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Management's Discussion of Results of Operations (Excerpts)

For purposes of readability, Zenith attempts to strip out all tables in excerpts from the Management Discussion. That information is contained elsewhere in our articles. The idea of this summary is simply to review how well we believe Management does its reporting. Also, this highlights what Management believes is important.

In our Decision Matrix at the end of each article, a company with 0 to 2 gets a "-1", and 3 to 5 gets a "+1."

On a scale of 0 to 5, 5 being best, Zenith rates this company's Management's Discussion as a 5.


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 services 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, repair and maintenance functions under one roof, 
we are a one-stop provider for our customers’ varied equipment needs. This full 
service approach provides us with multiple points of customer contact, enables 
us to maintain a high quality rental fleet, as well as an effective 
distribution channel for fleet disposal and provides cross-selling 
opportunities among our new and used equipment sales, rental, parts sales and 
services operations.

As of October 19, 2017, we operated 79 full-service facilities throughout the 
Intermountain, Southwest, Gulf Coast, West Coast, Southeast and Mid-Atlantic 
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 core 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 for 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 56 years. H&E Equipment Services L.L.C. (“H&E LLC”) 
was formed in June 2002 through the business combination of Head & Engquist 
Equipment, LLC (“Head & Engquist”), a wholly-owned subsidiary of Gulf Wide 
Industries, L.L.C. (“Gulf Wide”), and ICM Equipment Company L.L.C. (“ICM”). 
Head & Engquist, founded in 1961, and ICM, founded in 1971, were two leading 
regional, integrated equipment service companies operating in contiguous 
geographic markets. In the June 2002 transaction, Head & Engquist and ICM were 
merged with and into Gulf Wide, which was renamed H&E LLC. Prior to the 
combination, Head & Engquist operated 25 facilities in the Gulf Coast region, 
and ICM operated 16 facilities in the Intermountain region of the United 
States.

Prior to our initial public offering in February 2006, our business was 
conducted through H&E LLC. In connection with our initial public offering, we 
converted H&E LLC into H&E Equipment Services, Inc. In order to have an 
operating Delaware corporation as the issuer for our initial public offering, 
H&E Equipment Services, Inc. was formed as a Delaware corporation and 
wholly-owned subsidiary of H&E Holdings L.L.C. (“H&E Holdings”), and 
immediately prior to the closing of our initial public offering, on February 3, 
2006, H&E LLC and H&E Holdings merged with and into H&E Equipment Services, 
Inc., which survived the reincorporation merger as the operating company. 
Effective February 3, 2006, H&E LLC and H&E Holdings no longer existed under 
operation of law pursuant to the reincorporation merger.

Critical Accounting Policies

Item 7, included in Part II of our Annual Report on Form 10-K for the year 
ended December 31, 2016, presents the accounting policies and related estimates 
that we believe are the most critical to understanding our consolidated 
financial statements, financial condition, and results of operations and cash 
flows, and which require complex management judgment and assumptions, or 
involve uncertainties. There have been no changes to these critical accounting 
policies and estimates during the nine month period ended September 30, 2017. 
These policies include, among others, revenue recognition, the adequacy of the 
allowance for doubtful accounts, the propriety of our estimated useful life of 
rental equipment and property and equipment, the potential impairment of 
long-lived assets including goodwill and intangible assets, obsolescence 
reserves on inventory, the allocation of purchase price related to business 
combinations, reserves for claims, including self-insurance reserves, and 
deferred income taxes, including the valuation of any related deferred tax 
assets.

Information regarding our other significant accounting policies is included in 
note 2 to our consolidated financial statements in Item 8 of Part II of our 
Annual Report on Form 10-K for the year ended December 31, 2016 and in note 2 
to the condensed consolidated financial statements in this Quarterly Report on 
Form 10-Q.

Business Segments

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

• Equipment Rentals. Our rental operation primarily rents our four core types 
of construction and industrial equipment. We have a well-maintained rental 
fleet and our own dedicated sales force, focused by equipment type. We actively 
manage the size, quality, age and composition of our rental fleet based on our 
analysis of key measures such as time utilization (which we analyze as 
equipment usage based on: (1) a percentage of original equipment cost, and (2) 
the number of rental equipment units available for rent), rental rate trends 
and targets, rental equipment dollar utilization and maintenance and repair 
costs, which we closely monitor. We maintain fleet quality through regional 
quality control managers and our parts and services operations.


• New Equipment Sales. Our new equipment sales operation sells new equipment in 
all of our four core product categories. We have a retail sales force focused 
by equipment type that is separate from our rental sales force. Manufacturer 
purchase terms and pricing are managed by our product specialists.


• Used Equipment Sales. 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 provide 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 services 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.


Our non-segmented 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

We generate all of our total revenues from our five business segments and our 
non-segmented equipment support activities. Equipment rentals and new equipment 
sales account for more than half of our total revenues. For the nine month 
period ended September 30, 2017, approximately 47.8% of our total revenues were 
attributable to equipment rentals, 17.6% of our total revenues were 
attributable to new equipment sales, 10.2% were attributable to used equipment 
sales, 11.0% were attributable to parts sales, 6.4% were attributable to our 
services revenues and 7.0% 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 well as in the petrochemical 
and energy sectors. As a result, our total revenues are affected by several 
factors including, but not limited to, the demand for and availability of 
rental equipment, rental rates and other competitive factors, the demand for 
new and used equipment, the level of construction and industrial activities, 
spending levels by our customers, adverse weather conditions and general 
economic conditions.

Equipment Rentals. Our rental operation primarily rents our four core types of 
construction and industrial equipment. We have a well-maintained rental fleet 
and our own dedicated sales force, focused by equipment type. We actively 
manage the size, quality, age and composition of our rental fleet based on our 
analysis of key measures such as time utilization (which we analyze as 
equipment usage based on: (1) a percentage of original equipment cost, and (2) 
the number of rental equipment units available for rent), rental rate trends 
and targets, rental equipment dollar utilization and maintenance and repair 
costs, which we closely monitor. We maintain fleet quality through regional 
quality control managers and our parts and services operations. We recognize 
revenue from equipment rentals in the period earned on a straight-line basis, 
over the contract term, regardless of the timing of the billing to customers.

New Equipment Sales. We seek to optimize revenues from new equipment sales by 
selling equipment through a professional in-house retail sales force focused by 
product type. While sales of new equipment are impacted by the availability of 
equipment from the manufacturer, we believe our status as a leading distributor 
for some of our key suppliers improves our ability to obtain equipment. New 
equipment sales are an important component of our integrated model due to 
customer interaction and service contact and new equipment sales also lead to 
future parts and services revenues. We recognize revenue from the sale of new 
equipment at the time of delivery to, or pick-up by, the customer and when all 
obligations under the sales contract have been fulfilled and collectibility is 
reasonably assured.

