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, 1999
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 11, 1999.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
NEFF CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and cash equivalents ..................................................... $ 5,507 $ 4,340
Accounts receivable, net of allowance for doubtful accounts of
$4,067 in 1999 and $3,229 in 1998 ........................................... 59,317 59,022
Inventories ................................................................... 32,106 29,164
Rental equipment, net ........................................................ 393,352 321,220
Property and equipment, net .................................................. 52,381 45,114
Goodwill, net ................................................................ 108,275 96,722
Prepaid expenses and other assets ............................................. 14,676 16,787
------------- -----------
Total assets .................................................... $ 665,614 $ 572,369
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable ..................................................... $ 30,658 $ 24,405
Accrued expenses and other ........................................... 30,708 28,577
Credit facility ...................................................... 259,400 191,189
Senior subordinated notes ............................................ 198,633 198,522
Notes payable ........................................................ 27,079 17,282
------------- -----------
Total liabilities ............................................... 546,478 459,975
------------- -----------
Commitments and contingencies ................................................. -- --
------------- -----------
Minority interest ............................................................. 14,502 13,034
------------- -----------
Stockholders' equity
Preferred stock; $.01 par value; 18,350 shares authorized; none
issued and outstanding ............................................. -- --
Series B Junior Participating Preferred Stock; $.01 par value; 1,000
shares authorized, none issued and outstanding ..................... -- --
Class 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, liquidation preference
$11.67; 20,000 shares authorized; 5,100 shares issued and
outstanding ........................................................ 51 51
Additional paid-in capital .................................................... 127,762 127,765
Accumulated deficit ........................................................... (23,340) (28,617)
------------- -----------
Total stockholders' equity ...................................... 104,634 99,360
------------- -----------
Total liabilities and stockholders' equity ...................... $ 665,614 $ 572,369
============= ============
</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
-----------------------------
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Revenues
Rental revenue ....................................................... $ 60,808 $ 51,889
Equipment sales ...................................................... 29,848 27,535
Parts and service .................................................... 13,124 10,481
------------ -------------
Total revenues .................................................. 103,780 89,905
------------ -------------
Cost of revenues
Cost of equipment sold ............................................... 25,131 22,129
Depreciation of rental equipment ..................................... 14,989 15,495
Maintenance of rental equipment ...................................... 18,310 14,140
Cost of parts and service ............................................ 8,527 6,831
------------ -------------
Total cost of revenues .......................................... 66,957 58,595
------------ -------------
Gross profit .................................................................. 36,823 31,310
------------ -------------
Other operating expenses
Selling, general and administrative expenses ......................... 19,900 17,126
Other depreciation and amortization .................................. 3,045 2,278
Writedown of assets held for sale .................................... 1,444 --
------------ -------------
Total other operating expenses .................................. 24,389 19,404
------------ -------------
Income from operations ........................................................ 12,434 11,906
------------ -------------
Other expense
Interest expense ..................................................... 10,920 8,817
Amortization of debt issue costs ..................................... 305 167
------------ -------------
Total other expense ............................................. 11,225 8,984
------------ -------------
Income before income taxes and minority interest ............................. 1,209 2,922
Provision for benefit from income taxes ...................................... (445) (838)
------------ -------------
Income before minority interest .............................................. 764 2,084
Minority interest ............................................................ (428) (413)
------------ -------------
Net income ................................................................... $ 336 $ 1,671
============ ============
Basic and diluted earnings per common share .................................. $ 0.02 $ 0.08
============ ============
Weighted average common shares outstanding
Basic ................................................................... 21,165 21,165
============ ============
Diluted ................................................................. 22,061 21,724
============ ============
</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 Three Months Ended
-----------------------------
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Revenues
Rental revenue ....................................................... $ 165,954 $ 124,285
Equipment sales ...................................................... 96,085 75,208
Parts and service .................................................... 36,494 26,058
------------- -------------
Total revenues .................................................. 298,533 225,551
------------- -------------
Cost of revenues
Cost of equipment sold ............................................... 78,544 57,646
Depreciation of rental equipment ..................................... 41,615 40,338
Maintenance of rental equipment ...................................... 49,221 34,219
Cost of parts and service ............................................ 23,477 16,985
------------- -------------
Total cost of revenues .......................................... 192,857 149,188
------------- -------------
Gross profit ................................................................. 105,676 76,363
------------- -------------
Other operating expenses
Selling, general and administrative expenses ......................... 54,729 42,149
Other depreciation and amortization .................................. 8,016 6,091
Officer stock option compensation .................................... -- 3,198
Writedown of assets held for sale .................................... 1,444 --
------------- -------------
Total other operating expenses .................................. 64,189 51,438
------------- --------------
Income from operations ....................................................... 41,487 24,925
------------- --------------
Other expenses
