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: September 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.
(Exact Name of registrant as specified in its charter)
DELAWARE 65-0626400
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. No.)
3750 N.W. 87th Avenue, Miami, Florida 33178
(Address or principal executive offices) (Zip Code)
(305) 513-3350
(Registrant's telephone number, including area code)
----------------------------
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 November 3, 1998.
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<CAPTION>
PART I. FINANCIAL INFORMATION
PART I. FINANCIAL INFORMATION
NEFF CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1998 1997
-------------- ------------
(Unaudited)
Assets
<S> <C> <C>
Cash and cash equivalents ..................................................... $ 2,769 $ 2,885
Accounts receivable, net of allowance for doubtful accounts of
$2,589 in 1998 and $1,092 in 1997............................................ 61,156 25,007
Inventories ................................................................... 29,294 11,312
Rental equipment, net.......................................................... 328,630 179,547
Property and equipment, net.................................................... 44,499 23,737
Goodwill, net.................................................................. 92,894 29,444
Deferred tax asset, net........................................................ 3,227 --
Prepaid expenses and other assets ............................................. 8,005 8,858
------------- ------------
Total assets ............................................................. $ 570,474 $ 280,790
============= ============
Liabilities and Common Stockholders' Equity (Deficit)
Liabilities
Accounts payable ........................................................... $ 28,101 $ 10,871
Accrued expenses ........................................................... 32,301 11,248
Senior credit facility ..................................................... 281,913 161,825
Term loan payable .......................................................... -- 49,916
Senior subordinated notes .................................................. 100,000 --
Notes payable .............................................................. 17,307 14,462
Capitalized lease obligations .............................................. 1,745 2,320
Deferred income taxes ...................................................... -- 1,136
------------- ------------
Total liabilities ........................................................ 461,367 251,778
------------- ------------
Redeemable preferred stock .................................................... -- 53,747
------------- ------------
Commitments and contingencies ................................................. -- --
------------- ------------
Minority interest ............................................................. 12,335 --
------------- ------------
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 .................................................... 127,854 --
Accumulated deficit ........................................................... (31,294) (24,820)
------------- ------------
Total common stockholders' equity (deficit) .............................. 96,772 (24,735)
------------- ------------
Total liabilities and common stockholders' equity (deficit) .............. $ 570,474 $ 280,790
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
2
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<TABLE>
<CAPTION>
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
For the Three Months Ended
September 30,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues
Rental revenue ................................. $ 50,658 $ 22,841
Equipment sales ................................ 27,536 14,564
Parts and service .............................. 12,258 7,938
---------- ----------
Total revenues ............................... 90,452 45,343
---------- ----------
Cost of revenues
Cost of equipment sold ......................... 21,986 11,804
Depreciation of rental equipment ............... 15,483 8,237
Maintenance of rental equipment ................ 13,929 7,062
Cost of parts and service ...................... 8,026 4,784
---------- ----------
Total cost of revenues ....................... 59,424 31,887
---------- ----------
Gross profit ...................................... 31,028 13,456
---------- ----------
Other operating expenses
Selling, general and administrative expenses ... 16,746 9,656
Other depreciation and amortization ............ 2,368 896
Officer stock option compensation .............. -- --
---------- ----------
Total other operating expenses ............... 19,114 10,552
---------- ----------
Income from operations ............................ 11,914 2,904
---------- ----------
Other expense
Interest expense ............................... 8,817 3,933
Amortization of debt issue costs ............... 175 884
---------- ----------
Total other expense .......................... 8,992 4,817
---------- ----------
Income (loss) before income taxes and minority
interest ......................................... 2,922 (1,913)
(Provision for) benefit from income taxes ......... (838) 411
---------- ----------
Income (loss) before minority interest ............ 2,084 (1,502)
Minority interest ................................. (413) --
---------- ----------
Net income (loss) ................................. $ 1,671 $ (1,502)
========== ==========
Basic earnings (loss) per common share ............ $ 0.08 $ (0.40)
========== ==========
Diluted earnings (loss) per common share .......... $ 0.08 $ (0.40)
========== ==========
Weighted average common shares outstanding
Basic ............................................. 21,165 8,465
========== ==========
Diluted ........................................... 21,724 8,465
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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<TABLE>
<CAPTION>
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
For the Nine Months Ended
September 30,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Revenues
Rental revenue ................................ $ 122,962 $ 42,743
Equipment sales ............................... 75,208 36,019
Parts and service ............................. 28,839 18,019
---------- ----------
Total revenues .............................. 227,009 96,781
---------- ----------
