UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended: June 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 001-14145
NEFF CORP.
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(Exact Name of registrant as specified in its charter)
DELAWARE 65-0626400
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. No.)
3750 N.W. 87th Avenue, Miami, Florida 33178
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(Address of principal executive offices) (Zip Code)
(305) 513-3350
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(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 16,065,000 shares of
Class A Common Stock, $.01 par value and 5,100,000 shares of Class B Common
Stock, $.01 par value, outstanding at August 1, 2000.
<PAGE>
<TABLE>
<CAPTION>
Neff Corp.
Quarterly Report on Form 10-Q
For the Quarter and Period ended
June 30, 2000
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 2000 (Unaudited) and
December 31,1999 ........................................................ 3
Condensed Consolidated Statements of Operations for the three months ended
June 30, 2000, 1999 (Unaudited) and Pro Forma June 30, 1999
(Unaudited).............................................................. 4
Condensed Consolidated Statements of Operations for the six months ended
June 30, 2000, 1999 (Unaudited) and Pro Forma June 30, 1999 (Unaudited).. 5
Condensed Consolidated Statements of Cash Flows for the six months
Ended June 30, 2000 and 1999 (Unaudited)................................. 6
Notes to Condensed Consolidated Financial Statements (Unaudited)......... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations .............................................................. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ....................................................... 15
Item 6. Exhibits ................................................................ 16
SIGNATURE ......................................................................... 17
</TABLE>
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<PAGE>
NEFF CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
2000 1999
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(unaudited)
ASSETS
Cash and cash equivalents ........................................ $4,119 $3,374
Accounts receivable, net of allowance for doubtful accounts of
$2,805 in 2000 and $2,904 in 1999 ............................. 37,103 53,740
Inventories ...................................................... 3,653 3,860
Rental equipment, net ............................................ 327,051 285,863
Property and equipment, net ...................................... 29,414 25,638
Goodwill, net .................................................... 86,735 88,008
Prepaid expenses and other assets ................................ 15,884 11,223
-------- --------
Total assets ...................................... $503,959 $471,706
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable ......................................... $27,762 $7,527
Accrued expenses and other ............................... 23,870 22,734
Credit facility .......................................... 155,000 137,182
Senior subordinated notes ................................ 198,683 198,670
Capitalized lease obligations ............................ 751 742
Net deferred tax liability ............................... - 643
-------- --------
Total liabilities ........................................ 406,066 367,498
======== ========
Commitments and contingencies
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, liquidation
preference $11.67; 20,000 shares authorized; 5,100 shares
issued and outstanding .................................. 51 51
Additional paid-in capital ................................ 127,759 127,759
Accumulated deficit ....................................... (30,078) (23,763)
-------- --------
Total stockholders' equity ............................... 97,893 104,208
-------- --------
Total liabilities and stockholders' equity ............... $503,959 $471,706
======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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<PAGE>
NEFF CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
____________________________
<S> <C> <C> <C>
Pro Forma
2000 1999 1999
Revenues ------ ------- ------
Rental revenues ........................................... $48,519 $56,138 $44,720
Equipment sales ........................................... 9,176 34,539 15,451
Parts and service ......................................... 4,450 12,424 3,852
------ ------- ------
Total revenues ....................................... 62,145 103,101 64,023
------ ------- ------
Cost of revenues
Cost of equipment sold .................................... 7,828 27,620 12,222
Depreciation of rental equipment .......................... 11,437 13,485 9,840
Maintenance of rental equipment ........................... 16,394 15,620 13,024
Cost of parts and service ................................. 2,876 8,085 2,399
------ ------ ------
Total cost of revenues ............................... 38,535 64,810 37,485
------ ------ ------
Gross profit ...................................................... 23,610 38,291 26,538
