quarter of 2004, a $16.6 million or 14.8% increase. Revenues increased for all reportable segments as a result of increased customer demand for our products and services.

Equipment Rentals. Our revenues from equipment rentals increased $5.0 million, or 14.0%, to $40.6 million for the first quarter of 2005 from $35.6 million for the first quarter of 2004. The increase is primarily a result of improved rental rates and higher time utilization, despite having reduced the total gross rental fleet by $13.6 million through the normal course of business activities over the last twelve months. Rental revenues of aerial work platforms increased by approximately $4.5 million as a result of increased customer demand. Rental equipment dollar utilization (quarterly rental revenues annualized, divided by the average quarterly original rental fleet equipment cost of $462.1 million and $481.7 million for 2005 and 2004, respectively) was approximately 35.1% for the first quarter of 2005 compared to 29.6% for the first quarter of 2004.

New Equipment Sales. Our new equipment sales increased $5.0 million, or 19.8%, to $30.3 million for the first quarter of 2005 from $25.3 million for the first quarter of 2004. During the first quarter of 2005, sales of new aerial work platforms increased $2.4 million while new equipment sales of

earthmoving, lift trucks and other new equipment also improved. Increases in these core products were offset by a $1.2 million decline in new crane sales.

Used Equipment Sales. Our used equipment sales increased $2.3 million, or 9.9%, to $25.6 million for the first quarter of 2005 from $23.3 million for the first quarter of 2004. In the first quarter of 2005, we sold our used equipment at approximately 129.3% of net book value compared to 123.3% of net book value in the first quarter of 2004. With extended manufacturer lead times for new equipment, the demand for well-maintained, used equipment has increased.

Parts Sales. Our parts sales increased $2.5 million, or 18.0%, to $16.4 million for the first quarter of 2005 from $13.9 million for the first quarter of 2004. The increase was primarily attributable to increased customer demand for parts.

Service Revenues. Our service revenues increased $0.6 million or 7.0%, to $9.2 million in the first quarter of 2005 from $8.6 million in the first quarter of 2004 primarily attributable to increased demand for service support.

Non-Segmented Revenues. Our non-segmented other revenues consisted primarily of equipment support activities including transportation, hauling, parts freight and damage waiver charges. Our other revenues increased $1.2 million, or 22.6%, during the first quarter of 2005. These support activities increased due to the increases in charge-out rates and in our primary business activities.

Gross profit

			Three Months Ended March 31,
			2005			2004 (Restated)			Total Dollar Change		Total Percent Change
Segmented Gross Profit:
	Equipment rentals		$	16.9		$	9.8		$	7.1	72.4	%
	New equipment sales			3.8			2.7			1.1	40.7	%
	Used equipment sales			5.8			4.4			1.4	31.8	%
	Parts sales			5.0			3.9			1.1	28.2	%
	Service revenues			5.9			5.3			0.6	11.3	%
	Non-segmented gross profit			(.7	)		(1.3	)		0.6	46.2	%

		Total gross profit	$	36.7		$	24.8		$	11.9	48.0	%

Total Gross Profit. Our first quarter of 2005 total gross profit was $36.7 million compared to $24.8 million in the first quarter of 2004, a $11.9 million, or 48.0% increase. Gross profit increased primarily as a result of the increase in rental revenues combined with lower rental depreciation and reduced rental expense. In addition, due to the increase in customer demand for new and well-maintained used equipment, we were able to sell our equipment at a higher gross margin. Total gross profit margin for the first quarter of 2005 was 28.5% up from 22.1% for the first quarter of 2004. Our gross profit was attributable to:

Equipment Rentals Gross Profit. Our equipment rentals gross profit increased $7.1 million, or 72.4%, to $16.9 million for the first quarter of 2005 from $9.8 million for the first quarter of 2004. The increase is primarily a result of a $5.0 million increase in rental revenue combined with a $2.1 million decrease in depreciation expense and rental expense.

: Depreciation expense on our rental fleet equipment is recorded in equipment rentals cost of revenues. Total rental fleet depreciation expense decreased approximately $0.2 million as a result of having reduced the total rental fleet. For the first quarter of 2005, our maintenance and repair expense decreased approximately $1.0 million, and other miscellaneous rental expenses, including property taxes and operating lease expense, decreased approximately $0.9 million.