Interest expense ..................................................... 29,782 24,065
Amortization of debt issue costs ..................................... 871 2,955
------------- -------------
Total other expenses ............................................ 30,653 27,020
------------- --------------
Income (loss) before income taxes, minority interest and extraordinary item 10,834 (2,095)
(Provision for) benefit from income taxes .................................... (4,104) 1,043
------------- -------------
Income (loss) before minority interest and extraordinary item ................ 6,730 (1,052)
Minority interest ............................................................ (1,468) (412)
------------- -------------
Income (loss) before extraordinary item ...................................... 5,262 (1,464)
Extraordinary loss, net of income taxes ...................................... -- (2,675)
------------- -------------
Net income (loss) ............................................................ $ 5,262 $ (4,139)
============= ============
Basic earnings (loss) per common share
Income (loss) before extraordinary item ...................................... $ 0.25 $ (0.41)
Extraordinary loss, net ..................................................... -- (0.17)
------------- -------------
Net income (loss) ............................................................ $ 0.25 $ (0.58)
============= =============
Diluted earnings (loss) per common share
Income (loss) before extraordinary item ...................................... $ 0.24 $ (0.41)
Extraordinary loss, net ..................................................... -- (0.17)
------------- -------------
Net income (loss) ............................................................ $ 0.24 $ (0.58)
============= =============
Weighted average common shares outstanding
Basic ................................................................... 21,165 15,834
============= ============
Diluted ................................................................. 21,931 15,834
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
For the Nine Months Ended
------------------------------
September 30, September 30,
1999 1998
-------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) ............................................................. $ 5,262 $ (4,139)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities, net of acquisitions .................................... 40,886 40,089
-------------- -----------
Net cash provided by operating activities ............................ 46,148 35,950
-------------- -----------
Cash Flows from Investing Activities
Purchases of equipment ........................................................ (191,747) (163,922)
Proceeds from sale of rental equipment ........................................ 96,085 75,208
Purchases of property and equipment ........................................... (10,623) (13,740)
Cash paid for acquisitions .................................................... (16,268) (155,660)
-------------- -----------
Net cash used in investing activities ................................ (122,553) (258,114)
-------------- -----------
Cash Flows from Financing Activities
Debt issue costs .............................................................. (128) (8,072)
Net borrowings under Credit Facility .......................................... 68,211 120,088
Repayments under capitalized lease obligations ................................ (308) (575)
Proceeds from issuance of Senior Subordinated Notes .......................... -- 100,000
Proceeds from common stock offering ........................................... -- 85,813
Repayments under term loan .................................................... -- (49,916)
Net borrowings (repayments) under notes and mortgages payable ................ 9,797 (11,375)
Redemption of Series A Preferred Stock ........................................ -- (13,915)
-------------- -----------
Net cash provided by financing activities ............................ 77,572 222,048
-------------- -----------
Net increase (decrease) in cash and cash equivalents .......................... 1,167 (116)
Cash and cash equivalents, beginning of period ............................... 4,340 2,885
-------------- -----------
Cash and cash equivalents, end of period ..................................... $ 5,507 $ 2,769
============== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(unaudited, in thousands)
Additional
Common Stock A Common Stock B Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------ -------- ------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 ... 16,065 $ 161 5,100 $ 51 $ 127,765 $ (28,617) $ 99,360
Net income ................... -- -- -- -- -- 5,262 5,262
Other ........................ -- -- -- -- (3) 15 12
------ -------- ------- ------- ---------- ----------- ---------
Balance, September 30, 1999 .. 16,065 $ 161 5,100 $ 51 $ 127,762 $ (23,340) $ 104,634
====== ======== ======= ======== ========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(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, 1999 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1999.
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, 1998 appearing in the Company's Form 10-K filed with the
Securities and Exchange Commission.
NOTE 2 - RECLASSIFICATIONS
Certain amounts for the prior year have been reclassified to conform with
the current year presentation.
NOTE 3 - CHANGE IN ACCOUNTING POLICIES
During the first quarter of 1999, the Company made certain changes to its
depreciation assumptions to recognize extended estimated service lives and
increased residual values of its rental equipment. The Company believes that
these changes in estimates will more appropriately reflect its financial results
by better allocating the cost of its rental equipment over the service life of
these assets. This change in accounting estimate reduced depreciation of rental
equipment by approximately $12.1 million and increased net income by
approximately $7.3 million or $0.33 per diluted share for the nine months ended
September 30, 1999.
7
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(unaudited)
<TABLE>
<CAPTION>
NOTE 4 -EARNINGS PER SHARE
The treasury stock method was used to determine the dilutive effect of
options and warrants on earnings per share data. Net income (loss) and weighted
average number of shares outstanding used in the computations are summarized as
follows (in thousands, except per share data):
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) ............................. $ 336 $ 1,671 $ 5,262 $ (4,139)
Deduct:
Preferred stock dividend ................ -- -- -- (1,010)
Accretion of preferred stock ............ -- -- -- (4,093)
------------ -------------- ------------- -------------
Net income (loss)-(basic and diluted) ......... $ 336 $ 1,671 $ 5,262 $ (9,242)
============ ============== ============= =============
Number of Shares:
Weighed average common shares outstanding-basic 21,165 21,165 21,165 15,834
Add:
Employee stock options (1) ................. 896 559 766 --
------------ -------------- ------------- ------------
Weighted average common shares-diluted ........ 22,061 21,724 21,931 15,834
============ ============== ============= =============
Net income (loss) per common share-basic ... $ 0.02 $ 0.08 $ 0.25 $ (0.58)
============ ============== ============= =============
Net income (loss) per common share-diluted . $ 0.02 $ 0.08 $ 0.24 $ (0.58)
============ ============== ============= =============
</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.