------ ------ ------
Other operating expenses
Selling, general and administrative expenses .............. 15,410 17,731 13,794
Other depreciation and amortization ....................... 2,452 2,691 2,143
Write-down of assets held for sale ....................... 4,275 - -
------ ------ ------
Total other operating expenses ....................... 22,137 20,422 15,937
------ ------ ------
Income from operations ............................................ 1,473 17,869 10,601
------ ------ ------
Other expenses
Interest expense .......................................... 8,077 9,710 6,656
Amortization of debt issue costs .......................... 315 309 297
----- ------ -----
Total other expense .................................. 8,392 10,019 6,953
----- ------ -----
Income (loss) before income taxes and minority interest ........... (6,919) 7,850 3,648
(Provision for) benefit from income taxes ......................... 2,830 (3,029) (1,492)
----- ------ ------
Income (loss) before minority interest ............................ (4,089) 4,821 2,156
Minority interest ................................................. - (602) -
------ ------ ------
Net income (loss) ................................................. $(4,089) $4,219 $2,156
====== ====== ======
Net income (loss) per common share:
Basic ..................................................... $(0.19) $0.20 $0.10
====== ====== ======
Diluted ................................................... $(0.19) $0.19 $0.10
====== ====== ======
Weighted average common shares outstanding
Basic ..................................................... 21,165 21,165 21,165
====== ====== ======
Diluted ................................................... 21,165 21,943 21,943
====== ====== ======
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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<PAGE>
NEFF CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
_________________________
<S> <C> <C> <C>
Pro Forma
2000 1999 1999
------- ------- -------
Revenues
Rental revenues ........................................... $91,275 $105,146 $82,978
Equipment sales ........................................... 21,460 66,237 28,282
Parts and service ......................................... 8,526 23,338 6,982
------- ------- -------
Total revenues ....................................... 121,261 194,721 118,242
------- ------- -------
Cost of revenues
Cost of equipment sold .................................... 17,846 53,419 22,562
Depreciation of rental equipment .......................... 21,840 26,627 19,410
Maintenance of rental equipment ........................... 31,183 30,793 25,843
Cost of parts and service ................................. 5,051 14,920 4,226
------ ------ ------
Total cost of revenues ............................... 75,920 125,759 72,041
------ ------- ------
Gross profit ...................................................... 45,341 68,962 46,201
------ ------ ------
Other operating expenses
Selling, general and administrative expenses .............. 30,763 34,874 26,546
Other depreciation and amortization ....................... 4,743 5,090 4,098
Write-down of assets held for sale ....................... 4,275 - -
------ ------ ------
Total other operating expenses ....................... 39,781 39,964 30,644
------ ------ ------
Income from operations ............................................ 5,560 28,998 15,557
------ ------ ------
Other expenses
Interest expense .......................................... 15,609 18,862 13,277
Amortization of debt issue costs .......................... 637 566 542
------ ------ ------
Total other expense .................................. 16,246 19,428 13,819
------ ------ ------
Income (loss) before income taxes and minority interest ........... (10,686) 9,570 1,738
(Provision for) benefit from income taxes ......................... 4,371 (3,637) (712)
----- ------ ------
Income (loss) before minority interest ............................ (6,315) 5,933 1,026
Minority interest ................................................. - (1,040) -
------ ------ ------
Net income (loss) ................................................. $(6,315) $4,893 $1,026
====== ====== ======
Net income (loss) per common share:
Basic ..................................................... $(0.30) $0.23 $0.05
====== ====== ======
Diluted ................................................... $(0.30) $0.22 $0.05
====== ====== ======
Weighted average common shares outstanding
Basic ..................................................... 21,165 21,165 21,165
====== ====== ======
Diluted ................................................... 21,165 21,816 21,816
====== ====== ======
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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<PAGE>
NEFF CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
________________________
<S> <C> <C>
2000 1999
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Cash Flows from Operating Activities
Net Income (loss) ........................................................... $(6,315) $4,893
Adjustments to reconcile net income (loss) to net cash provided by operating
activities, net of acquisitions ......................................... 46,264 29,809
