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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File Number: 001-14145
NEFF CORP.
(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 Identification No.)
incorporation or organization)
3750 N.W. 87th AVENUE, SUITE 400, MIAMI, FLORIDA 33178
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (305) 513-3350
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- - ------------------- -----------------------
Class A Common Stock
Par Value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
None
Indicate by check mark whether the registrant has (1) 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. X Yes __ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements by
reference in Part III of this Form 10-K or any amendment to this Form 10-K [X].
As of March 28, 2000, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $49.7 million. As of March
28, 2000, there were 16,065,350 shares of the registrant's Class A Common Stock
outstanding.
Documents incorporated by reference:
Portions of the Company's Proxy Statement in connection with its Annual
Meeting to be held on June 16, 2000 (the "2000 Proxy Statement"). Specifically,
the sections in the 1999 Proxy Statement entitled "Ownership of Shares of
Certain Beneficial Owners," "Certain Relationships and Related Transactions,"
"Executive and Director Compensation," and "Compensation Committee Interlocks
and Insider Participation" are incorporated by reference into Part III of this
Report.
Part I
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995
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.
The Company cautions that the factors described above could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company. Any
forward-looking statements speak only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the business or the extent to which any factor, or
combinations of factors, may cause actual results to differ materially from
those contained in any forward-looking statements.
ITEM 1. BUSINESS
General
Neff is one of the largest equipment rental companies in the United States,
with 84 rental locations in 18 states. The Company rents a wide variety of
equipment, including backhoes, air compressors, loaders, lifts and compaction
equipment to construction and industrial customers. In addition, the Company
sells used equipment, spare parts and merchandise and provides ongoing repair
and maintenance services.
According to industry sources, the equipment rental industry grew from
approximately $600 million in revenues in 1982 to over $20 billion in 1999. This
growth has been driven primarily by construction and industrial companies that
have increasingly outsourced equipment needs to reduce investment in non-core
assets and convert costs from fixed to variable. The equipment rental industry
is highly fragmented, with an estimated 18,000 equipment rental companies in the
United States. As a result, the Company believes that there are substantial
consolidation opportunities for well-capitalized operators such as the Company.
Relative to smaller competitors, the Company has several advantages, including
increased purchasing power, larger inventories to service larger accounts and
the ability to transfer equipment among rental locations in response to changing
patterns of customer demand.
2
Competitive Strengths
The Company believes it has several competitive strengths, which provide it
with the opportunity for continued growth and increased profitability.
Strong Market Position. Neff is one of the largest construction and
industrial equipment rental companies in the United States, and is a leading
competitor with a significant presence in the Southeast and Gulf Coast regions.
We operate 84 rental locations in 18 states, including Florida, Georgia,
Alabama, Mississippi, South Carolina, North Carolina, Tennessee, Louisiana,
Texas, Oklahoma, Arizona, Nevada, Utah, California, Oregon, Washington, Virginia
and Colorado. From December 31, 1995 to December 31, 1999, we increased our
equipment rental locations from eight to 84 and expanded our rental fleet from
$62 million to $413 million based on original cost. We believe our size and
geographic diversity help insulate us from regional economic downturns.
High Quality Rental Fleet. We believe our rental fleet is one of the
newest, most comprehensive and well-maintained rental fleets in the equipment
rental industry. As of December 31, 1999, the average age of our rental fleet
was approximately 24 months. We make ongoing capital investment in new
equipment, engage in regular sales of used equipment and conduct an advanced
preventative maintenance program. We believe this maintenance program increases
fleet utilization, extends the useful life of equipment and produces higher
resale values.
Excellent Customer Service. We differentiate ourselves from our competitors
by providing high quality, responsive service to our customers. Service
initiatives include (i) reliable on-time equipment delivery directly to
customers' job sites; (ii) on-site repairs and maintenance of rental equipment
by factory trained mechanics, generally available 24 hours a day, seven days a
week; and (iii) ongoing training of an experienced sales force to consult with
customers regarding their equipment needs.
State-of-the-Art Management Information System. We have developed a
customized, state-of-the-art management information system capable of monitoring
operations at up to 300 sites. We use this system to maximize fleet utilization
and determine the optimal fleet composition by market. The system links all of
our rental locations and allows management to track customer and sales
information, as well as the location, rental status and maintenance history of
every piece of equipment in the rental fleet. Rental location managers can
search our entire rental fleet for needed equipment, quickly determine the
closest location of such equipment, and arrange for delivery to the customer's
work site, thus maximizing equipment utilization.
Experienced Management Team. Since 1995, we have significantly increased
the quality and depth of our management team to help oversee our growth
strategy. Our senior management team has extensive experience in the equipment
rental industry and our regional management has, on average, 21 years of
experience and substantial knowledge of the local markets served within their
regions. We believe that our management team has the ability to continue the
Company's strong growth as well as manage the Company on a much larger scale. We
are not dependent on recruiting additional operating, acquisition, finance or
other personnel to implement our growth strategy.
3
Business Strategy
Our objective is to increase revenue, cash flow and profitability by
building and maintaining a leading market position in the equipment rental
industry. Key elements of our business strategy include:
Increase Profitability of Recently Opened Rental Locations. Since March 1,
1995, we have opened 26 start-up rental equipment locations including 10
locations in 1997, 5 locations in 1998 and 1 location in 1999. Because we incur
significant expenses in connection with the opening of new locations, management
believes that our financial performance does not yet fully reflect the benefit
of these rental locations. Based on our historical experience, a new equipment
rental location tends to realize significant increases in revenues, cash flow
and profitability during the first three years of operation as more prospective
customers become aware of its operation and as the rental equipment fleet is
customized to local market demand. Because there is relatively little
incremental operating expense associated with such revenues, cash flow and
profitability increase significantly as a rental location matures.
Increase Fleet at Existing Locations. We believe we can capitalize on the
demand for rental equipment in the markets we serve and increase revenues by
increasing the size of the rental fleet and adding new product lines at existing
locations. We believe that this strategy allows us to attract new customers and
serve as a single source supplier for our customers. Because the start-up
expenditures associated with increasing the fleet and expanding product lines at
existing locations are relatively modest, these investments typically generate
higher and faster returns than investments in new locations.
Acquire Equipment Rental Companies. We intend to expand through
acquisitions of equipment rental companies and believe there are a significant
number of acquisition opportunities in North America, which would complement our
existing operations. After completing an acquisition, we generally integrate the
operations of the acquired company into our management information system,
consolidate equipment purchasing and resale functions and centralize fleet
management as quickly as possible while assuring consistent, high-quality
service to the acquired company's customers. Since July 1997, we have made
several strategic acquisitions, which have more than doubled our number of
rental locations, significantly enhanced our geographic presence and further
diversified our customer base.
We believe we can successfully implement our acquisition strategy because
of (i) our access to financial resources; (ii) the potential for increased
profitability due to the centralizing of certain administrative functions,
enhanced systems capabilities, greater purchasing power and economies of scale;
and (iii) the potential for owners of the businesses being acquired to
participate in our planned growth while realizing liquidity. We have developed a
set of financial, geographic and management criteria designed to assist
management in the evaluation of acquisition candidates.
These criteria are used to evaluate a variety of factors, including, but
not limited to, (i) historical and projected financial performance; (ii)
composition and size of the candidate's customer base; (iii) relationship of the
candidate's geographic location to the Company's market areas; (iv) potential
synergies gained through acquisition of the candidate; and (v) liabilities,
contingent or otherwise, of the candidate.
Selective Openings of Start-up Equipment Rental Locations. We intend to
expand our operations by opening additional start-up locations in markets where
we are not able to identify attractive acquisition candidates. We have been
successful in opening start-up equipment rental locations in existing markets
and new markets.
4
We have opened 26 start-up equipment rental locations since March 1995. Our
decision to open a start-up equipment rental location is based upon a review of
demographic information, business growth projections and the level of existing
competition. Because our management team has extensive experience opening
start-up locations, our growth strategy is not dependent on the availability of
acquisition candidates on satisfactory terms.
In June 1998, we expanded our operations into South America by acquiring
65% of the outstanding stock of S.A. Argentina. S.A. Argentina rents and sells
industrial and construction equipment throughout South America, including
Argentina, Brazil, Uruguay, Paraguay, Chile and Bolivia.
Sales of Subsidiaries. On November 18, 1999, the Company completed the sale
of Sullair Argentina S.A. The Company received $42.5 million, of which $12.5
million was a receivable that was received in February 2000. The Company
recorded a loss on the sale of $4.2 million.
On December 17, 1999, the Company completed the sale of Neff Machinery,
Inc., a wholly-owned subsidiary. The Company received $90.5 million and recorded
a gain on the sale of $3.8 million.
Operations
Our operations primarily consist of renting equipment, and, to a lesser
extent, selling used equipment, complementary parts and merchandise to a wide
variety of construction and industrial customers. In addition, to service our
customer base more fully, we also act as a dealer of new equipment on behalf of
several nationally known equipment manufacturers and provide ongoing maintenance
and repair services for the equipment we sell and rent. Our locations are
grouped together by geographic area and a regional manager oversees operations
within each region.
Equipment Rentals. We are one of the largest equipment rental companies in
the United States, with 84 rental locations in 18 states. Our rental fleet is
comprised of a complete line of light and heavy construction and industrial
equipment from a wide variety of manufacturers, including John Deere, Case,
Bomag, Bosch, Sullivan Industries, Ingersoll-Rand, Gradall, Lull, JLG, Bobcat,
MultiQuip and Wacker.
5
Major categories of equipment represented the following percentages (based
on original cost) of the Company's total rental fleet as of December 31, 1999:
Percentage of Total Rental Fleet
Major Equipment Category (based on original cost)
Earthmoving .......................... 39.3 %
Material Handling ....................... 16.6
Aerial .......................... 12.8
Other .......................... 6.4
Compaction .......................... 6.1
Trucks .......................... 5.9
Compressors .......................... 5.5
Cranes .......................... 2.3
Generators .......................... 1.6
Welders .......................... 1.3
Pumps .......................... 1.3
Lighting .......................... 0.9
We attempt to differentiate ourselves from our competitors by providing a
broad selection of new and well-maintained rental equipment, and through
high-quality, responsive service to our customers. As of December 31, 1999, our
equipment rental fleet had an original cost of approximately $413 million and an
average age of 24 months, which management believes compares favorably with
other leading equipment rental companies. We make ongoing capital investments in
new equipment, engage in regular sales of used equipment and conduct an advanced
preventative maintenance program. This program increases fleet utilization,
extends the useful life of equipment and produces higher resale values.
In addition to providing a new and reliable equipment rental fleet,
management believes providing high quality customer service is essential to our
future success. The equipment rental business is a service industry requiring
quick response times to satisfy customers' needs. Though some activity is
arranged with lead-time, much of the rental initiation process takes place
within a 48-hour period. Consequently, equipment availability, branch location
and transportation capabilities play a major role in earning repeat business.
Rental customers prefer a quick selection process and seek quick, concise
communication when ordering equipment. Punctuality and reliability are key
components of the servicing process, as well as maintenance performance, timely
equipment removal at the rental termination and simplified billing. Our service
initiatives include (i) reliable on-time equipment delivery directly to
customers' job sites; (ii) on-site repairs and maintenance of rental equipment
by factory trained mechanics, which are generally available 24 hours a day,
seven days a week; and (iii) ongoing training of an experienced sales force to
consult with customers regarding their equipment needs.
New Equipment Sales. We are a distributor of new equipment on behalf of
several nationally known equipment manufacturers. Typically, dealership
agreements do not have a specific term and may be terminated by either party
upon specific events and/or written notice. In the future we may continue, amend
or terminate dealership agreements.
6
Used Equipment Sales. We maintain a regular program of selling used
equipment in order to adjust the size and composition of our rental fleet to
changing market conditions and to maintain the quality and low average age of
our rental fleet. Management attempts to balance the objective of obtaining
acceptable prices from equipment sales against the revenues obtainable from used
equipment rentals. We are generally able to achieve favorable resale prices for
our used equipment due to our strong preventative maintenance program and our
practice of selling used equipment before it becomes obsolete or irreparable. We
believe the proactive management of our rental fleet allows us to adjust the
rates of new equipment purchases and used equipment sales to maximize equipment
utilization rates and respond to changing economic conditions. Such proactive
management, together with our broad geographic diversity, minimizes the impact
of regional economic downturns.
Parts and Service. We sell a full complement of parts, supplies and
merchandise to our customers in conjunction with our equipment rental and sales
business. We also offer maintenance service to our customers that own equipment
and generate revenues from damage waiver charges, delivery charges and warranty
income. We believe that these revenues are more stable than equipment sales
revenues because of the recurring nature of the parts and service business. We
also believe that during economic downturns, the parts and service business may
actually increase as customers postpone new equipment purchases and instead
attempt to maintain their existing equipment.
Management Information System
We have developed a state-of-the-art, customized management information
system, capable of monitoring operations on a real-time basis at up to 300 sites
that can be upgraded to support additional locations or terminals. We currently
employ eight management information system employees who continually update and
refine the system. We use this system to maximize fleet utilization and
determine the optimal fleet composition by market. This system links all of our
rental locations and allows management to track customer and sales information,
as well as the location, rental status and maintenance history of every piece of
equipment in the rental fleet. Using this system, rental equipment branch
managers can search our entire rental fleet for needed equipment, quickly
determine the closest location of such equipment and arrange for delivery to the
customer's work site. This practice helps diminish "lost rents," improves
utilization and makes equipment available in markets where it can earn increased
revenues. Our communications system can handle multiple protocols and allows the
integration of systems running on different platforms. This feature allows us to
include systems used by locations acquired in an acquisition of an existing
equipment rental company in its central databases while the acquired locations
are integrated into our system.
Customers
Our customers include commercial, industrial and civil construction
contractors, manufacturers, public utilities, municipalities, golf courses,
shipyards, commercial farmers, military bases, offshore platform operators and
maintenance contractors, refineries and petrochemical facilities and a variety
of other industrial accounts.
During 1999 we served over 27,000 customers. Our top 10 customers
represented 3.4% of our total revenues in 1999. Our rental equipment customers
vary in size from large Fortune 500 companies who have elected to outsource much
of their equipment needs to small construction contractors, subcontractors, and
machine operators whose equipment needs are job-based and not easily measured in
advance. Our new and used equipment sales customers are generally large
construction contractors who regularly purchase wholesale goods and annually
budget for fleet maintenance purchases.
7
We do not currently provide our own purchase financing to customers. We
rent equipment, sell parts, and provide repair services on account to customers
who are screened through a credit application process. Customers can finance
purchases of large equipment with a variety of creditors, including
manufacturers, banks, finance companies and other financial institutions.
Sales and Marketing
We maintain a strong sales and marketing orientation throughout our
organization in order to increase our customer base and better understand and
serve our customers. Managers at each of our branches are responsible for
supervising and training all sales employees at that location and directing the
salesforce by conducting regular sales meetings and participating in selling
activities. Managers develop relationships with local customers and assist them
in planning their equipment requirements. Managers are also responsible for
managing the mix of equipment at their locations, keeping abreast of local
construction activity and monitoring competitors in their respective markets.
To stay informed about their local markets, salespeople track new equipment
sales and construction projects in the area through Equipment Data Reports, FW
Dodge Reports and PEC Reports (Planning, Engineering and Construction), follow
up on referrals and visit construction sites and potential equipment users who
are new to the local area. Our salespeople also use targeted marketing
strategies to address the specific needs of local customers.
Purchasing
We purchase equipment from vendors with reputations for product quality and
reliability. Our Vice President of Asset Management and Procurement directs
fleet purchasing, asset utilization and fleet maintenance for our rental fleet.
We believe our size and the quantity of equipment we purchase enables us to
purchase equipment directly from vendors pursuant to national purchasing
agreements at lower prices and on more favorable terms than many smaller
competitors. We seek to maintain close relationships with our vendors to ensure
the timely delivery of new equipment. We believe that we have sufficient
alternative sources of supply for the equipment we purchase in each of our
principal product categories.