Cost of revenues
Cost of equipment sold ........................ 57,499 28,965
Depreciation of rental equipment .............. 40,326 15,735
Maintenance of rental equipment ............... 34,145 11,557
Cost of parts and service ..................... 18,765 10,865
---------- ----------
Total cost of revenues ...................... 150,735 67,122
---------- ----------
Gross profit ..................................... 76,274 29,659
---------- ----------
Other operating expenses
Selling, general and administrative expenses... 41,939 21,264
Other depreciation and amortization ........... 6,203 1,587
Officer stock option compensation ............. 3,198 --
---------- ----------
Total other operating expenses .............. 51,340 22,851
---------- ----------
Income from operations ........................... 24,934 6,808
---------- ----------
Other expenses
Interest expense .............................. 24,065 6,880
Amortization of debt issue costs .............. 2,963 1,268
---------- ----------
Total other expenses ........................ 27,028 8,148
---------- ----------
Income before income taxes, minority interest and
extraordinary item .............................. (2,094) (1,340)
Benefit from income taxes ........................ 1,043 224
---------- ----------
Loss before minority interest and extraordinary
item ............................................ (1,051) (1,116)
Minority interest ................................ (413) --
---------- ----------
Loss before extraordinary item ................... (1,464) (1,116)
Extraordinary loss, net .......................... (2,675) --
---------- ----------
Net loss ......................................... $ (4,139) $ (1,116)
========== ==========
Basic and diluted loss per common share
Income before extraordinary item ................. $ (0.41) $ (0.79)
Extraordinary loss, net .......................... (0.17) --
---------- ----------
Net loss ......................................... $ (0.58) $ (0.79)
---------- ----------
Weighted average common shares outstanding
(basic and diluted) ........................... 15,834 8,465
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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<TABLE>
<CAPTION>
NEFF CORP.
STATEMENT OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(unaudited, 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 ...................................... -- -- -- -- -- (4,139) (4,139)
Preferred stock dividends accrued
Series A, B and C ........................... -- -- -- -- -- (1,010) (1,010)
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) -- -- --
Net proceeds from Common Offering ............. 6,700 67 -- -- 85,746 -- 85,813
Redemption of Series A Preferred Stock ....... -- -- -- -- (2,768) -- (2,768)
------ ------ ------ ------ --------- ---------- --------
Balance, September 30, 1998 ................... 16,065 $ 161 5,100 $ 51 $ 127,854 $ (31,294) $ 96,772
====== ====== ====== ====== ========= =========== =========
</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 Nine Months Ended
September 30,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss ..................................................................... $ (4,139) $ (1,116)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization ............................................. 49,492 18,590
Officer stock option compensation ......................................... 3,198 --
Gain on sale of rental equipment .......................................... (17,709) (7,054)
Minority interest ......................................................... 413 --
Extraordinary loss on debt extinguishment ................................. 2,675 --
Benefit from deferred income taxes ........................................ (1,043) --
Changes in operating assets and liabilities
Accounts receivable ....................................................... (13,984) (3,992)
Other assets .............................................................. (2,127) (3,555)
Accounts payable and accrued expenses ..................................... 19,174 6,833
---------- ----------
Net cash provided by operating activities ................................. 35,950 9,706
---------- ----------
Cash Flows from Investing Activities
Purchases of equipment ....................................................... (164,495) (107,451)
Proceeds from sale of rental equipment ....................................... 75,208 36,019
Purchases of property and equipment .......................................... (13,740) (15,570)
Cash paid for acquisitions ................................................... (155,660) (63,605)
Other ........................................................................ 573 --
---------- ----------
Net cash used in investing activities ..................................... (258,114) (150,607)
---------- ----------
Cash Flows from Financing Activities
Debt issue costs ............................................................. (5,072) --
Net borrowings under senior credit facility .................................. 120,088 125,788
Net borrowings (repayments) under capitalized lease obligations .............. (575) 1,928
Proceeds from issuance of Senior Subordinated Notes ......................... 97,000 --
Proceeds from common stock offering .......................................... 85,813 --
Net repayments under term loan ............................................... (49,916) --
Net borrowings (repayments) under notes and mortgages payable ............... (11,375) 12,548
Redemption of Series A Preferred Stock ....................................... (13,915) --
Distribution to stockholders ................................................. -- (2,936)
---------- ----------
Net cash provided by financing activities ................................. 222,048 137,328
---------- ----------
Net decrease in cash and cash equivalents .................................... (116) (3,573)
Cash and cash equivalents, beginning of period ............................... 2,885 4,989
---------- ----------
Cash and cash equivalents, end of period ..................................... $ 2,769 $ 1,416
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine months ended September 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
SEPTEMBER 30, 1998
(unaudited)
NOTE 4 - ACQUISITIONS (con't)
During May and June 1998, the Company acquired the assets of 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.