New Equipment Sales Gross Profit. Our new equipment sales gross profit increased $1.1 million, or 40.7%, to $3.8 million for the first quarter of 2005 from $2.7 million for the first quarter of 2004. The increase in new equipment sales gross profit is attributable primarily to higher new equipment sales revenues and the mix of equipment sold.

Used Equipment Sales Gross Profit. Our used equipment sales gross profit increased $1.4 million, or 31.8%, to $5.8 million for the first quarter of 2005 from $4.4 million for the first quarter of 2004. The increase in used equipment sales gross profit was primarily the result of higher used equipment sales and the mix of equipment sold.

Parts Sales Gross Profit. Our parts sales gross profit increased $1.1 million, or 28.2%, to $5.0 million for the first quarter of 2005 from $3.9 million for the first quarter of 2004. The increase was attributable primarily to increased customer demand for parts sales.

Service Revenues Gross Profit. Our service revenues gross profit increased $.6 million, or 11.3%, to $5.9 million from $5.3 million in 2004. The increase was primarily attributable to increased customer demand for service support.

Selling, General and Administrative Expenses. Selling, general and administrative (SG&A) expenses increased $1.8 million, or 7.5%, to $25.8 million for the first quarter of 2005 from $24.0 million for the first quarter of 2004. Approximately $1.1 million of the total increase was related to higher sales commissions, performance incentives, benefits and professional services. As a percent of sales, SG&A expenses were 20.1% for the first quarter of 2005 down from 21.4% for the first quarter of 2004.

Income Taxes. We are a limited liability company and have elected to be treated as a C Corporation for income tax purposes. At the end of the first quarter of 2005 and 2004, we have recorded a tax valuation allowance for the entire amount of our net deferred income tax assets. The valuation allowance was recorded given the cumulative losses we have incurred and our belief that it is more likely than not that we will be unable to recover the net deferred income tax assets.

Liquidity and Capital Resources

Cash flow from operating activities. For the three months ended March 31, 2005, our cash flows used in operating activities was $3.9 million. Our cash flows from operations were primarily attributed to our reported net income of $1.0 million which, when adjusted for non-cash expense items, such as depreciation and amortization and gains on sale of long-lived assets, provided cash flow of $10.0 million. This amount was principally offset by increases in our receivables of $2.1 million, an increase of inventories of $19.9 million and an increase in prepaid and other assets of $2.2 million. The increase in our inventories relates to the extended lead time from our manufacturers and anticipated transfers to the rental fleet. Receivables and prepaid expenses and other assets increased primarily due to timing of customer payment, our payments for insurance premiums and other annual expenses. Positively impacting our cash flows from operations was an increase in accounts payable of $2.5 million primarily related to equipment purchases. In addition, an increase in accrued expenses and other liabilities of $7.5 million provided cash from operations primarily due to accrued interest which is paid semi-annually.

For the three months ended March 31, 2004, our cash used in operating activities was $11.2 million. Our cash flows from operating activities were primarily attributed to our reported loss of $9.0 million which, when adjusted for non-cash expense items, such as depreciation and amortization, and gains on sale of long-lived assets provided positive cash flows of $1.0 million. Other uses of operating cash flow was an increase in receivables of $4.2 million, an increase in inventories of $2.7, an increase in prepaid and other assets of $1.5 million, and a decrease in accounts payable of $12.7 million. This amount was offset by an $8.7 million increase in accrued expenses.

Cash flow from investing activities. For the three months ended 2005, cash provided in our investing activities was $2.1 million. This is a result of proceeds from sale of rental and non-rental

equipment of $21.4 million offset by purchasing $19.3 million in rental and non-rental equipment. For the three months ended 2004, cash provided by our investing activities was $13.1 million. This is a result of proceeds from sale of rental and non-rental equipment of $18.0 million offset by $4.9 million purchases of rental and non-rental equipment.

Cash flow from financing activities. For the three months ended 2005, cash provided by our financing activities was $1.3 million. Our total borrowings under the amended senior secured credit facility were $128.5 million and total payments under the amended senior secured credit facility were $126.7 million. Payments on capital leases and other notes were $.4 million. For the three months ended 2004, cash used in financing activities was $3.0 million. Our total borrowings under the amended senior secured credit facility were $107.7 million and total payments under the amended senior secured credit facility were $106.4 million. Payments on capital leases and other notes were $3.4 million.

