SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
[x] THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
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)
(410) 931-6000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year - if
changed since last report)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes__ No X -
The Registrant is a 100%-owned subsidiary of Scotsman Holdings, Inc., a
Delaware corporation. As of August 12, 2004, Scotsman Holdings, Inc. owned
3,320,000 shares of common stock ("Common Stock") of the Registrant.
WILLIAMS SCOTSMAN, INC.
INDEX
FORM 10-Q
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2004 1
and December 31, 2003
Consolidated Statements of Operations for the three 2
and six months ended June 30, 2004 and 2003
Consolidated Statements of Cash Flows for the
six months ended June 30, 2004 and 2003 3
Notes to Consolidated Financial Statements 4-9
Item 2. Management's Discussion and Analysis of 10-16
Financial Condition and Results of Operations
Item 3. Qualitative and Quantitative Disclosures
about Market Risk 17
Item 4. Controls and Procedures 17
PART II - OTHER INFORMATION
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
SAFE HARBOR STATEMENT - CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this Form 10-Q for the quarter ended June 30, 2004
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"). These
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 these forward-looking statements. These factors
include, among others, the following: substantial leverage and our ability to
service debt; changing market trends in the mobile office industry; general
economic and business conditions including a prolonged or substantial recession;
our ability to finance fleet and branch expansion and to locate and finance
acquisitions; 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 these 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.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(dollars in thousands)
June 30, December 31,
2004 2003
---------- ------------
Assets (Unaudited)
Cash $ 380 $ 387
Trade accounts receivable, net of allowance for doubtful
accounts of $946 in 2004 and $862 in 2003 68,864 55,841
Prepaid expenses and other current assets 33,662 33,741
Rental equipment, net of accumulated depreciation of
$240,264 in 2004 and $224,794 in 2003 866,412 828,078
Property and equipment, net of accumulated depreciation of
$49,220 in 2004 and $45,141 in 2003 79,727 80,750
Deferred financing costs, net 19,498 22,868
Goodwill, net 169,885 169,913
Other intangible assets, net of accumulated amortization of
$2,450 in 2004 and $2,127 in 2003 2,991 2,575
Other assets 13,013 10,958
--------- ---------
$1,254,432 $1,205,111
========= =========
Liabilities and stockholder's equity
Accounts payable $ 40,758 $ 29,505
Accrued expenses 32,429 29,365
Rents billed in advance 20,673 18,295
Revolving credit facility 94,099 54,940
Long-term debt, net 906,734 907,238
Deferred income taxes 151,195 152,903
--------- ---------
Total liabilities 1,245,888 1,192,246
--------- ---------
Stockholder's equity:
Common stock, $.01 par value. Authorized 10,000,000
shares; issued and outstanding 3,320,000 shares 33 33
Additional paid-in capital 132,822 132,368
Cumulative foreign currency translation adjustment 6,055 8,621
Accumulated deficit (130,366) (128,157)
--------- ---------
Total stockholder's equity 8,544 12,865
--------- ---------
$1,254,432 $1,205,111
========= =========
See accompanying notes to consolidated financial statements.
1
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three and six months ended June 30, 2004 and 2003
(Unaudited)
Three months ended Six months ended
June 30, June 30,
---------------------- --------------------
2004 2003 2004 2003
---- ---- ---- ----
(In thousands except share and per share amounts)
Revenues
Leasing $ 54,838 $ 53,560 $107,665 $107,034
Sales:
New units 24,715 18,027 43,806 32,677
Rental equipment 5,798 5,236 11,010 9,653
Delivery and installation 28,832 21,374 49,246 40,302
Other 10,051 9,131 19,418 17,910
------- ------- ------- -------
Total revenues 124,234 107,328 231,145 207,576
------- ------- ------- -------
Costs of sales and services
Leasing:
Depreciation and amortization 11,988 12,667 23,768 24,990
Other direct leasing costs 12,927 10,932 24,015 20,903
Sales:
New units 21,360 15,274 36,876 27,196
Rental equipment 4,701 4,223 8,798 7,776
Delivery and installation 24,502 18,024 42,886 34,823
Other 2,607 1,852 4,837 3,574
------ ------ ------- -------
Total costs of sales and services 78,085 62,972 141,180 119,262
------ ------ ------- -------
Gross profit 46,149 44,356 89,965 88,314
------ ------ ------ ------
Selling, general and administrative expenses 20,118 17,955 40,877 37,757
Other depreciation and amortization 3,680 3,574 7,094 6,959
Interest, including amortization of deferred
financing costs 22,818 20,259 45,445 40,906
------ ------ ------ ------
Total operating expenses 46,616 41,788 93,416 85,622
------ ------ ------ ------
(Loss) income before income taxes (467) 2,568 (3,451) 2,692
Income tax (benefit) expense (178) 1,027 (1,312) 1,077
--- ----- ----- -----
Net (loss) income $ (289) $ 1,541 $ (2,139) $ 1,615
=== ===== ===== =====
(Loss) earnings per common share $ (0.09) $ 0.46 $ (0.64) $ 0.49
==== ==== ==== ====
Dividends per common share $ 0.01 $ 0.01 $ 0.02 $ 0.01
==== ==== ==== ====
Weighted average shares outstanding 3,320,000 3,320,000 3,320,000 3,320,000
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
2
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six months ended June 30
------------------------
Cash flows from operating activities 2004 2003
----- -----
Net (loss) income $ (2,139) $ 1,615
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 34,289 34,896
Bond discount amortization 178 178
Provision for bad debts 1,251 1,060
Deferred income tax (benefit) expense (1,594) 981
