SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
[x] THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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)
(410) 931-6000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year - if
changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes__ No X -
As of May 13, 2003, 6,194,799 shares of common stock ("Common Stock") of
the Registrant were outstanding.
SCOTSMAN HOLDINGS, INC.
INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION Page
----
Safe Harbor Statement 1
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets at March 31, 2003 2
and December 31, 2002
Consolidated Statements of Operations for the three 3
months ended March 31, 2003 and 2002
Consolidated Statements of Cash Flows for the three 4
months ended March 31, 2003 and 2002
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Item 4. Controls and Procedures 14
Item 5. Other Information 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SAFE HARBOR STATEMENT - CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this Form 10-Q for the quarter ended March 31,
2003 constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These
forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause actual results to differ materially from future
results expressed or implied by these forward-looking statements. These factors
include, among others, the following: substantial leverage and our ability to
service debt; changing market trends in the mobile office industry; general
economic and business conditions including a prolonged or substantial recession;
our ability to finance fleet and branch expansion and to locate and finance
acquisitions; our ability to implement our business and growth strategy and
maintain and enhance our competitive strengths; our ability to obtain financing
for general corporate purposes; intense industry competition; availability of
key personnel; industry over-capacity; and changes in, or the failure to comply
with, government regulations. No assurance can be given as to future results and
neither we nor any other person assumes responsibility for the accuracy and
completeness of these forward-looking statements. Consequently, you should not
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. We undertake no obligation to publicly release the result of
any revision to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements.
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
March 31,
2003 December 31,
(Unaudited) 2002
--------- ----------
Assets (In thousands)
Cash $ 626 $ 429
Trade accounts receivable, net of allowance for doubtful
accounts of $1,062 in 2003 and $1,071 in 2002 53,707 63,965
Prepaid expenses and other current assets 27,438 25,468
Rental equipment, net of accumulated depreciation of
$217,701 in 2003 and $207,538 in 2002 846,187 850,087
Property and equipment, net 80,728 80,249
Deferred financing costs, net 22,865 23,616
Goodwill 168,961 168,931
Other intangible assets, net 3,063 3,238
Other assets 15,491 14,369
--------- ---------
$1,219,066 $1,230,352
========= =========
Liabilities and stockholder's equity
Accounts payable and accrued expenses $ 36,301 $ 44,776
Accrued interest 21,491 8,226
Rents billed in advance 17,832 18,773
Revolving credit facility 179,772 197,691
Long-term debt 786,143 786,654
Deferred income taxes 154,923 154,959
--------- ----------
Total liabilities 1,196,462 1,211,079
--------- ---------
Stockholder's equity:
Common stock, $.01 par value. Authorized 10,000,000
shares; issued 9,507,407 shares in 2003 and 2002 95 95
Additional paid-in capital 239,250 239,239
Cumulative foreign currency translation adjustment 1,749 (1,386)
Retained earnings 77,448 77,263
-------- --------
318,542 315,211
Less treasury stock, - 3,312,608 common shares in 2003
and 2002, at cost (295,938) (295,938)
-------- --------
Net stockholder's equity 22,604 19,273
-------- ---------
$1,219,066 $1,230,352
========= =========
See accompanying notes to consolidated financial statements.
2
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Three months ended March 31, 2003 and 2002
(Unaudited)
2003 2002
---- ----
(In thousands except
share and per share amounts)
Revenues
Leasing $ 53,474 $ 58,196
Sales:
New units 14,650 20,683
Rental equipment 4,417 4,661
Delivery and installation 18,928 26,609
Other 9,237 9,718
------- -------
Total revenues 100,706 119,867
------- -------
Cost of sales and services
Leasing:
Depreciation and amortization 12,323 10,723
Other direct leasing costs 10,429 11,488
Sales:
New units 11,922 17,076
Rental equipment 3,553 3,725
Delivery and installation 16,799 22,006
Other 1,722 2,061
------ ------
Total costs of sales and services 56,748 67,079
------ ------
Gross profit 43,958 52,788
------ ------
Selling, general and administrative expenses 19,616 21,521
Other depreciation and amortization 3,385 3,334
Interest, including amortization of deferred
financing costs 20,647 21,171
------ ------
Total operating expenses 43,648 46,026
------ ------
Income before income taxes 310 6,762
Income tax expense 125 3,044
--- -----
Net Income $ 185 $ 3,718
==== =====
Earnings per common share $ .03 $ .60
==== =====
Earnings per common share, assuming dilution $ .03 $ .57
==== =====
Weighted average shares outstanding 6,194,799 6,196,359
========= =========
See accompanying notes to consolidated financial statements.
