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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, 2000
Commission File Number: 001-14145
NEFF CORP.
(Exact Name of registrant as specified in its charter)
DELAWARE 65-0626400
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3750 N.W. 87th AVENUE, SUITE 400, MIAMI, FLORIDA 33178
(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 1, 2001, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $5.9 million. As of March 1,
2001, 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 1, 2001 (the "2001 Proxy Statement"). Specifically, the
sections in the 2001 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 in this Annual Report may include forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Act of 1934, as amended. Statements in
Item 1, Business, and Item 7, Management's Discussion and Analysis of Operations
and Financial Condition, of this Annual Report, together with other statements
beginning with such words as "believes", "intends", "plans", "expects" and
similar expressions include forward-looking statements that are based on
management's expectations given facts as currently known by management. Actual
results may differ materially from those discussed in these forward-looking
statements. Factors that could cause our future results to differ materially
from those in the forward-looking statements are described in this Annual Report
under the section "Risk Factors" and include, but are not limited to our
dependence on additional capital for future growth, the high degree to which we
are leveraged, the restrictions on our operations imposed by our debt
instruments, competition in our industry, and general economic conditions.
Any forward-looking statements speak only as of the date on which the
statement is made and we undertake no obligation to update any forward-looking
statement or statements to reflect events or circumstances occurring after the
date on which the statement is made. New factors that may affect our operating
results emerge from time to time, and it is not possible for management to
predict the materialization of all new factors. Further, management cannot
assess the impact of each factor on our business or the extent to which any
factor, or combinations of factors, may cause our actual results to differ
materially from those discussed in any forward-looking statements.
ITEM 1. BUSINESS
General
Neff Corp. ("Neff" or the "Company") is one of the largest equipment
rental companies in the United States, with 82 rental locations in 17 states
as of March 1, 2001. We rent a wide variety of equipment, including backhoes,
air compressors, loaders, lifts and compaction equipment, to construction
and industrial customers. In addition, we sell new and used equipment, spare
parts and merchandise and provide 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 2000. This
growth has been driven primarily by construction and industrial companies, and
other equipment users such as governmental entities, that have increasingly
outsourced equipment needs to reduce capital investment in non-core assets,
convert costs from fixed to variable, lower storage and maintenance costs and
access a broad selection of equipment, including the latest technology. The
equipment rental industry is highly fragmented, with an estimated 18,000
equipment rental companies in the United States. Relative to smaller
competitors, we have 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.
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Competitive Strengths
We believe that we have several competitive strengths that provide us with
the opportunity for 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 82 rental locations in 17 states, including Florida, Georgia,
Alabama, South Carolina, North Carolina, Tennessee, Louisiana, Texas, Oklahoma,
Arizona, Nevada, Utah, California, Oregon, Washington, Virginia and Colorado.
From December 31, 1995 to December 31, 2000, we increased our equipment rental
locations from 8 to 82 and expanded our rental fleet from $62 million to $460
million based on original cost. We believe our size gives us an advantage over
our smaller competitors, while our geographic diversity helps 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, 2000, the average age of our rental fleet
was approximately 26 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. We expect to reduce our sales of used equipment during 2001 to
reduce our capital fleet expenditures which should result in an average rental
fleet age of 32 months at December 31, 2001.
Excellent Customer Service. We differentiate ourselves from our competitors
by providing high quality, responsive service to our customers. Service
initiatives include (1) reliable on-time equipment delivery directly to our
customers' job sites; (2) on-site repairs and maintenance of rental equipment by
factory trained mechanics, generally available 24 hours a day, seven days a
week; and (3) 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. 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, maximizing equipment utilization.
Experienced Management Team. Since 1995, we have significantly increased
the quality and depth of our management team. Our senior management team has
extensive experience in the equipment rental industry and our regional
management has, on average, 22 years of experience and substantial knowledge of
the local markets served within their regions.
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Business Strategy
Our objective is to increase revenues, cash flow and profitability by
building and maintaining a leading market position in the equipment rental
industry. Key elements of our business strategy include:
Improve Utilization of Fleet. We will continue our efforts to improve the
utilization of our rental fleet by carefully managing inventory levels at all
locations. We carefully weigh the benefits of each new investment in rental
fleet against the returns expected on that investment at our locations. In
addition, we will continue to adjust the selection of equipment available at
each location in order to provide product lines that are tailored to most
efficiently meet the demands of our customers.
Reduce Outstanding Debt. We intend to use all available free cash flow from
operations to pay down outstanding debt on our credit facility during 2001. By
reducing our outstanding debt, we hope to decrease leverage, reduce interest
expense and increase profitability.
Increase Profitability of Recently Opened Rental Locations. Since January
1, 1998, we have opened 10 start-up rental equipment locations including 4
locations in 2000, 1 location in 1999 and 5 locations in 1998. 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 composition of 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.
Selective Openings of Start-up Equipment Rental Locations. We intend to
explore the possibility of expanding our operations by opening additional
start-up locations. We have been successful in opening start-up equipment rental
locations in existing markets and new markets. 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.
Operations
Our operations primarily consist of renting equipment, and to a lesser
extent, selling used equipment and complementary parts and merchandise to a wide
variety of construction and industrial customers. In addition, to service our
customer base more fully, we also sell new equipment and provide ongoing
maintenance and repair services for the equipment we sell and rent.
Our locations are grouped together by geographic area into different
regions. A regional vice-president oversees operations within each region.
Equipment Rentals. We are one of the largest equipment rental companies in
the United States, with 82 rental locations in 17 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, Volvo and Wacker.
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Major categories of equipment represented the following percentages (based
on original cost) of our total rental fleet as of December 31, 2000:
Percentage of Total Rental Fleet
Major Equipment Category (based on original cost)
-----------------------
Earthmoving ............... 40.0 %
Material Handling ............... 18.5
Other ............... 14.4
Aerial ............... 9.5
Trucks ............... 6.2
Compaction ............... 3.2
Compressors ............... 3.0
Cranes ............... 2.0
Welders ............... 1.5
Lighting ............... 0.7
Generators ............... 0.5
Pumps ............... 0.5
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, 2000, our
equipment rental fleet had an original cost of approximately $460 million and an
average age of 26 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 efficient
communication when ordering equipment. Punctuality and reliability are key
components of the servicing process, as well as maintenance performance, timely
equipment removal at the end of the rental period and simplified billing.
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Our service initiatives include:
o reliable on-time equipment delivery directly to customers' job sites;
o 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
o ongoing training of an experienced sales force to consult with customers
regarding their equipment needs.
New and Used Equipment Sales. We maintain a regular program of selling used
equipment in order to adjust the size and composition of our rental fleet in
response to changing market conditions and our business plan. Management
attempts to balance the objective of obtaining acceptable prices from equipment
sales against the revenues obtainable from future rentals of the equipment. 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. During 2001, we expect to reduce the level of used equipment sales in
order to reduce the amount of capital expenditures made on new rental fleet
equipment. In order to serve our customer base more fully, we also sell new
equipment to customers.
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 we 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 revenues from the parts and service business may
actually increase during economic downturns 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, that is capable of monitoring our operations on a real-time basis. We
currently employ eight management information system employees who continually
update and refine the system. 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. We use this system to maximize fleet utilization and determine
the optimal fleet composition by geographic market.
Using this system, 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.
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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 businesses.
During 2000 we served over 30,500 customers. Our top 10 customers
represented 3.9% of our total revenues in 2000. 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.
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 successfully 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 supervising
the sales force 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 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 the quantity of equipment we purchase enables us to purchase
equipment directly from vendors 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 do not rely on any
one vendor exclusively for a particular type of equipment, and we believe that
we have sufficient alternative sources of supply for the equipment we purchase,
in each of our principal product categories.
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The following table summarizes our principal categories of equipment and
specifies our 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
Locations
Our locations typically include (1) offices for sales, administration and
management; (2) a customer showroom displaying equipment and parts; (3) an
equipment service area; and (4) outdoor and indoor storage facilities for
equipment. Each location offers a full range of rental equipment, with the mix
of equipment available designed to meet the anticipated needs of the customers
in each location.
Each location is staffed by, on average, 15 full-time employees, including
a branch manager, a rental coordinator, service manager, sales representatives,
an office administrator, mechanics and drivers. Additional part-time employees
are also used as necessary.
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 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. These larger competitors
may have the ability to set market rates for rental equipment in certain
geographic areas in which we operate. If competitive pressure forces us to lower
our rental rates, this could reduce our rental revenues and materially adversely
affect our financial condition or results of operations.
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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 compliance with such requirements and do
not currently anticipate making any material capital expenditures or incurring
material costs for environmental compliance or remediation for the current or
succeeding fiscal years.
Employees
As of February 25, 2001, we had approximately 1,130 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.
RISK FACTORS
These are not the only risks and uncertainties we face. The following
important factors, among others, could adversely impact our business, operating
results, financial condition and cash flows. These factors could cause our
actual results to differ materially from those projected in any forward-looking
statements made in this Annual Report on Form 10-K or presented elsewhere by
management from time to time.
We are dependent on additional capital for future growth.
Although we believe that we have sufficient funds for working capital, we
may need to raise additional funds in the future if we need to respond to
competitive pressures or decide to accelerate our growth rate by increasing our
rental equipment fleet, opening more start-up locations or making additional
acquisitions. Our ability to obtain additional financing will be subject to a
number of factors, including market conditions, our operating performance and
the terms of our existing indebtedness. We cannot assure you that we will be
able to raise additional funds on terms acceptable to us, or at all. If we raise
additional funds through the sale of equity or convertible debt securities, your
ownership percentage of our common stock will be reduced. In addition, these
transactions may dilute the value of our common stock. We may have to issue
securities that have rights, preferences and privileges senior to our common
stock. The terms of any additional indebtedness may include restrictive
financial and operating covenants that would limit our ability to compete and
expand. Our failure to obtain any required future financing on terms acceptable
to us could materially and adversely effect our financial condition.
We have a substantial amount of debt.
As of February 28, 2001, we had total indebtedness of approximately $344.1
million. The degree to which Neff is leveraged could have important consequences
to holders of our common stock including, but not limited to:
o our leverage may limit our ability to obtain additional
financing in the future for working capital, capital
expenditures, acquisitions or general corporate or other
purposes;
o a substantial portion of our cash flow from operations will be
dedicated to the payment of the principal of, and interest on,
our indebtedness; and
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o our substantial leverage may make us more vulnerable to
economic downturns, limit our ability to withstand
competitive pressures and reduce our flexibility to respond to
changing business and economic conditions.
The terms of our current indebtedness restrict our operations.
Our ability to finance future acquisitions, start-ups and internal growth
is limited by the covenants contained in our $219.5 million revolving credit
facility and in the indentures governing $200 million in subordinated debt
securities that we issued and sold in 1998. These covenants restrict our
ability, among other things to:
o dispose of assets
o engage in mergers or consolidations;
o incur debt;
o pay dividends;
o repurchase our capital stock;
o create liens on our assets;
o make capital expenditures;
o make investments or acquisitions; and
o engage in transactions with our affiliates.
Our credit facility also requires us to maintain specified financial
ratios, including minimum cash flow levels and interest coverage. These
covenants may significantly limit our ability to respond to changing business
and economic conditions and to secure additional financing, and we may be
prevented from engaging in transactions, including acquisitions, that might be
considered important to our business strategy or otherwise beneficial to us.
Our ability to comply with the restrictive covenants in our credit facility
and the indentures may be affected by events that are beyond our control. The
breach of any of these covenants could result in a default under the credit
facility or the indentures. In the event of a default under the credit facility,
our lenders could declare all amounts borrowed under the credit facility,
together with accrued interest and other fees, to be due and payable. In the
event of a default under the indentures, the trustee under each indenture or the
holders of our senior subordinated notes may declare the principal of and
accrued interest on the notes to be due and payable. We cannot assure you that
we would be able to repay all amounts due under the credit facility or the
indentures in the event these amounts are declared due upon a breach of the
credit facility of the indentures.
We are currently in default under the consolidated interest coverage ratio
and leverage ratio covenants under the credit facility. Our lenders have waived
these defaults until May 23, 2001. We are in negotiations with our lenders to
amend the financial covenants in the credit facility and permanently cure the
defaults.
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Our quarterly and annual operating results may fluctuate and the price of
our common stock may change in response to those fluctuations.
