UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended: June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 001-14145
NEFF CORP.
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(Exact Name of registrant as specified in its charter)
DELAWARE 65-0626400
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. No.)
3750 N.W. 87th Avenue, Miami, Florida 33178
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(Address or principal executive offices) (Zip Code)
(305) 513-3350
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(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 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 X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. There were 16,065,350 shares of
Class A Common Stock, $.01 par value and 5,100,000 shares of Class B Common
Stock, $.01 par value, outstanding at August 10, 1998.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
NEFF CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1998 1997
---------- ------------
(Unaudited)
Assets
<S> <C> <C>
Cash and cash equivalents ...................................... $ 3,480 $ 2,885
Accounts receivable, net of allowance for doubtful accounts of
$1,980 in 1998 and $1,092 in 1997 ............................. 53,603 25,007
Inventories .................................................... 30,729 11,312
Rental equipment, net .......................................... 312,556 179,547
Property and equipment, net .................................... 40,505 23,737
Goodwill, net .................................................. 87,711 29,444
Deferred tax asset, net ........................................ 3,791 --
Prepaid expenses and other assets .............................. 7,839 8,858
---------- -----------
Total assets ......................................... $ 540,214 $ 280,790
========= ===========
Liabilities and Common Stockholders' Equity (Deficit)
Liabilities
Accounts payable .......................................... $ 30,068 $ 10,871
Accrued expenses .......................................... 25,198 11,248
Senior credit facility .................................... 259,770 161,825
Senior subordinated notes ................................. 100,000 --
Term loan payable ......................................... -- 49,916
Notes payable ............................................. 15,112 14,462
Capitalized lease obligations ............................. 1,884 2,320
Deferred income taxes ..................................... -- 1,136
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Total liabilities .................................... 432,032 251,778
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Redeemable preferred stock ..................................... -- 53,747
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Commitments and contingencies .................................. -- --
---------- -----------
Minority interest .............................................. 12,037 --
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Common stockholders' equity (deficit)
Class A Common Stock, $.01 par value; 100,000 shares
authorized; 16,065 and 8,465 shares issued and
outstanding in 1998 and 1997, respectively ................ 161 85
Class B Special Common Stock, $.01 par value, liquidation
preference $11.67; 20,000 shares authorized; 5,100 shares
issued and outstanding .................................... 51 --
Additional paid-in capital ..................................... 128,898 --
Accumulated deficit ............................................ (32,965) (24,820)
--------- -----------
Total common stockholders' equity (deficit) .......... 96,145 (24,735)
--------- -----------
Total liabilities and common stockholders' equity
(deficit) ........................................... $ 540,214 $ 280,790
========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
For the Three Months Ended
--------------------------
June 30, June 17,
1998 1997
-------- --------
<S> <C> <C>
Revenues
Rental revenue ................................. $ 40,507 $ 11,010
Equipment sales ................................ 24,224 10,949
Parts and service .............................. 9,486 5,123
-------- --------
Total revenues ............................ 74,217 27,082
-------- --------
Cost of revenues
Cost of equipment sold ......................... 18,815 8,347
Depreciation of rental equipment ............... 13,522 3,055
Maintenance of rental equipment ................ 9,852 2,665
Cost of parts and service ...................... 6,863 3,080
-------- --------
Total cost of revenues .................... 49,052 17,147
-------- --------
Gross profit ........................................ 25,165 9,935
-------- --------
Other operating expenses
Selling, general and administrative expenses ... 13,169 7,639