<TABLE>
<CAPTION>
NOTE 5 -SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
Nine Months Ended
--------------------------------
September 30, September 30,
1999 1998
------------ -------------
(in thousands)
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information
Cash paid for interest ................................... $ 25,962 $ 18,194
========== =============
Cash paid for taxes ...................................... $ 146 $ 142
========== =============
</TABLE>
8
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(unaudited)
NOTE 6 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Neff Corp. ("Parent") issued $100 million of senior subordinated unsecured
notes on May 22, 1998 and an additional $100 million of senior subordinated
unsecured notes in December 1998. On June 30, 1998, Neff Corp. acquired 65% of
Sullair Argentina Sociedad Anonima ("S.A. Argentina.") 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.
9
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(unaudited)
NOTE 6 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ---------- -------- ------------ ------------
Assets
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents .................................... $ 4,888 $ 619 $ -- $ -- $ 5,507
Accounts receivable, net ..................................... 44,924 14,393 -- -- 59,317
Inventories .................................................. 16,406 15,700 -- -- 32,106
Rental equipment, net ....................................... 349,081 44,271 -- -- 393,352
Property and equipment, net .................................. 31,016 12,219 9,146 -- 52,381
Goodwill, net ............................................... 89,095 -- -- 19,180 108,275
Prepaid expenses and other assets ............................ 1,334 2,778 100,632 (90,068) 14,676
(Due to) from affiliates ..................................... (255,341) -- 255,341 -- --
----------- ---------- -------- ----------- -----------
Total assets ....................................... $ 281,403 $ 89,980 $365,119 $ (70,888) $ 665,614
=========== ========== ======== =========== ===========
Liabilities and Stockholders Equity (Deficit)
Liabilities
Accounts payable ........................................ $ 9,459 $ 20,908 $ 291 $ -- $ 30,658
Accrued expenses and other .............................. 13,756 1,050 15,902 -- 30,708
Credit facility ......................................... 213,740 -- 45,660 -- 259,400
Senior subordinated notes ............................... -- -- 198,633 -- 198,633
Notes payable ........................................... 494 26,585 -- -- 27,079
----------- ---------- -------- ----------- -----------
237,449 48,543 260,486 -- 546,478
----------- ---------- -------- ----------- -----------
Commitments and contingencies ................................ -- -- -- -- --
----------- ---------- -------- ----------- -----------
Minority interest ........................................... -- -- -- 14,502 14,502
----------- ---------- -------- ----------- -----------
Stockholders' equity
Class 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 3,009 127,762 (40,086) 127,762
Retained earnings (accumulated deficit) ...................... 6,877 38,338 (23,341) (45,214) (23,340)
----------- ---------- -------- ----------- -----------
Total stockholders' equity ......................... 43,954 41,437 104,633 (85,390) 104,634
----------- ---------- -------- ----------- -----------
Total liabilities and stockholders' equity ......... $ 281,403 $ 89,980 $365,119 $ (70,888) $ 665,614
========== ========== ======== =========== ===========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(unaudited)
NOTE 6 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ---------- ------ ------------ ------------
Assets
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents .......................... $ 3,649 $ 691 $ -- $ -- $ 4,340
Accounts receivable, net ........................... 44,460 14,562 -- -- 59,022
Inventories ........................................ 16,256 12,908 -- -- 29,164
Rental equipment, net ............................ 292,223 28,997 -- -- 321,220
Property and equipment, net ...................... 23,035 11,189 10,890 -- 45,114
Goodwill, net .................................... 82,737 -- -- 13,985 96,722
Prepaid expenses and other assets .................. 1,605 3,614 83,757 (72,189) 16,787
(Due to) from affiliates ........................... (251,185) -- 251,185 -- --
----------- --------- -------- ------------ -----------
Total assets ............................. $ 212,780 $ 71,961 $345,832 $ (58,204) $ 572,369
=========== ========= ======== ============ ===========
Liabilities and Common Stockholders Equity (Deficit)
Liabilities
Accounts payable .............................. $ 7,421 $ 16,834 $ 150 $ -- $ 24,405
Accrued expenses and other .................... 17,031 1,346 10,200 -- 28,577
Credit facility ............................... 153,589 -- 37,600 -- 191,189
Senior subordinated notes ..................... -- -- 198,522 -- 198,522
Notes payable ................................. 741 16,541 -- -- 17,282
----------- --------- -------- ----------- -----------
Total liabilities ........................ 178,782 34,721 246,472 -- 459,975
----------- --------- -------- ----------- -----------
Commitments and contingencies ...................... -- -- -- -- --
----------- --------- -------- ----------- -----------
Minority interest .................................. -- -- -- 13,034 13,034
----------- --------- -------- ----------- -----------
Stockholders' equity
Class 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 3,009 127,765 (40,086) 127,765
Retained earnings (accumulated deficit) ............ (3,079) 34,141 (28,617) (31,062) (28,617)
----------- --------- -------- ----------- -----------
Total stockholders' equity ............... 33,998 37,240 99,360 (71,238) 99,360
----------- --------- -------- ----------- -----------
Total liabilities and stockholders' equity $ 212,780 $ 71,961 $345,832 $ (58,204) $ 572,369
=========== ========= ======== ============ ===========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(unaudited)