Our quarterly and annual revenues and operating results have varied in the
past and may continue to fluctuate in the future depending on factors such as:
o general economic conditions in our markets;
o changes in our, and our competitors' pricing;
o the timing of start-up locations and acquisitions and related
costs;
o the effectiveness of efforts to integrate start-up locations
and acquired businesses with existing operations;
o rental patterns of our customers; and
o increased competition.
In addition, equipment rental businesses often experience a slowdown in
demand during the winter months when adverse weather conditions affect
construction activity. Due to these and other factors, we believe that
quarter-to-quarter comparisons of our operating results may not be meaningful.
You should not rely on our results for any one quarter as an indication of our
future performance. In future periods, our operating results may fall below the
expectations of public market analysts or investors. If this occurs, the price
of our common stock is likely to decrease.
We face intense competition.
If we are unable to compete successfully, we will lose market share and our
business will suffer. The equipment rental industry is highly competitive. Our
competitors include large national rental companies, regional competitors that
operate in one or more states, smaller independent businesses with one or two
rental locations, and equipment vendors and dealers who both sell and rent
equipment to customers. Some of our competitors have greater financial
resources, are more geographically diverse, and have greater name recognition
than we do. If existing or future competitors reduce prices and we must also
reduce prices to remain competitive, our operating results would be adversely
affected. In addition, other equipment rental companies may compete with us for
acquisition candidates or start-up locations, which may increase acquisition
prices and reduce the number of suitable acquisition candidates or expansion
locations.
We depend on our senior management.
Neff is managed by a small number of key executive officers. The loss of
the services of these key executives could have a material adverse effect on our
business. We do not maintain any key man life insurance policies on any of our
officers. Our success also depends on our ability to hire and retain qualified
management personnel. We cannot assure you that we will be able to hire and
retain the personnel we need.
Any acquisitions we make could disrupt our business, increase our expenses
and adversely affect our financial condition or operations.
In the future, we may make material acquisitions of, or large investments
in, other equipment rental businesses. We cannot assure you that we would
successfully integrate any businesses or personnel that we might acquire with
our existing operations. Any future acquisitions or investments we might make
would present risks commonly associated with these types of transactions,
including:
o difficulty in combining the operations or work force of an
acquired business;
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o potential loss of key personnel of an acquired business;
o disruptions of our on-going business;
o difficulty in maintaining uniform standards, controls,
procedures and policies;
o potential negative impact on results of operations due to
amortization of goodwill, other intangible assets acquired
or assumption of liabilities;
o risks associated with entering markets with which we have
limited previous experience; and
o diversion of management attention.
We expect that future acquisitions, if any, could provide for consideration
to be paid in cash, shares of our common stock, or a combination of cash and
common stock. Additional equity issued in connection with future acquisitions
could result in dilution of our stockholders' equity interest. Fluctuations in
our stock price may make acquisitions more expensive or prevent us from being
able to complete acquisitions on terms that are acceptable to us.
We may incur substantial costs in order to comply with environmental and
safety regulations.
We are subject to certain federal, state and local laws and regulations
relating to environmental protection and occupational health and safety,
including those governing:
o wastewater discharges;
o the treatment, storage and disposal of solid and hazardous
wastes and materials; and
o the remediation of contamination associated with the
release of hazardous substances.
These laws often impose liability without regard to whether the owner or
lessee of real estate knew of, or was responsible for, the presence of hazardous
or toxic substances. Some 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 with these activities.
Although we investigate each business or property that we acquire or lease,
these businesses or properties may have undiscovered potential liabilities
relating to non-compliance with environmental laws and regulations that we will
be required to investigate and/or remediate. While we do not currently expect to
make any material capital expenditures for environmental compliance or
remediation in the foreseeable future, we cannot assure you that environmental
and safety requirements will not become more stringent or be interpreted and
applied more stringently in the future, which could cause us to incur additional
environmental compliance or remediation costs. These compliance and remediation
costs could materially adversely affect our financial condition or results of
operations.
We may be liable for claims that our insurance will not cover.
Our business exposes us to possible claims for personal injury or death
resulting from the use of equipment that we rented or sold and from injuries
caused in motor vehicle accidents in which our delivery and service personnel
are involved. We carry comprehensive insurance subject to a deductible at a
level management believes is sufficient to cover existing and future claims. We
cannot assure you that existing or future claims will not exceed the level of
our insurance or that such insurance will continue to be available on
economically reasonable terms, or at all. In addition, our insurance may not
cover claims for punitive damages or for damages arising from intentional
misconduct.
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The market price for our common stock may fluctuate widely.
The trading price for our common stock has been and may continue to be
highly volatile. The market price of our common stock could fluctuate
substantially due to factors, many of which are beyond our control, such as:
o actual or anticipated variations in our quarterly results
of operations;
o additions or departures of key personnel;
o announcements of acquisitions, new products or new services
by us or our competitors;
o changes in earnings estimates or recommendations by securities
analysts;
o changes in business or regulatory conditions affecting us;
o changes in the market valuations of other equipment rental
companies;
o trading of our common stock; and
o general market conditions.
Our principal stockholders have substantial control over our affairs.
Neff is controlled by the Mas family and General Electric Capital
Corporation ("GE Capital"). Jorge Mas, our Chairman, his brothers, Juan Carlos
Mas and Jose Ramon Mas, who are also members of our board of directors, and
Santos Fund I, L.P. ("Santos"), a limited partnership controlled by the Mas
family beneficially own approximately 44.9% of our common stock. In addition, GE
Capital owns Class B Special common stock that represents 24.1% of the
outstanding equity of Neff. Neff, GE Capital, Santos and the Mas family have
entered into a Stockholders' Agreement. The agreement provides that if GE
Capital transfers common stock representing 15% or more of the equity of Neff to
a third party, the parties to the agreement will cause Neff's Board of Directors
to increase by one member and will cause the nominee designated by the purchaser
of GE Capital's common stock to be elected as the additional director.
The Mas family, Santos and GE Capital, or a transferee who acquires the
common stock held by GE Capital, acting together will have the ability to exert
substantial influence over all matters requiring approval by our stockholders.
These matters include the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets. In addition,
they may dictate the management of our business and affairs. This concentration
of ownership could have the effect of delaying, deferring or preventing a change
in control or impeding a merger or consolidation, takeover or other business
combination which you, as a stockholder, may otherwise view favorably.
Future sales of our common stock may adversely affect our common stock price.
If our stockholders sell a large number of shares of common stock or if we
issue a large number of shares in connection with future acquisitions or
financings, the market price of our common stock could decline significantly. In
addition, the perception in the public market that our stockholders might sell a
large number of shares of common stock could cause a decline in the market price
of our common stock. An additional 1.5 million shares of our common stock may be
issued upon the exercise of vested stock options we have previously granted, all
of which could be sold in the public market if issued, subject to compliance
with Rule 144 of the Securities Act in the case of shares held by our
affiliates.
13
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 2
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
Neff, the members of our Board of Directors, two of our principal
stockholders and United Rentals, Inc. ("United") are defendants in at least nine
lawsuits filed in the Delaware Court of Chancery. Five of the suits were filed
on January 3, 2001, two were filed on January 4, 2001 and two were filed on
January 5, 2001. All of the suits were filed after Neff announced that it had
received a proposal from United to acquire all of the outstanding shares of our
Class A common stock held by the public. The plaintiffs in the suits are
stockholders of Neff who purport to bring the suits as class actions on behalf
of all persons, other than the defendants, who own our Class A common stock. The
complaints allege, among other things, that certain members of the Board of
Directors, General Electric Capital Corporation and Santos Fund I ,L.P. have
breached their fiduciary duties to our public shareholders and engaged in
self-dealing in negotiating the terms of the United proposal. The plaintiffs
seek, among other things, injunctive relief and damages. Neff has not yet
responded to the complaints. On February 26, 2001, Neff announced that the
United proposal had expired and negotiations with United had terminated.
On December 17, 1999, we completed the sale of Neff Machinery, Inc.
("Machinery"), a wholly-owned subsidiary of Neff. Neff received $90.5 million
and recorded a gain on the sale of $3.8 million. The Machinery sale agreement
(the "Agreement") provides for a post-closing purchase price adjustment based on
the difference between the net worth of Machinery as of June 30, 1999 (the date
of a pro forma balance sheet prepared in advance of the execution of the
Agreement) and the closing date (on the basis of a balance sheet prepared after
closing). Neff takes the position that this provision was designed in general to
provide an upward adjustment in the purchase price based on any increase in
Machinery's retained earnings during the period from June 30, 1999 to the
closing date.
Following preparation of a closing date balance sheet, the purchaser told
Neff that Neff owed the purchasers an adjustment payment of $20.3 million. Neff
responded by informing the purchaser that the purchaser owed it additional
consideration of $8.8 million. In its response, Neff noted that Machinery had
been profitable during the period between June 30, 1999 and the closing date. In
fact, a significant portion of the additional consideration Neff claimed it was
owed is attributable to Machinery's earnings during this period. Neff believes
that the difference between its position and the purchaser is generally the
result of a difference in contract interpretation. Neff's position is that the
Agreement requires all of Machinery's assets and liabilities to be valued, for
purposes of the closing date balance sheet, using the same standards used to
prepare the June 30, 1999 pro forma balance sheet. The purchaser's position is
that the Agreement allows many of Machinery's assets and liabilities to be
valued, for purposes of the closing date balance sheet, at the lower of book
value or market, irrespective of the valuation standards used to prepare the
June 30, 1999 pro forma balance sheet.
14
The largest monetary dispute concerns Machinery's rental fleet. The book
value (cost less accumulated depreciation) of the rental fleet as of the closing
was approximately $50.5 million. The gross book value of the rental fleet was
approximately $63.7 million. Neff's position is that Machinery's rental fleet
should be measured on the closing date balance sheet at its book value,
consistent with Neff's historical financial statements and the June 30, 1999 pro
forma balance sheet. The purchaser argues that Machinery's rental fleet as of
the closing date should be measured at the lower of book value and market, which
the purchaser maintains is approximately $14.6 million lower than Neff's
valuation of the rental fleet under accounting principles generally accepted in
the United States of America ("GAAP"). Neff also disputes the market values
assigned by the purchaser to the rental fleet.
The next largest item in dispute between Neff and the purchaser relates to
the treatment of floor plan financing programs with equipment manufacturers. The
purchaser assumed approximately $3 million of floor plan liabilities as of the
closing and included those liabilities on the closing date balance sheet
prepared by the purchaser. Floor plan financing was not included on the June 30,
1999 pro forma balance sheet. As of June 30, 1999, the amount of the floor plan
financing was approximately $6 million.
Neff maintains that this debt was erroneously omitted from the June 30,
1999 pro forma balance sheet and maintains that the June 30, 1999 pro forma
balance sheet should be corrected accordingly. The purchaser opposes this
adjustment on the grounds that the Agreement does not expressly contemplate
adjustments to the pro forma balance sheet. The purchaser also maintains that
floor plan financing was properly omitted from the June 30, 1999 pro forma
balance sheet.
The balance of the difference between Neff's and the purchaser's claims
relates to the following items: (1) The closing date balance sheet prepared by
the purchaser includes a reserve for bad debt as of the closing date. Neff
maintains that the magnitude of the purchaser's proposed bad debt reserve is
higher than appropriate under GAAP. The difference between Neff's position on
the issue and the purchaser's position is approximately $2.4 million; (2) The
purchaser contends that Machinery's real estate should be valued on the closing
date balance sheet at the lower of book value or market. Neff maintains that,
under GAAP, Machinery's real estate should be stated at book value unless assets
are impaired, in which case the assets should be written down to fair market
value. Neff further maintains that the assets are not impaired. The difference
between the Neff's position on this issue and the purchaser's position is
approximately $2.3 million; and (3) The purchaser has written down a portion of
Machinery's parts inventory for parts it claims are inactive or are obsolete.
Neff maintains that the write down is inappropriate because the parts are
included on the "active" parts inventory lists of their respective manufacturers
as of December 31, 1999, and are required in many cases to be stocked pursuant
to agreements with those manufacturers. The difference between Neff's position
on this issue and the purchaser's position is approximately $2.1 million.