The following table summarizes our principal categories of equipment and
specifies the Company's major suppliers of such equipment:
Product Category Primary Vendors
Air Compressors and Equipment.................Ingersoll-Rand, Sullivan and Sullair
Earthmoving Equipment (such as Backhoes,
Loaders, Dozers, Excavators and Material
Handling Equipment).........................John Deere, Case, JCB, Kobelco, Volvo and Bobcat
Compaction Equipment, Rollers
and Recyclers...............................Bomag, Wacker, MultiQuip and Rammax
Pumps.........................................MultiQuip, Wacker and Thompson
Generators....................................MultiQuip, Wacker and Yamaha
Welders.......................................Miller and Lincoln
Electric Tools................................Bosch, Dewalt and Milwaukee
Light Towers..................................Specialty Lighting, Coleman and Ingersoll - Rand
Forklifts.....................................Lull, Gradall, Toyota and Clark
Trucking......................................International, Ford and GMC
Aerial........................................JLG, Genie Industries, and Snorkel
Concrete......................................Partner, Edco, Whiteman, Miller, MultiQuip, Wacker and
Stone
Hydraulic Hammers.............................Kent and Tramac
8
Locations
Our locations typically include (i) offices for sales, administration and
management; (ii) a customer showroom displaying equipment and parts; (iii) an
equipment service area; and (iv) outdoor and indoor storage facilities for
equipment. Each location offers a full range of rental equipment, with the mix
designed to meet the anticipated needs of the customers in each location.
Each stand-alone rental equipment location is staffed by, on average,
approximately 15 full-time employees, including a branch manager, a rental
coordinator, service manager, sales representatives, an office administrator,
mechanics and drivers. Additionalpart-time employees are also used to staff the
rental equipment operations located at the same sites.
Competition
The equipment rental industry is highly fragmented and very competitive. We
compete with independent third parties in all of the markets in which we
operate. Most of our competitors in the rental business tend to operate in
specific, limited geographic areas, although some larger competitors do compete
on a national basis. We also compete with equipment manufacturers, which sell
and rent equipment directly to customers. Some of our competitors have greater
financial resources and name recognition than we have.
Environmental and Safety Regulation
Our facilities and operations are subject to certain federal, state and
local laws and regulations relating to environmental protection and occupational
health and safety, including those governing wastewater discharges, the
treatment, storage and disposal of solid and hazardous wastes and materials, and
the remediation of contamination associated with the release of hazardous
substances. We believe that we are in material compliance with such requirements
and do not currently anticipate any material capital expenditures for
environmental compliance or remediation for the current or succeeding fiscal
years. Certain of our present and former facilities have used substances and
generated or disposed of wastes which are or may be considered hazardous, and we
may incur liability in connection therewith. Moreover, there can be no assurance
that environmental and safety requirements will not become more stringent or be
interpreted and applied more stringently in the future. Such future changes or
interpretations, or the identification of adverse environmental conditions
currently unknown to us, could result in additional environmental compliance or
remediation costs. Such compliance and remediation costs could be material to
our financial condition or results of operations.
In particular, at our owned and leased facilities we store and dispense
petroleum products from aboveground storage tanks and have in the past stored
and dispensed petroleum products from underground storage tanks. We also use
hazardous materials, including solvents, to clean and maintain equipment and
generate and dispose of solid and hazardous wastes, including used motor oil,
radiator fluid and solvents. In connection with such activities, we have
incurred capital expenditures and other compliance costs which are expensed on a
current basis and which, to date, have not been material to our financial
condition. Based on currently available information, we believe that we will not
be required to incur material capital expenditures or other compliance or
remediation costs on environmental and safety matters in the foreseeable future.
9
Employees
As of February 25, 2000, we had approximately 1,260 employees. None of our
employees are represented by a union or covered by a collective bargaining
agreement. We believe our relations with our employees are good.
ITEM 2. PROPERTIES
We lease approximately 18,000 square feet for our corporate headquarters in
an office building in Miami, Florida. We own the buildings and/or the land at 3
of our locations. All other sites are leased, generally for terms of five years
with renewal options. Owned and leased sites range from approximately 7,000 to
25,000 square feet on lots ranging up to 22 acres, and include showrooms,
equipment service areas and storage facilities. We do not consider any specific
leased location to be material to our operations. We believe that equally
suitable alternative locations are available in all areas where we currently do
business.
ITEM 3. LEGAL PROCEEDINGS
On December 17, 1999, the Company completed the sale of Neff Machinery,
Inc., a wholly-owned subsidiary. The Company received $90.5 million and recorded
a gain on the sale of $3.8 million. The terms of the purchase and sale agreement
(the "Agreement") provided for an adjustment to the purchase price based on the
assets and liabilities of Neff Machinery, Inc. at the date of closing. In the
opinion of the Company, it is due additional consideration of $8.8 million under
the terms of the Agreement. The purchaser believes it is due $20.3 million under
the terms of the Agreement.
Because of the uncertainty of the outcome of this dispute, the Company has
not recorded any additional amounts that may be receivable or payable under the
terms of the Agreement.
The Company and the 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
Board of Directors has established a Special Committee to evaluate the buyout
offer and review the plaintiffs' claims in the 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, we do not believe any of these matters are material to
our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, no matter was submitted to a vote of the
security holders of the Company.
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Price Range of Common Stock
On May 21, 1998, our Class A Common Stock (the "Common Stock") began
trading on the New York Stock Exchange under the symbol "NFF". The following
table sets forth the high and low closing sales prices of Common Stock as
reported on the respective exchange for the periods indicated.
High Low
Year ended December 31, 1999:
First Quarter........................... 8.00 5.56
Second Quarter.......................... 15.75 6.44
Third Quarter........................... 18.44 10.25
Fourth Quarter.......................... 12.75 6.25
Year ended December 31, 1998:
First Quarter........................... NA NA
Second Quarter.......................... 13.00 9.88
Third Quarter........................... 14.19 7.75
Fourth Quarter.......................... 8.69 5.38
As of March 28, 2000, the Company had 64 shareholders of record. The
Company believes the number of beneficial owners is substantially greater than
the number of record holders because a large portion of the Common Stock is held
of record in broker "street names" for the benefit of individual investors.
Dividend Policy
We have not paid any cash dividends on our Common Stock during the two-year
period ended December 31, 1999. We presently intend to retain all earnings for
the development of our business and do not anticipate paying any cash dividends
on our Common Stock in the foreseeable future. In addition, our revolving credit
agreement precludes us from purchasing, redeeming or retiring any of our capital
stock or from paying dividends. The payment of dividends is also limited by
provisions of the indentures governing our senior subordinated notes issued in
May and December 1998 and due 2008. The declaration and payment of any future
cash dividends will depend on a number of factors including future earnings,
capital requirements, the financial condition and prospects of the Company and
any restrictions under credit agreements existing from time to time, as well as
such other factors as the Board of Directors may deem relevant. There can be no
assurances that we will pay any dividends in the future.
11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for each of the five years ended December 31, 1999. The data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this Annual
Report. Certain amounts in the prior years have been reclassified to conform
with the current year presentation.
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Statement of Operations (amounts in thousands, except per share data)
Revenues
Rental revenue............................. $ 222,862 $ 179,014 $ 69,512 $35,808 $ 20,019
Equipment sales............................ 121,865 108,352 50,578 44,160 33,943
Parts and service.......................... 47,284 36,724 22,132 15,045 13,292
-------- -------- -------- -------- -------
Total revenues.......................... 392,011 324,090 142,222 95,013 67,254
-------- -------- -------- -------- -------
Cost of revenues
Cost of equipment sold..................... 100,871 83,783 40,766 33,605 26,562
Depreciation of rental equipment (1)....... 55,159 56,336 24,231 19,853 11,747
Maintenance of rental equipment............ 66,763 49,858 18,752 8,092 3,469
Cost of parts and service.................. 30,166 23,690 13,741 8,143 7,504
-------- -------- -------- -------- -------
Total cost of revenues................. 252,959 213,667 97,490 69,693 49,282
-------- -------- -------- -------- -------
Gross profit................................. 139,052 110,423 44,732 25,320 17,972
-------- -------- -------- -------- -------
Selling, general and administrative expenses. 74,893 60,347 31,329 18,478 10,956
Other depreciation and amortization.......... 10,731 8,833 2,806 1,432 916
Write down of assets held for sale........... 1,444 - - - -
Officer stock option compensation (2)........ - 3,198 4,400 - -
-------- -------- -------- -------- -------
Income from operations....................... 51,984 38,045 6,197 5,410 6,100
-------- -------- -------- -------- -------
Other expenses............................... 41,520 35,855 14,338 6,337 3,090
-------- -------- -------- -------- -------
Income (loss) before income taxes, minority
interest and extraordinary item.............. 10,464 2,190 (8,141) (927) 3,010
(Provision for) benefit from income taxes (3) (3,877) 134 1,748 (461) (1,176)
-------- -------- -------- -------- -------
Income (loss) before minority interest and
extraordinary item......................... 6,587 2,324 (6,393) (1,388) 1,834
Minority interest............................ (1,733) (1,111) - - -
-------- -------- -------- -------- -------
Income (loss) before extraordinary item...... 4,854 1,213 (6,393) (1,388) 1,834
Extraordinary loss,net....................... - (2,675) (451) (809) -
-------- -------- -------- -------- -------
Net income (loss)............................ $ 4,854 $ (1,462) $ (6,844) $ (2,197) $ 1,834
======== ======== ======== ======== ========
Basic earnings (loss) per common share :
Income (loss) before extraordinary item....... $ 0.23 $ (0.23) $ (1.64) $ (0.56) $ 0.22
Extraordinary loss, net....................... - (0.15) (0.05) (0.10) -
-------- -------- -------- -------- -------
Net income (loss)............................. $ 0.23 $ (0.38) $ (1.69) $ (0.66) $ 0.22
======== ======== ======== ======== =======
Diluted earnings (loss) per common share :
Income (loss) before extraordinary item....... $ 0.22 $ (0.23) $ (1.64) $ (0.56) $ 0.22
Extraordinary loss, net....................... - (0.15) (0.05) (0.10) -
-------- -------- -------- -------- -------
Net income (loss)............................. $ 0.22 $ (0.38) $ (1.69) $ (0.66) $ 0.22
======== ======== ======== ======== =======
Weighted average common shares outstanding :
Basic...................................... 21,165 17,213 8,465 8,465 8,465
======== ======== ======== ======== =======
Diluted.................................... 21,887 17,213 8,465 8,465 8,465
======== ======== ======== ======== =======
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA - (continued)
Year Ended December 31,
-----------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
Balance Sheet Data (end of period): (amounts in thousands)
Net book value of rental equipment.............$ 285,863 $ 321,220 $ 179,547 $ 76,794 $ 45,596
Total assets................................... 471,706 572,369 279,654 109,118 68,816
Total debt..................................... 335,852 406,993 226,203 58,250 48,345
Redeemable preferred stock..................... - - 53,747 46,299 11,430
Total stockholders' equity (deficit)........... 104,208 99,360 (24,735) (7,508) (1,931)
Other Data:
EBITDA(4)......................................$ 117,874 $ 103,214 $ 33,234 $ 26,695 $ 18,763
EBITDA margin(5)............................... 30.1% 31.8% 23.4% 28.1% 27.9%
Rental equipment purchases.....................$ 221,671 $ 199,198 $ 143,515 $ 86,886 $ 52,795
_____________________
1) Depreciation of rental equipment for 1996, 1997 and 1999 reflects the
Company's change in depreciation policy to recognize extended estimated service
lives and increased residual values of its rental equipment. See the
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Annual Report.
2) Officer stock option compensation expense represents a noncash charge
with respect to the change in estimated market value of the shares to be issued
to the Chief Executive Officer under an option agreement.
3) Prior to December 26, 1995, the Company operated as a Subchapter S
corporation under the provisions of the Internal Revenue Code. Income (loss)
before extraordinary items for 1995 is restated to reflect what the data would
have been if the Company had Subchapter C status in this year.
4) EBITDA represents income from operations plus depreciation and
amortization. EBITDA is not intended to represent cash flow from operations and
should not be considered as an alternative to operating or net income computed
in accordance with GAAP, as an indicator of the Companys operating performance,
as an alternative to cash flows from operating activities (as determined in
accordance with GAAP) or as a measure of liquidity. The Company believes that
EBITDA is a standard measure commonly reported and widely used by analysts and
investors as a measure of profitability for companies with significant
depreciation and amortization expense. However, not all companies calculate
EBITDA using the same methods; therefore, the EBITDA figures set forth above may
not be comparable to EBITDA reported by other companies.
5) EBITDA margin represents EBITDA as a percentage of total revenues.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis compares the year ended December 31,
1999 to the year ended December 31, 1998 and the year ended December 31, 1998 to
the year ended December 31, 1997. Consolidated results of operations should be
read in conjunction with the Company's Consolidated Financial Statements and the
Notes thereto, appearing elsewhere in this Annual Report.
Overview
Since 1995, the Company has pursued an aggressive growth strategy,
increasing its number of equipment rental and sales locations to 84, as of
December 31, 1999. The Company has achieved this growth through the addition of
53 equipment rental locations as a result of acquisitions, and the opening of 26
start-up equipment rental locations primarily throughout the southeast and
southwest regions of the United States. The Company intends to continue to
pursue its aggressive growth strategy by (i) making additional acquisitions of
equipment rental companies; (ii) increasing fleet at its existing equipment
rental locations in both existing and new product lines; (iii) continuing to
open new equipment rental locations.
Since March 1, 1995, the Company has opened 26 start-up rental equipment
locations. Management believes the Company's recent financial performance does
not fully reflect the benefit of these rental locations. Based on the Company's
historical experience, a new equipment rental location tends to incur costs
during the early period of operations without the benefit of the revenue stream
of a mature location. New rental locations realize significant increases in
revenues and cash flow during the first three years of operation, and generally
become profitable in the third year of operation as more equipment is added to
the rental fleet and as the location matures. Because there is relatively little
incremental operating expense associated with such revenues, there is a greater
proportionate increase in cash flow and profitability as a rental location
matures. The Company believes the revenues, cash flow and profitability of the
26 start-up locations opened since March 1, 1995 will increase significantly as
these locations mature.
The Company primarily derives revenue from (i) the rental of equipment;
(ii) sales of new and used equipment and (iii) sales of parts and service. 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 is 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.
14
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 20% residual value). Since January 1, 1996, the Company has, from time to
time, 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
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.
The following table sets forth, for the periods indicated, information
derived from the consolidated statements of operations of the Company expressed
as a percentage of total revenues. There can be no assurance that the trends in
the table below will continue in the future.
Year Ended December 31,
-----------------------
Revenues : 1999 1998 1997
-------- -------- --------
Rental revenue.................................. 56.9 % 55.3 % 48.9 %
Equipment sales................................. 31.1 33.4 35.6
Parts and service............................... 12.0 11.3 15.5
-------- -------- --------
Total revenues............................. 100 % 100 % 100 %
-------- -------- --------
Cost of revenues:
Cost of equipment sold.......................... 25.7 25.8 28.6
Depreciation of rental equipment................ 14.1 17.4 17.0
Maintenance of rental equipment................. 17.0 15.4 13.2
Cost of parts and services...................... 7.7 7.3 9.7
-------- -------- --------
Total cost of revenues..................... 64.5 65.9 68.5
-------- -------- --------
Gross profit...................................... 35.5 34.1 31.5
Selling, general and administrative expenses 19.1 18.6 22.0
Other depreciation and amortization............ 2.7 2.7 2.0
Writedown of assets held for sale.............. 0.4 - -
Officer stock option compensation.............. - 1.1 3.1
-------- -------- --------
Income from operations........................... 13.3 % 11.7 % 4.4 %
======== ======== ========
EBITDA........................................... 30.1 % 31.8 % 23.4 %
======== ======== ========
15
1999 Compared to 1998
Revenues. Total revenues for 1999 increased 21.0% to $392.0 million from
$324.1 million in 1998. This growth in revenues is primarily attributable to
revenues generated by acquisitions of approximately $38.8 million and an
increase in revenues from the maturation of the 26 new rental locations opened
since March 1995 of approximately $26.4 million.
