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 September 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 September 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 September 30, 1996 1
and December 31, 1995
Consolidated Statements of Operations for the three 2
months and nine months ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows for the nine 3
months ended September 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 5. Other Information 9
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>
September 30,
1996 December 31,
Assets (Unaudited) 1995
------ ----------- ----
(dollars in thousands)
<S> <C> <C>
Cash and temporary investments $ 435 679
Trade accounts receivable, less allowance
for doubtful accounts 28,440 17,372
Prepaid expenses and other current assets 10,026 7,048
Rental equipment, at cost 406,481 364,369
Less accumulated depreciation 60,764 40,162
-------- --------
Net rental equipment 345,717 324,207
-------- --------
Property, plant and equipment, net 25,549 21,088
Deferred financing costs, net 6,039 7,830
Other assets 5,348 5,455
-------- --------
$ 421,554 383,679
======== ========
Liabilities and Stockholder's Equity
------------------------------------
Accounts payable $ 8,115 6,667
Accrued expenses 15,468 8,114
Rents billed in advance 10,448 9,809
Long-term debt 262,419 242,695
Deferred compensation 2,875 1,900
Deferred income taxes 55,722 51,986
-------- --------
Total liabilities 355,047 321,171
-------- --------
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 9,630 5,631
-------- --------
Total stockholder's equity 66,507 62,508
-------- --------
$ 421,554 383,679
======== ========
</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 Nine months ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
(in thousands except share and per share amounts)
Revenues:
<S> <C> <C> <C> <C>
Leasing $ 31,522 25,333 86,062 70,516
Sales of new units 10,274 7,567 21,217 18,030
Delivery and installation 11,106 7,954 25,059 20,974
Other 4,729 2,903 12,813 7,757
-------- -------- -------- --------
Total revenues 57,631 43,757 145,151 117,277
-------- -------- -------- --------
Costs of sales and services:
Leasing:
Depreciation and amortization 7,983 6,048 22,983 16,732
Other 8,044 6,819 20,359 17,009
New units 8,422 6,411 17,478 14,954
Delivery and installation 8,610 5,958 19,051 16,490
Other 1,181 745 2,752 1,957
-------- -------- -------- --------
Total costs 34,240 25,981 82,623 67,142
-------- -------- -------- --------
Gross profit 23,391 17,776 62,528 50,135
--------- -------- -------- --------
Selling, general and administrative
expenses 10,463 8,938 31,822 26,670
Other depreciation and amortization 517 352 1,610 1,126
Interest, including amortization of
deferred financing costs 6,718 5,586 19,216 16,192
--------- --------- --------- ---------
Total operating expenses 17,698 14,876 52,648 43,988
--------- --------- --------- ---------
Earnings before income taxes 5,693 2,900 9,880 6,147
Income tax expense 2,196 1,118 3,811 2,371
--------- --------- --------- ---------
Net earnings $ 3,497 1,782 6,069 3,776
========= ========= ========== =========
Earnings per common share $ 1.05 0.54 1.83 1.14
========= ========= ========= =========
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
Nine months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
(dollars in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 6,069 3,776
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 26,420 18,867
Provision for bad debts 1,210 1,095
Deferred income tax expense 3,736 2,296
Provision for deferred compensation 975 825
Gain on sale of rental equipment (1,946) (1,580)
Increase in net trade accounts receivable (12,278) (2,415)
Increase in accrued expenses 7,354 5,518
Other (837) (3,428)
-------- --------
Net cash provided by operating activities 30,703 24,954
-------- --------
Cash flows from investing activities:
Redemption of certificates of deposit 250 1,255
Rental equipment additions (52,160) (45,567)
Proceeds from sales of rental equipment 9,612 7,595
Purchases of property, plant and equipment, net (6,018) (3,592)
-------- --------
Net cash used in investing activities $ (48,316) (40,309)
-------- --------
</TABLE>
(continued)
(3)
<PAGE>
THE SCOTSMAN GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
Cash flows from financing activities:
<S> <C> <C>
Proceeds from long-term debt 152,380 135,992
Repayment of long-term debt (132,656) (120,804)
Increase in deferred financing costs (35) (75)
Payment of dividends (2,070) ---
--------- ---------
Net cash provided by financing activities 17,619 15,113
--------- ---------
Net increase (decrease) in cash 6 (242)
Cash at beginning of period 416 697
--------- ---------
Cash at end of period $ 422 455
========= =========
Supplemental cash flow information:
Cash paid (received) for income taxes $ 114 (42)
========= =========
Cash paid for interest $ 13,334 11,375
========= =========
</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 nine months ended September 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 September 30,1996 and its operating results and cash flows
for the three and nine month periods ended September 30, 1996 and 1995. The
results of operations for the periods ended September 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 September 30, 1996 Compared with Three Months Ended
September 30, 1995.
Revenues in the quarter ended September 30, 1996 were $57.6 million, a $13.9
million or 31.7% increase from revenues of $43.8 million in the same period of
1995. The increase resulted primarily from a $6.2 million or 24.4% increase in
leasing revenue, a $2.7 million or 35.8% increase in new sales revenue, a $3.2
million or 39.6% increase in revenue from delivery and installation and a $1.8
million or 62.9% increase in other revenue. The increase in leasing revenue is
attributable to a 10.2% increase in the average number of units in the fleet to
approximately 39,000 units for the third quarter of 1996 from approximately
35,000 for the same period of 1995, an increase in fleet utilization of
approximately six percentage points to 87% and an increase of approximately
$12 in the average monthly rental rate. New sales revenue increased
primarily as a result of a sales contract in excess of $1.0 million that was
billed in August 1996. The increase in delivery and installation revenue
is a result of increases in leasing and new sales revenue described above.