------- -------
Net cash provided by operating activities .......................... 39,949 34,702
------- -------
Cash Flows from Investing Activities
Purchases of equipment ..................................................... (84,941) (135,512)
Proceeds from sale of equipment ............................................ 21,460 66,237
Purchases of property and equipment ........................................ (6,050) (8,378)
Collection of receivable from sale of subsidiary ........................... 12,500 -
Cash paid for acquisitions ................................................. - (16,268)
------- -------
Net cash used in investing activities .............................. (57,031) (93,921)
------- -------
Cash Flows from Financing Activities
Net borrowings under Credit Facility ....................................... 17,818 59,008
Net borrowings (repayments) under capitalized lease obligations ............ 9 (362)
Net borrowings under notes payable ......................................... - 1,914
Debt issue costs ........................................................... - (32)
------- -------
Net cash provided by financing activities .......................... 17,827 60,528
------- -------
Net increase in cash and cash equivalents .................................. 745 1,309
Cash and cash equivalents, beginning of period ............................. 3,374 4,340
------- -------
Cash and cash equivalents, end of period ................................... $4,119 $5,649
======= =======
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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<PAGE>
NEFF CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements have been prepared by Neff Corp. (the "Company") and reflect all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary for a fair presentation of financial results for the
three months and the six months ended June 30, 2000 and 1999, in accordance
with accounting principles generally accepted in the United States of
America ("U.S. GAAP") for interim financial reporting and pursuant to
Article 10 of Regulation S-X. The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. GAAP have been condensed or
omitted pursuant to such rules and regulations. These unaudited interim
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements for the year ended December 31,
1999 appearing in the Company's Annual Report on Form 10-K, as amended,
filed with the Securities and Exchange Commission. The results of
operations for the three months and the six months ended June 30, 2000 are
not necessarily indicative of the results which may be reported for the
year ending December 31, 2000.
The unaudited interim condensed consolidated financial statements
include the accounts of the Company and its subsidiaries. All material
intercompany transactions and balances have been eliminated in
consolidation.
During 1999 the Company sold its interest in two of its subsidiaries.
The Company sold its 65% equity interest in S.A. Argentina ("Sullair")
during November 1999 and sold all of the capital stock of its wholly-owned
subsidiary Neff Machinery, Inc. ("Machinery") during December 1999. The pro
forma condensed consolidated statements of operations reflect the results
of operations of the Company for the three months and the six months ended
June 30, 1999 as if the sales of Sullair and Machinery had occurred on
January 1, 1999. These pro forma condensed consolidated statements of
operations have been prepared by adjusting the historical statements for
the effects the sales of Sullair and Machinery might have had on revenues,
expenses, assets and liabilities, if the sales of Sullair and Machinery had
been effected as of January 1, 1999. These pro forma condensed consolidated
statements of operations do not necessarily reflect the consolidated
results of operations that would have existed had the sales of Sullair and
Machinery occurred as of January 1, 1999.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"),
was issued by the Securities and Exchange Commission and is effective for
the Company during the current fiscal year. SAB 101 provides guidance on
the recognition, presentation and disclosure of revenue in financial
statements filed with the Securities and Exchange Commission. The Company
has evaluated the relevant revenue recognition criteria disclosed in SAB
101 and believes that it should not have a material impact on its financial
position or results of operations.
The Company is required to adopt Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133"
("SFAS 137"). SFAS 133, as amended by SFAS 137, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. SFAS 133
establishes accounting and reporting standards for derivative instruments
including
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<PAGE>
NEFF CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(unaudited)
certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity shall recognize all
derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. The Company believes that the
adoption of SFAS 133 as amended by SFAS 137 should not have a material
impact on its financial position or results of operations.