Used Equipment Sales. We generate the majority of our used equipment sales 
revenues by selling equipment from our rental fleet. The remainder of our used 
equipment sales revenues comes from the sale of inventoried equipment that we 
acquire through trade-ins from our equipment customers and selective purchases 
of high-quality used equipment. Our policy is not to offer specified price 
trade-in arrangements on equipment for sale. Sales of our rental fleet 
equipment allow us to manage the size, quality, composition and age of our 
rental fleet, and provide us with a profitable distribution channel for the 
disposal of rental equipment. We recognize revenue for the sale of used 
equipment at the time of delivery to, or pick-up by, the customer and when all 
obligations under the sales contract have been fulfilled and collectibility is 
reasonably assured.

Parts Sales. 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 generally less sensitive to the economic cycles that 
tend to 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.

Services. We derive our services 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. Our after-market service provides 
a high-margin, relatively stable source of revenue through changing economic 
cycles. We recognize services revenues at the time services are rendered and 
collectibility is reasonably assured.

Our non-segmented other revenues 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. We recognize non-segmented 
other revenues at the time of billing and after the related services have been 
provided.

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 expenses, rental 
depreciation and costs associated with parts sales and services, all of which 
are included in cost of revenues. For the nine month period ended September 30, 
2017, our total cost of revenues was $476.3 million. Our operating expenses 
consist principally of selling, general and administrative expenses. For the 
nine month period ended September 30, 2017, our selling, general and 
administrative expenses were $172.3 million. In addition, we have interest 
expense related to our debt instruments. Operating expenses and all other 
income and expense items below the gross profit line of our consolidated 
statements of income are not generally allocated to our reportable segments.

We are also subject to federal and state income taxes. Future income tax 
examinations by state and federal agencies could result in additional income 
tax expense based on probable outcomes of such matters.

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, we depreciate cranes and aerial 
work platforms over a ten year estimated useful life, earthmoving over a five 
year estimated useful life with a 25% salvage value, and industrial lift trucks 
over a seven year estimated useful life. Attachments and other smaller type 
equipment are depreciated over a three year estimated useful life. We 
periodically evaluate the appropriateness of remaining depreciable lives 
assigned to rental equipment.

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 and other miscellaneous costs 
of rental equipment.

New Equipment Sales. Cost of new equipment sold primarily consists of the 
equipment cost of the new equipment that is sold, net of any amount of credit 
given to the customer towards the equipment for trade-ins.

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, the 
equipment costs for used equipment we purchase for sale or the trade-in value 
of used equipment that we obtain from customers in equipment sales 
transactions.

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

Services Support. Cost of services revenues represents costs attributable to 
service provided for the maintenance and repair of customer-owned equipment and 
equipment then on-rent by customers.

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

Selling, General and Administrative Expenses:

Our selling, general and administrative (“SG&A”) expenses include sales and 
marketing expenses, payroll and related benefit costs, insurance expenses, 
legal and professional fees, rent and other occupancy costs, property and other 
taxes, administrative overhead, depreciation associated with property and 
equipment (other than rental equipment) and amortization expense associated 
with capital leases and software. These expenses are not generally allocated to 
our reportable segments.

Interest Expense:

Interest expense for the periods presented represents the interest on our 
outstanding debt instruments, including aggregate amounts outstanding under our 
revolving senior secured credit facility (the “Credit Facility”), senior 
unsecured notes and our capital lease obligations. Interest expense also 
includes interest on our outstanding manufacturer flooring plans payable which 
are used to finance inventory and rental equipment purchases. Non-cash interest 
expense related to the amortization cost of deferred financing costs and 
accretion (amortization) of debt discount (premium) are also included in 
interest expense.

Principal Cash Flows

We generate cash primarily from our operating activities and, historically, we 
have used cash flows from operating activities, manufacturer floor plan 
financings and available borrowings under the Credit Facility as the primary 
sources of funds to purchase inventory and to fund working capital and capital 
expenditures, growth and expansion opportunities (see also “Liquidity and 
Capital Resources” below). Our management of our working capital is closely 
tied to operating cash flows, as working capital can be significantly impacted 
by, among other things, our accounts receivable activities, the level of new 
and used equipment inventories, which may increase or decrease in response to 
current and expected demand, and the size and timing of our trade accounts 
payable payment cycles.


Rental Fleet

A substantial portion of our overall value is in our rental fleet equipment. 
The net book value of our rental equipment at September 30, 2017 was $917.1 
million, or approximately 70.4% of our total assets. Our rental fleet as of 
September 30, 2017 consisted of 31,015 units.

Determining the optimal age and mix for our rental fleet equipment is 
subjective and requires considerable estimates and judgments by management. We 
constantly evaluate the mix, age and quality of the equipment in our rental 
fleet in response to current economic and market conditions, competition and 
customer demand. The mix and age of our rental fleet, as well as our cash 
flows, are impacted by sales of equipment from the rental fleet, which are 
influenced by used equipment pricing at the retail and secondary auction market 
levels, and the capital expenditures to acquire new rental fleet equipment. In 
making equipment acquisition decisions, we evaluate current economic and market 
conditions, competition, manufacturers’ availability, pricing and return on 
investment over the estimated useful life of the specific equipment, among 
other things. As a result of our in-house service capabilities and extensive 
maintenance program, we believe our rental fleet is well-maintained.

The original acquisition cost of our gross rental fleet increased by 
approximately $70.1 million, or 5.3%, for the nine month period ended September 
30, 2017. The average age of our rental fleet equipment increased by 
approximately 1.3 months for the nine month period ended September 30, 2017.

Our average rental rates for the nine month period ended September 30, 2017 
were approximately 0.01% higher than in the nine month period ended September 
30, 2016 (see further discussion on rental rates in “Results of Operations” 
below) and approximately 1.0% higher than in the three month period ended June 
30, 2017. Average rental rates for the three month period ended September 30, 
2017 were 0.3% higher than in the three month period ended September 30, 2016.

The rental equipment mix among our four core product lines for the nine month 
period ended September 30, 2017 was largely consistent with that of the prior 
year comparable period as a percentage of total units available for rent and as 
a percentage of original acquisition cost.

Principal External Factors that Affect our Businesses

We are subject to a number of external factors that may adversely affect our 
businesses. These factors, and other factors, are discussed below and under the 
heading “Forward-Looking Statements,” and in Item 1A—Risk Factors in this 
Annual Report on Form 10-K for the year ended December 31, 2016.

• Economic downturns. The demand for our products is dependent on the general 
economy, the stability of the global credit markets, the industries in which 
our customers operate or serve and other factors. Downturns in the general 
economy or in the construction and manufacturing industries, as well as adverse 
credit market conditions, can cause demand for our products to materially 
decrease.


• Spending levels by customers. Rentals and sales of equipment to the 
construction industry and to industrial companies constitute a significant 
portion of our total revenues. As a result, we depend upon customers in these 
businesses and their ability and willingness to make capital expenditures to 
rent or buy specialized equipment. Accordingly, our business is impacted by 
fluctuations in customers’ spending levels on capital expenditures and by the 
availability of credit to those customers.


• Adverse weather. Adverse weather in a geographic region in which we operate 
may depress demand for equipment in that region. Our equipment is primarily 
used outdoors and, as a result, prolonged adverse weather conditions may 
prohibit our customers from continuing their work projects. Adverse weather 
also has a seasonal impact in parts of our Intermountain region, particularly 
in the winter months.