NOTE 6 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ---------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue ..................................... $ 52,160 $ 8,648 $ -- $ -- $ 60,808
Equipment sales .................................... 25,863 3,985 -- -- 29,848
Parts and service .................................. 11,861 1,263 -- -- 13,124
------------ ---------- ------ ------------ ------------
Total revenues .................................. 89,884 13,896 -- -- 103,780
------------ ---------- ------ ------------ ------------
Cost of revenues
Cost of equipment sold ............................. 21,893 3,238 -- -- 25,131
Depreciation of rental equipment ................... 12,893 2,096 -- -- 14,989
Maintenance of rental equipment .................... 15,572 2,738 -- -- 18,310
Cost of parts and service .......................... 7,708 819 -- -- 8,527
------------ ---------- ------ ------------ ------------
Total cost of revenues .......................... 58,066 8,891 -- -- 66,957
------------ ---------- ------ ------------ ------------
Gross profit ........................................... 31,818 5,005 -- -- 36,823
------------ ---------- ------ ------------ ------------
Other operating expenses
Selling, general and administrative expenses 17,148 1,819 933 -- 19,900
Other depreciation and amortization ................... 2,588 277 180 -- 3,045
Writedown of assets held for sale ..................... 1,444 -- -- -- 1,444
------------ ---------- ------ ------------ ------------
Total other operating expenses ................... 21,180 2,096 1,113 -- 24,389
------------ ---------- ------ ------------ ------------
Income (loss) from operations ......................... 10,638 2,909 (1,113) -- 12,434
------------ ---------- ------ ------------ ------------
Other expense
Interest expense ................................... 9,041 923 956 -- 10,920
Amortization of debt issue costs ................... 83 -- 222 -- 305
------------ ---------- ------ ------------ ------------
Total other expense ............................. 9,124 923 1,178 -- 11,225
------------ ---------- ------ ------------ ------------
Income (loss) before income taxes and minority interest 1,514 1,986 (2,291) -- 1,209
(Provision for) benefit from income taxes ............. (620) (762) 937 -- (445)
------------ ---------- ------ ------------ ------------
Income (loss) before minority interest ................ 894 1,224 (1,354) -- 764
Minority interest ..................................... -- -- -- (428) (428)
------------ ---------- ------ ------------ ------------
Net income (loss) ..................................... $ 894 $ 1,224 $ (1,354) $ (428) $ 336
============ ========== ====== ============ ============
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(unaudited)
NOTE 6 - 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 ..................................... $ 47,340 $ 4,549 $ -- $ -- $ 51,889
Equipment sales .................................... 21,181 6,354 -- -- 27,535
Parts and service .................................. 9,269 1,212 -- -- 10,481
------------ ------------ -------- ------------ -------------
Total revenues .................................. 77,790 12,115 -- -- 89,905
------------ ------------ -------- ------------ -------------
Cost of revenues
Cost of equipment sold ............................. 16,612 5,517 -- -- 22,129
Depreciation of rental equipment ................... 14,412 1,083 -- -- 15,495
Maintenance of rental equipment .................... 12,821 1,319 -- -- 14,140
Cost of parts and service .......................... 5,984 847 -- -- 6,831
------------ ------------ -------- ------------ -------------
Total cost of revenues .......................... 49,829 8,766 -- -- 58,595
------------ ------------ -------- ------------ -------------
Gross profit ........................................... 27,961 3,349 -- -- 31,310
------------ ------------ -------- ------------ -------------
Other operating expenses
Selling, general and administrative expenses ....... 15,661 1,183 282 -- 17,126
Other depreciation and amortization ................ 1,915 216 147 -- 2,278
------------ ------------ -------- ------------ -------------
Total other operating expenses .................. 17,576 1,399 429 -- 19,404
------------ ------------ -------- ------------ -------------
Income (loss) from operations .......................... 10,385 1,950 (429) -- 11,906
------------ ------------ -------- ------------ -------------
Other expense
Interest expense ................................... 7,590 476 751 -- 8,817
Amortization of debt issue costs ................... 79 -- 88 -- 167
------------ ------------ -------- ------------ -------------
Total other expense ............................. 7,669 476 839 -- 8,984
------------ ------------ -------- ------------ -------------
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
SEPTEMBER 30, 1999
(unaudited)
NOTE 6 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue ..................................... $ 143,251 $ 22,703 $ -- $ -- $ 165,954
Equipment sales .................................... 82,954 13,131 -- -- 96,085
Parts and service .................................. 32,584 3,910 -- -- 36,494
------------ ------------ -------- ------------ -------------
Total revenues .................................. 258,789 39,744 -- -- 298,533
------------ ------------ -------- ------------ -------------
Cost of revenues
Cost of equipment sold ............................. 67,906 10,638 -- -- 78,544
Depreciation of rental equipment ................... 36,315 5,300 -- -- 41,615
Maintenance of rental equipment .................... 41,991 7,230 -- -- 49,221
Cost of parts and service .......................... 21,022 2,455 -- -- 23,477
------------ ------------ -------- ------------ -------------
Total cost of revenues .......................... 167,234 25,623 -- -- 192,857
------------ ------------ -------- ------------ -------------
Gross profit ........................................... 91,555 14,121 -- -- 105,676