3
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Three months ended March 31, 2003 and 2002
(Unaudited)
2003 2002
---- ----
(In thousands)
Cash flows from operating activities
Net income $ 185 $ 3,718
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,172 17,500
Provision for bad debts 562 1,206
Deferred income tax expense 125 3,043
Non-cash option compensation expense 11 --
Gain on sale of rental equipment (864) (936)
Decrease in net trade accounts receivable 9,696 5,122
Increase in accounts payable and
accrued expenses 4,790 2,889
Other (2,046) (2,296)
----- -----
Net cash provided by operating activities 29,631 30,246
------ ------
Cash flows from investing activities
Rental equipment additions (12,233) (11,635)
Proceeds from sales of rental equipment 4,417 4,661
Purchases of property and equipment, net (2,475) (2,690)
----- -----
Net cash used in investing activities (10,291) (9,664)
------ -----
(continued)
4
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
Three months ended March 31, 2003 and 2002
(Unaudited)
2003 2002
---- ----
(In thousands)
Cash flows from financing activities
Proceeds from debt $ 87,979 $ 730,525
Repayment of debt (106,498) (731,508)
Increase in deferred financing costs (713) (19,787)
Amortization of bond discount 89 59
Payment to acquire treasury stock -- (78)
------ ------
Net cash used in financing activities (19,143) (20,789)
------ ------
Net increase (decrease) in cash 197 (207)
Cash at beginning of period 429 586
------ ------
Cash at end of period $ 626 $ 379
====== ======
Supplemental cash flow information:
Cash paid for income taxes $ 462 $ 287
====== ======
Cash paid for interest $ 5,780 $ 7,263
====== ======
See accompanying notes to consolidated financial statements.
5
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in thousands, except share and per share amounts)
(1) ORGANIZATION AND BASIS OF PRESENTATION
Scotsman Holdings, Inc. (Holdings or the Company) was organized in
November, 1993 for the purpose of acquiring Williams Scotsman, Inc. (Scotsman).
The Company conducts business solely as a holding company, the only significant
asset of which is the capital stock of Scotsman. Therefore, any cash dividends
to be paid on the Company's common stock, or cash interest to be paid on the
debt of the Company are dependent upon the cash flow of Scotsman.
(2) FINANCIAL STATEMENTS
The financial information referred to above has not been audited. In the
opinion of management, the unaudited financial statements contain all
adjustments (consisting only of normal, recurring adjustments) necessary to
present fairly the Company's financial position as of March 31, 2003 and its
operating results and cash flows for the three month periods ended March 31,
2003 and 2002. The results of operations for the periods ended March 31, 2003
and 2002 are not necessarily indicative of the operating results expected for
the full year.
The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's latest Form 10-K. Certain prior year amounts
have been reclassified to conform to current year presentation.
(3) CHANGE IN ACCOUNTING ESTIMATE
The Company changed its estimated residual value from 50% of capitalized
costs to $1 for certain classroom units. Additionally, the remaining estimated
useful life for a portion of these units was reduced to 45 months. The effect of
this change in estimate is an increase in depreciation expense of approximately
$600 and a decrease in net income of $350 or $.06 per basic share and $.05 per
diluted share, for the period ended March 31, 2003.
6
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(4) NEW ACCOUNTING PRONOUNCEMENT
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, "Accounting for Stock-Based
Compensation-Transition and Disclosure," 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: risk-free interest rate of 2.8% and 3.8% for 2003 and 2002, 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 quarter. In determining the pro forma expense related to
these modified options, the Company used the following assumptions: risk free
interest rates of 2.8%, expected life of options of 3 to 5 years, and no
dividends.
