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, 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.
_____________
(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 of 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 1, 2000.
<PAGE>
Neff Corp.
Quarterly Report on Form 10-Q
For the Quarter and Period ended
September 30, 2000
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<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2000 (Unaudited)
and December 31,1999 ..................................................... 3
Condensed Consolidated Statements of Operations for the three months ended
September 30, 2000, 1999 (Unaudited) and Pro Forma September 30, 1999
(Unaudited)......................... ..................................... 4
Condensed Consolidated Statements of Operations for the nine months ended
September 30, 2000, 1999 (Unaudited) and Pro Forma September 30, 1999
(Unaudited)............................................................... 5
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 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 ................................................................. 17
SIGNATURE .......................................................................... 18
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEFF CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, December 31,
2000 1999
---------- -----------
(unaudited)
ASSETS
Cash and cash equivalents ........................................ $ 3,384 $ 3,374
Accounts receivable, net of allowance for doubtful accounts of
$2,703 in 2000 and $2,904 in 1999 .......................... 45,950 53,740
Inventories ...................................................... 2,569 3,860
Rental equipment, net ............................................ 315,304 285,863
Property and equipment, net ...................................... 29,722 25,638
Goodwill, net .................................................... 86,277 88,008
Prepaid expenses and other assets ................................ 15,778 11,223
---------- ----------
Total assets ..................................... $ 498,984 $ 471,706
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable ........................................... $ 14,488 $ 7,527
Accrued expenses and other ................................. 29,171 23,377
Credit facility ............................................ 157,035 137,182
Senior subordinated notes .................................. 198,683 198,670
Capitalized lease obligations .............................. 586 742
---------- ----------
Total liabilities ................................ 399,963 367,498
---------- ----------
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 ........................................ (28,950) (23,763)
---------- ----------
Total stockholders' equity ....................... 99,021 104,208
---------- ----------
Total liabilities and stockholders' equity ....... $ 498,984 $ 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
September 30,
____________________________________________________________
<S> <C> <C> <C>
Pro Forma
2000 1999 1999
__________ __________ __________
Revenues:
Rental Revenues .......................................... $ 52,618 $ 60,808 $ 47,861
Equipment sales .......................................... 15,895 29,848 11,269
Parts and service ........................................ 4,461 13,124 4,186
---------- ---------- ----------
Total revenues ........................................ 72,974 103,780 63,316
---------- ---------- ----------
Cost of revenues:
Cost of equipment sold ................................... 13,867 25,131 9,772
Depreciation of rental equipment ......................... 11,515 14,989 10,767
Maintenance of rental equipment .......................... 15,901 18,310 15,286
Cost of parts and service ................................ 2,906 8,527 2,505
---------- ---------- ----------
Total cost of revenues ................................ 44,189 66,957 38,330
---------- ---------- ----------
Gross profit .............................................. 28,785 36,823 24,986
---------- ---------- ----------
Other operating expenses:
Selling, general and administrative expenses ............. 15,034 19,900 14,887
Other depreciation and amortization ...................... 2,561 3,045 2,320
Write-down of assets held for sale ....................... - 1,444 1,444
---------- ---------- ----------
Total other operating expenses ........................ 17,595 24,389 18,651
---------- ---------- ----------
Income from operations .................................... 11,190 12,434 6,335
---------- ---------- ----------
Other expenses:
Interest expense ......................................... 8,948 10,920 7,477
Amortization of debt issue costs ......................... 333 305 293
---------- ---------- ----------
Total other expenses .................................. 9,281 11,225 7,770
---------- ---------- ----------
Income (loss) before income taxes and minority interest ... 1,909 1,209 (1,435)
(Provision for) benefit from income taxes ................. (781) (445) 586
---------- ---------- ----------
Income (loss) before minority interest .................... 1,128 764 (849)
Minority interest ......................................... - (428) -
---------- ---------- ----------
Net income (loss) ......................................... $ 1,128 $ 336 $ (849)
========== ========== ==========
Net income (loss) per common share:
Basic ................................................. $ 0.05 $ 0.02 $ (0.04)