In July and September 1998, the Company purchased the assets of two
equipment rental companies for approximately $8.8 million. In September 1998,
the Company also purchased the common stock of one equipment rental company for
approximately $5.3 million. These businesses have a total of five equipment
rental locations in California and Texas. Each of these transactions was
accounted for under the purchase method. In connection with these purchases,
goodwill of approximately $8.2 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 Nine Months Ended
September 30, 1997 September 30, 1997
------------------ ------------------
<S> <C> <C>
Revenues .................................... $ 57,461 $ 144,565
================= =================
Net (loss) income ........................... $ (2,602) $ (3,518)
================= =================
Basic and diluted earnings per common share.. $ (0.53) $ (1.08)
================= =================
</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.
8
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(unaudited)
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 $85.8 million.
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 $182.8 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 September 9, 1998, the Company increased the New Credit Facility to $310
million. There were no other changes to the terms and requirements under the New
Credit Facility.
At September 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
its 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 table below sets forth the figures used for net income (loss) per
common share and weighted average common shares in determining basic earnings
(loss) per share and diluted earnings (loss) per share. The treasury stock
method was used to determine the dilutive effect of options on earnings per
share data. All amounts are in thousands except per share amounts.
9
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<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(unaudited)
NOTE 8 -EARNINGS PER SHARE (con't)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
1998 1997 1998 1997
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) for per share computation
(Basic and Diluted)
Net income (loss) ................................ $ 1,671 $ (1,502) $(4,139) $(1,116)
Deduct:
Preferred stock dividend ...................... -- (964) (1,010) (2,892)
Accretion of preferred stock .................. -- (898) (4,093) (2,694)
-------- -------- ------- -------
Net income (loss)(basic and diluted) ............ $ 1,671 $ (3,364) $(9,242) $(6,702)
======== ======== ======= =======
Number of shares:
Weighted average common shares outstanding - Basic 21,165 8,465 15,834 8,465
Employee stock options(1) ..................... 559 -- -- --
-------- -------- ------- -------
Weighted average common shares - Diluted(2) ...... 21,724 8,465 15,834 8,465
======== ======== ======= =======
Net income (loss) per common share - Basic ....... $ 0.08 $ (0.40) $ (0.58) $ (0.79)
======== ======== ======= =======
Net income (loss) per common share - Diluted ..... $ 0.08 $ (0.40) $ (0.58) $ (0.79)
======== ======== ======= =======
</TABLE>
- -------------------
(1) Assumes exercise of outstanding options at the beginning of the period, net
of 20% limitation, if applicable, on the assumed repurchase of stock by the
Company.
(2) The incremental shares resulting from the assumed exercise of options for
the nine months ended 1998 would be antidilutive and are therefore, excluded
from the computation of diluted earnings (loss) per share.
10
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<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(unaudited)
NOTE 9 -SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
Nine Months Ended
September 30,
-----------------
1998 1997
-------- -------
(in, thousands)
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid for interest ......................... $18,194 $ 5,163
======= =======
Cash paid for taxes ............................ $ 142 $ 608
======= =======
</TABLE>
NOTE 10 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Neff Corp. ("Parent") issued $100 million of senior subordinated unsecured
notes on May 22, 1998. On June 30, 1998, Neff Corp. acquired 65% of S.A.