NOTE 2 - RECLASSIFICATIONS
Certain amounts for the prior periods have been reclassified to
conform with the current period presentation.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six Months Ended
June 30,
______________________
<S> <C> <C>
2000 1999
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(in thousands)
Supplemental Disclosures of Cash Flow Information
Cash paid for interest .......................... $17,281 $19,665
======= =======
Cash paid for income taxes ...................... $ - $ 146
======= =======
</TABLE>
NOTE 4 - EARNINGS PER SHARE
The treasury stock method was used to determine the dilutive effect of
options 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):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
____________________ _____________________
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------- ------ ------ -------
Net income (loss) (basic and diluted) ................ $(4,089) $4,219 $(6,315) $4,893
======= ====== ====== =======
Number of shares:
Weighted average common shares outstanding - Basic ... 21,165 21,165 21,165 21,165
Employee stock options ............................. - (2) 778 (1) - (2) 651 (1)
------- ------ ------ -------
Weighted average common shares outstanding - Diluted . 21,165 21,943 21,165 21,816
======= ====== ====== =======
Net income (loss) per common share - Basic ........... $(0.19) $0.20 $(0.30) $0.23
======= ====== ====== =======
Net income (loss) per common share - Diluted ......... $(0.19) $0.19 $(0.30) $0.22
======= ====== ====== =======
</TABLE>
_______________
(1) Assumes exercise of outstanding options at the beginning of the period.
(2) Effects of employee stock options for the three and six months ended June
30, 2000 were not included as they were anti-dilutive.
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<PAGE>
NEFF CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(unaudited)
NOTE 5 - SEGMENT INFORMATION
During 1999 the Company had three segments: Neff Rental, Inc.,
Machinery and Sullair. In November 1999 the Company sold its 65% equity
interest in Sullair. In December 1999 the Company sold its interest in
Machinery (See Note 1).
- 9 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis compares the quarter and six
months ended June 30, 2000 to the quarter and six months ended June 30,
1999 and should be read in conjunction with the Company's unaudited
condensed consolidated financial statements and notes thereto appearing
elsewhere in this Form 10-Q and in conjunction with the Company's Annual
Report on Form 10-K, as amended, for the year ended December 31, 1999.
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
Neff Corp. is one of the largest equipment rental companies in the
United States. As of June 30, 2000 the Company operated 84 locations in 17
states compared with 94 locations in 18 states and South America at June
30, 1999. During the fourth quarter of 1999 the Company sold its equity
interests in two consolidated subsidiaries (the "Sale of Subsidiaries"),
Sullair Argentina S.A., an equipment rental company with 6 locations in
South America ("Sullair") and Neff Machinery, Inc., an equipment dealership
company with 4 locations in the Southeastern United States ("Machinery").
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 affected by
equipment rental and sales volume.
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.
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<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.
Results of Operations
Management believes that the period-to-period comparisons of its
financial results are not necessarily meaningful and should not be relied
upon as an indication of future performance. In addition, the Company's
results of operations may fluctuate from period-to-period in the future as
a result of the cyclical nature of the industry in which the Company
operates.
Second Quarter Ended June 30, 2000 Compared to Second Quarter Ended
June 30, 1999 (in thousands, except percent data)
Comparisons in this section are based on current year results to
historical results and current year results to the pro forma results of the
Company excluding the operations of two of the Company's subsidiaries,
Sullair and Machinery, which were sold in the fourth quarter of 1999. Pro
forma results assume that the Sale of Subsidiaries occurred on January 1,
1999.
Revenues. Total revenues for the quarter ended June 30, 2000 decreased
39.7% to $62,145 from $103,101 for the quarter ended June 30, 1999. The
decrease was due primarily to the Sale of Subsidiaries during 1999, and
changes in pro forma revenues noted below.
Pro forma Revenues. Total revenues for the quarter ended June 30, 2000
decreased 2.9% to $62,145 from $64,023 for the quarter ended June 30, 1999.
The decrease in revenue is primarily due to a $6,275 or 40.6% decrease in
sales of rental equipment during the three months ended June 30, 2000
compared with the three months ended June 30, 1999. The decrease of
equipment sales was partially offset by the $3,799 or 8.5% increase in
rental revenue which was due to the larger rental fleet resulting from
acquisitions completed during 1999 and the continued expansion of our
rental fleet at existing locations.