For purposes of pro forma disclosures, the estimated minimum value of the
options is amortized to expense over the options' vesting period. Note that the
effects of applying SFAS 123 for pro forma disclosure in the current period are
not necessarily representative of the effects on pro forma net income for future
periods. The Company's pro forma information follows:
Three Months Ended
March 31,
2003 2002
------ ------
As Reported
-----------
Noncash stock option
compensation expense, gross $ 11 $ --
Net income 185 3,718
Earnings per share $ .03 $ .60
Earnings per share, assuming dilution $ .03 $ .57
Pro forma Results
-----------------
Noncash stock option
compensation expense, gross $ 36 $ 29
Net income 170 3,689
Pro forma earnings per share $ .03 $ .60
Pro forma earnings per share,
assuming dilution $ .03 $ .56
7
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(5) GOODWILL AND OTHER INTANGIBLE ASSETS
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 required annual test during the
fourth quarter of 2002 and determined that goodwill was not impaired.
Amortization expense for the three months ended March 31, 2003 was $.2 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
The following schedules detail the total amount of goodwill and other
intangible assets for the periods ended March 31, 2003 and December 31, 2002.
--------- March 31, 2003 ----- ------ December 31, 2002 ------
Gross Net Gross Net
Carrying Accumulated Book Carrying Accumulated Book
Amount Amortization Value Amount Amortization Value
-------- ------------ ------- ------- ------------ -------
Goodwill $184,548 $15,587 $168,961 $184,518 $15,587 $168,931
Intangible
assets with
finite lives
- ------------
Non-
compete
agreements $ 3,465 $ 1,964 $ 1,501 $3,445 $1,795 $ 1,650
Customer
base 2,000 438 1,562 2,000 412 1,588
----- ---- ----- ----- ----- -----
$ 5,465 $ 2,402 $ 3,063 $5,445 $2,207 $ 3,238
===== ===== ===== ====== ===== =====
8
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(6) COMPREHENSIVE INCOME
Total comprehensive income was $3,320 and $3,636 for the three months ended
March 31, 2003 and 2002, respectively, which includes net income and the change
in the foreign currency translation adjustment.
(7) EARNINGS AND DIVIDENDS PER SHARE
Earnings per common share is computed by dividing net earnings by the
weighted average number of common shares outstanding during the periods.
The following table sets forth the components of the weighted-average
shares outstanding for the basic and diluted earnings per share computations:
March 31,
2003 2002
---- ----
Weighted-average shares - basic earnings per share 6,194,799 6,196,359
Effect of employee stock options 347,547 347,567
--------- ---------
Weighted-average shares - diluted earnings per share 6,542,346 6,543,926
========= =========
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Forward Looking Statements
The following discussion and analysis should be read in conjunction with
the unaudited consolidated financial statements included elsewhere in this
report. The terms "company," "we," "our," and "us" refer to Scotsman Holdings,
Inc. and its subsidiary. The following discussion and analysis contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those contained in our
Annual Report on Form 10-K for the year ended December 31, 2002 under the
headings "Business", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in that report. See the Safe
Harbor Statement at the beginning of this report.
Critical Accounting Policies and Estimates
General. This discussion and analysis of our financial condition and
results of operations is based upon our unaudited consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent liabilities. On an on-going basis, we evaluate estimates, including
those related to depreciation of rental equipment, bad debts, contingencies and
litigation, intangible assets, and income taxes. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of the consolidated
financial statements. A critical accounting policy is one which is both
important to the portrayal of a company's financial condition and results, and
requires management's most difficult, subjective or complex judgments, often as
a result of the need to make estimates about the effect of matters that are
inherently uncertain.
Depreciation of rental equipment. We depreciate rental equipment over its
estimated useful life, after giving effect to an estimated salvage value. The
useful life of our rental equipment is determined based on our estimate of the
period over which the asset will generate revenue (generally 20 years), and the
residual value (typically 50% of original cost) is determined based on our
estimate of the 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. See Note 3 for a description
of a change in accounting estimate associated with certain classroom units.
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
10
credit-worthiness of customers. The allowance for doubtful accounts is
determined based on historical collection results in addition to an ongoing
review of specific customers. If the financial condition of our customers were
to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required, resulting in decreased net income.
Contingencies. We are subject to proceedings, lawsuits, and other claims
related to environmental, product and other matters, and are required to assess
the likelihood of any adverse judgments or outcomes to these matters as well as
potential ranges of probable losses. A determination of the amount of reserves
required, if any, for these contingencies is made after analysis of each
individual matter. The required reserves may change in the future due to new
developments in each matter or changes in approach such as a change in
settlement strategy in dealing with these matters.