Argentina (See Note 4). S.A. Argentina is not a guarantor of the unsecured notes
of the Parent and financial information for this subsidiary is presented
separately. All of the Parent's subsidiaries other than S.A. Argentina are
wholly owned. Parent and its subsidiaries other than S.A. Argentina have fully
and unconditionally guaranteed the unsecured notes on a joint and several basis.
The subsidiaries' financial information is presented on a combined basis and
Parent is shown separately. Separate financial statements and other disclosures
for the individual guarantor subsidiaries are not presented because, in the
opinion of management, such information is not material to investors. Prior to
June 30, 1998, there were no non-guarantor subsidiaries and therefore, separate
comparative statements are not presented for periods prior to July 1, 1998.
11
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<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(unaudited)
NOTE 10 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ------------- -------- ------------ ------------
Assets
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ............................. $ 1,670 $ 1,099 $ -- $ -- $ 2,769
Accounts receivable, net .............................. 44,165 16,991 -- -- 61,156
Inventories ........................................... 12,170 17,124 -- -- 29,294
Rental equipment, net ................................ 308,115 20,515 -- -- 328,630
Property and equipment, net ........................... 23,653 10,299 10,547 -- 44,499
Goodwill, net ......................................... 79,070 -- -- 13,824 92,894
Deferred tax asset, net ............................... (1,439) (603) 5,269 -- 3,227
Prepaid expenses and other assets ..................... 3,523 300 70,973 (66,791) 8,005
(Due to) from affiliates .............................. (158,413) -- 158,413 -- --
----------- ------------ -------- ----------- -----------
Total assets ................................ $ 312,514 $ 65,725 $245,202 $ (52,967) $ 570,474
============ ============ ======== ========== ===========
Liabilities and Common Stockholders Equity (Deficit)
Liabilities
Accounts payable ................................. $ 14,903 $ 12,958 $ 240 $ -- $ 28,101
Accrued expenses ................................. 20,122 1,018 11,161 -- 32,301
Senior credit facility ........................... 244,884 -- 37,029 -- 281,913
10 1/4% senior subordinated notes ................ -- -- 100,000 -- 100,000
Notes payable .................................... 801 16,506 -- -- 17,307
Capitalized lease obligations .................... 1,745 -- -- -- 1,745
----------- ------------ -------- ----------- -----------
282,455 30,482 148,430 -- 461,367
----------- ------------ -------- ----------- -----------
Commitments and contingencies ......................... -- -- -- -- --
----------- ------------ -------- ----------- -----------
Minority interest ..................................... -- -- -- 12,335 12,335
----------- ------------ -------- ----------- -----------
Common stockholders' equity
Clss A Common stock; $.01 par value; 100,000 shares
authorized; 16,065 shares issued and outstanding ... -- -- 161 -- 161
Class B special common stock; $.01 par value; 20,000
shares authorized; 5,100 shares issued and
outstanding ........................................ -- -- 51 -- 51
Capital stock ......................................... -- 90 -- (90) --
Additional paid-in capital ............................ 37,077 13 127,854 (37,090) 127,854
Retained earnings (accumulated deficit) ............... (7,018) 35,140 (31,294) (28,122) (31,294)
----------- ------------ -------- ----------- -----------
Total common stockholders' equity ..................... 30,059 35,243 96,772 (65,302) 96,772
----------- ------------ -------- ----------- -----------
Total liabilities and common stockholders' equity ..... $ 312,514 $ 65,725 $245,202 $ (52,967) $ 570,474
============ ============ ========= ========== ===========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998
(unaudited)
NOTE 10 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue ..................................... $ 47,305 $ 3,353 $ -- $ -- $ 50,658
Equipment sales .................................... 21,181 6,355 -- -- 27,536
Parts and service .................................. 9,849 2,409 -- -- 12,258
------------ ------------ -------- ----------- -----------
Total revenues .............................. 78,335 12,117 -- -- 90,452
------------ ------------ -------- ----------- -----------
Cost of revenues
Cost of equipment sold ............................. 16,608 5,378 -- -- 21,986
Depreciation of rental equipment ................... 14,397 1,086 -- -- 15,483