------------ ------------ -------- ------------ -------------
Other operating expenses
Selling, general and administrative expenses ....... 47,512 4,767 2,450 -- 54,729
Other depreciation and amortization ................ 7,037 485 494 -- 8,016
Writedown of assets held for sale .................. 1,444 -- -- -- 1,444
------------ ------------ -------- ------------ -------------
Total other operating expenses .................. 55,993 5,252 2,944 -- 64,189
------------ ------------ -------- ------------ -------------
Income (loss) from operations .......................... 35,562 8,869 (2,944) -- 41,487
------------ ------------ -------- ------------ -------------
Other expense
Interest expense ................................... 24,983 2,325 2,474 -- 29,782
Amortization of debt issue costs ................... 249 -- 622 -- 871
------------ ------------ -------- ------------ -------------
Total other expense ............................. 25,232 2,325 3,096 -- 30,653
------------ ------------ -------- ------------ -------------
Income (loss) before income taxes and minority interest 10,330 6,544 (6,040) -- 10,834
(Provision for) benefit from income taxes .............. (4,225) (2,349) 2,470 -- (4,104)
------------ ------------ -------- ------------ -------------
Income (loss) before minority interest ................. 6,105 4,195 (3,570) -- 6,730
Minority interest ...................................... -- -- -- (1,468) (1,468)
------------ ------------ -------- ------------ -------------
Net income (loss) ...................................... $ 6,105 $ 4,195 $ (3,570) $ (1,468) $ 5,262
============ ============ ======== ============ =============
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(unaudited)
NOTE 6 - 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 ................................... $ 119,737 $ 4,548 $ -- $ -- $ 124,285
Equipment sales .................................. 68,853 6,355 -- -- 75,208
Parts and service ................................ 24,846 1,212 -- -- 26,058
------------ ------------- -------- ----------- ------------
Total revenues ................................ 213,436 12,115 -- -- 225,551
------------ ------------- -------- ----------- ------------
Cost of revenues
Cost of equipment sold ........................... 52,129 5,517 -- -- 57,646
Depreciation of rental equipment ................. 39,255 1,083 -- -- 40,338
Maintenance of rental equipment .................. 32,900 1,319 -- -- 34,219
Cost of parts and service ........................ 16,138 847 -- -- 16,985
------------ ------------- -------- ----------- ------------
Total cost of revenues ........................ 140,422 8,766 -- -- 149,188
------------ ------------- -------- ----------- ------------
Gross profit ......................................... 73,014 3,349 -- -- 76,363
------------ ------------- -------- ----------- ------------
Other operating expenses
Selling, general and administrative expenses ..... 40,568 1,183 398 -- 42,149
Other depreciation and amortization .............. 5,672 216 203 -- 6,091
Officer stock option compensation ................ -- -- 3,198 -- 3,198
------------ ------------- -------- ----------- ------------
Total other operating expenses ................ 46,240 1,399 3,799 -- 51,438
------------ ------------- -------- ----------- ------------
Income (loss) from operations ........................ 26,774 1,950 (3,799) -- 24,925
------------ ------------- -------- ----------- ------------
Other expense
Interest expense ................................. 22,695 476 894 -- 24,065
Amortization of debt issue costs ................. 2,837 -- 118 -- 2,955
------------ ------------- -------- ----------- ------------
Total other expense ........................... 25,532 476 1,012 -- 27,020
------------ ------------- -------- ----------- ------------
Income (loss) before income taxes, minority interest
and extraordinary item .............................. 1,242 1,474 (4,811) -- (2,095)
(Provision for) benefit from income taxes ............ (466) (295) 1,804 -- 1,043
------------ ------------- -------- ------------ ------------
Income (loss) before minority interest and extraordinary
item ................................................ 776 1,179 (3,007) -- (1,052)
Minority interest .................................... -- -- -- (412) (412)
------------ ------------- -------- ------------ ------------
Income (loss) before extraordinary item .............. 776 1,179 (3,007) (412) (1,464)
Extraordinary loss, net .............................. (2,675) -- -- -- (2,675)
------------ ------------- -------- ------------ ------------
Net Income (loss) .................................... $ (1,899) $ 1,179 $ (3,007) $ (412) $ (4,139)
============ ============= ======== ============ ============
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(unaudited)
NOTE 6 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands)
Guarantor Non-Guarantor
Subsidiaries Subsidiary Parent Eliminations Consolidated
------------ ------------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) ..................................... $ 6,105 $ 4,195 $(3,570) $ (1,468) $ 5,262
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities, net of
acquisitions ......................................... 39,747 8,078 (8,407) 1,468 40,886
------------ ------------ ------- ----------- ------------
Net cash provided by (used in) operating activities ... 45,852 12,273 (11,977) -- 46,148
------------ ------------ ------- ----------- ------------
Cash Flows from Investing Activities
Purchases of equipment ................................ (157,742) (34,005) -- -- (191,747)
Proceeds from sale of rental equipment ................ 82,954 13,131 -- -- 96,085
Purchases of property and equipment ................... (9,104) (1,515) (4) -- (10,623)
Cash paid for acquisitions ............................ (16,268) -- -- -- (16,268)
------------ ------------ ------- ----------- ------------
Net cash used in investing activities ............ (100,160) (22,389) (4) -- (122,553)
------------ ------------ ------- ----------- ------------
Cash Flows from Financing Activities