Goodwill and Intangible Impairment. We have significant intangible assets
related to goodwill and other acquired intangibles. The determination of related
estimated useful lives and whether or not these assets are impaired involves
significant judgments. After adopting SFAS 142 in 2002, goodwill was determined
not to be impaired. 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 unaudited
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 unaudited consolidated balance sheet. We record a valuation allowance to
reduce our deferred tax assets to the amount that is more likely than not to be
realized. We have considered future taxable income and ongoing tax planning
strategies in assessing the need for the valuation allowance.
Results of Operations
Three Months Ended March 31, 2003 Compared with Three Months Ended March
31, 2002.
Revenues in the quarter ended March 31, 2003 were $100.7 million; a $19.2
million or 16.0% decrease from revenues of $119.9 million in the same period of
2002. The decrease resulted from a $7.7 million or 28.9% decrease in delivery
and installation revenue and a $6.0 million or 29.2% decrease in new unit sales
revenue. Leasing revenue also decreased $4.7 million or 8.1% from the same
period in 2002. Decreases in delivery and installation and sales of new units
revenues were primarily due to a large school project in the first quarter of
2002, which accounted for 64% of the decrease in new sales and delivery and
installation revenues. The decrease in leasing revenue is the result of a 3%
decrease in the average fleet utilization to 76%. Also, the average monthly
rental rate decreased approximately 4% from $265 to $255 from the same period in
2002. The decrease in leasing revenue is attributable to the softening economic
conditions, which impacted fleet utilization and the average monthly rental
rate, as well as competitive pricing pressures. In addition, the impact of
severe winter weather, particularly in the mid-Atlantic and northeastern parts
of the United States, and the growing effect of state budget issues throughout
the country have produced delays of projects and initiatives that affected our
operating results for the first quarter of 2003.
Gross profit for the quarter ended March 31, 2003 was $44.0 million, an
$8.8 million or 16.7% decrease from the first quarter 2002 gross profit of $52.8
million. This decrease is primarily a result of a 14.6% decrease in leasing
11
gross profit of $5.3 million, a 53.7% or $2.5 million decrease in delivery and
installation gross profit, and a 24.4% or $.9 million decrease in new sale gross
profit. The decrease in leasing gross profit is a result of a decrease in
leasing margins from 61.8% in 2002 to 57.5% in 2003. This decrease in leasing
gross profit, that resulted from the decrease in revenue described above, was
partially offset by a $1.1 million improvement in cost of leasing as compared to
the first quarter of 2002. Excluding depreciation and amortization, leasing
margins increased .2% from 80.3% in 2002 to 80.5% in 2003. The decrease in new
unit sales and delivery and installation gross profit dollars is the result of
the non-recurrence of major classroom projects in the northeast as well as
weather related delays and softened economic conditions.
Selling, general and administrative (SG&A) expenses for the quarter ended
March 31, 2003 decreased by $1.9 million or 8.9% to $19.6 million from $21.5
million in the same period 2002. This was achieved by continuing our cost
control initiatives, primarily reductions in personnel related costs.
Interest expense decreased by $.5 million or 2.5% to $20.6 million in 2003
from the same period in 2002. This net decrease is the result of a $120.6
million or 21.8% decrease in the average credit facility debt over the same
period of 2002, partially offset by an increase of 66 basis points in effective
interest rates on Scotman's variable rate debt for the quarter and interest
expense on the additional $150 million of senior notes issued in February 2002.
The increase in rates on the variable bank debt is attributable to a 1.0%
increase in rates under the current credit facility in comparison with the
former bank loan, partially offset by decreases in market rates compared to
2002. The 2002 expense also included $1.6 million of deferred financing costs,
related to Scotman's former credit facility, that was expensed in accordance
with SFAS 145.
Liquidity and Capital Resources
During the three months ended March 31, 2003 and 2002, our principal source
of funds consisted of cash flow from operating activities of $29.6 million and
$30.2 million, respectively. These were largely generated by the rental of units
from our lease fleet and sales of new mobile office units. The majority of the
cash generated from operations was used to reduce existing debt and to purchase
additional fleet units.
Our Adjusted EBITDA for the first quarter decreased by $5.3 million or
12.7% to $36.7 million in 2003 compared to $42.0 million for the same period in
2002. 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. 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. Noncash charges for 2003 consists of noncash
stock option compensation expense of approximately $11,000. In 2002, noncash
charges were zero. 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.
