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, 1997
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
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
--- ---
As of September 30, 1997, 1,640,045 shares of common stock ("Common
Stock") of the Registrant were outstanding.
<PAGE>
SCOTSMAN HOLDINGS, INC.
INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1997 1
and December 31, 1996
Consolidated Statements of Operations for the nine months 2
and three months ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows for the nine 3
months ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
1997 December 31,
Assets (Unaudited) 1996
------ ----------- ------------
(dollars in thousands)
<S><C>
Cash and temporary investments $ 335 $ 426
Trade accounts receivable, less allowance for
doubtful accounts 33,879 23,145
Prepaid expenses and other current assets 13,173 9,295
Rental equipment, at cost 482,910 423,703
Less accumulated depreciation 90,003 67,520
--------- ---------
Net rental equipment 392,907 356,183
--------- ---------
Property, plant and equipment, net 35,000 29,032
Deferred financing costs, net 22,954 6,268
Other assets 11,061 5,197
--------- ---------
$ 509,309 $ 429,546
========= =========
Liabilities and Stockholder's Equity
------------------------------------
Accounts payable $ 10,734 $ 9,826
Accrued expenses 28,106 9,957
Rents billed in advance 12,518 10,621
Promissory notes payable 21,834 --
Long-term debt 515,679 294,827
Deferred compensation 2,443 3,300
Deferred income taxes 48,936 54,572
--------- ---------
Total liabilities 640,250 383,103
--------- ---------
Stockholder's equity:
Common stock, $.01 par value. Authorized 10,000,000
shares; issued 4,948,378 shares at September 30, 1997 and
3,472,968 shares at December 31, 1996 49 35
Additional paid-in capital 164,852 39,064
Retained earnings (deficit) (59) 9,333
--------- ---------
164,842 48,432
--------- ---------
Less treasury stock, at cost - 3,308,333 common shares at
September 30, 1997 and 97,354 common shares at December 31, 1996 295,783 1,989
--------- ---------
Net stockholder's equity (deficit) (130,941) 46,443
--------- ---------
$ 509,309 $ 429,546
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
(in thousands except share and per share amounts)
<S><C>
Revenues:
Leasing $ 34,820 $ 31,522 $ 98,126 $ 86,062
Sales of new units 15,188 10,274 33,025 21,217
Delivery and installation 12,107 11,106 29,659 25,059
Other 6,649 4,729 16,661 12,817
---------- ---------- ---------- ----------
Total revenues 68,764 57,631 177,471 145,155
---------- ---------- ---------- ----------
Costs of sales and services:
Leasing:
Depreciation and amortization 8,478 7,983 24,540 22,983
Other direct leasing costs 7,881 8,044 21,507 20,359
New units 12,732 8,422 27,787 17,478
Delivery and installation 8,768 8,610 21,629 19,051
Other 2,233 1,181 4,948 2,752
---------- ---------- ---------- ----------
Total costs 40,092 34,240 100,411 82,623
---------- ---------- ---------- ----------
Gross profit 28,672 23,391 77,060 62,532
---------- ---------- ---------- ----------
Selling, general and administrative expenses 11,292 10,478 35,072 31,868
Recapitalization expenses -- -- 5,105 --
Other depreciation and amortization 746 517 1,999 1,610
Interest, including amortization of deferred
financing costs 13,731 7,515 31,555 21,514
---------- ---------- ---------- ----------
Total operating expenses 25,769 18,510 73,731 54,992
---------- ---------- ---------- ----------
Earnings before income taxes
and extraordinary item 2,903 4,881 3,329 7,540
Income tax expense 1,074 1,905 1,232 2,985
---------- ---------- ---------- ----------
Earnings before extraordinary item 1,829 2,976 2,097 4,555
Extraordinary loss on extinguishment of debt, net 186 -- 11,490 --
---------- ---------- ---------- ----------
Net earnings (loss) $ 1,643 $ 2,976 $ (9,393) $ 4,555
========== ========== ========== ==========
Per common share and common equivalent share:
Earnings before extraordinary item $ 1.04 $ 0.88 $ 1.12 $ 1.34
Net earnings (loss) 0.93 0.88 (5.03) 1.34
========== ========== ========== ==========
Weighted average shares outstanding 1,764,456 3,375,814 1,867,796 3,411,396
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
(dollars in thousands)
<S><C>
Cash flows from operating activities:
Net earnings (loss) $ (9,393) $ 4,555
