SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 033-68444
WILLIAMS SCOTSMAN, INC.
(Exact name of Registrant as specified in its Charter)
Maryland 52-0665775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8211 Town Center Drive 21236
Baltimore, Maryland (Zip Code)
(Address of principal executive offices)
Registrants' telephone number, including area code: (410) 931-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
- ----------------------------- ----------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
- -------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No__
Indicate 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
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The Registrant is a wholly-owned subsidiary of Scotsman Holdings, Inc., a
Delaware corporation. As of March 29, 2002, Scotsman Holdings, Inc. owned
3,320,000 shares of common stock ("Common Stock") of the Registrant.
PART I
Item 1. Business
General
Founded in 1946, Williams Scotsman, Inc. is the second largest lessor
of mobile office and storage units in North America with approximately 93,900
units leased through a network of branch offices located throughout the United
States and Canada. Our fleet provides high quality, cost-effective relocatable
space solutions to approximately 25,000 customers in approximately 470
industries including construction, education, healthcare and retail. In addition
to our core leasing operations, we sell new and previously leased mobile office
units and provide delivery, installation and other ancillary products and
services.
Our mobile office fleet is generally comprised of standardized,
versatile products that can be configured to meet a wide variety of customer
needs. Most units are fitted with axles and hitches and are towed to various
locations. Most units are wood frame mounted on a steel chassis, contain
materials used in conventional buildings, and are equipped with air conditioning
and heating, electrical outlets and, where necessary, plumbing facilities.
Mobile office units are durable and have an estimated useful life of 20 years.
Storage products are windowless and are typically used for secure storage space.
There are generally two types: ground-level entry storage containers and storage
trailers with axles and wheels. The basic storage unit features a roll-up or
swing door at one end. Units are made of heavy exterior metals for security and
water tightness. The average age of our mobile office units is approximately 8
years while the average age of the storage units is approximately 11 years. The
average age of the total fleet is approximately 8 years.
Based on its experience, management estimates that the North American
mobile office industry (excluding manufacturing operations) exceeds $3.0 billion
and has been growing in recent years. This growth has been primarily driven by
positive demographic trends, economic expansion, an increase in the number of
applications for modular space and a greater recognition of the product's
positive attributes. By outsourcing their space needs, our customers are able to
achieve flexibility, preserve capital for core operations, and convert fixed
costs into variable costs.
We purchase our new mobile office units through third-party suppliers
and purchase storage units in the aftermarket directly from shipping companies
or through brokers. We believe there are numerous manufacturers and suppliers of
mobile office and storage units which supply these products at competitive
prices throughout the United States and Canada. We anticipate being able to
procure an adequate supply of product on acceptable terms to meet projected
customer requirements. We do not believe that the loss of any one of our
suppliers would have a material adverse effect on our operations.
Forward Looking Statements
Certain statements in this Form 10-K for the year ended December 31,
2001 constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause actual results to differ materially from future
results expressed or implied by such forward-looking statements. Such factors
include, among others, the following: substantial leverage and the ability to
service debt; changing market trends in the mobile office industry; general
economic and business conditions including a prolonged or substantial recession;
the ability to finance fleet and branch expansion, locate and finance
acquisitions, and integrate recently acquired businesses; our ability to
implement our business and growth strategy and maintain and enhance our
competitive strengths; our ability to obtain financing for general corporate
purposes; intense industry competition; availability of key personnel; industry
over-capacity; and changes in, or the failure to comply with, government
regulations. No assurance can be given as to future results and neither we nor
any other person assumes responsibility for the accuracy and completeness of
these forward-looking statements. Consequently, you should not place undue
reliance on such forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to publicly release the result of any
revision to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Acquisition of Mckinney Mobile Modular
On February 1, 2001, we acquired the sales and leasing business of
Mckinney Mobile Modular, a privately held California corporation (Mckinney) in a
transaction accounted for under the purchase method of accounting. Total
consideration for the acquisition of Mckinney was approximately $26.1 million,
including the repayment of existing indebtedness of Mckinney. The purchase price
paid was allocated to the identifiable assets acquired of $21.6 million with the
excess of $5.5 million representing goodwill and other intangible assets. The
purchase price allocation was based upon estimates of the fair value of the
assets acquired. The acquisition, which added over 1,600 units at a value of
approximately $21.4 million, was financed with borrowings under our amended
credit facility.
Acquisition of Evergreen Mobile Company
On February 1, 1999, we acquired all of the outstanding stock of
Evergreen Mobile Company, a privately held Washington corporation ("Evergreen"),
at a net purchase price of $36.2 million, in a transaction accounted for under
the purchase method of accounting. At the time of the acquisition, Evergreen was
the largest mobile office dealer in the state of Washington with a fleet of
approximately 2,000 units. The acquisition was financed with borrowings under
our amended credit facility.
2
Recapitalization
Pursuant to a recapitalization agreement, on May 22, 1997, our parent,
Scotsman Holdings, Inc. ("Holdings") (i) repurchased 3,210,679 shares of its
outstanding common stock for an aggregate of approximately $293.8 million in
cash and approximately $21.8 million in promissory notes which were repaid in
January 1998 and (ii) issued 1,475,410 shares of common stock for an aggregate
of approximately $135.0 million in cash. Such amounts have not been restated for
the three-for-one stock split granted by Holdings in December 1997. In related
transactions, Holdings and Williams Scotsman, Inc. purchased or repaid all of
the outstanding indebtedness. In conjunction with the debt extinguishment, we
recognized an extraordinary loss of $13.7 million. The transactions described
above are collectively referred to herein as the "Recapitalization".
In connection with the Recapitalization, (i) we accelerated the payment
of deferred compensation under our long term incentive plan, (ii) all
outstanding stock options under Holdings' employee stock option plan vested and
became immediately exercisable and (iii) Holdings canceled a portion of the
outstanding stock options. Accordingly, we recognized $5.1 million of
Recapitalization expenses including $2.5 million in connection with the
acceleration of deferred compensation and $2.6 million in connection with the
cancellation of the stock options.
In order to finance the Recapitalization, we issued $400 million in
9.875% senior notes due 2007 and entered into a $300 million revolving bank
facility. We paid a dividend of $178.7 million to Holdings to pay
Recapitalization expenses, to repurchase common stock and to purchase certain
notes.
Operating Strategy
Due to the local and regional nature of our business, our goals are to
become the leader in each of the local markets in which we compete and to expand
our coverage to additional local markets. To achieve market leadership, we have
implemented a strategy which emphasizes (i) superior service, (ii) a
well-maintained, readily-available and versatile lease fleet, (iii) effective
fleet management using proprietary information systems, and (iv) targeted
marketing through an experienced and motivated sales force. We believe that we
are generally the first or second largest provider of relocatable space in each
of our regional markets as measured by lease fleet size and revenues. Our branch
offices are distributed throughout the United States and Canada and are located
in a majority of the major metropolitan areas.
Management's business and growth strategy includes the following:
Fleet and Branch Expansion. We plan to continue to capitalize on the
industry's favorable long-term growth trends by increasing customer penetration
and fleet size in existing markets. In addition, we plan to open branches in new
markets where positive business fundamentals exist. From January 1, 1999 to
December 31, 2001, the Company increased its number of branches from
3
80 to 88 and the number of units from approximately 70,200 to 93,900 as a
result of general fleet expansion and to a much lesser extent, through
acquisitions.
Selective Fleet Acquisitions. To complement our internal fleet and
branch expansion, we plan to continue to capitalize on the industry's
fragmentation and expand our geographic coverage by making selective
acquisitions of mobile offices and storage product lease fleets. Typically,
there is a low cost of integrating acquired fleets and acquired units have
existing leases that generate immediate revenues and EBITDA. From January 1,
1999 to December 31, 2001, we made four acquisitions of approximately 5,100
units for a total purchase price of $66.9 million. Units added through
acquisitions have accounted for approximately 20% of the value of our total
fleet purchases during this period.
Ancillary Products and Services. We continue to identify new
applications for our existing products, diversify into new product offerings and
deliver ancillary products and services to leverage our existing branch network.
For example, in 1996, we began focusing on the expanding market for storage
product units, which are used for secured storage space. Since January 1, 1996,
we have grown our storage product fleet by over 16,400 units, through direct
purchases as well as nine acquisitions which totaled approximately 6,000 storage
units. Ancillary products and services also include the rental of steps,
furniture, ramps and security systems; sales of parts and supplies; and charges
for granting insurance waivers and for damage billings.
Education Market Trends. The education market accounted for
approximately 21% of our 2001 revenues and offers growth opportunities as a
result of the following: (1) an increase in state and local initiatives
governing maximum class sizes, (2) state and local governmental pressures to
find cost-effective ways to expand classroom capacity, (3) increased interstate
and intrastate migrations necessitating rapid expansion of education space and
(4) the predicted growth of the school age population.
Competition
Although our competition varies significantly by market, the mobile
office industry, in general, is highly competitive. We compete primarily in
terms of product availability, customer service and price. We believe that our
reputation for customer service and our ability to offer a wide selection of
units suitable for many uses at competitive prices allow us to compete
effectively. However, certain of our competitors, such as GE Capital Modular
Space, are less leveraged, have greater market share or product availability in
a given market and have greater financial resources than we do.
4
Employees
At December 31, 2001, the Company employed approximately 1,300 persons.
None of our employees are covered by a collective bargaining agreement.
Management considers its relationship with its employees to be good. We have
never experienced any material labor disruption and are unaware of any efforts
or plans to organize our employees.
Regulatory Matters
We must comply with various federal, state and local environmental,
transportation, health and safety laws and regulations in connection with our
operations. We believe that we are in substantial compliance with these laws and
regulations. In addition to compliance costs, we may incur costs related to
alleged environmental damage associated with past or current properties owned or
leased by us. We believe that our liability, if any, for any environmental
remediation will not have a material adverse effect on our financial condition.
A portion of our units is subject to regulation in certain states under
motor vehicle and similar registration and certificate of title statutes. We
believe that we have complied in all material respects with all motor vehicle
registration and similar certificate of title statutes in states where such
statutes clearly apply to mobile office units. If laws in other states are
changed to require registration, we could be subject to additional costs, fees
and taxes. We do not believe that these costs would be material to our business
or financial condition.
Item 2. Properties
The Company's headquarters is a three-story modular office structure
located on 3.1 acres in suburban Baltimore, Maryland. Additionally, we lease
approximately 73% of our 88 branch locations and we own the balance. Management
believes that none of the Company's leased facilities, individually, is material
to our operations.
Item 3. Legal Proceedings
We are involved in certain legal actions arising in the ordinary course
of business. We believe that none of these actions, either individually or in
the aggregate, will have a material adverse effect on our business, results of
operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
None.
5
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
We are a wholly-owned subsidiary of Scotsman Holdings, Inc., a Delaware
corporation. There is no established public trading market for Holdings' Common
Stock.
During 2001, we paid dividends to Holdings totaling $60,000 for normal
operating expenses. We do not intend to pay any other dividends except for the
normal operating expenses of Holdings, but reserve the right to do so. Our
ability to pay dividends to Holdings is limited to amounts for corporate and
administrative expenses. (See Note 4 of Notes to the Consolidated Financial
Statements.)
Pursuant to the Scotsman Holdings, Inc. Amended and Restated 1997
Employee Stock Option Plan (the "1997 Plan"), options for the purchase of 23,300
shares of Holdings' common stock were granted during 2001. No options were
exercised during 2001 and no shares of Holdings' common stock were issued during
2001 upon the exercise of previously granted options.
6
Item 6. Selected Historical Financial Data
The following tables summarize selected historical financial data which should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements appearing
elsewhere herein. The selected historical financial data set forth below has
been derived from the audited Financial Statements.