Senior Secured Credit Facility Amendments

During the first quarter of 2005, we amended the senior secured credit agreement on January 13, 2005 to increase capital expenditures on property and equipment from $5.0 million to $8.5 million during any fiscal year. On March 11, 2005, we amended the senior secured credit agreement which principally:

•: lowered interest rates according to a pricing grid based upon daily average excess availability for the immediately preceding fiscal month. We elect interest at either the Index Rate (the higher of the prime rate, as determined pursuant to the amended credit agreement, and the federal funds rate plus 50 basis points) plus the applicable revolver Index margin per annum or the applicable London Interbank Offered Rate, or LIBOR rate, plus the applicable revolver LIBOR margin per each calendar month. With daily average excess availability equal to or more than $40 million, the LIBOR margin will be 2.25% and the Index margin will be .75%. If availability falls below $40 million and equal to or more than $25 million, the senior secured credit facility bears interest at a LIBOR margin of 2.50% and the Index margin will be 1.00%. If availability is less than $25 million, the LIBOR margin will be 2.75% and the Index margin will be 1.25%. The commitment fee equal to .5% per annum in respect to un-drawn commitments remains unchanged;
•: reduced the block on availability of assets from $30 million to $15 million; and
•: increased the advance rate on rental fleet assets from 75% to 80% of orderly liquidation value as defined in the senior secured credit agreement.

On March 29, 2005, we again amended the annual requirement of delivery of audited financial statements for the fiscal year ended December 31, 2004 from March 31, 2005 to September 30, 2005. The Company did not pay a loan amendment fee for the amendments entered into during the first quarter of 2005. As of March 31, 2005, we were in compliance with the financial covenants in place at that time.

Cash Requirements Related to Operations

Our principal sources of liquidity have been from cash provided by operations and the sales of new, used and rental fleet equipment, proceeds from the issuance of debt, and borrowings available under our amended senior secured credit facility. As of March 31, 2005, the total balance outstanding on the amended senior secured credit facility was $57.1 million with $65.8 million available in additional borrowings, net of $27.1 million in standby letters of credit. Also on March 31, 2005, our total balance payable on capital lease obligations and notes payable were $0.8 million and $0.6 million, respectively.

Our principal uses of cash have been to fund operating activities and working capital, finance the purchase of rental fleet equipment, fund payments due under operating leases and manufacturer

flooring plans payable, and to meet debt service requirements. In the future, we may also pursue strategic acquisitions. We anticipate that these uses will be the principal demands on our cash in the foreseeable future.

The amount of our future capital expenditures will depend on a number of factors including general economic conditions and growth prospects. We anticipate that we will fund rental fleet capital expenditures with the proceeds from the sales of new, used and rental fleet equipment, cash from operations and, if required, from borrowings under our amended senior secured credit facility. 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.

To service our debt, we will require a significant amount of cash. Our ability to pay interest and principal on our indebtedness (including the senior subordinated and senior secured notes and obligations under the amended senior secured credit facility) and to satisfy our other debt obligations will depend upon our future operating performance and the availability of refinancing indebtedness, which will be affected by prevailing economic conditions and financial, business and other factors, some of which are beyond our control. Based on our current level of operations, we believe our cash flow from operations, available cash and available borrowings under the amended senior secured credit facility will be adequate to meet our future liquidity needs for at least the next twelve months.

In conjunction with a legal proceeding, we have issued an irrevocable standby letter of credit for $19.8 million representing the amount of the judgment and anticipated statutory interest while the judgment is being appealed. If we are required to fund the judgment as a result of the Court's ruling, our liquidity would not be impacted as it has already been reduced by the amount of the letter of credit. For further discussion of the litigation, see "Item 1. Legal Proceedings".

We cannot assure that our future cash flow will be sufficient to meet our long-term obligations and commitments. If we are unable to generate sufficient cash flow from operations in the future to service our indebtedness and to meet our other commitments, we will be required to adopt one or more alternatives, such as refinancing or restructuring our indebtedness, selling material assets or operations or seeking to raise additional debt or equity capital. We cannot assure that any of these actions could be affected on a timely basis or on satisfactory terms or at all, or that these actions would enable us to continue to satisfy our capital requirements. In addition, our existing or future debt agreements, including the indentures and the amended senior secured credit facility, may contain restrictive covenants prohibiting us from adopting any of these alternatives. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the accelerations of all of our debt.