On May 5, 2000, Neff filed suit in Florida state court, seeking, inter
alia, a declaration that the Agreement as written requires that the inventory be
valued as of the closing in accordance with GAAP applied on a basis consistent
with Neff's historical financial statements and the June 30,1999 pro forma
balance sheet. In the alternative, Neff sought to have the Agreement reformed to
so require. Neff Corp. v. Nortrax Equipment Co. - Southeast, L.L.C., Case No.
00-11524 CA01 (Circuit Court of the 11th Judicial Circuit in and for Miami-Dade
County, Florida). On or about May 25, 2000, the purchaser filed a motion to stay
the litigation and compel arbitration. The parties recently filed a stipulation
in which they have agreed that all disputes pertaining to the closing balance
sheet and the June 30, 1999 pro forma balance sheet will be resolved by an
internationally recognized firm of independent public accountants ( the
"Accounting Firm") to be selected by the parties. The Accounting Firm will,
acting as arbitrators in accordance with the Federal Arbitration Act and the
terms of the Agreement, determine whether and to what extent the closing net
asset value of Machinery derived from the closing balance sheet requires
adjustment and whether the Agreement and the June 30,1999 pro forma balance
sheet should be reformed. Pursuant to the Agreement, the Accounting Firm shall
refer to a nationally recognized firm of personal property appraisers selected
by the parties, or to a real estate appraiser selected by the parties, those
items, if any, that it determines are to be valued at market.
15
We are 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 2000, no matter was submitted to a vote of the
security holders of Neff.
16
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 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 our Class A common stock as reported on New York
Stock Exchange for the periods indicated.
Year ended December 31, 2000:
HIGH LOW
------- -------
First Quarter ........... $ 9.38 $ 5.94
Second Quarter ........... $ 7.31 $ 3.00
Third Quarter ........... $ 5.50 $ 2.94
Fourth Quarter ........... $ 4.25 $ 0.75
Year ended December 31, 1999:
HIGH LOW
------- -------
First Quarter ........... $ 8.00 $ 5.56
Second Quarter ........... $ 15.75 $ 6.44
Third Quarter ........... $ 18.44 $ 10.25
Fourth Quarter ........... $ 12.75 $ 6.25
As of March 1, 2001, we had 75 shareholders of record. We believe the
number of beneficial owners is substantially greater than the number of record
holders because a large portion of our Class A 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, 2000. 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 in 2008.
The declaration and payment of any future cash dividends will depend on a
number of factors including future earnings, capital requirements, our financial
condition and prospects and any restrictions under credit or other agreements
existing from time to time, as well as any other factors as our Board of
Directors may deem relevant. We cannot assure you that we will pay any dividends
in the future.
17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The data set forth below should be read in conjunction with Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Neff'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.
For the Years Ended December 31,
-----------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(Amounts in thousands, except per share data)
Revenues
Rental revenue ........................ $ 192,990 $ 222,862 $ 179,014 $ 69,512 $ 35,808
Equipment sales ....................... 51,179 121,865 108,352 50,578 44,160
Parts and service ..................... 15,923 47,284 36,724 22,132 15,045
---------- ---------- ---------- ---------- ----------
Total revenues ................... 260,092 392,011 324,090 142,222 95,013
---------- ---------- ---------- ---------- ----------
Cost of revenues
Cost of equipment sold ................ 43,660 100,871 83,783 40,766 33,605
Depreciation of rental equipment ...... 44,724 55,159 56,336 24,231 19,853
Maintenance of rental equipment ....... 64,883 66,763 49,858 18,752 8,092
Cost of parts and service ............. 10,495 30,166 23,690 13,741 8,143
---------- ---------- ----------- ---------- ----------
Total cost of revenues ........... 163,762 252,959 213,667 97,490 69,693
---------- ---------- ----------- ---------- ----------
Gross profit .................................. 96,330 139,052 110,423 44,732 25,320
---------- ---------- ----------- ---------- ----------
Selling, general and administrative expenses .. 61,574 74,893 60,347 31,329 18,478
Other depreciation and amortization ........... 9,884 10,731 8,833 2,806 1,432
Write-down of assets held for sale ............ 4,272 1,444 - - -
Cost incurred in efforts to sell the company .. 4,282 - - - -
Officer stock option compensation (2) ......... - - 3,198 4,400 -
---------- ---------- ----------- ---------- ----------
Income from operations ........................ 16,318 51,984 38,045 6,197 5,410
---------- ---------- ----------- ---------- ----------
Other expenses ................................ 34,763 41,520 35,855 14,338 6,337
---------- ---------- ----------- ---------- ----------
Income (loss) before income taxes, minority
interest and extraordinary item .......... (18,445) 10,464 2,190 (8,141) (927)
(Provision for) benefit from income taxes ..... - (3,877) 134 1,748 (461)
---------- ---------- ----------- ---------- ----------
Income (loss) before minority interest and
extraordinary item ........................... (18,445) 6,587 2,324 (6,393) (1,388)
Minority Interest ............................. - (1,733) (1,111) - -
----------- ----------- ----------- ---------- ----------
Income (loss) before extraordinary item ....... (18,445) 4,854 1,213 (6,393) (1,388)
Extraordinary loss, net ....................... - - (2,675) (451) (809)
----------- ----------- ----------- ---------- ----------
Net income (loss) ............................. $ (18,445) $ 4,854 $ (1,462) $ (6,844) $ (2,197)
=========== =========== =========== ========== ==========
Basic income (loss) per common share:
Income (loss) before extraordinary item ....... $ (0.87) $ 0.23 $ (0.23) $ (1.64) $ (0.56)
Extraordinary loss, net ....................... - - (0.15) (0.05) (0.10)
----------- ----------- ----------- ---------- ----------
Net Income (loss) ............................. $ (0.87) $ 0.23 $ (0.38) $ (1.69) $ (0.66)
=========== =========== =========== ========== ==========
Diluted income (loss) per common share:
Income (loss) before extraordinary item ....... $ (0.87) $ 0.22 $ (0.23) $ (1.64) $ (0.56)
Extraordinary loss, net ....................... - - (0.15) (0.05) (0.10)
----------- ----------- ----------- ---------- ----------
Net income (loss) ............................. $ (0.87) $ 0.22 $ (0.38) $ (1.69) $ (0.66)
=========== =========== =========== ========== ==========
Weighted average common shares outstanding:
Basic ......................................... 21,165 21,165 17,213 8,465 8,465
=========== =========== =========== ========== ==========
Diluted ....................................... 21,165 21,887 17,213 8,465 8,465
=========== =========== =========== ========== ==========
18
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA - (continued)
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(Amounts in thousands, except percent and location data)
Balance Sheet Data (end of period):
Net book value of rental equipment.......... $ 303,863 $ 285,863 $ 321,220 $ 179,547 $ 76,794
Total assets................................ 474,967 471,706 572,369 279,654 109,118
Total debt ................................. 345,939 335,852 406,993 226,203 58,250
Redeemable preferred stock ................. - - - 53, 747 46,299
Total stockholders' equity (deficit) ....... 85,763 104,208 99,360 (24,735) (7,508)
Other Data:
EBITDA(3) .................................. $ 79,480 $ 119,318 $ 106,412 $ 37,634 $ 26,695
EBITDA margin(4) ........................... 30.6% 30.4% 32.8% 26.5% 28.1%
Rental equipment purchases ................. $ 109,578 $ 221,671 $ 199,198 $ 143,515 $ 86,886
Number of locations (end of period)......... 82 84 86 53 16
_____________________
1) Depreciation of rental equipment for 1996, 1997 and 1999 reflects Neff's
change in depreciation policy to recognize extended estimated service lives and
increased residual values of our rental equipment. See Neff's Consolidated
Financial Statements and the Notes thereto included elsewhere in this Annual
Report.
2) Officer stock option compensation expense represents a non-cash charge with
respect to the changes in the difference between the estimated market value of
the shares to be issued to a former executive officer under an option agreement,
and the exercise price for the shares.
3) EBITDA represents income from operations plus depreciation, amortization, and
non-cash expenditures, including write-down of assets in 2000 and 1999, officer
stock option compensation expense in 1998 and 1997, and costs incurred in
efforts to sell the Company in 2000. 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 Neff's
operating performance, as an alternative to cash flows from operating activities
(as determined in accordance with GAAP) or as a measure of liquidity. We believe
that EBITDA is a fairly standard measure in our industry, commonly reported and
widely used by analysts and investors as a measure of profitability for
companies with significant depreciation, amortization and non-cash expenditures.
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.
4) EBITDA margin represents EBITDA as a percentage of total revenues.
19
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,
2000 to historical and pro forma results for the year ended December 31, 1999
and the year ended December 31, 1999 to the year ended December 31, 1998. This
discussion should be read in conjunction with Neff's Consolidated Financial
Statements and the Notes thereto, appearing elsewhere in this Annual Report.
Overview
We derive revenue from (1) the rental of equipment; (2) sales of new and
used equipment and (3) sales of parts and service. Our 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 our rental fleet also
affect revenues from the sale of used equipment. Revenues derived from the sale
of parts and service generally correlates with sales of new equipment.
As part of our strategy to improve utilization and return on fleet
investments, we plan to reduce our short term capital expenditures on fleet
assets during 2001 in order to apply operating cash flow to pay down debt. The
reduction in capital expenditures could lead to a reduction in used equipment
sales as we age the fleet and seek to maximize return on existing fleet
investments. We will also continue to carefully analyze the market potential of
each branch and may contemplate the closing of branches that are not generating
adequate return on investment or are in a market that we do not believe has
significant future potential.
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.
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, we have, from time to time, made
certain changes to our depreciation assumptions to recognize extended estimated
service lives and increased residual values of our rental equipment. We believe
that these changes in estimates will more appropriately reflect our financial
results by better allocating the cost of our 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.
20
Results of Operations
Management believes that the period-to-period comparisons of Neff's
financial results may not necessarily be meaningful and should not be relied
upon as an indication of future performance. In addition, our results of
operations may fluctuate from period-to-period in the future as a result of the
cyclical nature of the industry in which we operate.
Sale of Subsidiaries. During the fourth quarter of 1999, we sold our equity
interest in two subsidiaries, Sullair Argentina Sociedad Anonima ("S.A.
Argentina") and Neff Machinery, Inc. ("Machinery"). Our pro forma results for
the Company for 1999, assuming the sales of S.A. Argentina and Machinery took
place on January 1, 1999, are presented below with the other years presented for
comparative purposes.
The following table sets forth, for the periods indicated, information
derived from the consolidated statements of operations of Neff, and pro forma
results for 1999, expressed as a percentage of total revenues. We cannot assure
you that the trends in the table below will continue in the future.
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except percent data)
For the Years Ended December 31,
--------------------------------------------------------------------------------
Historical Pro Forma Historical
2000 % 1999 % 1999 % 1998 %
--------- ---- --------- ---- --------- ---- --------- ----
Revenues
Rental revenue ............................ $ 192,990 74.2 $ 222,862 56.9 $ 179,062 72.0 $ 179,014 55.2
Equipment sales ........................... 51,179 19.7 121,865 31.1 54,234 21.8 108,352 33.5
Parts and service ......................... 15,923 6.1 47,284 12.0 15,257 6.2 36,724 11.3
--------- ---- --------- ---- --------- ---- --------- ----
Total revenues ....................... 260,092 100.0 392,011 100.0 248,553 100.0 324,090 100.0
--------- ---- --------- ---- --------- ---- --------- ----
Cost of revenues
Cost of equipment sold .................... 43,660 16.8 100,871 25.7 45,086 18.1 83,783 25.9
Depreciation of rental equipment .......... 44,724 17.2 55,159 14.1 40,821 16.4 56,336 17.4
Maintenance of rental equipment ........... 64,883 25.0 66,763 17.0 56,556 22.8 49,858 15.3
Cost of parts and service ................. 10,495 4.0 30,166 7.7 8,745 3.5 23,690 7.3
--------- ---- --------- ---- --------- ---- --------- ----
Total cost of revenues ............... 163,762 63.0 252,959 64.5 151,208 60.8 213,667 65.9
--------- ---- --------- ---- --------- ---- --------- ----
Gross profit ................................. 96,330 37.0 139,052 35.5 97,345 39.2 110,423 34.1
--------- ---- --------- ---- --------- ---- --------- ----
Other operating expenses
Selling, general and administrative expenses 61,574 23.7 74,893 19.1 56,555 22.8 60,347 18.6
Other depreciation and amortization ....... 9,884 3.8 10,731 2.7 8,707 3.5 8,833 2.7
Write-down of asset held for sale ......... 4,272 1.7 1,444 0.4 1,444 0.6 - -
Costs incurred in efforts to sell the
Company ................................... 4,282 1.7 - - - - - -
Officer stock option compensation ......... - - - - - - 3,198 1.0
--------- ---- --------- ---- --------- ---- --------- ----
Income from operations ....................... $ 16,318 6.3 $ 51,984 13.3 $ 30,639 12.3 $ 38,045 11.7
--------- ---- --------- ---- --------- ---- --------- ----
EBITDA ........................................ $ 79,480 30.6 $ 119,318 30.4 $ 81,611 32.8 $ 106,412 32.8
========= ==== ========= ==== ========= ==== ========= ====
Certain amounts for the prior periods have been reclassified to conform with the current period presentation.