Year Ended December 31,
--------------------------------------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Statement of Operations Data:
Revenues:
Leasing $120,266 $152,221 $201,820 $220,547 $238,151
Sales:
New units 41,926 46,448 73,001 73,291 91,114
Rental equipment 13,120 15,530 22,369 21,571 22,212
Delivery and installation 38,626 47,002 71,245 79,097 97,342
Other 22,252 25,893 37,370 37,640 43,437
-------- -------- -------- -------- --------
Total $236,190 $287,094 $405,805 $432,146 $492,256
- -------------------------------------------------------------------------------------------------------------------
Gross profit:
Leasing $ 71,237 $101,036 $136,543 $148,454 $153,281
Sales:
New units 6,685 8,099 12,678 13,023 15,945
Rental equipment 3,521 3,730 5,133 5,266 5,326
Delivery and installation 10,914 12,083 18,886 19,427 19,003
Other 15,480 20,393 29,949 31,057 35,063
-------- -------- -------- -------- --------
Total $107,837 $145,341 $203,189 $217,227 $228,618
- -------------------------------------------------------------------------------------------------------------------
Selling, general and administrative
expenses $46,256 $58,099 $71,425 $76,817 $82,516
Casualty loss --- --- --- --- 1,500
Recapitalization expenses (1) 5,105 --- --- --- ---
Earnings from continuing
operations before extraordinary item 5,979 3,791 17,307 16,119 22,666
Earnings from continuing
operations before extraordinary
item per common share $ 1.80 $ 1.14 $ 5.21 $ 4.86 $ 6.83
==== ==== ==== ==== ====
Dividends per common share $53.84 $ 6.88 $ .02 $ .02 $ .02
===== ==== === === ===
Ratio of earnings to fixed charges (2) 1.2x 1.2x 1.4x 1.3x 1.5x
- -------------------------------------------------------------------------------------------------------------------
EBITDA (3) $92,407 $117,572 $168,216 $177,609 $187,585
- -------------------------------------------------------------------------------------------------------------------
7
As of December 31,
---------------------------------------------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(Dollars in thousands)
Balance Sheet Data:
Rental equipment, net $403,528 $640,634 $ 726,924 $ 799,994 $ 866,867
Total assets 514,173 941,287 1,066,464 1,145,898 1,244,984
Revolving credit facility & long-term debt 533,304 845,447 915,823 959,110 1,022,972
Stockholder's deficit (111,564) (63,258) (44,107) (28,021) (6,741)
(1) Recapitalization expenses recognized in the amount of $5.1
million represent costs incurred in connection with the
recapitalization of Holdings in May 1997. These expenses
include $2.5 million in connection with the acceleration of
deferred compensation and $2.6 million in connection with the
cancellation of the stock options.
(2) The ratio of earnings to fixed charges is computed by dividing
fixed charges into earnings from continuing operations before
income taxes and extraordinary items plus fixed charges. Fixed
charges include interest, expensed or capitalized, including
amortization of deferred financing costs and debt discount and
the estimated interest component of rent expense.
(3) We define EBITDA as earnings before deducting interest, income
taxes, depreciation and amortization, non-cash charges,
recapitalization expenses and extraordinary items. EBITDA,
which is not a measure of financial performance under
generally accepted accounting principles, is presented because
this data is used by some investors to determine our ability
to meet historical debt service requirements.
8
Selected Quarterly Financial Data (Unaudited):
(In thousands except per share data) Year ended December 31, 2001
- -------------------------------------------------------------------------------------------------------------
Quarter First Second Third Fourth Year
- -------------------------------------------------------------------------------------------------------------
Revenues $105,366 $119,897 $140,891 $126,102 $492,256
Gross Profit $ 53,791 $ 58,088 $ 59,558 $ 57,181 $228,618
Income before income taxes $ 4,605 $ 9,091 $ 13,681 $ 12,894 $ 40,271
Net income $ 2,533 $ 4,958 $ 7,525 $ 7,650 $ 22,666
Net income per common share $ .76 $ 1.49 $ 2.27 $ 2.31 $ 6.83
Cash dividends per share $ -- $ .01 $ -- $ .01 $ .02
- -------------------------------------------------------------------------------------------------------------
(In thousands except per share data) Year ended December 31, 2000
- ---------------------------------------------------------------------------------------------------------------
Quarter First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------
Revenues $ 95,733 $103,132 $124,766 $108,515 $432,146
Gross Profit $ 51,565 $ 53,090 $ 57,234 $ 55,338 $217,227
Income before income taxes $ 4,509 $ 7,478 $ 10,773 $ 8,316 $ 31,076
Net income $ 2,227 $ 4,013 $ 5,989 $ 3,890 $ 16,119
Net income per common share $ .67 $ 1.21 $ 1.80 $ 1.18 $ 4.86
Cash dividends per share $ .02 $ -- $ -- $ -- $ .02
- ---------------------------------------------------------------------------------------------------------------
9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion regarding our financial condition and results
of operations for the three years ended December 31, 2001 should be read in
conjunction with the more detailed information and Financial Statements included
elsewhere herein. Certain statements in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are forward-looking statements.
See "Forward-Looking Statements".
Critical Accounting Policies and Estimates
General. This discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
liabilities. (See note 1 of the Notes to Consolidated Financial Statements.) On
an on-going basis, we evaluate estimates, including those related to bad debts,
contingencies and litigation, intangible assets, and income taxes. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
In December, 2001, the Securities and Exchange Commission (SEC) issued
a statement regarding the selection and disclosure by public companies of
critical accounting policies and practices. The SEC indicated that a critical
accounting policy is one which is both important to the portrayal of a company's
financial condition and results, and requires management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain. We believe the
following critical accounting policies affect our more significant judgments and
estimates used in the preparation of the consolidated financial statements.
Allowance for doubtful accounts. We are required to estimate the
collectibility of our trade receivables. Accordingly, allowances for doubtful
accounts are maintained for estimated losses resulting from the inability of our
customers to make required payments. We evaluate a variety of factors in
assessing the ultimate realization of these receivables including the current
credit-worthiness of customers. The allowance for doubtful accounts is
determined based on historical collection results in addition to an ongoing
review of specific customers. If the financial condition of our customers were
to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required, resulting in decreased net income.
Contingencies. We are subject to proceedings, lawsuits, and other
claims related to environmental, product and other matters, and are required to
assess the likelihood of any adverse judgments or outcomes to these matters as
well as potential ranges of probable losses.
10
A determination of the amount of reserves required, if any, for these
contingencies is made after analysis of each individual matter. The required
reserves may change in the future due to new developments in each matter or
changes in approach such as a change in settlement strategy in dealing with
these matters.
Goodwill and Intangible Impairment. We have significant intangible
assets related to goodwill and other acquired intangibles as well as capitalized
software costs. The determination of related estimated useful lives and whether
or not these assets are impaired involves significant judgments. Changes in
strategy and/or market conditions could significantly impact these judgments and
require adjustments to recorded asset balances.
Income Taxes. As part of the process of preparing our consolidated
financial statements, we are required to estimate income taxes in each of the
jurisdictions in which we operate. The process involves estimating actual
current tax expense along with assessing temporary differences resulting from
differing treatment of items for book and tax purposes. These timing differences
result in deferred tax assets and liabilities, which are included in our
consolidated balance sheet. We record a valuation allowance to reduce our
deferred tax assets to the amount that is more likely than not to be realized.
We have considered future taxable income and ongoing tax planning strategies in
assessing the need for the valuation allowance.
General
On February 1, 2001, we acquired the sales and leasing business of Mckinney
Mobile Modular. See "Acquisition of Mckinney Mobile Modular."
On February 1, 1999, we acquired all of the outstanding stock of Evergreen
Mobile Company. See "Acquisition of Evergreen Mobile Company."
We derive our revenues and earnings from the leasing and sale of mobile
office and storage units, delivery and installation of those units and the
provision of other ancillary products and services. Leasing operations, which
primarily comprise the leasing of mobile office units and the sale of units from
our lease fleet, account for a majority of our revenues and gross profits. Used
mobile office units are sold from our lease fleet in the ordinary course of
business at either fair market value or, to a lesser extent, pursuant to
pre-established lease purchase options. The sale of used units results in the
availability of the total cash proceeds and generally results in the reporting
of gross profit on such sales.
New unit sales revenues are derived from the sale of new mobile
offices, similar to those units leased by us. Revenues from delivery and
installation result from activities related to the transportation and
installation of and site preparation for both leased and sold products. Other
revenues are derived from other products and services including: rental of
steps, furniture, ramps and security systems; sales of parts and supplies; and
charges for granting insurance waivers and for damage billings.
11
Although a portion of our business is with customers in industries that
are cyclical in nature and subject to changes in general economic conditions,
management believes that certain characteristics of the mobile office leasing
industry and their operating strategies should help to mitigate the effects of
economic downturns. These characteristics include (i) our typical lease terms
which include contractual provisions requiring customers to retain units on
lease for, on average, 12 months, (ii) the flexibility and low cost offered to
our customers by leasing which may be an attractive alternative to capital
purchases, (iii) our ability to redeploy units during regional recessions and
(iv) the diversity of our industry segments and the geographic balance of our
operations (historically during economic slowdowns, the construction industry
which represented approximately 33% of 2001 revenues, experiences declines in
utilization rates, while other customer segments, including education which
represented approximately 21% of revenues in 2001, are more stable).
Results of Operations
2001 Compared With 2000. Revenues in 2001 were $492.3 million, a $60.1
million or 13.9% increase from revenues of $432.1 million in 2000. The increase
resulted from a $17.6 million or 8.0% increase in leasing revenue, a $17.8
million or 24.3% increase in sales of new units, an $18.2 million or 23.1%
increase in delivery and installation revenue, and a $5.8 million or 15.4%
increase in other revenue. The increase in leasing revenue is attributable to a
10.7% increase in the average lease fleet to approximately 92,300 units for
2001, combined with an increase of $3 in the average monthly rental rate, offset
by a decrease in the average fleet utilization of two percent to 82%. The
increase in the average monthly rental rate is a result of overall rate
improvement in some of our products combined with changes in fleet mix. The
decrease in average fleet utilization is attributable to the softening economic
and related business conditions. The increase in sales of new units is due to
contracts assumed in connection with the Mckinney acquisition completed in the
first quarter, as well as overall system growth. The increase in delivery and
installation revenue is attributable to the increase in sales of new units and
leasing revenue. Other revenue increased as a result of increases in high margin
ancillary products and services, primarily steps, ramps, relocations of customer
owned units, and charges for granting insurance waivers.
Gross profit in 2001 was $228.6 million, an $11.4 million or 5.2%
increase from 2000 gross profit of $217.2 million. The increase primarily
resulted from a $4.8 million or 3.3% increase in leasing gross profit, a $2.9
million or 22.4% increase in new unit sales gross profit, and a $4.0 million or
12.9% increase in gross profit from other revenue. The increase in leasing gross
profit is a result of the increase in leasing revenue described above offset by
a decline in leasing margins from 67.3% in 2000 to 64.4% in 2001. Excluding
depreciation and amortization, leasing margins decreased from 84.0% in 2000 to
81.9% in 2001. This margin suppression was attributable to a decline in average
fleet utilization coupled with incremental costs associated with increased
turnover of existing fleet in certain markets. The increase in new unit sales
and other gross profit is the result of the increase in the revenue described
above.
Selling, general and administrative (SG&A) expenses were $82.5 million,
a $5.7 million or 7.4% increase from 2000. The overall increase in SG&A expenses
is due to an increase in field
12
related expenses, primarily payroll and occupancy, incurred in connection
with the fleet growth described above in addition to the underlying cost of
doing business.
During June 2001, we suffered a flood in one of our branch locations.
The estimated write off of destroyed fleet units is $1.5 million.
Interest expense decreased by 6.9% to $85.5 million in 2001 from $91.9
million in 2000. This decrease is the result of a decrease of approximately 220
basis points in effective interest rates on our variable bank debt for 2001 from
2000, partially offset by increased borrowings to finance fleet growth.
The difference between our reported tax provision for the year ended
December 31, 2001 and the tax provision computed based on statutory rates is
primarily attributable to non-deductible goodwill amortization expense of $5.1
million.
2000 Compared With 1999. Revenues in 2000 were $432.1 million, a $26.3
million or 6.5% increase from revenues of $405.8 million in 1999. The increase
resulted from a $18.7 million or 9.3% increase in leasing revenue and a $7.9
million or 11.0% increase in delivery and installation revenue. The increase in
leasing revenue is attributable to a 10.4% increase in the average lease fleet
to approximately 83,300 units for 2000, combined with a slight increase of $1 in
the average monthly rental rate, offset by a slight decrease in the average
fleet utilization of one percent to 84%. The increase in delivery and
installation revenue is attributable to the increase in leasing revenue as
described above.
Gross profit in 2000 was $217.2 million, a $14.0 million or 6.9%
increase from 1999 gross profit of $203.2 million. The increase primarily
resulted from a $11.9 million or 8.7% increase in leasing gross profit and to a
minor extent from a $1.1 million or 3.7% increase in gross profit from other
revenue. The increase in leasing gross profit is a result of the increase in
leasing revenue described above combined with stable leasing margins. Excluding
depreciation and amortization, leasing margins decreased slightly from 84.8% in
1999 to 84.0% in 2000. Although other revenue was essentially flat, the increase
in related gross profit was attributed to a favorable mix of higher margin
ancillary products, as 1999 results included revenue associated with a large
(lower margin) project to relocate customer-owned units.
SG&A expenses in 2000 were $76.8 million, a $5.4 million or 7.5%
increase from 1999. The increase is the result of the growth experienced, both
in terms of number of branches and fleet size as compared to 1999. Our branch
network has expanded from 83 branches at December 31, 1999 to 88 branches at
December 31, 2000, while the fleet has grown by approximately 8,700 units from
December 31, 1999. The increase in SG&A expenses is due to an increase in field
related expenses, primarily payroll and occupancy, incurred in connection with
this branch expansion and fleet growth.