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Extraordinary loss on extinguishment of debt 18,244 --
Depreciation and amortization 28,485 26,594
Non-cash charges for interest 1,527 2,819
Provision for bad debts 1,724 1,210
Deferred income tax expense (benefit) (5,636) 2,910
Provision for deferred compensation 367 975
Gain on sale of rental equipment (2,365) (1,946)
Increase in net trade accounts receivable (12,458) (12,278)
(Increase) decrease in other assets (5,864) 107
Increase in accrued expenses 18,149 6,657
Other (2,478) (944)
------------ ---------
Net cash provided by operating activities 30,302 30,659
------------ ---------
Cash flows from investing activities:
Redemption of certificates of deposit -- 250
Rental equipment additions (68,858) (52,160)
Proceeds from sales of rental equipment 9,959 9,612
Purchases of property, plant and equipment, net (7,914) (6,018)
------------ ---------
Net cash used in investing activities $ (66,813) $ (48,316)
------------ ---------
Cash flows from financing activities:
Net increase in promissory notes payable 21,834 --
Proceeds from long-term debt 708,848 152,380
Repayment of long-term debt (489,573) (132,656)
Increase in deferred financing costs (23,994) (35)
Net proceeds from issuance of common stock 125,803 --
Payments to acquire treasury stock (293,794) (1,980)
Extraordinary loss on extinguishment of debt (12,704) --
------------ ---------
Net cash provided by financing activities 36,420 17,709
------------ ---------
Net (decrease) increase in cash (91) 52
Cash at beginning of period 413 471
------------ ---------
Cash at end of period $ 322 $ 523
============ =========
Supplemental cash flow information:
Cash paid for income taxes $ 128 $ 114
============ =========
Cash paid for interest $ 13,404 $ 13,334
============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(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 interest and principal to be paid on notes of the Company, are
dependent upon the cash flow of Scotsman, including its loan
availability.
(2) FINANCIAL STATEMENTS
The financial information for the three and nine months ended September
30, 1997 and 1996 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 30,1997 and its operating
results and cash flows for the nine months ended September 30, 1997 and
1996. The results of operations for the periods ended September 30, 1997
and 1996 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.
(3) EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share and common equivalent share is computed
by dividing earnings before extraordinary item and net earnings (loss) by
the weighted average number of shares of common stock and common stock
equivalents outstanding during the periods.
(4) RECAPITALIZATION
Pursuant to a recapitalization agreement, on May 22, 1997, the Company
(i) repurchased 3,210,679 shares of its outstanding common stock for an
aggregate of approximately $293.8 million in cash and approximately $21.8
million in promissory notes due January 1998 and (ii) issued 1,475,410
shares of common stock for an aggregate of approximately $135.0
-4-
<PAGE>
million (or a price of $91.50 per share) in cash. In related transactions
on the same date, (i) the Company purchased all of its outstanding Series
B 11% Senior Notes due 2004 ($29.2 million aggregate principal amount)
for approximately $32.2 million, including accrued interest and fees,
(ii) Scotsman purchased $164.7 million aggregate principal amount of its
9 1/2% Senior Secured Notes due 2000 for approximately $179.8 million,
including accrued interest and fees and (iii) Scotsman repaid all of its
outstanding indebtedness ($119.0 million) under its prior credit
facility.
In connection with the recapitalization, (i) Scotsman accelerated the
payment of deferred compensation under its long term incentive plan, (ii)
all outstanding stock options under the Company's employee stock option
plan vested and became immediately exercisable and (iii) Scotsman
canceled a portion of the outstanding stock options. Accordingly, in the
second quarter of 1997, the Company recognized $5.1 million of
recapitalization expenses including $2.5 million in connection with the
acceleration of deferred compensation and $2.6 million in connection with
the cancellation of the stock options, and recognized an extraordinary
loss on debt extinguishment of $18.0 million.