Debt issue costs ...................................... -- -- (128) -- (128)
Net repayments under Credit Facility .................. 60,150 -- 8,061 -- 68,211
Net repayments under capitalized lease obligations .... (308) -- -- -- (308)
Net borrowings (repayments) under notes payable ....... (247) 10,044 -- -- 9,797
Due to (from) affiliates .............................. (4,048) -- 4,048 -- --
------------ ----------- ------- ----------- ------------
Net cash provided by financing activities ........ 55,547 10,044 11,981 -- 77,572
------------ ----------- -------- ----------- ------------
Net (decrease) increase in cash and cash equivalents.. 1,239 (72) -- -- 1,167
Cash and cash equivalents, beginning of period ........ 3,649 691 -- -- 4,340
------------ ----------- -------- ----------- ------------
Cash and cash equivalents, end of period .............. $ 4,888 $ 619 $ -- $ -- $ 5,507
========== =========== ======== =========== ============
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(unaudited)
NOTE 6 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION (con't)
CONDENSED 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) .................................... $ (1,899) $ 1,179 $(3,007) $ (412) $ (4,139)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities, net of acquisitions 32,254 1,862 5,561 412 40,089
----------- ------------ ------- ----------- ------------
Net cash provided by operating activities ....... 30,355 3,041 2,554 -- 35,950
----------- ------------ ------- ----------- ------------
Cash Flows from Investing Activities
Purchases of equipment ............................... (154,239) (9,683) -- -- (163,922)
Proceeds from sale of rental 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)
----------- ------------ -------- ----------- ------------
Net cash used in investing activities ........... (217,099) (4,605) (36,410) -- (258,114)
----------- ------------ -------- ----------- ------------
Cash Flows from Financing Activities
Debt issue costs ..................................... (7,814) -- (258) -- (8,072)
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 .. -- -- 100,000 -- 100,000
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 ............................. 161,413 -- (161,413) -- --
----------- ----------- -------- ----------- -----------
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>
17
<PAGE>
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(unaudited)
NOTE 7 - SEGMENT INFORMATION
The Company has three segments: Neff Rental, Inc. ("Rental"), Neff
Machinery, Inc. ("Machinery") and S.A. Argentina. These segments are a result of
the historical organization of the Company and the management of its
subsidiaries. All of these segments rent and sell industrial and construction
equipment, sell spare parts and merchandise and provide ongoing repair and
maintenance services and have therefore been aggregated for disclosure purposes.
Rental and Machinery's operations are conducted in the United States and S.A.
Argentina's operations are conducted in South America. The information contained
in Note 6 under the heading Non-Guarantor Subsidiary represents S.A. Argentina's
operations. All other information in Note 6 represents operations conducted in
the United States.
NOTE 8 - SUBSEQUENT EVENTS
In October 1999, the Company announced that it had signed a definitive
agreement to sell its 65% equity interst in S.A. Argentina for $42.5 million.
The sale is expected to be completed before the end of the fiscal year.
In November 1999, the Company announced that it had signed a definitive
agreement to sell its wholly-owned subsidiary, Neff Machinery, Inc., for $91
million. The sale is expected to be completed before the end of the fiscal year.
18
<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, 1999 to the quarter and nine months ended September 30, 1998
and should be read in conjunction with the Company's Consolidated Financial
Statements and the Notes thereto, appearing elsewhere in this Form 10-Q and in
conjunction with the Company's Form 10-K for the year ended December 31, 1998.
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 96, as of
September 30, 1999. The Company has achieved this growth through the addition of
60 equipment rental locations as a result of acquisitions, and the opening of 28
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; and (iii) continuing to open
new equipment rental locations.
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. 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.
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.
19
<PAGE>
Depreciation of rental equipment is calculated on a straight-line basis
over the estimated service life of the asset (generally two to eight years with
a residual value up to 20%, depending on the nature of the asset). Since January
1, 1996, the Company has made certain changes to its depreciation assumptions to
recognize extended estimated service lives and increased residual values of its
rental equipment. The Company believes that these changes in estimates will more
appropriately reflect its financial results by better allocating the cost of its
rental equipment over the service lives of these assets. In addition, the new
lives and residual values more closely conform to those prevalent in the
industry.
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.
Writedown of assets held for sale represents a pre-tax charge of $1.4 million to
writedown certain assets located in the Company's Gulf Region to estimated fair
market value during the third quarter of 1999.
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, 1999 Compared to Third Quarter Ended September
30, 1998
Revenues. Total revenues for the quarter ended September 30, 1999 increased
15.5% to $103.8 million from $89.9 million for the quarter ended September 30,
1998. This growth in revenues primarily resulted from an increase in revenues
from the maturation of the rental locations opened since March 1995 of
approximately $5.6 million and approximately $14.1 million attributable to
revenues generated by acquisitions.