Interest expense in 2000 was $91.9 million, an $8.0 million or 9.5%
increase from 1999. This increase is a result of increased average borrowings of
approximately $38.9 million to finance fleet and branch growth in addition to
increases in interest rates on our variable bank debt.
13
The effect of market rate increases in 2000 was partially offset by a 25
basis point reduction in February 2000 on bank credit facility borrowings as we
achieved a specified leverage ratio threshold.
The difference between our reported tax provision for the year ended
December 31, 2000 and the tax provision computed based on statutory rates is
primarily attributable to non-deductible goodwill amortization expense of $4.9
million.
Liquidity and Capital Resources
During 1999, 2000 and 2001, our principal sources of funds consisted of
cash flow from operating and financing sources. Cash flow from operating
activities of $72.3 million in 1999, $87.0 million in 2000 and $61.2 million in
2001 was largely generated by the rental of units from our lease fleet and sales
of new mobile office units.
We have increased our EBITDA and believe that EBITDA provides the best
indication of our financial performance and provides the best measure of our
ability to meet historical debt service requirements. We define EBITDA as
earnings before interest, income taxes, depreciation and amortization, and
non-cash charges. EBITDA as we define it, does not represent cash flow from
operations as defined by generally accepted accounting principles and should not
be considered as an alternative to cash flow as a measure of liquidity, nor
should it be considered as an alternative to net income as an indicator of our
operating performance. Our EBITDA increased by $10.0 million or 5.6% to $187.6
million in 2001 compared to $177.6 million in 2000. This increase in EBITDA is
primarily the result of increased leasing and new unit sales activity described
above, partially offset by increased SG&A expenses. In 2000, our EBITDA
increased by $9.4 million or 5.6% to $177.6 million compared to $168.2 million
in 1999. This increase in EBITDA is a result of increased leasing activity
described above, partially offset by increased SG&A expenses.
Cash flow used in investing activities was $142.7 million in 1999,
$128.3 million in 2000 and $126.4 million in 2001. Our primary capital
expenditures are for the discretionary purchase of new units for the lease fleet
and units purchased through acquisitions. We seek to maintain our lease fleet in
good condition at all times and we generally increase the size of our lease
fleet only in those local or regional markets experiencing economic growth and
established unit demand. These expenditures increased the size of the rental
fleet by approximately 9,400 units during 1999, 8,700 units during 2000 and
5,700 units during 2001. This activity was in response to increased customer
demand and, for the first half of 2001, was a continuation of our fleet
acquisition strategy and branch expansion. The following table sets forth our
investment in our lease fleet for the periods indicated.
14
Year Ended December 31,
1999 2000 2001
---- ---- ----
(Dollars in millions)
Gross capital expenditures for rental equipment:
New units and betterments........................... $115.0 $118.6 $106.2
Fleet acquisitions, excluding acquired businesses -- 4.0 21.4
------ ------ ------
115.0 122.6 127.6
Purchase price allocated to fleet of acquired businesses 24.2 5.3 --
Proceeds from sale of used rental equipment........... (22.4) (21.6) (22.2)
------ ------ ------
Net capital expenditures for rental equipment......... $116.8 $106.3 $105.4
====== ====== ======
Lease fleet maintenance expenses included
in the statement of operations.......................... $30.5 $35.1 $43.0
===== ===== =====
We believe we can manage the capital requirements of our lease fleet,
and thus our cash flow, through the careful monitoring of our lease fleet
additions. During 1999, 2000 and 2001, we were able to sell used units in the
ordinary course of business (excluding units sold pursuant to purchase options)
at an average of more than 95% of their total capitalized cost and at a premium
to net book value. Such capitalized costs include the cost of the unit as well
as costs of significant improvements made to the unit. See further explanation
below and Note 2 of the Notes to Consolidated Financial Statements.
Historically, we have recognized net gains on the sale of used units.
Our maintenance and refurbishment program is designed to maintain the
value of lease fleet units and realize rental rates and operating cash flows
from older units comparable to those from newer units. The sale of used units
helps preserve the overall quality of our lease fleet and enhances cash flow.
Generally, costs of improvements and betterments aggregating less than $1,000
per unit are expensed as incurred. Expenditures greater than $1,000 that
significantly extend the economic useful life of a unit or that materially alter
a unit's configuration are capitalized. We estimate that the current annual
capital expenditures (net of proceeds from sales of used units) necessary to
maintain our lease fleet and facilities at their current size and condition are
approximately $25 million.
Other capital expenditures of $13.9 million, $18.6 million and $16.3
million in 1999, 2000 and 2001, respectively, consist of items not directly
related to the lease fleet, such as branch buildings, land, equipment, leasehold
improvements and management information systems.
Cash provided by financing activities of $70.2 million in 1999, $43.2
million in 2000, and $63.2 million in 2001 was primarily from borrowings, net of
repayments, under our revolving credit facility, which was further amended in
January 2001 to provide for revolver borrowings up to $600 million.
At December 31, 2001 we had $400 million of 9.875% Senior Notes due
2007. In February 2002, we issued $150 million of additional senior notes due
2007 under the existing indenture.
15
Net proceeds from the issuance were used to permanently repay our $58.1
million term loan and to repay borrowings under the existing revolving credit
facility.
On March 26, 2002, we entered into a new credit facility providing for
revolver borrowings up to $460 million and a $210 million term loan. The
facility also provides for up to an additional $30 million in term or revolver
commitments. Principal payments due on the term loan are equal to 1% per year
payable quarterly beginning June 30, 2002, with the remaining balance due
December 31, 2006. Borrowings under the new credit facility are based upon a
borrowing base calculation. The new loan agreement requires compliance with
certain financial covenants including capital expenditures, interest coverage,
and leverage and fleet utilization levels. Net proceeds from the new credit
facility, which matures December 31, 2006, were used to refinance the existing
credit facility.
We believe we will have sufficient liquidity under our new revolving
line of credit and from cash generated from operations to fund our operations
for the next 12 months.
A summary of our significant contractual obligations and other commercial
commitments is as follows:
o Debt - Item 8. Financial Statements and Supplementary Data - Notes to
Consolidated Financial Statements - Notes 4 and 11
o Operating Leases Item 8. Financial Statements and Supplementary
Data - Notes to Consolidated Financial Statements - Note 6
o Standby Letters of Credit Financial Statements and Supplementary
Data - Notes to Consolidated Financial Statements - Note 4
Seasonality
Although demand from certain of our customers is somewhat seasonal, our
operations as a whole are not seasonal to any significant extent.
Inflation
We believe that inflation has not had a material effect on our results
of operations. However, an inflationary environment could materially increase
interest rates on our floating rate debt. The price of used units sold by us and
the replacement cost of such units could also increase in such an environment.
Our standard lease generally provides for annual rental rate escalation at the
inflation rate as determined by the Consumer Price Index after the end of the
initial lease term. In addition, we may seek to limit our exposure to interest
rate fluctuations by utilizing certain hedging mechanisms, although we are under
no obligation to do so.
Recent Accounting Pronouncements
Goodwill and Other Intangible Assets. In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 142 ("FAS
No. 142"), Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new
16
rules, goodwill (and intangible assets deemed to have indefinite lives)
will no longer be amortized but will be subject to annual impairment tests in
accordance with the Statement. Other intangible assets will continue to be
amortized over their useful lives.
We will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of $4.6 million, ($1.39 per share) per year. During 2002, we will
perform the first of the required impairment tests of goodwill as of January 1,
2002. The results of these tests are not expected to have a material effect on
our earnings and financial position.
Impairment or Disposal of Long-Lived Assets. In August 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 144 ("FAS No. 144"), Accounting for the Impairment or Disposal of Long-Lived
Assets, which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. FAS No. 144 is effective for fiscal years
beginning after December 15, 2001. We expect to adopt FAS No. 144 as of January
1, 2002 and do not anticipate it to have a material impact on our earnings and
financial position.
17
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors.............................................19
Consolidated Balance Sheets as of December 31, 2001 and 2000...............20
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999..................................21
Consolidated Statements of Changes in Stockholder's Deficit for
the years ended December 31, 2001, 2000 and 1999..................22
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999..................................23
Notes to Consolidated Financial Statements..............................24-39
INDEX TO FINANCIAL STATEMENTS SCHEDULES
Schedule II - Valuation and Qualifying Accounts............................60
All schedules not listed have been omitted either because they
are not required or, if required, the required information is included elsewhere
in the financial statements or notes thereto.
18
Report of Independent Auditors
Board of Directors
Williams Scotsman, Inc.
We have audited the accompanying consolidated balance sheets of Williams
Scotsman, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholder's deficit and cash
flows for each of the three years in the period ended December 31, 2001. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Williams Scotsman,
Inc. and subsidiaries at December 31, 2001 and 2000, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Baltimore, Maryland
February 20, 2002, except for Note 11 for which the date is
March 26, 2002
19
Williams Scotsman, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31
2001 2000
--------------------------------------
(In thousands)
Assets
Cash $ 584 $ 2,546
Trade accounts receivable, net of allowance for doubtful accounts of
$1,298 in 2001 and $983 in 2000 74,336 53,916
Prepaid expenses and other current assets 25,628 20,685
Rental equipment, net of accumulated depreciation of $178,046 in 2001
and $155,434 in 2000 866,867 799,994
Property and equipment, net 73,782 64,766
Deferred financing costs, net 10,696 15,408
Goodwill and other intangible assets, net 172,057 172,218
Other assets 21,034 16,365
--------------------------------------
$1,244,984 $1,145,898
======================================
Liabilities and stockholder's deficit
Accounts payable and accrued expenses $ 50,287 $ 54,735
Rents billed in advance 25,796 24,757
Revolving credit facility 564,922 500,460
Long-term debt 458,050 458,650
Deferred income taxes 152,670 135,317
--------------------------------------
Total liabilities 1,251,725 1,173,919
--------------------------------------
Stockholder's deficit:
Common stock, $.01 par value. Authorized 10,000,000 shares; issued
and outstanding 3,320,000 shares 33 33
Additional paid-in capital 126,289 126,567
Cumulative foreign currency translation adjustment (1,505) (457)
Retained deficit (131,558) (154,164)
--------------------------------------
Total stockholder's deficit (6,741) (28,021)
--------------------------------------
$1,244,984 $1,145,898
======================================
See accompanying notes.
20
Williams Scotsman, Inc. and Subsidiaries
Consolidated Statements of Operations
Year ended December 31
2001 2000 1999
--------------------------------------------------
(In thousands except
per share amounts)
Revenues
Leasing $238,151 $220,547 $201,820
Sales:
New units 91,114 73,291 73,001
Rental equipment 22,212 21,571 22,369
Delivery and installation 97,342 79,097 71,245
Other 43,437 37,640 37,370
--------------------------------------------------
Total revenues 492,256 432,146 405,805
--------------------------------------------------
Cost of sales and services
Leasing:
Depreciation and amortization 41,761 36,720 34,553
Other direct leasing costs 43,109 35,373 30,724
Sales:
New units 75,169 60,268 60,323
Rental equipment 16,886 16,305 17,236
Delivery and installation 78,339 59,670 52,359
Other 8,374 6,583 7,421
--------------------------------------------------
Total costs of sales and services 263,638 214,919 202,616
--------------------------------------------------
Gross profit 228,618 217,227 203,189
--------------------------------------------------
Selling, general and administrative expenses 82,516 76,817 71,425
Other depreciation and amortization 18,845 17,474 15,866
Interest, including amortization of deferred financing
costs of $5,269, $4,931 and $4,913 85,486 91,860 83,878
Non-cash charge for casualty loss 1,500 -- --
--------------------------------------------------
Total operating expenses 188,347 186,151 171,169
--------------------------------------------------
Income before income taxes 40,271 31,076 32,020
Income tax expense 17,605 14,957 14,713
--------------------------------------------------
Net income $22,666 $16,119 $17,307
==================================================
Earnings per common share $ 6.83 $ 4.86 $ 5.21
==================================================
See accompanying notes.
21
Williams Scotsman, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholder's Deficit
Cumulative
Foreign
Additional Currency
Common Stock Paid-in Retained Translation
Shares Amount Capital Deficit Adjustment Total
-------------------------------------------------------------------------------------------
(In thousands)
Balance at December 31, 1998 3,320 $33 $124,189 $(187,480) $ - $(63,258)
Appreciation in value of stock options
- - 1,899 - - 1,899
Dividends to parent--$.02 per share
- - - (55) - (55)
Net income - - - 17,307 - 17,307
-------------------------------------------------------------------------------------------
Balance at December 31, 1999 3,320 33 126,088 (170,228) - (44,107)
Appreciation in value of stock options
- - 479 - - 479
Dividends to parent--$.02 per share
- - - (55) - (55)
Foreign currency translation
adjustment - - - - (457) (457)
Net income - - - 16,119 - 16,119
-------------------------------------------------------------------------------------------
Balance at December 31, 2000 3,320 33 126,567 (154,164) (457) (28,021)
Decrease in value of stock options
- - (278) - - (278)
Dividends to parent--$.02 per share
- - - (60) - (60)
Foreign currency translation
adjustment - - - - (1,048) (1,048)
Net income - - - 22,666 - 22,666
-------------------------------------------------------------------------------------------
Balance at December 31, 2001 3,320 $ 33 $ 126,289 $(131,558) $ (1,505) $(6,741)
===========================================================================================
See accompanying notes.