Maintenance of rental equipment .................... 12,920 1,009 -- -- 13,929
Cost of parts and service .......................... 6,201 1,825 -- -- 8,026
------------ ------------ -------- ----------- -----------
Total cost of revenues ...................... 50,126 9,298 -- -- 59,424
------------ ------------ -------- ----------- -----------
Gross profit .......................................... 28,209 2,819 -- -- 31,028
------------ ------------ -------- ----------- -----------
Other operating expenses
Selling, general and administrative expenses ....... 15,784 680 282 -- 16,746
Other depreciation and amortization ................ 2,031 190 147 -- 2,368
------------ ------------ -------- ----------- -----------
Total other operating expenses ............... 17,815 870 429 -- 19,114
------------ ------------ -------- ----------- -----------
Income from operations ................................ 10,394 1,949 (429) -- 11,914
------------ ------------ -------- ----------- -----------
Other expense
Interest expense ................................... 7,591 475 751 -- 8,817
Amortization of debt issue costs ................... 87 -- 88 -- 175
------------ ------------ -------- ----------- -----------
Total other expense ......................... 7,678 475 839 -- 8,992
------------ ------------ -------- ----------- -----------
Income (loss) before income taxes and minority interest 2,716 1,474 (1,268) -- 2,922
(Provision for) benefit from income taxes ............. (1,019) (295) 476 -- (838)
------------ ------------ -------- ----------- -----------
Income (loss) before minority interest ................ 1,697 1,179 (792) -- 2,084
Minority interest ..................................... -- -- -- (413) (413)
------------ ------------ -------- ----------- -----------
Net income (loss) ..................................... $ 1,697 $ 1,179 $ (792) $ (413) $ 1,671
============ ============ ======== =========== ===========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998
(unaudited)
NOTE 10 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue ..................................... $ 119,609 $ 3,353 $ -- $ -- $ 122,962
Equipment sales .................................... 68,853 6,355 -- -- 75,208
Parts and service .................................. 26,430 2,409 -- -- 28,839
------------ ------------ -------- ----------- -----------
Total revenues .............................. 214,892 12,117 -- -- 227,009
------------ ------------ -------- ----------- -----------
Cost of revenues
Cost of equipment sold ............................. 52,121 5,378 -- -- 57,499
Depreciation of rental equipment ................... 39,240 1,086 -- -- 40,326
Maintenance of rental equipment .................... 33,136 1,009 -- -- 34,145
Cost of parts and service .......................... 16,940 1,825 -- -- 18,765
------------ ------------ -------- ----------- -----------
Total cost of revenues ...................... 141,437 9,298 -- -- 150,735
------------ ------------ -------- ----------- -----------
Gross profit .......................................... 73,455 2,819 -- -- 76,274
------------ ------------ -------- ----------- -----------
Other Operating Expenses
Selling, general and administrative expenses ....... 40,861 680 398 -- 41,939
Other depreciation and amortization ................ 5,810 190 203 -- 6,203
Officer stock option compensation .................. -- -- 3,198 -- 3,198
------------ ------------ -------- ----------- -----------
Total other operating expenses .............. 46,671 870 3,799 -- 51,340
------------ ------------ -------- ----------- -----------
Income from operations ................................ 26,784 1,949 (3,799) -- 24,934
------------ ------------ -------- ----------- -----------
Other (income) expense
Interest expense ................................... 22,696 475 894 -- 24,065
Amortization of debt issue costs ................... 2,845 -- 118 -- 2,963
------------ ------------ -------- ----------- -----------
Total other expense ......................... 25,541 475 1,012 -- 27,028
------------ ------------ -------- ----------- -----------
Income (loss) before income taxes, minority interest
and extraordinary item ............................... 1,243 1,474 (4,811) -- (2,094)
(Provision for) benefit from income taxes ............. (466) (295) 1,804 -- 1,043
------------ ------------ -------- ----------- -----------
Income (loss) before minority interest and
extraordinary item ................................... 777 1,179 (3,007) -- (1,051)
Minority interest ..................................... -- -- -- (413) (413)
------------ ------------ -------- ----------- -----------