Non-cash stock option compensation expense 454 504
Gain on sale of rental equipment (2,212) (1,877)
(Gain) loss on sale of fixed assets (5) 164
(Increase) decrease in trade accounts receivable (14,471) 8,277
Increase in accounts payable and accrued expenses 14,401 9,047
Other (2,209) 2,386
------ ------
Net cash provided by operating activities 27,943 57,231
------ ------
Cash flows from investing activities
Rental equipment additions (30,237) (25,447)
Proceeds from sales of rental equipment 11,010 9,653
Purchases of property and equipment, net (3,425) (4,582)
Acquisition of businesses, net of cash acquired -- (3,326)
Fleet acquisitions (43,470) --
------ ------
Net cash used in investing activities (66,122) (23,702)
------ ------
Cash flows from financing activities
Proceeds from debt 266,941 189,218
Repayment of debt (228,464) (221,088)
Increase in deferred financing costs (57) (777)
Payment of dividends (70) (34)
------ ------
Net cash provided by (used in) financing activities 38,350 (32,681)
------ ------
Net effect of change in exchange rates (178) 254
----- ---
Net (decrease) increase in cash (7) 1,102
Cash at beginning of period 387 427
--- ---
Cash at end of period $ 380 $ 1,529
=== =====
Supplemental cash flow information:
Cash paid for income taxes $ 474 $ 544
=== ===
Cash paid for interest $ 42,098 $ 38,005
====== ======
See accompanying notes to consolidated financial statements.
3
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in thousands, except share and per share amounts)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Williams Scotsman, Inc. (the Company) is a 100% 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 its
100% owned subsidiaries, Willscot Equipment, LLC (Willscot), Williams Scotsman
of Canada, Inc., and Williams Scotsman Mexico S. De R.L. de C.V. Willscot, a
special purpose subsidiary, was formed in May 1997; its operations are limited
to the leasing of its mobile office units to the Company under a master lease.
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 operations of the Company consist primarily of the leasing and sale of
mobile offices, modular buildings and storage products (equipment) and their
delivery and installation throughout the United States, Canada, and certain
parts of Mexico.
(2) FINANCIAL STATEMENTS
In the opinion of management, the unaudited financial statements contain all
adjustments (consisting only of normal, recurring adjustments) necessary to
present fairly the Company's financial position as of June 30, 2004, the
consolidated statements of operations for the three and six month periods ended
June 30, 2004 and 2003, and the consolidated statements of cash flows for the
six months ended June 30, 2004 and 2003. The results of operations for the
periods ended June 30, 2004 are not necessarily indicative of the operating
results expected for the full year.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest Form 10-K. Certain prior year amounts have been reclassified to
conform to the current year presentation.
4
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(3) ACCOUNTING CHANGE
During the fourth quarter of 2003, the Company adopted the fair value
recognition provisions of SFAS 123, Accounting for Stock-Based Compensation,
retroactively effective January 1, 2003, using the modified prospective method
described in SFAS 148, Accounting for Stock-Based Compensation--Transition and
Disclosure . Under the fair value recognition provisions of SFAS 123,
stock-based compensation cost is measured at the grant date based on the fair
value of the award and is recognized as expense over the vesting period. The
impact of this change resulted in an $840 and a $0.25 increase in net income and
earnings per share, respectively, for the three month period ended June 30,
2003, as well as a $720 and a $0.22 increase in net income and earnings per
share, respectively, for the six month period ended June 30, 2003.
(4) PURCHASE OF CALIFORNIA CLASSROOM UNITS
On March 26, 2004, the Company acquired nearly 3,800 relocatable DSA classroom
units located in the state of California from Transport International Pool, Inc.
(d/b/a GE Modular Space) for approximately $43.5 million. The assets were
acquired using available funds under the Company's revolving credit facility.
The acquisition included the purchase of units, equipment associated with these
classroom units as well as rights under all outstanding leases related to these
classroom units and certain other assets. The Company did not acquire employees,
physical facilities, sales force, or other business related items. In addition,
the customer base, which is primarily related to public and private educational
institutions in the State of California, is similar to, and in many cases
duplicative of, the Company's existing customer base. As a result, the Company
considers the purchase of these assets an asset purchase rather than an
acquisition of a business.
(5) REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
Debt consists of the following:
June 30, December 31,
2004 2003
----------- ------------
Borrowings under revolving credit facility $ 94,099 $ 54,940
Term loan 207,367 208,428
Capital lease obligations 378 --
9.875% senior notes, net of unamortized discount
of $1,011 in 2004 and $1,189 in 2003 548,989 548,810
10.0% senior secured notes 150,000 150,000
--------- -------
$1,000,833 $ 962,178
========= =======
5
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(6) COMPREHENSIVE (LOSS) INCOME
Total comprehensive (loss) income was $(2,159) and $6,007 for the three months ended June 30, 2004 and
2003, respectively, and $(4,705) and $9,216 for the six months ended June 30, 2004 and 2003,
respectively, which includes net (loss) income and the change in the foreign currency translation
adjustment. A summary of the components of comprehensive(loss) income for the three and six month
periods ended June 30, 2004 and 2003 is presented below.