22
Williams Scotsman, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31
2001 2000 1999
------------------------------------------------------------
(In thousands)
Cash flows from operating activities
Net income $ 22,666 $ 16,119 $ 17,307
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 65,875 59,125 55,332
Provision for bad debts 4,204 3,697 2,254
Deferred income tax expense 17,353 14,703 13,837
Non-cash option compensation (income)/expense (278) 479 1,899
Gain on sale of rental equipment (5,326) (5,266) (5,133)
Increase in net trade accounts receivable (24,624) (337) (16,556)
(Decrease)/increase in accounts payable and accrued expenses,
including reserve for casualty loss (5,452) 1,578 9,249
Other (13,199) (3,121) (5,851)
------------------------------------------------------------
Net cash provided by operating activities 61,219 86,977 72,338
------------------------------------------------------------
Cash flows from investing activities
Rental equipment additions (106,177) (122,617) (115,024)
Proceeds from sales of rental equipment 22,212 21,571 22,369
Acquisition of businesses, net of cash acquired (26,114) (8,687) (36,208)
Purchase of property and equipment, net (16,347) (18,571) (13,860)
------------------------------------------------------------
Net cash used in investing activities (126,426) (128,304) (142,723)
------------------------------------------------------------
Cash flows from financing activities
Proceeds from debt 547,129 493,748 483,525
Repayment of debt (483,267) (450,461) (413,149)
Increase in deferred financing costs (557) - (91)
Cash dividends paid (60) (55) (55)
------------------------------------------------------------
Net cash provided by financing activities 63,245 43,232 70,230
------------------------------------------------------------
Net (decrease) increase in cash (1,962) 1,905 (155)
Cash at beginning of period 2,546 641 796
------------------------------------------------------------
Cash at end of period $ 584 $ 2,546 $ 641
============================================================
Supplemental cash flow information:
Cash paid (refunds received) for income taxes $ 306 $ 196 $ (10)
============================================================
Cash paid for interest $89,351 $81,653 $76,920
============================================================
See accompanying notes.
23
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
December 31, 2001 and 2000
1. Organization and Basis of Presentation
Williams Scotsman, Inc. (the Company) is a wholly owned subsidiary of Scotsman
Holdings, Inc. (Holdings), a corporation which was organized in November 1993
for the purpose of acquiring the Company. The Company's operations include two
wholly owned subsidiaries, Willscot Equipment, LLC (Willscot) and Williams
Scotsman of Canada, Inc., whose operations have not been significant to date.
Willscot, a special purpose subsidiary, was formed in May 1997 and is a
guarantor of the Company's credit facility and acts as a full and unconditional,
and joint and several subordinated guarantor of the 9.875% senior notes. The
operations of Willscot are limited to the leasing of its mobile office units to
the Company under a master lease.
The operations of the Company consist primarily of the leasing and sale of
mobile offices and storage products (equipment) and their delivery and
installation.
Acquisition of Mckinney Mobile Modular
On February 1, 2001, the Company acquired the sales and leasing business of
Mckinney Mobile Modular, a privately held California corporation (Mckinney) in a
transaction accounted for under the purchase method of accounting. Total
consideration for the acquisition of Mckinney was approximately $26.1 million,
including the repayment of existing indebtedness of Mckinney. The purchase price
paid was allocated to the identifiable assets acquired of $21.6 million with the
excess of $5.5 million representing goodwill and other intangible assets. The
purchase price allocation was based upon the estimates of the fair value of the
assets acquired. The acquisition, which added over 1,600 units at a value of
approximately $21.4 million, was financed with borrowings under the Company's
amended credit facility.
Acquisition of Evergreen Mobile Company
On February 1, 1999, the Company acquired all of the outstanding stock of
Evergreen Mobile Company, a privately held Washington corporation (Evergreen),
in a transaction accounted for under the purchase method of accounting. Total
consideration for the acquisition of Evergreen was $36.2 million, including the
repayment of existing indebtedness of Evergreen. The purchase price paid was
allocated to the net identifiable assets acquired of $19.7 million with the
excess of $16.5 million representing goodwill and other intangible assets. The
purchase price allocation was based upon the estimates of the fair value of the
net assets acquired. The acquisition was financed with borrowings under the
Company's amended credit facility.
24
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation (continued)
New Accounting Pronouncements
Goodwill and Other Intangible Assets. In June 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 142 ("FAS
No. 142"), Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill (and intangible
assets deemed to have indefinite lives) will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statement. Other
intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to result in an increase
in net income of $4.6 million, ($1.39 per share) per year. During 2002, the
Company will perform the first of the required impairment tests of goodwill as
of January 1, 2002. The results of these tests are not expected to have a
material effect on the earnings and financial position of the Company.
Impairment or Disposal of Long-Lived Assets. In August 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 144 ("FAS No. 144"), Accounting for the Impairment or Disposal of Long-Lived
Assets, which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. FAS No. 144 is effective for fiscal years
beginning after December 15, 2001. The Company expects to adopt FAS No. 144 as
of January 1, 2002 and does not anticipate it to have a material impact on the
Company's financial position and results of operations.
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
(a) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from these estimates.
25
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(b) Leasing Operations
Equipment is leased generally under operating leases and, occasionally,
under sales-type lease arrangements. Operating lease terms generally
range from 3 months to 60 months, and contractually averaged
approximately 12 months at December 31, 2001. Rents billed in advance are
initially deferred and recognized as revenue over the term of the
operating leases. Rental equipment is depreciated by the straight-line
method using an estimated economic useful life of 10 to 20 years and an
estimated residual value of 50%.
Costs of improvements and betterments are capitalized, whereas costs of
replacement items, repairs and maintenance are expensed as incurred.
Costs incurred for equipment to meet particular lease specifications are
capitalized and depreciated over the lease term. However, costs
aggregating less than $1 per unit are generally expensed as incurred.
(c) Deferred Financing Costs
Costs of obtaining debt are amortized using the straight-line method over
the term of the debt.
(d) Property and Equipment
Depreciation is computed by the straight-line method over estimated
useful lives ranging from 15 to 40 years for buildings and improvements
and 3 to 10 years for furniture and equipment. Maintenance and repairs
are charged to expense as incurred.
(e) Goodwill and Other Intangible Assets
The excess of cost over fair values of net assets acquired in purchase
transactions has been recorded as goodwill and is being amortized on a
straight-line basis over 20 to 40 years. Other identifiable intangibles
acquired of $6,452 include assembled workforce, covenant not to compete
and customer base which are being amortized on a straight line basis over
periods of 21 to 228 months. As of December 31, 2001 and 2000,
accumulated amortization of goodwill and other intangible assets was
$17,532 and $11,932, respectively. As discussed in Note 1, upon the
adoption of FAS No. 142, the Company will cease amortization of goodwill.
On a periodic basis, the Company evaluates the carrying value of its
intangible assets to determine if the facts and circumstances suggest
that intangible assets may be impaired. If this review indicates that
intangible assets may not be recoverable, as determined by the
undiscounted cash flow of the entity acquired over the remaining
amortization period, the Company's carrying value of intangible assets
would be reduced by the estimated shortfall of cash flows, on a
discounted basis. Upon the adoption of FAS No. 142, as discussed above,
the Company will modify their approach for reviewing for impairment.
26
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(f) Income Taxes
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(g) Earnings Per Share
Earnings per share is computed based on weighted average number of common
shares outstanding of 3,320,000 shares for 2001, 2000 and 1999.
(h) Revenue Recognition
The Company's revenue recognition policy is to recognize rental income
ratably over the month on a daily basis. Billings for periods extending
beyond the month end are recorded as deferred income. Sales revenue is
recognized at the time the units are delivered and installed, with the
exception of long-term construction-type sales contracts for which
revenue is recognized under the percentage of completion method. Under
this method, income is recognized based on the incurred costs to date
compared to estimated total costs. All other revenue is recognized when
related services have been performed.
(i) Accounts Receivable
The Company's accounts receivable consist of amounts due from customers
throughout the United States and Canada. Collateral is generally not
required. The Company provides an allowance for doubtful accounts
receivable by a charge to operations in amounts equal to the estimated
losses expected to be incurred in collection of the accounts. The
estimated losses are based on historical collection experience and a
review of the current status of the existing receivables. Customer
accounts are written off against the allowance for doubtful accounts when
an account is determined to be uncollectible.
(j) Reclassifications
Certain prior year amounts have been reclassified to conform to current
year presentation.
27
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
3. Property and Equipment
Property and equipment consist of the following:
December 31
2001 2000
-----------------------------------
Land $17,223 $13,089
Buildings and improvements 28,162 28,464
Furniture and equipment 59,755 47,106
-----------------------------------
105,140 88,659
Less accumulated depreciation 31,358 23,893
-----------------------------------
Net property and equipment $73,782 $64,766
===================================
4. Revolving Credit Facility and Long-Term Debt
Debt consists of the following:
December 31
2001 2000
----------------------------------
Borrowings under revolving credit facility $ 564,922 $500,460
Term loan 58,050 58,650
9.875% senior notes 400,000 400,000
----------------------------------
$1,022,972 $959,110
==================================
The loan agreement for the credit facility provides for a $600,000 (increased
from $540,000 effective January 26, 2001) revolving credit facility maturing May
21, 2002 and a $60,000 term loan maturing May 21, 2005. Availability under the
revolver, which is based upon a borrowing base calculation, was $32,258 at
December 31, 2001. Interest was payable at a rate of either prime plus 0.75% or
the Eurodollar rate plus 2.0%. The weighted average interest rates of the
revolver under the credit agreement were 4.22% and 8.85% at December 31, 2001
and 2000, respectively. Principal payments due on the term loan are equal to 1%
per year payable quarterly through March 31, 2002, with equal quarterly
installments commencing June 30, 2002. Interest on the term loan is payable at a
rate of either prime plus 2.0% or the Eurodollar rate plus 3.25%. The weighted
average interest rates of the term loan under the credit agreement were 5.25%
and 10.06% at December 31, 2001 and 2000, respectively.
28
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. Revolving Credit Facility and Long-Term Debt (continued)
Borrowings under the revolving credit facility are secured by a first priority
lien on and security interest in the Company's rental equipment, accounts
receivable and property and equipment. In addition to the restrictions and
limitations described under the note agreement, including restrictions on the
amount of dividends that the Company can pay to Holdings, the revolving credit
facility loan agreement requires compliance with certain financial covenants
including capital expenditures, interest coverage and fleet utilization levels.
The Company was in compliance with such covenants during 2001.
The 9.875% senior notes are due June 1, 2007 with interest payable semi-annually
on June 1 and December 1 of each year. On or after June 1, 2002, the notes are
redeemable at the option of the Company, at redemption prices of 104.938% and
102.469% during the 12-month periods beginning June 1, 2002 and 2003,
respectively, and 100% thereafter. Upon the occurrence of a change of control,
the notes may be redeemed as a whole at the option of the Company at a
redemption price of 100% plus the applicable premium as defined in the
agreement.
The notes are general unsecured obligations of the Company and are subordinated
in right of payment to all secured indebtedness. Additionally, the notes are
guaranteed by Willscot, the Company's wholly owned subsidiary. Such guaranty is
full and unconditional, and joint and several. The note agreement limits or
restricts the Company's ability to incur additional indebtedness; make
distributions of capital in an amount not to exceed 50% of accumulated earnings,
dispose of property; incur liens on property; pay dividends to Holdings; and
merge with or acquire other companies.
At December 31, 2001 and 2000, the fair value of debt was approximately
$1,016,972 and $883,110, respectively, based on the quoted market price of the
senior notes and the book value of the credit facility, which are adjustable
rate notes.
Letter of credit obligations at December 31, 2001 were $2,820.
See Note 11 of Notes to the Consolidated Financial Statements, Subsequent
Events, regarding financing activities after December 31, 2001.