21
2000 Compared to 1999 (in thousands, except percent data)
This section compares current year operating results with both our
historical operating results for 1999 and with pro forma operating results for
1999. The pro forma operating results of 1999 exclude the operations of two of
the Company's subsidiaries, S.A. Argentina and Machinery, which were sold in the
fourth quarter of 1999. Pro forma operating results assume that the sales of
S.A. Argentina and Machinery occurred on January 1, 1999.
Total Revenues. Total revenues for 2000 decreased 33.7% to $260,092 from
$392,011 in 1999. This decrease in revenues is primarily attributable to the
sales of S.A. Argentina and Machinery.
Pro Forma Total Revenues. Total revenues for the year ended December 31,
2000 increased 4.6% to $260,092 from $248,553 for the year ended December 31,
1999. The increase in total revenues is partly due to an increase of $13,928 or
7.8% in rental revenues resulting from the continued expansion of our rental
fleet at existing locations. The increase in total revenues was mitigated by a
$3,055 or 5.6% decrease in sales of rental equipment during the year ended
December 31, 2000 compared with the year ended December 31, 1999. Total revenues
at locations open for more than one year increased 7.2% for the year ended
December 31, 2000 compared with the year ended December 31, 1999.
Gross Profit. Gross profit for 2000 decreased 30.7% to $96,330 or 37.0% of
total revenues from $139,052 or 35.5% of total revenues in 1999. This decrease
is primarily attributable to the sales of S.A. Argentina and Machinery.
Pro Forma Gross Profit. Gross profit for the year ended December 31, 2000
decreased 1.0% to $96,330 or 37.0% of total revenues from $97,345 or 39.2% of
total revenues for the year ended December 31, 1999. The decrease in gross
profit is primarily due to a decrease in gross profit margin resulting from
decreases in rental rates in response to competitive pressures during 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 2000 decreased 17.8% to $61,574 or 23.7% of total
revenues from $74,893 or 19.1% of total revenues in 1999. The decrease in
selling, general and administrative expenses is primarily attributable to the
sales of S.A. Argentina and Machinery.
Pro Forma Selling, General and Administrative Expenses. Selling, general
and administrative expenses for the year ended December 31, 2000 increased 8.9%
to $61,574 or 23.7% of total revenues from $56,555 or 22.8% of total revenues
for the year ended December 31, 1999. The increase in selling, general and
administrative expenses is primarily attributable to the allocation of increased
resources to support the continued expansion of our rental fleet at existing
locations.
Depreciation of Rental Equipment. Depreciation of rental equipment for 2000
decreased 18.9% to $44,724 or 17.2% of total revenues from $55,159 or 14.1% of
total revenues in 1999. The decrease was primarily due to the sales of S.A.
Argentina and Machinery.
Pro Forma Depreciation of Rental Equipment. Depreciation of rental
equipment for 2000 increased 9.6% to $44,724 or 17.2% of total revenues from
$40,821 or 16.4% of total revenues in 1999. The increase is due primarily to
increased investments in rental fleet at existing locations.
22
Other Depreciation and Amortization. Other depreciation and amortization
expense for 2000 decreased 7.9% to $9,884 or 3.8% of total revenues from $10,731
or 2.7% of total revenues in 1999. This decrease is primarily attributable to
the sales of S.A. Argentina and Machinery.
Pro Forma Other Depreciation and Amortization. Other depreciation and
amortization expense for the year ended December 31, 2000 increased 13.5% to
$9,884 or 3.8% of total revenues from $8,707 or 3.5% of total revenues for the
year ended December 31, 1999. The increase is due to increased investment in
non-rental equipment during the year 2000.
Interest Expense. Interest expense for 2000 decreased 16.2% to $33,456 from
$39,901 in 1999. This decrease is primarily attributable to the paydown of debt
with the proceeds of the sales of S.A. Argentina and Machinery.
Pro Forma Interest Expense. Interest expense for the year ended December
31, 2000 increased 17.4% to $33,456 from $28,508 for the year ended December 31,
1999. The increase is primarily attributable to increased borrowings to finance
the expansion of our rental fleet assets at existing locations and rate
increases on Neff's revolving credit facility.
Write-Down of Assets Held for Sale. Write-down of assets held for sale
represents a charge of $4,275 to write-down fleet assets primarily utilized by
the oil industry to estimated fair value during the second quarter of 2000. A
write-down of similar assets held for sale of $1, 444 was recorded during 1999.
Cost Incurred in Efforts to Sell the Company. We recorded a charge of
$4,282 during 2000 to record expenses related to consulting and legal fees
associated with efforts to sell Neff during 1999 and 2000.
1999 Compared to 1998 (in thousands, except percent data)
Total Revenues. Total revenues for 1999 increased 21.0% to $392,011 from
$324,090 in 1998. This growth in revenues was primarily attributable to revenues
generated by acquisitions.
Gross Profit. Gross profit for 1999 increased 26.0% to $139,052 or 35.5% of
total revenues from $110,423 or 34.1% of total revenues in 1998. This increase
was 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 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 in 1999 increased 24.1% to $74,893 or 19.1% of total
revenues from $60,347 or 18.6% of total revenues in 1998. The increase in
selling, general and administrative expenses was primarily attributable to the
increased regional and corporate personnel to support our continued revenue
growth.
Depreciation of Rental Equipment. Depreciation of rental equipment for 1999
decreased 2.1% to $55,159 or 14.1% of total revenues from $56,336 or 17.4% of
total revenues in 1998. The decrease was primarily due to a change in accounting
estimates relating to depreciation of rental equipment, offset by increased
investment in rental equipment by Neff during the year, prior to the sales of
Machinery and S.A. Argentina. The changes in estimates made in 1999 reduced
depreciation of rental equipment by $16,900.
23
Other Depreciation and Amortization. Other depreciation and amortization
expense for 1999 increased 21.5% to $10,731 or 2.7% of total revenues from
$8,833 or 2.7% of total revenues in 1998. 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 our expansion.
Officer Stock Option Compensation. Officer stock option expense was $0 for
1999 and $3,198 for 1998. The expense in 1998 represented changes in the
difference between the estimated market value of the shares to be issued to a
key employee under an option agreement and the exercise price for these shares.
Liquidity and Capital Resources
During 1998, we completed an initial public offering of our Class A Common
Stock (the "Offering") and the sale of $200 million of Senior Subordinated Notes
due 2008 (the "Senior Notes"). We used the proceeds from these offerings to
reduce indebtedness under our revolving credit facility, repay a $100 million
term loan, repay certain mortgages, redeem our Series A Cumulative Preferred
Stock, extend our debt maturities to reflect the long-term nature of our assets
and provide increased operational and financial flexibility to allow us to
pursue our growth strategy.
During 2000, our operating activities provided net cash flow of $44.0
million as compared to $44.0 million for 1999. This increase is primarily
attributable to the growth in our operations resulting from an increase in the
number of rental locations that we operate.
Net cash provided by (used in) investing activities was $(53.9) million for
2000 as compared to $1.6 million in the same period for the prior year. The
change in cash from investing activities was due to the sales of Neff's equity
interest in S.A. Argentina and Machinery in the fourth quarter of 1999, and
decreased sales of equipment in 2000.
Net cash provided by (used in) financing activities was $9.7 million for
2000 as compared to $(46.0) million for 1999. The net cash provided by financing
activities was primarily attributable to net borrowings made under our revolving
credit facility in 2000, compared to 1999, when we used the proceeds from the
sales of S.A. Argentina and Machinery to reduce outstanding debt.
Based upon current expectations, we believe that cash flow from operations,
together with amounts that may be borrowed under our revolving credit facility,
will be adequate for us to meet our capital requirements and pursue our business
strategy for the next 12 months.
Our credit facility contains financial covenants requiring us to maintain,
among other things, a debt to EBITDA ratio of 4.25:1 and an EBITDA to interest
expense ratio of 2.50:1. We were not in compliance with these financial
covenants as of December 31, 2000, resulting in a default under the credit
facility. Our lenders have waived this default through May 23, 2001. As part of
the waiver, Neff's total borrowing capability was lowered from $219.5 million to
$155.0 million during the term of the waiver. Unless this waiver is extended or
the default is permanently cured by an amendment to the credit agreement, we
will be in default under the credit agreement as of May 23, 2001. At that time
our lenders could have the right to take actions that could adversely impact our
liquidity, financial condition and results of operations, including accelerating
the maturity of amounts due under the credit facility, in which case we might
may not have sufficient liquidity to meet our obligations. Management is
currently in negotiations with our lenders to amend the financial covenants in
the credit facility and permanently cure the default in exchange for payment of
a fee and an increase in the interest rates charged under the credit facility.
We do not expect payment of this fee or the increase in the interest rate to
have a material effect on our financial condition or results of operations.
Although negotiations have not been concluded and we do not have firm
commitments from our lenders, management is confident that these amendments to
the credit facility will be finalized by or before May 23, 2001 and, therefore,
is not considering any other strategic alternatives to ensure we have sufficient
liquidity to meet our obligations. We expect our operations will continue to
produce free cash flow during 2001 and we intend to use all free cash flow to
repay outstanding debt on the credit facility during 2001. Subject to the need
to amend our Credit Facility, we believe we have adequate capital resources to
continue as a going concern.
24
Inflation and General Economic Conditions
Although we cannot accurately anticipate the effect of inflation on our
operations, we do not believe that inflation has had, or is likely in the
foreseeable future to have, a material impact on our operating results. Neff'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, our 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 for us under our variable
rate credit facilities.
Although much of our business is with customers in industries that are
cyclical in nature, management believes that certain characteristics of the
equipment rental industry and our operating strategies should help to mitigate
the effects of an economic downturn. These characteristics include (1) the
flexibility and low cost offered to customers by renting, which may be a more
attractive alternative to capital purchases; (2) our ability to redeploy
equipment during regional recessions; and (3) the diversity of our industry and
customer base.
Market Risk
Our financial instruments consist of cash, accounts receivable and fixed
rate debt and variable rate debt. Cash and accounts receivable are short term,
non-interest bearing instruments and are not subject to market risk.
We are exposed to market risks related to changes in interest rates.
Interest rate changes affect the fair market value of fixed rate debt
instruments 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, 2000, we had fixed rate debt of $198.8 million and variable
rate debt of $147.1 million. Holding debt levels constant, a one percentage
point increase in interest rates would decrease the fair market value of our
fixed rate debt by approximately $3.4 million and increase interest expense for
our variable rate debt by approximately $1.5 million.
New Accounting Pronouncements
Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"), was
issued by the Securities and Exchange Commission and became effective during the
year 2000. SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the Securities and
Exchange Commission. We have evaluated the relevant revenue recognition criteria
disclosed in SAB 101 and we believe that it should not have a material impact on
our financial position or our results of operations.
We are required to adopt Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), as amended by Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" ("SFAS 137") and amended by Statement
of Financial Accounting Standards No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" ("SFAS 138"). SFAS 133, as amended
by SFAS 137 and SFAS 138, is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity shall recognize all derivatives as either assets or liabilities
in the balance sheet and measure those instruments at fair value. We believe
that the adoption of SFAS 133 as amended by SFAS 137 and SFAS 138 should not
have a material impact on our financial position or our results of operations.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Financial Statements and Schedules
Page
Numbers
----------
Reports of Independent Certified Public Accountants...................................... 27
Consolidated Balance Sheets as of December 31, 2000 and 1999............................. 29
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998........................................................ 30
Consolidated Statements of Shareholders' Equity (Deficit) for
the years ended December 31, 2000, 1999 and 1998........................................ 31
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998........................................................ 32
Notes to Consolidated Financial Statements............................................... 33
SCHEDULES:
Report of Independent Certified Public Accountants........................................ 53
Schedule II-Valuation and Qualifying Accounts and Reserves............................... 54
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated
financial statements or notes thereto.