Regional and Industry-Specific Activity and Trends. Expenditures by our 
customers may be impacted by the overall level of construction activity in the 
markets and regions in which they operate, the price of oil and other 
commodities and other general economic trends impacting the industries in which 
our customers and end users operate. As our customers adjust their activity and 
spending levels in response to these external factors, our rentals and sales of 
equipment to those customers will be impacted. For example, high levels of 
industrial activity in our Gulf Coast and Intermountain regions have been a 
meaningful driver of growth in our revenues in recent years. However, the 
decline in oil and natural gas prices that began in the second half of 2014, 
and uncertainty regarding future price levels, has caused, and may continue to 
cause, some of our customers in those markets to adjust their activity and 
spending levels during recent years and continuing into 2017.


We believe that our integrated business tempers the effects of downturns in a 
particular segment. For a discussion of seasonality, see “Seasonality” on page 
42 of this Quarterly Report on Form 10-Q.

Results of Operations


Three Months Ended September 30, 2017 Compared to the Three Months Ended 
September 30, 2016

Revenues.

Total Revenues. Our total revenues were $259.2 million for the three month 
period ended September 30, 2017 compared to $244.7 million for the three month 
period ended September 30, 2016, an increase of $14.5 million, or 5.9%. 
Revenues for all reportable segments and non-segmented other revenues are 
further discussed below.

Equipment Rental Revenues. Our revenues from equipment rentals for the three 
month period ended September 30, 2017 increased $7.1 million to $125.6 million 
from $118.5 million in the three month period ended September 30, 2016. Rental 
revenues from aerial work platform equipment increased $7.4 million, while 
rental revenues from other equipment and lift trucks increased $1.3 million and 
approximately $0.1 million, respectively. These rental revenues increases were 
partially offset by a $1.7 million decrease in crane rental revenues. Our 
average rental rates for the three month period ended September 30, 2017 
increased 0.3% compared to the same three month period last year and increased 
approximately 1.0% from the three month period ended June 30, 2017.

Rental equipment dollar utilization (annual rental revenues divided by the 
average original rental fleet equipment costs) for the three month period ended 
September 30, 2017 was 36.0% compared to 35.4% in the three month period ended 
September 30, 2016, an increase of 0.6%. The increase in comparative rental 
equipment dollar utilization was the result of an increase in rental equipment 
time utilization combined with a 0.3% increase in average rental rates, largely 
reflective of increased rental equipment demand. Rental equipment time 
utilization as a percentage of original equipment cost was approximately 73.3% 
for the three month period ended September 30, 2017 compared to 72.1% in the 
three month period ended September 30, 2016, an increase of 1.2%. Our rental 
equipment time utilization based on the number of rental equipment units 
available for rent was approximately 71.3% for the three month period ended 
September 30, 2017, compared to approximately 68.0% in the same period last 
year, an increase of 3.3%.

New Equipment Sales Revenues. Our new equipment sales for the three month 
period ended September 30, 2017 increased $4.2 million, or 9.3%, to 
approximately $48.9 million from $44.8 million for the three month period ended 
September 30, 2016. New crane sales increased approximately $5.6 million and 
new other equipment sales increased $1.7 million. Sales of new aerial work 
platform equipment and new lift trucks increased $0.7 million and $0.1 million, 
respectively. These new equipment sales increases were partially offset by a 
$4.0 million decrease in new earthmoving equipment sales.

Used Equipment Sales Revenues. Our used equipment sales increased $1.6 million, 
or 7.9%, to approximately $22.2 million for the three month period ended 
September 30, 2017, from $20.6 million for the same three month period in 2016. 
Sales of used cranes increased approximately $1.9 million while sales of used 
earthmoving equipment and used other equipment each increased $0.6 million. 
Partially offsetting these used equipment sales increases were a $1.1 million 
sales decrease in used aerial work platform equipment and a $0.3 million 
decrease in sales of used lift trucks.

Parts Sales Revenues. Our parts sales for the three month period ended 
September 30, 2017 increased $0.4 million, or 1.6%, to approximately $27.8 
million from $27.3 million for the same three month period last year. The 
increase in parts sales revenues was driven primarily by higher crane parts 
sales revenues.

Services Revenues. Our services revenues for the three month period ended 
September 30, 2017 increased $21,000 and were approximately $16.1 million in 
each of the three month periods ended September 30, 2017 and 2016.

Non-Segmented Other Revenues. Our non-segmented other revenues consisted 
primarily of equipment support activities including transportation, hauling, 
parts freight and damage waiver charges. For the three month period ended 
September 30, 2017, our other revenues were approximately $18.5 million, an 
increase of approximately $1.2 million, or 6.6%, from $17.3 million in the same 
three month period in 2016. The increase in these revenues was primarily driven 
by higher hauling revenues, fuel charges and damage waiver income associated 
with our increased equipment rental activity.

Gross Profit.

Total Gross Profit. Our total gross profit was $94.0 million for the three 
month period ended September 30, 2017 compared to $88.1 million for the same 
three month period in 2016, an increase of $5.9 million, or 6.7%. Total gross 
profit margin for the three month period ended September 30, 2017 was 
approximately 36.3%, an increase of 0.3% from the 36.0% gross profit margin for 
the same three month period in 2016. Gross profit and gross margin for all 
reportable segments and non-segmented other revenues are further described 
below:

Equipment Rentals Gross Profit. Our gross profit from equipment rentals for the 
three month period ended September 30, 2017 increased $3.7 million, or 6.4%, to 
approximately $62.4 million from $58.6 million in the same three month period 
in 2016. The increase in equipment rentals gross profit was the net result of a 
$7.1 million increase in equipment rental revenues, partially offset by a $1.7 
million increase in rental equipment depreciation expense and a $1.6 million 
increase in rental expenses. Gross profit margin on equipment rentals for the 
three month period ended September 30, 2017 was approximately 49.7% compared to 
49.5% for the same period in 2016, an increase of 0.2%. Depreciation expense 
was 34.4% of equipment rental revenues for the three month period ended 
September 30, 2017 compared to 35.0% for the same period in 2016, a decrease of 
0.6%, primarily as a result of rental fleet mix. As a percentage of equipment 
rental revenues, rental expenses were 15.9% for the three month period ended 
September 30, 2017 compared to 15.5% for the same period last year, an increase 
of 0.4%, resulting primarily from higher repair costs on rental equipment in 
the current year period.


New Equipment Sales Gross Profit. Our new equipment sales gross profit for the 
three month period ended September 30, 2017 increased approximately $0.7 
million, or 15.5%, to $5.3 million compared to approximately $4.6 million for 
the same three month period in 2016 on a total new equipment sales increase of 
$4.2 million. Gross profit margin on new equipment sales was 10.9% for the 
three month period ended September 30, 2017 compared to 10.3% for the same 
three month period in 2016, an increase of 0.6%, primarily driven by the mix of 
new equipment sold and higher margins on new crane sales.