Other depreciation and amortization ............ 2,087 341
Officer stock option compensation .............. 3,198 --
-------- --------
Total other operating expenses ............ 18,454 7,980
-------- --------
Income from operations .............................. 6,711 1,955
-------- --------
Other expenses
Interest expense ............................... 7,692 1,584
Amortization of debt issue costs ............... 922 197
-------- --------
Total other expenses ...................... 8,614 1,781
-------- --------
Income (loss) before income taxes and extraordinary
item ............................................... (1,903) 174
(Provision for) benefit from income taxes ........... 714 (37)
-------- --------
Income (loss) before extraordinary item ............. (1,189) 137
Extraordinary loss, net of income taxes ............. (2,675) --
-------- --------
Net income (loss) ................................... $ (3,864) $ 137
======== ========
Basic and diluted earnings per common share
Income (loss) before extraordinary item ............. $ (0.24) $ (0.20)
Extraordinary loss, net ............................. (0.15) --
-------- --------
Net income (loss) ................................... $ (0.39) $ (0.20)
======== ========
Weighted average common shares outstanding
(basic and diluted) ............................ 17,410 8,465
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
For the Six Months Ended
--------------------------
June 30, June 17,
1998 1997
-------- --------
<S> <C> <C>
Revenues
Rental revenue ................................. $ 70,430 $ 19,902
Equipment sales ................................ 47,672 21,454
Parts and service .............................. 18,480 10,082
-------- --------
Total revenues ............................ 136,582 51,438
-------- --------
Cost of revenues
Cost of equipment sold ......................... 35,514 17,161
Depreciation of rental equipment ............... 24,843 7,498
Maintenance of rental equipment ................ 18,120 4,495
Cost of parts and service ...................... 12,859 6,081
-------- --------
Total cost of revenues .................... 91,336 35,235
-------- --------
Gross profit ........................................ 45,246 16,203
-------- --------
Other operating expenses
Selling, general and administrative expenses ... 25,194 11,608
Other depreciation and amortization ............ 3,836 690
Officer stock option compensation .............. 3,198 --
-------- --------
Total other operating expenses ............ 32,228 12,298
-------- --------
Income from operations .............................. 13,018 3,905
-------- --------
Other expenses
Interest expenses............................... 15,248 2,947
Amortization of debt issue costs ............... 2,787 384
-------- --------
Total other expenses ...................... 18,035 3,331
-------- --------
Income (loss) before income taxes and extraordinary
item ............................................... (5,017) 574
(Provision for) benefit from income taxes ........... 1,882 (187)
-------- --------
Income (loss) before extraordinary item ............. (3,135) 387
Extraordinary loss, net of income taxes ............. (2,675) --
-------- --------
Net income (loss) ................................... $ (5,810) $ 387
======== ========
Basic and diluted earnings per common share
Income (loss) before extraordinary item ............. $ (0.68) $ (0.39)
Extraordinary loss, net ............................. (0.15) --
-------- --------
Net income (loss) ................................... $ (0.83) $ (0.39)
======== ========
Weighted average common shares outstanding
(basic and diluted) ............................ 13,161 8,465
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
STATEMENT OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(in thousands)
Common Stock A Common Stock B Additional
---------------- --------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ........ 8,465 $ 85 -- -- -- $ (24,820) $ (24,735)
Net loss .......................... -- -- -- -- -- (5,810) (5,810)
Preferred stock dividends accrued-
Series B and C ................... -- -- -- -- -- (736) (736)
Accretion of Series A, B and C
Preferred Stock .............. -- -- -- -- -- (1,325) (1,325)
Exchange of Preferred Stock
Series B and C for Class B
Common Stock ................. -- -- 6,000 $ 60 $ 44,876 -- 44,936
Conversion of Class B
Common Stock to Class A
Common Stock ................ 900 9 (900) (9) -- -- --
Preferred stock dividends accrued-
Series A ..................... -- -- -- -- -- (274) (274)
Net proceeds from Common Stock
offering ......................... 6,700 67 -- -- 86,790 -- 86,857
Redemption of Series A
Preferred Stock .............. -- -- -- -- (2,768) -- (2,768)
------ ------ ------ ------ --------- ------------ ---------