Gross Profit. Gross profit for 1999 increased 26.0% to $139.1 million or
35.5% of total revenues from $110.4 million or 34.1% of total revenues in 1998.
This increase is primarily attributable to an increase in gross profit of
approximately $13.1 million associated with the growth in revenues arising from
acquisitions and approximately $12.9 million associated with the maturation of
the 26 new rental locations opened since March 1995. The increase in gross
profit as a percentage of revenue is primarily attributable to improved rental
revenue margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 24.2% to $74.9 million or 19.1% of total
revenues from $60.3 million or 18.6% of total revenues in 1998. The increase in
selling, general and administrative expenses is primarily attributable to
increased regional and corporate personnel to support the continued revenue
growth of the Company. The Company had 84 locations at December 31, 1999,
compared to 86 at December 31, 1998.
Other Depreciation and Amortization. Other depreciation and amortization
expense for 1999 increased 21.6% to $10.7 million or 2.7% of total revenues from
$8.8 million or 2.7% of total revenues in 1998. This increase is primarily
attributable to amortization of goodwill resulting from acquisitions and to
increased expenditures on computer equipment, management information systems and
property and equipment needed to support the Company's expansion.
Officer Stock Option Compensation. Officer stock option expense was $0
million for 1999 and $3.2 million for 1998. The expense in 1998 represented
changes in estimated market value of the shares to be issued to a key employee
under an option agreement.
Interest Expense. Interest expense for 1999 increased 22.0% to $39.9
million from $32.7 million in 1998. This 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.
Extraordinary Loss. During 1998, as a result of modifications to the
Company's Credit Facility, the Company recorded extraordinary losses from the
write-off of debt issue costs associated with the early extinguishment of debt
of $2.7 million, net of related income taxes.
Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is
not presented as an alternative to operating results or cash flow from
operations as determined by Generally Accepted Accounting Principles ("GAAP"),
but rather to provide additional information related to the ability of the
Company to meet its capital requirements and pursue its business strategy.
EBITDA should not be considered in isolation from, or construed as having
greater importance than, GAAP operating income or cash flows from operations as
a measure of an entity's performance.
EBITDA for 1999 increased 14.2% to $117.9 million or 30.1% of total
revenues from $103.2 million or 31.8% of total revenues in 1998. The increase in
EBITDA is primarily attributable to the maturation of new rental locations and
acquisitions as discussed above. In 1998, EBITDA included charges for officer
stock option compensation of $3.2 million.
16
1998 Compared to 1997
Revenues. Total revenues for 1998 increased 127.9% to $324.1 million from
$142.2 million in 1997. This growth in revenues was primarily attributable to
revenues generated by acquisitions of approximately $114.9 million and an
increase in revenues from the maturation of the 26 new rental locations opened
since March 1995 of approximately $47.4 million.
Gross Profit. Gross profit for 1998 increased 146.9% to $110.4 million or
34.1% of total revenues from $44.7 million or 31.5% of total revenues in 1997.
This increase was primarily attributable to an increase in gross profit of
approximately $44.1 million associated with the growth in revenues arising from
acquisitions and approximately $17.4 million associated with the maturation of
the 26 new rental locations opened since March 1995. The increase in gross
profit as a percentage of revenue was primarily attributable to improved rental
revenue margins.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 92.6% to $60.3 million or 18.6% of total
revenues from $31.3 million or 22.0% of total revenues in 1997. The increase in
selling, general and administrative expenses was 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.
The Company had 86 locations at December 31, 1998, compared to 53 at December
31, 1997.
Other Depreciation and Amortization. Other depreciation and amortization
expense for 1998 increased 214.8% to $8.8 million or 2.7% of total revenues from
$2.8 million or 2.0% of total revenues in 1997. This increase was primarily
attributable to amortization of goodwill resulting from acquisitions and to
increased expenditures on computer equipment, management information systems and
property and equipment needed to support the Company's expansion.
Officer Stock Option Compensation. Officer stock option expense was $3.2
million for 1998 and $4.4 million for 1997. The expense represented changes in
estimated market value of the shares to be issued to a key employee under an
option agreement.
Interest Expense. Interest expense for 1998 increased 172.9% to $32.7
million from $12.0 million in 1997. This increase was primarily attributable to
the Company's borrowings related to acquisitions and to additional borrowings
related to the Company's continued investment in rental equipment.
Extraordinary Loss. During 1998, as a result of modifications to the
Company's Credit Facility, the Company recorded extraordinary losses from the
write-off of debt issue costs associated with the early extinguishment of debt
of $2.7 million, net of related income taxes.
Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is
not presented as an alternative to operating results or cash flow from
operations as determined by Generally Accepted Accounting Principles ("GAAP"),
but rather to provide additional information related to the ability of the
Company to meet its capital requirements and pursue its business strategy.
EBITDA should not be considered in isolation from, or construed as having
greater importance than, GAAP operating income or cash flows from operations as
a measure of an entity's performance.
EBITDA for 1998 increased 210.6% to $103.2 million or 31.8% of total
revenues from $33.2 million or 23.4% of total revenues in 1997. The increase in
EBITDA was primarily attributable to the maturation of new rental locations and
acquisitions as discussed above. In 1998 and 1997, EBITDA included charges for
officer stock option compensation of $3.2 million and $4.4 million,
respectively.
17
Liquidity and Capital Resources
During 1998, the Company completed an initial public offering of its Class
A Common Stock (the "Offering") and the sale of $200 million of Senior
Subordinated Notes due 2008 (the "Senior Notes") to reduce the Company's
indebtedness, extend its debt maturities to reflect the long-term nature of its
assets and provide increased operational and financial flexibility to allow the
Company to pursue its growth strategy.
Proceeds from the Offering and Senior Notes were used to repay a $100.0
million term loan, redeem the Company's Series A Cumulative Preferred Stock,
repay a mortgage related to properties the Company owns and reduce outstanding
borrowings under the Company's revolving credit facility.
During 1999, the Company's operating activities provided net cash flow of
$43.5 million as compared to $42.7 million for 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 provided by (used in) investing activities was $1.6 million for
1999 as compared to $(266.5) million in the same period for the prior year. The
change in cash from investing activities was due to sales of subsidiaries and
decreased acquisitions in 1999.
Net cash provided by (used in) financing activities was $(46.0) million for
1999 as compared to $225.3 million for 1998. The net cash used in financing
activities was primarily attributable to net borrowings made under the Company's
revolving credit facility.
As of December 31, 1999, the Company had approximately $82.3 million
available under its revolving credit facility. Based upon current expectations,
the Company believes that cash flow from operations, together with amounts,
which may be borrowed under the revolving credit facility, will be adequate for
it to meet its capital requirements and pursue its business strategy for the
next 12 months.
Inflation and General Economic Conditions
Although the Company cannot accurately anticipate the effect of inflation
on its operations, it does not believe that inflation has had, or is likely in
the foreseeable future to have, a material impact on its results of operations.
The Company's operating results may be adversely affected by events or
conditions in a particular region, such as regional economic, weather and other
factors.
In addition, the Company's operating results may be adversely affected by
increases in interest rates that may lead to a decline in economic activity,
while simultaneously resulting in higher interest payments by the Company under
its variable rate credit facilities.
Although much of the Company's business is with customers in industries
that are cyclical in nature, management believes that certain characteristics of
the equipment rental industry and the Company's operating strategies should help
to mitigate the effects of an economic downturn. These characteristics include
(i) the flexibility and low cost offered to customers by renting, which may be a
more attractive alternative to capital purchases; (ii) the Company's ability to
redeploy equipment during regional recessions; and (iii) the diversity of the
Company's industry and customer base.
Market Risk
The Company's financial instruments consist of cash, accounts receivable,
and debt. Cash and accounts receivable are short term, non-interest bearing
instruments and not subject to market risk.
For fixed rate debt instruments, interest rate changes affect their fair
market value but do not impact earnings or cash flows. Conversely for variable
rate debt instruments, interest rate changes generally do not affect the fair
market value but do impact future earnings and cash flows.
At December 31, 1999, the Company had fixed rate debt of $198.7 million and
variable rate debt of $137.2 million. Holding debt levels constant, a one
percentage point increase in interest rates would decrease the fair market value
of the fixed rate debt by approximately $10.7 million and decrease earnings and
cash flows for variable rate debt by approximately $0.8 million.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Financial Statements and Schedules
Page Numbers
Reports of Independent Certified Public Accountants ................ 20
Consolidated Balance Sheets as of December 31, 1999 and 1998 ....... 22
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 ................................. 23
Consolidated Statements of Stockholder's Equity (Deficit) for
the years ended December 31, 1999, 1998 and 1997 ................. 24
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 ................................. 25
Notes to Consolidated Financial Statements ........................ 26
SCHEDULES:
Report of Independent Certified Public Accountants ................ 42
II-Valuation and Qualifying Accounts and Reserves ................. 43
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Neff Corp.
We have audited the accompanying consolidated balance sheets of Neff Corp.
and subsidiaries (the "Company"), as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity (defecit)
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the 1998 financial statements
of Sullair Argentina Sociedad Anonima (a consolidated subsidiary), which
statements reflect total assets of $71,960,577 at December 31, 1998, and total
revenues and net income of $27,138,214 and $3,175,507, respectively, for the
period from July 1, 1998 through December 31, 1998. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included by Sullair Argentina
Sociedad Anonima, is based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and, for 1998, the report of the other
auditors, such consolidated financial statements present fairly, in all material
respects, the financial position of Neff Corp. and subsidiaries at December 31,
1999 and 1998 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche
Miami, Florida
March 23, 2000
20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Sullair Argentina Sociedad Anonima
1. We have audited the consolidated balance sheet of Sullair Argentina
Sociedad Anonima and its subsidiary Sullair San Luis Sociedad Anonmia as of
December 31, 1998, and the related consolidated statements of income and of
changes in shareholders' equity and in financial position (cash flows) for the
six month period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion of these consolidated financial
statements based on our audits.
2. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. An audit does not provide assurance that the
Company's computerized systems or any other system, such as those from customers
and suppliers, are or would be year 2000 compliant. We believe that our audits
provide a reasonable basis for our opinion.
3. Accounting principles generally accepted in Argentina require companies
with controlling financial interest in the other companies to present both
parent company, where investments in subsidiaries are accounted for by the
equity method, and consolidated financial statements, as primary and
supplementary information, respectively. Because of the special purpose of the
financial statements, parent company financial statements are not included. This
procedure has been adopted for the convenience of the reader of the financial
statements.
4. In our opinion, the consolidated financial statements audited by us
present fairly, in all material respects, the financial position of Sullair
Argentina Sociedad Anonima and its subsidiary Sullair San Luis Sociedad Anonima
at December 31, 1998, and the results of their operations, the changes in their
shareholders' equity and the changes in their financial position (cash flows)
for the six-month period ended December 31, 1998, in conformity with accounting
principles generally accepted in Argentina.
5. Accounting principles generally accepted in Argentina vary in certain
important respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of consolidated net income for the mentioned periods, and the
determination of consolidated shareholders' equity and financial position at
December 31, 1998, to the extent summarized in Notes 10 and 11 to the
consolidated financial statements of Sullair Argentina Sociedad Anonima.
/s/Price Waterhouse & Co.
Buenos Aires, Argentina
February 16, 1999
21
NEFF CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
1999 1998
-------- --------
ASSETS
Cash and cash equivalents..................................... $ 3,374 $ 4,340
Accounts receivable, net of allowance for doubtful accounts of
$2,904 in 1999 and $3,229 in 1998........................ 53,740 59,022
Inventories................................................... 3,860 29,164
Rental equipment, net......................................... 285,863 321,220
Property and equipment, net................................... 25,638 45,114
Goodwill, net................................................. 88,008 96,722
Net deferred tax asset........................................ - 2,780
Intangible assets, net........................................ 1,003 1,459
Prepaid expenses and other assets............................. 10,220 12,548
-------- --------
Total assets....................................... $ 471,706 $ 572,369
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable........................................ $ 7,527 $ 24,405
Accrued expenses........................................ 22,734 27,090
Credit facility......................................... 137,182 191,189
Senior subordinated notes............................... 198,670 198,522
Notes payable........................................... - 17,282
Capitalized lease obligations........................... 742 1,487
Net deferred tax liability.............................. 643 -
-------- --------
Total liabilities.................................. 367,498 459,975
-------- --------
Commitments and Contingencies (Note 12).......................
Minority interest............................................. - 13,034
-------- --------
Stockholders' equity
Class A Common Stock; $.01 par value; 100,000 shares
authorized; 16,065 shares issued and outstanding in
1999 and 1998......................................... 161 161
Class B special Common Stock; $.01 par value, liquidation
preference $11.67; 20,000 shares authorized; 5,100
shares issued and outstanding in 1999 and 1998........ 51 51
Additional paid-in capital.............................. 127,759 127,765
Accumulated deficit..................................... (23,763) (28,617)
-------- --------
Total stockholders' equity......................... 104,208 99,360
-------- --------
Total liabilities and stockholders' equity......... $ 471,706 $ 572,369
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
22
NEFF CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Years Ended December 31,
1999 1998 1997
---- ---- ----
Revenues
Rental revenue..................................................... $ 222,862 $ 179,014 $ 69,512
Equipment sales.................................................... 121,865 108,352 50,578
Parts and service.................................................. 47,284 36,724 22,132
------- ------- -------
Total revenues................................................ 392,011 324,090 142,222
------- ------- -------
Cost of revenues
Cost of equipment sold............................................. 100,871 83,783 40,766
Depreciation of rental equipment................................... 55,159 56,336 24,231
Maintenance of rental equipment.................................... 66,763 49,858 18,752
Cost of parts and service.......................................... 30,166 23,690 13,741
------- ------- ------
Total cost of revenues........................................ 252,959 213,667 97,490
------- ------- ------
Gross profit.............................................................. 139,052 110,423 44,732
------- ------- ------
Other operating expenses
Selling, general and administrative expenses....................... 74,893 60,347 31,329
Other depreciation and amortization................................ 10,731 8,833 2,806
Writedown of assets held for sale.................................. 1,444 - -
Officer stock option compensation.................................. - 3,198 4,400
------ ------ ------
Total other operating expenses................................ 87,068 72,378 38,535
------ ------ ------
Income from operations.................................................... 51,984 38,045 6,197
------ ------ ------
Other expense
Interest expense................................................... 39,901 32,677 11,976
Loss on sale of subsidiaries....................................... 422 - -
Amortization of debt issue costs................................... 1,197 3,178 2,362
----- ------ ------
Total other expense........................................... 41,520 35,855 14,338
------ ------ ------
Income (loss) before income taxes, minority interest and
extraordinary item..................................................... 10,464 2,190 (8,141)
(Provision for) benefit from income taxes................................. (3,877) 134 1,748
------ --- -----
Income (loss) before minority interest and extraordinary item............. 6,587 2,324 (6,393)
Minority interest......................................................... (1,733) (1,111) -
------ ------ ------
Income (loss) before extraordinary item................................... 4,854 1,213 (6,393)
Extraordinary loss, net of income taxes................................... - (2,675) (451)
----- ------ ------
Net income (loss)........................................................ $ 4,854 $ (1,462) $ (6,844)
===== ====== ======
Basic income (loss) per common share :
Income (loss) before extraordinary item................................... $ 0.23 $ (0.23) $ (1.64)
Extraordinary loss, net................................................... - (0.15) (0.05)
----- ----- -----
Net income (loss)......................................................... $ 0.23 $ (0.38) $ (1.69)
===== ===== =====
Basic weighted average common shares outstanding.......................... 21,165 17,213 8,465
====== ====== =====
Diluted income (loss) per common share :
Income (loss) before extraordinary item................................... $ 0.22 $ (0.23) $ (1.64)
Extraordinary loss, net................................................... - (0.15) (0.05)
------ ------ -----
Net income (loss)......................................................... $ 0.22 $ (0.38) $ (1.69)
====== ====== =====
Diluted weighted average common shares outstanding........................ 21,887 17,213 8,465
====== ====== =====
The accompanying notes are an integral part of these consolidated financial statements.
