SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
[x] THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number: 033-68444
THE SCOTSMAN GROUP, INC.
(Exact name of Registrant as specified in its Charter)
Maryland 52-0665775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8211 Town Center Drive 21236
Baltimore, Maryland (Zip Code)
(Address of principal executive offices)
(410) 931-6000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year - if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
The Registrant is a wholly-owned subsidiary of Scotsman Holdings, Inc., a
Delaware corporation. As of June 30, 1996, Scotsman Holdings, Inc. owned
3,320,000 shares of common stock ("Common Stock") of the Registrant.
<PAGE>
THE SCOTSMAN GROUP, INC.
INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1996 1
and December 31, 1995
Consolidated Statements of Operations for the three 2
months and six months ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows for the six 3
months ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of 6
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
THE SCOTSMAN GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
1996 December 31,
Assets (Unaudited) 1995
------ ----------- ----
(dollars in thousands)
<S> <C> <C>
Cash and temporary investments $ 356 679
Trade accounts receivable, less allowance for
doubtful accounts 21,130 17,372
Prepaid expenses and other current assets 7,949 7,048
Rental equipment, at cost 389,533 364,369
Less accumulated depreciation 54,179 40,162
------- -------
Net rental equipment 335,354 324,207
------- -------
Property, plant and equipment, net 23,003 21,088
Deferred financing costs, net 6,651 7,830
Other assets 5,409 5,455
------- -------
$ 399,852 383,679
======= =======
Liabilities and Stockholder's Equity
Accounts payable $ 10,547 6,667
Accrued expenses 9,453 8,114
Rents billed in advance 9,644 9,809
Long-term debt 251,197 242,695
Deferred compensation 2,450 1,900
Deferred income taxes 53,551 51,986
------- -------
Total liabilities 336,842 321,171
------- -------
Stockholder's equity:
Common stock, $.01 par value. Authorized
10,000,000 shares; issued and outstanding
3,320,000 shares 33 33
Additional paid-in capital 56,844 56,844
Retained earnings 6,133 5,631
------- -------
Total stockholder's equity 63,010 62,508
------- -------
$399,852 383,679
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
THE SCOTSMAN GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
(in thousands except share and per share amounts)
Revenues:
<S> <C> <C> <C> <C>
Leasing $ 28,025 23,470 54,540 45,183
Sales of new units 4,934 6,093 10,943 10,463
Delivery and installation 7,450 6,619 13,953 13,020
Other 4,467 2,551 8,084 4,854
------- ------ ------- ------
Total revenues 44,876 38,733 87,520 73,520
------- ------ ------- ------
Costs of sales and services:
Leasing:
Depreciation and amortization 7,929 5,467 15,000 10,684
Other 6,317 5,688 12,315 10,190
New units 4,016 4,839 9,056 8,543
Delivery and installation 5,320 5,308 10,441 10,532
Other 924 801 1,571 1,212
------ ------ ------ ------
Total costs 24,506 22,103 48,383 41,161
------ ------ ------ ------
Gross profit 20,370 16,630 39,137 32,359
------ ------ ------ ------
Selling, general and administrative 10,495 8,788 21,359 17,732
expenses
Other depreciation and amortization 538 352 1,093 774
Interest, including amortization of
deferred financing costs 6,235 5,346 12,498 10,606
------ ----- ------ ------
Total operating expenses 17,268 14,486 34,950 29,112
------ ------ ------ ------
Earnings before income taxes 3,102 2,144 4,187 3,247
Income tax expense 1,197 827 1,615 1,253
------ ------ ------ ------
Net earnings $ 1,905 1,317 2,572 1,994
========= ====== ====== ======
Earnings per common share $ 0.57 0.40 0.77 .60
========= ====== ====== ======
Weighted average shares outstanding 3,320,000 3,320,000 3,320,000 3,320,000
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
THE SCOTSMAN GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
(dollars in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 2,572 1,994
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 17,307 12,138
Provision for bad debts 858 738
Deferred income tax expense 1,565 1,203
Provision for deferred compensation 550 550
Gain on sale of rental equipment (1,176) (907)
Increase in net trade accounts receivable (4,616) (974)
Increase in accrued expenses 1,339 600
Other 2,824 (544)
------ ------
Net cash provided by operating activities 21,223 14,798
------ ------
Cash flows from investing activities:
Redemption of certificates of deposit 250 1,255
Rental equipment additions (30,377) (29,287)
Proceeds from sales of rental equipment 5,406 4,320
Purchases of property, plant and equipment, net (2,972) (1,891)
------ ------
Net cash used in investing activities $(27,693) (25,603)
------ ------
</TABLE>
(continued)
3
<PAGE>
THE SCOTSMAN GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
Cash flows from financing activities:
<S> <C> <C>
Proceeds from long-term debt 88,622 88,565
Repayment of long-term debt (80,120) (77,890)
Increase in deferred financing costs (35) (75)
Payment of dividends (2,070) ---
------ ------
Net cash provided by financing activities 6,397 10,600
------ ------
Net decrease in cash (73) (205)
Cash at beginning of period 416 697
------ ------
Cash at end of period $ 343 492
====== ======
Supplemental cash flow information:
Cash paid (received) for income taxes $ 81 (52)
====== ======
Cash paid for interest $ 11,299 10,014
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE SCOTSMAN GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) FINANCIAL STATEMENTS
The financial information for the six months ended June 30, 1996 and 1995
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 June 30,1996 and its operating results and cash flows for the three and
six month periods ended June 30, 1996 and 1995. The results of operations
for the periods ended June 30, 1996 and 1995 are not necessarily indicative
of the operating results for the full year.