Balance, June 30, 1998 ............ 16,065 $ 161 5,100 $ 51 $128,898 $ (32,965) $ 96,145
====== ====== ===== ====== ======== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
For the Six Months Ended
------------------------
June 30, June 17,
1998 1997
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) .................................... $ (5,810) $ 387
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities
Depreciation and amortization ................... 31,466 8,572
Officer stock option compensation ............... 3,198 --
Gain on sale of equipment ....................... (9,356) (3,884)
Extraordinary loss on debt extinguishment ....... 2,675 --
Provision for (benefit from) deferred income taxes (1,882) 187
Changes in operating assets and liabilities
Accounts receivable ............................. (7,932) (2,212)
Inventories ..................................... (3,118) (5,198)
Other assets .................................... (740) (2,771)
Accounts payable and accrued expenses ........... 15,774 5,100
Other ........................................... -- (315)
-------- --------
Net cash provided by (use for)operating activities 24,275 (134)
-------- --------
Cash Flows from Investing Activities
Purchases of equipment ............................... (101,597) (47,873)
Proceeds from sale of rental equipment ............... 31,576 10,815
Purchases of property and equipment .................. (8,231) (13,300)
Cash paid for acquisitions ........................... (144,890) --
Other ................................................ 573 --
-------- --------
Net cash used in investing activities ........... (222,569) (50,358)
-------- --------
Cash Flows from Financing Activities
Debt issue costs ..................................... (5,072) (144)
Net borrowings under Senior Credit Facility .......... 97,944 32,820
Borrowings (repayments) under capitalized lease
obligations ......................................... (436) 1,177
Proceeds from issuance of Senior Subordinated Notes .. 97,000 --
Proceeds from common stock offering .................. 86,857 --
Net borrowings (repayments) under term loan .......... (49,916) --
Net borrowings (repayments) under notes and mortgages
payable ............................................. (13,573) 19,066
Redemption of Series A Preferred Stock ............... (13,915) --
Distribution to stockholders ......................... -- (4,291)
-------- --------
Net cash provided by financing activities ....... 198,889 48,628
-------- --------
Net increase (decrease) in cash and cash equivalents . 595 (1,864)
Cash and cash equivalents, beginning of period ....... 2,885 4,989
-------- --------
Cash and cash equivalents, end of period ............. $ 3,480 $ 3,125
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(unaudited)
NOTE 1 - UNAUDITED INTERIM INFORMATION
The accompanying interim consolidated financial data are unaudited;
however, in the opinion of management, the interim data include all adjustments
necessary for a fair presentation of the results for the interim periods. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting periods. Actual results could differ from those estimates.
The results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998.
The interim unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended December 31, 1997 appearing in the Company's Registration Statement
on Form S-1, as amended, and filed with the Securities and Exchange Commission.
NOTE 2 - FISCAL QUARTERS
Effective October 1, 1997, the Company changed its fiscal reporting periods
to calendar quarters. Prior to October 1997, the Company's fiscal quarters were
based on three four-week periods.
NOTE 3 - CHANGE IN ACCOUNTING POLICIES
During the first quarter of 1998, the Company adopted Statement No. 130
("SFAS 130"), Reporting Comprehensive Income, which establishes standards for
the reporting and display of comprehensive income and its components.
Comprehensive income includes certain non-owner changes in equity that are
currently excluded from net income. The adoption of SFAS 130 had no effect on
the Company's consolidated financial statements.
NOTE 4 - ACQUISITIONS
During January 1998, the Company acquired substantially all of the assets
of Richbourg's Sales and Rentals, Inc. ("Richbourg") for approximately $100
million. Richbourg has rental equipment operations similar to the Company's with
15 locations in three states. In connection with this acquisition, the Company
amended its Senior Credit Facility and executed a $100 million term loan (the
"Richbourg Term Loan") with terms and requirements similar to the Company's
Senior Credit Facility (See Note 6). This transaction was accounted for under
the purchase method. In connection with this purchase, goodwill of approximately
$40.8 million was recorded.