23
NEFF CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT) FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1999
(in thousands)
Additional
Common Stock A Common Stock B Paid-in Accumulated
-------------- --------------
Shares Amount Shares Amount Capital Deficit Total
------ ------ ------ ------ ------- ------- ------
Balance, December 31, 1996 ........................ 8,465 $ 85 - - - $ (7,593) $ (7,508)
Net loss .......................................... - - - - - (6,844) (6,844)
Adjustment for acquired property
and equipment (Note 13), net of taxes .......... - - - - - (2,936) (2,936)
Dividends in kind - Series A Preferred Stock ...... - - - - - (657) (657)
Preferred stock dividends accrued -
Series B and C ................................. - - - - - (3,200) (3,200)
Accretion of Series A, B and C Preferred Stock .... - - - - - (3,590) (3,590)
------ ------ ------ ------ ------- ------
Balance, December 31, 1997 ........................ 8,465 85 - - - (24,820) (24,735)
Net loss .......................................... - - - - - (1,462) (1,462)
Preferred stock dividends accrued -
Series A, B and C .............................. - - - - - (1,010) (1,010)
Accretion of Series A, B and C Preferred Stock .... - - - - - (1,325) (1,325)
Exchange of Preferred Stock Series B and C for Class
B Common Stock ................................ - - 6,000 $ 60 $ 44,876 - 44,936
Conversion of Class B Common Stock
to Class A Common Stock ........................ 900 9 (900) (9) - - -
Net proceeds from Common Stock Offering ........... 6,700 67 - - 85,663 - 85,730
Redemption of Series A Preferred Stock ............ - - - - (2,768) - (2,768)
Other ............................................. - - - - (6) - (6)
------ ------ ------ ------ ------ ------ ------
Balance, December 31, 1998 ........................ 16,065 161 5,100 51 127,765 (28,617) 99,360
Net income ........................................ - - - - - 4,854 4,854
Other ............................................. - - - - (6) - (6)
------ ------ ------ ------ ------ ------ ------
Balance, December 31, 1999 ........................ 16,065 $ 161 5,100 $ 51 $ 127,759 $ (23,763) $ 104,208
====== ====== ===== ====== ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
24
NEFF CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,
1999 1998 1997
---- ---- ----
Cash Flows from Operating Activities
Net income (loss).......................................................... $ 4,854 $ (1,462) $ (6,844)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities net of acquisitions.................................
Depreciation and amortization....................................... 67,087 68,347 29,399
Officer stock option compensation................................... - 3,198 4,400
Gain on sale of equipment........................................... (20,994) (24,569) (9,812)
Minority interest................................................... 1,733 1,111 -
Loss on sale of subsidiaries........................................ 422 - -
Extraordinary loss on debt extinguishment........................... - 4,280 722
Deferred income taxes............................................... 3,423 (510) (1,748)
Writedown of assets held for sale................................... 1,444 - -
Change in operating assets and liabilities (net of acquisitions
and sales)
Accounts receivable............................................ (18,739) (14,488) (8,341)
Other assets................................................... (5,288) (403) (2,957)
Accounts payable and accrued expenses.......................... 9,513 7,192 4,104
------- ------- -------
Net cash provided by operating activities................. 43,455 42,696 8,923
------- ------- -------
Cash Flows from Investing Activities
Purchases of equipment..................................................... (221,671) (199,198) (143,515)
Proceeds from sale of equipment............................................ 121,865 108,352 50,578
Proceeds from sale of subsidiaries......................................... 120,500 - -
Purchases of property and equipment........................................ (2,803) (15,015) (16,747)
S.A. Argentina Earn-out payment............................................ (5,518) - -
Cash paid for acquisitions................................................. (10,750) (160,646) (63,605)
------- ------- -------
Net cash provided by (used in) investing activities....... 1,623 (266,507) (173,289)
------- ------- -------
Cash Flows from Financing Activities
Debt issue costs........................................................... (128) (12,277) (2,425)
Net borrowings (repayments) under Senior Credit Facility................... (54,007) 29,364 103,576
Proceeds from issuance of senior subordinated notes........................ - 198,516 -
Proceeds from common stock offering........................................ - 85,730 -
Borrowings (repayments) under mortgage note................................ - (13,400) 13,400
Borrowings (repayments) under capitalized lease obligations................ (745) (833) 866
Borrowings (repayments) under term loan.................................... - (49,916) 49,916
Net borrowings (repayments) under notes payable............................ 8,836 1,997 (135)
Redemption of Series A preferred stock..................................... - (13,915) -
Distribution to stockholders............................................... - - (2,936)
------- ------- -------
Net cash provided by (used in) financing activities....... (46,044) 225,266 162,262
------- ------- -------
Net increase (decrease) in cash and cash equivalents....................... (966) 1,455 (2,104)
Cash and cash equivalents, beginning of year............................... 4,340 2,885 4,989
------- ------- -------
Cash and cash equivalents, end of year..................................... $ 3,374 $ 4,340 $ 2,885
======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements.
25
NEFF CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-GENERAL
Description of Business
Neff Corp. and its subsidiaries (the "Company") own and operate equipment
rental locations throughout the southern and western regions of the United
States. The Company also sells used equipment, parts and merchandise and
provides ongoing repair and maintenance services.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Neff Corp. and its wholly-owned and majority-owned subsidiaries. The financial
statements of Sullair Argentina Sociedad Anonima ("S.A. Argentina") included in
the consolidated financial statements of the Company have been adjusted to
reflect U.S. Generally Accepted Accounting Principles. Significant intercompany
transactions and balances have been eliminated in consolidation.
Stock Split
In May 1998, the Company effected an 84.65 for 1.00 stock split. The
accompanying consolidated financial statements reflect the stock split on a
retroactive basis from the beginning of the periods presented.
Acquisitions
In August 1997, the Company purchased the common stock of Industrial
Equipment Rentals, Inc. ("IER") for approximately $63.6 million. This purchase
was funded by a $50 million term loan and borrowings under the Company's credit
facility (see Note 5). IER had rental equipment operations similar to the
Company's in Alabama, Louisiana, Mississippi and Texas. The transaction was
accounted for under the purchase method. In connection with this purchase,
goodwill of approximately $29.2 million was recorded.
In January 1998, the Company acquired substantially all of the assets of
Richbourg's Sales and Rentals, Inc. ("Richbourg") for approximately $100
million. Richbourg has rental equipment operations similar to the Company's with
15 locations in three states. This transaction was accounted for under the
purchase method. In connection with this purchase, goodwill of approximately
$40.8 million was recorded.
Also during 1998, the Company acquired the net assets or outstanding
securities of seven equipment rental companies (collectively, "the Other 1998
Acquisitions") in separate transactions for an aggregate purchase price of $25.4
million. The acquisition of these businesses added 4 locations in Texas, 4 in
Florida and 3 locations in California. These transactions were all accounted for
under the purchase method of accounting. In connection with these purchases,
goodwill of approximately $14.6 million was recorded. Revenues on an unaudited
pro forma basis would have increased by $48.2 million and $132.3 million, during
1998 and 1997, respectively, had the acquisitions of IER, Richbourg and the
Other 1998 Acquisitions occurred on January 1, 1997.
26
The net loss and the net loss per share (diluted) would have been decreased
by $1.8 million and by $0.10 during 1998, respectively. The net loss and the net
loss per share (diluted) would have been increased by $1.4 million and by $0.16
during 1997, respectively, had the acquisition of IER, Richbourg and the Other
1998 Acquisitions occurred on January 1, 1997.
On June 30, 1998, the Company acquired 65% of the outstanding stock of S.A.
Argentina, for approximately $36.1 million and earn-out payments equal to 82.8%
of S.A. Argentina's net income for 1998 and 1999, with such earn-out payments
not to exceed $12.6 million in the aggregate. The Company also had an option to
purchase the remaining 35% of outstanding stock of S.A. Argentina. S.A.
Argentina rents and sells industrial and construction equipment throughout South
America. In connection with the purchase, goodwill of approximately $14.0
million was recorded. Earn-out payments of $5.5 million were made in 1999 and
recorded to goodwill. The Company's investment in S.A. Argentina was sold in
November 1999.
In 1999, the Company acquired the net assets of three equipment rental
companies for an aggregate purchase price of $10.8 million. The acquisitions of
these businesses added 5 locations in Virginia, 2 in Colorado, 1 location in
Oregon and 1 location in Washington. These transactions were accounted for under
the purchase method of accounting and goodwill of approximately $8.0 million was
recorded. The pro forma effect of the 1999 acquisitions on the results of
operations are not presented as they are not considered material.
Sales of Subsidiaries
On November 18, 1999, the Company completed the sale of Sullair Argentina
S.A. The Company received $42.5 million, of which $12.5 million was a receivable
that was received in February 2000. The Company recorded a loss on the sale of
$4.2 million.
The following amounts are included in the consolidated financial statements
of the Company for Sullair Argentina S.A. (in thousands):
1999 1998 1997
---- ---- ----
Assets $ - $ 71,961 $ -
=========== =========== ===========
Liabilities $ - $ 35,125 $ -
=========== =========== ===========
Revenues $ 47,604 $ 27,138 $ -
=========== =========== ===========
Net Income $ 3,218 $ 3,176 $ -
=========== =========== ===========
On December 17, 1999, the Company completed the sale of Neff Machinery,
Inc., a wholly-owned subsidiary. The Company received $90.5 million and recorded
a gain on the sale of $3.8 million. The terms of the purchase and sale agreement
(the "Agreement") provided for an adjustment to the purchase price based on the
assets and liabilities of Neff Machinery Inc. at the date of closing. In the
opinion of the Company, it is due additional consideration of $8.8 million under
the terms of the Agreement. The purchaser believes it is due an additional $20.3
million under the terms of the Agreement. Because of the uncertainty of the
outcome of this dispute, the Company has not recorded any additional amounts
that may be receivable or payable under the terms of the Agreement.
27
The following amounts are included in the consolidated financial statements
of the Company for Neff Machinery, Inc. (in thousands):
1999 1998 1997
----------- ----------- -----------
Assets....................... $ - $ 56,654 $ 78,141
=========== =========== ===========
Liabilities.................. $ - $ 28,090 $ 54,410
=========== =========== ===========
Revenues..................... $ 95,996 $ 93,328 $ 82,131
=========== =========== ===========
Net Income................... $ 5,100 $ 3,020 $ 1,647
=========== =========== ===========
The Company's earnings and cash flows reflect the operations of Sullair
Argentina S.A. and Neff Machinery, Inc. through November 18, 1999 and December
17, 1999, respectively.
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Recognition of Revenue
Rental agreements are structured as operating leases and the related
revenues are recognized over the rental period. Sales of equipment and parts are
recognized at the time of shipment or, if out on lease, at the time a sales
contract is finalized. Equipment may at times be delivered to customers for a
trial period. Revenue on such sales is recognized at the time a sales contract
is finalized. Service revenues are recognized at the time the services are
rendered.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
28
Inventories
Inventories, which consist principally of parts and new equipment held for
sale, are stated at the lower of cost or market, with cost determined on the
first-in, first-out basis for parts and specific identification basis for
equipment. Substantially all inventory represents finished goods held for sale.
Rental Equipment
Rental equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful life of the related equipment (generally two to eight years with an
estimated 20% residual value). For certain equipment, depreciation is matched
against the related rental income earned by computing depreciation on individual
equipment at the rate of 50%, 80% and 80% for 1999, 1998 and 1997, respectively,
of the rental income earned. Routine repairs and maintenance are expensed as
incurred; improvements are capitalized at cost.
The Company routinely reviews the assumptions utilized in computing
depreciation of its rental equipment. Changes to the assumptions (such as
service lives and/or residual values) are made when, in the opinion of
management, such changes more appropriately allocate asset costs to operations
over the service life of the assets. Management utilizes, among other factors,
historical experience and industry comparison in determining the propriety of
any such changes.
During 1999 and 1997, 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.
These changes in accounting estimates increased income or reduced (loss)
before extraordinary item and increased net income or reduced (loss) by
approximately $10.0 million, and $3.3 million or $0.46, and $0.39 per diluted
common share for the years ended December 31, 1999 and 1997, respectively.
Rental fleet accumulated depreciation at December 31, 1999 and 1998 was
approximately $74.1 million and $63.4 million, respectively.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using accelerated and straight-line methods over the
estimated useful lives of the related assets. Significant improvements are
capitalized at cost. Repairs and maintenance are expensed as incurred.
The capitalized cost of equipment and vehicles under capital leases is
amortized over the lesser of the lease term or the asset's estimated useful
life, and is included in depreciation and amortization expense in the
consolidated statements of operations.
29
Intangible Assets
Intangible assets primarily result from business combinations and include
agreements not to compete and other identifiable intangible assets. These assets
are amortized on a straight-line basis over their estimated useful life (five to
15 years). Accumulated amortization at December 31, 1999 and 1998 was
approximately $0.3 million and $2.9 million, respectively.
Goodwill arising from acquisitions is being amortized over 40 years using
the straight-line method. Accumulated amortization at December 31, 1999 and 1998
was approximately $3.7 million and $2.6 million, respectively.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets primarily include debt issue costs,
prepaid expenses and deposits. Debt issue costs are amortized over the term of
the debt on a straight-line basis, which approximates the interest method.
Stock Options
In October 1995, the FASB issued Statement No. 123 ("SFAS 123"), Accounting
for Stock-Based Compensation, which requires companies to either recognize
expense for stock-based awards based on their fair value on the date of grant or
provide footnote disclosures regarding the impact of such changes. The Company
adopted the disclosure provisions of SFAS 123 on January 1, 1996, but will
continue to account for options issued to employees or directors under the
Company's stock option plans in accordance with Accounting Principles Board
Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees.
Reclassifications
Certain amounts for the prior years have been reclassified to conform with
the current year presentation.
NOTE 3-ACCOUNTS RECEIVABLE
The majority of the Company's customers are engaged in the construction and
industrial business throughout the southern and western regions of the United
States.
The Company extends credit to its customers based upon an evaluation of the
customer's financial condition and credit history. For sales of certain
construction equipment, the Company's policy is to secure its accounts
receivable by obtaining liens on the customer's projects and issuing notices
thereof to the projects' owners and general contractors. All other receivables
are generally unsecured.
30
NOTE 4-PROPERTY AND EQUIPMENT
Property and equipment consists of the following (dollars in thousands):
December 31, Estimated
-------------- Useful Lives
1999 1998 (in Years)
---- ---- ---------
Land..................................................... $ - $ 8,343 -
Buildings and improvements............................... 16,567 15,874 2-30
Office equipment......................................... 7,344 7,083 2-7
Service equipment and vehicles........................... 9,841 20,364 2-5
Shop equipment........................................... 4,370 4,227 7
Capitalized lease equipment.............................. 860 1,401 3-5
-------- -------- --------
38,982 57,292
Less accumulated depreciation (13,344) (12,178)
-------- --------
$ 25,638 $ 45,114
======== ========
The Company has entered into lease arrangements for certain property and
equipment, which are classified as capital leases. As of December 31, 1999,
future minimum lease payments under capitalized lease obligations are as follows
(in thousands):
2000............................................... $ 495
2001............................................... 271
2002............................................... 32
Thereafter......................................... -
-----
Total future minimum lease payments................ 798
Less amounts representing interest (6.00% to 13.5%) (56)
-----
Present value of net future minimum lease payments $ 742
=====
31
NOTE 5-NOTES PAYABLE AND DEBT
Notes payable and debt consist of the following (in thousands):
December 31
1999 1998
---- ----
$219.5 million revolving line of credit with interest ranging from the
Lender's Prime Rate plus 1.25% to LIBOR plus up to 2.25%. At December
31, 1999, the Lender's Prime Rate was 8.5% and LIBOR Rate was 5.81%. $ 137,182 $ 191,189
10.25% Senior Subordinated Notes issued May 1998 due June 2008. 100,000 100,000
10.25% Senior Subordinated Notes issued December 1998 due June 2008,
with an effective interest rate of 10.5%, net of unamortized discount
of $1,330 and $1,478, respectively. 98,670 98,522
S.A. Argentina unsecured loans from various banks with interest rates
of LIBOR plus 1.5% to 3.5%. - 16,541
Various notes payable assumed through acquisitions of IER with
interest rates ranging from 7% to 12%. - 741
--------- ---------
$ 335,852 $ 406,993
========= =========
In May 1998, the Company amended and restated its $250 million revolving
credit facility (as amended and restated, the "New Credit Facility"). In
September 1998, the New Credit Facility was increased to $310 million.
