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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number: 033-68444
WILLIAMS SCOTSMAN, INC.
(Exact name of Registrant as specified in its Charter)
MARYLAND 52-0665775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8211 TOWN CENTER DRIVE 21236
BALTIMORE, MARYLAND (Zip Code)
(Address of principal executive offices)
(410) 931-6000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year - if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO __
The Registrant is a wholly-owned subsidiary of Scotsman Holdings, Inc.,
a Delaware corporation. As of March 31, 1998, Scotsman Holdings, Inc. owned
3,320,000 shares of common stock ("Common Stock") of the Registrant.
<PAGE>
WILLIAMS SCOTSMAN, INC.
INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION Page
- ------ - --------- ----------- ----
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1998 1
and December 31, 1997
Consolidated Statements of Operations for the three 2
months ended March 31, 1998 and 1997
Consolidated Statements of Cash Flows for the three 3
months ended March 31, 1998 and 1997
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.
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31,
1998 December 31,
Assets (Unaudited) 1997
------ ----------- ------------
(dollars in thousands)
<S><C>
Cash and temporary investments $ 282 307
Trade accounts receivable, less allowance for
doubtful accounts 24,871 25,537
Prepaid expenses and other current assets 10,750 14,008
Rental equipment, net of accumulated depreciation of
$88,165 in 1998 and $93,623 in 1997 418,624 403,528
Property and equipment, net 40,674 37,105
Deferred financing costs, net 21,810 22,379
Other assets 9,763 11,309
--------- --------
$ 526,774 514,173
========= ========
Liabilities and Stockholder's Equity
- ------------------------------------
Accounts payable $ 7,580 7,518
Accrued expenses 24,281 13,568
Rents billed in advance 12,584 12,464
Long-term debt 556,477 533,304
Deferred compensation 2,814 2,699
Deferred income taxes 56,626 56,184
--------- --------
Total liabilities 660,362 625,737
--------- --------
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 deficit (190,465) (168,441)
--------- --------
Total stockholder's deficit (133,588) (111,564)
--------- --------
$ 526,774 514,173
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Three months ended March 31, 1998 and 1997
(Unaudited)
1998 1997
---- ----
(in thousands except
share and per share amounts)
Revenues:
Leasing $ 31,861 28,018
Sales:
New units 9,170 8,545
Rental equipment 3,446 3,221
Delivery and installation 7,897 8,173
Other 5,779 4,759
---------- ----------
Total revenues 58,153 52,716
---------- ----------
Costs of sales and services:
Leasing:
Depreciation and amortization 5,913 7,942
Other direct leasing costs 4,754 4,473
Sales:
New units 7,502 7,198
Rental equipment 2,466 2,566
Delivery and installation 5,863 6,125
Other 1,278 1,243
---------- ----------
Total costs of sales and services 27,776 29,547
---------- ----------
Gross profit 30,377 23,169
---------- ----------
Selling, general and administrative expenses 13,621 12,118
Other depreciation and amortization 1,539 612
Interest, including amortization of deferred
financing costs 14,006 6,747
---------- ----------
Total operating expenses 29,166 19,477
---------- ----------
Income before income taxes 1,211 3,692
Income tax expense 480 1,424
---------- ----------
Net Income $ 731 2,268
========== ==========
Earnings per common share $ 0.22 0.68
========== ==========
Dividends per common share $ 6.85 --
========== ==========
Weighted average shares outstanding 3,320,000 3,320,000
========== ==========
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
(dollars in thousands)
<S><C>
Cash flows from operating activities:
Net income $ 731 2,268
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,293 9,188
Provision for bad debts 603 680
Deferred income tax expense 442 1,386
Provision for deferred compensation -- 275
Gain on sale of rental equipment (980) (655)
Decrease (increase) in net trade accounts
receivable 63 (1,947)
Decrease in other assets 1,546 267
Increase in accrued expenses 10,713 5,301
Other 2,930 (3,486)
-------- --------
Net cash provided by operating activities 24,341 13,277
-------- --------
Cash flows from investing activities:
Rental equipment additions (23,475) (20,318)
Proceeds from sales of rental equipment 3,446 3,221
Purchases of property and equipment, net (4,483) (2,703)
-------- --------
Net cash used in investing activities $(24,512) (19,800)
-------- --------
</TABLE>
(continued)
-3-
<PAGE>
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(Unaudited)
1998 1997
---- ----
(dollars in thousands)
Cash flows from financing activities:
Proceeds from long-term debt 85,676 59,824
Repayment of long-term debt (62,503) (53,315)
Increase in deferred financing costs (272) (25)
Payment of dividends (22,755) --
-------- --------
Net cash provided by financing activities 146 6,484
-------- --------
Net decrease in cash (25) (39)
Cash at beginning of period 294 338
-------- --------
Cash at end of period $ 269 299
======== ========
Supplemental cash flow information:
Cash paid for income taxes $ 58 93
======== ========
Cash paid for interest $ 3,357 2,197
======== ========
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in thousands, except share and per share amounts)
(1) FINANCIAL STATEMENTS
The financial information for the three months ended March 31, 1998 and 1997
includes the accounts of Williams Scotsman, Inc. and its wholly owned
subsidiary Willscot Equipment, LLC (Willscot). Willscot, a special purpose
subsidiary, was formed in May 1997 and is a guarantor of the Company's
credit facility and acts as a full, unconditional and joint and several
subordinated guarantor of the 9 7/8% Senior Notes. The operations of
Willscot are limited to the leasing of its mobile office units to the
Company under a master lease and issuing the guarantee.