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- ------------------------
2004 2003 2004 2003
---- ---- ---- ----
Net (loss) income $ (289) $1,541 $(2,139) $1,615
Change in currency translation (1,870) 4,466 (2,566) 7,601
------ ----- ------ -----
Comprehensive (loss) income $ (2,159) $6,007 $(4,705) $9,216
===== ===== ====== =====
(7) EARNINGS AND DIVIDENDS PER SHARE
Earnings per common share is computed by dividing net income by the weighted average number of common
shares outstanding during the periods. Dividends per common share is computed by dividing dividends
paid by the weighted average number of common shares outstanding during the periods.
6
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(8) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The 9.875% senior notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company's
100% owned subsidiaries, Space Master International, Inc., Evergreen Mobile Company, Truck & Trailer Sales, Inc.
and Williams Scotsman of Canada, Inc. Willscot has fully and unconditionally guaranteed the 9.875% senior notes
on a subordinated basis. The 10.0% senior secured notes are fully and unconditionally guaranteed on a senior
secured second lien basis by the Company's 100% owned subsidiaries. Willscot, also a 100% owned subsidiary, has
fully and unconditionally guaranteed the 10.0% senior secured notes on a subordinated secured second lien basis.
These 100% owned subsidiaries (Guarantor Subsidiaries), act as joint and several guarantors of both the 9.875% and
10.0% senior notes.
The following presents condensed consolidating financial information for Williams Scotsman, Inc. (Parent) and its
100% owned Guarantor Subsidiaries. Space Master International, Inc., Evergreen Mobile Company, and Truck & Trailer
Sales, Inc. do not have any assets or operations. See Note 1, Organization and Basis of Presentation, for a description
of the operations of Willscot.
As of June 30, 2004
-------------------
Guarantor
Parent Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------
Balance Sheet
Assets:
Rental equipment, at cost $ 354,303 $ 752,373 $ - $ 1,106,676
Less accumulated depreciation 73,829 166,435 - 240,264
------------ ------------ ------------ ------------
Net rental equipment 280,474 585,938 - 866,412
Property and equipment, net 77,769 1,958 - 79,727
Investment in subsidiaries 527,559 - (527,559) -
Other assets 342,579 7,940 (42,226) 308,293
----------- ------------ ------------ ------------
Total assets $ 1,228,381 $ 595,836 $ (569,785) $ 1,254,432
=========== ============ ============ ============
Liabilities:
Accounts payable and accrued expenses $ 69,549 $ 3,638 $ - $ 73,187
Debt 1,000,833 - - 1,000,833
Other liabilities 170,564 43,530 (42,226) 171,868
------------ ------------ ------------ ------------
Total liabilities 1,240,946 47,168 (42,226) 1,245,888
------------ ------------ ------------ ------------
Equity: (12,565) 548,668 (527,559) 8,544
------------ ------------ ------------ ------------
Total liabilities and stockholder's equity $ 1,228,381 $ 595,836 $ (569,785) $ 1,254,432
============ ============ ============ ============
7
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(8) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
(Continued)
As of December 31, 2003
-----------------------
Guarantor
Parent Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------
Balance Sheet
Assets:
Rental equipment, at cost $ 285,649 $ 767,223 $ - $ 1,052,872
Less accumulated depreciation 59,237 165,557 - 224,794
------------ ------------ ------------ ------------
Net rental equipment 226,412 601,666 - 828,078
Property and equipment, net 79,217 1,533 - 80,750
Investment in subsidiaries 546,750 - (546,750) -
Other assets 328,802 9,461 (41,980) 296,283
------------ ------------ ------------ ------------
Total assets $ 1,181,181 $ 612,660 $ (588,730) $ 1,205,111
============ ============ ============ ============
Liabilities:
Accounts payable and accrued expenses $ 55,528 $ 3,342 $ - $ 58,870
Debt 962,178 - - 962,178
Other liabilities 171,197 41,981 (41,980) 171,198
------------ ------------ ------------ ------------
Total liabilities 1,188,903 45,323 (41,980) 1,192,246
------------ ------------ ------------ ------------
Equity: (7,722) 567,337 (546,750) 12,865
------------ ------------ ------------ ------------
Total liabilities and stockholder's equity $ 1,181,181 $ 612,660 $ (588,730) $ 1,205,111
============ ============ ============ ============
For the Six Months Ended June 30, 2004
--------------------------------------
Guarantor
Parent Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------
Results of Operations
Total revenues $ 218,462 $ 47,490 $ (34,807) $ 231,145
Gross profit 84,574 28,171 (22,780) 89,965
Other expenses 89,355 25,529 (22,780) 92,104
------------ ------------ ------------ ------------
Net (loss) income $ (4,781) $ 2,642 $ - $ (2,139)
============ ============ ============ ============
8
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(8) SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
For the Six Months Ended June 30, 2003
--------------------------------------
Guarantor
Parent Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------
Results of Operations
Total revenues $ 196,593 $ 46,186 $ (35,203) $ 207,576
Gross profit 84,051 26,677 (22,414) 88,314
Other expenses 84,912 24,201 (22,414) 86,699
------------ ------------ ------------ ------------
Net (loss) income $ (861) $ 2,476 $ - $ 1,615
============ ============ ============ ============
For the Six Months Ended June 30, 2004
--------------------------------------
Guarantor
Parent Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------
Cash Flows
Cash provided by operating activities $ 8,935 $ 19,008 $ - $ 27,943
Cash used in investing activities (46,995) (19,127) - (66,122)
Cash provided by financing activities 38,350 - - 38,350
Effect of change in translation rates (302) 124 - (178)
------------ ------------ ------------ ------------