Used Equipment Sales Gross Profit. Our used equipment sales gross profit for 
the three month period ended September 30, 2017 increased approximately $0.9 
million, or 13.9%, to $7.1 million from $6.3 million in the same period in 2016 
on a used equipment sales increase of $1.6 million. Gross profit margin on used 
equipment sales for the three month period ended September 30, 2017 was 32.1%, 
up 1.7% from 30.4% for the same three month period in 2016, primarily as a 
result of the mix of used equipment sold. Our used equipment sales from the 
rental fleet, which comprised approximately 91.2% and 86.1% of our used 
equipment sales for the three month periods ended September 30, 2017 and 2016, 
respectively, were approximately 150.9% and 150.8% of net book value for the 
three month periods ended September 30, 2017 and 2016, respectively.

Parts Sales Gross Profit. For the three month period ended September 30, 2017, 
our parts sales gross profit was approximately $7.6 million in each of the 
three month periods ended September 30, 2017 and 2016 on a $0.4 million 
increase in parts sales revenues. Gross profit margin for the three month 
period ended September 30, 2017 was 27.5%, a decrease of approximately 0.4% 
from 27.9% in the same three month period in 2016, resulting from the mix of 
parts sold.

Services Revenues Gross Profit. For the three month period ended September 30, 
2017, our services revenues gross profit decreased $0.1 million, or 1.0%, to 
approximately $10.5 million from $10.6 million for the same three month period 
in 2016. Gross profit margin for the three month period ended September 30, 
2017 was approximately 65.4%, a decrease of 0.7% from 66.1% in the same three 
month period in 2016, as a result of services revenues mix.

Non-Segmented Other Revenues Gross Profit. Our non-segmented other revenues 
gross profit increased $0.7 million, or 187.3%, to $1.0 million for the three 
month period ended September 30, 2017 compared to a gross profit of 
approximately $0.4 million for the same period in 2016 on a $1.2 million 
increase in non-segmented other revenues. Gross margin for the three month 
period ended September 30, 2017 was 5.5% compared to a gross margin of 2.0% in 
the same three month period last year, an increase of 3.5%, primarily 
reflective of improved margins on hauling revenues in the current period.

Selling, General and Administrative Expenses (“SG&A”). SG&A expenses decreased 
approximately $0.8 million, or approximately 1.4%, to $55.2 million for the 
three month period ended September 30, 2017 compared to $56.0 million for the 
three month period ended September 30, 2016. The net decrease in SG&A expenses 
was attributable to several factors, including the reversal of $2.2 million of 
merger and acquisition transaction costs related to the termination of our 
previously proposed acquisition of Neff Corporation (“Neff merger costs”) 
included in SG&A expenses for the three and six month periods ended June 30, 
2017 and reclassified to “Merger Breakup Fee Proceeds, net of Merger Costs” in 
the third quarter ended September 30, 2017 (see discussion below for further 
information). Excluding this $2.2 million impact to SG&A expenses in the three 
month period ended September 30, 2017, total SG&A expenses would have increased 
approximately $1.4 million compared to the three month period ended September 
30, 2016.

Employee salaries, wages, payroll taxes and related employee benefit expenses 
increased approximately $2.1 million. Facility expenses increased $0.4 million. 
Bad debt expense increased $0.4 million and liability insurance costs increased 
$0.2 million. Partially offsetting these increases in SG&A expenses were a $1.0 
million decrease in depreciation and amortization expense, largely as a result 
of lower software amortization expense, and a $0.7 million decrease in legal 
and professional fees (exclusive of any of the aforementioned Neff merger 
costs).

Branches opened since July 1, 2016 with less than three full months of 
comparable operations in the third quarters of 2016 and 2017 contributed to a 
$1.1 million increase in our SG&A expenses for the three month period ended 
September 30, 2017. As a percentage of total revenues, SG&A expenses were 21.3% 
for the three month period ended September 30, 2017, a decrease of 1.6% from 
22.9% for the same three month period in 2016. Excluding the impact of the $2.2 
million reclassification of Neff merger costs in the current year period as 
discussed above, SG&A expenses as a percentage of total revenues were 22.1%.

Other Income (Expense). For the three month period ended September 30, 2017, 
our net other expenses increased approximately $27.0 million to $40.1 million 
compared to $13.1 million for the same three month period in 2016. Included in 
Other Income (Expense) for the three month period ended September 30, 2017 is a 
$25.4 million loss on the early extinguishment of debt (see discussion 
immediately below regarding the issuance of the New Notes). Interest expense 
for the three month period ended September 30, 2017 was $15.1 million compared 
to approximately $13.5 million for the same period last year, an increase of 
$1.6 million. The increase in interest expense is primarily related to the 
timing of the issuance of the New Notes in relation to the redemption of the 
Old Notes. Our New Notes were issued on August 24, 2017, while approximately 
$300.3 million of the Old Notes remained outstanding until the September 25, 
2017 redemption date. Miscellaneous other income was $0.3 million in the three 
month period ended September 30, 2017 compared to $0.4 million in the same 
period last year, a decrease of $0.1 million.

Loss on Early Extinguishment of Debt. As more fully described in note 10 to our 
condensed consolidated financial statements included elsewhere in this 
Quarterly Report on Form 10-Q, we recorded a one-time loss on the early 
extinguishment of debt in the three month period ended September 30, 2017 of 
approximately $25.4 million, reflecting payment of $12.8 million of tender 
premiums associated with our repurchase of the Old Notes and $10.5 million of 
premiums in accordance with the indenture governing the Old Notes to redeem the 
remaining untendered Old Notes, combined with the write off of approximately 
$2.0 million of unamortized note premium, unaccreted note discount and 
unamortized deferred financing costs, related to the Old Notes.

Merger Breakup Fee Proceeds, net of Merger Costs. As more fully described above 
and in note 3 to our condensed consolidated financial statements included 
elsewhere in this Quarterly Report on Form 10-Q, pursuant to the terms of our 
merger agreement with Neff, we received a $13.2 million breakup fee 
concurrently with Neff’s termination of the merger agreement. Related estimated 
merger transaction fees totaled $6.7 million, resulting in estimated net 
proceeds of $6.5 million. As noted in the above SG&A Expenses discussion, 
approximately $2.2 million of the merger costs were originally recorded in SG&A 
Expenses in the six month period ended June 30, 2017 and were subsequently 
reclassified in the third quarter ended September 30, 2017 to the merger 
breakup fee line item.

Income Taxes. We recorded an income tax benefit of $0.9 million for the three 
month period ended September 30, 2017 compared to income tax expense of $8.3 
million for the three month period ended September 30, 2016. The income tax 
benefit is primarily due to a $5.7 million discrete tax benefit resulting from 
a reversal of an unrecognized tax benefit due to expiration of statute of 
limitations in the three month period ended September 30, 2017. Based on 
available evidence, both positive and negative, we believe it is more likely 
than not that our federal deferred tax assets at September 30, 2017 are fully 
realizable through future reversals of existing taxable temporary differences 
and future taxable income, and are not subject to any limitations; however, for 
the quarter ended September 30, 2017, we increased our valuation allowance by 
$0.4 million for certain state net operating losses that may not be utilized.

Nine Months Ended September 30, 2017 Compared to the Nine Months Ended 
September 30, 2016

Revenues.