Gross Profit. Gross profit for the quarter ended September 30, 1999
increased 17.6% to $36.8 million or 35.5% of total revenues from $31.3 million
or 34.8% of total revenues for the quarter ended September 30, 1998. This
increase is primarily attributable to an increase in gross profit of
approximately $1.3 million associated with the maturation of the rental
locations opened since March 1995 and an increase of approximately $2.5 million
associated with acquisitions. The increase in gross profit includes
approximately $4.4 million related to the change in the Company's depreciation
policy to recognize extended service levels and increased salvage value of its
assets.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended September 30, 1999 increased 16.4%
to $19.9 million or 19.2% of total revenues from $17.1 million or 19% of total
revenues for the quarter ended September 30, 1998. The increase in selling,
general and administrative expenses is primarily attributable to the increase in
the number of locations operated by the Company and increased regional and
corporate personnel to support the continued growth of the Company.
Other Depreciation and Amortization. Other depreciation and amortization
expense for the quarter ended September 30, 1999 increased 30.4% to $3.0 million
or 2.9% of total revenues from $2.3 million or 2.6% of total revenues for the
quarter ended September 30, 1998. The increase is primarily attributable to
amortization of goodwill resulting from additional acquisitions.
20
<PAGE>
Interest Expense. Interest expense for the quarter ended September 30, 1999
increased 23.9% to $10.9 million from $8.8 million in 1998. 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, 1999 Compared to Nine Months Ended September 30,
1998
Revenues. Total revenues for the nine months ended September 30, 1999
increased 32.3% to $298.5 million from $225.6 million for the nine months ended
September 30, 1998. This growth in revenues primarily resulted from an increase
in revenues from the maturation of the rental locations opened since March 1995
of approximately $22.3 million and approximately $53.5 million attributable to
revenues generated by acquisitions.
Gross Profit. Gross profit for the nine months ended September 30, 1999
increased 38.4% to $105.7 million or 35.4% of total revenues from $76.4 million
or 33.9% of total revenues for the nine months ended September 30, 1998. This
increase is primarily attributable to an increase in gross profit of
approximately $10.9 million associated with the maturation of the rental
locations opened since March 1995 and approximately $14.5 million associated
with the growth in revenues arising from acquisitions. These increases in gross
profit include approximately $12.1 million related to the change in the
Company's depreciation policy to recognize extended service levels and increased
salvage value of its assets. 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.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1999 increased
29.6% to $54.7 million or 18.3% of total revenues from $42.2 million or 18.7% of
total revenues for the nine months ended September 30, 1998. The increase in
selling, general and administrative expenses is primarily attributable to the
increase in the number of locations operated by the Company and increased
regional and corporate personnel to support the continued growth of the Company.
Other Depreciation and Amortization. Other depreciation and amortization
expense for the nine months ended September 30, 1999 increased 31.1% to $8.0
million or 2.7% of total revenues from $6.1 million or 2.7% of total revenues
for the nine months ended September 30, 1998. The increase is primarily
attributable to amortization of goodwill resulting from additional acquisitions.
Interest Expense. Interest expense for the nine months ended September 30,
1999 increased 23.7% to $29.8 million from $24.1 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.
21
<PAGE>
Liquidity and Capital Resources
During the third quarter of 1999, the Company financed its growth primarily
through cash flow from operations and borrowings under credit facilities.
For the nine months ended September 30, 1999, net cash flows provided by
operating activities was $46.2 million, compared to $36 million for the nine
months ended September 30, 1998. 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, 1999 was $122.6 million as compared to $258.1 million for the same period of
the prior year. This decrease is primarily attributable to a decrease in the
amount expended for acquisitions.
Net cash provided by financing activities was $77.6 million for the nine
months ended September 30, 1999, as compared to $222 million for the same period
in the prior year. The net cash provided by financing activities was primarily
attributable to borrowings under the Company's Credit Facility. As of September
30, 1999, the Company had approximately $44.2 million available under its Credit
Facility.
Year 2000
The Company is aware of the issues associated with the programming code in
existing computer and software systems as the Year 2000 approaches. The Year
2000 problem is pervasive and complex, as virtually every computer operation
could be affected in some way by the rollover of the two-digit year value to
"00". The issue is whether systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause complete
system failures. The Company has completed an assessment of the effect of Year
2000 issues on its computer systems. Based upon this assessment, management
believes the Company is Year 2000 compliant. The total cost to the Company to
become Year 2000 compliant was not material. The Company has received
confirmation from all of its current systems' vendors that each of their systems
will properly handle the rollover to the Year 2000. Although there can be no
assurance, management believes that Year 2000 problem will not have a material
effect on the financial position, results of operations or cash flows of the
Company. In addition, there can be no assurance that the systems of other
companies with which the Company does business will properly handle the rollover
to the Year 2000 and will not have an adverse effect on the Company's
operations.
Recent Developments
In October 1999, the Company announced that it had signed a definitive
agreement to sell its 65% equity interst in S.A. Argentina for $42.5 million.
The sale is expected to be completed before the end of the fiscal year.
In November 1999, the Company announced that it had signed a definitive
agreement to sell its wholly-owned subsidiary, Neff Machinery, Inc., for $91
million. The sale is expected to be completed before the end of the fiscal year.