========== ========== ==========
Diluted ............................................... $ 0.05 $ 0.02 $ (0.04)
========== ========== ==========
Weighted average common shares outstanding:
Basic ................................................. 21,165 21,165 21,165
========== ========== ==========
Diluted ............................................... 21,423 22,061 21,165
========== ========== ==========
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 Nine Months Ended
September 30,
____________________________________________________________
<S> <C> <C> <C>
Pro Forma
2000 1999 1999
---------- ---------- -----------
Revenues:
Rental revenues ........................................ $ 143,893 $ 165,954 $ 130,839
Equipment sales ........................................ 37,355 96,085 39,551
Parts and service ...................................... 12,987 36,494 11,168
---------- ---------- ----------
Total revenues ....................................... 194,235 298,533 181,558
---------- ---------- ----------
Cost of revenues:
Cost of equipment sold ................................. 31,713 78,544 32,334
Depreciation of rental equipment ....................... 33,355 41,615 30,177
Maintenance of rental equipment ........................ 47,084 49,221 41,129
Cost of parts and service .............................. 7,957 23,477 6,731
---------- ---------- ----------
Total cost of revenues ............................... 120,109 192,857 110,371
---------- ---------- ----------
Gross profit ............................................ 74,126 105,676 71,187
---------- ---------- ----------
Other operating expenses:
Selling, general and administrative expenses ........... 45,800 54,729 41,433
Other depreciation and amortization .................... 7,304 8,016 6,418
Write-down of assets held for sale ..................... 4,272 1,444 1,444
---------- ---------- ----------
Total other operating expenses ..................... 57,376 64,189 49,295
---------- ---------- ----------
Income from operations .................................. 16,750 41,487 21,892
---------- ---------- ----------
Other expenses:
Interest expense ....................................... 24,557 29,782 20,754
Amortization of debt issue costs ....................... 970 871 835
---------- ---------- ----------
Total other expenses ............................... 25,527 30,653 21,589
---------- ---------- ----------
Income (loss) before income taxes and minority interest.. (8,777) 10,834 303
(Provision for) benefit from income taxes ............... 3,590 (4,104) (126)
---------- ---------- ----------
Income (loss) before minority interest .................. (5,187) 6,730 177
Minority interest ....................................... - (1,468) -
---------- ---------- ----------
Net income (loss) ....................................... $ (5,187) $ 5,262 $ 177
========== ========== ==========
Net income (loss) per common share:
Basic ........................................... $ (0.25) $ 0.25 $ 0.01
========== ========== ==========
Diluted ......................................... $ (0.25) $ 0.24 $ 0.01
========== ========== ==========
Weighted average common shares outstanding:
Basic ............................................ 21,165 21,165 21,165
========== ========== ==========
Diluted .......................................... 21,165 21,931 21,931
========== ========== ==========
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 Nine Months Ended
September 30,
__________________________________
<S> <C> <C>
2000 1999
---------- ----------
Cash Flows from Operating Activities:
Net income (loss) ................................................................... $ (5,187) $ 5,262
Adjustments to reconcile net income (loss) to net cash provided by
operating activities, net of acquisitions ....................................... 40,757 40,886
---------- ----------
Net cash provided by operating activities ............................. 35,570 46,148
---------- ----------
Cash Flows from Investing Activities:
Purchases of equipment .............................................................. (97,489) (191,747)
Proceeds from sale of equipment ..................................................... 37,355 96,085
Purchases of property and equipment ................................................. (7,623) (10,623)
Collection of receivable from sale of subsidiary .................................... 12,500 -
Cash paid for acquisitions .......................................................... - (16,268)
---------- ----------
Net cash used in investing activities ................................. (55,257) (122,553)
---------- ----------
Cash Flows from Financing Activities:
Net borrowings under Credit Facility ................................................ 19,853 68,211
Net repayments under capitalized lease obligations .................................. (156) (308)
Net borrowings under notes payable and mortgages payable ............................ - 9,797
Debt issue costs .................................................................... - (128)
---------- ----------
Net cash provided by financing activities ............................. 19,697 77,572
---------- ----------
Net increase in cash and cash equivalents ........................................... 10 1,167
Cash and cash equivalents, beginning of period ...................................... 3,374 4,340
---------- ----------
Cash and cash equivalents, end of period ............................................ $ 3,384 $ 5,507