Total Revenues. Our total revenues were $735.4 million for the nine month 
period ended September 30, 2017 compared to approximately $733.8 million for 
the nine month period ended September 30, 2016, an increase of $1.6 million, or 
0.2%. Revenues for all reportable segments are further discussed below.

Equipment Rental Revenues. Our revenues from equipment rentals for the nine 
month period ended September 30, 2017 increased $21.3 million, or 6.4%, to 
$351.3 million from $330.0 million in the nine month period ended September 30, 
2016. Rental revenues from aerial work platform equipment increased $19.7 
million and earthmoving equipment rental revenues increased $4.4 million. Other 
equipment rental revenues increased $1.6 million and lift truck rental revenues 
increased $0.1 million. Partially offsetting these rental revenue increases was 
a $4.5 million decrease in crane rental revenues. Our average rental rates for 
the nine month period ended September 30, 2017 increased approximately 0.01% 
compared to the same nine month period last year.

Rental equipment dollar utilization (annual rental revenues divided by the 
average original rental fleet equipment costs) for the nine month period ended 
September 30, 2017 was 34.5% compared to 33.9% in the nine month period ended 
September 30, 2016, an increase of 0.6%. The increase in comparative rental 
equipment dollar utilization was primarily the result of an increase in rental 
equipment time utilization. Rental equipment time utilization as a percentage 
of original equipment cost was 71.4% for the nine month period ended September 
30, 2016 compared to approximately 69.5% in the same nine month period a year 
ago, an increase of 1.9%. The increase in equipment rental time utilization 
based on original equipment cost is largely reflective of increased demand for 
rental equipment and to a lesser extent, the prior year first quarter negative 
impact on earthmoving equipment rental activity from heavy rains and associated 
flooding in our Louisiana, Texas and Arkansas markets. Rental equipment time 
utilization based on the number of rental equipment units available for rent 
was 69.1% for the nine month period ended September 30, 2017, compared to 
approximately 66.8% in the same period last year, an increase of 2.3%.

New Equipment Sales Revenues. Our new equipment sales for the nine month period 
ended September 30, 2017 decreased approximately $23.0 million, or 15.1%, to 
$128.9 million from $151.8 million for the nine month period ended September 
30, 2016, largely driven by a $20.1 million decrease in new earthmoving 
equipment sales and an $8.0 million decrease in new crane sales. The decrease 
in new earthmoving equipment sales is primarily the result of higher 
earthmoving equipment sales in the prior year period resulting from certain 
manufacturer incentives. The decrease in new crane sales is due primarily to 
decreased demand for new cranes among the Company’s customers operating in the 
oil and gas-centric markets that the Company serves. Sales of new lift trucks 
decreased $0.5 million. Partially offsetting these new equipment sales 
decreases were a $4.9 million increase in sales of new other equipment and a 
$0.8 million increase in sales of new aerial work platform equipment.

Used Equipment Sales Revenues. Our used equipment sales increased approximately 
$3.2 million, or 4.5%, to $75.2 million for the nine month period ended 
September 30, 2017 from $72.0 million for the same nine month period in 2016. 
Sales of used earthmoving equipment increased $3.8 million, while sales of used 
cranes increased $2.4 million. Used other equipment sales and used lift truck 
sales increased $0.5 million and $0.3 million, respectively. Partially 
offsetting these used equipment sales increases was a $3.8 million decrease in 
used aerial work platform equipment sales.

Parts Sales Revenues. Our parts sales decreased $0.9 million, or 1.1%, to $81.1 
million for the nine month period ended September 30, 2017 from approximately 
$82.0 million for the same nine month period in 2016. The decrease in parts 
revenues was driven primarily by lower crane parts sales revenues.

Services Revenues. Our services revenues for the nine month period ended 
September 30, 2017 decreased $2.2 million, or 4.5%, to $47.1 million from $49.3 
million for the same nine month period last year. The decrease in services 
revenues was due to lower crane services revenues and lower other equipment 
services revenues.

Non-Segmented Other Revenues. Our non-segmented other revenues consisted 
primarily of equipment support activities including transportation, hauling, 
parts freight and damage waiver charges. For the nine month period ended 
September 30, 2017, our other revenues were $51.8 million, an increase of $3.1 
million, or 6.3%, from $48.7 million in the same nine month period in 2016. The 
increase was primarily due to an increase in hauling revenues, fuel charges and 
damage waiver income associated with the increase in our equipment rental 
activity.

Gross Profit.

Total Gross Profit. Our total gross profit was $259.0 million for the nine 
month period ended September 30, 2017 compared to $251.0 million for the same 
nine month period in 2016, an increase of approximately $8.1 million, or 3.2%. 
Total gross profit margin for the nine month period ended September 30, 2017 
was 35.2%, an increase of 1.0% from the 34.2% gross profit margin for the same 
nine month period in 2016. Gross profit and gross margin for all reportable 
segments and non-segmented other revenues are further described below:

Equipment Rentals Gross Profit. Our gross profit from equipment rentals for the 
nine month period ended September 30, 2017 increased $10.6 million, or 6.8%, to 
$166.8 million from $156.2 million in the same nine month period in 2016. The 
increase in equipment rentals gross profit was the net result of a $21.3 
million increase in rental revenues for the nine month period ended September 
30, 2017 and a $5.4 million increase in rental expenses and a $5.3 million 
increase in rental equipment depreciation expense. The increase in rental 
expenses is primarily due to higher repair costs and increased property taxes 
resulting from a larger rental fleet size. The increase in rental equipment 
depreciation expense is largely due also to a larger rental fleet size. Gross 
profit margin on equipment rentals for the nine month period ended September 
30, 2017 was approximately 47.5% compared to 47.3% for the same period in 2016, 
an increase of 0.2%. Depreciation expense was 35.9% of equipment rental 
revenues for the nine month period ended September 30, 2017 compared to 36.6% 
for the same period in 2016, a decrease of 0.7%. As a percentage of equipment 
rental revenues, rental expenses were approximately 16.7% for the nine month 
period ended September 30, 2017 compared to 16.1% for the same period last 
year, an increase of 0.6%.

New Equipment Sales Gross Profit. Our new equipment sales gross profit for the 
nine month period ended September 30, 2017 decreased $2.2 million, or 13.4%, to 
$14.4 million compared to approximately $16.7 million for the same nine month 
period in 2016 on a total new equipment sales decrease of $23.0 million. Gross 
profit margin on new equipment sales for the nine month period ended September 
30, 2017 was 11.2%, an increase of 0.2% from 11.0% in the same nine month 
period in 2016, as a result of the mix of new equipment sold and higher margins 
on new crane sales.

Used Equipment Sales Gross Profit. Our used equipment sales gross profit for 
the nine month period ended September 30, 2017 increased approximately $1.0 
million, or 4.6%, to approximately $23.2 million from $22.2 million in the same 
period in 2016 on a used equipment sales increase of $3.2 million. Gross profit 
margin on used equipment sales was 30.9% in each of the nine month periods 
ended September 30, 2017 and 2016. Our used equipment sales from the rental 
fleet, which comprised approximately 88.2% and 86.5% of our used equipment 
sales for the nine month periods ended September 30, 2017 and 2016, 
respectively, were approximately 150.3% and 152.6% of net book value for the 
nine month periods ended September 30, 2017 and 2016, respectively.