Certain Information Concerning Off-Balance Sheet Arrangements

At March 31, 2005, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

In the normal course of our business activities, we lease real estate, rental equipment and non-rental fleet equipment under operating leases.

Contractual and Commercial Commitments Summary

We had no material changes to contractual cash obligations and commercial commitments for the three months ended March 31, 2005.

Seasonality

Our business is seasonal with demand for our rental equipment tending to be lower in the winter months. The level of equipment rental activities are directly related to commercial and industrial construction and maintenance activities. Therefore, equipment rental performance will be correlated to the levels of current construction activities. The severity of weather conditions can have a temporary impact on the level of construction activities.

Equipment sales cycles are also subject to seasonality with the peak selling period during the spring season and extending through the summer. Parts and service activities are less affected by changes in demand caused by seasonality.

Inflation

Although we cannot accurately anticipate the effect of inflation on our operations, we believe that inflation has not had for the three most recent fiscal years, and is not likely in the foreseeable future to have, a material impact on our results of operations.

Acquisitions

We periodically engage in evaluations of potential acquisitions and start-up facilities. Currently, there are no definitive agreements with respect to any material acquisition. We are a party to a non-binding letter of intent that contemplates a potential material acquisition by the Company. The success of our growth strategy depends, in part, on selecting strategic acquisition candidates at attractive prices and identifying strategic start-up locations. We expect to face competition for acquisition candidates, which may limit the number of acquisition opportunities and lead to higher acquisition costs. We may not have the financial resources necessary to consummate any acquisitions or to successfully open any new facilities in the future or the ability to obtain the necessary funds on satisfactory terms.

Forward-Looking Statements

Certain statements contained in this report are forward-looking in nature. These statements can be identified by the use of forward-looking terminology such as "believes," "expects," "projects," "forecasts," "may," "will," "should," "seeks," "on-track," "plans," "intends," or "anticipates" or the negative thereof or comparable terminology, or by discussions of strategy or outlook. The Company's business and operations are subject to a variety of risks and uncertainties and, consequently, actual results may materially differ from those projected by any forward-looking statements. Factors that could cause actual results to differ from those projected include, but are not limited to, the following: (1) unfavorable economic and industry conditions can reduce demand and prices for the Company's products and services, (2) governmental funding for highway and other construction projects may not reach expected levels, (3) the Company may not have access to the capital that it may require, (4) intense competition and (5) costs may increase more than anticipated. Certain of these risks and uncertainties as well as others, are discussed in greater detail in the Company's filings with the SEC. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made.

Recent Accounting Pronouncements

accordance with the provisions of SFAS No. 123. Historically, we have not used share-based compensation schemes for compensating our employees. Therefore, the adoption of SFAS No. 123(R) is not expected to have any impact on our reported results of operations upon adoption. However, should we determine to employ share-based compensation schemes in the future, SFAS No. 123(R) would have a currently indeterminate impact on us.

Impact of Recent Natural Disaster

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our earnings are affected by changes in interest rates due to the fact that interest on the amended senior secured credit facility is calculated based upon a LIBOR margin of 2.25%. We are also required to pay the lenders a commitment fee equal to 0.5% per annum in respect of undrawn commitments under the amended senior secured credit facility. At March 31, 2005, we had variable rate debt representing 19.0% of total debt. A portion of our indebtedness bears interest at variable rates that are linked to changing market interest rates. Based upon the balances outstanding at March 31, 2005, a one percent increase in market rates would increase our annual interest expense approximately $1.1 million. We do not have significant exposure to the changing interest rates on our fixed-rate senior secured notes, senior subordinated notes or the capital lease obligations, which represented 81.0% of our total debt. The annual interest rates on our senior secured credit facility average 7.6% in 2005 compared to 6.9% in 2004.