26
INDEPENDENT AUDITORS' REPORT
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, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 2000. 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 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, 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
for Sullair Argentina Sociedad Anonima, is based solely on the report of such
other auditors.
We conducted our audits 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. We believe that our audits and the report of
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,
2000 and 1999 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements for the year ended December
31, 2000 have been prepared assuming the Company will continue as a going
concern. As discussed in Note 1 to the consolidated financial statements, the
Company was in default under certain financial covenants contained in its
$219,500,000 revolving credit facility. As of December 31, 2000, $147,121,000
was outstanding under the facility. The Company's lenders have waived the
default through May 23, 2001. Unless this waiver is extended or the default
cured by an amendment to the revolving credit facility, the Company will be in
default subsequent to May 23, 2001. This situation raises substantial doubt
about the Company's ability to continue as a going concern. Management's plans
regarding these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
March 29, 2001
27
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
28
NEFF CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31,
--------------------------------
2000 1999
--------- ---------
ASSETS
Cash and cash equivalents ...................................................... $ 3,102 $ 3,374
Accounts receivable, net of allowance for doubtful accounts of
$3,323 in 2000 and $2,904 in 1999 .......................................... 42,341 53,740
Inventories .................................................................... 2,783 3,860
Rental equipment, net .......................................................... 303,863 285,863
Property and equipment, net .................................................... 28,803 25,638
Goodwill, net .................................................................. 85,696 88,008
Prepaid expenses and other assets .............................................. 8,379 11,223
--------- ---------
Total assets ..................................................... $ 474,967 $ 471,706
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable ....................................................... $ 18,029 $ 7,527
Accrued expenses ....................................................... 24,780 22,734
Credit facility ........................................................ 147,121 137,182
Senior subordinated notes .............................................. 198,818 198,670
Capitalized lease obligations .......................................... 456 742
Net deferred tax liability ............................................. - 643
--------- ---------
Total liabilities ................................................. 389,204 367,498
--------- ---------
Commitments and contingencies (note 12)
Stockholders' equity
Class A Common Stock; $.01 par value; 100,000 shares authorized;
16,065 shares issued and outstanding in 2000 and 1999 ................. 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 2000 and 1999 ...................................................... 51 51
Additional paid-in capital ............................................. 127,759 127,759
Accumulated deficit .................................................... (42,208) (23,763)
--------- ---------
Total stockholders' equity ........................................ 85,763 104,208
--------- ---------
Total liabilities and stockholders' equity ........................ $ 474,967 $ 471,706
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
29
NEFF CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Years Ended December 31,
---------------------------------------------
2000 1999 1998
---------- ---------- ----------
Revenues
Rental revenue ............................... $ 192,990 $ 222,862 $ 179,014
Equipment sales .............................. 51,179 121,865 108,352
Parts and service ............................ 15,923 47,284 36,724
---------- ---------- ----------
Total revenues ......................... 260,092 392,011 324,090
---------- ---------- ----------
Cost of revenues
Cost of equipment sold ....................... 43,660 100,871 83,783
Depreciation of rental equipment ............. 44,724 55,159 56,336
Maintenance of rental equipment .............. 64,883 66,763 49,858
Cost of parts and service .................... 10,495 30,166 23,690
---------- ---------- ----------
Total cost of revenues ................. 163,762 252,959 213,667
---------- ---------- ----------
Gross profit ......................................... 96,330 139,052 110,423
---------- ---------- ----------
Other operating expenses
Selling, general and administrative expenses.. 61,574 74,893 60,347
Other depreciation and amortization .......... 9,884 10,731 8,833
Write-down of assets held for sale ........... 4,272 1,444 -
Costs incurred in efforts to sell the company. 4,282 - -
Officer stock option compensation ............ - - 3,198
---------- ---------- ----------
Total other operating expenses ......... 80,012 87,068 72,378
---------- ---------- ----------
Income from operations .............................. 16,318 51,984 38,045
---------- ---------- ----------
Other expenses
Interest expense ............................. 33,456 39,901 32,677
Loss on sale of subsidiaries ................. - 422 -
Amortization of debt issue costs ............. 1,307 1,197 3,178
---------- ---------- ----------
Total other expenses ................... 34,763 41,520 35,855
---------- ---------- ----------
Income (loss) before income taxes, minority interest
and extraordinary item ............................... (18,445) 10,464 2,190
(Provision for) benefit from income taxes ............ - (3,877) 134
---------- ---------- ----------
Income (loss) before minority interest and
extraordinary item ................................... (18,445) 6,587 2,324
Minority interest .................................... - (1,733) (1,111)
---------- ---------- ----------
Income (loss) before extraordinary item .............. (18,445) 4,854 1,213
Extraordinary loss, net of income taxes ............. - - (2,675)
---------- ---------- ----------
Net income (loss) .................................... $ (18,445) $ 4,854 $ (1,462)
========== ========== ==========
Basic income (loss) per common share:
Income (loss) before extraordinary item .............. $ (0.87) $ 0.23 $ (0.23)
Extraordinary loss, net ............................. - - (0.15)
---------- ---------- ----------
Net income (loss) .................................... $ (0.87) $ 0.23 $ (0.38)
========== ========== ==========
Basic weighted average common shares outstanding ..... 21,165 21,165 17,213
========== ========== ==========
Diluted income (loss) per common share:
Income (loss) before extraordinary item .............. $ (0.87) $ 0.22 $ (0.23)
Extraordinary loss, net ............................. - - (0.15)
---------- ---------- ----------
Net income (loss)..................................... $ (0.87) $ 0.22 $ (0.38)
========== ========== ==========
Diluted weighted average common shares outstanding ... 21,165 21,887 17,213
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
30
NEFF CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 2000, 1999, and 1998
(in thousands)
Additional
Common Stock A Common Stock B Paid-in Accumulated
---------------- ---------------- --------- ------------
Shares Amount Shares Amount Capital Deficit Total
------- ------- ------- ------- --------- ------------ --------
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
Net loss .............................................. - - - - - (18,445) (18,445)
------- ------- ------- ------- --------- ------------ --------
Balance, December 31, 2000 ............................ 16,065 $ 161 5,100 $ 51 $ 127,759 $ (42,208) $ 85,763
======= ======= ======= ======= ========= ============ ========
The accompanying notes are an integral part of these consolidated financial statements.
31
NEFF CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,
----------------------------------------
2000 1999 1998
--------- ---------- --------
Cash Flows from Operating Activities
Net income (loss) .............................................................. $ (18,445) $ 4,854 $ (1,462)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities net of acquisitions
Depreciation and amortization .......................................... 55,915 67,087 68,347
Officer stock option compensation ...................................... - - 3,198
Gain on sale of equipment .............................................. (7,519) (20,994) (24,569)
Minority interest ...................................................... - 1,733 1,111
Loss on sale of subsidiaries ........................................... - 422 -
Extraordinary loss on debt extinguishment .............................. - - 4,280
Deferred income taxes .................................................. (643) 3,423 (510)
Write-down of assets held for sale .................................... 4,272 1,444 -
Change in operating assets and liabilities (net of acquisitions and sales)
Accounts receivable ............................................... (1,101) (18,739) (14,488)
Other assets ...................................................... (1,196) (5,288) (403)
Accounts payable and accrued expenses ............................ 12,696 9,513 7,192
--------- ---------- ---------
Net cash provided by operating activities .................... 43,979 43,455 42,696
--------- ---------- ---------
Cash Flows from Investing Activities
Purchases of equipment ......................................................... (109,578) (221,671) (199,198)
Proceeds from sale of equipment ................................................ 51,179 121,865 108,352
Proceeds from sale of subsidiaries ............................................. - 120,500 -
Purchases of property and equipment ............................................ (8,005) (2,803) (15,015)
S.A. Argentina earn-out payment ................................................ - (5,518) -
Collection of receivable from sale of subsidiary ............................... 12,500 - -
Cash paid for acquisitions ..................................................... - (10,750) (160,646)
--------- ---------- ---------
Net cash provided by (used in) investing activities .......... (53,904) 1,623 (266,507)
--------- ---------- ---------
Cash Flows from Financing Activities
Debt issue costs ............................................................... - (128) (12,277)
Net borrowings (repayments) under credit facility .............................. 9,939 (54,007) 29,364
Proceeds from issuance of senior subordinated notes ............................ - - 198,516
Proceeds from common stock offering ............................................ - - 85,730
Repayments under mortgage note ................................................. - - (13,400)
Repayments under capitalized lease obligations ................................. (286) (745) (833)
Repayments under term loan ..................................................... - - (49,916)
Net borrowings under notes payable ............................................. - 8,836 1,997
Redemption of Series A preferred stock ......................................... - - (13,915)
--------- ---------- ---------
Net cash provided by (used in) financing activities .......... 9,653 (46,044) 225,266
--------- ---------- ---------
Net increase (decrease) in cash and cash equivalents ........................... (272) (966) 1,455
Cash and cash equivalents, beginning of year ................................. 3,374 4,340 2,885
--------- ---------- ---------
Cash and cash equivalents, end of year ....................................... $ 3,102 $ 3,374 $ 4,340
========= ========== =========
The accompanying notes are an integral part of these consolidated financial statements.
32
NEFF CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1-GENERAL
Description of Business
Neff Corp. and its subsidiaries ("Neff" or 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 accounting principles generally accepted in the United States of America
("GAAP"). 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 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 of accounting. In connection with this purchase, goodwill of
approximately $40.8 million was recorded.
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 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 equity investment in S.A. Argentina was sold
in November 1999, and all unamortized goodwill associated with S.A. Argentina
was written off.
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
locations in Florida and 3 locations in California to the Company's operations.
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.
33
Revenues on an unaudited pro forma basis would have increased by $48.2
million during 1998 had the acquisitions of Richbourg, S.A. Argentina and the
Other 1998 Acquisitions occurred on January 1, 1998. Net loss and the net loss
per share (diluted) on an unaudited pro forma basis would have decreased by $1.8
million and $0.10 during 1998, respectively, had the acquisitions of Richbourg,
S.A. Argentina and the Other 1998 Acquisitions occurred on January 1, 1998.
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 locations in Colorado, 1
location in Oregon and 1 location in Washington to the Company's operations.
These transactions were accounted for under the purchase method of accounting
and goodwill of approximately $8.0 million was recorded in connection with these
acquisitions. The pro forma effects of these 1999 acquisitions on the Company's
results of operations are not presented because they are not considered
material.
Costs Incurred in Efforts to Sell the Company.
The Company expensed $4.3 million of costs during the year ended December
31, 2000 related primarily to consulting and legal fees associated with the
efforts to sell the Company during 1999 and 2000.
Sales of Subsidiaries
On November 18, 1999, the Company completed the sale of its equity interest
in S.A. Argentina. The Company received $42.5 million, of which $12.5 million
was a receivable that was paid in February 2000. The Company recorded a loss on
the sale of $4.2 million.
S.A. Argentina's results from operations through November 18, 1999 are
included in the accompanying consolidated financial statements. Below is a
summary of S.A. Argentina's revenues and net income (in thousands):
1999 1998
------- -------
Revenues ..................... $47,604 $27,138
======= =======
Net Income ................... $ 3,218 $ 3,176
======= =======
On December 17, 1999, the Company completed the sale of Neff Machinery,
Inc. ("Machinery"), a wholly-owned subsidiary. The Company received $90.5
million for the outstanding capital stock of Machinery and recorded a gain of
$3.8 million on the sale. 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 Machinery at the date of closing.