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest .............................................................. $ 18,289 $ 25,962
========== ==========
Cash paid for income taxes .......................................................... $ - $ 146
========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine months ended September 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 nine months ended September 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 statement of operations reflects the results of operations of the
Company for the three months and the nine months ended September 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 the Company's revenues, expenses, assets
and liabilities, if the sales of Sullair and Machinery had occurred as of
January 1, 1999. These pro forma condensed consolidated financial statements
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
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<PAGE>
NEFF CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(unaudited)
fiscal years beginning after June 15, 2000. SFAS 133 establishes accounting
and reporting standards for derivative instruments including 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 - 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 Nine Months Ended
September 30, September 30,
----------------------- -------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
-------- -------- -------- --------
Net income (loss) (basic and diluted) .................... $ 1,128 $ 336 $ (5,187) $ 5,262
======== ======== ======== ========
Number of Shares:
Weighted average common shares outstanding-basic .... 21,165 21,165 21,165 21,165
Employee stock options ........................... 258 (1) 896 (1) - (2) 766 (1)
-------- -------- -------- --------
Weighted average common shares-diluted .............. 21,423 22,061 21,165 21,931
======== ======== ======== ========
Net income (loss) per common share-basic ......... $ 0.05 $ 0.02 $ (0.25) $ 0.25
======== ======== ======== ========
Net income (loss) per common share-diluted ....... $ 0.05 $ 0.02 $ (0.25) $ 0.24
======== ======== ======== ========
_______________
(1) Assumes exercise of outstanding options at the beginning of the period.
(2) Effects of employee stock options for the nine months ended September 30, 2000 were not included
as they were anti-dilutive.
</TABLE>
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<PAGE>
NEFF CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(unaudited)
NOTE 4 - SEGMENT INFORMATION
During 1999 the Company had three segments: Neff Rental, Inc. ("Rental"),
Machinery and Sullair. In November 1999 the Company sold its 65% equity interest
in Sullair and in December 1999 the Company sold its 100% equity interest in
Machinery (See Note 1).
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<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, 2000 to the quarter and nine months ended September 30, 1999
and should be read in conjunction with the Company's 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, the high
degree to which the Company is leveraged, and the high degree of competition
the Company faces. 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 September 30, 2000, the Company operated 84 locations
in 17 states, compared with 96 locations in 18 states and South America at
September 30, 1999. During the fourth quarter of 1999 the Company sold
its equity interests in two consolidated subsidiaries (the "Sale of
Subsidiaries"), S.A. Argentina, an equipment rental company with 6 locations
in South America ("Sullair") and Neff Machinery, Inc., an equipment dealership
company with 4 locations in the Southern 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 effect revenues from
the sale of used equipment. Revenues derived from the sale of parts and service
are generally effected by equipment rental and sales volume.
Cost 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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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.
Third Quarter Ended September 30, 2000 Compared to Third Quarter Ended September
30, 1999 (in thousands, except percent data)
Comparisons in this section are based on comparing current year results
with historical results and current year results with 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.
Total Revenues. Total revenues for the quarter ended September 30, 2000
decreased 29.7% to $72,974 from $103,780 for the quarter ended September 30,
1999. The decrease was due primarily to the Sale of Subsidiaries during 1999.
Pro forma Total Revenues. Total revenues for the quarter ended September
30, 2000 increased 15.3% to $72,974 from $63,316 for the quarter ended September
30, 1999. The increase in total revenues is partly due to an increase of $4,757
or 9.9% in rental revenues which was due to the continued expansion of our
rental fleet at existing locations. The increase in total revenues was also due
to a $4,626 or 41.1% increase in sales of rental equipment during the three
months ended September 30, 2000 compared with the three months ended September
30, 1999. Total revenues at locations open for more than one year increased
16.0% for the three months ended September 30, 2000 compared with the three
months ended September 30, 1999.
Gross Profit. Gross profit for the quarter ended September 30, 2000,
decreased 21.8% to $28,785 or 39.5% of total revenues from $36,823 or 35.5%
of total revenues for the quarter ended September 30, 1999. The decrease was
due primarily to the Sale of Subsidiaries during 1999.