29
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. Income Taxes
Deferred income taxes related to temporary differences between the tax bases of
assets and liabilities and the respective amounts reported in the financial
statements are summarized as follows:
December 31
2001 2000
-----------------------------
Deferred tax liabilities:
Cost basis in excess of tax basis of assets and accelerated tax
depreciation:
Rental equipment $243,222 $220,502
Property and equipment 818 1,074
Other 2,626 2,631
-----------------------------
Total deferred tax liabilities 246,666 224,207
-----------------------------
Deferred tax assets:
Allowance for doubtful accounts 467 390
Rents billed in advance 10,321 10,127
Net operating loss carryovers 80,379 74,743
Alternative minimum tax credit carryovers 1,759 1,759
Other 4,470 5,271
-----------------------------
97,396 92,290
Less: valuation allowance (3,400) (3,400)
-----------------------------
Total deferred tax assets 93,996 88,890
-----------------------------
Net deferred tax liabilities $152,670 $135,317
=============================
At December 31, 2001, the Company had net operating loss carryovers
available for federal income tax purposes of $199,562 (net of related valuation
allowance), of which $80,186 (net of related valuation allowance) relates to
pre-recapitalization loss carryovers that are subject to certain limitations
under the Internal Revenue Code. The Company is in the process of implementing a
strategy to effectively release these limitations. However, ultimately the
results may not be known for some time. These net operating loss carryovers
expire at various dates from 2003 to 2021. Also, alternative minimum tax credit
carryovers of approximately $1,759 are available without expiration limitations.
An investment credit carryover of approximately $860 expired on December 31,
2000, and the Company recorded a charge to income tax expense accordingly.
30
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
Income tax expense consists of the following:
Years ended December 31
2001 2000 1999
-------------------------------------------
Current $ 252 $ 254 $ 876
Deferred 17,353 14,703 13,837
-------------------------------------------
$17,605 $14,957 $14,713
===========================================
Federal $13,703 $12,644 $12,615
State 2,489 2,313 2,098
Foreign 1,413 - -
-------------------------------------------
$17,605 $14,957 $14,713
===========================================
The provision for income taxes is reconciled to the amount computed by applying
the Federal corporate tax rate of 35% to income before income taxes as follows:
Years ended December 31
2001 2000 1999
-------------------------------------------
Income tax at statutory rate $14,096 $10,876 $11,207
State income taxes, net of federal tax benefit 1,618 1,503 1,144
Amortization of goodwill and other intangible assets 1,776 1,702 1,838
Other 115 876 524
-------------------------------------------
$17,605 $14,957 $14,713
===========================================
31
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Commitments
The Company is obligated under noncancelable operating leases of certain
equipment, vehicles and parcels of land. At December 31, 2001 approximate future
minimum rental payments are as follows:
2002 $ 8,407
2003 6,692
2004 5,442
2005 4,439
2006 3,244
Thereafter 3,541
-----
Total minimum future lease payments $31,765
=======
Rent expense was $11,490 in 2001, $9,839 in 2000, and $8,817 in 1999.
7. Employee Benefit Plans
The Company has adopted a defined contribution plan (the 401(k) Plan) which is
intended to satisfy the tax qualification requirements of Sections 401(a),
401(k), and 401(m) of the Internal Revenue Code of 1986 (the Code). The 401(k)
Plan covers substantially all employees and permits participants to contribute
the lesser of (i) 15% of their annual compensation from the Company or (ii) the
dollar limit described in Section 402(g) of the Code ($10,500 in 2001). All
amounts deferred under this salary reduction feature are fully vested.
The 401(k) Plan has a "matching" contribution feature under which the Company
may contribute a percentage of the amount deferred by each participant. Such
percentage, if any, is determined by the Board of Directors at their discretion.
The Plan also has a "profit sharing" feature, under which the Company may
contribute, at its discretion, an additional amount allocable to the accounts of
active participants meeting the aforementioned eligibility requirements.
Contributions made by the Company on behalf of a 401(k) Plan participant vest
ratably during the first five years of employment and 100% thereafter. Matching
contributions by the Company to the 401(k) Plan were approximately $587 in 2001,
$477 in 2000, and $395 in 1999. No contributions have been made by the Company
under the profit-sharing feature.
The Company has adopted a Deferred Compensation Plan for Executives which is
meant to be an unfunded deferred compensation plan maintained for a select group
of management within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of
the Employee Retirement Income Security Act of 1974. This plan allows key
employees to defer a specified amount of their compensation until termination or
upon the occurrence of other specified events. Such amounts are placed in the
32
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
7. Employee Benefit Plans (continued)
investment vehicles of the employee's choice. As of December 31, 2001, the total
amount deferred under this plan, including earnings, was $1,370.
Holdings adopted a stock option plan for certain key employees of the Company.
The plan was subsequently amended and restated in 1998 (the "Amended and
Restated 1997 Employee Stock Option Plan"). Under the plan, up to 479,500
options to purchase Holdings' outstanding common stock may be granted. The
options are granted with an exercise price equal to the fair value of the shares
as of the date of grant. Fifty percent of the options granted vest ratably over
five years, and fifty percent vest based on the Company meeting certain
financial goals over the same five periods. All options expire 10 years from the
date of grant. The Company is accounting for the options using variable plan
accounting. Under this plan, 23,300 and 46,100 options were granted in 2001 and
2000, respectively. For those options in which both the grant date and the
measurement date were known, the Company recognized compensation
(income)/expense in the amount of ($278), $479 and $1,899 in 2001, 2000, and
1999, respectively.
Prior to the 1997 recapitalization, the Company had adopted a stock option plan
for certain key employees ("1994 Employee Stock Option Plan"). The options were
granted with an exercise price equal to the fair value of the shares as of the
date of grant. All options outstanding under this plan became fully vested in
conjunction with the recapitalization.
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," and has been determined as if the Company had accounted for its
employee stock options under the minimum value method of that Statement. The
minimum value for these options was estimated at the date of grant by
calculating the excess of the fair value of the stock at the date of grant over
the present value of both the exercise price and the expected dividend payments,
each discounted at the risk free rate, over the expected exercise life of the
option. The following weighted average assumptions were used for 2001, 2000 and
1999: risk-free interest rate of 4.5%, 6.3%, and 5.6%, respectively; weighted
average expected life of the options of 5 years; and no dividends.
For purposes of pro forma disclosures, the estimated minimum value of the
options is amortized to expense over the options' vesting period. Note that the
effects of applying SFAS 123 for pro forma disclosure in the current year are
not necessarily representative of the effects on pro forma net income for future
years. The Company's pro forma information follows:
2001 2000 1999
-------------- ------------- --------------
Pro forma net income $22,919 $ 15,482 $16,946
Pro forma earnings per share $ 6.90 $ 4.66 $ 5.10
33
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
7. Employee Benefit Plans (continued)
A summary of stock option activity and related information for the years ended
December 31 follows. Amounts have been restated for the three-for-one stock
split granted by Holdings in December 1997:
2001 2000 1999
-----------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-----------------------------------------------------------------------------
Beginning balance 1,120,540 $23.56 1,107,840 $22.68 1,099,640 $22.12
Granted 23,300 50.67 46,100 50.67 29,800 50.67
Canceled - - - - - -
Forfeited (18,700) (38.45) (33,400) (31.77) (21,600) (32.07)
-----------------------------------------------------------------------------
Ending balance 1,125,140 23.87 1,120,540 23.56 1,107,840 $22.68
Exercisable at end of year 975,506 20.26 871,030 18.54 950,165 $19.94
Weighted average minimum value
of options granted during
year $ 9.34 $19.45 $12.08
Exercise prices for options outstanding as of December 31, 2001 are detailed in
the following table. The weighted-average remaining contractual life of those
options is 5.38 years.
- -------------------------------------------------------------------------------
Weighted
Shares Outstanding at Shares Exercisable at Average
Exercise Price December 31, 2001 December 31, 2001 Remaining
Contractual Life
- -------------------------------------------------------------------------------
$ 4.59 73,200 73,200 3.3 years
$ 9.60 278,100 278,100 4.3 years
$18.39 275,190 275,190 5.3 years
$30.50 344,000 296,761 6.0 years
$50.67 154,650 52,255 7.9 years
- -------------------------------------------------------------------------------
34
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Supplemental Condensed Consolidating Financial Information
The 9.875% senior notes issued by the Company are guaranteed by its wholly owned
subsidiary, Willscot, which acts as a full and unconditional, and joint and
several subordinated guarantor of the notes. See Note 1 for a description of the
operations of this subsidiary. Additionally, Willscot has entered into a
management agreement with the Company whereby it pays a fee to the Company in an
amount equal to the rental and other income (net of depreciation expense) it
earns from the Company. Therefore, Willscot earns no net income. The following
summarizes condensed consolidating financial information for the Company
(Parent) and Willscot (Guarantor Subsidiary).
As of December 31, 2001
------------------------------------------------------------
Guarantor
Parent Subsidiary Eliminations Consolidated
-----------------------------------------------------------
Balance Sheet
Assets
Rental equipment, at cost $ 305,549 $739,364 $ - $1,044,913
Less accumulated depreciation 61,980 116,066 178,046
-----------------------------------------------------------
Net rental equipment 243,569 623,298 - 866,867
Property and equipment, net 73,782 73,782
Investment in Willscot 629,747 (629,747) -
Other assets 297,886 6,449 - 304,335
-----------------------------------------------------------
Total assets $1,244,984 $629,747 $(629,747) $1,244,984
===========================================================
Liabilities:
Accounts payable and accrued expenses $ 50,287 $ - $ - $ 50,287
Long-term debt and revolving credit facility 1,022,972 1,022,972
Other liabilities 178,466 178,466
-----------------------------------------------------------
Total liabilities 1,251,725 - - 1,251,725
-----------------------------------------------------------
Equity (deficit): (6,741) 629,747 (629,747) (6,741)
------------------------------------------------------------
Total liabilities and stockholder's equity (deficit) $1,244,984 $ 629,747 $(629,747) $1,244,984
============================================================
35
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Supplemental Condensed Consolidating Financial Information (continued)
As of December 31, 2000
-----------------------------------------------------------
Guarantor
Parent Subsidiary Eliminations Consolidated
-----------------------------------------------------------
Balance Sheet
Assets:
Rental equipment, at cost $ 263,768 $ 691,660 $ - $ 955,428
Less accumulated depreciation 57,390 98,044 155,434
-----------------------------------------------------------
Net rental equipment 206,378 593,616 - 799,994
Property and equipment, net 64,766 64,766
Investment in Willscot 597,673 (597,673) -
Other assets 277,081 4,057 - 281,138
-----------------------------------------------------------
Total assets $1,145,898 $ 597,673 $(597,673) $1,145,898
===========================================================
Liabilities:
Accounts payable and accrued expenses $ 54,735 $ - $ - $ 54,735
Long-term debt and revolving credit facility 959,110 959,110
Other liabilities 160,074 160,074
-----------------------------------------------------------
Total liabilities 1,173,919 - - 1,173,919
-----------------------------------------------------------
Equity (deficit): (28,021) 597,673 (597,673) (28,021)
-----------------------------------------------------------
Total liabilities and stockholder's equity (deficit): $1,145,898 $ 597,673 $(597,673) $1,145,898
===========================================================
For the Year Ended December 31, 2001
----------------------------------------------------------
Guarantor
Parent Subsidiary Eliminations Consolidated
----------------------------------------------------------
Results of Operations
Total revenues $431,703 $ 73,698 $(13,145) $492,256
Gross profit 180,637 47,981 - 228,618
Other expenses 153,511 47,981 (13,145) 188,347
Net income $ 22,666 $ - $ - $ 22,666
36
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Supplemental Condensed Consolidating Financial Information (continued)
For the Year Ended December 31, 2000
------------------------------------------------------------
Guarantor
Parent Subsidiary Eliminations Consolidated
------------------------------------------------------------
Results of Operations
Total revenues $381,430 $ 66,190 $(15,474) $432,146
Gross profit 173,751 43,476 - 217,227
Other expenses 158,149 43,476 (15,474) 186,151
Net income $ 16,119 $ - $ - $ 16,119
For the Year Ended December 31, 1999
-----------------------------------------------------------
Guarantor
Parent Subsidiary Eliminations Consolidated
-----------------------------------------------------------
Results of Operations
Total revenues $362,123 $ 60,476 $(16,794) $405,805
Gross profit 162,788 40,401 - 203,189
Other expenses 147,562 40,401 (16,794) 171,169
Net income $ 17,307 $ - $ - $ 17,307
For the Year Ended December 31, 2001
------------------------------------------------------------
Guarantor
Parent Subsidiary Eliminations Consolidated
------------------------------------------------------------
Cash Flows
Cash provided by operating activities $ 39,674 $ 21,545 $ - $ 61,219
Cash used in investing activities (71,027) (55,399) - (126,426)
Cash (used in) provided by financing
activities 28,494 34,751 - 63,245
---------------------------------------------------------------
Net change in cash (2,859) 897 - (1,962)
Cash at beginning of period 2,546 - - 2,546
---------------------------------------------------------------
(Overdraft)/cash at end of period $ (313) $ 897 $ - $ 584
===============================================================
37
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Supplemental Condensed Consolidating Financial Information (continued)
For the Year Ended December 31, 2000
-------------------------------------------------------------
Guarantor
Parent Subsidiary Eliminations Consolidated
-------------------------------------------------------------
Cash Flows
Cash provided by operating activities $ 65,403 $ 21,574 $ - $ 86,977
Cash used in investing activities (56,446) (71,858) - (128,304)
Cash (used in) provided by financing
activities (7,052) 50,284 - 43,232
-------------------------------------------------------------
Net change in cash 1,905 - - 1,905
Cash at beginning of period 641 - - 641
-------------------------------------------------------------
Cash at end of period $ 2,546 $ - $ - $ 2,546
=============================================================
For the Year Ended December 31, 1999
-------------------------------------------------------------
Guarantor
Parent Subsidiary Eliminations Consolidated
-------------------------------------------------------------
Cash Flows
Cash provided by operating activities $ 50,291 $ 22,047 $ - $ 72,338
Cash used in investing activities (61,417) (81,306) - (142,723)
Cash provided by financing activities 10,971 59,259 - 70,230
--------------------------------------------------------------
Net change in cash (155) - - (155)
Cash at beginning of period 796 - - 796
--------------------------------------------------------------
Cash at end of period $ 641 $ - $ - $ 641
==============================================================
38
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9. Related Party Transactions
During 2001, 2000 and 1999, the Company paid dividends of $60, $55, and $55,
respectively, to Holdings primarily to fund normal operating expenses.