7
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(unaudited)
During May and June 1998, the Company acquired three equipment rental
companies for an aggregate purchase price of approximately $9.3 million. These
businesses have a total of three equipment rental locations in California,
Florida and Texas. Each of these transactions was accounted for under the
purchase method. In connection with these purchases, goodwill of approximately
$4.6 million was recorded.
On June 30, 1998, the Company acquired 65% of the outstanding stock of
Sullair Argentina Sociedad Anonima ("S.A. Argentina"), for approximately $36.1
million and earn-out payments equal to 83% of S. A. Argentina's net income for
1998 and 1999, with such earn-out payments not to exceed $12.6 million in the
aggregate. S.A. Argentina rents and sells industrial and construction equipment
throughout South America. In connection with this purchase, goodwill of
approximately $14.0 million was recorded.
The following pro forma information has been prepared to reflect the
Industrial Equipment Rentals, Inc. (August 1997) and Richbourg (January 1, 1998)
acquisitions as if they were consummated on January 1, 1997, after giving effect
to certain pro forma adjustments described below (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 17, 1997 June 17, 1997
----------------- ----------------
<S> <C> <C>
Revenues ...................... $ 45,789 $ 86,948
================ ================
Net (loss) income ............. $ 287 $ (646)
================ ================
Basic and diluted earnings
per common share ............. $ (0.19) $ (0.52)
================ ================
</TABLE>
Pro forma adjustments reflect amortization of intangible assets,
depreciation of property and equipment and increased interest on borrowings to
finance the acquisitions. The unaudited pro forma information is based upon
certain assumptions and estimates and does not necessarily represent operating
results that would have occurred had the acquisitions been consummated as of the
beginning of the periods presented, nor is it necessarily indicative of expected
future operating results.
NOTE 5 - COMMON STOCK
During May 1998, the Company consummated its initial public offering (the
"Offering") of 6.7 million shares of Class A Common Stock at $14 per share. The
Company received net proceeds of approximately $86.9 million.
8
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(unaudited)
NOTE 6 - DEBT
During May 1998, the Company completed the sale of $100 million of Senior
Subordinated Notes due 2008 (the "Senior Notes") as well as the Offering (see
Note 5). The net proceeds of approximately $183.9 million from the sale of the
Senior Notes and the Offering were used to repay the Richbourg Term Loan, redeem
the Series A Cumulative Redeemable Preferred Stock, repay the mortgage notes
payable and reduce the amount outstanding under the Company's New Credit
Facility.
The Senior Notes bear interest at 10 1/4% per annum, payable semiannually
beginning December 1, 1998. The Senior Notes are senior unsecured obligations of
the Company and are redeemable at the option of the Company, in whole or in
part, on or after June 1, 2003, at pre-established redemption prices together
with accrued and unpaid interest to the redemption date.
On May 1, 1998, the Company amended and restated its $250 million revolving
credit facility (as amended and restated, the "New Credit Facility"). Borrowings
under the New Credit Facility are based upon eligible accounts receivable,
rental fleet and inventory amounts. The interest rates on balances outstanding
under the New Credit Facility vary based upon the leverage ratio maintained by
the Company and range from Prime to Prime plus 1.25% or LIBOR plus 1% to LIBOR
plus 2.25%. As a result of the repayment of the Richbourg Term Loan, the New
Credit Facility was extended to April 30, 2003.
On June 30, 1998, the Company increased the New Credit Facility to $300
million. There were no other changes to the terms and requirements under the New
Credit Facility.
At June 30, 1998, the Company had approximately $10.5 million of letters of
credit outstanding.
NOTE 7 - PREFERRED STOCK
Effective March 25, 1998, General Electric Capital Corporation exchanged
Series B and Series C Cumulative Convertible Redeemable Preferred Stock for
Class B Common Stock, liquidation preference $11.67.