Gross Profit. Gross profit for the quarter ended June 30, 2000,
decreased 38.3% to $23,610 from $38,291 for the quarter ended June 30,
1999. The decrease was due primarily to the Sale of Subsidiaries during
1999, and changes in pro forma gross profit noted below.
Pro forma Gross Profit. Gross profit for the quarter ended June 30,
2000 decreased 11.0% to $23,610 or 38.0% of total revenues from $26,538 or
41.5% of total revenues for the quarter ended June 30, 1999. The decrease
in gross profit is primarily due to a decrease in gross profit from
equipment sales of $1,881 for the three months ended June 30, 2000 compared
with the same period for 1999. The remaining portion of the decrease was
attributable to the rising depreciation and maintenance expenses associated
with increased rental fleet assets, coupled with declining rental rates in
certain markets.
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<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended June 30, 2000 decreased 13.1%
to $15,410 or 24.8% of total revenues from $17,731 or 17.2% of total
revenues for the quarter ended June 30, 1999. The decrease was primarily
due to the Sale of Subsidiaries in 1999, and changes in pro forma selling,
general and administrative expenses noted below.
Pro forma Selling, General and Administrative Expenses. Selling,
general and administrative expenses for the quarter ended June 30, 2000
increased 11.7% to $15,410 or 24.8% of total revenues from $13,794 or 21.5%
of total revenues for the quarter ended June 30, 1999. The increase in
selling, general and administrative expenses is primarily attributable to
increased resources allocated to regional and corporate personnel to
support the continued expansion of our rental fleet assets at existing
locations.
Other Depreciation and Amortization. Other depreciation and
amortization expense for the quarter ended June 30, 2000 decreased 8.9% to
$2,452 or 3.9% of total revenues from $2,691 or 2.6% of total revenues for
the quarter ended June 30, 1999. The decrease is primarily attributable to
the Sale of Subsidiaries in 1999, and changes in pro forma other
depreciation and amortization noted below.
Pro forma Other Depreciation and Amortization. Other depreciation and
amortization expense for the quarter ended June 30, 2000 increased 14.4% to
$2,452 or 3.9% of total revenues from $2,143 or 3.3% of total revenues for
the quarter ended June 30, 1999. The increase is due to increased
investments in non-rental equipment.
Interest Expense. Interest expense for the quarter ended June 30, 2000
decreased 16.8% to $8,077 from $9,710 for the quarter ended June 30, 1999.
The decrease is primarily due to decreased debt due to the paydown on debt
with proceeds from the Sale of Subsidiaries in 1999, and changes in pro
forma interest expense noted below.
Pro forma Interest Expense. Interest expense for the quarter ended
June 30, 2000 increased 21.3% to $8,077 from $6,656 for the quarter ended
June 30, 1999. The increase is primarily attributable to increased
borrowings to finance expansion of our rental fleet assets at existing
locations and rate increases on the Company's Credit Facility.
Write-down of Assets Held for Sale. Write-down of assets held for sale
represents a pre-tax charge of $4,275 to write-down rental fleet assets
primarily utilized by the oil industry to estimated fair value during the
second quarter of 2000. No write-down of assets was recorded during the
second quarter of 1999.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30,
1999 (in thousands, except percent data)
Comparisons in this section are based on current year results to
historical results and current year results to the pro forma results of the
Company excluding the operations of two of the Company's subsidiaries,
Sullair and Machinery, which were sold in the fourth quarter of 1999. Pro
forma results assume that the Sale of Subsidiaries occurred on January 1,
1999.
Revenues. Total revenues for the six months ended June 30, 2000
decreased 37.7% to $121,261 from $194,721 for the six months ended June 30,
1999. The decrease in revenues was due primarily to the Sale of
Subsidiaries in 1999, and changes in pro forma revenues noted below.