10. Contingencies
The Company is involved in various lawsuits and claims arising out of the normal
course of its business. In addition, the Company has insurance policies to cover
general liability and workers compensation related claims.
In the opinion of management, the ultimate amount of liability not covered by
insurance, if any, under pending litigation and claims will not have a
materially adverse effect on the financial position or operating results of the
Company.
11. Subsequent Events
In February 2002, the Company issued $150,000 of additional 9.875% senior
unsecured notes under its existing indenture. The additional notes, which are
subject to all of the same terms and conditions as the $400,000 of previously
issued notes, were issued at a price of 98.751%. Net proceeds from the issuance
were used to permanently repay the outstanding balance of the term loan ($58,050
plus accrued interest) and to reduce outstanding borrowings under the revolver.
In March 2002, the Company entered into a new credit facility, the net proceeds
from which were used to refinance its existing credit facility. The new loan
agreement provides for a $460 million revolving credit facility and a $210
million term loan both maturing on December 31, 2006. The facility also provides
for up to an additional $30 million in term or revolver commitments. Interest on
borrowings under both the term and revolver is payable at a rate of either prime
plus 1.75% or the Eurodollar rate plus 3.00%. Such rates may decrease based upon
the Company achieving specified leverage ratio thresholds. Principal payments
due on the term loan are equal to 1% per year payable quarterly beginning June
30, 2002, with the remaining balance due December 31, 2006.
Borrowings under the new credit facility, which are based upon a borrowing base
calculation, are secured by a first priority lien on and security interest in
the Company's rental equipment, accounts receivable and property and equipment.
In addition to the restrictions and limitations described under the note
agreement, including restrictions on the amount of dividends that the Company
can pay to Holdings, the new loan agreement requires compliance with certain
financial covenants including capital expenditures, interest coverage, leverage
and fleet utilization levels.
39
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
40
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors and Officers
Our directors and executive officers are as follows:
Name Age Position
- ---- --- --------
Barry P. Gossett 61 Director and Chairman Emeritus of the Board
Gerard E. Holthaus 52 President and Chief Executive Officer; Director and
Chairman of the Board
James N. Alexander 42 Director
Michael F. Finley 40 Director
Steven B. Gruber 44 Director
Brian Kwait 40 Director
David P. Spalding 47 Director
Joseph F. Donegan 51 Executive Vice President - U.S. Field Operations
J. Collier Beall 54 Senior Vice President and Southern Region Vice
President
Gerard E. Keefe 45 Senior Vice President and Chief Financial Officer
William C. LeBuhn 39 Senior Vice President - Marketing and Human Resources
Dean T. Fisher 55 Vice President - Operations
William G. Gessner 43 Vice President - Information Services
John B. Ross 53 Vice President and General Counsel
- ---------------
The directors are elected annually and serve until their successors are
duly elected and qualified. No director of the Company receives any fee for
attendance at Board of Directors meetings or meetings of Committees of the Board
of Directors. Outside directors are reimbursed for their expenses for any
meeting attended.
Executive officers of the Company are elected by the Board of Directors
and serve at the discretion of the Board of Directors.
Barry P. Gossett is Chairman Emeritus of the Board. He is currently a
partner in Pascal Turner Partners, a real estate investment firm. He formerly
served as Chairman of the Board from October 1995 to April 1999 and Chief
Executive Officer of the Company from October 1995 to April 1997. Prior to this,
he served as President and Chief Executive Officer of the Company from 1990 to
October 1995. Mr. Gossett has been a director and employee of the Company or its
predecessor for over thirty years. Before joining the Company, Mr. Gossett was a
partner at Buchanan and Company, a Washington, D.C. accounting firm. Mr. Gossett
was one of the founders of the Modular Building Institute, an industry trade
group which represents member companies. Mr. Gossett also serves on the Board of
Directors of Nanofab Inc., DeCorp Inc. and several charitable and educational
institutions.
Gerard E. Holthaus was elected Chairman of the Board in April 1999 and
has been President and Chief Executive Officer of the Company since April 1997.
He has been with the Company since June 1994, and served as President and Chief
Operating Officer from October 1995 to April 1997 and
41
was Executive Vice President and Chief Financial Officer prior thereto. He
has served as a director since June 1994. Before joining the Company, Mr.
Holthaus served as Senior Vice President of MNC Financial, Inc. from April 1988
to June 1994. From 1971 to 1988, Mr. Holthaus was associated with the accounting
firm of Ernst & Young (Baltimore), where he served as a partner from 1982 to
1988. He also serves on the Board of Directors of Grove Worldwide, LLC and The
Baltimore Life Companies.
James N. Alexander was elected as a director of the Company in May 1997.
Mr. Alexander has been Chief Financial Officer of Keystone since January 2000
and a Vice President of Keystone since August 1995. He has been a Partner of Oak
Hill Capital Management, Inc., which provides investment advisory services to
Oak Hill Capital Partners, L.P., since February 1999. Prior to joining Keystone,
he worked at Goldman, Sachs & Co. where he was a Vice President in the Fixed
Income Division from August 1993 to July 1995. Mr. Alexander is also a director
for FEP Capital Holdings, L.P., Oak Hill Strategic Partners, L.P., 230 Park
Investors, L.L.C. and 237 Park Investors, L. L. C.
Michael F. Finley was elected as a director of the Company in May 1997. Mr.
Finley has been a Managing Director of Cypress since 1998 and has been a member
of Cypress since its formation in April 1994. Prior to joining Cypress, he was a
Vice President in the Merchant Banking Group at Lehman Brothers Inc.
Steven B. Gruber was elected as a director of the Company in February 2002.
From February 1999 to present, Mr. Gruber has been a Managing Partner of Oak
Hill Capital Management, Inc., the manager of Oak Hill Capital Partners, L.P.
From March 1992 to present he has been a Managing Director of Oak Hill Partners,
Inc. From February 1994 to present, Mr. Gruber has also been an officer of
Insurance Partners Advisors, L.P., an investment advisor to Insurance Partners,
L.P. From October 1992 to present, he has been a Vice President of Keystone,
Inc. Mr. Gruber is also a director of American Skiing Company, Travel Centers of
America, Inc., SNTL Corporation and several private companies related to
Keystone, Inc. and Oak Hill Capital Partners L.P.
Brian Kwait was elected as a director of the Company in September 1998 and
also served in that capacity from December 1993 through May 1997. Mr. Kwait is a
Member and Managing Principal of Odyssey Investment Partners, LLC since April
1997 and was a Principal of Odyssey Partners, LP from August 1989 to March 1997.
Mr. Kwait is also a director of Velocita Corp. and IWO Holdings, Inc.
David P. Spalding was elected as a director of the Company in May 1997. Mr.
Spalding has been a Vice Chairman of Cypress since its formation in April 1994.
Prior to joining Cypress, he was a Managing Director in the Merchant Banking
Group at Lehman Brothers Inc. Mr. Spalding is also a director of AMTROL Inc.,
Frank's Nursery & Crafts, and Lear Corporation.
Joseph F. Donegan has been Executive Vice President of U.S. Field
Operations of the Company since May 2001. He was Senior Vice President and
Northern Division Manager of the Company since September 1996 and served as the
Northeast Regional Manager prior thereto. Mr. Donegan's responsibilities include
the implementation of corporate policies, attainment of branch
42
profitability, fleet utilization management and development of personnel
for the entire United States branch network. Mr. Donegan has over 20 years of
experience within the industry. From 1991 through May 1994, Mr. Donegan held
similar positions with Space Master Buildings, Kullman Industries and Bennett
Mobile Offices.
J. Collier Beall has been Senior Vice President and Southern Division
Manager since September 1996 and was the Southeast Regional Manager prior to
that. Mr. Beall's responsibilities include the implementation of corporate
policies, attainment of branch profitability, fleet utilization management and
development of personnel. Prior to joining the Company in 1977, Mr. Beall was a
Regional Manager for Modular Sales and Leasing Company based in Georgia.
Gerard E. Keefe has been Senior Vice President and Chief Financial
Officer of the Company since April 1997. He formerly served as Vice President,
Fleet and Finance with responsibilities including overall fleet management and
purchasing, treasury functions, planning and budgeting from February 1995 to
April 1997. Prior to joining the Company, Mr. Keefe was with The Ryland Group, a
national homebuilder, from 1993 to 1995. From 1991 to 1993, he was a management
consultant serving the manufacturing, distribution and financial services
industries, and from 1977 to 1991, he was with Ernst & Young, (Baltimore), most
recently as a Senior Manager.
William C. LeBuhn has been Senior Vice President - Marketing and Human
Resources of the Company since March 2002. He formerly served as Vice President
- - Marketing and Human Resources from July 1999 to March 2002, and was Vice
President of Human Resources from January 1994 to July 1999. While still
involved in the Human Resource related programs, Mr. LeBuhn's primary
responsibilities now include the overall strategic marketing plans. Prior to
joining the Company, Mr. LeBuhn was HR Manager for Sherwin-Williams' Eastern
Division from 1992 to January 1994, Director of HR for Consolidated
International Insurance Group, Inc. from 1988 to 1992, and HR Officer for
Meridian Bancorp from 1984 to 1988.
Dean T. Fisher joined our company as Vice President of Operations in
October 2001. His operational responsibilities include credit, invoicing,
document compliance, cash posting, collections and recovery. Prior to joining
our company, Mr. Fisher was Senior Vice President, Division Head of Global
Customer Services for VISA International, a major credit card company, from 1997
to 2001. From 1986 to 1997, he was with some of the predecessors to Bank of
America as a Senior Vice President. From 1977 to 1986, he was with a predecessor
company of Key Corp., a financial institution.
William G. Gessner has been Vice President of Information Services of
the Company since November 1998 with responsibilities including the overall
management of the Company's business information systems and technology
initiatives. He formerly served as Director of Information Services from July
1996 to November 1998. Prior to joining the Company, Mr. Gessner was Director of
Corporate Information Systems at ARINC, Incorporated, an engineering services
and telecommunications company in Annapolis, Maryland, from 1988 to 1996.
John B. Ross has been Vice President and General Counsel for the
Company since February 1995.
43
Prior to joining the Company, Mr. Ross was Corporate Counsel for MNC
Leasing Corporation from 1983 to 1991 and Special Assets Counsel for MNC
Financial, Inc. from 1991 to 1993. Prior to joining MNC Leasing Corporation and
during the period from 1993 to 1995, he was engaged in the private practice of
law in both North Carolina and Maryland.
44
Item 11.
Executive Compensation
Summary Compensation Table
The following table sets forth certain information concerning the
compensation paid or accrued for the last three completed fiscal years of our
five highest paid officers (the "Named Executive Officers") who received total
compensation in excess of $100,000 during 2001.
Long-Term
Compensation
Awards
Annual ---------------
Compensation Securities All Other
------------ Underlying Compensation
Year Salary Bonus Options(1) $ (2)
---- ------ ----- -------------- -----------------
Gerard E. Holthaus
President and Chief Executive Officer ....................2001 $439,177 $139,500 -- $9,433
2000 413,600 103,500 -- 9,433
1999 371,292 112,500 -- 9,183
Joseph F. Donegan
Executive Vice President - U.S. Field Operations..........2001 305,245 45,000 -- 5,375
2000 260,609 33,750 1,000 4,625
1999 247,387 36,000 -- 4,149
J. Collier Beall
Senior Vice President and Southern Region V.P.............2001 275,074 40,500 -- 2,616
2000 258,837 33,750 -- 2,637
1999 244,432 36,000 -- 2,270
Gerard E. Keefe
Senior Vice President and Chief Financial Officer.........2001 174,513 54,000 -- 4,500
2000 159,675 40,500 -- 4,125
1999 149,387 45,000 -- 3,825
William C. LeBuhn
Senior Vice President-Marketing and Human Resources.......2001 144,073 43,200 -- 1,938
2000 133,708 33,000 1,000 --
1999 124,746 36,000 -- --
(1) Represents options granted to purchase shares of Holdings pursuant
to the 1997 Plan for options granted in 2000.