Pro forma Gross Profit. Gross profit for the quarter ended September 30,
2000 increased 15.2% to $28,785 or 39.4% of total revenues from $24,986 or
39.5% of total revenues for the quarter ended September 30, 1999. The
increase in gross profit is primarily due to an increase in gross profit from
rental revenues of $3,394 or 6.5% of rental revenues and was partly due to a
small increase in rental rates and a reduction in maintenance expenses as a
percentage of rental revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the quarter ended September 30, 2000 decreased
24.5% to $15,034 or 20.6% of total revenues from $19,900 or 19.2% of
total revenues for the quarter ended September 30, 1999. The decrease was
primarily due to the Sale of Subsidiaries in 1999.
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<PAGE>
Pro forma Selling, General and Administrative Expenses. Selling,
general and administrative expenses for the quarter ended September 30,
2000 increased 1.0% to $15,034 or 20.6% of total revenues from $14,887 or 23.5%
of total revenues for the quarter ended September 30, 1999. The increase in
selling, general and administrative expenses is primarily attributable to
increased resources allocated 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 September 30, 2000 decreased 15.9% to $2,561
or 3.5% of total revenues from $3,045 or 2.9% of total revenues for the quarter
ended September 30, 1999. The decrease is primarily attributable to the Sale of
Subsidiaries in 1999.
Pro forma Other Depreciation and Amortization. Other depreciation and
amortization expense for the quarter ended September 30, 2000 increased 10.4%
to $2,561 or 3.5% of total revenues from $2,320 or 3.7% of total revenues for
the quarter ended September 30, 1999. The increase is due to increased
investments in non-rental equipment.
Interest Expense. Interest expense for the quarter ended September 30,
2000 decreased 18.1% to $8,948 from $10,920 for the quarter ended September 30,
1999. The decrease is primarily due to decreased debt due to the repayment of
outstanding debt with proceeds from the Sale of Subsidiaries in 1999.
Pro forma Interest Expense. Interest expense for the quarter ended
September 30, 2000 increased 19.7% to $8,948 from $7,477 for the quarter
ended September 30, 1999. The increase is primarily attributable to
increased borrowings to finance the 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 $1,444 to write-down rental fleet assets to
estimated fair value during the third quarter of 1999. No write-down of
assets was recorded during the third quarter of 2000.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999 (in thousands, except percent data)
Comparisons in this section are based on comparing current year results
with historical results and current year results with 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.
Total Revenues. Total revenues for the nine months ended September 30,
2000 decreased 34.9% to $194,235 from $298,533 for the nine months ended
September 30, 1999. The decrease in total revenues was due primarily to
the Sale of Subsidiaries in 1999, and changes in pro forma revenues noted below.
Pro forma Total Revenues. Total revenues for the nine months ended
September 30, 2000 increased 7.0% to $194,235 from $181,558 for the nine months
ended September 30, 1999. The increase in total revenues is primarily due to a
$13,054 or 10.0% increase in rental revenues, offset by a $2,196 or 5.6%
decrease in equipment sales for the nine months ended September 30, 2000
compared with the nine months ended September 30, 1999. The increase in rental
revenues was due to the larger rental fleet resulting from acquisitions
completed during 1999 and the continued expansion of our rental fleet at
existing locations. Total revenues at locations open for more than one year
increased 5.7% for the nine months ended September 30, 2000 compared with the
nine months ended September 30, 1999.
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<PAGE>
Gross Profit. Gross profit for the nine months ended September 30,
2000 decreased 29.9% to $74,126 or 38.2% of total revenues from $105,676 or
35.4% of total revenues for the nine months ended September 30, 1999. The
decrease is primarily due to the Sale of Subsidiaries in 1999.
Pro forma Gross Profit. Gross profit for the nine months ended September
30, 2000 increased 4.1% to $74,126 or 38.2% of total revenues from $71,187
or 39.2% of total revenues for the nine months ended September 30, 1999.
The increase in gross profit is primarily due to an increase in gross profits
from rental revenues of $3,921 or 2.7% of rental revenues offset by a
decrease in gross profit from equipment sales of $1,575 or 4.2% of equipment
sales, for the nine months ended September 30, 2000 when compared to the same
period of 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 2000 decreased
16.3% to $45,800 or 23.6% of total revenues from $54,729 or 18.3% of total
revenues for the nine months ended September 30, 1999. The decrease was
primarily due to the Sale of Subsidiaries in 1999.