Income (loss) before extraordinary item ............... 777 1,179 (3,007) (413) (1,464)
Extraordinary loss, net ............................... (2,675) -- -- -- (2,675)
------------ ------------ -------- ----------- -----------
Net income (loss) ..................................... $ (1,898) $ 1,179 $ (3,007) $ (413) $ (4,139)
============ ============ ======== ========== ===========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998
(unaudited)
NOTE 10 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) .................................... $ (1,898) $ 1,179 $ (3,007) $ (413) $ (4,139)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization ..................... 47,895 1,276 321 -- 49,492
Officer stock option compensation ................. -- -- 3,198 -- 3,198
Gain on sale of equipment ......................... (16,732) (977) -- -- (17,709)
Minority interest ................................. -- -- -- 413 413
Extraordinary loss on debt extinguishment ......... 2,675 -- -- -- 2,675
Provision for (benefit from) deferred income taxes. 466 295 (1,804) -- (1,043)
Change in operating assets and liabilities
Accounts receivable ............................... (13,540) (444) -- -- (13,984)
Inventories ....................................... -- -- -- -- --
Other assets ...................................... (2,117) (53) 43 -- (2,127)
Accounts payable and accrued expenses ............. 13,606 1,765 3,803 -- 19,174
------------ ------------ -------- ----------- -----------
Net cash provided by operating activities ......... 30,355 3,041 2,554 -- 35,950
------------ ------------ -------- ----------- -----------
Cash Flows from Investing Activities
Purchases of equipment ............................... (154,812) (9,683) -- -- (164,495)
Proceeds from sale of equipment ...................... 68,853 6,355 -- -- 75,208
Purchases of property and equipment .................. (12,106) (1,277) (357) -- (13,740)
Cash paid for acquisitions ........................... (119,607) -- (36,053) -- (155,660)
Other ................................................ 573 -- -- -- 573
------------ ------------ -------- ----------- -----------
Net cash used in investing activities ............. (217,099) (4,605) (36,410) -- (258,114)
------------ ------------ -------- ----------- -----------
Cash Flows from Financing Activities
Debt issue costs .................................... (4,814) -- (258) -- (5,072)
Net borrowings under senior credit facility .......... 83,059 -- 37,029 -- 120,088
Net repayments under capitalized lease obligations ... (575) -- -- -- (575)
Proceeds from issuance of senior subordinated notes .. -- -- 97,000 -- 97,000
Proceeds from common stock offering .................. -- -- 85,813 -- 85,813
Net repayments under term loan ....................... (49,916) -- -- -- (49,916)
Net borrowings (repayments) under notes and mortgage
payable ............................................. (259) 2,284 (13,400) -- (11,375)
Redemption of Series A Preferred Stock ............... -- -- (13,915) -- (13,915)
Due to (from) affiliates ............................. 158,413 -- (158,413) -- --
------------ ------------ -------- ----------- -----------
Net cash provided by financing activities ......... 185,908 2,284 33,856 -- 222,048
------------ ------------ -------- ----------- -----------
Net (decrease) increase in cash and cash equivalents. (836) 720 -- -- (116)
Cash and cash equivalents, beginning of period ....... 2,885 -- -- -- 2,885
------------ ------------ -------- ----------- -----------
Cash and cash equivalents, end of period ............. $ 2,049 $ 720 $ -- $ -- $ 2,769
============ ============ ======== ========== ===========
</TABLE>
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis compares the quarter and nine months
ended September 30, 1998 to the quarter and nine months ended September 30, 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 83, as of
September 30, 1998. The Company has achieved this growth through the addition of
51 equipment rental locations as a result of 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
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.
16
<PAGE>
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.
Third Quarter Ended September 30, 1998 Compared to Third Quarter Ended September
30, 1997
Revenues. Total revenues for the quarter ended September 30, 1998 increased
99.5% to $90.5 million from $45.3 million for the quarter ended September 30,
1997. This growth in revenues is primarily attributable to an increase in
revenues from the maturation of the 26 new rental locations opened since March
1995 of approximately $12.8 million and approximately $29.5 million attributable
to revenues generated by acquisitions.