Pro forma Revenues. Total revenues for the six months ended June 30,
2000 increased 2.6% to $121,261 from $118,242 for the six months ended June
30, 1999. The increase in revenue is primarily due to a $8,297 or 10.0%
increase in rental revenues offset by a $6,822 or 24.1% decrease in
equipment sales for the six months ended June 30, 2000 compared with the
six months ended June 30, 1999. The increase in rental revenues was due to
the larger rental fleet resulting from acquisitions completed during 1999
and the continual expansion of our rental fleet at existing locations.
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<PAGE>
GrossProfit. Gross profit for the six months ended June 30, 2000
decreased 34.3% to $45,341 or 37.4% of total revenues from $68,962 or 35.4%
of total revenues for the six months ended June 30, 1999. The decrease is
primarily due to the Sale of Subsidiaries in 1999, and changes in pro forma
gross profit noted below.
Pro forma Gross Profit. Gross profit for the six months ended June 30,
2000 decreased 1.9% to $45,341 or 37.4% of total revenues from $46,201 or
39.1% of total revenues for the six months ended June 30, 1999. The
decrease in gross profit is primarily due to a decrease in gross profit
from equipment sales of $2,106 for the six months ended June 30, 2000 when
compared with the same period of 1999. The decrease in gross profit for
equipment sales was due primarily to the decrease in equipment sales
revenue during 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended June 30, 2000 decreased
11.8% to $30,763 or 25.4% of total revenues from $34,874 or 17.9% of total
revenues for the six months ended June 30, 1999. The decrease was primarily
due to the Sale of Subsidiaries in 1999, and changes in pro forma selling,
general and administrative expenses noted below.
Pro forma Selling, General and Administrative Expenses. Selling,
general and administrative expenses for the six months ended June 30, 2000
increased 15.9% to $30,763 or 25.4% of total revenues from $26,546 or 22.5%
of total revenues for the six months ended June 30, 1999. The increase in
selling, general and administrative expenses is primarily attributable to
increased resources allocated to regional and corporate personnel to
support the continued expansion of our rental fleet assets at existing
locations.
Other Depreciation and Amortization. Other depreciation and
amortization expense for the six months ended June 30, 2000 decreased 6.8%
to $4,743 or 3.9% of total revenues from $5,090 or 2.6% of total revenues
for the six months ended June 30, 1999. The decrease is due primarily to
the Sale of Subsidiaries in 1999 and changes in pro forma other
depreciation and amortization noted below.
Pro forma Other Depreciation and Amortization. Other depreciation and
amortization expense for the six months ended June 30, 2000 increased 15.7%
to $4,743 or 3.9% of total revenues from $4,098 or 3.5% of total revenues.
The increase is primarily attributable to increased investment in
non-rental equipment.
Interest Expense. Interest expense for the six months ended June 30,
2000 decreased 17.2% to $15,609 from $18,862. The decrease is due primarily
to the Sale of Subsidiaries in 1999 and changes in pro forma interest
expense noted below.
Pro forma Interest Expense. Interest expense for the six months ended
June 30, 2000 increased 17.6% to $15,609 from $13,277. 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.
Write-down of Assets Held for Sale. Write-down of assets held for sale
represents a pre-tax charge of $4,275 to write-down rental fleet assets
primarily utilized by the oil industry to estimated fair value during the
second quarter of 2000. No write-down of assets was recorded during the six
months ended June 30, 1999.
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Liquidity and Capital Resources (in thousands)
During the second quarter of 2000, the Company financed its expansion
of rental fleet assets at existing locations from cash flows generated by
operations and borrowing on the Company's credit facility. Comparisons in
this section are based on current year results and historical results for
1999. The historical amounts for 1999 include the operations of Sullair and
Machinery which were sold during the fourth quarter of 1999.
For the six months ended June 30, 2000, net cash flows provided by
operating activities was $39,949, compared to net cash provided by
operating activities of $34,702 for the six months ended June 30, 1999.
This increase is primarily attributable to changes in working capital
associated with the operations of the Company.