Net change in cash (12) 5 - (7)
Cash at beginning of period 386 1 - 387
------------ ------------ ------------ ------------
Cash at end of period $ 374 $ 6 $ - $ 380
============ ============ ============ ============
For the Six Months Ended June 30, 2003
--------------------------------------
Guarantor
Parent Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------
Cash Flows
Cash provided by operating activities $ 39,051 $ 18,180 $ - $ 57,231
Cash used in investing activities (4,651) (19,051) - (23,702)
Cash used in financing activities (32,681) - - (32,681)
Effect of change in translation rates (735) 989 - 254
------------ ------------ ------------ ------------
Net change in cash 984 118 - 1,102
Cash (overdraft) at beginning of period (622) 1,049 - 427
------------ ------------ ------------ ------------
Cash at end of period $ 362 $ 1,167 $ - $ 1,529
============ ============ ============ ============
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Forward Looking Statements
The following discussion and analysis should be read in conjunction with
the unaudited consolidated financial statements included elsewhere in this
report. The terms "company," "we," "our," and "us" refer to Williams Scotsman,
Inc. and its subsidiaries. The following discussion and analysis contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those contained in our
Annual Report on Form 10-K for the year ended December 31, 2003 under the
headings "Business", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in that report. See the Safe
Harbor Statement at the beginning of this report.
Critical Accounting Policies and Estimates
General. This discussion and analysis of our financial condition and
results of operations is based upon our unaudited 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. On an on-going basis, we evaluate estimates, including
those related to depreciation of rental equipment, bad debts, contingencies and
litigation, intangible assets, stock-based compensation, foreign currency
translation, 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.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of the unaudited
consolidated financial statements. 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.
Depreciation of rental equipment. We depreciate rental equipment over its
estimated useful life, after giving effect to an estimated salvage value. The
useful life of our rental equipment is determined based on our estimate of the
period over which the asset will generate revenue (generally 20 years), and the
residual value (typically 50% of original cost) is determined based on our
estimate of the expected value we could realize from the asset after this
period. The lives and residual values are subject to periodic evaluation and may
be affected by, among other factors, changes in building codes, legislation,
regulations, local permitting and internal factors which may include, but are
not limited to, changes in equipment specifications or maintenance policies. If
these estimates change in the future, we may be required to recognize increased
or decreased depreciation expense for these assets.
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.
10
The allowance for doubtful accounts is determined based on historical collection
results, days sales outstanding trends, and 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. 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 Other Intangible Asset Impairment. We have significant
intangible assets related to goodwill and other acquired intangibles. We
periodically evaluate our long lived assets and intangible assets for potential
impairment indicators. The determination of whether or not these assets are
impaired involves significant judgments regarding estimated future cash flows,
market conditions, operational performance, and/or legal factors. Goodwill, in
particular, is evaluated on an annual basis on October 1st. Based on the most
recent valuation of goodwill completed during the fourth quarter of 2003, we
determined that goodwill was not impaired. Future changes in strategy and/or
market conditions could significantly impact these judgments and require
adjustments to recorded asset balances.
Foreign Currency Translation. We use the exchange rate effective at the
close of business on the balance sheet date to translate our foreign
subsidiaries' balance sheets and an average rate for the reporting period to
translate the results of operations. The cumulative effect of changes in
exchange rates is recognized in a separate line in the equity section of the
consolidated balance sheet.
Stock-based Compensation. Prior to 2003, we accounted for our issuance of
stock options and any modifications thereof using variable plan accounting and
the intrinsic value method under Accounting Principles Board Opinion No. 25 -
Accounting for Stock Issued to Employees (APB No. 25) and related
interpretations. Effective January 1, 2003, we adopted the fair value
recognition provisions of SFAS No. 123 - Accounting for Stock-Based
Compensation. We selected the modified prospective method of adoption described
in SFAS No. 148 - Accounting for Stock-Based Compensation - Transition and
Disclosure (SFAS No. 148). Under SFAS No. 148 stock compensation expense related
to the fair value of our outstanding options must be recognized using estimates
of the risk free interest rate, estimated option life, volatility, dividend
yield, and the exercise price. No significant changes have been made in the
first half of 2004 regarding these input variables that were presented in our
annual report for the year ended December 31, 2003.
Income Taxes. 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
unaudited 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. If our estimates
of future taxable income were to change, we may be also required to increase the
deferred tax asset valuation allowance, thereby increasing our reported income
tax expense.