Parts Sales Gross Profit. For the nine month period ended September 30, 2017, 
our parts sales revenue gross profit decreased $0.4 million, or 1.8%, to $22.4 
million from $22.8 million during the same nine month period in 2016 on a $0.9 
million decrease in parts sales revenues. Gross profit margin for the nine 
month period ended September 30, 2017 was 27.6%, a decrease of 0.2% from 27.8% 
in the same nine month period in 2016, as a result of the mix of parts sold.

Services Revenues Gross Profit. For the nine month period ended September 30, 
2017, our services revenues gross profit decreased $1.4 million, or 4.2%, to 
$31.2 million from $32.6 million for the same nine month period in 2016 on a 
$2.2 million decrease in services revenues. Gross profit margin for the nine 
month period ended September 30, 2017 was 66.3% for the nine month period ended 
September 30, 2017 compared to 66.1% in the same nine month period last year, 
an increase of 0.2% due to services revenues mix.

Non-Segmented Other Revenues Gross Profit. Our non-segmented other revenues 
gross profit increased approximately $0.4 million, or 78.5%, to $1.0 million 
for the nine month period ended September 30, 2017, compared to $0.6 million in 
gross profit for the same period in 2016, on a $3.1 million increase in 
non-segmented other revenues. Gross margin for the nine month period ended 
September 30, 2017 was 1.9% compared to a gross margin of 1.1% in the same nine 
month period last year, an increase of 0.8%, primarily reflective of improved 
margins on hauling revenues compared to last year.

Selling, General and Administrative Expenses. SG&A expenses decreased $0.1 
million to $172.3 million for the nine month period ended September 30, 2017 
compared to $172.4 million for the nine month period ended September 30, 2016. 
Employee salaries, wages, payroll taxes and related employee benefit expenses 
increased approximately $2.8 million. Facility costs increased $1.0 million, 
comprised primarily of additional rent expense related to new branches opened 
since the third quarter of last year. Bad debt expense increased approximately 
$0.5 million. Offsetting these increases in SG&A expenses were a $2.9 million 
decrease in depreciation and amortization expense due to lower software 
amortization costs. Legal and professional fees decreased $0.9 million. General 
liability insurance costs decreased $0.7 million.

Branches opened since January 1, 2016 with less than nine full months of 
comparable operations in the first three quarters of 2016 and 2017 contributed 
to a $2.4 million increase in our SG&A for the nine month period ended 
September 30, 2017.

As a percentage of total revenues, SG&A expenses were approximately 23.4% for 
each of the nine month periods ended September 30, 2017 and 2016.

Other Income (Expense). For the nine month period ended September 30, 2017, our 
net other expenses increased $27.2 million to $65.9 million, compared to $38.7 
million for the same nine month period in 2016. Included in Other Income 
(Expense) for the nine month period ended September 30, 2017 is a $25.4 million 
loss on the early extinguishment of debt (see discussion immediately below 
regarding the issuance of the New Notes). Interest expense was approximately 
$41.7 million for the nine month period ended September 30, 2017 compared to 
approximately $40.2 million for the nine month period ended September 30, 2016, 
an increase of $1.5 million. The increase in interest expense is primarily 
related to the timing of the issuance of the New Notes in relation to the 
redemption of the Old Notes. Our New Notes were issued on August 24, 2017, 
while approximately $300.3 million of the Old Notes remained outstanding until 
the September 25, 2017 redemption date. Miscellaneous other income was $1.2 
million in the nine month period ended September 30, 2017 compared to $1.5 
million in the same period last year, a decrease of $0.3 million.

Loss on Early Extinguishment of Debt. As more fully described in note 10 to our 
condensed consolidated financial statements included elsewhere in this 
Quarterly Report on Form 10-Q, we recorded a one-time loss on the early 
extinguishment of debt in the nine month period ended September 30, 2017 of 
approximately $25.4 million, reflecting payment of $12.8 million of tender 
premiums associated with our repurchase of the Old Notes and $10.5 million of 
premiums in accordance with the indenture governing the Old Notes to redeem the 
remaining untendered Old Notes, combined with the write off of approximately 
$2.0 million of unamortized note premium, unaccreted note discount and 
unamortized deferred financing costs, related to the Old Notes.

Merger Breakup Fee, net of Merger Costs. As more fully described above and in 
note 3 to our condensed consolidated financial statements included elsewhere in 
this Quarterly Report on Form 10-Q, pursuant to the terms of our merger 
agreement with Neff, in August, 2017, we received a $13.2 million breakup fee 
concurrently with Neff’s termination of the merger agreement. Related estimated 
merger transaction fees totaled $6.7 million, resulting in estimated net 
proceeds of $6.5 million.



Income Taxes. We recorded income tax expense of $8.0 million for the nine month 
period ended September 30, 2017 compared to income tax expense of $17.4 million 
for the nine month period ended September 30, 2016. Our effective income tax 
rate was 25.3% for the nine month period ended September 30, 2016 compared to 
41.3% for the same nine month period last year, a decrease of 16.0%. The 
decrease in effective tax rate is primarily due to a net $5.3 million discrete 
tax benefit resulting from a reversal of an unrecognized tax benefit due to 
expiration of statute of limitations in the third quarter ended September 30, 
2017. Based on available evidence, both positive and negative, we believe it is 
more likely than not that our federal deferred tax assets at September 30, 2017 
are fully realizable through future reversals of existing taxable temporary 
differences and future taxable income, and are not subject to any limitations; 
however, for the quarter ended September 30, 2017, we increased our valuation 
allowance by $0.4 million for certain state net operating losses that may not 
be utilized.

Liquidity and Capital Resources

Cash flow from operating activities. For the nine month period ended September 
30, 2017, the net cash provided by our operating activities was $156.4 million. 
Our reported net income of $23.7 million, when adjusted for non-cash income and 
expense items, such as depreciation and amortization, deferred income taxes, 
net amortization (accretion) of note discount (premium), provision for losses 
on accounts receivable, provision for inventory obsolescence, stock-based 
compensation expense, loss on early extinguishment of debt, and net gains on 
the sale of long-lived assets, provided positive cash flows of approximately 
$181.1 million. These cash flows from operating activities were also positively 
impacted by a $42.1 million increase in accounts payable. Partially offsetting 
these positive cash flows were a $38.9 million increase in inventories, a $15.8 
million increase in receivables, and a $7.5 million decrease in manufacturing 
flooring plans payable, while accrued expenses payable and other liabilities 
decreased $3.1 million and prepaid expenses and other assets increased $1.6 
million.

For the nine month period ended September 30, 2016, the net cash provided by 
our operating activities was $109.4 million. Our reported net income of $24.7 
million, when adjusted for non-cash income and expense items, such as 
depreciation and amortization, deferred income taxes, net amortization 
(accretion) of note discount (premium), provision for losses on accounts 
receivable, provision for inventory obsolescence, stock-based compensation 
expense and net gains on the sale of long-lived assets, provided positive cash 
flows of approximately $165.2 million. These cash flows from operating 
activities were also positively impacted by a $5.8 million decrease in 
receivables and a $1.2 million decrease in prepaid expenses and other assets. 
Partially offsetting these positive cash flows were a $24.2 million decrease in 
manufacturing flooring plans payable and an $18.5 million decrease in accounts 
payable. Also, inventories increased $15.2 million and accrued expenses payable 
and other liabilities decreased $4.4 million. Deferred compensation payable 
decreased $0.3 million.

Cash flow from investing activities. For the nine month period ended September 
30, 2017, the cash provided by our investing activities was exceeded by cash 
used in our investing activities, resulting in net cash used in our investing 
activities of $126.7 million. This was a result of purchases of rental and 
non-rental equipment totaling $199.8 million and proceeds from the sale of 
rental and non-rental equipment of approximately $73.1 million.

For the nine month period ended September 30, 2016, the cash provided by our 
investing activities was exceeded by cash used in our investing activities, 
resulting in net cash used in our investing activities of approximately $104.4 
million. This was a result of purchases of rental and non-rental equipment 
totaling $169.4 million and proceeds from the sale of rental and non-rental 
equipment of approximately $64.9 million.

Cash flow from financing activities. For the nine month period ended September 
30, 2017, the cash provided by our financing activities was exceeded by our 
cash used in our financing activities, resulting in net cash used in our 
financing activities of approximately $31.2 million. Dividends totaling 
approximately $29.4 million, or $0.825 per common share, were paid during the 
nine month period ended September 30, 2017. Net payments under the Credit 
Facility were $85.4 million. Payments on capital lease obligations were $0.2 
million. In connection with the redemption of our Old Notes, we paid $653.3 
million, representing aggregate principal payments of $630.0 million and tender 
and redemption premiums totaling approximately $23.3 million. In connection 
with the issuance of our New Notes, net proceeds after deducting underwriting 
expenses of $10.3 million, were $739.7 million. Other transaction costs related 
to the New Notes were approximately $1.6 million.

For the nine month period ended September 30, 2016, the cash provided by our 
financing activities was exceeded by our cash used in our financing activities, 
resulting in net cash used in our financing activities of approximately $5.1 
million. Dividends totaling approximately $29.3 million, or $0.825 per common 
share, were paid during the nine month period ended September 30, 2016. 
Payments on capital lease obligations were $0.2 million and we purchased 
treasury stock totaling approximately $0.5 million. Partially offsetting these 
uses of cash were net borrowings under the Credit Facility of $24.9 million.

Senior Secured Credit Facility

We and our subsidiaries are parties to a $602.5 million senior secured credit 
facility (the “Credit Facility”) with Wells Fargo Capital Finance, LLC (“Wells 
Fargo”), agent (as successor in such capacity to General Electric Capital 
Corporation (“GE Capital”)) , and the lenders named therein (the “Lenders”).

On May 21, 2014, we amended, extended and restated the Credit Facility by 
entering into the Fourth Amended and Restated Credit Agreement (the “Amended 
and Restated Credit Agreement”) by and among the Company, Great Northern 
Equipment, Inc., H&E Equipment Services (California), LLC, the other credit 
parties named therein, the lenders named therein, GE Capital, as administrative 
agent, Bank of America, N.A. as co-syndication agent and documentation agent, 
Wells Fargo, as co-syndication agent and Deutsche Bank Securities Inc. as joint 
lead arranger and joint bookrunner. In March 2016, Wells Fargo succeeded and 
was substituted for GE Capital as the administrative agent under the Amended 
and Restated Credit Agreement.

The Amended and Restated Credit Agreement, among other things, (i) extends the 
maturity date of the Credit Facility from February 29, 2017 to May 21, 2019, 
(ii) increases the uncommitted incremental revolving capacity from $130 million 
to $150 million, (iii) permits a like-kind exchange program under Section 1031 
of the Internal Revenue Code of 1986, as amended, (iv) provides that the unused 
commitment fee margin will be either 0.50%, 0.375% or 0.25%, depending on the 
ratio of the average of the daily closing balances of the aggregate revolving 
loans, swing line loans and letters of credit outstanding during each month to 
the aggregate commitments for the revolving loans, swing line loans and letters 
of credit, (v) lowers the interest rate (a) in the case of index rate revolving 
loans, to the index rate plus an applicable margin of 0.75% to 1.25% depending 
on the leverage ratio and (b) in the case of LIBOR revolving loans, to LIBOR 
plus an applicable margin of 1.75% to 2.25%, depending on the leverage ratio, 
(vi) lowers the margin applicable to the letter of credit fee to between 1.75% 
and 2.25%, depending on the leverage ratio, and (vii) permits, under certain 
conditions, for the payment of dividends and/or stock repurchases or 
redemptions on the capital stock of the Company of up to $75 million per 
calendar year and further additionally permits the payment of the special cash 
dividend of $7.00 per share previously declared by the Company on August 20, 
2012 to the holders of outstanding restricted stock of the Company following 
the declared payment date with such permission not tied to the vesting of such 
restricted stock (which includes the Company’s payment in June 2014 of all 
amounts that remained payable to the holders of the restricted stock of the 
Company with respect to such special dividend that was otherwise payable 
following the applicable vesting dates in May and July 2014 and 2015).

On February 5, 2015, we entered into an amendment to the Credit Facility which, 
among other things, increased the total amount of revolving loan commitments 
under the Amended and Restated Credit Agreement from $402.5 million to $602.5 
million.

As of September 30, 2017, we were in compliance with our financial covenants 
under the Credit Facility. At September 30, 2017, the Company could borrow up 
to an additional $517.6 million and remain in compliance with the debt 
covenants under the Company’s Credit Facility.

At September 30, 2017, the interest rate on the Credit Facility was based on 
either a 4.00% U.S. Prime Rate plus 100 basis points or LIBOR plus 200 basis 
points, as applicable with respect to the type of revolving loan. The weighted 
average interest rate at September 30, 2017 was approximately 3.9%. At October 
19, 2017, we had $526.6 million of available borrowings under our Credit 
Facility, net of $7.7 million of outstanding letters of credit.


Senior Notes due 2025

On August 24, 2017, we completed an offering of $750 million aggregate 
principal amount of 5.6250% senior notes due 2025 (the “New Notes”) and the 
settlement of a cash tender offer (the “Tender Offer”) with respect to our 7% 
senior notes due 2022 (the “Old Notes”). Net proceeds, after deducting $10.3 
million of estimated offering expenses, from the sale of the New Notes totaled 
approximately $739.7 million. We used a portion of the net proceeds from the 
sale of the New Notes to repurchase $329.7 million of aggregate principal 
amount of the Old Notes in early settlement of the Tender Offer, which the 
Company launched on August 17, 2017. Holders who tendered their Old Notes prior 
to the early tender deadline received $1,038.90 per $1,000 principal amount of 
Old Notes tendered, plus accrued and unpaid interest up to, but not including, 
the payment date of August 24, 2017. Effective as of August 24, 2017, we (i) 
provided notice of the redemption of all remaining Old Notes that were not 
validly tendered in the Tender Offer at the expiration time and (ii) satisfied 
and discharged the indenture governing the Old Notes in accordance with its 
terms. On September 25, 2017, we redeemed the remaining $300.3 million 
principal amount outstanding of the Old Notes at a redemption price equal to 
103.50% of the principal amount thereof, plus accrued and unpaid interest up 
to, but not including, the date of redemption.