Net cash used in investing activities for the six months ended June
30, 2000 was $57,031 as compared to $93,921 for the six months ended June
30, 1999. This decrease is primarily attributable to a decrease in the
amount of used purchases of equipment, the absence of acquisitions, and
equipment sales, offset by a decline in equipment sales, and the collection
of a receivable associated with the sale of Sullair during the fourth
quarter of 1999.
Net cash provided by financing activities was $17,827 for the six
months ended June 30, 2000, as compared to $60,528 for the six months ended
June 30, 1999. The net cash provided by financing activities is primarily
attributable to borrowings under the Company's $219,500 revolving credit
facility (the "Credit Facility"). As of June 30, 2000, the Company had
approximately $64,500 available under its Credit Facility.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 17, 1999, the Company completed the sale of Neff
Machinery, Inc. ("Neff Machinery"), a wholy-owned subsidiary that operated
an equipment dealership in Florida. The Company received $90.5 million and
recorded a gain on the sale of $3.8 million. The purchase and sale
agreement (the "Agreement") provides for a post-closing purchase price
adjustment based on the difference between the net worth of Neff Machinery,
Inc. as of June 30, 1999 (the date of a pro forma balance sheet prepared in
advance of the signing) and the closing date (on the basis of a balance
sheet prepared after closing). The Company takes the position that this
provision was designed in general to provide an upward adjustment in the
purchase price based on any increase in the Company's retained earnings
during the period from June 30, 1999 to the closing date.
Following preparation of a closing date balance sheet, the purchaser
told the Company that the Company owed it an adjustment payment of $20.3
million. The Company responded by informing the purchaser that the
purchaser owed it additional consideration of $8.8 million. In its
response, it noted that Neff Machinery had been profitable during the
period. The difference between the positions of the Company and the
purchaser relates in part to the standards used to measure the value of
Neff Machinery's inventory. The Company argues that the value of its
inventory on the closing date should be measured on the same basis as the
value of its inventory on June 30, 1999, which was measured using generally
accepted accounting principles. The purchaser argues that although the
value of the inventory on June 30, 1999 was measured using generally
accepted accounting principles, the value of the inventory on the closing
date should be measured using fair market value. It further argues that the
inventory's fair market value is substantially lower than its value under
generally accepted accounting principles.
The agreement provides for arbitration by an accountant of certain
disputes regarding the post-closing purchase price adjustment. The
purchaser has sought to commence arbitration proceedings. The Company has
filed suit in Florida state court seeking to stay arbitration until the
disputes regarding the proper interpretation of the purchase price
adjustment clause can be resolved. The Company takes the position that the
disputes are not subject to the arbitration clause because they involve
matters of contract interpretation. The Company is not able to predict the
outcome of these proceedings and thus has not recorded any amounts as
receivable or payable under the Agreement.
The Company and certain members of its Board of Directors are
defendants in at least six lawsuits filed in the Delaware Court of
Chancery. Five of the suits were filed on February 29, 2000, and one was
filed on March 1, 2000. The plaintiffs in the suits are Neff shareholders,
and purport to bring the suits as class actions on behalf of all persons
who own the common stock of the Company. The complaints allege, among other
things, that the Company and the individual defendants acted improperly in
responding to a buyout bid made by a member of management in February 2000.
The plaintiffs seek, among other things, injunctive relief and damages. The
Company has not yet responded to the complaints.
The Company is also a party to pending legal proceedings arising in
the ordinary course of business. While the results of such proceedings
cannot be predicted with certainty, the Company does not believe any of
these matters are material to its financial condition or results of
operations.
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ITEM 6. EXHIBITS
(a) Exhibits:
Exhibit Description
27.1 Financial Data Schedule
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NEFF CORP.
Registrant
Date: August 14, 2000 /s/Mark H. Irion
----------------------- ----------------
MARK H. IRION
Chief Financial Officer
On behalf of the registrant and as
Principal Financial and Accounting
Officer
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