Subsequent to the sale of Sullair Argentina S.A. and Neff Machinery, Inc. during
the fourth quarter of 1999 (see Note 1), the New Credit facility was decreased
to $219.5 million. Borrowings under the New Credit Facility are based upon
eligible accounts receivable, rental fleet and inventory amounts. The interest
rates on balances outstanding under the New Credit Facility vary based upon the
leverage ratio maintained by the Company. The New Credit Facility expires in
April 2003 and the Company is charged a commitment fee on the aggregated daily
unused balance of the New Credit Facility which varies between 0.2% and 0.5%
based on the leverage ratio maintained by the Company. The New Credit Facility
is secured by substantially all of the Company's assets and contains certain
restrictive covenants which, among other things, require the Company to maintain
certain financial coverage ratios and places certain restrictions on the payment
of dividends.
In connection with the Richbourg acquisition (see Note 1), the Company
executed a $100 million term loan (the "Richbourg Term Loan"). In May 1998, the
Company completed the sale of $100 million of Senior Subordinated Notes due 2008
(the "May Notes") as well as the initial public offering (see Note 6). The net
proceeds of approximately $182.7 million from the sale of the May Notes and the
initial public offering were used to repay the Richbourg Term Loan, redeem the
Company's Series A Cumulative Redeemable Preferred Stock, repay the mortgage
notes payable and reduce the amount outstanding under the New Credit Facility.
32
In December 1998, the Company completed the sale of $100 million Senior
Subordinated Notes due 2008 (the "December Notes"). The net proceeds of
approximately $95.2 million from the December Notes were used to reduce amounts
outstanding under the New Credit Facility. The terms of the December Notes are
substantially the same as the May Notes.
The May and December Notes are senior unsecured obligations of the Company
and are redeemable at the option of the Company, in whole or in part, on or
after June 1, 2003, at pre-established redemption prices together with accrued
and unpaid interest to the redemption date.
During 1998 and 1997 the Company recorded extraordinary losses of
approximately $2.7 million and $0.5 million, respectively net of related income
taxes, from the write-off of debt issue costs associated with the early
extinguishment of debt.
NOTE 6-REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
During December 1995, the Company issued 300,000 shares of Series A
Cumulative Redeemable Preferred Stock ("Series A"), and a detachable stock
purchase warrant (the "Redeemable Warrant") for $12.0 million ($11.4 million net
of certain related costs). Series A provided for the semiannual payment of
preferential dividends at an annual rate of 8% (5% beginning January 1, 1997) of
the liquidation value. The dividends were payable in cash or in additional
shares.
The Redeemable Warrant granted the holder the right to acquire
approximately 20% of the common stock of the Company at a purchase price of $.01
per share.
The Series A and the Redeemable Warrant were recorded at their pro rata
estimated fair value in relation to the proceeds received on the date of
issuance ($8.0 million for the Series A and $3.4 million for the Redeemable
Warrant, net of issue costs). Series A was accreted using the effective interest
method based on its liquidation value at maturity of $12.0 million. The
Redeemable Warrant was being accreted to its fair value on a prospective basis
until the mandatory redemption date in December 2000. Through December 31, 1996,
accretion to the Series A and the Redeemable Warrant amounted to approximately
$0.5 million and $1.9 million, respectively.
During December 1996, in connection with the execution of the Company's
$250 million revolving credit facility, the Company and GE Capital entered into
certain agreements, including an agreement to exercise the Redeemable Warrant
for approximately 20% of the Company's common stock. Simultaneously with this
exercise, the Company and GE Capital agreed to exchange the shares of common
stock for 800,000 shares of Series B Cumulative Convertible Redeemable Preferred
Stock ("Series B").
The accreted balance of the Redeemable Warrant on the date these agreements
were entered into was approximately $5.3 million, which represented the carrying
value of Series B as of December 31, 1996.
33
In a separate transaction related to the credit facility, the Company
issued 800,000 shares of Series C Cumulative Convertible Redeemable Preferred
Stock ("Series C") to GE Capital in exchange for $32.0 million ($31.5 million
net of certain related costs). For the year ended December 31, 1997, accretion
of Series C amounted to approximately $0.1 million. Similarly to Series A,
Series B and Series C were accreted toward their ultimate total liquidation
value of $64 million.
In March 1998, the holders of Series B and Series C exchanged their shares
for Class B Common Stock, which has a liquidation preference of $11.67 per
share.
In May 1998, the Company completed an initial public offering (the
"Offering") of 6.7 million shares of Class A Common Stock at a price of $14 per
share. The Company received net proceeds of approximately $85.7 million from the
Offering.
NOTE 7-STOCK OPTION PLANS
In December 1995, the Company granted its chief executive officer options
to purchase shares of Class A Common Stock representing 3% (on a fully diluted
basis) of the issued and outstanding Common Stock of the Company for an
aggregate purchase price of $1.6 million. Upon completion of the Offering in
1998 (see Note 6) the number of shares granted under this agreement were fixed
at 657,220 shares. No further options can be granted under this agreement. The
Company estimated compensation expense at each reporting date based upon the
estimated market value of shares to be issued until the number of shares was
fixed. Compensation expense of $3.2 and $4.4 million was recognized in 1998 and
1997, respectively. These options have been fully vested since December 1996.
One-third of the options expire on December 1, 2005, one-third expire on
December 31, 2005 and the remaining one-third expire on December 31, 2006.
In May 1996, the Company also granted to another key employee an option to
purchase 84,650 shares of the Company's Class A Common Stock at an exercise
price of approximately $0.5 million, determined based upon a multiple of the
Company's adjusted earnings.
No compensation expense was recognized at the date of grant since the
exercise price of these options approximated the estimated market value of the
shares to be issued at the date of grant.
In 1998, the Company adopted an Incentive Stock Option plan ("1998 ISO
Plan"). Under this plan, designated officers, employees, and consultants of the
Company are eligible to receive awards in the form of options, stock
appreciation rights, restricted stock grants, performance awards, and dividend
equivalent rights. An aggregate of 1.0 million shares of Class A Common Stock
are reserved for issuance under the 1998 ISO Plan.
In 1999, the Company adopted an Incentive Stock Option plan ("1999 ISO
Plan"). Under this plan, designated officers, employees, and consultants of the
Company are eligible to receive awards in the form of options, stock
appreciation rights, restricted stock grants, performance awards, and dividend
equivalent rights. An aggregate of 1.0 million shares of Class A Common Stock
are reserved for issuance under the 1999 ISO Plan.
34
The exercise price of options granted under the 1998 and 1999 ISO Plans may
not be less than 100% of the fair market value of the Company's Class A Common
Stock on the date of grant. Generally, options vest over a period of three years
and are not exercisable beyond 10 years from date of grant. There have been no
stock appreciation rights, restricted stock grants, performance awards or
dividend equivalent rights awarded under the 1998 and 1999 ISO Plans. No options
were granted under the 1998 and 1999 ISO Plans during 1999.
The following table summarizes stock option activity under the ISO Plan,
for the year ended December 31, 1998 (in thousands, except per share data):
ISO Plan Options
----------------
Shares Available Number of Weighted Average
For Options Shares Exercise Price/Share
----------- ------ --------------------
Balance at December 31, 1997......... - -
Authorized........................... 1,000 -
Granted.............................. (945) 945 $9.39
Forfeited............................ 6 (6) $14.00
Expired.............................. - -
------- -------
Balance at December 31, 1998 and 1999 61 939 $9.39
======= =======
Exercisable Options
-------------------
Number of Weighted Average Weighted Average Weighted Average
Options Exercise Price Per Remaining Life Number of Exercise Price
Outstanding Share (Years) Options Per Share
----------- ----- ----- ------- ---------
Range of Exercise Prices:
$6.00-7.88 553 $ 6.18 10.0 - N/A
$9.75-14.00 386 $ 13.97 9.4 200 $ 14.00
-----
939 $ 9.39 9.7
=====
The Company accounts for stock-based compensation in accordance with APB
25. Under APB 25, compensation expense is measured as the excess of market value
of the underlying stock on the date of grant over the exercise price of the
options on the date of grant.
35
The following table sets forth pro forma information as if stock options
had been accounted for under the fair value method (in thousands, except per
share data):
For the Year Ended
December 31,
1998 1997
---- ----
Pro forma net income (loss) (in thousands) $(1,397) $(4,094)
======= =======
Pro forma loss per share
Basic $(0.38) $(1.36)
======= =======
Diluted $(0.38) $(1.36)
======= =======
The weighted average fair value of options granted during 1998 as estimated
on the date of grant using the Black-Scholes option pricing model was $5.47.
The following weighted average assumptions were used in applying this model
for 1998: a risk free rate of 5.05%; dividend yield of 0%; volatility factor of
.636; and an expected life of the options of 5 years. There were no stock
options granted in 1999 or 1997.
Effective January 1, 1997, the Company adopted a phantom stock plan (the
"Phantom Plan"). The Phantom Plan is designed to reward employees for increases
in the Company's performance. The Phantom Plan enables the Company to award
employees individual units representing a hypothetical share of the Company's
stock (the "Phantom Share"). Each Phantom Share is assigned a share value on the
date granted as determined by the administrator of the Phantom Plan.
The cash award the employee is entitled to receive on the redemption date
is the difference between the value assigned on the date of grant and the
greater of the fair market value of the Company's Class A Common Stock or the
calculated Phantom Plan share value. As of December 31, 1999, the Company had
granted 0.2 million Phantom Shares with assigned per share values ranging from
of $9 to $11.25, vesting over three to five years. Approximately $0.3 and $0.1
million of compensation expense was recorded for the years ended December 31,
1999 and 1998, respectively. No compensation expense was recorded for the year
ended December 31, 1997.
NOTE 8-RETIREMENT PLAN
In February 1996, the Company adopted a qualified 401(k) profit sharing
plan (the "401(k) Plan"). The 401(k) Plan covers substantially all employees of
the Company. Participating employees may contribute to the 401(k) Plan through
salary deductions. The Company may contribute, at its discretion, matching
contributions equal to 50% of the employee's contribution not to exceed 3% of
the employee's annual salary. The Company contributed approximately $0.8
million, $0.6 million and $0.3 million to the 401(k) Plan for the years ended
December 31, 1999, 1998 and 1997, respectively.
36
NOTE 9-INCOME TAXES
The components of the (provision for) benefit from income taxes is as
follows (in thousands):
For the Years Ended
December 31,
1999 1998 1997
---- ---- ----
Current......................... $ (454) $ (376) $ -
Deferred........................ (3,423) 510 1,748
-------- ------ -------
Total........................... $ (3,877) $ 134 $ 1,748
======== ====== =======
The following table summarizes the tax effects comprising the Company's net
deferred tax assets and liabilities (in thousands):
December 31,
1999 1998
---- ----
Deferred Tax Assets
Net operating loss carryforwards....................... $ 10,564 $ 4,582
Alternative minimum tax credits........................ 1,039 874
Deferred stock option compensation..................... 2,849 2,849
Intangible assets, allowance for bad debts and other... 2,507 2,548
------ -----
Total deferred tax assets.......................... 16,959 10,853
Valuation allowance.................................... - (900)
Deferred Tax Liabilities
Depreciation........................................... (17,602) (7,173)
------ ------
Net Deferred Tax Asset (Liability).......................... $ (643) $ 2,780
====== ======
As of December 31, 1999 and 1998, the Company had net operating loss
carryforwards for federal and state income tax purposes of approximately $29.5
million and $15.0 million, respectively, expiring through 2019 (includes net
operating loss carryforwards for federal and state income tax purposes of
approximately $4.8 million and $4.4 million, respectively, acquired in
connection with the acquisition of IER described in Note 1). IER's net operating
loss carryforwards may only be utilized by Neff Rental, Inc. one of the
Company's subsidiaries.
Current accounting standards require that deferred income taxes reflect the
tax consequences on future years of differences between the tax bases of assets
and liabilities and their bases for financial reporting purposes. In addition,
future tax benefits, such as net operating loss ("NOL") carryforwards, are
required to be recognized to the extent that realization of such benefits is
more likely than not. A valuation allowance is established for those benefits
that do not meet the more likely than not criteria. Even though the Company has
incurred tax losses for the past three years, management believes that it is
more likely than not that the Company will generate taxable income sufficient to
realize the majority of the tax benefits associated with future deductible
temporary differences and NOL carryforwards prior to their expiration.
37
This belief is based upon, among other factors, the fact that all of the
Company's taxable temporary differences will reverse within the period that the
deductible temporary differences will be realized, the availability of tax
planning strategies, and projection of future taxable income.
The following table summarizes the differences between the statutory
federal income tax rate and the Company's effective income tax rate (dollars in
thousands):
For the Years Ended December 31,
1999 1998 1997
---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
(Provision) benefit at statutory federal income tax rate.... $(3,558) 34.0 (745) 34.0 $2,768 (34.0)
State income tax, net of federal income tax benefit......... (410) 3.9 - - 171 (2.1)
Change in valuation allowance............................... 900 (8.6) 468 (21.4) (559) 6.9
Non-deductible expenses..................................... (650) 6.2 (467) 21.3 (716) 8.8
Foreign subsidiary.......................................... 888 (8.5) 831 (37.9) - -
Other....................................................... (1,047) 10.0 47 (2.1) 84 (1.1)
------ ---- -- ---- -- ----
$(3,877) 37.0 $134 (6.1) $1,748 (21.5)
======= ==== ==== ==== ====== =====
NOTE 10-EARNINGS PER SHARE
For the years ended December 31, 1999, 1998 and 1997, the treasury stock
method was used to determine the dilutive effect of options and warrants on
earnings per share data.
Net loss and weighted average number of shares outstanding used in the
computations are summarized as follows (in thousands, except per share data):
For the years ended December 31,
1999 1998 1997
---- ---- ----
Net income (loss)..................................... $4,854 $(1,462) $(6,844)
Deduct:
Preferred stock dividend.......................... - (1,010) (3,857)
Accretion of preferred stock...................... - (4,093) (3,590)
-------- -------- --------
Net income (loss) basic and diluted................... $4,854 $(6,565) $(14,291)
======== ======== ========
Number of shares:
Weighted average common shares outstanding-basic.. 21,165 17,213 8,465
Employee stock options (1)........................ 722 - -
-------- -------- --------
Weighted average common shares outstanding - diluted.. 21,887 17,213 8,465
======== ======== ========
Net income (loss) per common share-basic.............. $0.23 $0.38 $1.69
======== ======== ========
Net income (loss) per common share-diluted............ $0.22 $0.38 $1.69
======== ======== ========
(1) The incremental shares resulting from the assumed exercise of options
for the year ended 1998 and 1997 would be antidilutive and are therefore,
excluded from the computation of diluted earnings (loss) per share.
38
NOTE 11-FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of financial instruments held by the Company at
December 31, 1999 are based on a variety of factors and assumptions and may not
necessarily be representative of the actual gains or losses that will be
realized in the future and do not include expenses that could be incurred in an
actual sale or settlement.
The fair value of the Company's credit facility is assumed to be equal to
its carrying value, as the rates approximate market rates. At December 31, 1999
and 1998 approximately $137.2 million and $191.2 million was outstanding under
the credit facility, respectively.
The fair value of the Company's Senior Subordinated Notes was estimated by
obtaining the quoted market price. The carrying amount of the Company's Senior
Subordinated Notes was $198.7 million and $198.5 million, at December 31, 1999
and 1998, respectively. The fair value of the Company's Senior Subordinated
Notes as of the same dates was estimated to be $188.7 million and $195.0
million, respectively.