11
Overview
In the first half of 2004, revenues were $231.1 million, an 11.4% increase
above the same period of 2003, primarily driven by increased new unit sales and
related delivery and installation activity. Gross profit for the first half of
2004 of $90.0 million represented only a 1.9% increase above the same period
2003 primarily due to lower gross profit margins resulting from increased
refurbishment and maintenance costs on leased units as well as competitive
pricing pressures. Operating expenses increased $7.8 million, a 9.1% increase
over the first half of 2003. Net loss for the first half 2004 was $2.1 million
as compared to net income of $1.6 million for the first half of 2003.
Purchase of California Classroom Units
On March 26, 2004, we acquired nearly 3,800 relocatable DSA classroom units
located in the state of California from Transport International Pool, Inc.
(d/b/a GE Modular Space) for approximately $43.5 million. The assets were
acquired using available funds under our revolving credit facility. The
acquisition included the purchase of units, equipment associated with these
classroom units as well as rights under all outstanding leases related to these
classroom units and certain other assets. We did not acquire employees, physical
facilities, sales force, or other business related items. In addition, the
customer base, which is primarily related to public and private educational
institutions in the State of California, is similar to, and in many cases
duplicative of, our existing customer base. As a result, we consider the
purchase of these assets an asset purchase rather than an acquisition of a
business.
We estimate the resulting transaction would result in annual increases to
revenues, income before income taxes, and operating cash flows of approximately
$10.2 million, $4.4 million and $4.5 million, respectively. The estimated income
before income taxes would be, after interest and depreciation expenses, $2.0
million and $1.7 million, respectively. The average age of the units acquired is
approximately 6 years while the remaining depreciable lives range from 2 to 19
years with an average remaining life of approximately 14 years. Operating leases
assumed in the transaction have an average contractual life of less than two
years, however, we expect a significant number of these units to either continue
on a month-to-month basis or be re-leased.
Results of Operations
Three Months Ended June 30, 2004 Compared with Three Months Ended June 30, 2003
2003.
Revenues in the quarter ended June 30, 2004 were $124.2 million; a $16.9
million or 15.8% increase from revenues of $107.3 million in the same period of
2004. The increase resulted primarily from a $7.5 million or 34.9% increase in
delivery and installation revenues, a $6.7 million or 37.1% increase in sales of
new units, a $1.3 million or 2.4% increase in leasing revenue, a $0.6 million or
10.7% increase in sales of rental equipment, and a $0.9 million or 10.1%
increase in other revenue, from the same period in 2003. The increases in sales
of new units and corresponding increase in delivery and installation revenues
are largely due to continued growth in the education industry we serve,
particularly in the West and Southeast regions of the country. The 2.4% increase
in leasing revenue for the quarter ended June 30, 2004 resulted primarily from
our purchase of 3,800 California classroom units in March, 2004 and an increase
in average fleet utilization partially offset by a decrease in our average
rental rate. Average fleet utilization of approximately 80% for the quarter
ended June 30, 2004 was up approximately 4% from the same period of the prior
year. Of this increase, 2.5% is attributed to the Company's strategic initiative
to dispose of selected rental units in our lease fleet, as disclosed in Note 11
to the Consolidated Financial Statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2003. Competitive pricing pressures
served to decrease our average monthly rental rate by 1.3% to $247 for the
quarter ended June 30, 2004.
Gross profit for the quarter ended June 30, 2004 was $46.1 million, a $1.8
million or 4.0% increase from the second quarter of 2003 gross profit. This
increase was primarily driven by the increased sales of new units and delivery
and installation revenues described above. Gross profit from sales of new units
12
and rental equipment increased by $0.7 million or 18.2% compared to the same
period of the prior year while delivery and installation gross profit increased
$1.0 million or 29.3% as compared to the three months ended June 2003. Gross
profit margin percentage from the sales of new units, rental equipment and
delivery and installation decreased by 1.7%, 0.4%, and 0.7%, respectively,
primarily due to competitive pricing pressures. Leasing gross profit for the
quarter ended June 30, 2004 was flat as compared to the prior year quarter.
Increases in leasing revenue for the second quarter were partially offset by
increases in cost of leasing primarily due to increased refurbishment and
maintenance costs. These factors resulted in a decrease in leasing gross profit
margin percentage of 1.4% for the quarter ended June 30, 2004 as compared to the
corresponding prior year period.
Selling, general and administrative expenses for the three month period
ended June 30, 2004 increased by approximately $2.2 million or 12.0% to $20.1
million from $18.0 million in the same period of 2003. This increase is
primarily associated with increased employee and facility related costs,
business insurance, professional fees and marketing related costs.
Interest expense increased by 12.6% to $22.8 million in the second quarter
2004 from $20.3 million in the same period 2003, resulting primarily from the
incremental interest expense incurred on the additional $150.0 million of 10.0%
senior secured notes. The net proceeds of the notes were used to pay off
portions of the term loan and revolving credit facility debt in August 2003.
This incremental interest expense was partially offset by the impact of a $112.9
million or 27.3% decrease in the average credit facility debt over the second
quarter 2003.