12
The table below reconciles Adjusted EBITDA to cash flow from operating
activities, the most directly comparable GAAP measure (in thousands).
Three Months Three Months
Ended March 31, Ended March 31,
2003 2002
-------------- --------------
Adjusted EBITDA $ 36,676 $ 41,990
Decrease in net receivables 10,258 6,328
Decrease in accounts payable and
accrued expenses (8,614) (7,576)
Interest paid (5,780) (7,263)
Increase in other assets (4,240) (940)
Increase (decrease) in other liabilities 2,195 (1,357)
Gain on sale of rental equipment (864) (936)
-------------- -------------
Cash flow from operating activities $ 29,631 $ 30,246
============== =============
Cash flow used in investing activities was $10.3 million and $9.7 million
for the three months ended March 31, 2003 and 2002, respectively. 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 generally increase the size of
our lease fleet only in those local or regional markets experiencing economic
growth and established unit demand.
Cash used in financing activities of $19.1 million for the three months
ended March 31, 2003 was used primarily for net repayments of debt under our
revolving credit facility. Cash used in financing activities of $20.8 million
for the three months ended March 31, 2002 was primarily for deferred financing
fees incurred relating to the issuance of additional senior notes and the new
credit facility agreement established in the first quarter of that year.
In order to meet our future cash requirements, we intend to use internally
generated funds and to borrow under our credit facility. We believe we have
sufficient liquidity under our revolving line of credit and from cash generated
from operations to fund our operations for the next 12 months.
In light of continued economic challenges we have instigated a series of
initiatives, including continued staff reductions, deferral of salary increases,
elimination of our 401K match, implementation of general cost reductions, and
intensified management of working capital. We are also evaluating opportunities
to sell non core assets such as real estate and capital leases. These steps are
geared toward improving the company's underlying profitability and performance.
Availability under the credit agreement depends upon our continued
compliance with certain covenants, including leverage and interest coverage
ratios. We are currently in compliance with all financial covenants. The credit
agreement, however, provides for a decrease in the maximum allowable leverage
ratio from 5.80x currently to 5.60x at December 31, 2003.
13
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation as of a date within 90 days
prior to the date of filing of this quarterly 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 unde r 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.
Item 5. Other Information.
The Company is not required to file reports with the Securities and
Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, but is filing this Quarterly Report on
Form10-Q on a voluntary basis. Accordingly, it is not an "issuer" as defined in
Section 2(a)(7) of the Sarbanes-Oxley Act of 2002.
14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Exhibits.
(a) None.
(b) Reports on Form 8-K.
None
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCOTSMAN HOLDINGS, INC.
By: /s/ Gerard E. Holthaus
-----------------------
Gerard E. Holthaus
Chief Executive Officer
Dated: May 13, 2003
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCOTSMAN HOLDINGS, INC.
By: /s/ John C. Cantlin
------------------------
John C. Cantlin
Chief Financial Officer
Dated: May 13, 2003
17
CERTIFICATIONS
I, Gerard E. Holthaus, Chief Executive Officer, certify, that:
(1) I have reviewed this quarterly report on
Form 10-Q of Scotsman Holdings, Inc.;
(2) Based on my knowledge, this quarterly 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 quarterly report;
(3) Based on my knowledge, the financial statements,
and other financial information included in this
quarterly 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
quarterly 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 we have:
a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiaries,
is made known to us by others within
those entities, particularly during the
period in which this quarterly 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
quarterly report ( the "Evaluation
Date"); and
c) presented in this quarterly report our
conclusions about the effectiveness of
the disclosure controls and procedures
based on our evaluation as of the
Evaluation Date;
18
(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 quarterly 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
May 13, 2003
19
CERTIFICATIONS
I, John C. Cantlin, Chief Financial Officer, certify, that:
(1) I have reviewed this quarterly report on
Form 10-Q of Scotsman Holdings, Inc.;
(2) Based on my knowledge, this quarterly 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 quarterly report;
(3) Based on my knowledge, the financial statements,
and other financial information included in this
quarterly 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
quarterly 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 we have:
a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiaries,
is made known to us by others within
those entities, particularly during the
period in which this quarterly 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
quarterly report ( the "Evaluation
Date"); and
c) presented in this quarterly report our
conclusions about the effectiveness of
the disclosure controls and procedures
based on our evaluation as of the
Evaluation Date;
20
(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 quarterly 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
May 13, 2003
21