34
The Company believes 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 (see Note 12). 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. Machinery's
results from operations through December 17, 1999 are included in the
accompanying consolidated financial statements. Below is a summary of
Machinery's revenues and net income (in thousands):
1999 1998
------- -------
Revenues ..................... $95,996 $93,328
======= =======
Net Income ................... $ 5,100 $ 3,020
======= =======
Going Concern
The accompanying consolidated financial statements for the year ended
December 31, 2000 have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As described in Note 5, as of December 31, 2000,
the Company was in default under certain financial covenants contained in its
revolving credit facility (the "Credit Facility"). The Company's lenders have
waived this default through May 23, 2001. As part of the waiver, Neff's total
borrowing capability was lowered from $219.5 million to $155.0 million during
the term of the waiver. Management is currently working with the lenders to
permanently amend the covenants for the remainder of the term of the Credit
Facility. Unless the default is permanently cured or the waiver is extended the
possibility exists that the Company will be in default under the terms of the
Credit Facility which may raise doubts as to the Company's ability to continue
as a going concern. Although negotiations have not been concluded and the
Company does not have firm commitments from its lenders to amend the facility,
the Company is confident that the amendments to the Credit Facility will be
satisfactorily completed by May 23, 2001. If the amendments are obtained,
Management believes the Company will have adequate capital resources to continue
as a going concern.
NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with GAAP 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 as they are earned over the rental period. Sales of
equipment and parts are recognized at the time of shipment or, if the equipment
is out on lease, at the time a sales contract is finalized. Equipment may 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.
35
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
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 original cost less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimate useful
life of the related equipment (generally two to eight years with an estimated
20% residual value). For certain equipment held by Machinery, depreciation was
matched against the related rental income earned from such equipment by
computing depreciation on individual pieces of equipment at the rate of 50% and
80% for 1999 and 1998, respectively, of the rental income earned. Machinery was
sold in the fourth quarter of 1999, and this depreciation method was not used by
the Company during 2000. Routine repairs and maintenance are expensed as
incurred; improvements are capitalized at cost.
The Company routinely reviews the assumptions utilized in computing rates
of depreciation of its rental equipment. Changes to the assumptions (such as the
length of service lives and/or the amount of 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, the Company made certain changes to its depreciation
assumptions to recognize longer estimated service lives and increased the
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 net income by
approximately $10.0 million, or $0.46, per diluted common share for the year
ended December 31, 1999. No changes to depreciation assumptions were made by the
Company during 2000.
Accumulated depreciation at December 31, 2000 and 1999 for the Company's
rental fleet was approximately $93.9 million and $74.1 million, respectively.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is recorded using 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.
36
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 other depreciation and amortization expense in the
consolidated statements of operations.
Goodwill
Goodwill from acquisitions made by the Company is being amortized over 40
years using the straight-line method. Accumulated amortization at December 31,
2000 and 1999 for goodwill was approximately $6.0 million and $3.7 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.
Accumulated amortization at December 31, 2000 and 1999 for debt issue costs was
$2.4 and $1.3 million, respectively.
Stock Options
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), 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 such changes. The
Company adopted the disclosure provisions of SFAS 123 on January 1, 1996, but
has continued 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, "Accounting for Stock Issued to Employees" ("APB 25").
Impairment of Long-lived Assets and Intangibles
The Company reviews long-lived assets and intangibles for impairment
whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable. In accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"), during the
second quarter of 2000, based upon a comprehensive review of the Company's
long-lived assets, the Company recorded a non-cash charge of $4.3 million
primarily to write-down rental assets held for sale which were utilized by the
oil industry to estimated fair value. The Company recorded a non-cash charge of
$1.4 million in 1999 related to a write-down of similar assets which were held
for sale.
New Accounting Pronouncements
Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"), was
issued by the Securities and Exchange Commission and became effective for the
Company during the year 2000. SAB 101 provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
Securities and Exchange Commission. The Company has evaluated the relevant
revenue recognition criteria disclosed in SAB 101 and believes that it should
not have a material impact on its financial position or results of operations.
37
The Company is required to adopt Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137") and
further amended by Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities"
("SFAS 138"). SFAS 133, as amended by SFAS 137 and SFAS 138, is effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS 133
establishes accounting and reporting standards for derivative instruments
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires an entity to recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. The Company believes that the adoption of SFAS 133 as amended
by SFAS 137 and SFAS 138 should not have a material impact on its financial
position or results of operations.
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
customers' 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.
NOTE 4-PROPERTY AND EQUIPMENT
Property and equipment consists of the following (dollars in thousands):
December 31, Estimated
----------------------------- Useful Lives
2000 1999 (in Years)
----------- ----------- -----------
Land ................................. $ 113 $ 174 -
Buildings and improvements ............ 8,672 5,976 2-30
Office equipment ...................... 6,014 5,125 2-7
Service equipment and vehicles ........ 30,689 24,024 2-5
Shop equipment ........................ 2,001 1,643 7
Capitalized lease equipment ........... 1,650 2,040 3-5
----------- ----------- -----------
49,139 38,982
Less accumulated depreciation ........ (20,336) (13,344)
----------- -----------
$ 28,803 $ 25,638
=========== ===========
38
The Company has entered into lease arrangements for certain property and
equipment, which are classified as capital leases. As of December 31, 2000,
future minimum lease payments under capitalized lease obligations are as follows
(in thousands, except percent data):
2001 ...................................... $ 173
2002 ...................................... 49
Thereafter ...................................... -
-----------
Total future minimum lease payments .............. 222
Less amounts representing interest (6.00% to 13.5%)... (16)
-----------
Present value of net future minimum lease payments.... $ 206
===========
NOTE 5-NOTES PAYABLE AND DEBT
Notes payable and debt consist of the following (in thousands, except
percent data):
December 31,
--------------------------------------
2000 1999
-------------- ---------------
$219.5 million Revolving Credit Facility with interest ranging from the Lender's
Prime Rate plus 1.25% to LIBOR plus up to 2.25%. $ 147,121 $ 137,182
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 $1,182 and
$1,330, respectively. 98,818 98,670
-------------- ---------------
$ 345,939 $ 335,852
============== ===============
The Company's maximum availability under the Revolving Credit Facility (the
"Credit Facility") is based upon eligible accounts receivable, rental fleet and
inventory amounts. The interest rates on balances outstanding under the Credit
Facility vary based upon the leverage ratio maintained by the Company. The
Credit Facility expires in April 2003. The Company is charged a commitment fee
on the aggregated daily unused balance of the Credit Facility which varies
between 0.2% and 0.5% based on the leverage ratio maintained by the Company.
Subsequent to the sale of S.A. Argentina and Machinery, during the fourth
quarter of 1999 (see Note 1), the Credit Facility was decreased to $219.5
million from $310 million.
39
The 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 restrict the
payment of dividends by the Company.
In connection with the Richbourg acquisition (see Note 1), the Company
obtained 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 an 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 Company's
mortgage notes payable and reduce the amount outstanding under the Credit
Facility.
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 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. The May and December Notes contain
certain restrictive covenants, which among other things, restrict the payment of
dividends by the Company.
During 1998 the Company recorded extraordinary losses of approximately $2.7
million net of related income taxes, from the write-off of debt issue costs
associated with the early extinguishment of debt.
The Company was not in compliance with the consolidated interest coverage
ratio and leverage ratio covenants under the Credit Facility as of December 31,
2000, resulting in a default under the Credit Facility. The Company's lenders
have waived this default through May 23, 2001. As part of the waiver, the
Company's total borrowing capability was lowered from $219.5 million to $155.0
million during the term of the waiver. Management is currently working with the
lenders to permanently amend the covenants for the remainder of the term of the
Credit Facility. Unless the default is permanently cured or the waiver is
extended the possibility exists that the Company will be in default under the
terms of the Credit Facility which may raise doubts as to the Company's ability
to continue as a going concern. Although negotiations have not been concluded
and the Company does not have firm commitments from its lenders to amend the
Credit Facility, the Company is confident that the amendments to the Credit
Facility will be satisfactorily completed by May 23, 2001. If the amendments are
obtained, Management believes the Company will have adequate capital resources
to continue as a going concern.
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") to General Electric Capital
Corporation ("GE Capital") for a purchase price of $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 initially payable in cash or in
additional shares of Series A.
40
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 accreted to its fair value on a prospective basis until
the mandatory redemption date, which was in December 2000. Through December 31,
1996, accretion to the Series A and the Redeemable Warrant equaled approximately
$0.5 million and $1.9 million, respectively.
During December 1996, in connection with the amendment and restatement of
the Company's Credit Facility, the Company and GE Capital entered into certain
agreements, providing for the exercise of the Redeemable Warrant in full and
simultaneous exchange of the shares of common stock issued under the Redeemable
Warrant 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.
In a separate transaction, the Company issued 800,000 shares of Series C
Cumulative Convertible Redeemable Preferred Stock ("Series C") to GE Capital in
exchange for the purchase price of $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 Special 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. Also in May 1998, the Company completed the sale of the May Notes and
received net proceeds of approximately $97 million. The Company redeemed all
outstanding Series A with a portion of the proceeds from the May Notes during
1998.
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 million was recognized in 1998. 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.
41
In May 1996, the Company 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 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 million shares of Class A Common Stock are
reserved for issuance under the 1999 ISO Plan.
The exercise price of incentive stock options granted under the 1999 and
1998 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 1999 and 1998
ISO Plans. No options were granted under the 1999 and 1998 ISO Plans during
2000.
42
The following table summarizes stock option activity under the ISO Plans,
(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 ........................... 61 939 $ 9.39
--------------- ------------- ----------------------
Authorized ............................................. 1,000 - -
Granted ................................................ - - -
Forfeited .............................................. 105 (105) $ 9.49
Expired ................................................ - - -
--------------- ------------- ----------------------
Balance at December 31, 1999 .......................... 1,166 834 $ 9.38
--------------- ------------- ----------------------
Authorized ............................................. - - -
Granted ................................................ - - $ -
Forfeited .............................................. 76 (76) $ 10.05
Expired ................................................ - - -
--------------- ------------- ----------------------
Balance at December 31, 2000 ........................... 1,242 758 $ 9.31
=============== ============= ======================
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 ...................... 453 $ 6.19 8.0 - N/A
$9.34-14.00 ..................... 305 $ 13.94 7.4 100 $ 14.00
--------------- ------------------ --------------- --------- -------------------
758 $ 9.31 7.7
=============== ================== ===============
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.
43
The following table sets forth pro forma information, for the year ended
December 31, 1998, assuming that stock options granted by the Company had been
accounted for under the fair value method (in thousands, except per share data):
Pro forma net loss ................ $ (1,397)
========
Pro forma loss per common share:
Basic .......................... $ (0.38)
========
Diluted .......................... $ (0.38)
========
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.
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
Class A Common 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's are 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, 2000, the Company had
0.1 million Phantom Shares granted and outstanding with assigned per share
values ranging from of $9 to $11.25, vesting over three to five years.
Approximately $0.1, $0.3 and $0.1 million of compensation expense was recorded
for the years ended December 31, 2000, 1999 and 1998, respectively.
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 $0.6
million, $0.8 million and $0.6 million to the 401(k) Plan for the years ended
December 31, 2000, 1999 and 1998, respectively.
44
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,
------------------------------------
2000 1999 1998
-------- -------- --------
Current ........................... $ (643) $ (454) $ (376)
Deffered ........................... 643 (3,423) 510
-------- -------- --------
Total .............................. $ - $ (3,877) $ 134
======== ======== ========
The following table summarizes the tax effects comprising the Company's net
deferred tax assets and liabilities (in thousands):
December 31,
------------------------------
2000 1999
---------- ----------
Deferred Tax Assets
Net operating loss carryforwards ..................... $ 28,047 $ 10,564
Alternative minimum tax credits ...................... 874 1,039
Deferred stock option compensation ................... 2,849 2,849
Intangible assets, allowance for bad debts and other.. 1,492 2,507
---------- ----------
Total deferred tax assets .................... 33,262 16,959
Valuation allowance .................................. (6,242) --
Deferred Tax Liabilities .....................................
Depreciation ......................................... (27,020) (17,602)
---------- ----------
Net Deferred Tax Liability ................................... $ - $ (643)
========== ==========
As of December 31, 2000 and 1999, the Company had net operating loss
carryforwards for federal and state income tax purposes of approximately $70.9
million and $27.8 million, respectively, expiring through 2020 (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 a 1999 acquisition). Such acquired 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 carrying values 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. A valuation allowance has
been established for the entire balance of the net deferred tax assets at
December 31, 2000 due to the uncertainty regarding the Company's ability to
generate future taxable income sufficient to utilize the net operating loss
carryforwards.