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 31,1998 and its
operating results and cash flows for the three month periods ended March 31,
1998 and 1997. The results of operations for the periods ended March 31,
1998 and 1997 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 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.
Dividends per common share is computed by dividing dividends paid by the
weighted average number of common shares outstanding during the periods.
(3) RECAPITALIZATION
Pursuant to a recapitalization agreement, on May 22, 1997, Scotsman
Holdings, Inc. (Holdings), the Company's parent company, (i) repurchased
3,210,679 shares of its outstanding common stock for an aggregate of
approximately $293,777 in cash and approximately $21,834 in promissory notes
due January 1998 and (ii) issued 1,475,410 shares of common stock for an
aggregate of approximately $135,000 (or a price of $91.50 per share) in
cash. In related transactions on the same date, (i) Holdings purchased all
of its outstanding Series B 11% Senior Notes due 2004 ($29,292 aggregate
principal amount) for approximately $32,251, including accrued interest and
fees, (ii) the Company purchased $164,660 aggregate principal amount of its
9 1/2% Senior Secured Notes due 2000 for approximately $179,852, including
accrued interest and fees and (iii) the Company repaid all of its
outstanding indebtedness ($119,017) under its prior credit facility.
Additionally, in a series of subsequent transactions, the
-5-
<PAGE>
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
Company purchased the remaining $300 principal amount of its 9.5% senior
secured notes due 2000 for approximately $351, including accrued interest
and fees. In conjunction with the debt extinguishment, the Company
recognized an extraordinary loss of $13,719.
In connection with the recapitalization, (i) the Company accelerated the
payment of deferred compensation under its long term incentive plan, (ii)
all outstanding stock options under Holdings' employee stock option plan
vested and became immediately exercisable and (iii) the Company canceled a
portion of the outstanding stock options. Accordingly, in the second quarter
of 1997, the Company recognized $5,105 of recapitalization expenses
including $2,489 in connection with the acceleration of deferred
compensation and $2,616 in connection with the cancellation of the stock
options.
In order to finance the recapitalization transaction the Company issued
$400,000 in 9 7/8% Senior Notes due 2007 and entered into a $300,000
revolving bank facility. The Company paid a dividend of $178,749 to Holdings
to pay recapitalization expenses, to repurchase the common stock and to
purchase the 11% Senior Notes.
(4) SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY
The 9 7/8% Senior Notes issued by the Company are guaranteed by Willscot,
its wholly owned subsidiary. The guarantee is full, unconditional and joint
and several. The operations of Willscot are limited to leasing its mobile
office units to the Company under a master lease and paying the Company a
fee to manage its mobile office units. Accordingly, based on the terms of
these agreements, it has recorded no net income for the applicable periods.
Full separate financial statements of the guarantor subsidiary have not been
included because management has determined that they are not material to
investors. Summarized financial statements of Willscot as of and for the
period ended March 31, 1998 are as follows:
Balance Sheet
-------------
Assets:
Rental equipment, at cost $ 348,081
Less accumulated depreciation (49,801)
---------
Net rental equipment 298,280
Other assets 1,179
---------
Total assets $ 299,459
=========
Liabilities and Stockholder's Equity:
Due to parent $ 3,493
Other liabilities 2,129
---------
5,622
Stockholder's equity 293,837
---------
Total liabilities and stockholder's equity $ 299,459
=========
-6-
<PAGE>
WILLIAMS SCOTSMAN, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (continued)
(4) SUMMARIZED FINANCIAL INFORMATION OF SUBSIDIARY (CONTINUED)
Statement of Operations
- -----------------------
Revenue:
Leasing $8,723
Other 55
------
8,778
------
Expenses:
Selling, general and administrative 5,885
Depreciation 2,867
Interest 26
------
8,778
------
Net Income $ -0-
======
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared with Three Months Ended March 31,
1997. Revenues in the quarter ended March 31, 1998 were $58.2 million, a $5.4
million or 10.3% increase from revenues of $52.7 million in the same period of
1997. This increase resulted primarily from a $3.8 million or 13.7% increase in
leasing revenue, a $0.6 million or 7.3% increase in new sales revenue, and a
$1.0 million or 21.4% increase in other revenue. The increase in leasing revenue
is attributable to an increase in the average number of units in the fleet of
15.6% to approximately 47,700 for the first quarter of 1998, combined with
stable fleet utilization of 86%, offset by a slight overall decrease in the
average monthly rental rate. This overall decrease in average monthly rental
rate is a result of modest rate increases in its major products offset by
changes in fleet mix. The increase in new sales revenue is due to the increase
in volume of sales as a result of the increases in the size of the Company as
discussed below. 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 for the quarter was $30.4 million, a $7.2 million or 31.1%
increase from the first quarter of 1997. This increase is primarily due to an
increase in leasing gross profit of $5.6 million or 35.8%, an increase in gross
profit from new sales of $0.3 million or 23.8%, an increase in gross profit from
used sales of $0.3 million or 49.6% and an increase in gross profit from other
revenue of $1.0 million or 28.0%. The increase in leasing gross profit is due to
an increase in the leasing activity described above combined with an increase in
leasing margins from 55.7% for the first quarter of 1997 to 66.5% for the first
quarter of 1998, primarily due to the effect on depreciation expense of the
change in the estimated residual value of rental equipment in October 1997.