NOTE 8 - EARNINGS PER SHARE
The treasury stock method was used to determine the dilutive effect of
options and warrants on earnings per share data. For 1998 and 1997, common stock
equivalents were excluded since the effect would be anti-dilutive.
9
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(unaudited)
Net loss from continuing operations per share and the weighted average
number of shares outstanding used in the computations are summarized as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ -----------------
June 30, June 17, June 30, June 17,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) .................. $(3,864) $ 137 $(5,810) $ 387
Deduct:
Preferred stock dividend ...... 104 964 1,010 1,928
Accretion of preferred stock .. 2,857 898 4,093 1,796
Income (loss) per share
computations ................. (6,825) (1,725) (10,913) (3,337)
Number of shares:
Weighted average common shares
outstanding ................. 17,410 8,465 13,161 8,465
Add:
Net additional common shares
issued(1) ................... -- -- -- --
Weighted average common shares
used in the per share
computations ................ 17,410 8,465 13,161 8,465
Net income (loss) per common
share ........................ $ (0.39) $(0.20) $ (0.83) $ (0.39)
</TABLE>
- ------------
(1) Assumes exercise of outstanding common stock equivalents (options and
warrants) at the beginning of the period, net of 20% limitation, if
applicable, on the assumed repurchase of stock.
NOTE 9 - SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
------------------
June 30, June 17,
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Supplemental Disclosure of
Cash Flow Information
Cash paid for interest ......... $14,652 $2,516
Cash paid for taxes ............ $ 138 $ 608
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis compares the quarter and six months
ended June 30, 1998 to the quarter and six months ended June 17, 1997 and should
be read in conjunction with the Company's Consolidated Financial Statements and
the Notes thereto, appearing in the Company's Registration Statement on Form
S-1, as amended, filed with the Securities and Exchange Commission.
The matters discussed herein may include forward-looking statements that
involve risks and uncertainties which could result in operating performance that
is materially different from that implied in the forward-looking statements.
Risks that could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to, risks inherent in
the Company's growth strategy, such as the uncertainty that the Company will be
able to identify, acquire and integrate attractive acquisition candidates; the
Company's dependence on additional capital for future growth; and the high
degree to which the Company is leveraged. Additional information concerning
these and other risks and uncertainties is contained from time-to-time in the
Company's filings with the Securities and Exchange Commission.
Overview
Since 1995, the Company has pursued an aggressive growth strategy,
increasing its number of equipment rental and sales locations to 78, as of June
30, 1998. The Company has achieved this growth through the addition of 39
equipment rental locations as a result of the acquisitions, and the opening of
26 new equipment rental locations primarily throughout the southeast and
southwest regions of the United States. The Company intends to continue to
pursue its aggressive growth strategy by (i) making additional acquisitions of
equipment rental companies; (ii) increasing fleet at its existing equipment
rental locations in both existing and new product lines; (iii) continuing to
open new equipment rental locations; and (iv) expanding its dealership
operations.
Since March 1, 1995, the Company has opened 26 start-up rental equipment
locations. Management believes the Company's recent financial performance does
not fully reflect the benefit of these rental locations. Based on the Company's
historical experience, a new equipment rental location tends to incur costs
during the early period of operations without the benefit of the revenue stream
of a mature location. New rental locations realize significant increases in
revenues and cash flow during the first three years of operation, and generally
become profitable in the third year of operation as more equipment is added to
the rental fleet and as the location matures. Because there is relatively little
incremental operating expense associated with such revenues, there is a greater
proportionate increase in cash flow and profitability as a rental location
matures. The Company believes the revenues, cash flow and profitability of the
26 start-up locations opened since March 1, 1995 will increase significantly as
these locations mature.