In order to finance the recapitalization transaction, on May 22, 1997,
Scotsman issued $400 million in 9 7/8% Senior Notes due 2007 and entered
into a $300 million revolving bank facility. Scotsman paid a dividend of
$177.4 million to the Company to effect the repurchase of common stock
and the purchase of the 11% Senior Notes.
-5-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1996. Revenues in the quarter ended September 30, 1997 were $68.8
million, an $11.1 million or 19.3% increase from revenues of $57.6 million in
the same period of 1996. This increase resulted from a $3.3 million or 10.5%
increase in leasing revenue, a $4.9 million or 47.8% increase in new sales
revenue, a $1.0 million or 9.0% increase in revenue from delivery and
installation and a $1.9 million or 40.6% increase in other revenue. The increase
in leasing revenue is attributable to an increase in the average number of units
in the fleet of 16.1% to approximately 45,000 for the third quarter of 1997, an
increase in fleet utilization of approximately one percentage point to 88%
offset by a decrease in average monthly rental rate. This decrease in the
average monthly rental rate is a result of modest rate increases offset by
changes in fleet mix. The increase in new sales revenue is primarily
attributable to a large volume of classroom sales in the Western Region during
the quarter. The increase in delivery and installation revenue is due to the
increases in the leasing and new sales activity described above. Other revenue
increased as a result of increases in the rental of steps and ramps as well as
miscellaneous revenue related to services provided for customer-owned units.
Gross profit for the quarter was $28.7 million, a $5.3 million or 22.6%
increase from the third quarter of 1996. This increase is primarily due to an
increase in leasing gross profit of $3.0 million or 19.1%, an increase in gross
profit from new sales of $0.6 million or 32.6%, an increase in gross profit from
delivery and installation of $0.8 million or 33.8% and an increase in gross
profit from other revenue of $0.9 million or 14.7%. 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 49.2% for the third quarter of
1996 to 53.0% for the third quarter of 1997. Excluding depreciation and
amortization, leasing margins increased from 74.5% in 1996 to 77.4% in 1997. The
increase in the gross profit from new sales revenue is due to the increased
activity described above. The increase in delivery and installation gross profit
is due to the increases in leasing and new sales described above. Gross profit
from other revenue increased as a result of increases in other revenue described
above.
Selling, general and administrative (SG&A) expenses increased by $0.8
million or 7.8% from the third quarter of 1996. 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 third quarter of 1996. The Company's branch network
has expanded from 55 branches at September 30, 1996 to 68 branches at September
30, 1997 while the fleet has grown by approximately 5,000 units from September
30, 1996. 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 $6.2 million or 82.7% in the third quarter of
1997. This increase is a result of increased borrowings to finance the
recapitalization of the Company in May
-6-
<PAGE>
1997 (the Recapitalization) and as a result of financing the fleet and branch
growth described above.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1996. Revenues in the nine months ended September 30, 1997 were
$177.5 million, a $32.3 million or 22.3% increase from revenues of $145.2
million in the nine months ended September 30, 1996. The increase resulted
primarily from a $12.1 million or 14.0% increase in leasing revenue, a $11.8
million or 55.7% increase in new sales revenue, a $4.6 million or 18.4% increase
in revenue from delivery and installation and a $3.8 million or 30.0% 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 13.4% to approximately
43,000 units for the first nine months of 1997, an increase in utilization of
approximately two percentage points to 86% combined with a relatively stable
average monthly rental rate for the comparable periods. The increase in new
sales revenue is attributable primarily to a large volume of classroom sales
occurring in the Western Region during 1997. The increase in delivery and
installation revenue is due to the increases in the leasing and new sales
activity described above. Other revenue increased as a result of increases in
the rental of steps, ramps and furniture as well as miscellaneous revenue
related to services provided for customer-owned units.