NOTE 12-COMMITMENTS AND CONTINGENCIES
On December 17, 1999, the Company completed the sale of Neff Machinery,
Inc., a wholly-owned subsidiary. The Company received $90.5 million and recorded
a gain on the sale of $3.8 million. The terms of the Agreement provided for an
adjustment to the purchase price based on the assets and liabilities of Neff
Machinery, Inc. at the date of closing. In the opinion of the Company, it is due
additional consideration of $8.8 million under the terms of the Agreement. The
purchaser believes it is due $20.3 million under the terms of the Agreement.
Because of the uncertainty of the outcome of this dispute, the Company has not
recorded any additional amounts that may be receivable or payable under the
terms of the Agreement.
The Company and the 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 shareholders of the Company, 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 Board of Directors has established a Special Committee to
evaluate the buyout offer and review the plaintiffs' claims in the lawsuits.
The Company is also a party to certain legal actions arising in the normal
course of business. In the opinion of management, the ultimate outcome of such
litigation is not expected to have a material effect on the financial position,
results of operations or cash flows of the Company.
NOTE 13-RELATED PARTY TRANSACTIONS AND OTHER COMMITMENTS
In May 1997, the Company acquired certain land and buildings used in its
Florida operations for approximately $13.9 million from Atlantic Real Estate
Holdings Corp. ("Atlantic"), an affiliate of the Company through common
ownership.
39
Prior to the acquisition of these assets, the Company leased these
properties from Atlantic. The Company financed approximately $13.4 million of
the purchase price with a mortgage note payable.
The remaining purchase price consisted of the forgiveness of approximately
$0.5 million in notes receivable from Atlantic. The assets were recorded at
Atlantic's historical carrying value and approximately $2.9 million, net of
income tax benefit of approximately $1.8 million, has been recorded as a
distribution to stockholders in the accompanying statement of stockholders'
equity (deficit).
During 1999, 1998 and 1997 revenues from affiliated companies amounted to
approximately $4.6 million, $2.2 million, and $0.7 million, respectively.
Operating Leases
During 1999, 1998 and 1997 rental expense under operating lease
arrangements amounted to approximately $7.3 million, $4.5 million, and $3.4
million, respectively.
The Company leases real estate, rental equipment and other equipment under
operating leases. Certain real estate leases require the Company to pay
maintenance, insurance, taxes and certain other expenses in addition to the
stated rental amounts. As of December 31, 1999, future minimum rental payments
under operating lease arrangements are as follows for the years ending December
31 (in thousands):
2000........................$ 9,708
2001........................ 9,205
2002........................ 9,019
2003........................ 7,008
2004........................ 4,242
Thereafter.................. 3,075
-------
$ 42,257
=======
NOTE 14-SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the Years Ended
December 31,
1999 1998 1997
---- ---- ----
(in thousands)
Supplemental Disclosure of Cash Flow Information
Cash paid for interest............................ $ 41,353 $ 30,696 $ 10,367
======== ======== ========
Cash paid for taxes............................... $ 1,584 $ 786 $ 711
======== ======== ========
Cash paid for Acquisitions (Note 1) :
Net assets acquired, net of cash................... $ 2,787 $ 91,546 $ 34,405
Goodwill.......................................... 7,963 69,100 29,200
--------- --------- ---------
Cash paid for acquisitions........................ $ 10,750 $ 160,646 $ 63,605
========= ========= =========
40
NOTE 15 - SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
A summary of the quarterly operating results during 1999 and 1998 is as
follows (in thousands except per share data):
1999
-------------------------------------------------
1st 2nd 3rd 4th
------- -------- -------- -------
Revenues................................. $ 91,652 $ 103,101 $ 103,780 $ 93,478
Gross Profit............................. 30,562 38,291 36,823 33,376
Net income (loss)........................ $ 707 $ 4,219 $ 336 $ (408)
Earnings per share data - Basic:
Net income (loss)........................ $ 0.03 $ 0.20 $ 0.02 $ (0.02)
======== ======== ======== ========
Earnings per share data - Diluted:
Net income (loss)........................ $ 0.03 $ 0.19 $ 0.02 $ (0.02)
======== ======== ======== ========
1998
---------------------------------------------------
1st 2nd 3rd 4th
------ ------ ------ ------
Revenues................................ $ 61,846 $ 73,800 $ 89,905 $ 98,539
Gross Profit............................ 19,970 25,082 31,309 34,062
Income (loss) before extraordinary item (1,946) (1,189) 1,671 2,677
Extraordinary item...................... - (2,675) - -
Net income (loss)....................... $ (1,946) $ (3,864) $ 1,671 $ 2,677
Earnings per share data - Basic:
Income (loss) before extraordinary item $ (0.46) $ (0.24) $ 0.08 $ 0.13
Extraordinary item..................... - (0.15) - -
------- ------- ------ -------
Net income (loss)...................... $ (0.46) $ (0.39) $ 0.08 $ 0.13
======= ======= ====== =======
Earnings per share data - Diluted:
Income (loss) before extraordinary item $ (0.46) $ (0.24) $ 0.08 $ 0.12
Extraordinary item..................... - (0.15) - -
-------- -------- ------- --------
Net income (loss)...................... $ (0.46) $ (0.39) $ 0.08 $ 0.12
======== ======== ======= ========
Certain amounts have been reclassified for comparative purposes.
NOTE 16-SEGMENT INFORMATION
The Company has historically operated three segments: Neff Rental, Inc.
("Rental"), Neff Machinery, Inc.("Machinery") and S.A. Argentina. These segments
were 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 parts, merchandise and provide ongoing repair and
maintenance service 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. Machinery and S.A.
Argentina were sold during the fourth quarter of 1999, (see Note 1).
41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Neff Corp.
We have audited the consolidated financial statements of Neff Corp. and
Subsidiaries (the "Company") as of December 31, 1999 and 1998 and for each of
the three years in the period ended December 31, 1999, and have issued our
report thereon dated March 23, 2000; such financial statements and report are
included elsewhere in your 1999 Annual Report to Stockholders on Form 10-K. Our
audits also included the financial statement schedule of Neff Corp. listed in
Item 14(a)2. The financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Miami, Florida
March 23, 2000
42
SCHEDULE II
NEFF CORP.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance Charged to Balance
at Beginning Costs and at End
of Period Expenses Other Deductions (1) of Period
Classification
Year ended December 31, 1999:
Allowance for doubtful accounts............. $ 3,229 $ 2,317 $ - $ (2,642) $ 2,904
======= ======= ====== ========== ======
Deferred tax valuation allowance............ $ 900 $ - $ - $ (900) $ -
======= ======= ====== ========== ======
Year ended December 31, 1998:
Allowance for doubtful accounts............. $ 1,092 $ 3,487 $ - $ (1,350) $ 3,229
======= ======= ====== ========== ======
Deferred tax valuation allowance............ $ 1,368 $ - $ - $ (468) $ 900
======= ======= ====== ========== ======
Year ended December 31, 1997:
Allowance for doubtful account.............. $ 375 $ 957 $ - $ (240) $ 1,092
======= ======= ====== ========== ======
Deferred tax valuation allowance............ $ 809 $ 559 $ - $ - $ 1,368
======= ======= ====== ========== ======
1) Deductions represent bad debt write-offs and adjustments to reflect
future tax benefits based on their realization being more likely than not, and
sales of subsidiaries.
43
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 will be contained in the
Company's definitive proxy materials to be filed with the Securities
and Exchange Commission and is incorporated in this Annual Report on
Form 10-K by this reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be contained in the
Company's definitive proxy materials to be filed with the Securities
and Exchange Commission and is incorporated in this Annual Report on
Form 10-K by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
The information required by this Item 12 will be contained in the
Company's definitive proxy materials to be filed with the Securities
and Exchange Commission and is incorporated in this Annual Report on
Form 10-K by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 will be contained in the
Company's definitive proxy materials to be filed with the Securities
and Exchange Commission and is incorporated in this Annual Report on
Form 10-K by this reference.
44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed with, and as part of, this Annual
Report on Form 10-K.
1. Financial Statements. For a complete list of the Financial Statements
filed with this Annual Report on Form 10-K, see the Index to
Financial Statements and Schedules in Item 8 on Page 19.
2. Financial Statements Schedules.
The following Supplementary Schedules are filed with this Annual Report
on Form 10-K:
See Index to Financial Statements and Schedules on Page 19.
3. Exhibits
Information with respect to this item is contained in Item 14(c) hereof
and is incorporated herein by reference.
(b) Reports on Form 8-K
During the last quarter of the period covered by this Annual Report,
the following reports on Form 8-K were filed:
From 8-K Report filed on December 2, 1999, reporting the sale of
Sullair Argetina, S.A. under Item 5.
Form 8-K Report filed on December 29, 1999 and amended on December 30,
1999 and March 2, 2000, reporting the sale of Neff Machinery, Inc.
under item 5 and filing pro forma unaudited consolidated financial
statements for Neff Corp. for the period ended September 30, 1999
(c) Exhibits
4.1 First Amendment to Amended and Restated Stockholder's Agreement
between Jorge Mas, Juan Carlos Mas, Jose Ramon Mas, General Electric
Capital Corporation, GECFS, Inc., Santos Fund I.L.P., Santos Capital
Advisors, Inc., Kevin Fitzgerald and Neff Corporation.
10.1 Agreement by and between Neff Corp. and Mark Irion, Chief
Financial Officer, Neff Corp.
10.2 Waiver to Credit Agreement dated March 22, 2000 among Neff
Corp and Neff Rental, Inc. and Bankers Trust Company.
27.1 Consolidated Financial Data Schedule
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
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.
Date: March 29, 2000 /s/ Mark H. Irion
-----------------------
Mark H. Irion
Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/ Kevin P. Fitzgerald
- - ----------------------- President,
Kevin P. Fitzgerald Chief Executive Officer, Director March 29, 2000
/s/ Mark H. Irion Chief Financial Officer March 29, 2000
- - -----------------------
Mark H. Irion
/s/ Jorge Mas Director March 29, 2000
- - -----------------------
Jorge Mas
/s/ Arthur B. Laffer Director March 29, 2000
- - -----------------------
Arthur B. Laffer
/s/ Joel-Tomas Citron Director March 29, 2000
- - -----------------------
Joel-Tomas Citron
/s/ Juan Carlos Mas Director March 29, 2000
- - -----------------------
Juan Carlos Mas
/s/ Jose Ramon Mas Director March 29, 2000
- - -----------------------
Jose Ramon Mas
/s/ Michael Markbreiter Director March 29, 2000
- - -----------------------
Michael Markbreiter
46
EXHIBITS
EXHIBIT 4.1
FIRST AMENDMENT
TO
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
FIRST AMENDMENT dated as of March 13, 2000 (this "Amendment") to the
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (the "Agreement") dated MARCH 25,
1998 by and among JORGE MAS, JUAN CARLOS MAS, JOSE RAMON MAS, each of whom is an
individual residing in Florida, GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation, GECFS, Inc., a Nevada corporation, SANTOS FUND I, L.P., a Texas
limited partnership, SANTOS CAPITAL ADVISORS, INC., a Florida corporation, KEVIN
P. FITZGERALD and NEFF CORP., a Delaware corporation.
All capitalized terms not defined herein but defined in the Agreement shall
have the meanings given to such terms in the Agreement.
WITNESSETH:
WHEREAS, the parties hereto desire that certain provisions of the Agreement
be amended as herein set forth.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. Section 2(b)(i). Section 2(b)(i) of the Agreement is hereby amended by
adding at the end thereof the following sentence:
Notwithstanding anything to the contrary contained in the Agreement, the
Board may be expanded to seven directors to add Mr. Michael Markbreiter as a
member of the Board, in the director class whose term will expire in 2002. Upon
Mr. Markbreiter's resignation or removal, the size of the Board will revert to
six directors.
2. No Other Amendments. Except as expressly amended hereby, the provisions
of the Agreement are and shall remain in full force and effect.
3. Counterparts. This Amendment may be executed by the parties hereto in
any number of separate counterparts, each of which shall be deemed to be an
original and all of which taken together shall be deemed to constitute one and
the same instrument.
4. Headings. The headings of this Amendment are for reference only and
shall not limit or otherwise affect the meaning hereof.
1
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the date first above written.
________________________________
JORGE MAS
________________________________
JUAN CARLOS MAS
________________________________
JOSE RAMON MAS
GENERAL ELECTRIC CAPITAL CORPORATION
By: __________________________
Name: __________________________
Title:__________________________
GECFS, INC.
By: __________________________
Name: __________________________
Title:__________________________
________________________________
KEVIN P. FITZGERALD
SANTOS FUND I, L.P.
By: Santos Fund, Inc., its
general partner
By: __________________________
Name: __________________________
Title:__________________________
SANTOS CAPITAL ADVISORS, INC.
By: __________________________
Name: __________________________
Title:__________________________
NEFF CORP.
By: __________________________
Name: __________________________
Title:__________________________
2
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
1st day of March, 2000, by and between Neff Corp., a Delaware Company (the
"Company"), and Mark Irion, an individual (the "Executive") (hereinafter
collectively referred to as the "Parties").
WHEREAS, the Executive and the Company have entered into a Severance
Agreement, dated as of May 14, 1999 (the "Severance Agreement");
WHEREAS, the Company continues to desire to employ the Executive as Chief
Financial Officer of the Company and the Executive continues to desire to serve
the Company as its Chief Financial Officer;
WHEREAS, the Company and the Executive desire to terminate the Severance
Agreement and set forth the terms of the Executive's continued employment with
the Company herein:
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties, intending to be
legally bound, agree as follows:
1. Term. Subject to the provisions for termination set forth in Section 8,
the initial term of employment under this Agreement shall be for a period of
three (3) years commencing on the date hereof and shall be automatically
extended for additional one (1) year periods, unless one of the Parties shall
give written notice to the other on or before the date which is six (6) months
prior to the expiration of the current term of the Agreement of such Party's
election not to so extend this Agreement.
2. Employment. The Executive shall be employed as Chief Financial Officer
of the Company or in such other senior executive capacity as may be mutually
agreed to in writing by the Parties. The Executive shall perform the duties,
undertake the responsibilities and exercise the authority customarily performed,
undertaken and exercised by persons situated in a similar executive capacity.
The Executive shall report to the Chief Executive Officer of the Company.
3. Base Salary and Bonus. The Company agrees to pay or cause to be paid to
the Executive during the term of this Agreement a base salary at the rate of
$160,000 per annum, which rate shall be reviewed at least annually by the Board
of Directors of the Company (the "Board") and may be changed in the Board's
discretion (hereinafter referred to as the "Base Salary"). Such Base Salary
shall be payable in accordance with the Company's customary practices applicable
to its senior executives. In addition to the Base Salary, Executive shall be
eligible annually for the term of his employment under this Agreement to receive
a cash bonus in the discretion of the Board.
1
4. Employee Benefits. The Executive shall be entitled to participate in all
employee benefit plans, practices and programs maintained by the Company and
made available to employees generally including, without limitation all pension,
retirement, profit sharing, savings, medical, hospitalization, disability,
dental, life or travel accident insurance benefit plans. The Executive's
participation in such plans, practices and programs shall be on the same basis
and terms as are applicable to other similarly situated executives of the
Company generally.
5. Executive Benefits. The Executive shall be entitled to participate in
all executive benefit or incentive compensation plans now maintained or
hereafter established by the Company for the purpose of providing compensation
and/or benefits to executives of the Company including, but not limited to, the
Company's 401(k) Plan, the Company's 1998 Stock Incentive Plan, the Company's
1999 Stock Incentive Plan and any supplemental retirement, salary continuation,
stock option, deferred compensation, supplemental medical or life insurance or
other bonus or incentive compensation plans. Unless otherwise provided herein,
or in the terms of such executive benefit or incentive compensation plans, the
Executive's participation in such plans shall be on the same basis and terms as
other similarly situated executives of the Company, but in no event on a basis
less favorable in terms of benefit levels or reward opportunities applicable to
the Executive as in effect on the date hereof. No additional compensation
provided under any of such plans shall be deemed to modify or otherwise affect
the terms of this Agreement or any of the Executive's entitlements hereunder.
6. Other Benefits.
(a) Fringe Benefits and Perquisites. The Executive shall be entitled to
receive all fringe benefits and perquisites generally made available by the
Company to similarly situated executives.