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.
(2) EARNINGS PER SHARE
Earnings per common share is computed by dividing net earnings by the
weighted average number of common shares outstanding during the periods.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Three Months Ended June 30, 1996 Compared with Three Months Ended June 30,
1995.
Revenues in the quarter ended June 30, 1996 were $44.9 million, a $6.1 million
or 15.9% increase from revenues of $38.7 million in the same period of 1995. The
increase resulted primarily from a $4.6 million or 19.4% increase in leasing
revenue and a $1.9 million or 75.1% increase in other revenue. The increase in
leasing revenue is attributable to a 10.3% increase in the average number of
units in the fleet to approximately 38,000 units for the second quarter of 1996
from approximately 34,000 for the same period of 1995, an increase in fleet
utilization of approximately four percentage points to 84% and an increase of
approximately $10 in the average monthly rental rate. Other revenue increased as
a result of increases in the rental of steps and furniture as well as
miscellaneous revenue related to services provided for customer-owned units.
Gross profit in the second quarter of 1996 was $20.4 million, a $3.7 million
or 22.5% increase from the second quarter of 1995. This increase is primarily
due to an increase in leasing gross profit of $1.5 million or 11.9% and an
increase in gross profit from other revenue of $1.8 million. The increase in
leasing gross profit reflects the increase in leasing revenue described above
offset by a decrease in leasing margins from 52% in 1995 to 49% in 1996 as a
result of increases in depreciation and amortization expense. Excluding
depreciation and amortization, leasing margins increased from 75.8% in 1995 to
77.5% in 1996. The increase in gross profit from other revenue is due to the
increase in other revenue described above.
Selling, general and administrative expenses increased by $1.7 million or
19.4% from the second quarter of 1995. This increase is primarily due to a $1.1
million increase in field related expenses which is primarily the result of a
$0.9 million increase in personnel related expenses. These expenses were
incurred in conjunction with the branch expansion that the Company has
experienced as well as increases in selling expenses that resulted from the
underlying growth in leasing described above.
Interest expense increased by $0.9 million or 16.6% in the second quarter of
1996 from the same period of 1995. This increase is due primarily to the
increase in the average balance outstanding under the revolving line of credit
during the quarter compared to the comparable period of 1995. This increase is
the result of financing the fleet and branch expansion by the Company as
described above.
Six Months Ended June 30, 1996 Compared with Six Months Ended June 30, 1995.
Revenues in the six months ended June 30, 1996 were $87.5 million, a $14.0
million or 19.0% increase from revenues of $73.5 million in the six months ended
June 30, 1995. The increase resulted primarily from a $9.4 million or 20.7%
increase in leasing revenue and a $3.2 million or 66.5% increase in other
revenue. The increase in leasing revenue is attributable to an increase in the
average number of units in the lease fleet of 11.1% to approximately 38,000
units for the first six months of 1996 from approximately 34,000 units for the
same period in 1995, an increase in utilization of approximately three
percentage points to 83% combined with an increase of approximately $9 in the
average monthly rental rate for the comparable periods. Other revenue increased
6
<PAGE>
as a result of increases in the rental of steps and furniture as well as
miscellaneous revenue related to services provided for customer-owned units.