Income before income taxes decreased $3.0 million for the three months
ended June 30, 2004 to a loss of $0.5 million compared to income before income
taxes of $2.6 million for the same period 2003. The effective tax rates for the
three month periods ended June 30, 2004 and 2003 were approximately 38% and 40%,
respectively.
Six Months Ended June 30, 2004 Compared with Six Months Ended June 30, 2003.
Revenues for the six months ended June 30, 2004 were $231.1 million; a
$23.6 million or 11.4% increase from revenues of $207.6 million in the same
period of 2004. The increase resulted primarily from a $11.1 million or 34.1%
increase in sales of new units, a $8.9 million or 22.2% increase in delivery and
installation revenues, a $1.5 million or 8.4% increase in other revenue, a $1.4
million or 14.1% increase in sales of rental equipment, and a $0.6 million or
0.6% increase in leasing revenue, from the same period in 2003. The increases in
sales of new units and corresponding increase in delivery and installation
revenues are largely due to continued growth in the education industry we serve,
particularly in the West and Southeast regions of the country. The 0.6% increase
in leasing revenue for the six month period ended June 30, 2004 resulted
primarily from our purchase of 3,800 California classroom units in March 2004
and an increase in average fleet utilization, partially offset by a decrease in
our average rental rate. Average fleet utilization of approximately 79% for the
six months ended June 30, 2004 was up approximately 3% from the same period of
the prior year. Of this increase, 2.5% is attributed to the strategic initiative
previously discussed. Competitive pricing pressures served to decrease our
average monthly rental rate by 1.7% to $249 for the six months ended June 30,
2004.
Gross profit for the six months ended June 30, 2004 was $90.0 million, a
$1.7 million or 1.9% increase from the six months ended June 30, 2003 gross
profit. This increase was primarily driven by the increased sales of new units
13
and delivery and installation revenues described above. Gross profit from sales
of new units and rental equipment increased by $1.8 million or 24.2% compared to
the same period of the prior year while delivery and installation gross profit
increased $0.9 million or 16.1% as compared to the six months ended June 30,
2003. Gross profit margin percentage from the sales of new units and delivery
and installation decreased by 1.0% and 0.7%, respectively, while gross profit
margin percentage from sales of rental equipment increased by 0.7%. The Company
continues to experience the impact of competitive pricing pressures. Leasing
gross profit for the six months ended June 30, 2004 decreased by $1.3 million as
compared to the corresponding prior year period. These decreases resulted
primarily from flat revenues and increased refurbishment and maintenance costs
as compared to the same period in 2003. These factors resulted in a decrease in
leasing gross profit margin percentage of 1.5% for the six months ended June 30,
2004 as compared to the corresponding prior year period.
Selling, general and administrative expenses for the six month period ended
June 30, 2004 increased by approximately $3.1 million or 8.3% to $40.9 million
from $37.8 million in the same period 2003. This increase is primarily
associated with increased employee and facility related costs, business
insurance, professional fees and marketing related costs.
Interest expense increased by 11.1% to $45.4 million in the first half 2004
from $40.9 million in the same period 2003, resulting primarily from the
incremental interest expense incurred on the additional $150.0 million of 10.0%
senior secured notes. The net proceeds of the notes were used to pay off
portions of the term loan and revolving credit facility debt in August 2003.
This incremental interest expense was partially offset by the impact of a $139.1
million or 32.9% decrease in the average credit facility debt over the first
half 2003.
Income before income taxes decreased $6.1 million for the six months ended
June 30, 2004 to a loss of $3.5 million compared to income before income taxes
of $2.7 million for the same period in 2003. The effective tax rates for the six
month periods ended June 30, 2004 and 2003 were approximately 38% and 40%,
respectively.
Contractual Obligations and Commercial Commitments
During the six months ended June 30, 2004, there was no material change in
our contractual obligations and commercial commitments outside of the ordinary
course of business.
Liquidity and Capital Resources
During the six months ended June 30, 2004, and 2003, cash flow from
operating activities were $27.9 million and $57.2 million, respectively. These
funds were largely generated by the rental of units from our lease fleet, the
associated delivery and installation services, and the sales of new mobile
office units. The decrease of $29.3 million resulted primarily from a $14.5
million increase in accounts receivable over the six month period ended June 30,
2004 as compared to the $8.3 million decrease over the same period 2003. The
increase in outstanding receivables at June 30, 2004 was substantially impacted
by large classroom sales in the month of June, particularly in the West and
Southeast regions. The 2003 reduction of accounts receivable was accomplished by
our significant collection efforts to reduce outstanding receivable balances.
Other factors that impacted the decrease in net cash provided by operating
activities included increases in selling, general, and administrative and
interest expenses and decreases in the change in other assets. See Results of
Operations above for further discussion of selling, general, and administrative
14
and interest expense fluctuations. The changes in other assets resulted
primarily from the sale of finance leases during the second quarter 2003 further
described in Note 12 to the Notes to Consolidated Financial Statements included
in the Company's Annual Report filed on Form 10-K for the year ended December
31, 2003. These factors were partially offset by increases in the change in
accounts payable and accrued expenses, which resulted primarily from the timing
of payments of accounts payable.
Cash used in investing activities was $66.1 million and $23.7 million for
the six months ended June 30, 2004 and 2003, respectively. In June 2003,
acquisition purchases consisted of $3.3 million for the second quarter purchase
of a Canadian acquisition while in June 2004, we acquired nearly 3,800
relocatable classrooms located in the state of California for approximately
$43.5 million. See Note 4 to the Consolidated Financial Statements for further
discussion of the California fleet purchase. In addition to acquisitions, our
primary capital expenditures are for the discretionary purchase of new units for
the lease fleet. We seek to maintain our lease fleet in good condition at all
times and generally increase the size of our lease fleet only in those local or
regional markets experiencing economic growth and established unit demand. Our
fleet acquisition strategy includes increasing our fleet size in accordance with
business opportunities.
Net cash provided by financing activities of $38.4 million for the six
month period ended June 30, 2004 consisted of additional net borrowings under
our revolving credit facility, which were used to supplement cash flow from
operating activities in the funding of capital expenditures for the first half
2004, as well as the $43.5 million California fleet purchase as described above.
Net cash used in financing activities of $32.7 million for the six month period
ended June 30, 2003 consisted primarily of net repayments of debt under our
revolving credit facility.
The credit agreement contains restrictions on the amount of dividends that
we can pay to Holdings and requires compliance with certain financial covenants
including capital expenditures and ratios. These ratios include a consolidated
leverage ratio of 6.75 at June 30, 2004 which declines to 6.60 at September 30,
2004 and decreases thereafter over time to 6.25 at December 31, 2005, a
consolidated interest coverage ratio of 1.70 and a minimum average annual
utilization rate for our fleet of 74% increasing to 75% after December 31, 2004.
The failure to maintain these required ratios would result in us not being able
to borrow under the credit agreement and, if not cured within the grace periods,
would result in a default under the credit agreement. We are currently in
compliance with all financial covenants.
Our total credit facility (including the term loan and revolver commitment)
was $550.0 million at June 30, 2004. Borrowing base (collateral) availability
calculated in accordance with the credit agreement under this facility was
$230.7 million at June 30, 2004. Consolidated Leverage Ratio covenant
restrictions further limited our borrowing availability at June 30, 2004 to
$35.1 million. In order to meet our future cash requirements, we intend to use
internally generated funds and to borrow under our credit facility. We believe
we will have sufficient liquidity under our revolving line of credit and from
cash generated from operations to fund our operations for at least the next 12
months. Our credit facility expires December 2006 and our 9.875% and 10.0%
senior notes expire in 2007 and 2008, respectively. It is expected that we will
refinance outstanding obligations under these agreements prior to their
maturities. Until such time, we expect that funds from operations will be
sufficient to satisfy debt service requirements related to these obligations.
For the period ended June 30, 2004, our actual Consolidated Leverage Ratio
was 6.52 as compared to the maximum covenant requirement of 6.75 and our actual
Consolidated Interest Coverage Ratio was 1.79 as compared to the minimum
covenant requirement of 1.70. The Consolidated Interest Coverage Ratio was
calculated by dividing Consolidated EBITDA (as defined in our credit agreement)
of $147,815 for the twelve month period ended June 30, 2004 by cash interest
expense of $82,445 as defined in the credit agreement. The Consolidated Leverage
15
Ratio was calculated by dividing the June 30, 2004 consolidated debt balance of
$1,000,833 by Consolidated EBITDA for the twelve month period ended June 30,
2004. For Consolidated Leverage Ratio calculation purposes, Consolidated EBITDA
for the twelve months ended June 30, 2004 was $153,476, which in accordance with
the credit agreement, was adjusted to also include $5,661 relating to
acquisitions made during the calculation period.
Consolidated EBITDA as defined in our credit agreement represents the
trailing 12 months consolidated Scotsman Holdings Inc., (Holdings) net income
plus consolidated interest, tax, depreciation and amortization expenses, and
excludes gains and losses on sales of fixed assets and any other non-cash items.
It is used in determining our compliance with the financial ratios required by
our agreement. Consolidated EBITDA should not be considered in isolation or as a
substitute to cash flow from operating activities, net income or other measures
of performance prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.
Although not required by our credit agreement, if Holdings' cash flow from
operating activities for the twelve months ended June 30, 2004, the most
directly comparable GAAP measure to Consolidated EBITDA, were used in these
calculations instead of Consolidated EBITDA, our leverage ratio and interest
coverage ratio would have been 22.3 and .54, respectively.
The table below reconciles Consolidated EBITDA, calculated pursuant to the
credit agreement, to cash flow from operating activities for the twelve months
ended June 30, 2004, the most directly comparable GAAP measure (in thousands).
Twelve Months Ended
June 30, 2004
------------------
Consolidated EBITDA $ 153,476 (a)
Increase in net receivables (13,390)
Increase in accounts payable and accrued expenses 3,963
Interest paid (74,608)
Increase in other assets (12,556)
Decrease in other liabilities (1,605)
Gain on sale of rental equipment (4,709)
Pro forma EBITDA impact of acquisitions (5,661)
------
Cash flow from operating activities-Holdings level $ 44,910 (a)
======
(a) Note: In accordance with the provisions of the credit agreement, the
financial results of Scotsman Holdings, Inc., which includes administrative
charges incurred at the parent company level, are to be used in the calculation
of the covenant compliance ratios.