(b) Expenses. The Executive shall be entitled to receive prompt
reimbursement of all expenses reasonably incurred by him in connection with the
performance of his duties hereunder.
7. Vacation and Sick Leave. At such reasonable times as the Board shall in
its discretion permit, the Executive shall be entitled, without loss of pay, to
absent himself voluntarily from the performance of his employment under this
Agreement, in accordance with the following:
(a) The Executive shall be entitled to annual vacation in accordance with
the policies as periodically established by the Board for similarly situated
executives of the Company.
2
(b) In addition to the aforesaid paid vacations, the Executive shall be
entitled, without loss of pay, to absent himself voluntarily from the
performance of his employment for such additional periods of time and for such
valid and legitimate reasons as the Board in its discretion may determine.
Further, the Board shall be entitled to grant to the Executive a leave or leaves
of absence with or without pay at such time or times and upon such terms and
conditions as the Board in its discretion may determine.
(c) The Executive shall be entitled to sick leave (without loss of pay) in
accordance with the Company's policies as in effect from time to time.
8. Termination. The Executive's employment hereunder may be terminated
under the following circumstances:
(a) Disability. The Company may terminate the Executive's employment after
having established the Executive's Disability. For purposes of this Agreement,
"Disability" means a physical or mental infirmity which impairs the Executive's
ability to perform substantially his or her duties for a period of one hundred
eighty (180) consecutive days. A determination of Disability shall be made by a
physician satisfactory to both the Executive and the Company, which physician's
determination as to Disability shall be made within 10 days of the request
therefor and shall be binding on all parties; provided, however, that if the
Executive and the Company do not agree on a physician, the Executive and the
Company shall each select a physician and these two together shall select a
third physician, which third physician's determination as to Disability shall be
binding on all parties. The Executive shall be entitled to the compensation and
benefits provided for under this Agreement for any period during the term of
this Agreement and prior to the establishment of the Executive's Disability
during which the Executive is unable to work due to a physical or mental
infirmity. Notwithstanding anything contained in this Agreement to the contrary,
until the Termination Date specified in a Notice of Termination (as each term is
hereinafter defined) relating to the Executive's Disability, the Executive shall
be entitled to return to his position with the Company as set forth in this
Agreement in which event no Disability of the Executive will be deemed to have
occurred.
(b) Cause. The Company may terminate the Executive's employment for
"Cause." The Company shall be deemed to have terminated the Executive's
employment for "Cause" in the event that the Executive's employment is
terminated for any of the following reasons: (i) the commission of an act of
fraud or intentional misrepresentation or an act of embezzlement,
misappropriation or conversion of assets or opportunities of the Company; (ii)
dishonesty or willful misconduct in the performance of duties; or (iii) willful
violation of any law, rule or regulation in connection with the performance of
duties (other than traffic violations or similar offenses); provided, that no
act or failure to act shall be considered willful unless done or omitted to be
done in bad faith and without reasonable belief that the action or omission was
in the best interests of the Company. Notwithstanding anything contained in this
Agreement to the contrary, no failure to perform by the Executive after Notice
of Termination is given by the Company shall constitute Cause for purposes of
this Agreement.
3
(c) (i) Good Reason. The Executive may terminate his employment for "Good
Reason." For purposes of this Agreement, Good Reason shall mean the occurrence
of any of the events or conditions described in this Section (c)(i):
(A) during the two (2) year period following a Change in Control (as
defined):
(1) a change in the Executive's status, title, position or responsibilities
(including reporting responsibilities) which, in the Executive's reasonable
judgment, does not represent a promotion from his status, title, position or
responsibilities as in effect immediately prior thereto; the assignment to the
Executive of any duties or responsibilities which, in the Executive's reasonable
judgment, are inconsistent with such status, title, position or
responsibilities; or any removal of the Executive from or failure to reappoint
or reelect him to any of such positions, except in connection with the
termination of his employment for Disability, Cause, as a result of his death or
by the Executive other than for Good Reason;
(2) a reduction in the Executive's Base Salary or any failure to pay the
Executive any compensation or benefits to which he is entitled within five (5)
days of the date due;
(3) a failure by the Company to increase the Executive's Base Salary at
least annually at a percentage of Base Salary no less than the average
percentage increases granted to the Executive during the three most recent full
years ended prior to a Change in Control;
(4) the failure by the Company to (i) continue in effect (without reduction
in benefit level and/or reward opportunities) any material compensation or
benefit plan in which the Executive was participating at the time of the Change
in Control, including, but not limited to, the Company's 401(k) Plan, the
Company's 1998 Stock Incentive Plan, the Company's 1999 Stock Incentive Plan or
(ii) provide the Executive with compensation and benefits at least equal (in
terms of benefit levels and/or reward opportunities) to those provided for under
each employee benefit plan, program and practice as in effect immediately prior
to the Change in Control (or as in effect following the Change in Control, if
greater).
4
(5) the insolvency or the filing (by any party, including the Company) of a
petition for bankruptcy, of the Company;
(6) any material breach by the Company of any provision of this Agreement;
(7) any purported termination of the Executive's employment for Cause by
the Company which does not comply with the terms of Section 8 of this Agreement;
or
(8) the failure of the Company to obtain an agreement, satisfactory to the
Executive, from any successor or assign of the Company to assume and agree to
perform this Agreement, as contemplated in Section 13 hereof;
(9) the Company requires the Executive to be based at any office located
more than fifty (50) miles from the office where the Executive is currently
based without the Executive's consent;
(B) the nature of Executive's duties or the scope of Executive's
responsibilities (including reporting responsibilities) is materially modified
by the Company without Executive's written consent where such material
modification constitutes a demotion of Executive or a substantial reduction in
Executive's responsibilities;
(C) a reduction in the Executive's Base Salary;
(D) any material breach by the Company of any provision of this Agreement
that has not been cured within thirty (30) days following receipt by the Company
of written notice thereof from the Executive specifically identifying such
material breach;
or
(E) this Agreement is not assumed by any successor to the Company pursuant
to Section 13 hereof in a situation other than a Change in Control.
(ii) The Executive's right to terminate his employment pursuant to this
Section 8(c) shall not be affected by his incapacity due to physical or mental
illness if such incapacity occurs after the event or condition giving rise to
Executive's right to terminate his employment pursuant to this Section 8(c).
(d) Voluntary Termination. The Executive may voluntarily terminate his
employment hereunder at any time.
5
(e) For purposes of this Agreement, a "Change in Control" shall mean any of
the following events:
(i) An acquisition (other than directly from Neff Corp. (the (Company)) of
any voting securities of the Company (the "Voting Securities") by any "Person"
(as the term person is used for purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), immediately
after which such Person has "Beneficial Ownership" (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of the
then outstanding Shares or the combined voting power of the Company's then
outstanding Voting Securities; provided, however, that Beneficial Ownership by
any of Jorge Mas, Juan Carlos Mas, Jose Ramon Mas, or aggregate Beneficial
Ownership by General Electric Capital Corporation and any of its 100% Affiliates
(as defined), of thirty percent (30%) or more of the then outstanding Shares or
the combined voting power of the Company's then outstanding Voting Securities
shall not constitute a Change in Control; provided further, however, in
determining whether a Change in Control has occurred, Shares or Voting
Securities which are acquired in a "Non-Control Acquisition" (as hereinafter
defined) shall not constitute an acquisition which would cause a Change in
Control. A "Non-Control Acquisition" shall mean an acquisition by (A) an
employee benefit plan (or a trust forming a part thereof) maintained by (1) the
Company or (2) any corporation or other Person of which a majority of its voting
power or its voting equity securities or equity interest is owned, directly or
indirectly, by the Company (for purposes of this definition, a "Subsidiary"),
(B) the Company or its Subsidiaries, or (C) any Person in connection with a
"Non-Control Transaction" (as hereinafter defined);
(ii) The individuals who, as of the date of this Agreement are members of
the Board (the "Incumbent Board"), cease for any reason to constitute at least
two-thirds of the members of the Board of Directors of the Company; provided,
however, that if the election, or nomination for election by the Company's
common stockholders, of any new director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director shall, for purposes of this
Agreement, be considered as a member of the Incumbent Board; provided further,
however, that no individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board (a "Proxy Contest") including
by reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest;
or
(iii) The consummation of:
(A) A merger, consolidation or reorganization involving the Company, unless
such merger, consolidation or reorganization is a "Non-Control Transaction." A
"Non-Control Transaction" shall mean a merger, consolidation or reorganization
of the Company where:
6
(1) the stockholders of the Company, immediately before such merger,
consolidation or reorganization, own directly or indirectly immediately
following such merger, consolidation or reorganization, at least fifty percent
(50%) of the combined voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation or
reorganization,
(2) the individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger, consolidation
or reorganization constitute at least two-thirds of the members of the board of
directors of the Surviving Corporation, or a corporation beneficially directly
or indirectly owning a majority of the Voting Securities of the Surviving
Corporation, and
(3) no Person other than (i) the Company, (ii) any Subsidiary, (iii) any
employee benefit plan (or any trust forming a part thereof) that, immediately
prior to such merger, consolidation or reorganization, was maintained by the
Company, or any Subsidiary, or (iv) any Person who, immediately prior to such
merger, consolidation or reorganization had Beneficial Ownership of fifty
percent (50%) or more of the then outstanding Voting Securities or Shares, has
Beneficial Ownership of fifty percent (50%) or more of the combined voting power
of the Surviving Corporation's then outstanding voting securities or its common
stock.
(B) A complete liquidation or dissolution of the Company;
or
(C) The sale or other disposition of all or substantially all of the assets
of the Company to any Person (other than a transfer to a Subsidiary).
7
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the then outstanding Shares or
Voting Securities as a result of the acquisition of Shares or Voting Securities
by the Company which, by reducing the number of Shares or Voting Securities then
outstanding, increases the proportional number of shares Beneficially Owned by
the Subject Persons, provided that if a Change in Control would occur (but for
the operation of this sentence) as a result of the acquisition of Shares or
Voting Securities by the Company, and after such share acquisition by the
Company, the Subject Person becomes the Beneficial Owner of any additional
Shares or Voting Securities which increases the percentage of the then
outstanding Shares or Voting Securities Beneficially Owned by the Subject
Person, then a Change in Control shall occur.
If the Executive's employment is terminated by the Company without Cause
prior to the date of a Change in Control but the Executive reasonably
demonstrates that the termination (i) was at the request of a third party who
has indicated an intention or taken steps reasonably calculated to effect a
change in control or (ii) otherwise arose in connection with, or in anticipation
of, a Change in Control which has been threatened or proposed, such termination
shall be deemed to have occurred after a Change in Control for purposes of this
Plan provided a Change in Control shall actually have occurred.
For the purposes of this Agreement, "100% Affiliate" means with respect to
any Person, (i) each other Person that, directly or indirectly, owns or controls
one hundred percent (100%) of the stock having ordinary voting power in the
election of directors of such Person, (ii) each other Person of which the stock
having ordinary voting power in the election of its directors is owned or
controlled one hundred percent (100%) by such Person, or (iii) each other Person
of which the stock having ordinary voting power in the election of its directors
is owned or controlled one hundred percent (100%) by any Person defined in
clause (i) above or any of its 100% Affiliates.
(f) Notice of Termination. Any purported termination by the Company or by
the Executive shall be communicated by written Notice of Termination to the
other. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which indicates the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. For purposes of this Agreement, no such purported
termination of employment shall be effective without such Notice of Termination.
(g) Termination Date, Etc. "Termination Date" shall mean in the case of the
Executive's death, his date of death, or in all other cases, the date specified
in the Notice of Termination subject to the following:
8
(i) If the Executive's employment is terminated by the Company for Cause or
due to Disability, the date specified in the Notice of Termination shall be at
least thirty (30) days from the date the Notice of Termination is given to the
Executive, provided that in the case of Disability the Executive shall not have
returned to the full-time performance of his duties during such period of at
least thirty (30) days; and
(ii) If the Executive's employment is terminated for Good Reason, the date
specified in the Notice of Termination shall not be more than sixty (60) days
from the date the Notice of Termination is given to the Company.
9. Compensation Upon Termination. Upon termination of the Executive's
employment during the term of this Agreement (including any extensions thereof),
the Executive shall be entitled to the following benefits:
(a) If the Executive's employment is terminated by the Company for Cause or
Disability or by the Executive (other than for Good Reason), or by reason of the
Executive's death, the Company shall pay the Executive all amounts earned or
accrued hereunder through the Termination Date but not paid as of the
Termination Date, including (i) Base Salary, (ii) reimbursement for any and all
monies advanced or expenses incurred in connection with the Executive's
employment for reasonable and necessary expenses incurred by the Executive on
behalf of the Company for the period ending on the Termination Date, (iii)
vacation pay, (iv) any bonuses or incentive compensation and (v) any previous
compensation which the Executive has previously deferred (including any interest
earned or credited thereon) (collectively, "Accrued Compensation"). In addition
to the foregoing, if the Executive's employment is terminated by the Company for
Disability or by reason of the Executive's death, the Company shall pay to the
Executive or his beneficiaries as severance pay each month for the eighteen (18)
months immediately following the date of termination an amount in cash equal to
the difference, if any, between (i) the sum of (y) the amount of payments
Executive receives or will receive during that month pursuant to the disability
insurance policies maintained by the Company for Executive's benefit and (z) the
adjustment described in the next sentence and (ii) Executive's base monthly
salary on the date of termination due to Disability. The adjustment referred to
in clause (z) of the preceding sentence is the amount by which any tax-exempt
payments referred to in clause (y) would need to be increased if such payments
were subject to tax in order to make the after-tax proceeds of such payments
equal to the actual amount of such tax-exempt payments. The Executive's
entitlement to any other compensation or benefits shall be determined in
accordance with the Company's employee benefit plans and other applicable
programs and practices then in effect.
(b) If the Executive's employment by the Company shall be terminated (1) by
the Company other than for Cause, death or Disability or (2) by the Executive
for Good Reason, then the Executive shall be entitled to the benefits provided
below:
9
(i) the Company shall pay the Executive all Accrued Compensation;
(ii) the Company shall pay the Executive as severance pay and in lieu of
any further salary for periods subsequent to the Termination Date, in a single
payment an amount in cash equal to one and one-half (1.5) times the sum of (A)
the Executive's Base Salary at the highest rate in effect at any time within the
ninety (90) day period ending on the date the Notice of Termination is given (or
if the Executive's employment is terminated after a Change in Control, the
Executive's Base Salary immediately prior to the Change in Control, if greater)
and (B) the "Bonus Amount." The term "Bonus Amount" shall mean the greatest
amount of the cash awards received by the Executive during any of the three
fiscal years immediately preceding the Termination Date;
(iii) for a period of eighteen (18) months following such termination, the
Company shall at its expense continue on behalf of the Executive and his
dependents and beneficiaries the life insurance, disability, medical, dental and
hospitalization benefits which were being provided to the Executive at the time
Notice of Termination is given (or, if the Executive is terminated following a
Change in Control, the benefits provided to the Executive at the time of the
Change in Control, if greater). The benefits provided in this Section 9 (b)
(iii) shall be no less favorable to the Executive, in terms of amounts and
deductibles and costs to him, than the coverage provided the Executive under the
plans providing such benefits at the time Notice of Termination is given (or, if
the Executive is terminated following a Change in Control, at the time of the
Change in Control if more favorable to the Executive). The Company's obligation
hereunder with respect to the foregoing benefits shall be limited to the extent
that the Executive obtains any such benefits pursuant to a subsequent employer's
benefit plans, in which case the Company may reduce the coverage of any benefits
it is required to provide the Executive hereunder as long as the aggregate
coverage of the combined benefit plans is no less favorable to the Executive, in
terms of amounts and deductibles and costs to him, than the coverage required to
be provided hereunder. This Subsection (iii) shall not be interpreted so as to
limit any benefits to which the Executive or his dependents may be entitled
under any of the Company's employee benefit plans, programs or practices
following the Executive's termination of employment, including, without
limitation, retiree medical and life insurance benefits; and
10
(iv) for a period of eighteen (18) months following such termination, the
Company shall at its expense continue on behalf of the Executive the car
allowance which was being provided to the Executive at the time Notice of
Termination is given (or, if the Executive is terminated following a Change in
Control, the car allowance provided to the Executive at the time of the Change
of Control, if greater). The Company's obligation hereunder with respect to the
car allowance shall terminate if the Executive receives a car allowance pursuant
to a subsequent employer's benefit plans or practices.