45
The following table summarizes the differences between the statutory
federal income tax rate and the Company's effective income tax rate (dollars in
thousands, except percent data):
For the Years Ended December 31,
------------------------------------------------------------------
2000 1999 1998
-------------------- --------------------- ------------------
Amt % Amt % Amt %
------- ----- ------- ----- ------- -----
(Provision) benefit at statutory federal
income tax rate ......................................... $ 6,263 34.0 $ (3,558) 34.0 $ (745) 34.0
State income tax, net of federal income
tax benefit ............................................. 471 2.6 (410) 3.9 - -
Change in valuation allowance ............................... (6,242) (33.9) 900 (8.6) 468 (21.4)
Non-deductible expenses ..................................... (492) (2.7) (650) 6.2 (467) 21.3
Foreign subsidiary .......................................... - - 888 (8.5) 831 (37.9)
Other ....................................................... - - (1,047) 10.0 47 (2.1)
-------- ----- --------- ----- ----- -------
(Provision for) benefit from income taxes ................... $ - - $ (3,877) 37.0 $ 134 (6.1)
======== ===== ========= ===== ===== =======
46
NOTE 10-EARNINGS PER SHARE
For the years ended December 31, 2000, 1999 and 1998, 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,
---------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
Net income (loss) ...................................... $ (18,445) $ 4,854 $ (1,462)
Deduct:
Preferred stock dividend ....................... - - (1,010)
Accretion of preferred stock ................... - - (4,093)
--------------- --------------- ---------------
Net income (loss) basic and diluted .................... $ (18,445) $ 4,854 $ (6,565)
=============== ============== ===============
Number of shares:
Weighted average common shares outstanding-basic 21,165 21,165 17,213
Employee stock options (1) ..................... - 722 -
--------------- -------------- ---------------
Weighted average common shares outstanding-diluted ... 21,165 21,887 17,213
=============== ============== ===============
Net income (loss) per common share-basic ............... $ (0.87) $ 0.23 $ (0.38)
=============== ============== ===============
Net income (loss) per common share-diluted ............. $ (0.87) $ 0.22 $ (0.38)
=============== ============== ===============
(1) The incremental shares resulting from the assumed exercise of options
for the year ended 2000 and 1998 would be antidilutive and are therefore,
excluded from the computation of diluted loss per share.
NOTE 11-FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair market value of financial instruments held by the Company at
December 31, 2000 is 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 of such financial instruments.
The fair value of the Company's Credit Facility is assumed to be equal to
its carrying value, as the interest rates approximate market rates. At December
31, 2000 and 1999 approximately $147.1 million and $137.2 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 $198.8 million and $198.7 million, at December 31, 2000
and 1999, respectively. The fair value of the Company's Senior Subordinated
Notes as of the same dates was estimated to be $90.0 million and $188.7 million,
respectively.
47
NOTE 12-COMMITMENTS AND CONTINGENCIES
The Company, the members of its Board of Directors, two of its principal
stockholders and United Rentals, Inc. ("United") are defendants in at least nine
lawsuits filed in the Delaware Court of Chancery. Five of the suits were filed
on January 3, 2001, two were filed on January 4, 2001 and two were filed on
January 5, 2001. All of the suits were filed after the Company announced that it
had received a proposal from United to acquire all of the outstanding shares of
its Class A common stock held by the public. The plaintiffs in the suits are
stockholders of the Company who purport to bring the suits as class actions on
behalf of all persons, other than the defendants, who own the Company's Class A
Common Stock. The complaints allege, among other things, that certain members of
the Board of Directors, GE Capital and Santos Fund I,L.P. have breached their
fiduciary duties to the public shareholders and engaged in self-dealing in
negotiating the terms of the United proposal. The plaintiffs seek, among other
things, injunctive relief and damages. The Company has not yet responded to the
complaints. On February 26, 2001, the Company announced that the United proposal
had expired and negotiations with United had terminated.
On December 17, 1999, the Company completed the sale of Machinery, a
wholly-owned subsidiary of Neff Corp. The Company received $90.5 million and
recorded a gain on the sale of $3.8 million. The Machinery sale agreement (the
"Agreement") provides for a post-closing purchase price adjustment based on the
difference between the net worth of Machinery as of June 30, 1999 (the date of a
pro forma balance sheet prepared in advance of the execution of the Agreement)
and the closing date (on the basis of a balance sheet prepared after closing).
The Company takes the position that this provision was designed in general to
provide an upward adjustment in the purchase price based on any increase in
Machinery's retained earnings during the period from June 30, 1999 to the
closing date.
Following preparation of a closing date balance sheet, the purchaser told
the Company that the Company owed the purchasers an adjustment payment of $20.3
million. The Company responded by informing the purchaser that the purchaser
owed it additional consideration of $8.8 million. In its response, the Company
noted that Machinery had been profitable during the period between June 30, 1999
and the closing date. In fact, a significant portion of the additional
consideration the Company claimed it was owed is attributable to Machinery's
earnings during this period. The Company believes that the difference between
its position and the purchaser is generally the result of a difference in
contract interpretation.
The Company's position is that the Agreement requires all of Machinery's
assets and liabilities to be valued, for purposes of the closing date balance
sheet, using the same standards used to prepare the June 30, 1999 pro forma
balance sheet. The purchaser's position is that the Agreement allows many of
Machinery's assets and liabilities to be valued, for purposes of the closing
date balance sheet, at the lower of book value or market, irrespective of the
valuation standards used to prepare the June 30, 1999 pro forma balance sheet.
The largest monetary dispute concerns Machinery's rental fleet. The book
value (cost less accumulated depreciation) of the rental fleet as of the closing
was approximately $50.5 million. The gross book value of the rental fleet was
approximately $63.7 million. The Company's position is that Machinery's rental
fleet should be measured on the closing date balance sheet at its book value,
consistent with the Company's historical financial statements and the June 30,
1999 pro forma balance sheet. The purchaser argues that Machinery's rental fleet
as of the closing date should be measured at the lower of book value and market,
which the purchaser maintains is approximately $14.6 million lower than the
Company's valuation of the rental fleet under GAAP.The Company also disputes the
market values assigned by the purchaser to the rental fleet.
48
The next largest item in dispute between the Company and the purchaser
relates to the treatment of floor plan financing programs with equipment
manufacturers. The purchaser assumed approximately $3 million of floor plan
liabilities as of the closing and included those liabilities on the closing date
balance sheet prepared by the purchaser. Floor plan financing was not included
on the June 30, 1999 pro forma balance sheet. As of June 30, 1999, the amount of
the floor plan financing was approximately $6 million.
The Company maintains that this debt was erroneously omitted from the June
30, 1999 pro forma balance sheet and maintains that the June 30, 1999 pro forma
balance sheet should be corrected accordingly. The purchaser opposes this
adjustment on the grounds that the Agreement does not expressly contemplate
adjustments to the pro forma balance sheet. The purchaser also maintains that
floor plan financing was properly omitted from the June 30, 1999 pro forma
balance sheet.
The balance of the difference between the Company's and the purchaser's
claims relates to the following items: (1) The closing date balance sheet
prepared by the purchaser includes a reserve for bad debts as of the closing
date. The Company maintains that the magnitude of the purchaser's proposed bad
debt reserve is higher than appropriate under GAAP. The difference between the
Company's position on the issue and the purchaser's position is approximately
$2.4 million; (2) The purchaser contends that Machinery's real estate should be
valued on the closing date balance sheet at the lower of book value or market.
The Company maintains that, under GAAP, Machinery's real estate should be stated
at book value unless assets are impaired, in which case the assets should be
written down to fair market value. The Company further maintains that the assets
are not impaired. The difference between the Company's position on this issue
and the purchaser's position is approximately $2.3 million; and (3) The
purchaser has written down a portion of Machinery's parts inventory for parts
it claims are inactive or are obsolete. The Company maintains that the write
down is inappropriate because the parts are included on the "active" parts
inventory lists of their respective manufacturers as of December 31, 1999,
and are required in many cases to be stocked pursuant to agreements with
those manufacturers. The difference between the Company's position on this issue
and the purchaser's position is approximately $2.1 million.
On May 5, 2000, the Company filed suit in Florida state court, seeking,
inter alia, a declaration that the Agreement as written requires that the
inventory be valued as of the closing in accordance with GAAP applied on a basis
consistent with the Company's historical financial statements and the June
30,1999 pro forma balance sheet. In the alternative, the Company sought to have
the Agreement reformed to so require. Neff Corp. v. Nortrax Equipment Co. -
Southeast, L.L.C., Case No. 00-11524 CA01 (Circuit Court of the 11th Judicial
Circuit in and for Miami-Dade County, Florida). On or about May 25, 2000, the
purchaser filed a motion to stay the litigation and compel arbitration. The
parties recently filed a stipulation in which they have agreed that all disputes
pertaining to the closing balance sheet and the June 30, 1999 pro forma balance
sheet will be resolved by an internationally recognized firm of independent
public accountants ( the "Accounting Firm") to be selected by the parties. The
Accounting Firm will, acting as arbitrators in accordance with the Federal
Arbitration Act and the terms of the Agreement, determine whether and to what
extent the closing net asset value of Machinery derived from the closing balance
sheet requires adjustment and whether the Agreement and the June 30,1999 pro
forma balance sheet should be reformed. Pursuant to the Agreement, the
Accounting Firm shall refer to a nationally recognized firm of personal property
appraisers selected by the parties, or to a real estate appraiser selected by
the parties, those items, if any, that it determines are to be valued at market.
49
The Company is also a party to pending legal proceedings arising in the
ordinary course of business. While the results of such proceedings cannot be
predicted with certainty, the Company does not believe any of these matters are
material to its financial condition or results of operations.
NOTE 13-RELATED PARTY TRANSACTIONS AND OTHER COMMITMENTS
During 2000, 1999, and 1998 revenues from affiliated companies amounted to
approximately $2.9 million, $4.6 million, and $2.2 million, respectively.
Operating Leases
During 2000, 1999 and 1998 rental expense under operating lease
arrangements amounted to approximately $12.6 million, $7.3 million, and $4.5
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, 2000, future minimum rental payments
under noncancelable operating lease arrangements are as follows for the years
ending December 31 (in thousands):
2001 ............................ $ 15,446
2002 ............................ 15,119
2003 ............................ 12,551
2004 ............................ 7,537
2005 ............................ 3,716
Thereafter ......................... 5,486
-------------
$ 59,855
=============
50
NOTE 14-SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the Years Ended
December 31,
---------------------------------------
2000 1999 1998
(in thousands)
Supplemental Disclosure of Cash Flow Information --------- --------- ---------
Cash paid for interest ....................................... $ 30,896 $ 41,353 $ 30,696
========= ========= =========
Cash paid for income taxes ................................... $ 68 $ 1,584 $ 786
========= ========= =========
Cash paid for Acquisitions (note 1):
Net assets acquired, net of cash ........................... $ - $ 2,787 $ 91,546
Goodwill .................................................... - 7,963 69,100
--------- --------- ---------
Cash Paid for acquisitions ................................... $ - $ 10,750 $ 160,646
========= ========= =========
NOTE 15-SUMMARY OF QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
A summary of the quarterly operating results during 2000 and 1999 is as
follows (in thousands except per share data):
2000
---------------------------------------------------------
1st 2nd 3rd 4th
---------- ---------- ---------- -----------
Revenues .......................................... $ 59,116 $ 62,145 $ 72,974 $ 65,857
Gross Profit ...................................... 21,731 23,610 28,785 22,204
Net income (loss) ................................. $ (3,767) $ (6,919) $ 1,909 $ (9,668)
========== ========== ========== ===========
Earnings per common share data - Basic and Diluted:
Net income (loss) ................................. $ (0.18) $ (0.33) $ 0.09 $ (0.46)
========== ========== ========== ===========
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 common share data -Basic:
Net income (loss) ................................. $ 0.03 $ 0.20 $ 0.02 $ (0.02)
========== ========== ========== ===========
Earnings per common share data -Diluted:
Net income (loss) ................................. $ 0.03 $ 0.19 $ 0.02 $ (0.02)
========== ========== ========== ===========
51
Certain amounts have been reclassified for comparative purposes. During the
fourth quarter of 2000 the tax (provision) benefit previously reported on Form
10-Q for the first, second and third quarters of 2000, was written off due to
uncertainty regarding the realization of the net tax benefit.
NOTE 16-SEGMENT INFORMATION
The Company has historically operated three segments: Neff Rental, Inc.
("Rental"), 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).