Gross Profit. Gross profit for the quarter ended September 30, 1998
increased 130.6% to $31.0 million or 34.3% of total revenues from $13.5 million
or 29.7% of total revenues for the quarter ended September 30, 1997. This
increase is primarily attributable to an increase in gross profit of
approximately $5.6 million associated with the maturation of the 26 new rental
locations opened since March 1995 and approximately $11.1 million associated
with the growth in revenues arising from acquisitions. The increase in gross
profit as a percentage of revenue is primarily attributable to improved rental
revenue margins coupled with a larger mix of rental revenues. The Company had 83
rental locations at September 30, 1998, compared to 50 at September 30, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended September 30, 1998 increased 73.4%
to $16.7 million or 18.5% of total revenues from $9.7 million or 21.3% of total
revenues for the quarter ended September 30, 1997. The increase in selling,
general and administrative expenses is primarily attributable to the opening of
7 new rental locations since September 30, 1997 and the increase in regional and
corporate personnel in anticipation of continued growth through acquisitions and
new location openings.
17
<PAGE>
Other Depreciation and Amortization. Other depreciation and amortization
expense for the quarter ended September 30, 1998 increased 164.3% to $2.4
million or 2.6% of total revenues from $0.9 million or 2.0% 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 September 30, 1998
increased 124.2% to $8.8 million from $3.9 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.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 16,
1997
Revenues. Total revenues for the nine months ended September 30, 1998
increased 135.0% to $227.0 million from $96.8 million for the nine months ended
September 30, 1997. This growth in revenues is primarily attributable to an
increase in revenues from the maturation of the 26 new rental locations opened
since March 1995 of approximately $34.7 million and approximately $71.2 million
attributable to revenues generated by acquisitions.
Gross Profit. Gross profit for the nine months ended September 30, 1998
increased 157.2% to $76.3 million or 33.6% of total revenues from $29.7 million
or 30.6% of total revenues for the nine months ended September 30, 1997. This
increase is primarily attributable to an increase in gross profit of
approximately $12.6 million associated with the maturation of the 26 new rental
locations opened since March 1995 and approximately $29.4 million associated
with the growth in revenues arising from acquisitions. The increase in gross
profit as a percentage of revenues is primarily attributable to improved rental
revenue margins coupled with a larger mix of rental revenues. The Company had 83
rental locations at September 30, 1998 compared to 50 at September 30, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1998 increased
97.2% to $41.9 million or 18.5% of total revenues from $21.3 million or 22.0% of
total revenues for the nine months ended September 30, 1997. The increase in
selling, general and administrative expenses is primarily attributable to the
opening of 7 new rental locations since September 30, 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 nine months ended September 30, 1998 increased 290.9% to $6.2
million or 2.7% of total revenues from $1.6 million or 1.6% 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 nine months ended September 30,
1998 increased 249.8% to $24.1 million from $6.9 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.
18
<PAGE>
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 $310
million on September 9, 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 third quarter of 1998, the Company financed its operations,
acquisitions and new rental locations primarily through cash flows from
operations and borrowings under credit facilities.
For the nine months ended September 30, 1998, net cash flows provided by
operating activities was $36.0 million, compared to net cash provided by
operating activities of $9.7 million for the nine months ended September 30,
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 nine months ended September
30, 1998 was $258.1 million as compared to $150.6 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 $222.0 million for the nine
months ended September 30, 1998, as compared to $137.3 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.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER EVENTS
(a) Arthur B. Laffer and Joel-Tomas Citron have been appointed as
Directors of the Company effective October 6, 1998.
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.
20
<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: November 9, 1998 /s/Bonnie S. Biumi
------------------------------------------
BONNIE S. BIUMI
Chief Financial Officer
On behalf of the registrant and as
Principal Financial and Accounting Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001057725
<NAME> Neff Corp.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,769
<SECURITIES> 0
<RECEIVABLES> 63,745
<ALLOWANCES> 2,589
<INVENTORY> 29,294
<CURRENT-ASSETS> 0
<PP&E> 456,051
<DEPRECIATION> 82,922
<TOTAL-ASSETS> 570,474
<CURRENT-LIABILITIES> 0
<BONDS> 400,965
0
0
<COMMON> 212
<OTHER-SE> 96,560
<TOTAL-LIABILITY-AND-EQUITY> 570,474
<SALES> 227,009
<TOTAL-REVENUES> 227,009
<CGS> 57,499
<TOTAL-COSTS> 150,735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,179
<INTEREST-EXPENSE> 27,028
<INCOME-PRETAX> (2,094)
<INCOME-TAX> 1,043
<INCOME-CONTINUING> (1,051)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,675)
<CHANGES> 0
<NET-INCOME> (4,139)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.58)
</TABLE>