The New Notes were issued at par and require semiannual interest payments on 
March 1st and September 1st of each year, commencing on March 1, 2018. No 
principal payments are due until maturity (September 1, 2025).

The New Notes are redeemable, in whole or in part, at any time on or after 
September 1, 2020 at specified redemption prices plus accrued and unpaid 
interest to the date of redemption. We may redeem up to 40% of the aggregate 
principal amount of the New Notes before September 1, 2020 with the net cash 
proceeds from certain equity offerings. We may also redeem the New Notes prior 
to September 1, 2020 at a specified “make-whole” redemption price plus accrued 
and unpaid interest to the date of redemption.

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

If we experience a change of control, we will be required to offer to purchase 
the New Notes at a repurchase price equal to 101% of the principal amount, plus 
accrued and unpaid interest to the date of repurchase.

The indenture governing the New Notes contains certain covenants that, among 
other things, limit our ability and the ability of our restricted subsidiaries 
to: (i) incur additional indebtedness, assume a guarantee or issue preferred 
stock; (ii) pay dividends or make other equity distributions or payments to or 
affecting our subsidiaries; (iii) purchase or redeem our capital stock; (iv) 
make certain investments; (v) create liens; (vi) sell or dispose of assets or 
engage in mergers or consolidations; (vii) engage in certain transactions with 
subsidiaries or affiliates; (viii) enter into sale-leaseback transactions; and 
(ix) engage in certain business activities. Each of the covenants is subject to 
exceptions and qualifications. As of September 30, 2017, we were in compliance 
with these covenants.

Pursuant to a registration rights agreement entered into between us, the 
guarantors of the New Notes and the initial purchasers of the New Notes, we 
agreed to make an offer to exchange (the “Exchange Offer”) the New Notes and 
guarantees for registered, publicly tradable notes and guarantees that have 
terms identical in all material respects to the New Notes (except that the 
exchange notes will not contain any transfer restrictions) within a certain 
period of time following the completion of the offering.

Cash Requirements Related to Operations

Our principal sources of liquidity have been from cash provided by operating 
activities and the sales of new, used and rental fleet equipment, proceeds from 
the issuance of debt, and borrowings available under the Credit Facility. Our 
principal uses of cash have been to fund operating activities and working 
capital (including new and used equipment inventories), purchases of rental 
fleet equipment and property and equipment, fund payments due under facility 
operating leases and manufacturer flooring plans payable, and to meet debt 
service requirements. In the future, we may pursue additional strategic 
acquisitions and seek to open new start-up locations. We anticipate that the 
above described uses will be the principal demands on our cash in the future.

The amount of our future capital expenditures will depend on a number of 
factors including general economic conditions and growth prospects. Our gross 
rental fleet capital expenditures for the nine month period ended September 30, 
2017 were approximately $193.4 million, including $9.6 million of non-cash 
transfers from new and used equipment to rental fleet inventory. Our gross 
property and equipment capital expenditures for the nine month period ended 
September 30, 2017 were $16.0 million. In response to changing economic 
conditions, we believe we have the flexibility to modify our capital 
expenditures by adjusting them (either up or down) to match our actual 
performance.

To service our debt, we will require a significant amount of cash. Our ability 
to pay interest and principal on our indebtedness (including the Credit 
Facility, the Senior Notes and our other indebtedness), will depend upon our 
future operating performance and the availability of borrowings under the 
Credit Facility and/or other debt and equity financing alternatives available 
to us, which will be affected by prevailing economic conditions and conditions 
in the global credit and capital markets, as well as financial, business and 
other factors, some of which are beyond our control. Based on our current level 
of operations and given the current state of the capital markets, we believe 
our cash flow from operations, available cash and available borrowings under 
the Credit Facility will be adequate to meet our future liquidity needs for the 
foreseeable future. As of October 19, 2017, we had $526.6 million of available 
borrowings under the Credit Facility, net of $7.7 million of outstanding 
letters of credit.

We cannot provide absolute assurance that our future cash flow from operating 
activities will be sufficient to meet our long-term obligations and 
commitments. If we are unable to generate sufficient cash flow from operating 
activities in the future to service our indebtedness and to meet our other 
commitments, we will be required to adopt one or more alternatives, such as 
refinancing or restructuring our indebtedness, selling material assets or 
operations or seeking to raise additional debt or equity capital. We cannot 
assure investors that any of these actions could be effected on a timely basis 
or on satisfactory terms or at all, or that these actions would enable us to 
continue to satisfy our capital requirements. In addition, our existing debt 
agreements, including the Credit Facility and the indenture governing the 
Senior Notes, contain or may contain restrictive covenants, which may prohibit 
us from adopting any of these alternatives. Our failure to comply with these 
covenants could result in an event of default which, if not cured or waived, 
could result in the acceleration of all of our debt.

Quarterly Dividend

On August 21, 2017, the Company announced a quarterly dividend of $0.275 per 
share to stockholders of record, which was paid on September 11, 2017, totaling 
approximately $9.9 million. The Company intends to continue to pay regular 
quarterly cash dividends; however, the declaration of any subsequent dividends 
is discretionary and will be subject to a final determination by the Board of 
Directors each quarter after its review of, among other things, business and 
market conditions.

Seasonality

Although we believe our business is not materially impacted by seasonality, the 
demand for our rental equipment tends to be lower in the winter months. The 
level of equipment rental activities is directly related to commercial and 
industrial construction and maintenance activities. Therefore, equipment rental 
performance will be correlated to the levels of current construction 
activities. The severity of weather conditions can have a temporary impact on 
the level of construction activities. Adverse weather has a seasonal impact in 
parts of the markets we serve, including our Intermountain region, particularly 
in the winter months.

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


Quantitative and Qualitative Disclosures About Market Risk

Our earnings may be affected by changes in interest rates since interest 
expense on the Credit Facility is currently calculated based upon the index 
rate plus an applicable margin of 1.00% to 1.50%, depending on the leverage 
ratio, in the case of index rate revolving loans and LIBOR plus an applicable 
margin of 2.00% to 2.50%, depending on the leverage ratio, in the case of LIBOR 
revolving loans. At September 30, 2017, we had total borrowings outstanding 
under the Credit Facility of approximately $77.2 million. A 1.0% increase in 
the interest rate on the Credit Facility would result in approximately a $0.8 
million increase in interest expense on an annualized basis. At October 19, 
2017, we had $526.6 million of available borrowings under the Credit Facility, 
net of $7.7 million of outstanding letters of credit. We did not have 
significant exposure to changing interest rates as of September 30, 2017 on the 
fixed-rate Senior Notes. Historically, we have not engaged in derivatives or 
other financial instruments for trading, speculative or hedging purposes, 
though we may do so from time to time if such instruments are available to us 
on acceptable terms and prevailing market conditions are accommodating.