Gross profit in the six months ended June 30, 1996 was $39.1 million, a $6.8
million or 20.9% increase from the same period in 1995. This increase is
primarily due to an increase in leasing gross profit of $2.9 million or 12.0%
and an increase in gross profit from other revenue of $2.9 million. The increase
in leasing gross profit is due to the increase in leasing revenue described
above while leasing margins decreased to 49.9% from 53.8%. This decrease is due
to the increases in depreciation and amortization expense in six months ended
June 30, 1996. Excluding depreciation and amortization, leasing margins remained
constant at 77.4% for the comparable periods. Gross profit from other revenue
increased primarily as a result of the increases in other revenue described
above.
Selling, general and administrative expenses increased by $3.6 million or
20.5% from the six months ended June 30, 1995. This increase is comprised of a
$2.5 million increase in field related expenses and a $1.1 million increase in
other SG&A expenses. The increase in field related expenses is due to branch
expansion experienced by the Company through the second quarter of 1996 and is
comprised primarily of a $1.8 million increase in personnel related expenses and
a $0.4 million increase in occupancy expenses.
Interest expense increased by $1.9 million or 17.8% in the six months ended
June 30, 1996 from the same period in 1995 primarily as a result of an increase
in the average balance outstanding under the revolving line of credit during the
first half of 1996. This increase is due to financing the fleet and branch
expansion discussed above.
Liquidity and Capital Resources
During the six months ended June 30, 1996 and 1995, the Company's principal
source of funds consisted of cash flow from operating and financing sources.
Cash flow from operating activities of $21.2 million and $14.8 million for the
six months ended June 30, 1996 and 1995, respectively, was largely generated by
the Company's leasing operation, which includes the rental and sale of units
from its lease fleet.
The Company has increased its EBITDA and believes that EBITDA provides the
best indication of its financial performance and provides the best measure of
its ability to meet historical debt service requirements. The Company defines
EBITDA as net income before depreciation, amortization, provision for deferred
compensation, interest and taxes. EBITDA as defined by the Company does not
represent cash flow from operations as defined by generally accepted accounting
principles and should not be considered as an alternative to cash flows as a
measure of liquidity, nor should it be considered as an alternative to net
income as an indicator of the Company's operating performance. The Company's
EBITDA increased by $7.5 million or 28.9% to $33.3 million for the first half of
1996 compared to $25.9 million for the same period of 1995. This increase in
EBITDA is a result of increased leasing activity resulting from the overall
increase in the number of units in the fleet as well as the increase in the
monthly rental rate, offset by the increased SG&A expenses to support the
increased activities during the six months ended June 30, 1996.
Cash flow used in investing activities of $27.7 million and $25.6 million in
the six months ended June 30, 1996 and 1995, respectively, was primarily for net
additions to the Company's lease fleet.
7
<PAGE>
Cash provided by financing activities of $6.4 million and $10.6 million for the
six month periods ended June 30, 1996 and 1995, respectively, resulted primarily
from the funding of the fleet expansion discussed above.
The Company believes it will have, for the next 12 months, sufficient
liquidity under its revolving line of credit and from cash generated from
operations to meet its expected obligations as they arise.
8
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
9
<PAGE>
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.
THE SCOTSMAN GROUP, INC.
By: /s/ Gerard E. Holthaus
----------------------------------
Gerard E. Holthaus
President
Dated: August __, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Capacity Date
---- -------- ----
/s/ Gerard E. Holthaus President, Chief Operating August __, 1996
- -------------------------- Officer and Director
Gerard E. Holthaus
/s/ Katherine K. Giannelli Vice President and Controller August __, 1996
- --------------------------
Katherine K. Giannelli
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 356
<SECURITIES> 0
<RECEIVABLES> 21,836
<ALLOWANCES> 706
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 412,536
<DEPRECIATION> 54,179
<TOTAL-ASSETS> 399,852
<CURRENT-LIABILITIES> 0
<BONDS> 251,197
0
0
<COMMON> 33
<OTHER-SE> 62,977
<TOTAL-LIABILITY-AND-EQUITY> 399,852
<SALES> 87,520
<TOTAL-REVENUES> 87,520
<CGS> 48,383
<TOTAL-COSTS> 48,383
<OTHER-EXPENSES> 22,452
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,498
<INCOME-PRETAX> 4,187
<INCOME-TAX> 1,615
<INCOME-CONTINUING> 2,572
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,572
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
</TABLE>