(2) Represents employer match under the 401(k) plan. In addition, amounts
for Mr. Holthaus include a disability insurance premium of $4,058 in
each of 2001, 2000 and 1999.
45
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
The following table contains information covering the number and value of
unexercised stock options held by the Named Executive Officers at the end of the
fiscal year.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Fiscal Year End (1) At Fiscal Year End ($)
Name Exercisable/Unexercisable (2) Exercisable/Unexercisable(3)
- ----------------- ----------------------------- ----------------------------
Gerard E. Holthaus 273,013 / 21,478 $8,343,167 / $175,066
Joseph F. Donegan 100,875 / 7,975 3,036,840 / 71,665
J. Collier Beall 101,725 / 7,175 3,084,521 / 71,665
Gerard E. Keefe 88,250 / 6,650 2,603,591 / 61,427
William C. LeBuhn 92,650 / 6,350 2,923,655 / 61,427
(1) No options were exercised by the Named Executive Officers during fiscal
2001.
(2) For options granted under the 1997 Plan, 50% vest ratably over five
years and 50% vest ratably based on us meeting certain financial
targets over the same five periods. All other options became fully
vested in conjunction with the Recapitalization.
(3) Based on the estimated fair market value at December 31, 2001.
46
Scotsman Holdings, Inc. 1994 Employee Stock Option Plan
In March 1995, a stock option plan was adopted for certain of our key
employees. All options outstanding under this plan became fully vested in
conjunction with the Recapitalization. The options are exercisable for a period
of 10 years from date of grant.
Scotsman Holdings, Inc. Amended and Restated 1997 Employee Stock Option Plan
In December 1997, a stock option plan was adopted for certain of our
key employees, which was amended and restated in December 1998. Under the plan,
up to 479,500 options to purchase Holdings' common stock may be granted. In
2001, 23,300 options were granted under this plan at an offer price of $50.67
per share. Fifty percent of the options granted vest ratably over five years and
fifty percent vest ratably based on the Company meeting certain financial
targets over the same five periods. All options expire 10 years from the date of
grant.
401(k)/Defined Contribution Plan
On May 1, 1993, we adopted a defined contribution plan (the "401(k)
Plan") which is intended to satisfy the tax qualification requirements of
Sections 401(a), 401(k), and 401(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). Each of our employees is eligible to participate in the
salary reduction feature of the 401(k) Plan. The 401(k) Plan permits
participants to contribute the lesser of (i) 15% of their annual compensation
from the Company or (ii) the dollar limit described in Section 402(g) of the
Code ($10,500 in 2001). All amounts deferred by a participant under the 401(k)
Plan's salary reduction feature by a participant are fully vested.
The 401(k) Plan has a "matching" contribution feature under which the
we may contribute a percentage of the amount deferred by each participant who
makes salary reduction deferrals to the 401(k) Plan, and is employed by us on
the last day of the year. This percentage, if any, is determined by the Board of
Directors at their discretion and is communicated to 401(k) Plan participants
during the year for which the matching contribution will be made. Matching
contributions made on behalf of a 401(k) Plan participant are subject to a
deferred vesting schedule based on the number of years a participant has been
employed by us. A participant becomes 20%, 40%, 60%, 80% and 100% vested in the
matching contributions made to the 401(k) Plan on his or her behalf after
completion of 1, 2, 3, 4 and 5 years of service with us, respectively.
The 401(k) Plan also has a "profit sharing" feature, under which we may
contribute, in our discretion, an additional amount which is allocated to the
accounts of active participants who have been employed for 12 consecutive months
by the Company, who have completed 1,000 hours of service during the Plan Year
and who are employed on the last day of the year, based on such participants'
compensation for the year. The vesting schedule for these contributions is
identical to that for matching contributions.
47
A participant's 401(k) Plan benefits generally are payable upon the
participant's death, disability, retirement, or other termination of employment.
Payments under the 401(k) Plan are made in a lump sum.
In 2001, we made matching contributions to the 401(k) Plan participants
in an aggregate amount of $586,507.
Deferred Compensation Plan for Executives
During 1997, we adopted a deferred compensation plan for executives
(the "Plan") which is meant to be an unfunded deferred compensation plan
maintained for a select group of management within the meaning of Sections
201(2), 301(a)(3) and 401 (a)(1) of the Employee Retirement Income Security Act
of 1974. The Plan allows key employees to defer a specified amount of their
compensation until termination or upon the occurrence of other specified events.
Such amounts are placed in the investment vehicles of the employee's choice. As
of December 31, 2001, the total amount deferred under this Plan, including
earnings, was $1,369,542.
Compensation Committee Interlocks and Insider Participation
During 2001, the Compensation Committee was comprised of two outside
directors: David P. Spalding and Daniel L. Doctoroff. Mr. Doctoroff, who was a
managing partner of Oak Hill Capital Management, Inc. and a Vice President of
Keystone, and a director of our company since May 1997, resigned from our board
in December, 2001. Steven B. Gruber has replaced Mr. Doctoroff as a member of
our Compensation Committee in 2002. No member of the Committee has any
interlocking or insider relationship with the Company which is required to be
reported under the applicable rules and regulations of the Securities and
Exchange Commission.
48
Item 12. Security Ownership of Certain Beneficial Owners and Management
All of the issued and outstanding shares of Common Stock of the Company
are owned by Holdings. The following table sets forth certain information
regarding the beneficial ownership of Holdings' Common Stock by (i) all persons
owning of record or beneficially to the knowledge of the Company 5% or more of
the issued and outstanding Holdings Common Stock, (ii) each director
individually, (iii) each executive officer named in the Summary Compensation
Table, and (iv) all executive officers and directors as a group.
Shares of
Name Common Stock Percentage
- ---- ------------ ----------
Cypress Merchant Banking Partners L.P.(1)(2)(3)
c/o The Cypress Group L.L.C.
65 East 55th Street
New York, NY 10022............................................2,431,523 39.24%
Cypress Offshore Partners L.P.(1)(2)(3)
Bank of Bermuda (Cayman) Limited
P.O. Box 513 G.T.
Third Floor
British American Tower
George Town, Grand Cayman
Cayman Islands, B.W.I...............................................125,939 2.03
Scotsman Partners, L.P.(2)(3)(4)
201 Main Street
Fort Worth, TX 76102..............................................2,557,462 41.27
Odyssey Investment Partners Fund, LP(3)(5)
280 Park Avenue
New York, NY 10017..................................................716,536 11.56
James N. Alexander(6)........................................................--- ---
Michael F. Finley(7).........................................................--- ---
Steven B. Gruber(6)..........................................................--- ---
Brian Kwait(8)...............................................................--- ---
David P. Spalding(7).........................................................--- ---
Barry P. Gossett (3)(9)..................................................124,407 2.01
Gerard E. Holthaus (10)(11)(12)..........................................311,113 4.81
Joseph F. Donegan (10)(11)(12)...........................................104,475 1.66
J. Collier Beall (10)(11)(12)........................................... 106,225 1.69
Gerard E. Keefe (10)(11)(12)..............................................89,750 1.43
William C. LeBuhn (10)(11)(12)............................................95,650 1.52
All executive officers and directors as a group..........................910,145 13.13
49
(1) Cypress Merchant Banking Partners L.P. and Cypress Offshore Partners
L.P. are controlled by The Cypress Group L.L.C. or affiliates thereof.
Certain executives of The Cypress Group L.L.C., including Messrs.
Jeffrey Hughes, James Singleton, David Spalding and James Stern, may
be deemed to share beneficial ownership of the shares shown as
beneficially owned by Cypress Merchant Banking Partners L.P. and
Cypress Offshore Partners L.P. Each of such individuals disclaims
beneficial ownership of such shares.
(2) Does not include shares beneficially owned by members of management, as
to which the Investor Group (as defined herein) has an irrevocable
proxy.
(3) Under the Investor Stockholders Agreement (as defined herein), the
Cypress Stockholders (as defined herein), Scotsman Partners, L.P., and
Odyssey Investment Group (as defined herein) have agreed to vote their
shares for certain nominees for director and other matters and the
Cypress Stockholders, Scotsman Partners, L.P., Odyssey Investment Group
and Mr. Gossett have agreed to restrict the transfer of their shares
subject to certain exceptions. See "Certain Relationships and Related
Transactions--Investor Stockholders Agreement."
(4) The shares of Holdings Common Stock beneficially owned by Scotsman
Partners, L.P. may be deemed to be owned by J. Taylor Crandall, Group
31, Inc. ("Group 31") and Arbor Scotsman, L.P. ("AS"). Mr. Crandall is
the sole stockholder of Group 31, which is the general partner of AS,
which, in turn, is the general partner of Scotsman Partners, L.P.
Group 31 and AS disclaim such beneficial ownership. The address of Mr.
Crandall, Group 31 and AS is the same as Scotsman Partners. Mr.
Crandall is a Managing Partner of Oak Hill Capital Management, Inc.
(5) Includes 1,461 shares that are beneficially owned by Odyssey
Coinvestors, LLC, an affiliate of Odyssey Investment Partners, LLC
(together, "Odyssey Investor Group"). The General Partner of Odyssey
Investment Partners Fund, LP is Odyssey Capital Partners, LLC a
Delaware limited liability company (the "General Partner of Odyssey")
and the Managing Member of Odyssey Coinvestors, LLC is Odyssey
Investment Partners, LLC, a Delaware limited liability company. Paul D.
Barnett, Stephen Berger, William Hopkins, Brian Kwait and Muzzi Mirza
are Managing Members of Odyssey Capital Partners, LLC and Odyssey
Investment Partners, LLC, and, therefore, may each be deemed to share
voting and investment power with respect to 716,536 shares and votes
deemed to be owned by the General Partner of Odyssey and Odyssey
Investment Partners, LLC. Each Messrs. Barnett, Berger, Hopkins, Kwait
and Mirza disclaims beneficial ownership of such shares.
(6) Such person's address is c/o Scotsman Partners, L.P.
(7) Such person's address is c/o Cypress Merchant Banking Partners L.P.
(8) Such person's address is c/o Odyssey Investment Partners Fund, LP.
(9) Such person's address is c/o Pascal-Turner Partners,
3300 Eastern Boulevard, Baltimore, Maryland 21220-2825.
50
(10) Such person's address is the address of the Company's principal
executive offices.
(11) Each member of management is a party to the Stockholders' Agreement
whereby he or she has agreed to limit the transferability of his or
her shares. See "Certain Relationships and Related
Transactions--Stockholders' Agreement."
(12) Includes 273,013, 100,875, 101,725, 88,250, 92,650, and 733,538 shares
held as options by Messrs. Holthaus, Donegan, Beall, Keefe and LeBuhn
and all executive officers as a group, respectively, which are
exercisable within 60 days.
51
Item 13. Certain Relationships and Related Transactions
The Recapitalization
Holdings, the Odyssey Investor Group, certain other existing stockholders
of Holdings, certain partnerships affiliated with The Cypress Group L.L.C. and
Scotsman Partners, L.P. are parties to a Recapitalization Agreement dated April
11, 1997 pursuant to which the Recapitalization occurred. See
"Recapitalization".
Stockholders' Agreement
Cypress Merchant Banking Partners, L.P., Cypress Offshore Partners,
L.P., Scotsman Partners, L.P. (collectively the "Investor Group"), the
Management Stockholders and Holdings are parties to a Management Stockholders'
and Optionholders' Agreement dated as of September 14, 1998 (the "Stockholders'
Agreement"), which contains certain rights and restrictions with respect to the
transfer of each Management Stockholder's shares of Common Stock. The
Stockholders' Agreement prohibits the transfer of any shares of Common Stock by
Management Stockholders (other than sales required in connection with the
disposition of all shares of Common Stock owned by the Investor Group and its
affiliates) until the earlier of twelve months after an initial public offering
of the equity of Holdings for designated officers (and sixty days after an
initial public offering for non-designated officers) or the day after the
Investor Group and its affiliates have disposed of more than 33-1/3% of the
shares of Common Stock originally acquired by the Investor Group, and
thereafter, the aggregate number of shares which may be transferred by each
Management Stockholder in any calendar year (other than certain required sales)
may not exceed 25% of the number of shares acquired pursuant to the Subscription
Agreement between Holdings and such Management Stockholder plus the number of
any shares acquired pursuant to the exercise of stock purchase options. In
addition, the Stockholders' Agreement restricts the transfer of shares of Common
Stock by each Management Stockholder for a period of five years from the date of
purchase of such shares, except certain permitted transfers and transfers
pursuant to an effective registration statement or in accordance with Rule 144
under the Securities Act. Upon the expiration of such five-year period, subject
to the foregoing restrictions, each Management Stockholder may transfer his
shares after giving to the Investor Group and Holdings, respectively, a right of
first refusal to purchase such shares.