Excluding depreciation and amortization, leasing margins increased from 84.0% to
85.1%. The increase in the gross profit from new and used sales revenue is due
to the increased activity described above. The increase in gross profit from
other revenue is primarily due to the increase of revenue in this category as
described above.
Selling, general and administrative (SG&A) expenses increased by $1.5 million
or 12.4% from the first quarter of 1997. This increase is the result of the
growth experienced by the Company, both in terms of fleet size and number of
branches as compared to the first quarter of 1997. The Company's branch network
has expanded from 60 branches at March 31, 1997 to 73 branches at March 31, 1998
while the fleet has grown by approximately 5,800 units from March 31, 1997. The
overall increases in SG&A expenses are due to increases in field related
expenses, primarily payroll and occupancy expenses incurred in connection with
this branch expansion.
Interest expense increased by $7.3 million or 107.6% in the first quarter of
1998. This increase is a result of increased borrowings to finance the
recapitalization of the Company's parent, Scotsman Holdings, Inc., in May 1997
and as a result of financing the fleet and branch growth described above.
-8-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1998 and 1997, the Company's
principal sources of funds consisted of cash flow from operating and financing
sources. Cash flow from operating activities of $24.3 million and $13.3 million
for the three months ended March 31, 1998 and 1997, respectively, was largely
generated by the rental of units from the Company's 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 interest, taxes, depreciation, amortization and
provision for deferred compensation. 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 $3.4 million or 17.7% to $22.7 million for the first quarter
of 1998 compared to $19.3 million for the same period of 1997. This increase in
EBITDA is a result of increased leasing activity resulting from the overall
increases in the number of units in the fleet and stable utilization, partially
offset by a slight decline in the average monthly rental rate due to changes in
fleet mix and increased SG&A expenses required to support the increased
activities during the first quarter of 1998.
Cash flow used in investing activities was $24.5 million and $19.8 million in
the three months ended March 31, 1998 and 1997, respectively. The Company's
primary capital expenditures are for the discretionary purchase of new units for
the lease fleet and units purchased through acquisition. The Company seeks to
maintain its lease fleet in good condition at all times and generally increases
the size of its lease fleet only in those local or regional markets experiencing
economic growth and established unit demand. Cash provided by financing
activities of $0.1 million and $6.5 million in the three months ended March 31,
1998 and 1997, respectively, was primarily from borrowings under the line of
credit offset by dividends paid to the parent company in 1998 primarily to
effect the repayment of the parent company's promissory note payable.
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.
-9-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
-10-
<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.
WILLIAMS SCOTSMAN, INC.
By: /s/ Gerard E. Keefe
_________________________
Gerard E. Keefe
Senior Vice President and
Chief Financial Officer
Dated: May __, 1998
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. Keefe Senior Vice President and May __, 1998
- ----------------------------- Chief Financial Officer
Gerard E. Keefe
/s/ Katherine K. Giannelli Vice President and Controller May __, 1998
- -----------------------------
Katherine K. Giannelli
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 282
<SECURITIES> 0
<RECEIVABLES> 25,223
<ALLOWANCES> 352
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 555,121
<DEPRECIATION> 95,823
<TOTAL-ASSETS> 526,774
<CURRENT-LIABILITIES> 0
<BONDS> 556,477
0
0
<COMMON> 33
<OTHER-SE> (133,621)
<TOTAL-LIABILITY-AND-EQUITY> 556,477
<SALES> 58,153
<TOTAL-REVENUES> 58,153
<CGS> 27,776
<TOTAL-COSTS> 27,776
<OTHER-EXPENSES> 15,160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,006
<INCOME-PRETAX> 1,211
<INCOME-TAX> 480
<INCOME-CONTINUING> 731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 731
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