22
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Description
- ------- -------------
10.1 First Amendment to Rights Agreement between Neff Corp. and First
Union National Bank
27 Financial Data Schedule
(b) Reports on Form 8-K:
23
<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 ___, 1999 /s/ Mark H. Irion
------------------------------------------
MARK H. IRION
Chief Financial Officer
On behalf of the registrant and as
Principal Financial and Accounting Officer
FIRST AMENDMENT TO RIGHTS AGREEMENT
FIRST AMENDMENT TO RIGHTS AGREEMENT, dated as of September 25, 1999 (this
"Amendment") between Neff Corp., a Delaware corporation (the "Company") and
First Union National Bank (the "Rights Agent"). All capitalized terms used
herein and not otherwise defined shall have the respective meanings assigned to
such terms in the Rights Agreement.
WHEREAS, the Company and the Rights Agent are party to a Rights Agreement,
dated as of May 15, 1998 (the "Rights Agreement");
WHEREAS, pursuant to Section 27 of the Rights Agreement, prior to the
Distribution Date, the Company and the Rights Agent may amend any provision of
the Rights Agreement without the approval of any holders of certificates
representing Common Shares;
WHEREAS, the Distribution Date has not yet occurred and the Company and the
Rights Agent desire to amend the Rights Agreement as set forth in this
Amendment;
WHEREAS, the parties hereto agree as follows:
1. Section 1(j) of the Rights Agreement is hereby amended by deleting the
definition of "Grandfathered Stockholder" in its entirety and replacing it with
the following:
"Grandfathered Stockholder" shall mean each of (i) Jorge Mas, his
Affiliates and Associates, (ii) Juan Carlos Mas, his Affiliates and Associates,
(iii) Jose Ramon Mas, his Affiliates and Associates, (iv) Santos Fund I, L.P.,
(v) Santos Capital Advisors, Inc. and (vi) General Electric Capital Corporation,
GECFS, Inc. and their Affiliates and Associates (together, the "GECC
Stockholders") but only so long as (1) after the Record Date and before
September 25, 1999, the GECC Stockholders beneficially own in the aggregate less
than 25 percent of the issued and outstanding Class A Common Stock and (2) on
and after September 25, 1999, the GECC Stockholders beneficially own in the
aggregate less than 20 percent of the issued and outstanding Class A Common
Stock; provided, however, that if on or after September 25, 1999, the GECC
Stockholders beneficially own in the aggregate less than 25 percent but 20
percent or more of the issued and outstanding Class A Common Stock and (A)
General Electric Capital Corporation and GECFS, Inc. have complied in all
material respects with their obligations under the Standstill Agreement dated as
of April 29, 1998 by and among General Electric Capital Corporation, GECFS,
Inc., the Company and Santos Capital Advisers, Inc.; and (B) the Company, Neff
Machinery, Inc., Jorge Mas, Jose Ramon Mas, Juan Carlos Mas, Santos Capital
Advisors, Inc. and Santos Fund I, L.P. (together the "Mas Affiliates") fail to
fulfill their obligations, pursuant to the Agreement by and among John Deere
Construction Equipment Company and the Mas Affiliates dated as of April 29,
1998, to cause the GECC Stockholders to beneficially own less than 20 percent of
the issued and outstanding Class A Common Stock, the GECC Stockholders shall
continue to be deemed Grandfathered Stockholders notwithstanding the fact that
their beneficial ownership is equal to or exceeds 20 percent of the issued and
outstanding Class A Common Stock; provided further, if such failure by the Mas
Affiliates is cured, the GECC Stockholders shall thereafter continue to be
deemed Grandfathered Stockholders for so long as they continue to beneficially
own in the aggregate less than 20 percent of the issued and outstanding Class A
Common Stock.
2. This Amendment shall be governed by and construed in accordance with the
laws of the State of Delaware applicable to contracts to be made and performed
entirely within such State.
3. This Amendment may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
NEFF CORP.
By: /s/ Kevin P. Fitzgerald
-------------------------------------------
Name: Kevin P. Fitzgerald
Title: Chief Executive Officer and President
FIRST UNION NATIONAL BANK
By: /s/ Patrick J. Edwards
-------------------------------------------
Name: Patrick J. Edwards
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001057725
<NAME> Neff Corp.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,507
<SECURITIES> 0
<RECEIVABLES> 63,384
<ALLOWANCES> 4,067
<INVENTORY> 32,106
<CURRENT-ASSETS> 0
<PP&E> 568,050
<DEPRECIATION> 122,317
<TOTAL-ASSETS> 665,614
<CURRENT-LIABILITIES> 0
<BONDS> 485,112
0
0
<COMMON> 212
<OTHER-SE> 104,422
<TOTAL-LIABILITY-AND-EQUITY> 665,614
<SALES> 298,533
<TOTAL-REVENUES> 298,533
<CGS> 78,544
<TOTAL-COSTS> 192,857
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,499
<INTEREST-EXPENSE> 29,782
<INCOME-PRETAX> 9,366
<INCOME-TAX> 4,104
<INCOME-CONTINUING> 5,262
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,262
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.24
</TABLE>