(v) all restrictions on any outstanding award (including restricted stock
and performance stock awards) granted to the Executive shall lapse and such
awards shall become fully (100%) vested immediately, assuming all performance
targets and goals (if applicable) had been fully met by the Company and by the
Executive, as applicable, for such year, and all stock options and stock
appreciation rights granted to the Executive shall become fully (100%) vested
and shall become immediately exercisable.
(c) The amounts provided for in Sections 9(a) and 9(b)(i), (ii) and (iv)
shall be paid within ten (10) days after the Executive's Termination Date.
(d) The Executive shall not be required to mitigate the amount of any
payment, benefit or other Company obligation provided for in this Agreement by
seeking other employment or otherwise and no such payment, benefit or other
Company obligation shall be offset or reduced by the amount of any compensation
or benefits provided to the Executive in any subsequent employment.
10. Termination of Severance Agreement. Effective as of the date hereof,
the Severance Agreement shall be terminated and shall be of no further force or
effect.
11. Unauthorized Disclosure. The Executive shall not make any Unauthorized
Disclosure. For purposes of this Agreement, "Unauthorized Disclosure" shall mean
disclosure by the Executive without the consent of the Board to any person,
other than an employee of the Company or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Executive of his duties as an executive of the Company or as may be legally
required, of any confidential information obtained by the Executive while in the
employ of the Company (including, but not limited to, any confidential
information with respect to any of the Company's customers or methods of
distribution) the disclosure of which he knows or has reason to believe will be
materially injurious to the Company; provided, however, that such term shall not
include the use or disclosure by the Executive, without consent, of any
information known generally to the public (other than as a result of disclosure
by him in violation of this Section 11) or any information not otherwise
considered confidential by a reasonable person engaged in the same business as
that conducted by the Company.
11
12. Indemnification.
(a) General. The Company agrees that if the Executive is made a party or
threatened to be made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that the Executive is or was a director or officer of the Company or any
subsidiary thereof or is or was serving at the request of the Company or any
subsidiary thereof as a director, officer, member, employee or agent of another
corporation or a partnership, joint venture, trust or other enterprise,
including, without limitation, service with respect to employee benefit plans,
whether or not the basis of such Proceeding is alleged action in an official
capacity as a director, officer, member, employee or agent while serving as a
director, officer, member, employee or agent, the Executive shall be indemnified
and held harmless by the Company to the fullest extent authorized by Florida
law, as the same exists or may hereafter be amended, against all Expenses (as
hereinafter defined) incurred or suffered by the Executive in connection
therewith, and such indemnification shall continue as to the Executive even if
the Executive has ceased to be an officer, director, or agent, or is no longer
employed by the Company and shall inure to the benefit of his heirs, executors
and administrators; provided, however, that the Executive shall not be so
indemnified for any Proceeding which shall have been adjudicated to have arisen
out of or been based upon his willful misconduct, bad faith, gross negligence or
reckless disregard of duty or his failure to act in good faith in the reasonable
belief that his action was in the best interests of the Company.
(b) Expenses. As used in this Agreement, the term "Expenses" shall include,
without limitation, damages, losses, judgments, liabilities, fines, penalties,
excise taxes, settlements, and costs, attorneys' fees, accountants'
investigations, and any expenses of establishing a right to indemnification
under this Agreement.
(c) Enforcement. If a claim or request for indemnification under this
Section 12 is not paid by the Company or on its behalf, within thirty (30) days
after a written claim or request has been received by the Company, the Executive
may at any time thereafter bring suit against the Company to recover the unpaid
amount of the claim or request and if successful in whole or in part, the
Executive shall be entitled to be paid also the expenses of prosecuting such
suit. All obligations for indemnification hereunder shall be subject to, and
paid in accordance with, applicable Florida law.
(d) Partial Indemnification. If the Executive is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any Expenses, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify the Executive for the portion of such
Expenses to which Executive is entitled.
12
(e) Advances of Expenses. Expenses incurred by the Executive in connection
with any Proceeding shall be paid by the Company in advance upon request of the
Executive that the Company pay such Expenses and upon the Executive's delivery
of an undertaking to reimburse the Company for Expenses with respect to which
the Executive is not entitled to indemnification.
(f) Notice of Claim. The Executive shall give to the Company notice of any
claim made against him for which indemnification will or could be sought under
this Agreement, but the failure of the Executive to give such notice shall not
relieve the Company of any liability the Company may have to the Executive
except to the extent that the Company is prejudiced thereby. In addition, the
Executive shall give the Company such information and cooperation as it may
reasonably require and as shall be within the Executive's power and at such time
and places as are convenient for the Executive.
(g) Defense of Claim. With respect to any Proceeding as to which the
Executive notifies the Company of the commencement thereof;
(i) The Company will be entitled to participate therein at its own expense;
and
(ii) Except as otherwise provided below, to the extent that it may wish,
the Company will be entitled to assume the defense thereof, with counsel
reasonably satisfactory to the Executive. The Executive also shall have the
right to employ his own counsel in such action, suit or proceeding if he
reasonably concludes that failure to do so would involve a conflict of interest
between the Company and the Executive, and under such circumstances the fees and
expenses of such counsel shall be at the expense of the Company.
(iii) The Company shall not be liable to indemnify the Executive under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. The Company shall not settle any action or claim in
any manner which would not include a full and unconditional release of the
Executive without the Executive's prior written consent. Neither the Company nor
the Executive will unreasonably withhold or delay their consent to any proposed
settlement.
(h) Non-exclusivity. The right to indemnification and the payment of
Expenses incurred in defending a Proceeding in advance of its final disposition
conferred in this Agreement shall not be exclusive of any other right which the
Executive may have or hereafter may acquire under any statute, provision of the
declaration of trust or certificate of incorporation or by-laws of the Company
or any subsidiary, agreement, vote of shareholders or disinterested directors or
otherwise.
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13. Successors and Assigns.
(a) This Agreement shall be binding upon and shall inure to the benefit of
the Company, its successors and assigns and the Company shall require any
successor or assign to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession or assignment had taken place. The term "the
Company" as used herein shall include such successors and assigns. The term
"successors and assigns" as used herein shall mean a corporation or other entity
acquiring all or substantially all the assets and business of the Company
(including this Agreement) whether by operation of law or otherwise.
(b) Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.
14. Covenant Not to Compete
(a) The Executive agrees that during the term of this Agreement and for one
(1) year subsequent to termination of Executive's employment with the Company
for any reason (the "Non-Compete Term") the Executive shall not:
(i) Either directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, firm, partnership,
corporation, business, group or other entity (each, a "Person"), engage in any
business or activity, whether as an employee, consultant, partner, principal,
agent, representative, stockholder or other individual, corporate, or
representative capacity, or render any services or provide any advice or
substantial assistance to any business, person or entity, if such business,
person or entity, directly or indirectly will in any way compete with the
Company (a "Competing Business"). Without limiting the generality of the
foregoing, for purposes of this Section 14, it is understood that Competing
Businesses shall include any business which rents or sells construction or
industrial equipment or engages in the sale of maintenance, repair or operating
supplies; provided, however, that notwithstanding the foregoing, the Executive
may make passive investments in up to 2% of the outstanding publicly traded
common stock of an entity which operates a Competing Business.
(ii) Either directly or indirectly, for himself or on behalf of or in
conjunction with any other Person, solicit, hire or divert any Person who is, or
who is, at the time of termination of the Executive's employment, or has been
within six (6) months prior to the time of termination of Executive's
employment, an employee of the Company or any of its subsidiaries for the
purpose or with the intent of enticing such employee away from the employ of the
Company or any of its subsidiaries.
14
(iii) Either directly or indirectly, for himself or on behalf of or in
conjunction with any other Person, solicit, hire or divert any Person who is, or
who is, at the time of termination of the Executive's employment, or has been
within six (6) months prior to the time of termination of Executive's
employment, a customer or supplier of the Company or any of its subsidiaries for
the purpose or with the intent of (A) inducing or attempting to induce such
Person to cease doing business with the Company or (B) in any way interfering
with the relationship between such Person and the Company.
(b) Because of the difficulty of measuring economic losses to the Company
as a result of a breach of the foregoing covenants, and because of the immediate
and irreparable damage that could be caused to the Company for which it would
have no other adequate remedy, the Executive agrees (i) that the foregoing
covenants, in addition to and not in limitation of any other rights, remedies or
damages available to the Company at law, in equity or under this Agreement, may
be enforced by the Company in the event of the breach or threatened breach by
the Executive, by injunctions and/or restraining orders and (ii) to pay the sum
of one thousand dollars ($1,000) per day for each day during which the Executive
is in breach of such covenants as liquidated damages or, if greater, the amount
of damages the Company can reasonably demonstrate it incurred as a result of
such breach. The Company and Executive agree that the dollar amount in clause
(ii) of the preceding sentence represents the product of their good faith
negotiations. If the Company is involved in court or other legal proceedings to
enforce the covenants contained in this Section 14, then in the event the
Company prevails in such proceedings, the Executive shall be liable for the
payment of reasonable attorneys' fees, costs and ancillary expenses incurred by
the Company in enforcing its rights hereunder.
(c) The covenants in this Section 14 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of any
other covenant. Moreover, in the event any court of competent jurisdiction shall
determine that the scope, time or territorial restrictions set forth herein are
unreasonable, then it is the intention of the parties that such restrictions be
enforced to the fullest extent that such court deems reasonable, and the
Agreement shall thereby be reformed to reflect the same.
(d) All of the covenants in this Section 14 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of the Executive against the Company
whether predicated on this Agreement or otherwise shall not constitute a defense
to the enforcement by the Company of such covenants. It is specifically agreed
that the period following the termination of the Executive's employment with the
Company during which the agreements and covenants of the Executive made in this
Section 14 shall be effective, shall be computed by excluding from such
computation any time during which the Executive is in violation of any provision
of this Section 14.
15
(e) Notwithstanding any of the foregoing, if any applicable law, judicial
ruling or order shall reduce the time period during which the Executive shall be
prohibited from engaging in any competitive activity described in Section 14
hereof, the period of time for which the Executive shall be prohibited pursuant
to Section 14 hereof shall be the maximum time permitted by law.
15. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the President. All notices and communications shall be deemed to
have been received on the date of delivery thereof or on the third business day
after the mailing thereof, except that notice of change of address shall be
effective only upon receipt.
16. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company or any of its
subsidiaries and for which the Executive may qualify, nor shall anything herein
limit or reduce such rights as the Executive may have under any other agreements
with the Company or any of its subsidiaries. Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan or
program of the Company or any of its subsidiaries shall be payable in accordance
with such plan or program, except as explicitly modified by this Agreement.
17. Settlement of Claims. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
18. Survival. The agreements and obligations of the Company and the
Executive made in Sections 9, 11, 12, 14, 15, 18 and 19 of this Agreement shall
survive the expiration or termination of this Agreement.
16
19. Federal Income Tax Withholding. The Company may withhold from any
benefits payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
20. Pooling Transactions. Notwithstanding anything to the contrary, in the
event of a Change in Control which is also intended to constitute a pooling
transaction, the Company shall take such actions, if any, as specifically
recommended by an independent accounting firm retained by the Company to the
extent reasonably necessary in order to assure that the pooling transaction will
qualify as such, including, without limitation, (i) deferring the vesting,
exercise, payment, settlement or lapsing restrictions with respect to any
payments of base salary, other payments or benefits, allowances, awards,
reimbursements or perquisites that are provided for hereunder, (ii) providing
that the payment or settlement be made in the form of cash, Voting Securities or
securities of a successor or acquirer of the Company, or a combination of the
foregoing, and (iii) providing for the extension of the term of any option to
the extent necessary to accommodate the foregoing, but not beyond the maximum
term of such option.
21. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
22. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Florida, without giving
effect to the conflict of law principles thereof.
23. Jurisdiction and Venue. Each of the parties to this Agreement hereby
(a) consents to personal jurisdiction in any suit, claim, action or proceeding
relating to or arising under this Agreement which is brought in any local or
federal court in the State of Florida, (b) consents to service of process upon
such party in the manner set forth in Section 15 hereof, and (c) waives any
objection such party may have to venue in any such Florida court or to any claim
that any such Florida court is an inconvenient forum.
24. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
25. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
17
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has executed this Agreement as of
the day and year first above written.
NEFF CORP.
By:
Name:
Title:
18
EXHIBIT 10.2
WAIVER
WAIVER TO CREDIT AGREEMENT (this "Waiver"), dated as of March 22, 2000,
among NEFF CORP. (the "Company"), NEFF RENTAL, INC. ("Neff Rental", and together
with the Company, the "Borrowers", and each a "Borrower"), the lenders party to
the Credit Agreement referred to below (the "Lenders"), and Bankers Trust
Company, as Agent (the "Agent"). All capitalized terms used herein and not
otherwise defined herein shall have the respective meanings provided such terms
in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, the Borrowers, the Lenders and the Agent are party to a Credit
Agreement, dated as of May 1, 1998 (as amended, modified or supplemented to, but
not including, the date hereof, the "Credit Agreement"); and
WHEREAS, subject to the terms and conditions of this Waiver, the parties
hereto agree as follows;
NOW, THEREFORE, it is agreed:
1. The Lenders hereby waive any Default or Event of Default which may have
arisen under the Credit Agreement solely as a result of the Company failing to
comply with Section 9.08 of the Credit Agreement for the Test Period ended on
December 31, 1999, so long as the Consolidated Interest Coverage Ratio for such
Test Period was at least 2.95:1.00.
2. In order to induce the Lenders to enter into this Waiver, each Borrower
hereby represents and warrants that (i) no Default or Event of Default exists as
of the Waiver Effective Date (as defined below) and after giving effect to this
Waiver, and (ii) on the Waiver Effective Date and after giving effect to this
Waiver, all representations and warranties contained in the Credit Agreement and
in the other Credit Documents are true and correct in all material respects.
3. This Waiver shall become effective on the date (the "Waiver Effective
Date") when (i) each Borrower and the Required Lenders shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered (including by way of facsimile transmission) the same to the Agent at
the Notice Office and (ii) the Company shall have paid to the Agent for the
account of each Lender who has executed a counterpart hereof and delivered same
to the Agent at the Notice Office on or prior to 12:00 Noon (New York time) on
Wednesday, March 22, 2000, a waiver fee equal to 0.10% of such Lender's
Revolving Loan Commitment at such time.
1
4. This Waiver is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
5. This Waiver may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument. A complete set of counterparts
shall be lodged with each Borrower and the Agent.
6. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF
NEW YORK.
* * *
2
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Waiver to be duly executed and delivered as of the date hereof.
NEFF CORP.
By
Title:
NEFF RENTAL, INC.
By
Title:
BANKERS TRUST COMPANY, Individually
and as Agent
By
Title:
DEUTSCHE FINANCIAL SERVICES
By
Title:
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By
Title:
3
LASALLE BUSINESS CREDIT, INC.
By
Title:
CIT GROUP/BUSINESS CREDIT, INC.
By
Title:
IBJ SCHRODER BUSINESS CREDIT
CORPORATION
By
Title:
NATIONAL BANK OF CANADA
By
Title:
SUMMIT BANK
By
Title:
4
FIRST UNION NATIONAL BANK
By
Title:
UNION BANK OF CALIFORNIA N.A.
By
Title:
BANK ATLANTIC
By
Title:
BNY FINANCIAL CORPORATION
By
Title:
BNY FINANCIAL CORPORATION
By
Title:
FLEET NATIONAL BANK
By
Title:
5
BANK OF BOSTON, N.A.
By
Title:
GMAC COMMERCIAL CREDIT LLC
By
Title:
CREDIT LYONNAIS, NEW YORK BRANCH
By
Title:
FLEET CAPITAL CORPORATION
By
Title: