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, 2002
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: 033-78954
SCOTSMAN HOLDINGS, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 52-1862719
(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]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes__ No X -
There are no shares of the Registrant's common stock held by non-affiliates
of the Registrant.
As of March 28, 2003, 6,194,799 shares of common stock ("Common Stock") of
the Registrant were outstanding.
SAFE HARBOR STATEMENT - CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this Form 10-K for the year ended December 31,
2002 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.
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PART I
Item 1. Business
General
Scotsman Holdings, Inc. was incorporated under the laws of Delaware in
November 1993 for the purpose of acquiring Williams Scotsman, Inc. ("Scotsman").
We conduct business solely as a holding company, our only significant asset is
the capital stock of Scotsman. Therefore, we are dependent upon the cash flows
of Scotsman for all of our cash needs.
Founded in 1946, Scotsman is the second largest lessor of mobile office
units in North America with units leased through a network of branch offices
located throughout the United States and Canada. Our mobile office units provide
high quality, cost-effective relocatable space solutions to an estimated 24,000
customers in 450 industries including government, construction, education,
healthcare and retail. Our leasing operations have generated recurring revenues,
high levels of repeat business and an average existing lease duration of
approximately 22 months. 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. The
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 generally 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 9 years.
From 1997 to 2002, we increased revenues at a compound annual growth rate,
or "CAGR," of 16.0% to $495.2 million. Over the same period, Adjusted EBITDA
grew at a CAGR of 13.4% to $173.1 million and the number of lease fleet units
doubled to 93,800 units. We have achieved this growth by expanding our lease
fleet through factory purchases and acquisitions, expanding our branch network,
increasing ancillary high margin services and product lines and improving fleet
management.
Based on its experience, management believes that the North American mobile
office industry (excluding manufacturing operations) exceeds $3.0 billion. This
is 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.
Recapitalization
In December 1993, Odyssey Partners, L.P., together with management,
acquired all of the common stock of Scotsman Holdings, Inc., which owns 100% of
the outstanding voting securities of Scotsman. Pursuant to the May 1997
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recapitalization, an investor group, which included affiliates of The Cypress
Group L.L.C. and Keystone, Inc., acquired a significant equity stake in Scotsman
Holdings.
Pursuant to a recapitalization agreement, on May 22, 1997, we (i)
repurchased 3,210,679 shares of our 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 in
December 1997. In related transactions, we 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".
Expansion and Acquisitions
Since the 1997 recapitalization, Scotsman has added several 100% owned
subsidiaries, including Willscot Equipment LLC, Space Master International,
Inc., or "SMI," Williams Scotsman of Canada, Inc., or "WSC," Evergreen Mobile
Company, or "Evergreen," and Truck and Trailer Sales, Inc., or "TNT." Willscot
was created in 1997 as part of the recapitalization of our company and WSC was
formed in April 1998 to begin our expansion into the Canadian marketplace. We
acquired SMI, a privately held Georgia corporation, on September 1, 1998 for
total consideration of $272.7 million adding approximately 12,800 units to our
lease fleet. On February 1, 1999, we acquired Evergreen, a privately held
Washington corporation with a 2,000 unit mobile office fleet, for $36.2 million.
TNT was acquired in August of 2000 for $8.6 million and added 1,000 units to our
lease fleet. SMI, Evergreen and TNT currently have no assets or operations.
In addition, we have completed several asset acquisitions over the past
five years as a complement to our internal fleet growth and branch expansion,
the most significant of which was Mckinney Mobile Modular, or "Mckinney," with a
fleet of 1,600 units. We purchased the sales and leasing business of Mckinney a
privately held California corporation on February 1, 2001 for total
consideration of $26.1 million. On July 31, 2002 we acquired the mobile office
and storage product fleet of Northgate Industries Ltd., an Edmonton,
Alberta-based Canadian company that was involved in the leasing of mobile
offices to industrial markets. The transaction added over 500 units for a net
purchase price of $7.0 million.
Competitive Strengths
Market Leadership. We are one of two national operators competing in the
highly fragmented mobile office industry and believe our lease fleet is more
than three times larger than that of our next largest competitor. We are the
first or second largest provider of leased fleet units in most of our regional
markets.
National Presence and Customer Diversity. Our national presence provides us
with the benefits of (1) customer and geographic diversification, (2) less
sensitivity to regional economic downturns, (3) the ability to redeploy units
within our branch network to optimize utilization levels in response to regional
economic downturns, which reduces the need for new unit purchases and (4)
economies of scale. We have an estimated 24,000 customers, the largest of which
accounted for only 3.0% of 2002 revenues.
Effective Fleet Management. Our lease fleet is actively managed to maximize
customer satisfaction, optimize fleet utilization and improve fleet quality and
flexibility. Our proprietary management information system provides
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comprehensive fleet statistics and lease information that allow us to
effectively monitor and allocate our units through our branch network.
We maintain a number of fleet management initiatives designed to improve
operations and increase profitability, including (1) standardization of
products, (2) maintaining fleet quality, (3) portability of fleet and (4) fleet
pruning. These initiatives are outlined in more detail below:
o Emphasis on Standardization of Products. We focus on maintaining a
standardized lease fleet through a combination of new fleet purchasing
guidelines and the conversion of any non-standard units into more standard
configurations. Product standardization allows us to easily modify our
structures to meet specific customer needs and thus increase utilization.
Conversions of existing units from non-standard to standardized units can
be completed, on average, at less than the cost of purchasing new units.
Overall, we believe that the majority of our fleet is comprised of
standardized, highly versatile products.
o Fleet Quality. Because we believe that rental rates are based upon physical
condition rather than age, we monitor our fleet on a regular basis,
refurbishing units and conducting targeted sales programs, as necessary.
Units classified as "unrentable" are less than 1.0% of the total fleet at
December 31, 2002.
o Portability of Fleet and Fleet Redeployment. We capitalize on our
nationwide franchise and inventory management systems by actively
redeploying excess fleet to areas of higher customer demand. The
portability and standardized nature of the units allow them to be relocated
to surrounding areas at relatively low cost, thus allowing us to minimize
capital expenditures for new fleet purchases. As part of our fleet
purchasing and conversion activities, we generally have our units built or
converted to meet industrialized building codes for use in several
surrounding states, thus allowing them to be redeployed as necessary.
o Fleet Pruning. From time to time, we will sell excess or idle units from
our fleet. Pruning activities allow us to manage fleet quality and
composition.
Dedicated Marketing and Customer Service. Through extensive marketing and
customer service programs, we focus on maintaining and expanding long-term
customer relationships. We are the only industry operator that maintains our own
full-service national support staff to prepare units for lease and maintain
units while on lease. As a result of this extensive customer service, our
leasing operations have generated recurring revenues due to high levels of
repeat business.
Experienced Management. Since 1997, the current management team has doubled
the size of our fleet and increased the size of our branch network, both
organically and through selective strategic acquisitions. Management holds
personal equity investments equivalent to approximately a 9% share of our
company on a fully diluted basis. We believe that this represents a significant
economic commitment to and confidence in our company.
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 (1) superior service, (2) a
well-maintained, readily-available and versatile lease fleet, (3) effective
fleet management using proprietary information systems, and (4) 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.
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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, 2000 to
December 31, 2002, we increased the number of units from approximately 79,600 to
93,800 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. From January 1, 2000 to December 31, 2002, we made
four acquisitions of approximately 3,600 units for a total purchase price of
$37.1 million. Units added through acquisitions have accounted for approximately
15% of the value of our total fleet purchases during this period.
Storage and Ancillary Products. 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 16,600 units, through direct purchases
as well as ten 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
26% of our 2002 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.
Recession Resistance
Although a portion of our business is with customers in industries that are
cyclical in nature and subject to change in general economic conditions,
management believes that certain characteristics of the mobile office leasing
industry and our operating strategies should help to mitigate the effects of
economic downturns. These characteristics include (1) our typical lease terms,
which include contractual provisions requiring customers to retain units on
lease for, on average, 13 months, and have an average existing lease duration of
22 months, (2) the flexibility and low cost offered to our customers by leasing
which may be an attractive alternative to capital purchases, (3) our ability to
redeploy units during regional recessions, (4) the diversity of our industry
exposure and (5) the geographic balance of our operations.
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Products
Our products can be used to meet a variety of customer needs. Sample
applications include classrooms, sales offices and special events headquarters.
Our mobile office fleet ranges from single-unit facilities to section modular
structures, which combine two or more units into one structure for applications
that require more space. Units typically range in size from 8 to 14 feet in
width and 16 to 70 feet in length and are generally wood frame mounted on a
steel chassis, constructed using a steel frame and undercarriage with an
exterior of wood or aluminum. The units are fitted with axles and hitches and
are towed to various locations. Most units 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 extremely durable and have an estimated economic useful life of
generally 20 years. During 2002, the average purchase price for new mobile
office units (excluding storage products) was $12,300 and the average mobile
office unit was leased for approximately $300 per month, although rates vary
depending upon size, product type, features and geographic region. Products have
varying lease terms, with average contractual terms of 13 months. However, most
customers retain the product for a longer period as evidenced by an average
existing lease duration of 22 months at December 31, 2002.
Our specific product offerings are described below:
Single-Wide Mobile Offices. Single-wide mobile offices are the most
functional and versatile units in our lease fleet. Units typically have "open
interiors" which can be modified using movable partitions. Single-wide mobile
offices currently comprise approximately 39% of our lease fleet and commonly
include tile floors, air conditioning/heating units, partitions and, if
requested, toilet facilities.
Section Modulars. Section modulars are two or more units combined into one
structure. Interiors are customized to match the customer needs. Examples of
section modular units include hospital diagnostic annexes, special events
headquarters, golf pro shops and larger general commercial offices.
Classrooms. Classroom units are generally standard single- or double-wide
units adapted specifically for use by school systems or universities. Classroom
units usually feature chalkboards and teaching aids, air conditioning/heating
units, windows along side-walls and, if requested, toilet facilities.
Sales Offices. Sales offices are marketed to businesses that require site
located space for sales presentations. Exteriors are typically wood-sided with
some models offering recessed front entries. Our "Executive Line" sales offices
are larger, more expensive versions of the standard sales office with more
amenities.
Storage Products. 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.
Branch Network
As a key element to our market leadership strategy, we maintain a network
of over 80 branch offices throughout the United States and Canada. This network
enables us to increase our product availability and customer service within our
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regional and local markets. Customers benefit because they are provided with (1)
improved service availability, (2) reduced time to occupancy, (3) better access
to sales representatives, (4) the ability to inspect units prior to rental and
(5) lower freight costs which are typically paid by the customer. We benefit
because we are able to spread regional overhead and marketing costs over a
larger lease base, redeploy units within our branch network to optimize
utilization, discourage potential competitors by providing ample local supply
and offer profitable short-term leases which would not be profitable without a
local market presence.
Management believes geographic diversification of our branch network
mitigates economic and operating risk. In 2002, the South Central, Southeast,
Northeast, West, Pacific Northwest, Mid-Atlantic, Florida, Central, and Canada
regions accounted for 9%, 9%, 20%, 18%, 11%, 11%, 12%, 6%, and 4% of our
revenues, respectively.
Our branches are generally headed by a dedicated branch manager. The branch
system is supervised by seven regional vice presidents and an executive vice
president who average 17 years of industry experience and 11 years with our
company. Management believes it is important to encourage employees to achieve
revenue and profit levels and to provide a high level of service to our
customers. Approximately 30% of the regional managers' compensation is based
upon the financial performance of their branches and approximately 45% of branch
managers' compensation is tied to budgeted Adjusted EBITDA levels. Sales
representatives' compensation is commission driven and based on the gross
profits of new business.
Operations
Leasing. Leasing revenue is a function of average monthly rental rate,
fleet size and utilization. We monitor fleet utilization at each branch. For
2002, average fleet utilization was 77.9%. While we adjust our pricing to
respond to local competition in our markets, we believe that we generally
achieve a rental rate equal to or above that of our competitors because of the
quality of our products and our high level of customer service.
As part of our leasing operations, we sell used mobile office units from
our lease fleet either at fair market value or, to a much lesser extent,
pursuant to pre-established lease purchase options included in the terms of its
lease agreements. Due in part to an active fleet maintenance program, our units
maintain a significant percentage of their original value which includes the
cost of the units as well as costs of significant improvements made to the
units. However, no assurance can be given that such percentages would have been
realized from the sale of the entire lease fleet or will be realized in the
future.
New Unit Sales. New unit sales include sales of newly-manufactured mobile
office units. We do not generally purchase new units for resale until we have
obtained firm purchase orders (which are generally non-cancelable) for such
units. New mobile units are generally purchased more heavily in the late spring
and summer months due to seasonal classroom and construction market
requirements.
Delivery and Installation. We provide delivery, site-work, installation and
other services to our customers as part of our leasing and sales operations.
Revenues from delivery, site-work and installation result from the
transportation of units to a customer's location, site-work required prior to
installation and installation of the mobile units which have been leased or
sold. Typically units are placed on temporary foundations constructed by our
service technicians, and service personnel will also generally install our
ancillary products. We also derive revenues from tearing down and removing units
once a lease expires.
Other. We also derive revenue from the sale of other products and services,
including rental of steps, furniture and ramps; sales of parts, supplies and
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security systems; and charges for granting insurance waivers (i.e., charging a
fee to customers who do not provide their own insurance certificate) and for
damage billings.
Fleet Purchases
We closely monitor fleet purchases to manage capital expenditures and
inventory levels. Generally, fleet purchases are controlled by field and
corporate executives, and must pass our fleet purchasing policy guidelines
(which include ensuring that utilization rates and unrentable units levels are
acceptable, that redeployment, refurbishment and conversion options have been
evaluated, and that specific return on investment criteria have been met). We
purchase our units through approximately 50 third-party suppliers (most
suppliers have only one factory, which generally serves a market within 300 to
400 miles), with no significant dependence on any supplier. The top three
suppliers of units for 2002 represented approximately one-third of all fleet
purchases and the top ten suppliers represented approximately two-thirds of all
fleet purchases. We believe that we have an excellent working relationship with
our suppliers.
We believe that our fleet purchases are flexible and can be adjusted to
match business needs and prevailing economic conditions. We are not "locked in"
to long-term purchase contracts with manufacturers and can modify our new fleet
purchases and acquisition activities to meet customer demand. For example, our
spending for fleet purchases decreased from approximately $123,000 in 2000 to
approximately $106,000 in 2001 and approximately $45,000 in 2002. We supplement
our new fleet purchases with acquisitions. Although the timing and amount of
acquisitions are difficult to predict, management considers its acquisition
strategy to be opportunistic and will adjust its fleet spending patterns as
acquisition opportunities become available.
Marketing
In addition to opening new branches, we use a number of marketing tools to
generate new business and customers. By maintaining a detailed and updated
customer and prospect tracking system, marketing and sales personnel generally
can identify when a particular customer or prospect typically utilizes our
products and may contact such customer or prospect regarding their future needs.
Through our marketing and sales effort, we have successfully expanded the
uses for our products. For example, since 1993, the number of industries (as
measured by SIC code) that lease or purchase our products has increased from 360
to 450. Additionally, we expect to continue to increase our penetration of other
industries that would benefit from the usage of our products. See "--Customer
Base."
Developing new customers is an integral part of the sales process and is
monitored through the use of quarterly goals for each employee with sales
responsibility. In addition to our prospect tracking databases, we conduct
direct mail campaigns and are a heavy user of print advertising, including the
yellow pages and customer trade publications. We have developed a toll-free
telephone number network so that our customers can call and speak to a sales
representative in the branch location nearest the site where the call was
placed. In addition, we participate in numerous regional and national trade
shows, and our sales personnel participate in local trade groups and
associations. We also design marketing campaigns targeted at specific market
niches.
During 1996, we began developing national accounts. To date, we have
established approximately 250 national accounts and continue to pursue other
national account relationships. The relationships are coordinated by a national
account manager and serviced by the branch network. Due to our broad geographic
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capabilities, this program allows us to further differentiate ourselves from
many of our "mom-and-pop" competitors by providing consistent service on a
national basis.
Customer Base
We continually seek to expand our customer base and the applications for
our products. Our customer base is comprised of an estimated 24,000 companies,
which operate in approximately 450 industries, a significant increase over 1993
levels of 7,700 customers in 360 industries. We believe that the construction
and education industries accounted for approximately 27% and 26%, respectively,
of total revenues in 2002, and that no other industry accounted for more than 6%
of total revenues in 2002. During 2002, no single customer accounted for more
than 3.0% of our total revenues and our top ten customers accounted for
approximately 9.4% of total revenues. Our key customer industries as categorized
by SIC Code are as follows:
Construction. We provide office and storage space to a broad array of
contractors associated with both residential and nonresidential buildings,
commercial offices and warehouses; highway, street, bridge and tunnel
contractors; water, sewer, communication and power line contractors; and special
construction trades, including glass, glazing and demolition. We believe our
construction customer base is characterized by a wide variety of contractors,
who are associated with original construction as well as capital improvements in
the commercial, institutional, residential and municipal arenas.
Education. Rapid and unpredictable shifts in state populations within
states often necessitate quick expansion of education facilities particularly in
elementary and secondary schools. State and local governmental budgetary
pressures have made mobile offices, especially multi-sectional offices, a
convenient and cost-effective way to expand classroom, laboratory and library
capacity. Our quality products are well suited for educational institutions,
which demand a high level of maintenance and service support.
Professional Services. Customers in this category include professionals
from a broad array of industry sectors including engineering, architectural,
accounting, legal, insurance and sales. Health Care. Health care customers are
frequent users of multi-sectional facilities as administrative offices, waiting
rooms, MRI and other diagnostic annexes adjacent to existing hospitals.
Utilities. Mobile offices have traditionally been leased to utilities involved
in electrical service, natural gas distribution and production, and other
energy-related services. Units are used as meeting rooms, reception and visitor
centers, security offices and, during periods of utility plant reconstruction,
as facilities to house the operations staff.
Government. Governmental users consist of federal, state and local public
sector organizations such as the United States Environmental Protection Agency
and state highway administrations. We have enjoyed particular success in focused
niches such as prisons and jails, courthouses, national security buildings and
NASA facilities. Our strategy of concentrated regional focus has been
particularly successful in gaining business from local governmental customers.
Chemical and Pharmaceutical. Chemical and pharmaceutical companies have
been long-time users of temporary office space. Mobile offices are particularly
well suited for laboratory usage where space is needed for the duration of a
specific project or for an off-site or isolated laboratory.
Commercial/Industrial and Other. This category includes a variety of
industries and product uses which help diversify our revenue stream. Common
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examples include: entertainment, recreation, transportation terminals,
recycling, retail and fast food establishments, metal processing and refining
and disaster relief. Although there are a number of different industries in this
category, we believe that no single industry included in this category was
material to us in 2002.
Fleet Management Information Systems
We utilize proprietary fleet management information systems, which
substantially differentiate us from the majority of our competitors. Our fleet
information system is instrumental to our lease fleet management and targeted
marketing efforts and allows management to monitor operations at our branches on
a daily, weekly, and monthly basis. Lease fleet information is updated daily at
the branch level and verified through a monthly physical inventory by branch
personnel. This provides management with on-line access to utilization, lease
fleet unit levels and rental revenues by branch or geographic region. In
addition, an electronic file for each unit showing its lease history and current
location/status is maintained in the information system. Branch salespeople
utilize the system to obtain information regarding unit availability. The
database tracks individual units by serial number and provides comprehensive
information including cost, condition and other financial and unit specific
information.
Regulatory Matters
We must comply with various federal, state and local environmental, 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. However, we
can not be certain that the discovery of currently unknown matters or
conditions, new laws and regulations, or stricter interpretations of existing
environmental laws will not have a material adverse effect on our business or
operations in the future.
A portion of our units are subject to regulation in certain states under
motor vehicle and similar registrations 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. We have not taken actions under
such statutes in states where it has been determined that such statutes do not
apply to mobile office units. However, in certain states, the applicability of
such statutes to our mobile office units is not clear beyond doubt. Due to the
difficulty, expense and burden of complying with all possible motor vehicle and
certificate of title requirements in such states, we do not take action to
comply with every possible motor vehicle and similar registration and
certificate of title requirement in such jurisdictions. If additional
registration and related requirements are deemed to be necessary in such states
or if the laws in such states or other states were to change to require us to
comply with such requirements, we could be subject to additional costs, fees and
taxes as well as administrative burdens in order to comply with such statutes
and requirements. We do not believe the effect of such compliance will be
material to our business and financial condition.
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 various uses at competitive prices allows us to compete effectively.
10
However, our primary competitor, GE Capital Modular Space, is less leveraged,
has greater market share or product availability in some markets and has greater
financial resources and pricing flexibility than us.
Employees
As of December 31, 2002 we had approximately 1,200 employees. None of our
employees are covered by a collective bargaining agreement. Management believes
its relationship with our employees is good. We have never experienced any
material labor disruption and are unaware of any efforts or plans to organize
our employees.
Risk Factors
Risks Relating to Our Indebtedness
Our substantial debt could adversely affect our financial health.
- ----------------------------------------------------------------
We have a substantial amount of debt. As of December 31, 2002, we had
$984.3 million of indebtedness.
Our substantial debt could have important consequences including:
o making our company more vulnerable to general adverse economic and industry
conditions;
o limiting our ability to obtain additional financing for future working
capital, capital expenditures, strategic acquisitions and other general
corporate requirements;
o exposing us to interest rate fluctuations because the interest on the debt
under our new credit facility is at variable rates;
o requiring us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing the availability of
our cash flow for operations and other purposes;
o limiting our flexibility in planning for, or reacting to, changes in our
business; and
o placing us at a competitive disadvantage compared to any competitors that
have less debt.
We may incur additional debt.
- ----------------------------
We and our subsidiary may be able to incur substantial additional
indebtedness in the future. The terms of the indenture governing our 9.875%
senior notes due 2007 (the "senior notes") permit us to incur a substantial
amount of additional debt and our new revolving credit facility will permit
additional borrowings under certain circumstances. As of December 31, 2002, we
had $186.4 million of additional borrowing availability under our new revolving
credit facility, subject to compliance with our financial and other covenants
and the terms of our loan agreements. Accordingly, this additional indebtedness
could further exacerbate all the risks described above.
11
The indenture governing the senior notes and our new credit facility contain
- ----------------------------------------------------------------------------
various covenants which limit the discretion of our management in operating our
- -------------------------------------------------------------------------------
business and could prevent us from engaging in some beneficial activities.
- -------------------------------------------------------------------------------
The indenture governing the senior notes and our new credit facility
contain various restrictive covenants that limit our management's discretion in
operating our business. In particular, these agreements will limit our ability
to, among other things:
o incur additional debt or guarantee obligations;
o grant liens on assets;
o make restricted payments (including paying dividends on, redeeming,
repurchasing or retiring our capital stock);
o make investments or acquisitions;
o sell assets;
o engage in transactions with affiliates; and
o merge, consolidate or transfer substantially all of our assets.
In addition, our new credit facility also requires us to maintain certain
financial ratios and limits our ability to make capital expenditures. If we fail
to comply with the restrictions of the indenture governing the senior notes, our
new credit facility or any other subsequent financing agreements, a default may
allow the creditors, if the agreements so provide, to accelerate the related
debt as well as any other debt to which a cross-acceleration or cross- default
provision applies. In addition, the lenders may be able to terminate any
commitments they had made to supply us with further funds. If our obligations
under our new credit agreement or any subsequent secured financing agreement
were accelerated, we would be obligated to satisfy those obligations before we
could satisfy our obligations under the senior notes to the extent of the assets
securing the secured debt. Accordingly, we cannot assure you that we would be
able to fully repay our debt obligations, including the senior notes, if some or
all of our debt obligations are accelerated upon an event of default.
Our ability to service our debt requires a significant amount of cash.
- ---------------------------------------------------------------------
To service our debt, we require a significant amount of cash. Our ability
to generate cash, make scheduled payments or to refinance our obligations
depends on our successful financial and operating performance. We cannot assure
you that our operating performance, cash flow and capital resources will be
sufficient for payment of our debt in the future, all of which will mature prior
to the senior notes. Our financial and operating performance, cash flow and
capital resources depend upon prevailing economic conditions, and certain
financial, business and other factors, many of which are beyond our control.
These factors include, among others:
o economic and competitive conditions affecting the mobile office industry;
o operating difficulties, increased operating costs or pricing pressures we
may experience; and
o a decline in the resale value of our units.
As of December 31, 2002, we had $435.9 million of senior secured
indebtedness outstanding under our new credit facility that ranked effectively
senior to the senior notes. Our estimated debt service obligations for 2003 are
$78.2 million, based on (1) the projected average outstanding balance of our
senior notes for 2003, (2) an interest rate of approximately 5% on our projected
average outstanding variable rate debt for 2003 and (3) scheduled term loan
repayments in 2003. Our annual debt service obligations will increase by $4.4
million per year for each 1% increase in interest rates, based on the balance of
variable rate debt outstanding at December 31, 2002.
12
If our cash flow and capital resources are insufficient to fund our debt
service obligations, we may be forced to reduce or delay capital investments,
sell material assets or operations, obtain additional capital or restructure our
debt. In the event that we are required to dispose of material assets or
operations or restructure our debt to meet our debt service and other
obligations, we cannot assure you as to the terms of any such transaction or how
soon any such transaction could be completed. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Risks Relating to Our Business
Elements of our business are sensitive to general economic conditions.
- ---------------------------------------------------------------------
A portion of our revenues are derived from customers who are in industries
and businesses that are cyclical in nature and subject to changes in general
economic conditions, such as the construction industry. In addition, because we
conduct our operations in a variety of markets, we are subject to economic
conditions in each of these markets. Although we believe that certain of our
operating strategies and industry characteristics may help to mitigate the
effects of economic downturns, general economic downturns or localized downturns
in markets where we have operations, including any downturns in the construction
industry, could have a material adverse effect on us and our business, results
of operations and financial condition. In addition, at the present time we are
unable to predict what long-term effect, if any, recent political events,
including those relating to, or arising out of the war with Iraq, and their
attendant consequences will have on our business. Any of the foregoing economic
or political events could have a material adverse effect on our results of
operations and financial condition.
We face significant competition in the mobile office industry.
- -------------------------------------------------------------
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 various uses at competitive prices allows us to compete effectively.
However, our primary competitor, GE Capital Modular Space, is less leveraged,
has greater market share or product availability in some markets, and has
greater financial resources and pricing flexibility than we do.
An investor group controls a majority of our board of directors.
- ---------------------------------------------------------------
An investor group, which includes affiliates of The Cypress Group L.L.C.,
and Keystone, Inc., beneficially owns in the aggregate approximately 82% of our
outstanding common stock. We in turn own 100% of our outstanding voting
securities. As a result, the investor group has the ability to control our
management, policies and financing decisions, to elect a majority of the members
of our board of directors and to control the vote on all matters coming before
our stockholders.
We may not be able to remarket units returning from leases.
- ----------------------------------------------------------
Our typical lease terms, which include contractual provisions requiring
customers to retain units on lease for, on average, 13 months, actually have an
average existing lease duration of 22 months. Because our customers generally
rent our units for periods longer than the contractual lease terms,
approximately 60% of our leases are on a month-to-month basis. In addition,
approximately 20% of our leases have contractual lease terms expiring within six
months. Should a significant number of our leased units be returned during any
short period of time, a large supply of units would need to be remarketed. Our
failure to effectively remarket a large influx of units returning from leases
could have a material adverse effect on our financial performance and our
ability to continue expanding our fleet.
13
We are dependent on key personnel.
- ---------------------------------
Our continued success will depend largely on the efforts and abilities of
our executive officers and certain other key employees, none of whom have
employment agreements with us. We do not maintain insurance policies relating to
these employees. If, for any reason, these officers or key employees do not
remain with us, our operations could be adversely affected until suitable
replacements with appropriate experience can be found.
A write-off of all or a part of our goodwill would adversely affect our
- ------------------------------------------------------------------------
operating results and net worth.
- ---------------------------------
We have significant intangible assets related to goodwill, which represents
the excess of the total purchase price of our acquisitions over the fair value
of the net assets acquired. As of December 31, 2002, we had $168.9 million of
unamortized goodwill on our balance sheet, which represented 13.7% of our total
assets. Through December 31, 2001, we amortized goodwill on a straight-line
basis over the estimated period of future benefit of 20 to 40 years. In July
2001, the Financial Accounting Standards Board issued SFAS No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 requires that, effective January 1, 2002,
goodwill not be amortized but rather that it be reviewed annually for
impairment. In the event impairment is identified, a charge to earnings would be
recorded. We have adopted the provisions of SFAS No. 142. We performed the first
of these required tests during the first quarter of 2002 and the annual
impairment test as of the beginning of the fourth quarter and determined that
goodwill was not impaired. Although it does not affect our cash flow, a
write-off in future periods of all or a part of our goodwill would adversely
affect our operating results and net worth.
14
Item 2. Properties
Our headquarters is a three-story modular office structure located on 3.1
acres in suburban Baltimore, Maryland. Additionally, we lease approximately 72%
of our 87 branch locations and we own the balance. Management believes that none
of our 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.
15
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
There is no established public trading market for our Common Stock.
During 2002, Scotsman paid dividends to us of approximately $133,000 for
normal operating expenses. Scotsman does not intend to pay any dividends except
for normal operating expenses, but reserves the right to do so. Scotsman's
ability to pay dividends to us is limited to amounts for corporate and
administrative expenses. The indenture governing our senior notes and our new
credit agreement contain certain restrictive covenants that, among other things,
limit the payment of dividends or the making of distributions on our equity
interests. (See Note 5 of Notes to the Consolidated Financial Statements.)
Pursuant to our Amended and Restated 1997 Employee Stock Option Plan (the
"1997 Plan") and Rule 701 under the Securities Act, options for the purchase of
6,300 shares of our common stock were granted during 2002. No options were
exercised during 2002 and no shares of our common stock were issued during 2002
upon the exercise of previously granted options.
16
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,
---------------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Statement of Operations
Data:
Revenues:
Leasing $152,221 $201,820 $220,547 $238,151 $227,106
Sales:
New units 46,448 73,001 73,291 91,114 98,927
Rental equipment 15,530 22,369 21,571 22,212 23,951
Delivery and
installation 47,002 71,245 79,097 97,342 101,034
Other 25,893 37,370 37,640 43,437 44,155
-------- ------ ------ ------ -------
Total $287,094 $405,805 $432,146 $492,256 $495,173
- -------------------------------------------------------------------------------
Gross profit:
Leasing $101,036 $136,543 $148,454 $153,281 $134,862
Sales:
New units 8,099 12,678 13,023 15,945 16,363
Rental equipment 3,730 5,133 5,266 5,326 5,787
Delivery and
installation 12,083 18,886 19,427 19,003 16,494
Other 20,393 29,949 31,057 35,063 34,254
------- ------ ------ ------ ------
Total $145,341 $203,189 $217,227 $228,618 $207,760
- -------------------------------------------------------------------------------
Selling, general
and administrative
expenses $ 58,152 $ 71,480 $ 76,872 $ 82,573 $ 85,779
Other depreciation
and amortization 9,623 15,866 17,474 18,845 13,438
Interest 65,110 83,878 91,860 85,486 85,208
Casualty loss --- --- --- 1,500 ---
--- --- --- ----- ---
Income before taxes 12,456 31,965 31,021 40,214 23,335
Income tax expense 8,732 14,694 14,938 17,585 8,137
----- ------ ------ ------ ------
Net income 3,724 17,271 16,083 22,629 15,198
Earnings per common share: $ .70 $ 2.79 $ 2.60 $ 3.65 $ 2.45
=== ==== ==== ==== ====
Earnings per common share,
assuming dilution $ .66 $ 2.64 $ 2.46 $ 3.46 $ 2.32
=== ==== ==== ==== ====
- --------------------------------------------------------------------------------
Ratio of earnings to
fixed charges (1) 1.2x 1.4x 1.3x 1.5x 1.3x
Adjusted EBITDA (2) $117,519 $168,161 $177,554 $187,528 $173,128
- --------------------------------------------------------------------------------
17
As of December 31,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
(Dollars in thousands)
Balance Sheet Data:
Rental equipment, net $640,634 $ 726,924 $ 799,994 $ 866,867 $ 850,087
Total assets 941,291 1,066,467 1,145,901 1,244,986 1,230,352
Revolving credit
facility & long-term
debt 845,447 915,823 959,110 1,022,972 984,345
Stockholder's
(deficit) equity (57,853) (38,683) (22,578) (1,279) 19,273
(1) 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.
(2) We define Adjusted EBITDA as earnings before deducting interest,
income taxes, depreciation, amortization and non-cash charges. We
utilize Adjusted EBITDA when interpreting operating trends and results
of operations of our core business operations. Accordingly, we believe
that this measure provides additional information with respect to our
overall operating performance and our ability to incur and service
debt, make capital expenditures and meet working capital requirements.
However, Adjusted EBITDA data should not be considered in isolation or
as a substitute for cash flow from operations, 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. When evaluating Adjusted EBITDA, investors should consider,
among other factors, (1) increasing or decreasing trends in Adjusted
EBITDA, (2) whether Adjusted EBITDA has remained at positive levels
historically and (3) how Adjusted EBITDA compares to levels of debt
and interest expense. Because Adjusted EBITDA excludes some, but not
all, items that affect net income and may vary among companies, the
Adjusted EBITDA presented above may not be comparable to similarly
titled measures of other companies. While we believe that Adjusted
EBITDA may provide additional information with respect to our ability
to meet our future debt service, capital expenditures and working
capital requirements, certain operational or legal requirements of our
business may require us to utilize our available funds for other
purposes.
18
A reconciliation of Net Income to Adjusted EBITDA is as follows:
Year Ended December 31,
- ------------------------------------------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
(Dollars in thousands)
Net income $ 3,724 $17,271 $16,083 $22,629 $15,198
Interest 65,110 83,878 91,860 85,486 85,208
Income taxes 8,732 14,694 14,938 17,585 8,137
Depreciation
and amortization 37,228 50,419 54,194 60,606 59,272
Non-cash stock
compensation expense 2,725 1,899 479 (278) 5,313
Non-cash casualty loss --- --- --- 1,500 ---
------- ------- ------- ------ -------
Adjusted EBITDA $117,519 $168,161 $177,554 $187,528 $173,128
======= ======= ======= ======= =======
Selected Quarterly Financial Data (Unaudited):
(In thousands except per share data) Year ended December 31, 2002
- ------------------------------------ ---------- -------- --------- ----------
Quarter First Second Third Fourth Year
- -------------------------- -------- ---------- -------- --------- ----------
Revenues $119,867 $116,097 $137,282 $121,927 $495,173
Gross profit $ 52,788 $ 51,426 $ 53,127 $ 50,419 $207,760
Income before income taxes $ 6,762 $ 4,292 $ 8,498 $ 3,783 $ 23,335
Net income $ 3,718 $ 2,887 $ 5,093 $ 3,500 $ 15,198
Net income per common share $ .60 $ .47 $ .82 $ .56 $ 2.45
Net income per common share,
assuming dilution $ .57 $ .44 $ .78 $ .53 $ 2.32
- ------------------------ -------- ------- -------- ------- ---------
(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 $ 4,591 $ 9,077 $ 13,666 $ 12,880 $ 40,214
Net income $ 2,524 $ 4,949 $ 7,515 $ 7,641 $ 22,629
Net income per common share $ .41 $ .80 $ 1.21 $ 1.23 $ 3.65
Net income per common share,
assuming dilution $ .39 $ .76 $ 1.15 $ 1.16 $ 3.46
- ------------------------ -------- -------- ------- -------- -------
19
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, 2002 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 "Safe Harbor Statement Cautionary Notice Regarding 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.
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 minimum 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. 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
20
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 Impairment. We have significant intangible
assets related to goodwill and other acquired intangibles. The determination of
whether or not these assets are impaired involves significant judgments. After
adopting SFAS 142 in 2002, goodwill was determined not to be impaired for the
year ended December 31, 2002. Future 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
We are a holding company formed in November 1993, and conduct our business
solely through Scotsman, our 100% owned subsidiary. 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.
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,
21
(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 27% of 2002
revenues, experiences declines in utilization rates, while other customer
segments, including education which represented approximately 26% of revenues in
2002, are more stable).
On July 31, 2002, we acquired the leasing business of Northgate Industries
Ltd. See Note 1 of the Notes to Consolidated Finacial Statements.
On February 1, 2001, we acquired the sales and leasing business of Mckinney
Mobile Modular. See Note 1 of the Notes to Consolidated Finacial Statements.
Results of Operations
2002 Compared With 2001. Revenues in 2002 were $495.2 million, a $2.9
million or .6% increase from revenues of $492.3 million in 2001. The increase
resulted from a $7.8 million or 8.6% increase in sales of new units, a $3.7
million or 3.8% increase in delivery and installation revenues, and a $1.7
million or 7.8% increase in sales of used units. These increases were
substantially offset by an $11.0 million or 4.6% decrease in leasing revenue.
The decrease in leasing revenue is attributable to a decrease of $2 in the
average monthly rental rate, and a decrease in the average fleet utilization of
four percent to 78%. The decrease in the average monthly rental rate is a result
of the softening economic and related business conditions combined with
competitive pricing and changes in fleet mix. The increases in sales of new and
used units, and delivery and installation revenue are due to several large
school projects.
Gross profit in 2002 was $207.8 million, a $20.9 million or 9.1% decrease
from 2001 gross profit of $228.6 million. The decrease primarily resulted from a
$18.4 million or 12.0% decrease in leasing gross profit, and a $2.5 million or
13.2% decrease in delivery and installation gross profit. The decrease in
leasing gross profit is a result of the decrease in leasing revenue described
above and a decline in leasing margins from 64.4% in 2001 to 59.4% in 2002.
Excluding depreciation and amortization, leasing margins decreased from 81.9% in
2001 to 79.6% in 2002. This margin suppression was attributable to a decline in
average fleet utilization coupled with fleet quality improvement initiatives.
The decrease in delivery and installation gross profit is attributable to
continued competitive pressures, and to a lesser extent, a higher mix of lower
margin sales related projects.
Selling, general and administrative (SG&A) expenses were $85.8 million, a
$3.2 million or 3.9% increase from 2001 expenses of $82.5 million. The overall
increase in SG&A expense is due primarily to increased noncash stock option
compensation expense, and increased insurance and property costs, partially
offset by our continued cost control initiatives that commenced in the second
half of 2001.
Interest expense decreased by .3% to $85.2 million in 2002 from $85.5
million in 2001. This net decrease is the result of a decrease of approximately
155 basis points in effective interest rates on our variable rate debt for the
year, and a $128.7 million or 21.2% decrease in the average credit facility debt
over 2001, partially offset by (a) interest expense on the additional $150.0
million of senior notes and $182.0 million in additional term loans and (b) the
additional amortization of deferred financing fees, resulting from the
additional $150.0 million of senior notes and the refinancing of our credit
facility.
22
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 $82.6 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 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.
Liquidity and Capital Resources
During 2000, 2001 and 2002, our principal sources of funds consisted of
cash flow from operating and financing sources. Cash flow from operating
activities of $86.9 million in 2000, $60.2 million in 2001 and $98.9 million in
2002 was largely generated by the rental of units from our lease fleet and sales
of new mobile office units.
23
We believe that Adjusted 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 Adjusted EBITDA as earnings
before deducting interest, income taxes, depreciation, amortization, and noncash
charges. In 2002, noncash charges consists of noncash stock option compensation
expense of $5.3 million. In 2001, noncash charges consisted of $.3 million of
noncash stock option compensation income and a $1.5 million noncash charge
related to a casualty loss. In 2000, noncash charges consisted of $.5 million of
noncash stock option compensation expense. We utilize Adjusted EBITDA when
interpreting operating trends and results of operations of our core business
operations. Accordingly, we believe that Adjusted EBITDA provides additional
information with respect to our overall operating performance and our ability to
incur and service debt, make capital expenditures and meet working capital
requirements. However, Adjusted EBITDA should not be considered in isolation or
as a substitute to cash flow from operations, 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. Our Adjusted EBITDA
decreased by $14.4 million or 7.7% to $173.1 million in 2002 compared to $187.6
million in 2001. This decrease in Adjusted EBITDA is primarily the result of
decreased leasing and delivery and installation gross profits described above,
partially offset by decreased SG&A expenses, excluding non-cash stock option
compensation expense. In 2001, our Adjusted EBITDA increased by $10.0 million or
5.6% to $187.5 million compared to $177.6 million in 2000. This increase in
Adjusted EBITDA is a result of increased leasing and new sales activity
described above, partially offset by increased SG&A expenses.
Cash flow used in investing activities was $128.3 million in 2000, $125.5
million in 2001 and $40.1 million in 2002. 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 8,700 units during 2000, 5,700 units during 2001 and 100
units during 2002. Our fleet acquisition strategy includes increasing our fleet
size in accordance with customer demand and the related business conditions of
the time. Due to the continued softening of the economy in 2002, our fleet size
has remained relatively flat as we have furthered our fleet quality initiatives
in lieu of purchasing new units. The following table sets forth our investment
in our lease fleet for the periods indicated.
Year Ended December 31,
2000 2001 2002
---- ---- ----
(Dollars in millions)
Gross capital expenditures for
rental equipment:
New units and betterments.............. $118.6 $106.2 $44.8
Fleet acquisitions, excluding
acquired businesses 4.0 21.4 6.3
----- ----- -----
122.6 127.6 51.1
Purchase price allocated to
fleet of acquired businesses 5.3 -- --
Proceeds from sale of
used rental equipment........... (21.6) (22.2) (24.0)
----- ---- ------
Net capital expenditures for
rental equipment......... $106.3 $105.4 $27.1
===== ===== ====
Lease fleet maintenance expenses included
in the statement of operations........ $35.1 $43.0 $46.3
===== ===== ====
24
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 2000, 2001 and 2002, we were able to sell used units in the ordinary
course of business (excluding units sold pursuant to purchase options) at a
significant percentage 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 $18.6 million, $15.4 million and $11.9
million in 2000, 2001 and 2002, 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 $43.3 million in 2000 and $63.3
million in 2001 and cash used in financing activities of $59.0 million in 2002
were primarily from borrowings, net of repayments, under our revolving credit
facility.
At December 31, 2001 we had $400.0 million of 9.875% senior notes due 2007.
In February 2002, we issued $150.0 million of additional senior notes due 2007
under the existing indenture. Net proceeds from the issuance were used to
permanently repay our $58.1 million term loan and to repay borrowings under the
then existing revolving credit facility.
On March 26, 2002, we entered into a new loan agreement that provides for a
$460.0 million revolving credit facility, a $210.0 million term loan, both
maturing on December 31, 2006, and up to an additional $30.0 million in term or
revolver commitments. In May 2002, we borrowed an additional $30.0 million under
term loans, the proceeds from which were used to pay down revolver borrowings.
The new loan agreement contains restrictions on the amount of dividends that
Scotsman can pay to us and requires compliance with certain financial covenants
including capital expenditures, interest coverage, and leverage and fleet
utilization levels.
Availability under the Credit Agreement was $186.4 million at December 31,
2002. In order to meet our future cash requirements, we intend to use internally
generated funds and to borrow under our credit facility. Availability under the
credit agreement depends upon our continued compliance with certain covenants,
including certain financial ratios. Although we are currently in compliance with
all financial covenants in our credit agreement, the credit agreement was
amended in February 2003 to revise certain utilization requirement covenants. 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.
25
A summary table of our significant contractual obligations is as follows:
Payments Due by Period
----------------------
Within Years Years After Total
Year 1 2 - 3 4 - 5 5 years
------ ----- ------- --------- -----
Short and long term debt
(a) $2,400 $4,800 $977,145 $ -- $984,345
Operating leases (b) 8,968 13,671 6,849 3,087 32,575
----- ------ ------- ----- ------
Total contractual
obligations $11,368 $18,471 $983,994 $3,087 $1,016,920
(a) As more fully described in Note 5 to Notes of the Consolidated
Financial Statements, we have borrowed $197.7 million under the
revolving credit facility as of December 31, 2002. We also have a
$238.2 million term loan and $548.5 million of 9.875% senior notes
outstanding as of December 31, 2002.
(b) In accordance with Statement of Financial Accounting Standards No. 13,
"Accounting for Leases," operating lease obligations are not reflected
in the balance sheet.
See Operating Leases Item 8. Financial Statements and Supplementary
Data - Notes to Consolidated Financial Statements - Note 7
Commitments for additional information.
In addition, we have $5.2 million of unfunded standby letters of credit,
for which the commitment expires in less than one year.
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.
26
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. Prior to the adoption of this
standard in 2002, goodwill was amortized on a straight-line basis over 20 to 40
years. Under the new rules, goodwill (and intangible assets deemed to have
indefinite lives) are no longer amortized but are subject to annual impairment
tests in accordance with the Statement. Other intangible assets continue to be
amortized over their useful lives.
We adopted SFAS No. 142 effective January 1, 2002. We performed the first
of these required tests during the first quarter of 2002 and the annual
impairment test as of the beginning of the fourth quarter and determined that
goodwill was not impaired.
Extinguishment of Debt. In May 2002, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections, effective for fiscal years beginning after May 15, 2002.
With the rescission of SFAS No. 4, gains and losses from the extinguishment of
debt should be classified as extraordinary items only if they meet the criteria
in APB Opinion No. 30.
We adopted SFAS No. 145 effective January 1, 2002. As a result, the $1.6
million of deferred financing costs relating to our former credit agreement that
was expensed during the year ended December 31, 2002 is included in interest
expense.
Stock Based Compensation. In December 2002, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure, effective
for fiscal years ending after December 15, 2002.
We adopted SFAS 148 for disclosure purposes and are considering adoption
for reporting purposes.
27
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Financial Statements:
Page
Scotsman Holdings, Inc. and Subsidiary:
Report of Independent Auditors......................................29
Consolidated Balance Sheets as of
December 31, 2002 and 2001................................30
Consolidated Statements of Operations for the years ended
December 31, 2002, 2001 and 2000..........................31
Consolidated Statements of Changes in
Stockholders' Equity (Deficit) for the years
ended December 31, 2002, 2001 and 2000....................32
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000..........................33
Notes to Consolidated Financial Statements.......................34-48
Williams Scotsman, Inc. and Subsidiaries:
Report of Independent Auditors......................................49
Consolidated Balance Sheets as of
December 31, 2002 and 2001.................................50
Consolidated Statements of Operations for the years ended
December 31, 2002, 2001 and 2000...........................51
Consolidated Statements of Changes in
Stockholder's Equity (Deficit) for the years
ended December 31, 2002, 2001 and 2000.....................52
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000...........................53
Notes to Consolidated Financial Statements.......................54-75
Financial Statement Schedules:
Scotsman Holdings, Inc. and Subsidiary:
Schedule I - Condensed Financial Information of Registrant......102-103
Scotsman Holdings, Inc. and Subsidiary:
Schedule II - Valuation and Qualifying Accounts....................104
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.
28
Report of Independent Auditors
Board of Directors
Scotsman Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Scotsman
Holdings, Inc. and subsidiary as of December 31, 2002 and 2001 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 2002. Our
audits also included the financial statement schedules listed in the Index at
Item 15(a). These consolidated financial statements and schedules 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 Scotsman
Holdings, Inc. and its subsidiary at December 31, 2002 and 2001 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002 in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
As discussed in Note 4 to the Financial Statements, effective January 1,
2002, the Company changed its method of accounting for goodwill and other
intangible assets.
/s/ Ernst & Young LLP
Baltimore, Maryland
January 31, 2003
29
Scotsman Holdings, Inc. and Subsidiary
Consolidated Balance Sheets
December 31
2002 2001
---------------------------
(In thousands)
Assets
Cash $ 429 $ 586
Trade accounts receivable, net of allowance for doubtful accounts of $1,071
in 2002 and $1,298 in 2001 63,965 74,336
Prepaid expenses and other current assets 25,468 25,628
Rental equipment, net of accumulated depreciation
of $207,538 in 2002 and $178,046 in 2001 850,087 866,867
Property and equipment, net 80,249 75,358
Deferred financing costs, net 23,616 10,696
Goodwill 168,931 168,378
Other intangible assets, net 3,238 3,679
Other assets 14,369 19,458
-------------------------
$1,230,352 $1,244,986
=========================
Liabilities and stockholders' equity (deficit)
Accounts payable and accrued expenses $ 53,002 $ 50,297
Rents billed in advance 18,773 25,796
Revolving credit facility 197,691 564,922
Long-term debt 786,654 458,050
Deferred income taxes 154,959 147,200
--------------------------
Total liabilities 1,211,079 1,246,265
--------------------------
Stockholders' equity (deficit):
Common stock, $.01 par value. Authorized: 10,000,000 shares; issued:
9,507,407 shares in 2002 and 2001 95 95
Additional paid-in capital 239,239 233,926
Cumulative foreign currency translation adjustment (1,386) (1,505)
Retained earnings 77,263 62,065
--------------------------
315,211 294,581
Less treasury stock - 3,312,608 common shares in 2002 and 3,310,808 common
shares in 2001, at cost (295,938) (295,860)
--------------------------
Net stockholders' equity (deficit) 19,273 (1,279)
--------------------------
$1,230,352 $1,244,986
==========================
See accompanying notes.
30
Scotsman Holdings, Inc. and Subsidiary
Consolidated Statements of Operations
Year ended December 31
2002 2001 2000
------------------------------------------------------
(In thousands except per share amounts)
Revenues
Leasing $ 227,106 $ 238,151 $ 220,547
Sales:
New units 98,927 91,114 73,291
Rental equipment 23,951 22,212 21,571
Delivery and installation 101,034 97,342 79,097
Other 44,155 43,437 37,640
------------------------------------------------------
Total revenues 495,173 492,256 432,146
------------------------------------------------------
Cost of sales and services
Leasing:
Depreciation and amortization 45,834 41,761 36,720
Other direct leasing costs 46,410 43,109 35,373
Sales:
New units 82,564 75,169 60,268
Rental equipment 18,164 16,886 16,305
Delivery and installation 84,540 78,339 59,670
Other 9,901 8,374 6,583
------------------------------------------------------
Total costs of sales and services 287,413 263,638 214,919
------------------------------------------------------
Gross profit 207,760 228,618 217,227
------------------------------------------------------
Selling, general and administrative expenses 85,779 82,573 76,872
Other depreciation and amortization 13,438 18,845 17,474
Interest, including amortization of deferred
financing costs of $7,948, $5,269, and $4,931 85,208 85,486 91,860
Non-cash charge for casualty loss -- 1,500 -
------------------------------------------------------
Total operating expenses 184,425 188,404 186,206
------------------------------------------------------
Income before income taxes 23,335 40,214 31,021
Income tax expense 8,137 17,585 14,938
------------------------------------------------------
Net income $ 15,198 $ 22,629 $ 16,083
======================================================
Earnings per common share: $ 2.45 $ 3.65 $ 2.60
======================================================
Earnings per common share, assuming dilution: $ 2.32 $ 3.46 $ 2.46
======================================================
See accompanying notes.
31
Scotsman Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Cumulative
Foreign Currency
Additional
Common Stock Paid-in Retained Translation Treasury
--------------------
Shares Amount Capital Earnings Adjustment Stock Total
-------------------------------------------------------------------------------------------
(In thousands)
Balance at December 31, 1999 6,197 $95 $233,725 $23,353 - $(295,856) $(38,683)
Appreciation in value of stock options - - 479 - - - 479
Foreign currency translation - - - - (457) - (457)
adjustment
Net income - - - 16,083 - - 16,083
-------------------------------------------------------------------------------------------
Balance at December 31, 2000 6,197 95 234,204 39,436 (457) (295,856) (22,578)
Purchase of 75 shares of treasury
stock - - - - - (4) (4)
Decrease in value of stock options - - (278) - - - (278)
Foreign currency translation
adjustment - - - - (1,048) - (1,048)
Net income - - - 22,629 - - 22,629
-------------------------------------------------------------------------------------------
Balance at December 31, 2001 6,197 $95 $ 233,926 $ 62,065 $(1,505) $ (295,860) $ (1,279)
Non-cash stock option compensation
expense - - 5,313 - - - 5,313
Purchase of 1,800 shares of
treasury stock - - - - - (78) (78)
Foreign currency translation
adjustment - - - - 119 - 119
Net income - - - 15,198 - - 15,198
-------------------------------------------------------------------------------------------
Balance at December 31, 2002 6,197 $95 $ 239,239 $ 77,263 $(1,386) $ (295,938) $ 19,273
===========================================================================================
See accompanying notes.
32
Scotsman Holdings, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Year ended December 31
2002 2001 2000
----------------------------------------------------------
(In thousands)
Cash flows from operating activities
Net income $ 15,198 $22,629 $ 16,083
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 66,614 65,875 59,125
Provision for bad debts 3,767 4,204 3,697
Deferred income tax expense 7,759 17,333 14,683
Non-cash option compensation expense (income) 5,313 (278) 479
Gain on sale of rental equipment (5,787) (5,326) (5,266)
Decrease (increase) in net trade accounts receivable 6,604 (24,624) (337)
Increase (decrease) in accounts payable and accrued expenses, 2,485 (5,451) 1,579
including reserve for casualty loss
Other (3,091) (14,168) (3,121)
----------------------------------------------------------
Net cash provided by operating activities 98,862 60,194 86,922
----------------------------------------------------------
Cash flows from investing activities
Rental equipment additions (44,793) (106,177) (122,617)
Proceeds from sales of rental equipment 23,951 22,212 21,571
Acquisition of businesses, net of cash acquired (7,308) (26,114) (8,687)
Purchase of property and equipment, net (11,901) (15,379) (18,571)
----------------------------------------------------------
Net cash used in investing activities (40,051) (125,458) (128,304)
----------------------------------------------------------
Cash flows from financing activities
Proceeds from debt 1,123,473 547,129 493,748
Repayment of debt (1,162,427) (483,267) (450,461)
Increase in deferred financing costs (20,263) (557) -
Amortization of bond premium 327 - -
Payments to acquire treasury stock (78) (4) -
----------------------------------------------------------
Net cash (used in) provided by financing activities (58,968) 63,301 43,287
----------------------------------------------------------
Net (decrease) increase in cash (157) (1,963) 1,905
Cash at beginning of period 586 2,549 644
----------------------------------------------------------
Cash at end of period $ 429 $ 586 $ 2,549
==========================================================
Supplemental cash flow information:
Cash paid for income taxes $ 573 $ 306 $ 196
==========================================================
Cash paid for interest $ 76,744 $ 89,351 $ 81,653
==========================================================
See accompanying notes.
33
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
December 31, 2002 and 2001
1. Organization and Basis of Presentation
Scotsman Holdings, Inc. was organized in November 1993 for the purpose of
acquiring Williams Scotsman (Scotsman). The operations of Scotsman Holdings,
Inc. and its subsidiary (the Company) consist of the leasing and sale of mobile
offices, storage products, and their delivery and installation. Included in the
operations of Scotsman are its 100% owned subsidiaries, Willscot Equipment, LLC
(Willscot), and Williams Scotsman of Canada, Inc. 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. These 100% owned subsidiaries are guarantors of the Company's credit
facility. 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 senior notes on a subordinated basis.
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.
Acquisition of Northgate Industries Ltd
On July 31, 2002 the Company acquired the mobile office and storage product
fleet of Northgate Industries Ltd., an Edmonton, Alberta-based Canadian company
that was involved in the leasing of mobile offices to industrial markets. The
transaction was accounted for under the purchase method of accounting with a net
purchase price of $7.0 million being allocated to the identifiable net assets
acquired of $6.6 million with the excess of $.4 million representing goodwill.
The purchase price allocation was based upon estimates of the fair value of the
net assets acquired. The acquisition, which added over 500 units at a value of
approximately $6.3 million, was financed with borrowings under the Company's new
credit facility.
Acquisition of Mckinney Mobile Modular
On February 1, 2001, the Company acquired the mobile office 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 then existing credit facility.
34
Scotsman Holdings, Inc. and Subsidiary
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 ("SFAS No. 142"), Goodwill and Other Intangible Assets, effective for
fiscal years beginning after December 15, 2001. Prior to the adoption of this
standard, goodwill was amortized on a straight-line basis over 20 to 40 years.
Under the new rules, goodwill (and intangible assets deemed to have indefinite
lives) are no longer amortized but are subject to annual impairment tests in
accordance with the Statement. Other intangible assets continue to be amortized
over their useful lives.
The Company has adopted SFAS No. 142 effective January 1, 2002. The Company
performed the first of these required tests during the first quarter of 2002 and
the annual impairment test as of the beginning of the fourth quarter and
determined that goodwill was not impaired.
Extinguishment of Debt. In May 2002, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections, effective for fiscal years beginning after May 15, 2002.
With the rescission of SFAS No. 4, gains and losses from the extinguishment of
debt should be classified as extraordinary items only if they meet the criteria
in APB Opinion No. 30.
The Company has adopted SFAS No. 145 effective January 1, 2002. As a
result, the $1.6 million of deferred financing costs relating to the Company's
former credit agreement that were expensed during the year ended December
31,2002 are included in interest expense.
Stock Based Compensation. In December 2002, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure, effective
for fiscal years ending after December 15, 2002.
The Company has adopted SFAS 148 for disclosure purposes and is considering
adoption for reporting purposes.
35
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of
the Company and its 100% 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.
(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, 2002. 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 generally of 10 to 20
years and an estimated residual value of typically 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.
36
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(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. In accordance with SFAS 142,
goodwill (and intangible assets deemed to have indefinite lives) are no
longer amortized but are subject to annual impairment tests in accordance
with the Statement. The Company performed the first of these required
tests during the first quarter of 2002 and the annual impairment test as
of the beginning of the fourth quarter and determined that goodwill was
not impaired.
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 Company 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.
(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) 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.
37
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(h) 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.
(i) Reclassifications
Certain prior year amounts have been reclassified to conform to current
year presentation.
(j) Earnings Per Share
The following table sets forth the components of the weighted-average
shares outstanding for the basic and diluted earnings per share
computations:
December 31
2002 2001 2000
------------ --------------- ------------
Weighted-average shares-basic
earnings per share 6,195,184 6,196,623 6,196,674
Effect of employee
stock options
347,776 338,068 340,787
------------ --------------- ------------
Weighted-average
shares-diluted
earnings per share 6,542,960 6,534,691 6,537,461
============ =============== ============
38
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
3. Property and Equipment
Property and equipment consist of the following:
December 31
2002 2001
-----------------------------------
Land $ 19,441 $ 17,223
Buildings and improvements 33,145 28,162
Furniture and equipment 65,515 61,331
-----------------------------------
118,101 106,716
Less accumulated depreciation 37,852 31,358
-----------------------------------
Net property and equipment $ 80,249 $ 75,358
===================================
4. Goodwill and Other Intangible Assets
The Company has adopted SFAS No. 142 effective January 1, 2002. Under SFAS
No. 142 goodwill and certain identified intangibles with indefinite lives are no
longer amortized, rather they are subject to annual impairment tests. The
Company performed the first of these required tests during the first quarter of
2002 and determined that goodwill is not impaired. Prior to the adoption of this
standard, goodwill was amortized on a straight-line basis over 20 to 40 years.
Amortization expense for the year ended December 31, 2002 was $.8 million, which
represents the amortization related to the identified intangible assets still
required to be amortized under SFAS No. 142. These include covenants not to
compete and customer base, which are being amortized on a straight-line basis
over periods of 24 to 228 months. Amortization expense relating to these
identified intangibles for each of the next five years is as follows:
2003 $713
2004 559
2005 548
2006 215
2007 142
39
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
4. Goodwill and Other Intangible Assets (continued)
Under SFAS No. 142 assembled workforce is not considered to be an
intangible asset. The Company has reclassified this asset to goodwill. The
effect of the adoption of SFAS No. 142 as of December 31, 2002 and December 31,
2001 is summarized in the following tables:
--------- December 31, 2002 --------- --------- December 31, 2001---------
Gross Net Gross Net
Carrying Accumulated Book Carrying Accumulated Book
Amount Amortization Value Amount Amortization Value
-------- ------------ ------- -------- ------------ -------
Goodwill $183,717 $ 15,215 $168,502 $183,164 $ 15,215 $167,949
Intangible
assets with
indefinite
lives as of
January 1,
2002
- --------------------
Assembled
Workforce $ 801 $ 372 $ 429 $ 801 $ 372 $ 429
--------- December 31, 2002 --------- --------- December 31, 2001---------
Gross Net Gross Net
Carrying Accumulated Book Carrying Accumulated Book
Amount Amortization Value Amount Amortization Value
-------- ------------ ------- -------- ------------ -------
Intangible
Assets with
Finite lives
as of
January 1, 2002
---------------------
Non-
Compete
Agreements $3,445 $ 1,795 $ 1,650 $3,128 $ 1,142 $1,986
Customer
Base 2,000 412 1,588 2,000 307 1,693
----- ----- ----- ----- ----- -----
$5,445 $ 2,207 $ 3,238 $5,128 $ 1,449 $3,679
====== ====== ===== ====== ====== =====
40
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
4. Goodwill and Other Intangible Assets (continued)
A summary of the changes in the carrying amount of goodwill for the year
ended December 31, 2002 is as follows:
Gross Carrying Accumulated
Amount Amortization
-------------- ------------
As of December 31, 2001 $183,164 $ 15,215
Net Goodwill Acquired 553 --
------------- ------------
As of December 31, 2002 $183,717 $ 15,215
============= ============
As required by SFAS No. 142, the results of the prior years have not been
restated. A reconciliation of net income as if SFAS No. 142 had been adopted as
of January 1, is presented below for the three years ended December 31, 2002,
2001, and 2000, respectively.
2002 2001 2000
---- ---- ----
Reported net income $15,198 $22,629 $16,083
Add back:
Goodwill and Other Intangible
amortization (net of tax) - 4,735 4,549
------- ------ ------
Adjusted net income $15,198 $27,364 $20,632
======= ======= =======
Earnings per share: basic
Reported net income $2.45 $3.65 $2.60
===== ===== =====
Adjusted net income $2.45 $4.42 $3.33
===== ===== =====
Earnings per share: diluted
Reported net income $2.32 $3.46 $2.46
===== ===== =====
Adjusted net income $2.32 $4.19 $3.16
===== ===== =====
41
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
5. Revolving Credit Facility and Long-Term Debt
Debt consists of the following:
December 31
2002 2001
---------------------------
Borrowings under revolving credit facility $ 197,691 $ 564,922
Term loan 238,200 58,050
9.875% senior notes, net of
unamortized discount of $1,546 in 2002 548,454 400,000
---------------------------
$ 984,345 $1,022,972
===========================
In February 2002, the Company issued $150.0 million of additional 9.875%
senior 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 98.75%. 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 then
existing revolving credit facility. On March 26, 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 $460.0 million
revolving credit facility, a $210.0 million term loan, both maturing on December
31, 2006, and up to an additional $30.0 million in term or revolver commitments.
In May 2002, the Company borrowed an additional $30.0 million of term loans, the
proceeds from which were used to pay down revolver borrowings.
Interest on borrowings under the revolver is payable at a rate of either
prime plus 1.75% or the Eurodollar rate plus 3.0%. The weighted average interest
rates of the revolver under the credit agreement were 4.74% and 4.22% at
December 31, 2002 and 2001, respectively.
Principal payments due on the term loan are equal to 1% per year payable
quarterly through September 30, 2006 with the balance due on December 31, 2006.
Interest on the term loan is payable at a rate of either prime plus 1.75% or the
Eurodollar rate plus 3.00%. The weighted average interest rates of the term loan
under the credit agreement were 4.75% and 5.25% at December 31, 2002 and 2001,
respectively.
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 Scotsman
can pay to us, the new loan agreement requires compliance with certain financial
covenants including capital expenditures, interest coverage and leverage and
fleet utilization levels. The Company was in compliance with such covenants
during 2002.
42
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
5. Revolving Credit Facility and Long-Term Debt (continued)
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 June 1, 2002, the senior
notes became redeemable at the option of the Company, at a redemption price of
104.938% for the following 12-month period. On June 1, 2003, the senior notes
are redeemable at the option of the Company, at a redemption price of 102.469%
during the 12-month period beginning June 1, 2003 and 100% thereafter.
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 senior notes on a subordinated basis. These 100% owned
subsidiaries (Guarantor Subsidiaries), act as joint and several guarantors of
the senior notes.
At December 31, 2002 and 2001, the fair value of debt was approximately
$944,641 and $1,016,972, 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, 2002 and 2001 were $5,172, and
$2,820, respectively.
6. 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
2002 2001
---------------------------
Deferred tax liabilities:
Cost basis in excess of tax basis of
assets and accelerated tax depreciation:
Rental equipment $256,986 $ 243,222
Property and equipment 1,042 818
Other 2,582 2,504
---------------------------
Total deferred tax liabilities 260,610 246,544
---------------------------
Deferred tax assets:
Allowance for doubtful accounts 423 467
Rents billed in advance 7,893 10,321
Stock option compensation 3,911 1,861
Deferred compensation 537 704
Net operating loss carryovers 93,963 85,849
Alternative minimum tax credit carryovers 1,759 1,759
Other 565 1,783
---------------------------
109,051 102,744
Less: valuation allowance (3,400) (3,400)
---------------------------
Total deferred tax assets 105,651 99,344
---------------------------
Net deferred tax liabilities $154,959 $147,200
===========================
43
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
At December 31, 2002, the Company had net operating loss carryovers
available for federal income tax purposes of $237,104 (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. These net operating loss carryovers expire at
various dates from 2003 to 2022. Also, alternative minimum tax credit carryovers
of approximately $1,759 are available without expiration limitations.
Income tax expense consists of the following:
Years ended December 31
2002 2001 2000
-------------------------------------------
Current $ 378 $ 252 $ 255
Deferred 7,759 17,333 14,683
-------------------------------------------
$ 8,137 $ 17,585 $ 14,938
===========================================
Federal $ 6,461 $ 13,683 $ 12,626
State 1,368 2,489 2,312
Foreign 308 1,413 -
-------------------------------------------
$ 8,137 $ 17,585 $ 14,938
===========================================
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
2002 2001 2000
----------------------------------------
Income tax at statutory rate $ 8,167 $ 14,076 $10,857
State income taxes, net of
federal tax benefit 889 1,618 1,503
Amortization of goodwill and
other intangible assets 70 1,776 1,702
Other (989) 115 876
----------------------------------------
$ 8,137 $ 17,585 $14,938
========================================
44
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
7. Commitments
The Company is obligated under noncancelable operating leases of certain
equipment, vehicles and parcels of land. At December 31, 2002 approximate future
minimum rental payments are as follows:
2003 8,968
2004 7,544
2005 6,127
2006 4,273
2007 2,576
Thereafter 3,087
-----
Total minimum future lease payments $32,575
======
Rent expense was $12,901, in 2002, $11,490, in 2001, and $9,839, in 2000.
8. 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
up to the dollar limit described in Section 402(g) of the Code ($11,000 in
2002). All amounts deferred under this salary reduction feature are fully
vested. In accordance with the Economic Growth and Tax Relief Act of 2001, the
Plan also allows employees over the age of 50 to contribute an additional $1,000
as a "catch-up contribution."
The 401(k) Plan has a "matching" contribution feature under which the
Company may contribute a percentage of the amount deferred by each participant,
excluding the "catch-up contribution." 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 $668 in 2002, $587 in 2001, and $477 in 2000. 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
45
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
8. Employee Benefit Plans (continued)
investment vehicles of the employee's choice. As of December 31, 2002, the total
amount deferred under this plan, including earnings, was approximately $649.
The Company adopted a stock option plan for certain key employees of
Scotsman. 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 our 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, 6,300, 23,300, and 46,100 options were granted in 2002, 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
of approximately ($278) and $479, in 2001 and 2000, respectively. During 2002, a
modification was made for the continuation of certain employees options after
their termination from the Company. As a result, non-cash stock option
compensation expense of approximately $5,313 was recognized.
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 required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," as amended by
Statement of Financial Accounting Standards No. 148, 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 2002, 2001 and 2000: risk-free interest rate of 3.8%, 4.5%, and
6.3%, respectively; weighted average expected life of the options of 5 years;
and no dividends. In addition to the pro forma expense on options granted,
certain options were modified in the current year. In determining the pro forma
expense related to these modified options, the Company used the following
assumptions: risk free interest rates of 2.8% to 3.5%, expected life of options
of 3 to 5 years, and no dividends.
46
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
8. Employee Benefit Plans (continued)
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:
2002 2001 2000
----------- ------------ -----------
As Reported:
Noncash stock option compensation expense
(income), gross $ 5,313 $ (278) $ 479
Net Income 15,198 22,629 16,083
Earnings Per Share: basic 2.45 3.65 2.60
Earnings Per Share: diluted 2.32 3.46 2.46
Pro forma Results
Noncash stock option compensation expense
(income), gross 857 (412) 1,037
Net income 17,912 22,711 15,740
Pro forma earnings per share: basic $ 2.89 $ 3.67 $ 2.54
Pro forma earnings per share: diluted $ 2.74 $ 3.48 $ 2.41
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 in December 1997:
2002 2001 2000
------------------------- ------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------ ------------ ------------ ------------ ------------- --------------
Beginning balance 1,125,140 $ 23.87 1,120,540 $23.56 1,107,840 $22.68
Granted 6,300 50.67 23,300 50.67 46,100 50.67
Canceled - - - - - -
Forfeited (12,450) (37.60) (18,700) (38.45) (33,400) (31.77)
------------ ------------ ----------- ------------ ------------- --------------
Ending balance 1,118,990 23.87 1,125,140 23.87 1,120,540 23.56
Exercisable at end of year 986,500 20.69 975,506 20.26 871,030 18.54
Weighted average minimum value
of options granted during
year $ 7.99 $ 9.34 $19.45
47
Scotsman Holdings, Inc. and Subsidiary
Notes to Consolidated Financial Statements
8. Employee Benefit Plans (continued)
Exercise prices for options outstanding as of December 31, 2002 are
detailed in the following table. The weighted-average remaining contractual life
of those options is 4.39 years.
- ----------------- ------------------------ ------------------------ -----------
Weighted
Average
Remaining
Shares Outstanding at Shares Exercisable at Contractual
Exercise Price December 31, 2002 December 31, 2002 Life
- ----------------- ------------------------ ------------------------ -----------
$ 4.59 73,200 73,200 2.2 years
$ 9.60 278,100 278,100 3.2 years
$18.39 273,990 273,990 4.2 years
$30.50 337,850 294,470 5.0 years
$50.67 155,850 66,740 7.1 years
- ----------------- ------------------------ ------------------------ -----------
9. Related Party Transactions
During 2002, 2001 and 2000, Scotsman paid dividends of approximately $133,
$60, and $55, respectively, to us 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.
48
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, 2002 and 2001, and the
related consolidated statements of operations, stockholder's equity (deficit)
and cash flows for each of the three years in the period ended December 31,
2002. Our audits also included the financial statement schedule listed in the
Index at Item 15(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, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, 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.
As discussed in Note 4 to the Financial Statements, effective January 1,
2002, the Company changed its method of accounting for goodwill and other
intangible assets.
/s/ Ernst & Young LLP
Baltimore, Maryland
January 31, 2003
49
Williams Scotsman, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31
2002 2001
---------- ----------
(In thousands)
Assets
Cash $ 427 $ 584
Trade accounts receivable, net of allowance for doubtful accounts of
$1,071 in 2002 and $1,298 in 2001 63,965 74,336
Prepaid expenses and other current assets 25,468 25,628
Rental equipment, net of accumulated depreciation of $207,538 in 2002
and $178,046 in 2001 850,087 866,867
Property and equipment, net 80,249 75,358
Deferred financing costs, net 23,616 10,696
Goodwill 168,931 168,378
Other intangible assets, net 3,238 3,679
Other assets 14,369 19,458
--------- ---------
$1,230,350 $1,244,984
========= =========
Liabilities and stockholder's equity (deficit)
Accounts payable and accrued expenses $ 52,988 $ 50,287
Rents billed in advance 18,773 25,796
Revolving credit facility 197,691 564,922
Long-term debt 786,654 458,050
Deferred income taxes 160,451 152,670
--------- ---------
Total liabilities 1,216,557 1,251,725
--------- ---------
Stockholder's equity (deficit):
Common stock, $.01 par value. Authorized 10,000,000 shares; issued
and outstanding 3,320,000 shares 33 33
Additional paid-in capital 131,602 126,289
Cumulative foreign currency translation adjustment (1,386) (1,505)
Retained deficit (116,456) (131,558)
------- -------
Total stockholder's equity (deficit) 13,793 (6,741)
--------- ---------
$1,230,350 $1,244,984
========= =========
See accompanying notes.
50
Williams Scotsman, Inc. and Subsidiaries
Consolidated Statements of Operations
Year ended December 31
2002 2001 2000
------- -------- -------
(In thousands except
per share amounts)
Revenues
Leasing $ 227,106 $ 238,151 $220,547
Sales:
New units 98,927 91,114 73,291
Rental equipment 23,951 22,212 21,571
Delivery and installation 101,034 97,342 79,097
Other 44,155 43,437 37,640
------- ------- -------
Total revenues 495,173 492,256 432,146
------- ------- -------
Cost of sales and services Leasing:
Depreciation and amortization 45,834 41,761 36,720
Other direct leasing costs 46,410 43,109 35,373
Sales:
New units 82,564 75,169 60,268
Rental equipment 18,164 16,886 16,305
Delivery and installation 84,540 78,339 59,670
Other 9,901 8,374 6,583
------- ------- -------
Total costs of sales and services 287,413 263,638 214,919
------- ------- -------
Gross profit 207,760 228,618 217,227
------- ------- -------
Selling, general and administrative expenses 85,722 82,516 76,817
Other depreciation and amortization 13,438 18,845 17,474
Interest, including amortization of deferred financing
costs of $7,948, $5,269 and $4,931 85,208 85,486 91,860
Non-cash charge for casualty loss -- 1,500 --
------- ------- -------
Total operating expenses 184,368 188,347 186,151
------- ------- -------
Income before income taxes 23,392 40,271 31,076
Income tax expense 8,157 17,605 14,957
------- ------- -------
Net income $ 15,235 $ 22,666 $ 16,119
======== ======= =======
Earnings per common share 4.59 $ 6.83 $ 4.86
======== ======= =======
See accompanying notes.
51
Williams Scotsman, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity (Deficit)
Cumulative
Foreign
Additional Currency
Common Stock Paid-in Retained Translation
Shares Amount Capital Deficit Adjustment Total
-------------------------------------------------------------------
(In thousands)
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--$.02 per share - - - (60) - (60)
Foreign currency translation
adjustment - - - - (1,048) (1,048)
Net income - - - 22,666 - 22,666
-------------------------------------------------------------------
Balance at December 31, 2001 3,320 33 126,289 (131,558) (1,505) (6,741)
Non-cash stock option compensation
expense - - 5,313 - - 5,313
Dividends to parent--$.04 per share - - - (133) - (133)
Foreign currency translation
adjustment - - - - 119 119
Net income - - - 15,235 - 15,235
-----------------------------------------------------------------------
Balance at December 31, 2002 3,320 $ 33 $ 131,602 $(116,456) $ (1,386) $13,793
=======================================================================
See accompanying notes.
52
Williams Scotsman, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31
2002 2001 2000
--------- --------- --------
(In thousands)
Cash flows from operating activities
Net income $ 15,235 $ 22,666 $ 16,119
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 66,614 65,875 59,125
Provision for bad debts 3,767 4,204 3,697
Deferred income tax expense 7,781 17,353 14,703
Non-cash option compensation expense (income) 5,313 (278) 479
Gain on sale of rental equipment (5,787) (5,326) (5,266)
Decrease (increase) in net trade accounts receivable 6,604 (24,624) (337)
Increase (decrease) in accounts payable and accrued expenses,
including reserve for casualty loss in 2001
2,481 (5,452) 1,578
Other (3,091) (14,167) (3,121)
------- ------ ------
Net cash provided by operating activities 98,917 60,251 86,977
------- ------ ------
Cash flows from investing activities
Rental equipment additions (44,793) (106,177) (122,617)
Proceeds from sales of rental equipment 23,951 22,212 21,571
Acquisition of businesses, net of cash acquired (7,308) (26,114) (8,687)
Purchase of property and equipment, net (11,901) (15,379) (18,571)
------- ------- -------
Net cash used in investing activities (40,051) (125,458) (128,304)
------ ------- -------
Cash flows from financing activities
Proceeds from debt 1,123,473 547,129 493,748
Repayment of debt (1,162,427) (483,267) (450,461)
Increase in deferred financing costs (20,263) (557) -
Amortization of bond premium 327 - -
Cash dividends paid (133) (60) (55)
------ ------ ------
Net cash (used in) provided by financing activities (59,023) 63,245 43,232
------ ------ ------
Net (decrease) increase in cash (157) (1,962) 1,905
Cash at beginning of period 584 2,546 641
------ ------ -----
Cash at end of period $ 427 $ 584 $ 2,546
====== ====== =====
Supplemental cash flow information:
Cash paid for income taxes $ 518 $ 306 $ 196
====== ====== ======
Cash paid for interest $ 76,744 $ 89,351 $ 81,653
====== ====== ======
See accompanying notes.
53
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
December 31, 2002 and 2001
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), and
Williams Scotsman of Canada, Inc. 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. These 100% owned subsidiaries are guarantors of the Company's credit
facility. 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 senior notes on a subordinated basis.
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.
Acquisition of Northgate Industries Ltd
On July 31, 2002 the Company acquired the mobile office and storage product
fleet of Northgate Industries Ltd., an Edmonton, Alberta-based Canadian company
that was involved in the leasing of mobile offices to industrial markets. The
transaction was accounted for under the purchase method of accounting with a net
purchase price of $7.0 million being allocated to the identifiable net assets
acquired of $6.6 million with the excess of $.4 million representing goodwill.
The purchase price allocation was based upon estimates of the fair value of the
net assets acquired. The acquisition, which added over 500 units at a value of
approximately $6.3 million, was financed with borrowings under the Company's new
credit facility.
Acquisition of Mckinney Mobile Modular
On February 1, 2001, the Company acquired the mobile office 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 then existing credit facility.
54
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 ("SFAS No. 142"), Goodwill and Other Intangible Assets, effective for
fiscal years beginning after December 15, 2001. Prior to the adoption of this
standard, goodwill was amortized on a straight-line basis over 20 to 40 years.
Under the new rules, goodwill (and intangible assets deemed to have indefinite
lives) are no longer amortized but are subject to annual impairment tests in
accordance with the Statement. Other intangible assets continue to be amortized
over their useful lives.
The Company has adopted SFAS No. 142 effective January 1, 2002. The Company
performed the first of these required tests during the first quarter of 2002 and
the annual impairment test as of the beginning of the fourth quarter and
determined that goodwill was not impaired.
Extinguishment of Debt. In May 2002, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections, effective for fiscal years beginning after May 15, 2002.
With the rescission of SFAS No. 4, gains and losses from the extinguishment of
debt should be classified as extraordinary items only if they meet the criteria
in APB Opinion No. 30.
The Company has adopted SFAS No. 145 effective January 1, 2002. As a
result, the $1.6 million of deferred financing costs relating to the Company's
former credit agreement that were expensed during the year ended December
31,2002 are included in interest expense.
Stock Based Compensation. In December 2002, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure, effective
for fiscal years ending after December 15, 2002.
The Company has adopted SFAS 148 for disclosure purposes and is considering
adoption for reporting purposes.
55
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of the
Company and its 100% 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.
(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, 2002. 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 generally of 10 to 20
years and an estimated residual value of typically 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.
56
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(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. In accordance with SFAS 142,
goodwill (and intangible assets deemed to have indefinite lives) are no
longer amortized but are subject to annual impairment tests in accordance
with the Statement. The Company performed the first of these required
tests during the first quarter of 2002 and the annual impairment test as
of the beginning of the fourth quarter and determined that goodwill was
not impaired.
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 Company 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.
(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 2002, 2001 and 2000.
(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.
57
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(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.
58
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
3. Property and Equipment
Property and equipment consist of the following:
December 31
2002 2001
-----------------------------------
Land $ 19,441 $ 17,223
Buildings and improvements 33,145 28,162
Furniture and equipment 65,515 61,331
-----------------------------------
118,101 106,716
Less accumulated depreciation 37,852 31,358
-----------------------------------
Net property and equipment $ 80,249 $ 75,358
===================================
4. Goodwill and Other Intangible Assets
The Company has adopted SFAS No. 142 effective January 1, 2002. Under SFAS
No. 142 goodwill and certain identified intangibles with indefinite lives are no
longer amortized, rather they are subject to annual impairment tests. The
Company performed the first of these required tests during the first quarter of
2002 and determined that goodwill is not impaired. Prior to the adoption of this
standard, goodwill was amortized on a straight-line basis over 20 to 40 years.
Amortization expense for the year ended December 31, 2002 was $.8 million, which
represents the amortization related to the identified intangible assets still
required to be amortized under SFAS No. 142. These include covenants not to
compete and customer base, which are being amortized on a straight-line basis
over periods of 24 to 228 months. Amortization expense relating to these
identified intangibles for each of the next five years is as follows:
2008 $713
2009 559
2010 548
2011 215
2012 142
59
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. Goodwill and Other Intangible Assets (continued)
Under SFAS No. 142 assembled workforce is not considered to be an
intangible asset. The Company has reclassified this asset to goodwill. The
effect of the adoption of SFAS No. 142 as of December 31, 2002 and December 31,
2001 is summarized in the following tables:
--------- December 31, 2002 --------- --------- December 31, 2001---------
Gross Net Gross Net
Carrying Accumulated Book Carrying Accumulated Book
Amount Amortization Value Amount Amortization Value
-------- ------------ ------- -------- ------------ -------
Goodwill $183,717 $ 15,215 $168,502 $183,164 $ 15,215 $167,949
Intangible
assets with
indefinite
lives as of
January 1,
2002
- --------------------
Assembled
Workforce $ 801 $ 372 $ 429 $ 801 $ 372 $ 429
A summary of the changes in the carrying amount of goodwill for the year
ended December 31, 2002 is as follows:
Gross Carrying Accumulated
Amount Amortization
As of December 31, 2001 $183,164 $ 15,215
Net Goodwill Acquired 553 --
------- -------
As of December 31, 2002 $183,717 $ 15,215
======= =======
60
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. Goodwill and Other Intangible Assets (continued)
--------- December 31, 2002 --------- --------- December 31, 2001---------
Gross Net Gross Net
Carrying Accumulated Book Carrying Accumulated Book
Amount Amortization Value Amount Amortization Value
-------- ------------ ------- -------- ------------ -------
Intangible
Assets with
Finite lives
as of
January 1, 2002
---------------------
Non-
Compete
Agreements $3,445 $ 1,795 $ 1,650 $3,128 $ 1,142 $1,986
Customer
Base 2,000 412 1,588 2,000 307 1,693
----- ----- ----- ----- ----- -----
$5,445 $ 2,207 $ 3,238 $5,128 $ 1,449 $3,679
====== ====== ===== ====== ====== =====
61
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. Goodwill and Other Intangible Assets (continued)
As required by SFAS No. 142, the results of the prior years have not been
restated. A reconciliation of net income as if SFAS No. 142 had been adopted
as of January 1, is presented below for the three years ended December 31,
2002, 2001, and 2000, respectively.
2002 2001 2000
---- ---- ----
Reported net income $15,235 $22,666 $16,119
Add back:
Goodwill and Other Intangible
amortization (net of tax) - 4,735 4,549
------ ------ ------
Adjusted net income $15,235 $27,401 $20,668
======= ====== =======
Earnings per share:
Reported net income $4.59 $ 6.83 $ 4.86
===== ====== ======
Adjusted net income $4.59 $ 8.25 $ 6.23
===== ====== ======
62
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. Revolving Credit Facility and Long-Term Debt
Debt consists of the following:
December 31
2002 2001
-------------------------------
Borrowings under revolving credit facility $ 197,691 $ 564,922
Term loan 238,200 58,050
9.875% senior notes, net of
unamortized discount of $1,546
in 2002 548,454 400,000
-------------------------------
$ 984,345 $1,022,972
===============================
In February 2002, the Company issued $150.0 million of additional 9.875%
senior 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 98.75%. 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 then
existing revolving credit facility. On March 26, 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 $460.0 million
revolving credit facility, a $210.0 million term loan, both maturing on December
31, 2006, and up to an additional $30.0 million in term or revolver commitments.
In May 2002, the Company borrowed an additional $30.0 million of term loans, the
proceeds from which were used to pay down revolver borrowings.
63
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. Revolving Credit Facility and Long-Term Debt (continued)
Interest on borrowings under the revolver is payable at a rate of either
prime plus 1.75% or the Eurodollar rate plus 3.0%. The weighted average interest
rates of the revolver under the credit agreement were 4.74% and 4.22% at
December 31, 2002 and 2001, respectively.
Principal payments due on the term loan are equal to 1% per year payable
quarterly through September 30, 2006 with the balance due on December 31, 2006.
Interest on the term loan is payable at a rate of either prime plus 1.75% or the
Eurodollar rate plus 3.00%. The weighted average interest rates of the term loan
under the credit agreement were 4.75% and 5.25% at December 31, 2002 and 2001,
respectively.
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
and leverage and fleet utilization levels. The Company was in compliance with
such covenants during 2002.
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 June 1, 2002, the senior
notes became redeemable at the option of the Company, at a redemption price of
104.938% for the following 12-month period. On June 1, 2003, the senior notes
are redeemable at the option of the Company, at a redemption price of 102.469%
during the 12-month period beginning June 1, 2003 and 100% thereafter.
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 senior notes on a subordinated basis. These 100% owned
subsidiaries (Guarantor Subsidiaries), act as joint and several guarantors of
the senior notes.
At December 31, 2002 and 2001, the fair value of debt was approximately
$944,641 and $1,016,972, 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, 2002 and 2001 were $5,172, and
$2,820, respectively.
64
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. 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
2002 2001
-----------------------------
Deferred tax liabilities:
Cost basis in excess of tax basis of
assets and accelerated tax depreciation:
Rental equipment $256,986 $ 243,222
Property and equipment 1,042 818
Other 2,582 2,504
-----------------------------
Total deferred tax liabilities 260,610 246,544
-----------------------------
Deferred tax assets:
Allowance for doubtful accounts 423 467
Rents billed in advance 7,893 10,321
Stock option compensation 3,911 1,861
Deferred compensation 537 704
Net operating loss carryovers 88,471 80,379
Alternative minimum tax credit carryovers 1,759 1,759
Other 565 1,783
-----------------------------
103,559 97,274
Less: valuation allowance (3,400) (3,400)
-----------------------------
-----------------------------
Total deferred tax assets 100,159 93,874
-----------------------------
-----------------------------
Net deferred tax liabilities $160,451 $ 152,670
=============================
At December 31, 2002, the Company had net operating loss carryovers
available for federal income tax purposes of $221,413 (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. These net operating loss carryovers expire at
various dates from 2003 to 2022. Also, alternative minimum tax credit carryovers
of approximately $1,759 are available without expiration limitations.
65
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Income Taxes (continued)
Income tax expense consists of the following:
Years ended December 31
2002 2001 2000
-------------------------------------------
Current $ 376 $ 252 $ 254
Deferred 7,781 17,353 14,703
-------------------------------------------
$ 8,157 $ 17,605 $14,957
===========================================
Federal $ 6,481 $ 13,703 $12,644
State 1,368 2,489 2,313
Foreign 308 1,413 -
-------------------------------------------
$ 8,157 $ 17,605 $14,957
===========================================
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
2002 2001 2000
---------------------------------------
Income tax at statutory rate $ 8,187 $ 14,096 $10,876
State income taxes, net of
federal tax benefit 889 1,618 1,503
Amortization of goodwill and
other intangible assets 70 1,776 1,702
Other (989) 115 876
---------------------------------------
$ 8,157 $ 17,605 $14,957
=======================================
66
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
7. Commitments
The Company is obligated under noncancelable operating leases of certain
equipment, vehicles and parcels of land. At December 31, 2002 approximate future
minimum rental payments are as follows:
2003 $8,968
2004 7,544
2005 6,127
2006 4,273
2007 2,576
Thereafter 3,087
-----
Total minimum future lease payments $32,575
=======
Rent expense was $12,901, in 2002, $11,490, in 2001, and $9,839, in 2000.
8. 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
up to the dollar limit described in Section 402(g) of the Code ($11,000 in
2002). All amounts deferred under this salary reduction feature are fully
vested. In accordance with the Economic Growth and Tax Relief Act of 2001, the
Plan also allows employees over the age of 50 to contribute an additional $1,000
as a "catch-up contribution."
The 401(k) Plan has a "matching" contribution feature under which the
Company may contribute a percentage of the amount deferred by each participant,
excluding the "catch-up contribution." 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 $668 in 2002, $587 in 2001, and $477 in 2000. 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
67
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Employee Benefit Plans (continued)
investment vehicles of the employee's choice. As of December 31, 2002, the total
amount deferred under this plan, including earnings, was approximately $649.
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, 6,300, 23,300, and 46,100 options were granted in
2002, 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 of approximately ($278) and $479, in 2001 and 2000,
respectively. During 2002, a modification was made for the continuation of
certain employees options after their termination from the Company. As a result,
non-cash stock option compensation expense of approximately $5,313 was
recognized.
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 required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," as amended by
Statement of Financial Accounting Standards No. 148, 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 2002, 2001 and 2000: risk-free interest rate of 3.8%, 4.5%, and
6.3%, respectively; weighted average expected life of the options of 5 years;
and no dividends. In addition to the pro forma expense on options granted,
certain options were modified in the current year. In determining the pro forma
expense related to these modified options, the Company used the following
assumptions: risk free interest rates of 2.8% to 3.5%, expected life of options
of 3 to 5 years, and no dividends.
68
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Employee Benefit Plans (continued)
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:
2002 2001 2000
----------- ------------ -----------
As Reported:
Noncash stock option compensation expense
(income), gross $ 5,313 $ (278) $ 479
Net Income 15,235 22,666 16,119
Earnings Per Share 4.59 6.83 4.86
Pro forma Results
Noncash stock option compensation expense
(income), gross 857 (412) 1,037
Net income 17,949 22,748 15,776
Pro forma earnings per share $ 5.41 $ 6.85 $ 4.75
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:
2002 2001 2000
------------------------- ------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------ ------------ ------------ ------------ ------------- --------------
Beginning balance 1,125,140 $ 23.87 1,120,540 $23.56 1,107,840 $22.68
Granted 6,300 50.67 23,300 50.67 46,100 50.67
Canceled - - - - - -
Forfeited (12,450) (37.60) (18,700) (38.45) (33,400) (31.77)
------------ ------------ ----------- ------------ ------------- --------------
Ending balance 1,118,990 23.87 1,125,140 23.87 1,120,540 23.56
Exercisable at end of year 986,500 20.69 975,506 20.26 871,030 18.54
Weighted average minimum value
of options granted during
year $ 7.99 $ 9.34 $19.45
69
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
8. Employee Benefit Plans (continued)
Exercise prices for options outstanding as of December 31, 2002 are
detailed in the following table. The weighted-average remaining contractual life
of those options is 4.39 years.
- -------------------------------------------------------------------------------
Weighted
Exercise Shares Outstanding at Shares Exercisable at Average
Price December 31, 2002 December 31, 2002 Remaining
Contractual Life
- -------------------------------------------------------------------------------
$ 4.59 73,200 73,200 2.2 years
$ 9.60 278,100 278,100 3.2 years
$18.39 273,990 273,990 4.2 years
$30.50 337,850 294,470 5.0 years
$50.67 155,850 66,740 7.1 years
- --------------------------------- ---------------------------------------------
70
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9. 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 senior notes on a subordinated basis. These 100% owned
subsidiaries (Guarantor Subsidiaries), act as joint and several guarantors of
the senior notes. See Note 1 for a description of the operations of Willscot.
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 presents condensed consolidating financial information for
the Company and the Guarantor Subsidiaries. Under the provisions of the previous
credit facility, Williams Scotsman of Canada, Inc. was not considered a
guarantor subsidiary, and therefore, its net assets and operations were properly
excluded from the condensed financial information of the guarantor subsidiaries
during the period ending December 31, 2001. The prior year amounts contained
below have been adjusted to conform to current year presentation by
reclassifying all of the 100% owned subsidiaries as Guarantor Subsidiaries.
Space Master International, Inc., Evergreen Mobile Company and Truck & Trailer
Sales, Inc. do not have any assets or operations.
As of December 31, 2002
Guarantor
Parent Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------
Balance Sheet
Assets:
Rental equipment, at cost $ 322,546 $735,079 $ - $1,057,625
Less accumulated depreciation 68,061 139,477 - 207,538
-------- ------------ ----------- ---------
Net rental equipment 254,485 585,602 - 850,087
Property and equipment, net 79,293 956 - 80,249
Investment in Willscot 567,757 - (567,757) -
Other assets 328,877 8,518 (37,381) 300,014
------- ------------ ------------ ---------
Total assets $1,230,412 $605,076 $(605,138) $1,230,350
========= ============ ============= =========
Liabilities:
Accounts payable and accrued expenses 51,665 1,323 - 52,988
Long-term debt and revolving credit facility 984,345 - - 984,345
Other liabilities 179,224 37,381 (37,381) 179,224
--------- ------------ ------------ ---------
Total liabilities 1,215,234 38,704 (37,381) 1,216,557
--------- ------------ ------------ ---------
Equity: 15,178 566,372 (567,757) 13,793
--------- ------------ ------------ ---------
Total liabilities and stockholder's equity $1,230,412 $605,076 $(605,138) $1,230,350
========= ============ ============ =========
71
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9. Supplemental Condensed Consolidating Financial Information (continued)
As of December 31, 2001
Guarantor
Parent Subsidiaries Eliminations Consolidated
------------ ------------ ------------ ------------
Balance Sheet
Assets:
Rental equipment, at cost $ 282,710 $762,203 $ - $1,044,913
Less accumulated depreciation 61,382 116,664 178,046
--------- ----------- ------------ ---------
Net rental equipment 221,328 645,539 - 866,867
Property and equipment, net 74,589 769 - 75,358
Investment in subsidiaries 633,158 - (633,158) -
Other assets 315,191 11,464 (23,896) 302,759
--------- ----------- ------------ ---------
Total assets $1,244,266 $ 657,772 $(657,054) $1,244,984
========= =========== ============ =========
Liabilities:
Accounts payable and accrued expenses $ 48,438 $ 1,849 $ - $ 50,287
Long-term debt and revolving credit 1,022,972 - - 1,022,972
facility
Other liabilities 178,092 24,270 (23,896) 178,466
--------- ----------- ------------- ---------
Total liabilities 1,249,502 26,119 (23,896) 1,251,725
--------- ----------- ------------- ---------
Equity (deficit): (5,236) 631,653 (633,158) (6,741)
--------- ----------- ------------- ---------
Total liabilities and stockholder's equity
(deficit) $1,244,266 $ 657,772 $(657,054) $1,244,984
========= =========== ============= =========
For the Year Ended December 31, 2002
Guarantor
Parent Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------
Results of Operations
Total revenues $ 477,595 $ 90,496 $ (72,918) $ 495,173
Gross profit 201,329 53,035 (46,604) 207,760
Other expenses 189,865 49,264 (46,604) 192,525
Net income $ 11,464 $ 3,771 $ - $ 15,235
72
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9. Supplemental Condensed Consolidating Financial Information (continued)
For the Year Ended December 31, 2001
Guarantor
Parent Subsidiaries Eliminations Consolidated
-------- ------------ ------------ -------------
Results of Operations
Total revenues $ 482,010 $ 83,944 $ (73,698) $ 492,256
Gross profit 224,615 51,984 (47,981) 228,618
Other expenses 204,245 49,688 (47,981) 205,952
Net income $ 20,370 $ 2,296 $ - $ 22,666
For the Year Ended December 31, 2000
Guarantor
Parent Subsidiaries Eliminations Consolidated
------ ------------- ------------ ------------
Results of Operations
Total revenues $ 427,646 $ 70,690 $ (66,190) $ 432,146
Gross profit 215,504 45,199 (43,476) 217,227
Other expenses 200,331 44,253 (43,476) 201,108
Net income $ 15,173 $ 946 $ - $ 16,119
For the Year Ended December 31, 2002
Guarantor
Parent Subsidiaries Eliminations Consolidated
---------- -------------- -------------- -----------------
Cash Flows
Cash provided by operating activities $ 51,540 $ 47,377 $ - $ 98,917
Cash provided by(used in) investing 7,396 (47,447) - (40,051)
activities
Cash used in financing activities (59,023) - - (59,023)
------- ---------- ----------- ----------
Net change in cash (87) (70) - (157)
(Overdraft)/cash at beginning of period (535) 1,119 - 584
------- ---------- ----------- ----------
(Overdraft)/cash at end of period $ (622) $ 1,049 $ - $ 427
======= ========== =========== ============
73
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9. Supplemental Condensed Consolidating Financial Information (continued)
For the Year Ended December 31, 2001
Guarantor
Parent Subsidiaries Eliminations Consolidated
------------- -------------- -------------- -----------------
Cash Flows
Cash provided by operating activities $ 26,920 $ 33,331 $ - $ 60,251
Cash used in investing activities (91,314) (34,144) - (125,458)
Cash provided by financing activities 63,245 - - 63,245
------------- -------------- -------------- -----------------
Net change in cash (1,149) (813) - (1,962)
Cash at beginning of period 614 1,932 - 2,546
------------- -------------- -------------- -----------------
(Overdraft)/cash at end of period $ (535) $ 1,119 $ - $ 584
============ ============== ============== =================
For the Year Ended December 31, 2000
Guarantor
Parent Subsidiaries Eliminations Consolidated
------------- -------------- -------------- -----------------
Cash Flows
Cash provided by operating activities $ 53,450 $ 33,527 $ - $ 86,977
Cash used in investing activities (96,685) (31,619) - (128,304)
Cash provided by financing activities 43,232 - - 43,232
------------- -------------- -------------- -----------------
Net change in cash (3) 1,908 - 1,905
Cash at beginning of period 617 24 - 641
------------ -------------- -------------- -----------------
Cash at end of period $ 614 $ 1,932 $ - $ 2,546
============ ============== ============== =================
74
Williams Scotsman, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
10. Related Party Transactions
During 2002, 2001 and 2000, the Company paid dividends of approximately
$133, $60, and $55, respectively, to Holdings primarily to fund normal operating
expenses.
11. 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.
75
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
Gerard E. Holthaus... 53 President and Chief Executive Officer;
Director and Chairman of the Board
James N. Alexander... 43 Director
Michael F. Finley.... 41 Director
Steven B. Gruber..... 45 Director
Brian Kwait.......... 41 Director
David P. Spalding.... 48 Director
Joseph F. Donegan.... 52 Executive Vice President - U.S.
Field Operations
John C. Cantlin...... 54 Senior Vice President and
Chief Financial Officer
William C. LeBuhn.... 40 Senior Vice President and
Chief Administrative Officer
Dean T. Fisher....... 56 Vice President - Operations
William G. Gessner... 44 Vice President - Information Services
John B. Ross......... 54 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.
Gerard E. Holthaus was elected Chairman of the Board in April 1999 and has
been our President and Chief Executive Officer since April 1997. He has been
with our company since June 1994, and served as President and Chief Operating
Officer from October 1995 to April 1997 and was Executive Vice President and
Chief Financial Officer prior to that. He has served as a director since June
1994. Before joining our 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 and Young (Baltimore),
where he served as a partner from 1982 to 1988. He also serves on the Board of
Directors of 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.
76
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 our 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.
David P. Spalding was elected as a director of our 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.,
Lear Corporation, and Republic National Cabinet Corporation.
Joseph F. Donegan has been Executive Vice President of U.S. Field
Operations since May 2001. He was Senior Vice President and Northern Division
Manager of our company since September 1996 and served as the Northeast Region
Manager prior to that. Mr. Donegan's responsibilities include the implementation
of corporate policies, attainment of branch profitability, fleet utilization
management and development of personnel for the entire United States branch
network. Mr. Donegan has over 28 years of experience within the industry, and 20
years with Williams Scotsman. From 1991 through May 1994, Mr. Donegan held
similar positions with Bennett Mobile Offices and Space Master Buildings.
John C. Cantlin has been Senior Vice President and Chief Financial Officer
since February 2003. Prior to joining our Company, he consulted for Citicorp
Venture Capital and American Industrial Partners (AIP) from January 2002 to
January 2003. He served as Chief Financial Officer and Executive Vice President
of RBX Corporation, a portfolio company of AIP, from September 1997 to December
2001. He brings 30 years of financial management and operations experience,
including international experience, to our Company and has held other executive
positions at Stockham Valves from 1990 to 1997, Plastiline, Inc. from 1988 to
1990 and several divisions of FMC Corporation from 1979 to 1988.
William C. LeBuhn has been Senior Vice President and Chief Administrative
Officer since March 2002 with responsibilities for Marketing, Human Resources,
Legal and Information Systems. 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. Mr. LeBuhn's primary
responsibilities include the strategic direction and coordination of multiple
business units. Prior to joining our 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 has been Vice President of Operations since October 2001.
His operational responsibilities include credit, invoicing, document compliance,
cash posting, collections and recovery. Prior to joining our company, Mr. Fisher
77
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. 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.
78
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
highest paid officers (the "Named Executive Officers") who received total
compensation in excess of $100,000 during 2002.
Long-Term
Compensation
Awards
---------------
Annual Securities All Other
Compensation Underlying Compensation
------------
Year Salary Bonus Options(1) (2)
---- ------ ----- ------------ ------------
Gerard E. Holthaus
President and Chief Executive Officer ....................2002 $452,692 $116,250 -- $9,183
2001 439,177 139,500 -- 9,433
2000 413,600 103,500 -- 9,433
Joseph F. Donegan
Executive Vice President - U.S. Field Operations..........2002 321,490 37,500 -- 3,885
2001 305,245 45,000 -- 5,375
2000 260,609 33,750 1,000 4,625
William C. LeBuhn
Senior Vice President and Chief Administrative Officer....2002 159,423 42,750 -- 4,111
2001 144,073 43,200 -- 1,938
2000 133,708 33,000 1,000 --
William Gessner
Vice President-Information Services.......................2002 144,038 26,250 -- 3,726
2001 139,615 31,500 -- 3,615
2000 129,615 22,500 -- 3,337
Dean Fisher
Vice President - Operations...............................2002 130,869 30,000 -- 1,129
2001 39,733 36,000 -- 1,125
2000 -- -- -- --
79
Summary Compensation Table (continued)
Long-Term
Compensation
Awards
---------------
Annual Securities All Other
Compensation Underlying Compensation
------------
Year Salary Bonus Options(1) (2)
---- ------ ----- ------------ -------------
J. Collier Beall
Former Senior Vice President and Southern Region
Manager................................................... 2002 151,998 -- -- 150,192
2001 275,074 40,500 -- 2,616
2000 258,837 33,750 -- 2,637
Gerard E. Keefe
Former Senior Vice President and Chief Financial Officer 2002 148,851 45,000 -- 36,165
2001 174,513 54,000 -- 4,500
2000 159,675 40,500 -- 4,125
(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 and for Mr. Holthaus, the
amounts include a disability insurance premium of $4,058 in each of 2002, 2001
and 2000. In addition, for Mr. Beall, whose employment terminated in June 2002
and Mr. Keefe, whose employment terminated in October 2002, the amounts include
paid severance of $148,698 and $33,435, respectively.
Former Employees
Gerard E. Keefe
Mr. Keefe was employed as the Chief Financial Officer for the Company until
October 11, 2002. At the time that his employment ended, his base annual salary,
including car allowance, was $188,050. On October 11, 2002, the Company entered
into a Severance Agreement and General Release (the "Keefe Severance and Release
Agreement") with Mr. Keefe. Under the terms of the Keefe Severance and Release
Agreement, the Company is required to pay Mr. Keefe, in addition to any amounts
earned but not yet paid to him, the amount of his base salary through February
20, 2004 plus $45,000 as his management incentive for the year ended December
31, 2002. Mr. Keefe is entitled to medical coverage under the Company's medical
plans until February 20, 2004.
Further, the Keefe Severance and Release Agreement also allows Mr. Keefe to
retain his interest in his company stock options and shares. It also contains a
provision prohibiting Mr. Keefe from disclosing any confidential information of
the Company. Additionally, the Keefe Severance and Release Agreement provides
that Mr. Keefe may not compete with the Company until such time as he no longer
retains company stock options or shares. The Keefe Severance and Release
Agreement also provides for outplacement services equivalent to $5,000.
80
J. Collier Beall
Mr. Beall was employed as the Senior Vice President of the Southern Region
for the Company until June 3, 2002. At the time that his employment ended, his
base salary, including car allowance, was $287,800. On June 3, 2002, the Company
entered into a Severance Agreement and General Release (the "Beall Severance and
Release Agreement") with Mr. Beall. Under the terms of the Beall Severance and
Release Agreement, the Company is required to pay Mr. Beall, in addition to any
amounts earned but not yet paid to him, the amount of his base annual salary
through December 31, 2003. Mr. Beall is entitled to medical coverage under the
Company's medical plans until May 31, 2004.
Further, the Beall Severance and Release Agreement allows Mr. Beall to
retain his interest in his company stock options and shares. It also contains a
provision prohibiting Mr. Beall from disclosing any confidential information of
the Company. Additionally, the Beall Severance and Release Agreement provides
that Mr. Beall may not compete with the Company until such time as he no longer
retains company stock options or shares. The Beall Severance and Release
Agreement also provides for six months of outplacement services.
81
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
The following table contains information covering the number and value of
unexercised stock options held by the Named Executive Officers at the end of the
fiscal year.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Fiscal Year End (1) At Fiscal Year End ($)
Name Exercisable/Unexercisable (2) Exercisable/Unexercisable(3)
- ----------------------------------------------- ----------------------------
Gerard E. Holthaus.... 275,513 / -- $8,343,023 / $--
Joseph F. Donegan .... 101,675 / 700 3,036,786 / --
William C. LeBuhn..... 93,250 / 600 2,923,605 / --
William G. Gessner.... 17,475 / 5,000 291,608 / --
Dean T. Fisher........ 1,000 / 4,000 -- / --
J. Collier Beall...... 102,425 / -- 3,084,467 / --
Gerard E. Keefe....... 88,950 / -- 2,603,544 / --
(1) No options were exercised by the Named Executive Officers during
fiscal 2002.
(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, 2002.
82
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 2002,
6,300 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 up to the dollar limit described in Section 402(g) of the Code
($11,000 in 2002). In accordance with the Economic Growth and Tax Relief Act of
2001, the Plan also allows employees over the age of 50 to contribute an
additional $1,000. This is known as the "catch-up contribution." 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 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. This matching
percentage is not applied to "catch-up contributions" deferred by participants.
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, at 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.
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 2002, we made matching contributions to the 401(k) Plan participants in
an aggregate amount of $668,376.
83
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, 2002, the total amount deferred under this Plan, including earnings, was
approximately $649.
Compensation Committee Interlocks and Insider Participation
During 2002, the Compensation Committee was comprised of two outside
directors: David P. Spalding and Steven B. Gruber. 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.
84
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 as of December 31, 2002 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 39.25%
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 41.28
Odyssey Investment Partners Fund, LP(3)(5)
280 Park Avenue
New York, NY 10017 .......................... 716,536 11.57
James N. Alexander(6) .......................... --- ---
Michael F. Finley(7) .......................... --- ---
Steven B. Gruber(6) .......................... --- ---
Brian Kwait(8)....................................... --- ---
David P. Spalding(7)................................. --- ---
Gerard E. Holthaus (9)(10)(11)....................... 313,613 4.85
Joseph F. Donegan (9)(10)(11)........................ 105,275 1.67
William C. LeBuhn (9)(10)(11)........................ 96,250 1.53
William G. Gessner (9)(10)(11)....................... 17,475 .28
Dean T. Fisher (9)(10)(11)........................... 1,000 .02
J. Collier Beall (9)(10)(11)......................... 106,925 1.70
Gerard E. Keefe (9)(10)(11).......................... 90,450 1.44
All executive officers and directors as a group...... 793,268 11.44
85
(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., and Odyssey Investment Group 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 the address of the Company's
principal executive offices.
86
(10) 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."
(11) Includes 275,513, 101,675, 17,475, 1,000, 102,425, 88,950, and
93,250 shares held as options by Messrs. Holthaus, Donegan,
Gessner, Fisher, Beall, Keefe and LeBuhn, respectively. All
executive officers as a group includes 741,068 shares held as
options. Messrs. Beall and Keefe are no longer employed by the
Company.
87
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 "Business -
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.
88
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 transferees, the "Investor
Stockholders") and the Odyssey Investor Group, 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
89
Stockholder 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 2002, 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, 2002. In accordance with the
employment arrangement, Mr. Gossett served as Chairman Emeritus of the Company's
Board of Directors until October 31, 2002 when his employment arrangement ended.
90
Item 14. 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 a date
within 90 days prior to the date of filing of this annual
report, that our disclosure controls and procedures 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 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 Controls.
There were no significant changes in our internal controls
or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, nor
were there any significant deficiencies or material
weaknesses in our internal controls. Accordingly, no
corrective actions were required or undertaken.
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 are 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 can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions regardless of how remote.
91
PART IV
Item 15. 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.
None
(c) Exhibits
Exhibit Number
2.1 -- Recapitalization Agreement, dated as of April 11, 1997.
(Incorporated by reference to Exhibit 2 of Scotsman's 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 Scotsman's
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 Scotsman's Form 8-K dated November 27, 1996).
3.2 -- By-laws of Williams Scotsman, Inc. (Incorporated
by reference to Exhibit 3.2 of Scotsman's 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 Scotsman's
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 Scotsman's annual report on Form 10-K
for the year ended December 31, 1998.
92
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 Scotsman's 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 Scotsman'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
Scotsman's annual report on Form 10-K for the year ended
December 31, 1998.)
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
Scotsman's annual report on 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 Scotsman's annual report on Form 10-K for the year ended
December 31, 1998.)
10.8 -- First Amendment to Credit Agreement dated as of July 7, 1999.
(Incorporated by reference to Exhibit 10.8 to Scotsman's
quarterly report on Form 10-Q for the quarter ended
September 30, 1999).
10.9 -- Second Amendment to Credit Agreement dated as of
September 15, 1999. (Incorporated by reference to
Exhibit 10.9 to Scotsman's quarterly report on
Form 10-Q for the quarter ended September 30, 1999).
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).
93
10.11 -- Credit Agreement, dated as of March 26, 2002, by and among
Scotsman Holdings, Inc., Williams Scotsman, Inc., various
financial institutions named therein, Bankers Trust Company,
as administrative agent, Fleet Capital Corporation and
Congress Financial Corporation as Co-Syndication Agents, Bank
of America, N.A. and GMAC Business Credit, LLC as
Co-Documentation Agents, and Deutsche Banc Alex. Brown Inc.
as Sole Lead Arranger and Sole Book Manager. (Incorporated
by reference to Exhibit 10.1 to Scotsman's Registration
Statement on Form S-4, Commission File No. 333-86482).
10.12 -- First Amendment dated as of February 27, 2003 to Credit
Agreement dated as of March 26, 2002.
10.13 -- Severance Agreement and General Release for Gerard E. Keefe
dated October 11, 2002.
10.14 -- Severance Agreement and General Release for J. Collier Beall
dated June 3, 2002.
12.1 -- Statement regarding computation of ratios.
21.1 -- Subsidiaries of Registrant: Willscot Equipment, LLC, Space
Master International, Inc., Evergreen Mobile Company, Truck
& Trailer Sales, Inc. Williams Scotsman, Inc. and
Williams Scotsman of Canada, Inc.
99.1 -- Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for
Gerard E. Holthaus, Chief Executive Officer of the Company.
99.2 -- Certification pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for
John C. Cantlin, Chief Financial Officer of the Company.
94
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SCOTSMAN HOLDINGS, INC.
By: /s/ Gerard E. Holthaus
--------------------------
Gerard E. Holthaus
Chief Executive Officer
Dated: March 28, 2003
95
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 H. Holthaus Chairman, President, Chief March 28, 2003
- ----------------------
Gerard H. Holthaus Executive Officer and Director
(principal executive officer)
/s/ John C. Cantlin Chief Financial Officer March 28, 2003
- ---------------------------
John C. Cantlin (principal financial officer)
/s/ Glenn A. Schultz Controller March 28, 2003
- ---------------------------
Glenn A. Schultz (principal accounting officer)
/s/ James N. Alexander Director March 28, 2003
- -------------------------
James N. Alexander
/s/ Michael F. Finley Director March 28, 2003
- ---------------------------
Michael F. Finley
/s/ Steven B. Gruber Director March 28, 2003
- ---------------------------
Steven B. Gruber
/s/ Brian Kwait Director March 28, 2003
- ---------------------------
Brian Kwait
/s/ David P. Spalding Director March 28, 2003
- ---------------------------
David P. Spalding
96
CERTIFICATIONS
I, Gerard E. Holthaus, Chief Executive Officer, certify, that:
(1) I have reviewed this annual report on Form 10-K
of Scotsman Holdings, Inc.;
(2) Based on my knowledge, this annual 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 annual report;
(3) Based on my knowledge, the financial statements,
and other financial information included in this
annual 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 annual
report;
(4) The registrant's other certifying officers and I
are responsible for establishing and maintaining
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiary,
is made known to us by others within
the entity, particularly during the
period in which this annual report is
being prepared;
b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures as of a date within 90 days
prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our
conclusions about the effectiveness of
the disclosure controls and procedures
based on our evaluation as of the
Evaluation Date;
97
(5) The registrant's other certifying officers and I
have disclosed, based on our most recent
evaluation, 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 in the
design or operation of internal controls
which could adversely affect the
registrant's ability to record, process,
summarize and report financial data and
have identified for the registrant's
auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that
involves management or other employees
who have a significant role in the
registrant's internal controls; and
(6) The registrant's other certifying officers and I
have indicated in this annual report whether or
not there were significant changes in internal
controls or in other factors that could
significantly affect internal controls subsequent
to the date of our most recent evaluation,
including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Gerard E. Holthaus
Gerard E. Holthaus
Chief Executive Officer
March 28, 2003
98
CERTIFICATIONS
I, John C. Cantlin, Chief Financial Officer, certify, that:
(1) I have reviewed this annual report on Form 10-K
of Scotsman Holdings, Inc.;
(2) Based on my knowledge, this annual 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 annual report;
(3) Based on my knowledge, the financial statements,
and other financial information included in this
annual 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 annual
report;
(4) The registrant's other certifying officers and I
are responsible for establishing and maintaining
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiary,
is made known to us by others within
the entity, particularly during the
period in which this annual report is
being prepared;
b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures as of a date within 90 days
prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our
conclusions about the effectiveness of
the disclosure controls and procedures
based on our evaluation as of the
Evaluation Date;
99
(5) The registrant's other certifying officers and I
have disclosed, based on our most recent
evaluation, 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 in the
design or operation of internal controls
which could adversely affect the
registrant's ability to record, process,
summarize and report financial data and
have identified for the registrant's
auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that
involves management or other employees
who have a significant role in the
registrant's internal controls; and
(6) The registrant's other certifying officers and I
have indicated in this annual report whether or
not there were significant changes in internal
controls or in other factors that could
significantly affect internal controls subsequent
to the date of our most recent evaluation,
including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ John C. Cantlin
------------------------
John C. Cantlin
Chief Financial Officer
March 28, 2003
100
Supplemental Information to Be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act:
No annual report of proxy material for the fiscal year ended December 31,
2002 has been, nor will be, sent to security holders.
101
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARY
Schedule I - Condensed Financial Information of Registrant
Condensed Balance Sheets December 31,
--------------------------------
2002 2001
---- ----
(in thousands)
Assets
Cash $ 2 $ 2
Investment in subsidiary 7,110 (7,992)
Deferred income taxes 5,492 5,472
------ -------
$12,604 $ (2,518)
====== =======
Liabilities and Stockholders'
Equity (Deficit)
Accrued expenses $ 14 $ 12
------ -------
Stockholders' deficit:
Common stock 95 95
Additional paid-in
capital 229,101 229,101
Retained earnings 79,332 64,134
------- -------
308,528 293,330
Treasury stock (295,938) (295,860)
------- -------
12,590 (2,530)
------ -------
$ 12,604 $ (2,518)
====== =======
Condensed Statements of Operations Year Ended December 31,
--------------------------------
2002 2001 2000
---- ---- ----
(In thousands)
Revenue $ -- $ -- $ --
Selling, general and
administrative expenses 57 57 55
Interest -- -- --
------- ----- ------
57 57 55
------- ----- ------
Loss before income taxes (57) (57) (55)
Income tax benefit 20 20 19
------- ----- ------
Loss before equity in
earnings of
Subsidiary and
extraordinary item (37) (37) (36)
Equity in earnings of
Subsidiary 15,235 22,666 16,119
------ ------ ------
Net income $ 15,198 $22,629 $16,083
====== ====== ======
102
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARY
Schedule I - Condensed Financial Information of Registrant, Continued
Statement of Cash Flows Year Ended December 31,
------------------------------
2002 2001 2000
---- ---- ----
(in thousands)
Cash flows from operating activities:
Net income $15,198 $22,629 $16,083
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Deferred income tax benefit (20) (20) (20)
Undistributed earnings of subsidiary (15,235) (22,666) (16,119)
Other 2 -- 1
------ ------ ------
Net cash used in operating activities (55) (57) (55)
------ ------ ------
Cash flows from financing activities:
Dividends received from subsidiary 133 60 55
Payments to acquire treasury stock (78) (4) --
------ ------ ------
Net cash provided by financing activities 55 56 55
------ ------ ------
Net (decrease) increase in cash (--) (1) (--)
Cash at beginning of period 2 3 3
------ ------ ------
Cash at end of period $2 $2 $3
====== ====== ======
103
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARY
Schedule II - Valuation and Qualifying Accounts
Year ended December 31,
------------------------------------
2002 2001 2000
---- ---- ----
(In thousands)
Allowance for Doubtful Accounts:
Balance at beginning of the period $ 1,298 $ 983 $ 1,058
Provision charged to expense 3,767 4,204 3,697
Accounts receivable written-off, net
of recoveries (3,994) (3,889) (3,772)
------- ------- -----
Balance at end of the period $ 1,071 $1,298 $ 983
===== ===== =====
104
EXHIBITS TO FORM 10-K
SCOTSMAN HOLDINGS, INC.
EXHIBIT INDEX
Sequentially
Numbered
Exhibit No. Description of Document Page
- ----------- ----------------------- ------------
10.12 -- First Amendment dated as of
February 27, 2003 to Credit
Agreement dated as of March 26, 2002. 106-121
10.13 -- Severance Agreement and General Release for
Gerard E. Keefe dated October 11, 2002. 122-129
10.14 -- Severance Agreement and General Release for
J. Collier Beall dated June 3, 2002. 130-136
12.1 -- Statement regarding computation of ratios. 137
99.1 -- Certification pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
for Gerard E. Holthaus, Chief
Executive Officer of the Company. 138
99.2 -- Certification pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
for John C. Cantlin, Chief
Financial Officer of the Company. 139
105
Exhibit 10.12
FIRST AMENDMENT
FIRST AMENDMENT (this "Amendment"), dated as of February 27, 2003, among
SCOTSMAN HOLDINGS, INC., a Delaware corporation ("Holdings"), WILLIAMS SCOTSMAN,
INC., a Maryland corporation (the "Borrower"), the Lenders from time to time
party to the Credit Agreement referred to below (the "Lenders"), and DEUTSCHE
BANK TRUST COMPANY AMERICAS (formerly known as BANKERS TRUST COMPANY), as
Administrative Agent. All capitalized terms used herein and not otherwise
defined herein shall have the respective meanings provided such terms in the
Credit Agreement referred to below.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Lenders and the Administrative Agent are parties
to a Credit Agreement, dated as of March 26, 2002 (the "Credit Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement on the terms
and subject to the conditions contained herein;
NOW, THEREFORE, it is agreed:
1. The definition of "Applicable Margin and Applicable Unused Line Fee
Percentage" appearing in Section 1.1 of the Credit Agreement is hereby amended
by inserting the text "vice president of finance," immediately following the
text "by the chief financial officer," appearing in the first sentence of the
second paragraph of such definition.
2. The definition of "Consolidated Leverage Ratio" appearing in Section 1.1
of the Credit Agreement is hereby amended by inserting the text "vice president
of finance," immediately following the text "by the chief financial officer,"
appearing in such definition.
3. Sections 7.1(a)(ii), (b)(i), (b)(ii), (c) and (e) of the Credit
Agreement are hereby amended by inserting the text "vice president of finance,"
immediately following the text "chief executive officer, chief financial
officer," appearing in each such Section.
4. Section 7.17(a) of the Credit Agreement is hereby amended by deleting
the text "chief executive officer or chief financial officer" appearing in
clause (ix) of such Section and inserting the text "chief executive officer,
chief financial officer or vice president of finance" in lieu thereof.
5. Section 8.11 of the Credit Agreement is hereby amended by deleting the
date "December 31, 2002" appearing therein and inserting the date "June 30,
2004" in lieu thereof.
6. In order to induce the Lenders to enter into this Amendment, the
Borrower hereby represents and warrants that (x) no Default or Event of Default
exists on the First Amendment Effective Date (as defined below), both before and
after giving effect to this Amendment, and (y) all of the representations and
106
warranties contained in the Credit Agreement and in the other Loan Documents
shall be true and correct in all material respects on the date hereof, both
before and after giving effect to this Amendment, with the same effect as though
such representations and warranties had been made on and as of such date.
7. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Loan Document.
8. This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument. A complete set of counterparts
shall be lodged with the Borrower and the Administrative Agent.
9. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF
NEW YORK.
10. This Amendment shall become effective on the date (the "First Amendment
Effective Date") when (i) the Borrower and the Required Lenders shall have
signed a counterpart hereof and shall have delivered (including by way of
telecopier) the same to the Administrative Agent by 5:00 p.m. (New York City
time) on February 27, 2003 and (ii) the Borrower shall have paid to the
Administrative Agent for distribution to each Lender who has delivered an
executed counterpart hereof by 5:00 p.m. (New York City time) on February 27,
2003 as provided in clause (i) above a non-refundable cash fee in an amount
equal to 10 basis points (0.10%) of an amount equal to the sum of (x) the
outstanding principal amount of Term Loans of such Lender and (y) the Revolving
Credit Commitment of such Lender, in each case as same is in effect on the First
Amendment Effective Date.
11. From and after the First Amendment Effective Date, all references in
the Credit Agreement and each of the other Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement as modified
hereby.
* * *
107
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
SCOTSMAN HOLDINGS, INC.
By /s/ Gerard E. Holthaus
-------------------------------
Name: Gerard E. Holthaus
Title: Chief Executive Officer
WILLIAMS SCOTSMAN, INC.
By /s/ Gerard E. Holthaus
-----------------------------
Name: Gerard E. Holthaus
Title: Chief Executive Officer
DEUTSCHE BANK TRUST COMPANY
AMERICAS (formerly
known as Bankers Trust
Company), Individually
and as Administrative
Agent
By /s/ Albert Fischetti
------------------------
Name: Albert Fischetti
Title: Director
OLDMAN SACHS CREDIT PARTNERS, L.P.
By /s/ Sandra Stulberger
-------------------------
Name: Sandra Stulberger
Title: Authorized Signatory
Sankaty Advisors, LLC as
Collateral Manager for Race Point II CLO, Ltd., as Term
Lender.
By /s/ Diane J. Exter
--------------------------------
Name: Diane J. Exter
Title: Managing Director
Portfolio Manager
108
Sankaty Advisors, LLC as Collateral Manager for
Brant Point II CBO 2000-1 Ltd.,
as Term Lender.
By /s/ Diane J. Exter
-------------------------------
Name: Diane J. Exter
Title: Managing Director
Portfolio Manager
Sankaty Advisors, LLC as Collateral Manager for
Castle Hill I Ingots, Ltd., as
Term Lender.
By /s/ Diane J. Exter
-------------------------------
Name: Diane J. Exter
Title: Managing Director
Portfolio Manager
Sankaty Advisors, LLC as Collateral Manager for
Castle Hill II Ingots, Ltd., as Term Lender.
By /s/ Diane J. Exter
-------------------------
Name: Diane J. Exter
Title: Managing Director
Portfolio Manager
Sankaty Advisors, LLC as Collateral Manager for
Great Point CLO 1999-I, Ltd., as Term Lender.
By /s/ Diane J. Exter
--------------------------
Name: Diane J. Exter
Title: Managing Director
Portfolio Manager
109
Sankaty Advisors, LLC as Collateral Manager for
Race Point CLO Ltd., as Term Lender.
By /s/ Diane J. Exter
------------------------------
Name: Diane J. Exter
Title: Managing Director
Portfolio Manager
Sankaty High Yield Partners III, L.P.
By /s/ Diane J. Exter
------------------------------
Name: Diane J. Exter
Title: Managing Director
Portfolio Manager
BLACK DIAMOND CLO 1998-I LTD.
By /s/ Alan Corkish
---------------------------
Name: Alan Corkish
Title: Director
BLACK DIAMOND INTERNATIONAL FUNDING, LTD.
By /s/ Alan Corkish
------------------------------
Name: Alan Corkish
Title: Director
BLACK DIAMOND CLO 2000-I LTD.
By /s/ Alan Corkish
------------------------------
Name: Alan Corkish
Title: Director
110
HARBOUR TOWN FUNDING LLC
By /s/ Diana L. Mushill
-----------------------
Name: Diana L. Mushill
Title: Assistant Vice President
Bank of America, N. A.
By /s/ Kevin W. Corcoran, VP
-----------------------------
Name: Kevin W. Corcoran, VP
Title: Vice President
The Provident Bank
By /s/ Mary Sue Wolfer
----------------------------
Name: Mary Sue Wolfer
Title: Credit Officer
Gallatin Funding I Ltd.
By: Bear Stearns Asset Management
as its Collateral Manager
By /s/ Niall Rosenzweig
-----------------------------
Name: Niall Rosenzweig
Title: Associate Director
Grayston CLO 2001-01 Ltd..
By: Bear Stearns Asset Management
as its Collateral Manager
111
By /s/ Niall Rosenzweig
-----------------------------
Name: Niall Rosenzweig
Title: Associate Director
WINGED FOOT FUNDING TRUST.
By /s/ Diana L. Mushill
Name: Diana L. Mushill
Title: Authorized Agent
JUPITER FUNDING TRUST.
By /s/ Diana L. Mushill
Name: Diana L. Mushill
Title: Authorized Agent
KZH CNC LLC.
By /s/ DORIAN HERRERA
Name: DORIAN HERRERA
Title: Authorized Agent
KZH CRESCENT LLC.
By /s/ DORIAN HERRERA
Name: DORIAN HERRERA
Title: Authorized Agent
KZH CRESCENT 2 LLC.
By /s/ DORIAN HERRERA
Name: DORIAN HERRERA
Title: Authorized Agent
112
KZH CRESCENT 3 LLC.
By /s/ DORIAN HERRERA
Name: DORIAN HERRERA
Title: Authorized Agent
KZH SOLEIL LLC.
By /s/ DORIAN HERRERA
Name: DORIAN HERRERA
Title: Authorized Agent
KZH SOLEIL 2 LLC.
By /s/ DORIAN HERRERA
Name: DORIAN HERRERA
Title: Authorized Agent
KZH WATERSIDE LLC.
By /s/ DORIAN HERRERA
Name: DORIAN HERRERA
Title: Authorized Agent
FIRST DOMINION FUNDING I
By /s/ Andrew H. Marshak
Name: Andrew H. Marshak
Title: Authorized Signatory
113
FIRST DOMINION FUNDING II
By /s/ Andrew H. Marshak
Name: Andrew H. Marshak
Title: Authorized Signatory
FIRST DOMINION FUNDING III
By /s/ Andrew H. Marshak
Name: Andrew H. Marshak
Title: Authorized Signatory
CSAM FUNDING I.
By /s/ Andrew H. Marshak
Name: Andrew H. Marshak
Title: Authorized Signatory
CSAM FUNDING II
By /s/ Andrew H. Marshak
Name: Andrew H. Marshak
Title: Authorized Signatory
TRANSAMERICA BUSINESS CAPITAL CORPORATION
By /s/ Christopher J. Morrito
Name: Christopher J. Morrito
Title: Vice President
114
SEQUILS IV, LTD.
By: TCW Advisors, Inc. as its
Collateral Manager
By /s/ Richard F. Kurth
Name: Richard F. Kurth
Title: Vice President
By /s/ Mark L. Gold
Name: Mark L. Gold
Title: Managing Director
C-SQUARED CDO LTD.
By: TCW Advisors, Inc. as its
Collateral Manager
By /s/ Richard F. Kurth
Name: Richard F. Kurth
Title: Vice President
SEQUILS I, LTD.
By: TCW Advisors, Inc. as its
Collateral Manager
By /s/ Richard F. Kurth
Name: Richard F. Kurth
Title: Vice President
By /s/ Mark L. Gold
Name: Mark L. Gold
Title: Managing Director
Galaxy CLO 1999-1, LTD.
By /s/ John Lapham
Name: John Lapham
Title: Authorized Agent
115
FLEET CAPITAL CORPORATION
By /s/ Robert Anchundia
Name: Robert Anchundia
Title: Vice President
CIBC INC.
By /s/ Gerald Giraldi
Name: Gerald Giraldi
Title: Executive Director
CIBC World Markets Corp., as Agent
ALLSTATE LIFE INSURANCE COMPANY
By /s/ Chris Goergen
Name: Chris Goergen
Title: Authorized Signatory
By /s/ Jerry D. Zinkula
Name: Jerry D. Zinkula
Title: Authorized Signatory
AIMCO CLO SERIES 2001-A
By /s/ Chris Goergen
Name: Chris Goergen
Title: Authorized Signatory
By /s/ Jerry D. Zinkula
Name: Jerry D. Zinkula
Title: Authorized Signatory
116
Whitehall Business Credit Corporation
By /s/ Joseph A. Klapkowski
Name: Joseph A. Klapkowski
Title: Vice President
THE CIT GROUP/BUSINESS CREDIT INC.
By /s/ Peter Skavla
Name: Peter Skavla
Title: Senior Vice President
PNC BANK, NATIONAL ASSOCIATION
By /s/ Craig T. Sheetz
Name: Craig T. Sheetz
Title: Vice President
LaSalle Bank National Association
By /s/ Thomas J. Brennan
Name: Thomas J. Brennan
Title: Vice President
KATONAH I, LTD.
By /s/ Ralph D. Rocca
Name: Ralph D. Rocca
Title: Authorized Officer
117
KATONAH II, LTD.
By /s/ Ralph D. Rocca
Name: Ralph D. Rocca
Title: Authorized Officer
KATONAH III, LTD.
By /s/ Ralph D. Rocca
Name: Ralph D. Rocca
Title: Authorized Officer
OAK HILL CREDIT PARTNERS II, LTD
By: Oak Hill CLO Management II,
LLC as Investment Manager
By /s/ Scott D. Krase
Name: Scott D. Krase
Title: Authorized Signatory
OAK HILL SECURITIES FUND II, L.P.
By: Oak Hill Securities GenPar II,
L.P., its General Partner
By: Oak Hill Securities MGP II,
Inc., its General Partner
By /s/ Scott D. Krase
Name: Scott D. Krase
Title: Vice President
118
OAK HILL CREDIT PARTNERS I, LTD
By: Oak Hill CLO Management I, LLC as Investment
Manager
By /s/ Scott D. Krase
Name: Scott D. Krase
Title: Authorized Signatory
OAK HILL SECURITIES FUND L.P.
By: Oak Hill Securities GenPar, L.P., its General
Partner
By: Oak Hill Securities MGP, Inc., its General
Partner
By /s/ Scott D. Krase
Name: Scott D. Krase
Title: Vice President
NATIONAL CITY COMMERCIAL FINANCE, INC
By /s/ Carla L. Kehres
Name: Carla L. Kehres
Title: SVP
ORIX Financial Services, Inc.
By /s/ Dawn M. Dieter
Name: Dawn M. Dieter
Title: Vice President
119
COMERICA BANK
By /s/ Jacob Villemure
Name: Jacob Villemure
Title: Account Officer
GMAC COMMERCIAL FINANCE LLC, successor by merger
to GMAC BUSINESS CREDIT, LLC
By /s/ Robert F. McIntyre
Name: Robert F. McIntyre
Title: Director
CONGRESS FINANCIAL CORPORATION, Individually and
as a Co-Syndication Agent
By /s/ Marc J. Breier
Name: Marc J. Breier
Title: First Vice President
T. ROWE PRICE ASSOCIATES, INC,, As Collateral
Manager on behalf of INNER HARBOR CBO 2001-1 LTD.
By /s/ Darrell N. Brannan
Name: Darrell N. Brannan
Title: Vice President
ALLFIRST BANK
By /s/ Thomas A. Buckelew
Name: Thomas A. Buckelew
Title: Vice President
120
Toronto Dominion (New York), Inc.
By /s/ Gwen Zirkle
Name: Gwen Zirkle
Title: Vice President
PEOPLE'S BANK
By /s/ David K. Sherrill
Name: David K. Sherrill
Title: Vice President
SIEMENS FINANCIAL SERVICES, INC.
By /s/ Frank Amodio
Name: Frank Amodio
Title: Vice President - Credit
TRS1 LLC
By /s/ Rosemary F. Dunne
Name: Rosemary F. Dunne
Title: Vice President
NUVEEN SENIOR INCOME FUND, as a Lender
By /s/ Lenny Mason
Name: Lenny Mason
Title: Portfolio Manager
121
Exhibit 10.13
October 7, 2002
Gerard E. Keefe
2 Seaberry Ct.
Timonium, MD 21093
410-252-4732
Re: Severance Agreement and General Release
Dear Gerry:
We are interested in resolving amicably your separation of employment with
Williams Scotsman, Inc. ("the Company"), effective October 11, 2002. Toward this
end, we propose the following Severance Agreement, which includes a General
Release.
You may consider our offer for twenty-one (21) days. If you need a
reasonable amount of additional time, it will be granted upon request. As with
any legal document, you are encouraged to review this Agreement with an
attorney. In addition, should you or your attorney have any questions related to
this agreement, we will provide you with the name and contact number of outside
counsel for Williams Scotsman.
Once executed, you will have a seven- (7) day period during which you may
revoke your decision by sending actual notice to the Vice-President of Human
Resources. This agreement shall not become effective or enforceable until after
the seven-day revocation period.
The proposed terms and conditions of your separation from employment are as
follows:
1. In consideration for your General Release as set forth below in
Paragraph 2, the Company agrees, intending to be legally bound:
(a) Salary Continuation: The Company will pay you your current the
equivalent of seventy-one (71) weeks base salary of $3,466.35 per week through
02-20-04, less taxes and other deductions required by law. You will receive this
severance in biweekly installments according to the Company's usual payroll
schedule and via direct deposit.
(b) A one time miscellaneous payment of $937.99.
(c) Benefits: The Company will continue your current insured benefits
through extended severance period (health, disability and dental), under the
same terms as in effect on October 11, 2002 through February 20, 2004. While you
remain covered under your current insured benefits plan, you will still be
required to pay your portion of the premiums. You will be able to continue
taking advantage of Flexible Spending Accounts for the year 2003 and 2004
122
provided you make your elections during the open enrollment period this year.
After February 20, 2004, you will be eligible to continue benefits under COBRA
at your cost for another 18 months. According to legal requirements, additional
information on COBRA will be forthcoming.
(d) Life Insurance: Your coverage in the Company's group life insurance
plan shall terminate on October 31, 2002 in accordance with the terms of the
plan. Thereafter, you will have an option to convert to an individual policy.
(e) Accrued/Unused Vacation: The Company will agree to pay out your entire
accrued but unused vacation balance as of October 11, 2002.
(f) Auto Allowance: The Company will agree to the continuance of your auto
allowance of $650.00 per month for eight (8) months through June, 2003. Payment
will be made by separate check via direct deposit.
(g) Management Incentive: The Company will pay you the 2002 Management
Incentive less taxes and other deductions required by law on or before March
15th, 2003. Your incentive amount will be adjusted according to Company
performance as is specified in the plan. However, for purposes of calculating
your incentive amount, EBITDA as defined by the plan will not go below 90%. No
further Management Incentive payments will be made.
(h) Non-Qualified 401(k) Plan: If you have deferrals under the
Non-Qualified 401(k) plan, the Company will agree to full payment of your
non-qualified 401(k) deferral with payment according to your original
instructions.
(i) Stock Options: The Company will agree for you to retain interest in all
stock options that you currently hold under the Scotsman Holdings, Inc. Employee
Stock Option Plan ("Plan"):
You will not be eligible for any additional stock option grants that may
occur under the terms of the Plan;
Your options will continue to vest under the provisions of Exhibits A and
A-1 of the "Amended and Restated Incentive Stock Option Agreement" ("Agreement")
which relate to "time based vesting" and "performance based vesting";
The provisions of section 7 of the "Amended and Restated Incentive Stock
Option Agreement" relating to the termination of unexercised options upon a
participant's termination of employment shall not apply to your options;
Any incentive stock options which you hold as of 90 days after your
termination date will be treated (by operation of law) as non-qualified stock
options; Should the Company decide to amend the Plan or individual Agreements
prospectively to option holders, those amendments will not apply to you;
All other terms and conditions relating to stock options remain controlled
by the Plan and the Agreement, and will remain subject to the terms of the
Management Stockholders and Option Holders Agreement.
123
(j) Non-Competition Agreement: Payments under item 1(a), (b), (c), (f) and
(g) and the ability to retain interest in all stock options as outlined in 1(h)
are contingent upon your agreement with and adherence to the Non-Competition
Agreement (Attachment 1). Failure to adhere to the terms of the Non-Competition
Agreement will result in cessation of all payments as outlined in Paragraph
1(a), (b), (e), and (f) as well as nullification of all stock option interests
as outlined in 1(h).
(k) Confidentiality: Payments under item 1(a), (b), (c), (f), and (g) and
the ability to retain interest in all stock options as outlined in 1(i) are
contingent upon your agreement with and adherence to the Confidentiality
provisions outlined in Paragraphs 6(a) and 8. Failure to adhere to the terms of
the Confidentiality provisions of this Agreement will result in cessation of all
payments outlined in Paragraph 1(a), (b), (c), (f) and (g) as well as
nullification of all stock option interests as outlined in 1(i).
(l) 401(k) Plan: You will not forfeit any benefits vested prior to the
termination of your employment under our 401(k) plan, subject to the terms,
conditions and restrictions of such plan. You will not accrue any additional
benefits after the termination of your employment. All deferrals and, if
applicable, loan re-payments will stop as of the last regular (non-severance)
payment or the last regular (non-severance) commission payment. Deferrals and
loan payments cannot be made from severance pay. If you have a 401(k) loan, you
will be required to pay the loan in full within 30 days of your termination
date. If it is not paid in full by the end of the calendar year, you will
receive a 1099-R form from the 401(k) provider and that loan will be treated as
income for this calendar year. According to legal requirements, additional
information on the 401(k) plan will be forthcoming.
(m ) Outplacement Services: The Company will provide fixed outplacement
services equivalent to $5,000 worth of services from Right & Associates
(n) Stock Shares: The Company will agree for you to retain ownership
interest in your (1500) shares of Company stock. All other existing terms and
conditions relating to stock shares remain in effect.
(o) Public Communications (including Employment Verification): Any
responses to inquiries regarding reason for separation will be consistent with,
and limited to, the language in the press release.
2. (a) General Release: In consideration for the Company's payments and
agreements set forth above in Paragraphs 1(a), (b), (c), (f), (g), (i) and (m),
Williams Scotsman and you agree, intending to be legally bound, to release and
forever discharge the Company and any related companies, and each of their past,
present and future officers, directors, attorneys, employees, partners,
shareholders, insurers, owners and agents, and their respective successors and
assigns (collectively "Releasees"), jointly and severally, from any and all
actions, complaints, causes of action, lawsuits or claims of any kind
(collectively "Claims"), known or unknown, which you, your heirs, agents,
successors or assigns ever had, now have or hereafter may have against Releasees
arising heretofore out of any matter, occurrence or event existing or occurring
124
prior to the execution hereof, including, without limitation: any claims
relating to or arising out of your employment with and/or the termination of
employment with the Company and/or any of its related companies; any claims for
unpaid or withheld wages, severance, benefits, bonuses, stocks, stock options,
stock payments of any kind and/or other compensation of any kind including
deferred compensation; any claims for attorneys' fees, costs or expenses; any
claims of discrimination and/or harassment based on age, sex, race, religion,
color, creed, disability, handicap, citizenship, national origin, ancestry,
sexual preference or orientation, or any other factor protected by Federal,
State or Local law (including, but not limited to, the Age Discrimination in
Employment Act, 29 U.S.C. ss.621 et. seq., Title VII of the Civil Rights Act of
1964, as amended, the Americans with Disabilities Act, and any Maryland or other
state anti-discrimination laws); any claims for reemployment or reinstatement;
any claims arising under the Employee Retirement Income Security Act ("ERISA");
any claims for retaliation and/or any whistle blower claims; and/or any other
statutory or common law claims, now existing or hereinafter recognized,
including, but not limited to, breach of contract, libel, slander, fraud,
infliction of emotional distress, wrongful discharge, breach of covenant of good
faith and fair dealing, promissory estoppel, equitable estoppel and
misrepresentation.
(b) You expressly understand and acknowledge that it is possible that
unknown losses or claims may exist or may have been underestimated in amount or
severity, and that you explicitly took that into account in determining the
amount of consideration to be paid for the giving of this Agreement, and a
portion of said consideration, having been bargained for between the parties
with the knowledge of the possibility of such unknown claims, was given in
exchange for a full accord, satisfaction and discharge of all such claims.
3. The General Release in Paragraph 2 above does not apply to (i) any
claims to enforce this Agreement, (ii) any claims arising out of any matter,
occurrence or event occurring after the execution of this Agreement, or (iii)
any rights you may have under the Company's existing charter, by-laws and other
applicable documents providing indemnification to executive officers of the
Company (it being understood that you will continue to be entitled to any such
rights to indemnification on the same terms and conditions as available to other
executive officers of the Company), for conduct prior to the termination date of
your active employment.
4. You acknowledge and agree that the Company's payments and agreements
under Paragraph 1(a), (b), (c), (f), (g), (i) and (m) above are not required by
any policy, plan or prior agreement and constitute adequate consideration to
support your General Release in Paragraph 2 above.
5. In the event you elect not to execute this Agreement, the following
shall apply: ---
(a) Your last day of employment will be October 11, 2002.
(b) You will be paid for all days actually worked prior to the
termination of your employment.
(c) Your coverage in the Company's group health plan will terminate
on October 31, 2002 in accordance with the terms of the plan.
However, you will be eligible to continue to participate in the
Company's group health plan at your expense pursuant to COBRA,
subject to COBRA's eligibility requirements and other terms,
conditions, restrictions and exclusions. You will receive
additional information about your COBRA rights shortly.
125
(d) Your coverage in the Company's life insurance plan shall
terminate on October 31, 2002 in accordance with the terms of the
plan. Thereafter, you will have an option to convert to an
individual policy.
(e) You will receive payment for all accrued but unused vacation pay.
(f) Participation in the auto reimbursement plan will cease as of
October 31, 2002.
(g) Per the terms of the plan(s), you will forfeit all interests in
stock options.
(h) As a separated employee, you will not be eligible for a
Management Incentive payment in 2003 for the year 2002.
(i) You will not be eligible for Outplacement Services provided by
Williams Scotsman.
(j) You will not forfeit any benefits vested prior to the termination
of your employment under our 401(k) plan, subject to the terms,
conditions and restrictions of such plan. You will not accrue any
additional benefits after the termination of your employment. All
deferrals and, if applicable, loan re-payments will stop as of
the last regular (non-severance) payment or the last regular
(non-severance) commission payment. Deferrals and loan payments
cannot be made from severance pay. If you have a 401(k) loan, you
will be required to pay the loan in full within 30 days of your
termination date. If it is not paid in full by the end of the
calendar year, you will receive a 1099-R form from the 401(k)
provider and that loan will be treated as income for this
calendar year. According to legal requirements, additional
information on the 401(k) plan will be forthcoming.
(k) If you have deferrals under the Non-Qualified 401(k) plan, the
Company will agree to full payment of your non-qualified 401(k)
deferral with payment according to your original instructions.
(l) These benefits will survive and be passed along to your family in
the event of your death.
6. Regardless of whether or not you execute this Agreement:
(a) You are prohibited from using or disclosing confidential and/or
proprietary information which you acquired in the course of your employment with
the Company and which is not generally known by or readily accessible to the
public. In particular, and by way of example only, such confidential and/or
proprietary information cannot be disclosed to any supplier, contractor,
subcontractor, customer, competitor or any other entity with which the Company
does business or competes for business. Such confidential and/or proprietary
information includes, but is not limited to: financial data, prices, costs,
bids, estimates, plans, blueprints, drawings and project descriptions; legal,
accounting, marketing and business plans, strategies and techniques; trade
secrets and other formulas; and the identity of customers, suppliers, vendors or
potential customers.
126
(b) In the event you receive a request or demand, orally, in writing,
electronically or otherwise, for the disclosure or production of information
which you acquired in the course of your employment which is not generally known
by or readily accessible to the public, you must notify immediately, in writing,
via certified mail, the Company's Vice-President of Human Resources at the
following address: 8211 Town Center Drive, Baltimore, Maryland 21236. Any and
all documents relating to the request or demand shall be included with the
notification. You shall wait a minimum of ten (10) days after sending the letter
before making a disclosure or production to give the Company time to determine
whether the disclosure or production involves confidential and/or proprietary
information, in which event the Company may seek to prohibit and/or restrict the
production and/or disclosure and/or to obtain a protective order with regard
thereto. This provision covers, but is not limited to, requests or demands in
connection with judicial, administrative, arbitration and all other adversarial
proceedings. If the request or demand is in conjunction with judicial,
administrative, arbitration or other adversarial proceedings, copies of all
correspondence regarding the request or demand shall be included with the
information sent to the Vice-President of Human Resources.
(c) You must return to the Company by October 11, 2002, retaining no
copies, all Company property, keys, documents, forms, correspondence, computer
programs, memos, disks, etc.
7. Except as expressly provided for in this Agreement and the attachment,
you shall not be eligible for any compensation from the Company or Company-paid
benefits subsequent to the termination of your employment.
8. You agree that, at all times, the existence, terms and conditions of
this Agreement will be kept secret and confidential and will not be disclosed
voluntarily to any third party, except to the extent required by law, to enforce
the Agreement or to obtain confidential legal, tax or financial advice with
respect thereto. The Company agrees to be held to the same confidentiality and
disclosure standards.
9. This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland.
10. Nothing in this Agreement shall be construed as an admission or
concession of liability or wrongdoing by the Company or you or any other
Releasee as defined above. Rather, the proposed Agreement is being offered for
the sole purpose of settling amicably any and all possible disputes between the
parties.
11. If any provision in this Agreement or the application thereof is
construed to be overbroad, then the court making such determination shall have
the authority to narrow the provision as necessary to make it enforceable and
the provision shall then be enforceable in its narrowed form. In the event that
any provision in this Agreement is determined to be legally invalid or
unenforceable, the affected provisions(s) shall be stricken from the Agreement
and the remaining terms of the Agreement and its enforce ability shall remain
unaffected thereby.
127
12. This Agreement constitutes the entire agreement between the parties and
supersedes any and all prior agreements, written or oral, expressed or implied.
13. You agree and represent that:
(a) You have read carefully the terms of this Agreement, including the
General Release;
(b) You have had an opportunity to and have been encouraged to review this
Agreement, including the General Release, with an attorney;
(c) You have consulted with an attorney and the Company has made certain
changes to this Agreement based on your attorney's recommendations.
(d) You understand the meaning and effect of the terms of this Agreement,
including the General Release;
(e) You were given as much time as you needed to determine whether you
wished to enter into this Agreement, including the General Release;
(f) The entry into and execution of this Agreement, including the General
Release, is of your own free and voluntary act without compulsion of any kind;
(g) No promise or inducement not expressed herein has been made to you; and
(h) You have adequate information to make a knowing and voluntary waiver.
14. This agreement shall be binding upon and inure to the benefit of the
Company's successors and assigns.
128
15. If you execute this Agreement, you will retain the right to revoke it for
seven (7) days. To revoke the Agreement, you must send a certified letter to
Bernard G. Bena, Vice-President of Human Resources at 8211 Town Center Drive,
Baltimore, MD 21236. The letter must be post-marked within 7 days of your
execution of the Agreement. If the 7th day is a Sunday or holiday, then the
letter must be post-marked on the following business day. If you revoke this
letter in a timely basis, you will not be eligible for the benefits described in
paragraphs 1(a), (b), (e), (f), (h) and (l), above.
If you agree with the proposed terms as set forth above, please sign this letter
indicating that you understand, agree with and intend to be bound by such terms.
Sincerely,
/s/ Bernie Bena
- ---------------
Bernard G. Bena
Vice-President, Human Resources
/s/ Gerard E. Keefe
- --------------------
Gerard E. Keefe
October 11, 2003
Date
/s/ William LeBuhn
- ------------------
Witness
129
Exhibit 10.14
June 3, 2002
J. Collier Beall
760 Winston Drive
Lawrenceville, GA 30084
404-972-3506
Re: Severance Agreement and General Release
Dear Collier:
We are interested in resolving amicably your separation of employment with
Williams Scotsman, Inc. ("the Company"), effective June 3, 2002. Toward this
end, we propose the following Severance Agreement, which includes a General
Release.
You may consider our offer for twenty-one (21) days. If you need a
reasonable amount of additional time, it will be granted upon request. As with
any legal document, you are encouraged to review this Agreement with an
attorney.
Once executed, you will have a seven- (7) day period during which you may
revoke your decision by sending actual notice to the Vice President of Human
Resources. This agreement shall not become effective or enforceable until after
the seven-day revocation period.
The proposed terms and conditions of your separation from employment are as
follows:
1. In consideration for your General Release and Non-Competition as set
forth below in Paragraph 2, the Company agrees, intending to be legally bound:
(a) Salary Continuation: The Company will pay you the equivalent of
seventy-eight (78) weeks base salary, less taxes and other deductions required
by law. You will receive this severance in biweekly installments according to
the Company's usual payroll schedule and via direct deposit. If, at any time,
you elect to receive a lump sum payment of any remaining amounts, you may do so,
by sending a written request for a lump sum payment to the Vice-President of
Human Resources.
(b) Target Incentive: For the months of June 2002 through November 2003,
the Company will pay you the equivalent of a monthly target incentive of
$7,083.00 per month less taxes and other deductions required by law. You will
receive this amount according to our usual pay schedule for target incentives.
(c) Benefits: The Company will continue your current insured benefits
(health and dental), under the same terms as in effect on June 3, 2002 as
130
follows: until you receive coverage under a different health insurance plan, or
through May 31, 2004, whichever occurs sooner. While you remain covered under
your current insured benefits plan, you will still be required to pay your
portion of the premiums. After May 31, 2004, you will be eligible to continue
benefits under COBRA at your cost for another 18 months.
(d) Life Insurance: Your coverage in the Company's group life insurance
plan shall terminate on June 30, 2002 in accordance with the terms of the plan.
Thereafter, you will have an option to convert to an individual policy.
(e) Accrued/Unused Vacation: The Company will agree to pay out your entire
accrued but unused vacation balance (200 hours) as of June 3, 2002.
(f) Outplacement Services: The Company will provide a six (6) month Career
Transitional Counseling outplacement service through a vendor of the Company's
selection. To access this service, notify Marti Fuller at mhfuller@willscot.com
or by calling 1-866-866-1882, to indicate that you are ready to participate in
the program.
(g) Runzheimer Auto Plan: The Company will agree to continue your monthly
auto allowance for eighteen (18) months through November 30, 2003.
h) Stock Options: The Company will agree for you to retain interest in all stock
options that you currently hold under the Scotsman Holdings, Inc Employee Stock
Option Plan ("Plan"):
You will not be eligible for any additional stock option grants that may
occur under the terms of the Plan;
Your options will continue to vest under the provisions of Exhibits A and
A-1 of the "Amended and Restated Incentive Stock Option Agreement"
("Agreement") which relate to "time based vesting" and "performance based
vesting";
The provisions of section 7 of the "Amended and Restated Incentive Stock
Option Agreement" relating to the termination of unexercised options upon a
participant's termination of employment shall not apply to your options;
Any incentive stock options which you hold as of 90 days after your
termination date will be treated (by operation of law) as non-qualified
stock options;
Should the Company decide to amend the Plan or individual Agreements
prospectively to option holders, those amendments will not apply to you;
All other terms and conditions relating to stock options remain controlled
by the Plan and the Agreement, and will remain subject to the terms of the
Management Stockholders and Option Holders Agreement.
131
i) Stock Shares: The Company will agree for you to retain ownership
interest in your 4,500 shares of Company stock. All other existing
terms and conditions relating to stock shares remain in effect.
(j) Non-Competition Agreement: Payments under item 1(a), (b), (c) , (f) and
(g) and the ability to retain interest in all stock shares and options as
outlined in 1(h) and (i) are contingent upon your agreement with and adherence
to the Non-Competition Agreement (Attachment 1). Failure to adhere to the terms
of the Non-Competition Agreement will result in cessation of all payments as
outlined in Paragraph 1(a), (b), (c), (f) and (g) as well as nullification of
all stock option interests as outlined in 1(h).
(k) Confidentiality: Payments under item 1(a), (b), (c), (f) and (g) and
the ability to retain interest in all stock options as outlined in 1(h) are
contingent upon your agreement with and adherence to the Confidentiality
provisions outlined in Paragraphs 6(a) and 8. Failure to adhere to the terms of
the Confidentiality provisions of this Agreement will result in cessation of all
payments outlined in Paragraph 1(a), (b), (c), (f) and (g) as well as
nullification of all stock option interests as outlined in 1(h).
2. (a) General Release: In consideration for the Company's payments and
agreements set forth above in Paragraphs 1(a), (b), (c), (f), (g), (h) and
(i),Williams Scotsman and you agree, intending to be legally bound, to release
and forever discharge the Company and any related companies, and each of their
past, present and future officers, directors, attorneys, employees, partners,
shareholders, insurers, owners and agents, and their respective successors and
assigns (collectively "Releasees"), jointly and severally, from any and all
actions, complaints, charges, causes of action, lawsuits or claims of any kind
(collectively "Claims"), known or unknown, which you, your heirs, agents,
successors or assigns ever had, now have or hereafter may have against Releasees
arising heretofore out of any matter, occurrence or event existing or occurring
prior to the execution hereof, including, without limitation: any claims
relating to or arising out of your employment with and/or the termination of
employment with the Company and/or any of its related companies; any claims for
unpaid or withheld wages, severance, benefits, bonuses, stocks, stock options,
stock payments of any kind and/or other compensation of any kind including
deferred compensation; any claims for attorneys' fees, costs or expenses; any
claims of discrimination and/or harassment based on age, sex, race, religion,
color, creed, disability, handicap, citizenship, national origin, ancestry,
sexual preference or orientation, or any other factor prohibited by Federal,
State or Local law (including, but not limited to, the Age Discrimination in
Employment Act, 29 U.S.C. ss.621 et. seq., Title VII of the Civil Rights Act of
1964, as amended, the Americans with Disabilities Act, and any Georgia,
Maryland, or other state anti-discrimination laws); any claims for reemployment
or reinstatement; any claims arising under the Employee Retirement Income
Security Act ("ERISA"); any claims arising under workers compensation laws; any
claims for retaliation and/or any whistle blower claims; and/or any other
statutory or common law claims, now existing or hereinafter recognized,
including, but not limited to, breach of contract, libel, slander, fraud,
infliction of emotional distress, wrongful discharge, breach of covenant of good
faith and fair dealing, promissory estoppel, equitable estoppel and
misrepresentation.
132
(b) You expressly understand and acknowledge that it is possible that
unknown losses or claims may exist or may have been underestimated in amount or
severity, and that you explicitly took that into account in determining the
amount of consideration to be paid for the giving of this Agreement, and a
portion of said consideration, having been bargained for between the parties
with the knowledge of the possibility of such unknown claims, was given in
exchange for a full accord, satisfaction and discharge of all such claims.
(c) You agree to refrain from competition with Williams Scotsman, Inc.
according to the terms outlined in Attachment 1 (Non-Competition Agreement). You
acknowledge and agree that any breach or threatened breach of this provision
will cause irreparable injury and incalculable harm to the Company and the
Company shall accordingly be entitled to injunctive and other equitable relief
for such breach or threatened breach and that resort by the Company to such
injunctive or other equitable relief shall not be deemed a waiver or limitation
on any right or remedy which the Company may have with respect to such breach or
threatened breach. In the event that the Company decides to exercise its rights
under this Section, you shall be responsible for any and all expenses incurred
by the Company in enforcing its rights, including court costs and reasonable
attorneys fees. You acknowledge that should any breach of the provisions of any
part of this section occur, that any and all payments from the Company shall
cease, interest in all stock options will be nullified and the Company shall
have no further financial obligation to you.
(d) You agree to adhere to the confidentiality provisions outlined in
Paragraphs 6(a) and 8. You acknowledge and agree that any breach or threatened
breach of these provisions will cause irreparable injury and incalculable harm
to the Company and the Company shall accordingly be entitled to injunctive and
other equitable relief for such breach or threatened breach and that resort by
the Company to such injunctive or other equitable relief shall not be deemed a
waiver or limitation on any right or remedy which the Company may have with
respect to such breach or threatened breach. In the event that the Company
decides to exercise its rights under this Section, you shall be responsible for
any and all expenses incurred by the Company in enforcing its rights, including
court costs and reasonable attorneys fees. You acknowledge that should any
breach of the provisions in Paragraphs 6(a) and 8 or of any part of this section
occur, that any and all payments from the Company shall cease, interest in all
stock options will be nullified and the Company shall have no further financial
obligation to you.
(e) If you obtain separate health insurance coverage before May 31, 2004,
you agree to notify the Vice-President of Human Resources of this development.
3. The General Release in Paragraph 2 above does not apply to any claims to
enforce this Agreement or to any claims arising out of any matter, occurrence or
event occurring after the execution of this Agreement.
4. You acknowledge and agree that the Company's payments and agreements
under Paragraph 1(a), (b), (c), (f), (g), (h) and (i) above are not required by
any policy, plan or prior agreement and constitute adequate consideration to
support your General Release in Paragraph 2 above.
133
5. In the event you elect not to execute this Agreement, the following
shall apply:
(a) Your last day of employment will be June 3, 2002.
(b) You will be paid for all days actually worked prior to the termination
of your employment.
(c) Your coverage in the Company's group health plan will terminate on June
30, 2002 in accordance with the terms of the plan. However, you will be
eligible to continue to participate in the Company's group health plan at
your expense pursuant to COBRA, subject to COBRA's eligibility requirements
and other terms, conditions, restrictions and exclusions. You will receive
additional information about your COBRA rights shortly.
(d) Your coverage in the Company's life insurance plan shall terminate on
June 30, 2002 in accordance with the terms of the plan. Thereafter, you
will have an option to convert to an individual policy.
(e) You will not forfeit any benefits vested prior to the termination of
your employment under our 401(k) plan, subject to the terms, conditions and
restrictions of such plan. You will not accrue any additional benefits
after the termination of your employment.
(f) You will receive payment for all accrued but unused vacation pay.
(g) Participation in the Runzheimer auto reimbursement plan will cease as
of June 3, 2002.
6. Regardless of whether you execute this Agreement:
(a) You are prohibited from using or disclosing confidential and/or
proprietary information which you acquired in the course of your employment with
the Company and which is not generally known by or readily accessible to the
public. In particular, and by way of example only, such confidential and/or
proprietary information cannot be disclosed to any supplier, contractor,
subcontractor, customer, competitor or any other entity with which the Company
does business or competes for business. Such confidential and/or proprietary
information includes, but is not limited to: financial data, prices, costs,
bids, estimates, plans, blueprints, drawings and project descriptions; legal,
accounting, marketing and business plans, strategies and techniques; trade
secrets and other formulas; and the identity of customers, suppliers, vendors or
potential customers.
(b) In the event you receive a request or demand, orally, in writing,
electronically or otherwise, for the disclosure or production of information
which you acquired in the course of your employment which is not generally known
by or readily accessible to the public, you must notify immediately, in writing,
via certified mail, the Company's Vice-President of Human Resources at the
following address: 8211 Town Center Drive, Baltimore, Maryland 21236. Any and
all documents relating to the request or demand shall be included with the
notification. You shall wait a minimum of ten (10) days after sending the letter
before making a disclosure or production to give the Company time to determine
whether the disclosure or production involves confidential and/or proprietary
information, in which event the Company may seek to prohibit and/or restrict the
production and/or disclosure and/or to obtain a protective order with regard
thereto. This provision covers, but is not limited to, requests or demands in
connection with judicial, administrative, arbitration and all other adversarial
proceedings. If the request or demand is in conjunction with judicial,
administrative, arbitration or other adversarial proceedings, copies of all
correspondence regarding the request or demand shall be included with the
information sent to the Vice-President of Human Resources.
134
(c) You must return to the Company by June 3, 2002, retaining no copies,
all Company property, keys, documents, forms, correspondence, computer programs,
memos, disks, etc.
7. Except as expressly provided for in this Agreement and the attachment,
you shall not be eligible for any compensation from the Company or Company-paid
benefits subsequent to the termination of your employment.
8. You agree that, at all times, the existence, terms and conditions of
this Agreement will be kept secret and confidential and will not be disclosed
voluntarily to any third party, except to the extent required by law, to enforce
the Agreement or to obtain confidential legal, tax or financial advice with
respect thereto.
9. This Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland.
10. Nothing in this Agreement shall be construed as an admission or
concession of liability or wrongdoing by the Company or you or any other
Releasee as defined above. Rather, the proposed Agreement is being offered for
the sole purpose of settling amicably any and all possible disputes between the
parties.
11. If any provision of this Agreement is deemed unlawful or unenforceable
by a court of competent jurisdiction, the remaining provisions shall continue in
full force and effect.
12. This Agreement constitutes the entire agreement between the parties and
supersedes any and all prior agreements, written or oral, expressed or implied.
13. You agree and represent that:
(a) You have read carefully the terms of this Agreement, including the
General Release;
(b) You have had an opportunity to and have been encouraged to review this
Agreement, including the General Release, with an attorney;
(c) You have consulted with an attorney and the Company has made certain
changes to this Agreement based on your attorney's recommendations.
135
(d) You understand the meaning and effect of the terms of this
Agreement, including the General Release;
(e) You were given as much time as you needed to determine whether you
wished to enter into this Agreement, including the General Release;
(g) The entry into and execution of this Agreement, including the
General Release, is of your own free and voluntary act without
compulsion of any kind;
(g) No promise or inducement not expressed herein has been made to
you; and
(h) You have adequate information to make a knowing and voluntary
waiver.
15. This agreement shall be binding upon and inure to the benefit of the
Company's successors and assigns.
If you agree with the proposed terms as set forth above, please sign this
letter indicating that you understand, agree with and intend to be bound by such
terms.
Sincerely,
/s/ William C. LeBuhn
- ---------------------
William C. LeBuhn
Senior Vice-President, Chief Administrative Officer
UNDERSTOOD AND AGREED,
INTENDING TO BE LEGALLY BOUND:
/s/ J. Collier Beall
- ---------------------
J. Collier Beall
June 3, 2002
Date
/s/ Mary Ann Larsen
- --------------------
Witness
136
Exhibit 12.1
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARY
Computation of Ratio of Earnings to Fixed Charges
Year Ended December 31
------------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
(Dollars in thousands)
Earnings:
Earnings from continuing
operations before
income taxes
and extraordinary item $12,456 $ 31,965 $ 31,021 $ 40,214 $ 23,335
Fixed charges from below 67,346 86,817 95,140 89,316 89,465
------ ------ ------ ------ -------
Total earnings $79,802 $118,837 $126,216 $129,587 $112,857
------ ------- ------- ------- -------
Fixed Charges:
Interest $65,110 $ 83,878 $ 91,860 $ 85,486 $ 85,208
Interest component of
rent expense:
Total rent expense $ 6,708 $ 8,817 $ 9,839 $ 11,490 $ 12,901
Portion considered
interest expense 33% 33% 33% 33% 33%
------- ------- ------- ------ -------
Interest component $ 2,236 $ 2,939 $ 3,280 $ 3,830 $ 4,257
------- ------- ------- ------- -------
Total fixed charges $67,346 $ 86,817 $ 95,140 $ 89,316 $ 89,465
------ ------ ------ ------ -------
Earnings to Fixed Charges 1.2x 1.4x 1.3x 1.5x 1.3x
==== ==== ==== ==== ====
137
Exhibit 99.1
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for Gerard E. Holthaus,
Chief Executive Officer of the Company.
In connection with the annual Report of Williams Scotsman, Inc. (the
"Company") on Form 10-K for the year ending December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Gerard E. Holthaus, Chief Executive Officer of the
Company certify to my knowledge, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of
operations of the Company.
/s/ Gerard E. Holthaus
Gerard E. Holthaus
Chief Executive Officer
March 28, 2003
A signed original of this written statement required by Section 906 has been
provided to Scotsman Holdings, Inc., and will be retained by Scotsman Holdings,
Inc., and furnished to the Securities and Exchange Commission or its staff upon
request.
138
Exhibit 99.2
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for John C. Cantlin,
Chief Financial Officer of the Company.
In connection with the annual report of Williams Scotsman, Inc. (the
"Company") on Form 10-K for the year ended December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the
"Report"), I, John C. Cantlin, Chief Financial Officer of the Company
certify to my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of
operations of the Company.
/s/ John C. Cantlin
John C. Cantlin
Chief Financial Officer
March 28, 2003
A signed original of this written statement required by Section 906 has been
provided to Scotsman Holdings, Inc., and will be retained by Scotsman Holdings,
Inc., and furnished to the Securities and Exchange Commission or its staff upon
request.
139