The Company primarily derives revenue from (i) the rental of equipment;
(ii) sales of new and used equipment and (iii) sales of parts and service. On a
pro forma basis for the Acquisitions, the Company's primary source of revenue is
the rental of equipment to construction and industrial customers. Growth in
rental revenue is dependent upon several factors, including the demand for
11
<PAGE>
rental equipment, the amount of equipment available for rent, rental rates and
the general economic environment. The level of new and used equipment sales is
primarily a function of the supply and demand for such equipment, price and
general economic conditions. The age, quality and mix of the Company's rental
fleet also affect revenues from the sale of used equipment. Revenues derived
from the sale of parts and service are generally correlated with sales of new
equipment.
Costs of revenues include cost of equipment sold, depreciation and
maintenance costs of rental equipment and cost of parts and service. Cost of
equipment sold consists of the net book value of rental equipment at the time of
sale and cost for new equipment sales. Depreciation of rental equipment
represents the depreciation costs attributable to rental equipment. Maintenance
of rental equipment represents the costs of servicing and maintaining rental
equipment on an ongoing basis. Cost of parts and service represents costs
attributable to the sale of parts directly to customers and service provided for
the repair of customer owned equipment.
Selling, general and administrative expenses include sales and marketing
expenses, payroll and related costs, professional fees, property and other taxes
and other administrative overhead. Other depreciation and amortization
represents the depreciation associated with property and equipment (other than
rental equipment) and the amortization of goodwill and intangible assets.
Results of Operations
In view of the Company's growth, management believes that the
period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
In addition, the Company's results of operations may fluctuate from period to
period in the future as a result of the cyclical nature of the industry in which
the Company operates.
Second Quarter Ended June 30, 1998 Compared to Second Quarter Ended June 17,
1997
Revenues. Total revenues for the quarter ended June 30, 1998 increased 174%
to $74.2 million from $27.1 million for the quarter ended June 17, 1997. This
growth in revenues primarily resulted from an increase in revenues of
approximately $12.6 million attributable to the maturation of the 26 new rental
locations opened since March 1995 and approximately $23.2 million attributable
to acquisitions which occurred in August 1997 and January 1998.
Gross Profit. Gross profit for the quarter ended June 30, 1998 increased
153% to $25.2 million or 33.9% of total revenues from $9.9 million or 36.7% of
total revenues for the quarter ended June 17, 1997. This increase is primarily
attributable to an increase in gross profit of approximately $4.6 million
associated with the maturation of the 26 new rental locations opened since March
1995 and approximately $8.5 million associated with the growth in revenues
arising from acquisitions. The decrease in gross margin as a percentage of
revenue is primarily attributable to the increase in new rental locations opened
during the second quarter of 1998 compared to the second quarter 1997. The
Company had opened 26 new rental locations at June 30, 1998, compared to 16 at
June 17, 1997.
12
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended June 30, 1998 increased 72.4% to
$13.2 million or 17.7% of total revenues from $7.6 million or 28.2% of total
revenues for the quarter ended June 17, 1997. The increase in selling, general
and administrative expenses is primarily attributable to the opening of 10 new
rental locations since June 17, 1997 and the increase in regional and corporate
personnel in anticipation of continued growth through acquisitions and new
location openings.
Other Depreciation and Amortization. Other depreciation and amortization
expense for the quarter ended June 30, 1998 increased 512% to $2.1 million or
2.8% of total revenues from $0.3 million or 1.3% of total revenues. The increase
is primarily attributable to amortization of goodwill resulting from
acquisitions and to increased expenditures on computer equipment, management
information systems and property and equipment needed to support the Company's
expansion.
Interest Expense. Interest expense for the quarter ended June 30, 1998
increased 386% to $7.7 million from $1.6 million in 1997. The increase is
primarily attributable to the Company's borrowings related to acquisitions and
to additional borrowings related to the Company's continued investment in rental
equipment.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 17, 1997
Revenues. Total revenues for the six months ended June 30, 1998 increased
166% to $136.6 million from $51.4 million for the six months ended June 17,
1997. This growth in revenues primarily resulted from an increase in revenues of
approximately $21.9 million attributable to the maturation of the 26 new rental
locations opened since March 1995 and approximately $43.2 million attributable
to acquisitions which occurred in August 1997 and January 1998.