Item 4. Controls and Procedures

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) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report on Form 10Q. As part of their evaluation, they reviewed the circumstances surrounding the delay in filing this quarterly report on Form 10Q and the restatement of our previously issued financial statements for the years ended December 31, 2002 and 2003. As we previously reported, we delayed filing our Form 10K and our Form 10Q's for the quarters ended March 31, 2005 and June 30, 2005 pending completion by our accountants, BDO Seidman LLP, of the re-audits of our 2002 and 2003 financial statements that were audited by our prior accountants.

During these re-audits, we discovered that we incorrectly recognized the deferred tax components related to the tax basis of carryover goodwill acquired in our combination with ICM Equipment Company in 2002. After internal review and consultation with our Audit Committee, we determined to

restate our 2002 and 2003 financial statements to reflect the proper accounting treatment of deferred income taxes. Our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2005 to properly record and report the correct accounting treatment of deferred taxes from our 2002 transaction. However, after discovery of this issue, we revisited and reassessed, in consultation with our accountants and our tax manager (who joined us in 2003), the tax treatment, including deferred tax components, for the 2002 transaction to ensure that there were no additional corrections necessary in this regard. To the extent we engage in acquisition transactions in the future, our disclosure controls and procedures now include the involvement of our tax manager in the appropriate tax analysis and related financial disclosure. Our Chief Executive Officer and our Chief Financial Officer have concluded that our current disclosure controls and procedures are effective as of the filing date of this quarterly report to provide reasonable assurance that material information required to be included in our periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.

There have been no significant changes in our internal controls over financial reporting that occurred during the quarterly period ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are party to various litigation matters, in most cases (except for the legal proceeding referred to below) involving ordinary and routine claims incidental to our business. We cannot estimate with certainty our ultimate legal and financial liability with respect to such pending matters (excluding the legal proceeding referred to below). However, we believe, based on our examination of such matters, that our ultimate liability will not have a material adverse effect on our business or financial condition.

In July 2000, one of our competitors, Sunbelt Rentals, Inc., brought claims against us in the General Court of Justice, Superior Court Division, State of North Carolina, County of Mecklenburg alleging, among other things, that in connection with our hiring of former employees of the plaintiff there occurred a breach of fiduciary duty, misappropriation of trade secrets, unfair trade practices and interference with prospective advantages. In May 2003, the Court ruled in favor of the plaintiff in the amount of $17.4 million. Consequently, we recorded a $17.4 million loss in 2003. We subsequently appealed the judgment. In conjunction with the appeal and in accordance with the Court's ruling, we issued an irrevocable standby letter of credit for $19.8 million, representing the amount of the judgment plus $2.4 million in anticipated statutory interest (8%) for the twenty-four months while the judgment is being appealed. Going forward, we intend to expense any statutory interest as expense in the statement of operations. Currently, we pay a 225 basis point fee on the amount available for issuance. Oral arguments took place on March 3, 2005 and the appeal was then submitted for the appellate court's decision. While we are appealing this judgment, we believe that even if there is a reduction in the amount of damages awarded to the plaintiff on appeal, the judgment could have a material adverse effect on our business or financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other information.

None.

Item 6. Exhibits

Exhibits

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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 hereunto duly authorized.

	H&E EQUIPMENT SERVICES L.L.C.
Dated: September 30, 2005	By:	/s/ JOHN M. ENGQUIST John M. Engquist Chief Executive Officer (Principal Executive Officer)
Dated: September 30, 2005	By:	/s/ LESLIE S. MAGEE Leslie S. Magee Chief Financial Officer (Principal Financial and Accounting Officer)

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H&E EQUIPMENT SERVICES L.L.C. TABLE OF CONTENTS
PART I—FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements.

H&E EQUIPMENT SERVICES L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
H&E EQUIPMENT SERVICES L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
H&E EQUIPMENT SERVICES L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEET
CONSOLIDATING BALANCE SHEET
CONSOLIDATING STATEMENT OF OPERATIONS
CONSOLIDATING STATEMENT OF OPERATIONS
CONSOLIDATING STATEMENT OF CASH FLOWS
CONSOLIDATING STATEMENT OF CASH FLOWS

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Item 4. Controls and Procedures

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Item 3. Defaults upon Senior Securities.

Item 4. Submission of Matters to a Vote of Security Holders.

Item 5. Other information.

Item 6. Exhibits

SIGNATURES