Pro forma Selling, General and Administrative Expenses. Selling,
general and administrative expenses for the nine months ended September 30,
2000 increased 10.5% to $45,800 or 23.6% of total revenues from $41,433 or
22.8% of total revenues for the nine months ended September 30, 1999. The
increase in selling, general and administrative expenses is primarily
attributable to increased resources allocated to support the continued expansion
of our rental fleet assets at existing locations.
Other Depreciation and Amortization. Other depreciation and
amortization expense for the nine months ended September 30, 2000 decreased
8.9% to $7,304 or 3.8% of total revenues from $8,016 or 2.7% of total revenues
for the nine months ended September 30, 1999. The decrease is due primarily
to the Sale of Subsidiaries in 1999.
Pro forma Other Depreciation and Amortization. Other depreciation and
amortization expense for the nine months ended September 30, 2000 increased
13.8% to $7,304 or 3.8% of total revenues from $6,418 or 3.5% of total revenues.
The increase is primarily attributable to increased investment in non-rental
equipment.
Interest Expense. Interest expense for the nine months ended September
30, 2000 decreased 17.5% to $24,557 from $29,782. The decrease is due
primarily to decreased debt due to the repayment of outstanding debt with
proceeds from the Sale of Subsidiaries in 1999.
Pro forma Interest Expense. Interest expense for the nine months ended
September 30, 2000 increased 18.3% to $24,557 from $20,754. The increase is
primarily attributable to the increased borrowings to finance the 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 $4,272 to write-down rental fleet assets
primarily utilized by the oil industry to estimated fair value during the second
quarter of 2000, compared with a write-down of assets of $1,444 for the nine
months ended September 30, 1999.
Liquidity and Capital Resources (in thousands)
Comparisons in this section are based on comparing current year results
with 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.
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For the nine months ended September 30, 2000, net cash flows provided
by operating activities were $35,570, compared to net cash provided by
operating activities of $46,148 for the nine months ended September 30,
1999. This decrease is primarily attributable to changes in working capital
associated with the operations of the Company.
Net cash used in investing activities for the nine months ended
September 30, 2000 was $55,257 as compared to $122,553 for the nine months
ended September 30, 1999. This decrease is primarily attributable to a
decrease in the amount of equipment purchases, the absence of acquisitions
and is 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 $19,697 for the nine months
ended September 30, 2000, as compared to $77,572 for the nine months ended
September 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 September 30, 2000, the
Company had approximately $62,465 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. ("Machinery"), a wholly-owned subsidiary that operated an equipment
dealership in Florida. The Company received $90.5 million from the purchaser 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 pro forma net worth of Machinery as of June 30, 1999
(the date of a pro forma balance sheet prepared in advance of the signing) and
as of the closing date (on the basis of a balance sheet prepared after closing).
The Company's position is that this provision was designed in general to provide
an upward adjustment in the purchase price based on any increase Machinery's
retained earnings during the period from June 30, 1999 to the closing date.
After the closing, the purchaser asserted that, based on the closing date
balance sheet prepared by the purchaser, the Company owed it a refund of $20.3
million. The Company responded that the purchaser's closing date balance sheet
had not been prepared in accordance with generally accepted accounting
principles, and informed the purchaser that, based on the Company's calculation,
the purchaser owed the Company additional consideration in the amount of $8.8
million.
The Company believes that the difference between the position of the
Company and the purchaser is generally the result of a difference in contract
interpretation. The Company's position is that the Agreement requires all of
Machinery's assets and liabilities to be valued, for purposes of the closing
date balance sheet, using the same standards used to prepare the June 30, 1999
pro forma balance sheet. The purchaser's position is that the Agreement allows
many of Machinery's assets and liabilities to be valued, for purposes of the
closing date balance sheet, at the lower of book value or market, irrespective
of the valuation standards used to prepare the June 30, 1999 pro forma balance
sheet.