16
Item 3.Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, see Item
7A, "Quantitative and Qualitative Disclosures About Market Risk," of our Annual
Report on Form 10-K for the year ended December 31, 2003. Our exposures to
market risk have not changed materially since December 31, 2003.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
Our Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation, as of the end of the
period covered by this report, that our disclosure controls
and procedures (as defined in the Securities Exchange Act of
1934 Rules 13a - 15(e) and 15d - 15(e)) are (1) effective to
ensure that material information required to be disclosed by
us in reports filed or submitted by us under the Securities
Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in
the SEC's rules and forms, and (2) designed to ensure that
material information required to be disclosed by us in such
reports is accumulated, organized and communicated to our
management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting.
There has been no change in the Company's internal control
over financial reporting (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)) that
occurred during the Company's most recent fiscal quarter
that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over
financial reporting.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system will be met. In addition, the design of any
control system is based in part upon certain assumptions about the
likelihood of future events. Because of these and other inherent
limitations of control systems, there is only reasonable assurance that our
controls will succeed in achieving their stated goals under all potential
future conditions.
17
PART II - OTHER INFORMATION
Item 5. Other Information
The Company is not required to file reports with the Securities
and Exchange Commission pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended, but is filing this
Quarterly Report on Form 10-Q on a voluntary basis. Accordingly,
it is not an "issuer" as defined in Section 2(a)(7) of the
Sarbanes-Oxley Act of 2002.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(21.1) Subsidiaries of Registrant: Willscot Equipment, LLC,
Space Master International, Inc., Evergreen Mobile Company,
Truck & Trailer Sales, Inc., Williams Scotsman of Canada, Inc.,
Williams Scotsman Mexico S. de R.L. de C.V., Williams Scotsman
Europe, S.L., and Williams Scotsman Hispania, S.L.
(31.1) Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 for Gerard E. Holthaus, Chief Executive Officer of the
Company.
(31.2) Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 for John C. Cantlin, Chief Financial Officer of the
Company.
(b) Reports on Form 8-K.
On May 10, 2004, the Company furnished a Form 8-K relating to
the press release announcing its results of operations for the
three months ended March 31, 2004.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLIAMS SCOTSMAN, INC.
By: /s/ Gerard E. Holthaus
-----------------------
Gerard E. Holthaus
Chief Executive Officer
Dated: August 12, 2004
By: /s/ John C. Cantlin
-----------------------
John C. Cantlin
Chief Financial Officer
Dated: August 12, 2004
19
Exhibit (31.1)
CERTIFICATION
I, Gerard E. Holthaus, Chief Executive Officer, certify, that:
(1) I have reviewed this report on Form 10-Q of Williams
Scotsman, Inc.;
(2) Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
(4) The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and
procedures or caused such disclosure
controls and procedures to be designed
under our supervision, to ensure that
material information relating to the
registrant, including its consolidated
subsidiaries, is made known to us by
others within those entities,
particularly during the period in which
this report is being prepared;
b) Evaluated the effectiveness of the
registrant's disclosure controls and
procedures and presented in this report
our conclusions about the effectiveness
of the disclosure controls and
procedures, as of the end of the period
covered by this report based on such
evaluation; and
c) Disclosed in this report any change in
the registrant's internal control over
financial reporting that occurred
during the registrant's most recent
fiscal quarter that has materially
affected, or is reasonably likely to
materially affect, the registrant's
internal control over financial
reporting;
20
(5) The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies and
material weaknesses in the design or
operation of internal control over
financial reporting which are reasonably
likely to adversely affect the
registrant's ability to record, process,
summarize and report financial
information; and
b) Any fraud, whether or not material, that
involves management or other employees
who have a significant role in the
registrant's internal control over
financial reporting.
/s/ Gerard E. Holthaus
----------------------
Gerard E. Holthaus
Chief Executive Officer
August 12, 2004
21
Exhibit (31.2)
CERTIFICATION
I, John C. Cantlin, Chief Financial Officer, certify, that:
(1) I have reviewed this report on Form 10-Q of Williams
Scotsman, Inc.;
(2) Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by
this report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
(4) The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and
procedures or caused such disclosure
controls and procedures to be designed
under our supervision, to ensure that
material information relating to the
registrant, including its consolidated
subsidiaries, is made known to us by
others within those entities,
particularly during the period in which
this report is being prepared;
b) Evaluated the effectiveness of the
registrant's disclosure controls and
procedures and presented in this report
our conclusions about the effectiveness
of the disclosure controls and
procedures, as of the end of the period
covered by this report based on such
evaluation; and
c) Disclosed in this report any change in
the registrant's internal control over
financial reporting that occurred
during the registrant's most recent
fiscal quarter that has materially
affected, or is reasonably likely to
materially affect, the registrant's
internal control over financial
reporting;
22
(5) The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's
auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies and
material weaknesses in the design or
operation of internal control over
financial reporting which are reasonably
likely to adversely affect the
registrant's ability to record, process,
summarize and report financial
information; and
b) Any fraud, whether or not material, that
involves management or other employees
who have a significant role in the
registrant's internal control over
financial reporting.
/s/ John C. Cantlin
------------------------
John C. Cantlin
Chief Financial Officer
August 12, 2004
23