Gross Profit. Gross profit for the six months ended June 30, 1998 increased
179% to $45.2 million or 33.1% of total revenues from $16.2 million or 31.5% of
total revenues for the six months ended June 17, 1997. This increase is
primarily attributable to an increase in gross profit of approximately $7.0
million associated with the maturation of the 26 new rental locations opened
since March 1995 and approximately $16.7 million associated with the growth in
revenues arising from acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended June 30, 1998 increased 117% to
$25.2 million or 18.4% of total revenues from $11.6 million or 22.6% of total
revenues for the six months ended June 17, 1997. The increase in selling,
general and administrative expenses is primarily attributable to the opening of
10 new rental locations since June 17, 1997 and the increase in regional and
corporate personnel in anticipation of continued growth through acquisitions and
new location openings.
Other Depreciation and Amortization. Other depreciation and amortization
expense for the six months ended June 30, 1998 increased 456% to $3.8 million or
2.8% of total revenues from $0.7 million or 1.3% of total revenues. The increase
13
<PAGE>
is primarily attributable to amortization of goodwill resulting from
acquisitions and to increased expenditures on computer equipment, management
information systems and property and equipment needed to support the Company's
expansion.
Interest Expense. Interest expense for the six months ended June 30, 1998
increased 417% to $15.2 million from $2.9 million. The increase is primarily
attributable to the Company's borrowings related to acquisitions and to
additional borrowings related to the Company's continued investment in rental
equipment.
Liquidity and Capital Resources
In May 1998, the Company completed an initial public offering of its Class
A Common stock (the "Offering") and the sale of $100 million of Senior
Subordinated Notes due 2008 (the "Senior Notes"). These transactions were
consummated to de-lever the Company, extend its debt maturities to reflect the
long-term nature of its assets and to provide increased operational and
financial flexibility to allow the Company to pursue its growth strategy. In
addition, the Company amended and restated its Senior Credit Facility, as
amended and restated, the "New Credit Facility", which was increased to $300
million on June 30, 1998.
Proceeds from the Offering and Senior Notes were used to repay a $100
million term loan, redeem the Company's Series A Cumulative Redeemable Preferred
Stock, repay a mortgage related to properties the Company owns in Florida and
reduce outstanding borrowings under the New Credit Facility.
During the second quarter of 1998, the Company financed its operations,
acquisitions and new rental locations primarily through cash flow from
operations and borrowings under credit facilities.
For the six months ended June 30, 1998, net cash flows provided by
operating activities was $24.3 million, compared to net cash used in operating
activities of $0.1 million for the six months ended June 17, 1997. This increase
is primarily attributable to the growth in the Company's operations resulting
from an increase in the number of rental locations operated by the Company.
Net cash used in investing activities for the six months ended June 30,
1998 was $222.6 million as compared to $50.4 million for the same period of the
prior year. This increase is primarily attributable to acquisitions and
increased expenditures for fleet in connection with the Company's expansion.
Net cash provided by financing activities was $198.9 million for the six
months ended June 30, 1998, as compared to $48.6 million for the same period in
the prior year. The net cash provided by financing activities was attributable
to net proceeds received from the Offering and Senior Notes and to borrowings
under the Company's Senior Credit Facility, net of various debt repayments
previously described. These amounts were used to finance acquisitions and
capital expenditures supporting the Company's expansion.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Description
- ------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K:
On July 15, 1998, the Company filed a Current Report on Form 8-K which
reported the Company's acquisition of 65% of the outstanding stock of Sullair
Argentina, S.A.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEFF CORP.
Registrant
Date: August 12, 1998 /s/Bonnie S. Biumi
------------------
BONNIE S. BIUMI
Chief Financial Officer
On behalf of the registrant and as
Principal Financial and Accounting Officer
16
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