Other revenue increased as a result of increases in the rental of steps as well
as miscellaneous revenue related to services provided for customer-owned units.
Gross profit in the third quarter of 1996 was $23.4 million, a $5.6 million
or 31.6% increase from the third quarter of 1995. This increase is primarily due
to an increase in leasing gross profit of $3.0 million or 24.3% and an increase
in gross profit from other revenue of $1.4 million. The increase in leasing
gross profit reflects the increase in leasing revenue described above and stable
leasing margins of 49.2% for the third quarter of 1996 and 1995. Excluding
depreciation and amortization, leasing margins increased from 73.1% in 1995 to
74.5% in 1996. The increase in gross profit from other revenue is due to the
increase in other revenue described above.
Selling, general and administrative (SG&A) expenses increased by $1.5 million
or 17.1% from the third quarter of 1995. This increase is primarily due to a
$1.4 million increase in field related expenses which is primarily the result of
a $0.9 million increase in personnel costs. These expenses were incurred in
conjunction with the branch expansion that the Company has experienced as well
as the overall increases described above.
Interest expense increased by $1.1 million or 20.3% in the third 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.
Nine Months Ended September 30, 1996 Compared with Nine Months Ended
September 30, 1995.
Revenues in the nine months ended September 30, 1996 were $145.2 million, a
27.9 million or 23.8% increase from revenues of $117.3 million in the nine
months ended September 30, 1995. The increase resulted primarily from a $15.5
million or 22.0% increase in leasing revenue, a $4.1 million or 19.5% increase
in delivery and installation revenue and a $5.0 million or 65.2% 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 10.8% to approximately
38,000 units for the first nine months of 1996 from approximately 34,000 units
(6)
<PAGE>
for the same period in 1995, an increase in utilization of approximately
four percentage points to 85% combined with an increase of approximately $11
in the average monthly rental rate for the comparable periods. The increase
in delivery and installation revenue is a result of the increased leasing
activity described above. 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 nine months ended September 30, 1996 was $62.5 million, a
$12.4 million or 24.7% increase from the same period in 1995. This increase is
primarily due to an increase in leasing gross profit of $5.9 million or 16.2%,
an increase in gross profit from delivery and installation of $1.5 million or
34.0% and an increase in gross profit from other revenue of $4.3 million. The
increase in leasing gross profit is due to the increase in leasing revenue
described above while leasing margins decreased to 49.6% from 52.2%. This
decrease is due to the increases in depreciation and amortization expense in the
nine months ended September 30, 1996. Excluding depreciation and amortization,
leasing margins increased from 75.9% for the nine months ended September 30,
1995 to 76.3% for the same period of 1996. Gross profit from delivery and
installation and other revenue increased primarily as a result of the increases
in the related revenues described above.
Selling, general and administrative expenses increased by $5.2 million or
19.3% from the nine months ended September 30, 1995. This increase is comprised
of a $3.9 million increase in field related expenses and a $1.3 million increase
in other SG&A expenses. The increase in field related expenses is due to branch
expansion experienced by the Company through the third quarter of 1996 and is
comprised primarily of a $2.7 million increase in personnel costs and a $0.6
million increase in occupancy expenses.
Interest expense increased by $3.0 million or 18.7% in the nine months ended
September 30, 1996 from the same period in 1995 primarily as a result of an
increase in the average balances outstanding under the revolving line of credit
during 1996. This increase is due to financing the fleet and branch expansion
discussed above.
Liquidity and Capital Resources
During the nine months ended September 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 $30.7 million and $25.0 million
for the nine months ended September 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 $13.6 million or 33.3% to $54.7 million for the nine months
ended September 30, 1996 compared to $41.0 million for the same period of 1995.
This increase in EBITDA is a result of increased leasing activity resulting from
(7)
<PAGE>
the overall increase in the number of units in the fleet as well as well as the
increase in the monthly rental rate, offset by the increased SG&A expenses
to support the increased activities during the nine months ended September 30,
1996.
Cash flow used in investing activities of $48.3 million and $40.3 million in
the nine months ended September 30, 1996 and 1995, respectively, was primarily
for net additions to the Company's lease fleet. Cash provided by financing
activities of $17.6 million and $15.1 million for the nine month periods ended
September 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 5. Other Information
The Company announced that it's parent company, Scotsman
Holdings, Inc., is considering various strategic alternatives,
including a sale of the Company. In this connection, Scotsman
Holdings has retained Goldman, Sachs & Co. as its financial
advisor. There can be no assurance that any transaction will be
consummated.
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: November 13, 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 November 13, 1996
- ----------------------------- Officer and Director
Gerard E. Holthaus
/s/ Katherine K. Giannelli Vice President and Controller November 13, 1996
- -----------------------------
Katherine K. Giannelli
(10)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 435
<SECURITIES> 0
<RECEIVABLES> 28,996
<ALLOWANCES> 556
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 432,030
<DEPRECIATION> 60,764
<TOTAL-ASSETS> 421,554
<CURRENT-LIABILITIES> 0
<BONDS> 262,419
0
0
<COMMON> 33
<OTHER-SE> 66,474
<TOTAL-LIABILITY-AND-EQUITY> 421,554
<SALES> 145,151
<TOTAL-REVENUES> 145,151
<CGS> 82,623
<TOTAL-COSTS> 82,623
<OTHER-EXPENSES> 33,432
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,216
<INCOME-PRETAX> 9,880
<INCOME-TAX> 3,811
<INCOME-CONTINUING> 6,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,069
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.83
</TABLE>