The largest monetary dispute concerns Machinery's rental fleet. The book
value (cost less accumulated depreciation) of the rental fleet as of the closing
was approximately $50.5 million. The gross book value of the rental fleet was
approximately $63.7 million. The Company's position is that Machinery's rental
fleet should be measured on the closing date balance sheet at its book value,
consistent with the Company's historical financial statements and the June 30,
1999 pro forma balance sheet. The purchaser argues that Machinery's rental fleet
as of the closing date should be measured at the lower of book value and market,
which the purchaser maintains is approximately $14.6 million lower than the
Company's valuation of the rental fleet under GAAP. The Company also disputes
the market values assigned by the purchaser to the rental fleet.
The next largest item in dispute between the Company and the purchaser
relates to the treatment of floor plan financing programs with equipment
manufacturers. The purchaser assumed approximately $3 million of floor plan
liabilities as of the closing and included those liabilities on the closing date
balance sheet prepared by the purchaser. Floor plan financing was not included
on the June 30, 1999 pro forma balance sheet. As of June 30, 1999, the amount of
the floor plan financing was approximately $6 million. The Company maintains
that this debt was erroneously omitted from the June 30, 1999 pro forma balance
sheet and maintains that the June 30, 1999 pro forma should be corrected
accordingly. The purchaser opposes this adjustment on the grounds that the
Agreement does not expressly contemplate adjustments to the pro forma balance
sheet. The purchaser also maintains that floor plan financing was properly
omitted from the June 30, 1999 pro forma.
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The balance of the difference between the Company's and the purchaser's
claims relates to the following items: (1) The closing date balance sheet
prepared by the purchaser includes a reserve for bad debt as of the closing
date. The Company maintains that the magnitude of the purchaser's proposed bad
debt reserve is higher that appropriate under GAAP. The difference between the
Company's position on the issue and the purchaser's position is approximately
$2.4 million. (2) The purchaser contends that Machinery's real estate should be
valued on the closing date balance sheet at the lower of book value or market.
The Company maintains that, under GAAP, Machinery's real estate should be stated
at book value unless assets are impaired, in which case the assets should be
written down to fair market value. The Company further maintains that the assets
are not impaired. The difference between the Company's position on this issue
and the purchaser's position is approximately $2.3 million. (3) The purchaser
has written down a portion of Machinery's parts inventory, for parts it claims
are inactive or are obsolete. The Company maintains that the write down is
inappropriate because the parts are included on the "active" parts inventory
lists of their respective manufacturers as of December 31, 1999, and are
required in many cases to be stocked pursuant to agreements with those
manufacturers. The difference between the Company's position on this issue and
the purchaser's position is approximately $2.1 million.
On May 5, 2000, the Company filed suit in Florida state court, seeking,
inter alia, a declaration that the Agreement as written requires that the
inventory be valued as of the closing in accordance with GAAP applied on a basis
consistent with the Company's historical financial statements and the June 30,
1999 pro forma balance sheet. In the alternative, the Company sought to have the
Agreement reformed to so require. Neff Corp. v. Nortrax Equipment Co. -
Southeast, L.L.C., Case No. 00-11524 CA01 (Circuit Court of the 11th Judicial
Circuit in and for Miami-Dade County, Florida). On or about May 25, 2000, the
purchaser filed a motion to stay the litigation and compel arbitration. The
parties recently filed a stipulation in which they have agreed that all disputes
pertaining to the closing balance sheet and the June 30, 1999 pro forma balance
sheet will be resolved by an internationally recognized firm of independent
public accountants ( the "Accounting Firm") to be selected by the parties. The
Accounting Firm will, acting as arbitrators in accordance with the Federal
Arbitration Act and the terms of the Agreement, determine whether and to what
extent the closing net asset value of Machinery derived from the closing balance
sheet requires adjustment and whether the Agreement and the June 30, 1999 pro
forma balance sheet should be reformed. Pursuant to Section 1.9.2, the
Accounting Firm shall refer to a nationally recognized firm of personal property
appraisers selected by the parties, or to a real estate appraiser selected by
the parties, those items, if any, that it determines are to be valued at market.
The Company and certain members of its Board of Directors were defendants
in at least nine 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 were Neff Corp. shareholders, and purported to bring the
suits as class actions on behalf of all persons who owned the common stock of
the Company. The complaints alleged, 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 sought, among other
things, injunctive relief and damages. The plaintiffs have filed a notice of
voluntary dismissal of these lawsuits.
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: November 13, 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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