Each Management Stockholder has the right (and in limited circumstances
the obligation) to sell his shares in connection with certain dispositions of
shares by the Investor Group and the right to cause his shares to be included in
certain registrations of Common Stock on behalf of the Investor Group. In
addition, upon termination of any Management Stockholder's employment, Holdings
may elect to require such Management Stockholder to sell to Holdings all of his
shares.
Investor Stockholders Agreement
On May 22, 1997, Holdings, certain partnerships affiliated with The
Cypress Group, L.L.C. (the "Cypress Stockholders") and Scotsman Partners, L.P.
(collectively, including their permitted
52
transferees, the "Investor Stockholders") and the Odyssey Investor Group,
Barry P. Gossett, BT Investment Partners, Inc. and certain other stockholders
(together with their permitted transferees and the Investor Stockholders, the
"Stockholders") entered into an investor stockholders agreement, which was
subsequently amended on September 1, 1998 (the "Investor Stockholders
Agreement").
Under the terms of the Investor Stockholders Agreement, unless
otherwise agreed to by the Investor Stockholders, the board of directors of
Holdings (the "Board of Directors") will consist of nine directors: three
persons nominated by the Cypress Stockholders, three persons nominated by
Scotsman Partners, one person nominated by Odyssey Investment Group, the
Chairman of the Board of Directors and the President of Holdings. Each of
Cypress Stockholders, Scotsman Partners and Odyssey Investment Group is entitled
to remove and replace any or all of their respective designees on the Board of
Directors and each is entitled to remove the director or directors who are the
Chairman of the Board and the President of Holdings in accordance with the
provisions of the Investor Stockholders Agreement. If the Holdings Common Stock
held by either the Cypress Stockholders or Scotsman Partners is reduced to an
amount less than 20% of the outstanding Holdings Common Stock, but 5% or more of
the outstanding Holdings Common Stock, the Cypress Stockholders or Scotsman
Partners, as the case may be, will be entitled to designate one director. Each
of the Cypress Stockholders or Scotsman Partners will lose the right to
designate one director when the Cypress Stockholders or Scotsman Partners, as
the case may be, no longer holds at least 5% of the outstanding Holdings Common
Stock. From and after the date that Odyssey Investment Group owns less than 5%
of the outstanding Holdings Common Stock, it will no longer be entitled to
designate any director for election or removal. If any of Cypress Stockholders,
Scotsman Partners and Odyssey Investment Group is entitled to designate a lesser
number of directors pursuant to the Investor Stockholders Agreement, then they
will vote their shares to cause the number of the entire Board of Directors to
be reduced by the number of directors they are no longer entitled to designate.
Under the Investor Stockholders Agreement, until such time as either
the Cypress Stockholders or the Scotsman Partners is no longer entitled to
designate three directors, without the approval of a majority of the directors
designated by each of the Cypress Stockholders and Scotsman Partners,
respectively, Holdings will not take certain actions (including mergers,
consolidations, sales of all or substantially all assets, electing or removing
the Chairman or President of Holdings, issuing securities, incurring certain
indebtedness, making certain acquisitions, approving operating and capital
budgets and other major transactions).
Under the Investor Stockholders Agreement, prior to the consummation of
an initial public offering of Holdings Common Stock (an "IPO"), each Stockholder
will have the right to acquire shares of Holdings Common Stock in connection
with certain new issuances of Holdings Common Stock, on the same terms and
conditions, for the amount necessary to allow the participating Stockholder to
maintain its percentage holding of the outstanding Holdings Common Stock.
The Investor Stockholders Agreement contains provisions limiting the
ability of Stockholders to transfer their shares in certain circumstances. Among
other provisions, the Investor Stockholders Agreement includes (i) rights of
first offer in favor of the Investor Stockholders with respect to proposed
transfers of shares to a third party and (ii) tag-along rights in favor of each
Stockholder
53
pursuant to which a selling Stockholder would be required to permit the
other Stockholders to participate on a proportional basis in a transfer of
shares to a third party. Also, if one or more Stockholders holding at least 60%
of the outstanding Holdings Common Stock determine to sell shares to a third
party, in certain circumstances such Stockholders have the right to require the
other Stockholders to sell their shares to such third party.
Under the Investor Stockholders Agreement, the Stockholders have the
right to require the Company to register their shares of Holdings Common Stock
under the Securities Act in certain circumstances, including upon a demand of
certain of the Stockholders.
The Investor Stockholders Agreement (other than the registration rights
provisions) will terminate (unless earlier terminated as specified in the
Investor Stockholders Agreement) upon the earlier of (i) May 22, 2007 and (ii)
completion of an IPO.
Employment Arrangement
During 2001, Mr. Gossett was engaged by the Company to assist with
mergers and acquisitions, real estate project management, strategic initiatives
and other general business services. As compensation for these services, Mr.
Gossett received $120,000 for the year ended December 31, 2001. Mr. Gossett
currently serves as Chairman Emeritus of the Company's Board of Directors.
54
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements and Financial Statement Schedules
(1) and (2). See Index to Financial Statements and
Supplemental Schedules at Item 8 of this Annual Report
on Form 10-K.
(b) Reports on Form 8-K filed in the fourth quarter of 2001.
None.
(c) Exhibits
Exhibit Number
--------------
2.1 -- Recapitalization Agreement, dated as of April 11, 1997.
(Incorporated by reference to Exhibit 2 of Form 8-K dated
May 22, 1997.)
2.2 -- Stock Purchase Agreement, dated as of July 23, 1998.
(Incorporated by reference to Exhibit 2 of Form 8-K dated
September 1, 1998.)
3.1 -- Certificate of Incorporation of Williams Scotsman, Inc.,
as amended. (Incorporated by reference to Exhibit 3(i)
of Form 8-K dated November 27, 1996).
3.2 -- By-laws of Williams Scotsman, Inc. (Incorporated
by reference to Exhibit 3.2 of Registration Statement
on Form S-l, Commission File No. 33-68444).
4.1 -- Indenture dated as of May 15, 1997 among Williams
Scotsman, Inc., Mobile Field Office Company, Willscot
Equipment, LLC and The Bank of New York, as trustee.
(Incorporated by reference to Exhibit 4.1 of Registration
Statement on Form S-4, Commission File No. 333-30753).
10.1 -- Credit Agreement, dated as of May 22, 1997 and Amended
and Restated as of September 1, 1998, by and among
Williams Scotsman, Inc., Scotsman Holdings, Inc.
each of the financial institutions named therein, Bankers
Trust Company, as issuing bank and BT Commercial
Corporation, as agent. (Incorporated by reference to Exhibit
10.1 to the annual report on Form 10-K of Williams Scotsman,
Inc.
55
(Commission Act File No.: 33-68444) for the year ended
December 31, 1998 (the Company's 1998 Form 10-K)).
10.2 -- Investor Stockholders Agreement, dated as of May 22, 1997,
among Scotsman Partners, L.P., Cypress Merchant Banking
Partners, L.P., Cypress Offshore Partners, L.P., Odyssey
Partners, L.P., Barry P. Gossett, BT Investment Partners, Inc.
and certain other stockholders. (Incorporated by reference
to Exhibit 10.3 of Registration Statement on Form S-4,
Commission File No.333-30753).
10.3 -- Amendment No. 1 to Investor Stockholders Agreement, dated as of
September 1, 1998, among Scotsman Partners, L.P.
Cypress Merchant Banking Partners, L.P., Cypress Offshore
Partners, L.P., Odyssey Partners, L.P., Barry P. Gossett,
BT Investment Partners, Inc. and certain other stockholders.
(Incorporated by reference to Exhibit 10.3 of the Company's
1998 Form 10-K.)
10.4 -- Management Stockholders' and Optionholders' Agreement,
dated as of September 14, 1998, among Scotsman Partners, L.P.,
Cypress Merchant Banking Partners, L.P., Cypress Offshore
Partners, L.P., and certain management stockholders of Holdings.
(Incorporated by reference to Exhibit 10.4 of the Company's
1998 Form 10-K.)
10.5 -- Scotsman Holdings, Inc. Employee Stock Purchase Plan.
(Incorporated by reference to Exhibit 10.8 of Registration
Statement on Form S-1 of Scotsman Holdings, Inc.
Commission File No.:33-68444).
10.6 -- Scotsman Holdings, Inc. 1994 Employee Stock Option
Plan. (Incorporated by reference to Exhibit 10.11 of
the Company's Form 10-K for the year ended
December 31, 1994).
10.7 -- Scotsman Holdings, Inc. Amended and Restated 1997 Employee
Stock Option Plan. (Incorporated by reference to Exhibit 10.7
of the Company's 1998 Form 10-K.)
10.8 -- First Amendment to Credit Agreement dated as of July 7, 1999.
(Incorporated by reference to Exhibit 10.8 to the quarterly
report on Form 10-Q of Williams Scotsman, Inc. (Commission Act
File No.: 33-68444) for the quarter ended September 30, 1999
(the Company's 1999 3Q 10-Q)).
56
10.9 -- Second Amendment to Credit Agreement dated as of
September 15, 1999. (Incorporated by reference to Exhibit 10.9
to the Company's 1999 3Q 10-Q).
10.10 -- Third Amendment to Credit Agreement dated as of January 26,
2001. (Incorporated by Reference to Exhibit 99.1 of the
Company's Form 8-K dated February 12, 2001).
12.1 -- Statement regarding computation of ratios.
21.1 -- Subsidiaries of Registrant: Willscot Equipment, LLC,
and Space Master International, Inc.
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
WILLIAMS SCOTSMAN, INC.
By: /s/ Gerard E. Keefe
----------------------------------
Gerard E. Keefe
Senior Vice President and
Chief Financial Officer
Dated: March 29, 2002
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gerard E. Keefe, his or her
attorney-in-fact, with the power of substitution, for him or her in any and all
capacities, to sign any amendments to this Report, and to file the same with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorney-in-fact, or his substitute or substitutes, may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities 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.
Name Capacity Date
---- -------- ----
/s/ Gerard E. Holthaus Chairman, President, Chief March 29, 2002
- -----------------------
Gerard E. Holthaus Executive Officer and Director
/s/ Gerard E. Keefe Senior Vice President and March 29, 2002
- -----------------------
Gerard E. Keefe Chief Financial Officer
/s/ Glenn A. Schultz Controller March 29, 2002
- -----------------------
Glenn A. Schultz
/s/ Barry P. Gossett Chairman Emeritus of the March 29, 2002
- -----------------------
Barry P. Gossett Board
/s/ James N. Alexander Director March 29, 2002
- -----------------------
James N. Alexander
/s/ Michael F. Finley Director March 29, 2002
- -----------------------
Michael F. Finley
58
Name Capacity Date
---- -------- ----
/s/ Steven B. Gruber Director March 29, 2002
- -----------------------
Steven B. Gruber
/s/ Brian Kwait Director March 29, 2002
- -----------------------
Brian Kwait
/s/ David P. Spalding Director March 29, 2002
- -----------------------
David P. Spalding
59
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Year ended December 31,
----------------------------------------------
2001 2000 1999
---- ---- ----
(In thousands)
Allowance for Doubtful Accounts:
Balance at beginning of the period $ 983 $1,058 $ 839
Provision charged to expense 4,204 3,697 2,254
Acquired allowance - - 115
Accounts receivable written-off, net
of recoveries (3,889) (3,772) (2,150)
------- ------- -------
Balance at end of the period $1,298 $ 983 $1,058
===== ===== =====
60
EXHIBITS TO FORM 10-K
WILLIAMS SCOTSMAN, INC.
EXHIBIT INDEX
Sequentially
Numbered
Exhibit No. Description of Document Page
- ----------- ----------------------- --------------
12.1 -- Statement regarding computation of ratios. 62
61
Exhibit 12.1
WILLIAMS SCOTSMAN, INC.AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
Year Ended December 31
-------------------------------------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(Dollars in thousands)
Earnings:
Earnings from continuing
operations before income taxes
and extraordinary item $ 9,965 $12,559 $ 32,020 $ 31,076 $ 40,271
Fixed charges from below 44,900 67,296 86,817 95,140 89,316
------ ------ ------ ------ ------
Total earnings $54,865 $79,855 $118,837 $126,216 $129,587
------ ------ ------- ------- -------
Fixed Charges:
Interest $43,611 $65,060 $ 83,878 $ 91,860 $ 85,486
Interest component of rent expense:
Total rent expense $ 3,866 $ 6,708 $ 8,817 $ 9,839 $ 11,490
Portion considered interest expense 33% 33% 33% 33% 33%
------- ------- ------- ------ -------
Interest component $ 1,289 $ 2,236 $ 2,939 $ 3,280 $ 3,830
------- ------- ------- ------- -------
Total fixed charges $44,900 $67,296 $ 86,817 $ 95,140 $ 89,316
------- ------- ------ ------ ------
Earnings to Fixed Charges 1.2x 1.2x 1.4x 1.3x 1.5x
==== ==== ==== ==== ====
62