Gross profit for the nine months ended September 30, 1997 was $77.1
million, a $14.5 million or 23.2% increase from gross profit of $62.5 million
during the same period of 1996. This increase is primarily due to an increase in
leasing gross profit of $9.4 million or 21.9%, an increase in new sales gross
profit of $1.5 million or 40.1%, an increase in gross profit from delivery and
installation of $2.0 million or 33.7% and an increase in gross profit from other
revenue of $1.7 million or 16.4%. The increase in leasing gross profit is due to
the increase in leasing revenue described above combined with an increase in the
leasing margins from 49.6% in 1996 to 53.1% in 1997. Excluding depreciation and
amortization, leasing margins increased from 76.3% to 78.1%. Gross profit from
new sales increased as a result of the increased volume of sales noted above.
Delivery and installation gross profit increased as a result of the increases in
leasing and new sales activity noted above. Gross profit from other revenue
increased as a result of the increase in other revenue noted above.
Selling, general and administrative expenses for the nine months ended
September 30, 1997 increased by $3.2 million or 10.1% from the same period of
1996. The overall increase in SG&A expenses is due primarily to branch related
activities and is comprised of increases in payroll and occupancy expenses.
These increases are due to the Company's growth described above.
Recapitalization expenses of $5.1 million relate to amounts incurred in
connection with the Recapitalization noted above and are comprised of incentive
compensation and stock option expenses.
Interest expense increased by $10.0 million or 46.7% in the nine months
ended September 30, 1997 from the same period in 1996. This increase is
primarily a result of the Recapitalization
-7-
<PAGE>
noted above. Additionally, average balances under the line of credit were higher
during 1997 as a result of financing the fleet and branch growth described
above.
An extraordinary loss of $11.5 million (net of income taxes) arose from the
extinguishment of the Company's debt as a result of the Recapitalization.
Liquidity and Capital Resources
During the nine months ended September 30, 1997 and 1996, the Company's
principal sources of funds consisted of cash flow from operating and financing
sources. Cash flow from operating activities of $30.0 million and $30.7 million
for the nine months ended September 30, 1997 and 1996, 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, and provision for
deferred compensation, recapitalization expenses, 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 $12.3 million or 22.5% to $66.9
million for the nine months ended September 30, 1997 compared to $54.6 million
for the same period of 1996. 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 utilization combined with a relatively stable average monthly
rental rate, offset by the increased SG&A expenses required to support the
increased activities during the nine months ended September 30, 1997.
Cash flow used in investing activities was $66.8 million and $48.3 million
in the nine months ended September 30, 1997 and 1996, 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 $36.4 million in the nine months ended September 30,
1997 was primarily the result of a series of transactions related to the
Recapitalization in May 1997 and is comprised of net borrowings from long term
debt and proceeds received from the issuance of common stock, offset by payments
to acquire shares of treasury stock. Cash provided by financing activities of
$17.7 million for the nine months ended September 30, 1996 was primarily from
borrowings under the line of credit.
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.
SCOTSMAN HOLDINGS, INC.
By: /s/ Gerard E. Keefe
-------------------
Gerard E. Keefe
Senior Vice President and Chief Financial Officer
Dated: November 14, 1997
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.
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- ----
<S><C>
/s/ Gerard E. Keefe Senior Vice President and November 14, 1997
- -------------------------------- Chief Financial Officer
Gerard E. Keefe
/s/ Katherine K. Giannelli Controller November 14, 1997
- ---------------------------------
Katherine K. Giannelli
</TABLE>
-10-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 335
<SECURITIES> 0
<RECEIVABLES> 34,184
<ALLOWANCES> 305
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 517,910
<DEPRECIATION> 90,003
<TOTAL-ASSETS> 509,309
<CURRENT-LIABILITIES> 0
<BONDS> 515,679
0
0
<COMMON> 49
<OTHER-SE> (130,990)
<TOTAL-LIABILITY-AND-EQUITY> 509,309
<SALES> 177,471
<TOTAL-REVENUES> 177,471
<CGS> 100,411
<TOTAL-COSTS> 100,411
<OTHER-EXPENSES> 42,176
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,555
<INCOME-PRETAX> 3,329
<INCOME-TAX> 1,232
<INCOME-CONTINUING> 2,097
<DISCONTINUED> 0
<EXTRAORDINARY> 11,490
<CHANGES> 0
<NET-INCOME> (9,393)
<EPS-PRIMARY> (5.39)
<EPS-DILUTED> (5.39)
</TABLE>