52
INDEPENDENT AUDITOR'S REPORT
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, 2000 and 1999 and for each of
the three years in the period ended December 31, 2000, and have issued our
report thereon dated March 29, 2001; such financial statements and report are
included elsewhere in your 2000 Annual Report to Stockholders on Form 10-K. Our
audits also included the financial statement schedule of the Company 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 consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
March 29, 2001
53
SCHEDULE II
NEFF CORP.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
Balance Charged to Balance
at Beginning Costs and at End
of Period Expenses Other Deductions of Period
------------ ------------- ---------- ------------- --------------
Year ended December 31, 2000:
Allowance for doubtful accounts .......................... $ 2,904 $ 2,795 $ - $ (2,376) $ 3,323
======== ======== ======== ========= ========
Deferred tax valuation allowance ......................... $ - $ 6,242 $ - $ - $ 6,242
======== ======== ======== ========= ========
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
======== ======== ======== ========= ========
54
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 our
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 our
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 BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this Item 12 will be contained in our
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 our
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.
55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(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 26.
2. Financial Statements Schedules.
The following financial statement schedules are filed with this Annual
Report on Form 10-K:
See Index to Financial Statements and Schedules on Page 26.
3. Exhibits.
Information with respect to this item is contained in Item 14(c) hereof.
(b) Reports on Form 8-K
During the last quarter of the period covered by this Annual Report, the
following current Reports on Form 8-K were filed:
Current Report on Form 8-K/A filed on November 27, 2000, amending Item 2
to the Current Report on Form 8-K filed on June 30, 2000.
(c) Exhibits
Number Description
10.1 Sixth Amendment dated as of December 15, 2000 to
Amended and Restated Credit Agreement, dated as
of May 1, 1998, by and among Neff Corp., Neff
Rental, Inc., Various Lenders, and Bankers Trust
Company, as Agent.
10.2 Waiver dated as of February 12, 2001 to Amended and
Restated Credit Agreement, dated as of May 1, 1998,
by and among Neff Corp., Neff Rental, Inc., Various
Lenders and Bankers Trust Company, as Agent.
10.3 Waiver dated as of March 29, 2001 to Amended and
Restated Credit Agreement, dated as of May 1, 1998,
by and among Neff Corp., Neff Rental, Inc., Various
Lenders, and Bankers Trust Company, as Agent.
56
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 30, 2001 /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/ Peter G. Gladis
- ----------------------- President,
Peter G. Gladis Chief Executive Officer, Director March 30, 2001
/s/ Mark H. Irion Chief Financial Officer March 30, 2001
- -----------------------
Mark H. Irion
/s/ Jorge Mas Director March 30, 2001
- -----------------------
Jorge Mas
/s/ Arthur B. Laffer Director March 30, 2001
- -----------------------
Arthur B. Laffer
/s/ Joel-Tomas Citron Director March 30, 2001
- -----------------------
Joel-Tomas Citron
/s/ Juan Carlos Mas Director March 30, 2001
- -----------------------
Juan Carlos Mas
/s/ Jose Ramon Mas Director March 30, 2001
- -----------------------
Jose Ramon Mas
/s/ Michael Markbreiter Director March 30, 2001
- -----------------------
Michael Markbreiter
/s/ Paul E. Dean Director March 30, 2001
- -----------------------
Paul E. Dean
57
EXHIBITS
EXHIBIT 10.1
SIXTH AMENDMENT
SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
December 15, 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 Amendment, the parties
hereto agree as follows;
NOW, THEREFORE, it is agreed:
1. Section 9.08 of the Credit Agreement is hereby amended by (i) deleting
the part of the chart appearing therein (including the corresponding ratios)
from "December 31, 2000" to and including "December 31, 2001" and (ii) inserting
in lieu of the part so deleted the following new chart (including the
corresponding ratios):
December 31, 2000 2.50:1.00
March 31, 2001 2.50:1.00
June 30, 2001 2.50:1.00
September 30, 2001 2.50:1.00
December 31, 2001 2.50:1.00
2. Section 9.09 of the Credit Agreement is hereby amended by deleting the
chart appearing therein and inserting the following new chart in lieu thereof:
January 1, 2000
through and including
December 30, 2000 4.50:1.00
December 31, 2000
through and including
June 29, 2001 4.25:1.00
June 30, 2001
through and including
December 30, 2001 4.00:1.00
December 31, 2001
through and including March 30, 2002 3.75:1.00
March 31, 2002 and thereafter 3.50:1.00
Notwithstanding anything to the contrary contained above in this Section
9.09, from and after the repurchase of any outstanding Senior Subordinated Notes
by the Company as permitted by Section 9.10, the Company will not permit the
Leverage Ratio at any time to be greater than 3.50:1.00.
3. Section 9.10 of the Credit Agreement is hereby amended by deleting
sub-clause (A) of the proviso of clause (i) thereof and inserting the following
new sub-clause (A) in lieu thereof:
(A) the Company may repurchase outstanding Senior Subordinated Notes so
long as (w) no Default or Event of Default then exists or would result
therefrom, (x) the Leverage Ratio is less than 3.50:1.00 at the time of any such
repurchase and after giving effect thereto, (y) the Total Unutilized Commitment
is at least $20,000,000 at the time of any such repurchase and after giving
effect thereto and the Company has Borrowing Base capacity to utilize at least
$20,000,000 of the Total Unutilized Commitment based on the most recently
delivered Borrowing Base Certificate and (z) the aggregate amount expended in
respect of all such repurchases does not exceed $20,000,000 (exclusive of
amounts paid in respect of regularly accrued interest) and.
4. In order to induce the Lenders to enter into this Amendment, each
Borrower hereby represents and warrants that (i) no Default or Event of Default
exists as of the Sixth Amendment Effective Date (as defined below), both before
and after giving effect to this Amendment, and (ii) on the Sixth Amendment
Effective Date, both before and after giving effect to this Amendment, all
representations and warranties contained in the Credit Agreement and in the
other Credit Documents are true and correct in all material respects.
5. This Amendment shall become effective on the date (the "Sixth Amendment
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 December 15, 2000, an amendment fee equal to 1/8 of 1% of such
Lenders' Revolving Loan Commitment at such time.
6. This Amendment 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.
7. This Amendment 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.
8. THIS Amendment AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.
* * *
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment 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:
LASALLE BUSINESS CREDIT, INC.
By:________________________________________________
Title:
CIT GROUP/BUSINESS CREDIT, INC.
By:________________________________________________
IBJ SCHRODER BUSINESS CREDIT
CORPORATION
By:________________________________________________
Title:
NATIONAL BANK OF CANADA
By:________________________________________________
Title:
SUMMIT BANK
By:________________________________________________
Title:
FIRST UNION NATIONAL BANK
By:________________________________________________
Title:
UNION BANK OF CALIFORNIA N.A.
By:_______________________________________________
Title:
BANK ATLANTIC
By:_______________________________________________
Title:
FLEET CAPITAL
By:_______________________________________________
Title:
BANK POLSKA KASA OPIEKI S.A.
By:_______________________________________________
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:_______________________________________________
Title:
GMAC COMMERCIAL CREDIT LLC
By:_______________________________________________
Title:
FLEET NATIONAL BANK
By:_______________________________________________
Title:
EXHIBIT 10.2
WAIVER
WAIVER TO CREDIT AGREEMENT (this "Waiver"), dated as of February 12, 2001,
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 until March 30, 2001 any Event of Default that
has arisen or may arise under the Credit Agreement solely as a result of the
failure of the Company to comply with (i) Section 9.08 of the Credit Agreement
for the Test Period ended on December 31, 2000 and (ii) Section 9.09 of the
Credit Agreement for the period from December 31, 2000 through and including
March 30, 2001; it being understood and agreed, however, that the foregoing
Events of Default shall automatically be reinstated on March 31, 2001 at which
time the waivers set forth in this Section 1 shall cease to have any further
force and effect.
2. The Borrowers and the Lenders hereby acknowledge and agree that until
March 30, 2001 (i) the Borrowers shall not be permitted to incur any Loans under
the Credit Agreement or have any Letters of Credit issued under the Credit
Agreement if, after giving effect to any such Credit Event, the sum of (I) the
aggregate principal amount of all outstanding Revolving Loans and Swingline
Loans plus (II) the aggregate amount of all Letter of Credit Outstandings would
exceed the least of (A) the Borrowing Base at such time (based on the Borrowing
Base Certificate last delivered), (B) $155,000,000 and (C) the Total Commitment
at such time, (ii) to the extent that the sum of (I) the aggregate principal
amount of all outstanding Revolving Loans and Swingline Loans plus (II) the
aggregate amount of all Letter of Credit Outstandings would exceed on any day
any of the amounts set forth in preceding clause (i), the Borrowers shall prepay
on such day outstanding Loans (and/or if no Loans are or remain outstanding,
cash collateralize outstanding Letters of Credit) in an amount equal to such
excess, and (iii) all Credit Events shall still remain subject to all the
applicable conditions and provisions contained in the Credit Agreement (after
giving effect to this Waiver).
3. 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), after giving effect to this
Waiver, and (ii) on the Waiver Effective Date, 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.
4. This Waiver shall become effective on the date (the "Waiver Effective
Date") when 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.
5. 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.
6. 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.
7. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.
* * *
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:
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:
FIRST UNION NATIONAL BANK
By:________________________________________________
Title:
UNION BANK OF CALIFORNIA N.A.
By:________________________________________________
Title:
BANK ATLANTIC
By:________________________________________________
Title:
FLEET CAPITAL
By:________________________________________________
Title:
BANK POLSKA KASA OPIEKI S.A.
By:_________________________________________________
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:_________________________________________________
Title:
GMAC COMMERCIAL CREDIT LLC
By:_________________________________________________
Title:
FLEET NATIONAL BANK
By:_________________________________________________
Title:
EXHIBIT 10.3
WAIVER
WAIVER TO CREDIT AGREEMENT (this "Waiver"), dated as of March 29, 2001,
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 until May 23, 2001 any Event of Default that
has arisen or may arise under the Credit Agreement solely as a result of the
failure of the Company to comply with (i) Section 9.08 of the Credit Agreement
for the Test Periods ended on December 31, 2000 and March 31, 2001 and (ii)
Section 9.09 of the Credit Agreement for the period from December 31, 2000
through and including May 23, 2001; it being understood and agreed, however,
that the foregoing Events of Default shall automatically be reinstated on May
24, 2001 at which time the waivers set forth in this Section 1 shall cease to
have any further force and effect.
2. The Borrowers and the Lenders hereby acknowledge and agree that until
May 23, 2001 (i) the Borrowers shall not be permitted to incur any Loans under
the Credit Agreement or have any Letters of Credit issued under the Credit
Agreement if, after giving effect to any such Credit Event, the sum of (I) the
aggregate principal amount of all outstanding Revolving Loans and Swingline
Loans plus (II) the aggregate amount of all Letter of Credit Outstandings would
exceed the least of (A) the Borrowing Base at such time (based on the Borrowing
Base Certificate last delivered), (B) $155,000,000 and (C) the Total Commitment
at such time, (ii) to the extent that the sum of (I) the aggregate principal
amount of all outstanding Revolving Loans and Swingline Loans plus (II) the
aggregate amount of all Letter of Credit Outstandings would exceed on any day
any of the amounts set forth in preceding clause (i), the Borrowers shall prepay
on such day outstanding Loans (and/or if no Loans are or remain outstanding,
cash collateralize outstanding Letters of Credit) in an amount equal to such
excess, and (iii) all Credit Events shall still remain subject to all the
applicable conditions and provisions contained in the Credit Agreement (after
giving effect to this Waiver).
3. 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), after giving effect to this
Waiver, and (ii) on the Waiver Effective Date, 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.
4. This Waiver shall become effective on the date (the "Waiver Effective
Date") when 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.
5. 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.
6. 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.
7. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.
* * *
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:
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:
FIRST UNION NATIONAL BANK
By:_______________________________________________
Title:
UNION BANK OF CALIFORNIA N.A.
By:_______________________________________________
Title:
BANK ATLANTIC
By:_______________________________________________
Title:
FLEET CAPITAL
By:________________________________________________
Title:
BANK POLSKA KASA OPIEKI S.A.
By:________________________________________________
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:________________________________________________
Title:
GMAC COMMERCIAL CREDIT LLC
By:________________________________________________
Title:
FLEET NATIONAL BANK
By:________________________________________________
Title: