UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 1, 1998
SCOTSMAN HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
State of Maryland 033-78954 52-1862719
- --------------------------------------------------------------------------------
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
8211 Town Center Drive, Baltimore, Maryland 21236
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (410) 931-6000
Not applicable
- --------------------------------------------------------------------------------
(Former name and former address, if changed since last report)
<PAGE>
This Current Report on Form 8-K/A amends the Current Report on Form 8-K
previously filed with the Securities and Exchange Commission reporting the
acquisition described below.
Item 2. Acquisition or Disposition of Assets
On September 1, 1998, Williams Scotsman, Inc., a Maryland corporation
("Scotsman" or "WSI") and a wholly-owned subsidiary of Scotsman Holdings, Inc.
("SHI" or "Holdings"), acquired all of the outstanding stock of Space Master
International, Inc., a privately held Georgia corporation ("SMI"). Immediately
prior to the purchase of the stock, certain net assets of SMI were transferred
to an entity owned by the Seller. Total consideration for the acquisition of SMI
was approximately $273 million, including the repayment of existing indebtedness
of SMI. The acquisition was financed in part with additional borrowings under
Scotsman's amended credit facility arranged by Bankers Trust Company, and in
part with the issuance of 1,278,939 shares of Holdings' common stock at a price
of $50.67 per share.
The following amendments to Item 7 of the Form 8-K are hereby made.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
o Balance sheets as of September 30, 1997 and 1996 and the
related statements of income and cash flows for each of
the three years in the period ended September 30, 1997,
together with independent accountant's report thereon.
o Unaudited balance sheet as of June 30, 1998, and the
related unaudited statements of income and cash flows for
the nine month periods ended June 30, 1998 and 1997.
(b) Pro Forma Financial Information
o Pro Forma Condensed Combined Statements of Operations for
the nine month period ended September 30, 1998
(unaudited).
o Pro Forma Condensed Combined Statements of Operations for
the year ended December 31, 1997 (unaudited).
o Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
2
<PAGE>
(c) Exhibits
Exhibit Number
(Referenced to Item 601
of Regulation S-K) Description of Exhibit (a)
----------------------- -------------------------------------
2 Stock Purchase Agreement, dated as of
July 23, 1998, between Williams
Scotsman, Inc. and Raymond A.
Wooldridge
99.1 Press Release, dated as of September
1, 1998.
(a) These exhibits were previously filed with the Current Report
on Form 8-K dated September 1, 1998.
3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Space Master International, Inc.
We have audited the accompanying balance sheets of Space Master International,
Inc. (a wholly-owned subsidiary of Space Master Enterprises, Inc.) as of
September 30, 1997 and 1996, and the related statements of operations, retained
earnings and cash flows for the years ended September 30, 1997, 1996 and 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Space Master International,
Inc. as of September 30, 1997 and 1996, and the results of its operations and
its cash flows for the years ended September 30, 1997, 1996 and 1995 in
conformity with generally accepted accounting principles.
/s/ Smith & Radigan
-------------------
Atlanta, Georgia
March 11, 1998, except for
Note 10, as to which
the date is September 2, 1998.
-1-
<PAGE>
Balance Sheets
SPACE MASTER INTERNATIONAL, INC.
ASSETS
------
September 30,
--------------------------
1997 1996
------------ ------------
Cash $ 5,357,658 $ 5,127,358
Accounts receivable, net of allowance
for doubtful accounts of $510,000 in
1997 and 1996 9,538,499 9,542,738
Receivable from affiliates 6,739,015 3,280,337
Net investment in sales-type leases 3,421,776 3,970,817
Lease equipment, net of accumulated
depreciation of $32,906,752 in 1997
and $29,810,850 in 1996 116,777,202 104,862,886
Property and equipment, net 2,489,441 3,114,220
Prepaid expenses and other assets 1,427,512 1,207,336
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,426,048 5,376,015
------------ ------------
$147,177,151 $136,481,707
============ ============
-2-
<PAGE>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
September 30,
--------------------------
1997 1996
------------ ------------
Notes payable and long-term debt $ 86,500,000 $ 81,515,000
Senior subordinated debt 4,881,880 7,124,611
Accounts payable 3,915,917 5,356,334
Accrued liabilities 7,486,881 4,883,954
Accrued income taxes 1,262,330 350,000
Billings in excess of costs and estimated
earnings on uncompleted contracts 530,223 275,153
Deferred liabilities 1,523,695 1,523,695
Deferred income taxes 18,858,000 16,358,000
------------ ------------
Total liabilities 124,958,926 117,386,747
Stockholder's equity Common stock, $1 par value:
Authorized -- 100,000 shares
Issued and outstanding -- 13,913 shares 13,913 13,913
Additional paid-in capital 1,042,862 1,042,862
Retained earnings 21,161,450 18,038,185
------------ ------------
Total stockholder's equity 22,218,225 19,094,960
------------ ------------
$147,177,151 $136,481,707
============ ============
The Notes to Financial Statements are an integral part of these Statements.
-3-
<PAGE>
Statements of Operations
SPACE MASTER INTERNATIONAL, INC.
<TABLE>
<CAPTION>
For the Year Ended
September 30,
----------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Sales $ 56,069,910 $ 46,919,660 $ 93,959,022
Leases 36,448,717 33,321,919 28,419,337
Service 14,741,384 13,202,630 10,716,827
Interest 126,870 33,039 86,415
------------ ------------ ------------
Total revenues 107,386,881 93,477,248 133,181,601
Costs and expenses:
Cost of units sold 47,237,153 38,847,184 79,316,859
Operating 33,887,869 32,206,686 28,879,189
Interest 7,154,291 6,802,608 6,845,365
Depreciation and amortization 9,332,210 8,638,844 7,688,824
------------ ------------ ------------
Total costs and expenses 97,611,523 86,495,322 122,730,237
------------ ------------ ------------
Income before income taxes 9,775,358 6,981,926 10,451,364
Provision for income taxes:
Current 1,152,093 928,215 1,723,118
Deferred 2,500,000 1,760,000 2,301,000
------------ ------------ ------------
3,652,093 2,688,215 4,024,118
------------ ------------ ------------
Net income $ 6,123,265 $ 4,293,711 $ 6,427,246
============ ============ ============
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
-4-
<PAGE>
Statements of Retained Earnings
SPACE MASTER INTERNATIONAL, INC.
Retained earnings, October 1, 1994 $11,517,228
Non-cash dividend to parent company (2,500,000)
Net income for the year ended September 30, 1995 6,427,246
-----------
Retained earnings, September 30, 1995 15,444,474
Non-cash dividend to parent company (1,700,000)
Net income for the year ended September 30, 1996 4,293,711
-----------
Retained earnings, September 30, 1996 18,038,185
Non-cash dividend to parent company (3,000,000)
Net income for the year ended September 30, 1997 6,123,265
-----------
Retained earnings, September 30, 1997 $21,161,450
===========
The Notes to Financial Statements are an integral part of these Statements.
-5-
<PAGE>
Statements of Cash Flows
SPACE MASTER INTERNATIONAL, INC.
<TABLE>
<CAPTION>
For the Year Ended
September 30,
----------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,123,265 $ 4,293,711 $ 6,427,246
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 9,158,890 8,349,057 7,312,362
Amortization 173,320 289,788 376,462
Decrease in original issue discount 157,269 198,744 206,378
Gain on sale of lease equipment (3,032,926) (3,320,330) (2,142,583)
Gain on sale of sales-type
lease receivables (587,659) (233,017) (274,263)
Decrease (increase) in:
Receivables 4,239 (328,545) 7,188,509
Net investment in sales-type leases (8,266,629) (4,427,194) (3,515,650)
Prepaid expenses and other assets (393,496) 99,167 (733,261)
Costs and estimated earnings in
excess of billings on uncompleted
contracts 4,205,037 (3,809,495) 1,075,095
Increase (decrease) in:
Accounts payable (1,440,417) 607,060 1,489,759
Accrued income taxes 912,330 350,000 -0-
Accrued liabilities 2,602,927 1,909,831 (1,705,172)
Deferred income -0- 326,887 209,839
Deferred income taxes 2,500,000 1,760,000 2,301,000
------------ ------------ ------------
Total adjustments 5,992,885 1,771,953 11,788,475
------------ ------------ ------------
Net cash provided by
operating activities 12,116,150 6,065,664 18,215,721
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of lease equipment (27,918,298) (25,780,997) (28,427,006)
Proceeds from sale of lease equipment 10,690,453 12,537,847 8,158,697
Proceeds from sale of sales-type
lease receivables 9,403,329 2,810,652 3,010,801
Purchases of fixed assets (745,102) (917,505) (1,461,003)
Net (advances) repayments to affiliates (5,901,232) (3,451,552) (2,499,675)
Note receivable principal collected -0- 630,378 291,580
------------ ------------ ------------
Net cash used by
investing activities (14,470,850) (14,171,177) (20,926,606)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds under revolving loan
agreements 4,985,000 10,515,000 4,880,805
Payments of long-term debt (2,400,000) (1,200,000) (1,200,000)
Payments on capital lease obligations -0- (2,464) (50,338)
------------ ------------ ------------
Net cash provided by
financing activities 2,585,000 9,312,536 3,630,467
------------ ------------ ------------
INCREASE IN CASH 230,300 1,207,023 919,582
CASH BALANCE AT BEGINNING OF YEAR 5,127,358 3,920,335 3,000,753
------------ ------------ ------------
CASH BALANCE AT END OF YEAR $ 5,357,658 $ 5,127,358 $ 3,920,335
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 7,057,190 $ 6,862,300 $ 6,543,614
============ ============ ============
Income taxes $ 239,763 $ 528,215 $ 2,323,158
============ ============ ============
</TABLE>
The Notes to Financial Statements are an integral part of these Statements.
-6-
<PAGE>
Notes to Financial Statements
SPACE MASTER INTERNATIONAL, INC.
September 30, 1997
Note 1 -- Summary of Significant Accounting Policies and Basis of Presentation
- ------------------------------------------------------------------------------
Basis of Presentation
---------------------
Space Master International, Inc. ("the Company") is a wholly-owned subsidiary of
Space Master Enterprises, Inc. ("the parent company"). The Company sells and
leases pre-engineered buildings and mobile offices.
Revenue Recognition
-------------------
The majority of the Company's mobile office units are leased under operating
leases with terms of one to five years. Operating lease revenue is recognized
when it becomes due under the lease contract. All units on lease or held for
lease are classified as "Lease equipment" in the accompanying balance sheets.
The Company has leases accounted for as sales-type leases. Sales are recorded
upon shipment and, for multi-unit complexes, upon installation and approval by
the customer.
Fair Value of Financial Instruments
-----------------------------------
Except as otherwise disclosed herein, the Company estimates that the aggregate
fair value of all financial instruments at September 30, 1997 does not differ
materially from the aggregate carrying values of its financial instruments
recorded in the balance sheet. The estimated fair value amounts of cash and cash
equivalents, receivables, accounts payable and accrued liabilities approximate
fair value due to their short-term nature. The carrying value of variable rate
debt is considered to approximate fair market value. The Company is not required
to provide disclosures or estimates of the fair value of lease contracts.
Considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value, and accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassification
----------------
Certain amounts in the September 30, 1996 and 1995 financial statements have
been reclassified to conform to the September 30, 1997 presentation.
-7-
<PAGE>
Notes to Financial Statements - Continued
SPACE MASTER INTERNATIONAL, INC.
September 30, 1997
Note 1 -- Summary of Significant Accounting Policies and Basis of
Presentation -- Continued
- -----------------------------------------------------------------
Contract Accounting
-------------------
The Company uses the percentage-of-completion method of accounting for its
construction projects, measured by the percentage of costs incurred to date to
estimated total costs for each project. This method is used because management
considers incurred costs to be the best available measure of progress on these
projects.
Contracts in process are summarized as follows:
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Costs incurred on uncompleted contracts $ 27,210,598 $ 62,647,428 $ 63,801,630
Estimated earnings to date 2,077,811 10,368,784 11,014,761
------------ ------------ ------------
29,288,409 73,016,212 74,816,391
Less billings to date 28,392,584 67,915,350 73,525,025
------------ ------------ ------------
$ 895,825 $ 5,100,862 $ 1,291,366
============ ============ ============
</TABLE>
Contracts in process are presented in the balance sheet under the following
captions:
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,426,048 $ 5,376,015 $ 2,145,717
Billings in excess of costs and estimated
earnings on uncompleted contracts 530,223 275,153 854,351
------------ ------------ ------------
$ 895,825 $ 5,100,862 $ 1,291,366
============ ============ ============
</TABLE>
Lease Equipment and Property and Equipment
------------------------------------------
Lease equipment and property and equipment are stated at cost. For financial
reporting purposes, depreciation is computed on the straight-line method over
the estimated useful lives of the assets. Lease equipment is depreciated over
eighteen years. Property and equipment are depreciated over five years.
The Company had an investment in managed lease equipment. This equipment was
acquired in August 1997 (Note 7). The lease equipment amounted to $10,709,216,
$7,968,017 and $9,408,105, net of accumulated depreciation of $5,995,172,
$6,329,647 and $5,976,986, at September 30, 1997, 1996 and 1995, respectively.
Depreciation expense for these assets was $814,839, $822,321 and $848,265 for
the years ending September 30, 1997, 1996 and 1995, respectively.
-8-
<PAGE>
Notes to Financial Statements - Continued
SPACE MASTER INTERNATIONAL, INC.
September 30, 1997
Note 1 -- Summary of Significant Accounting Policies and Basis of
Presentation -- Continued
- -----------------------------------------------------------------
Income Taxes
------------
Deferred income taxes are provided for temporary differences, principally
depreciation expense, reserve for doubtful accounts and recognition of income
from certain transactions, for financial reporting and income tax purposes.
Investment tax credits are accounted for using the flow-through method.
The Company's taxable income is included in the consolidated income tax return
of the parent company. Under Statement of Financial Accounting Standards (SFAS)
#109, "Accounting for Income Taxes" the Company is required to record deferred
income taxes for its share of the temporary differences of the consolidated
group.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
For the Year Ended
September 30,
------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income tax expense:
Federal $ 725,000 $ 525,000 $ 964,147
State 427,093 403,215 758,971
------------ ------------ ------------
1,152,093 928,215 1,723,118
Deferred provision (benefit) 2,500,000 1,760,000 2,301,000
------------ ------------ ------------
$ 3,652,093 $ 2,688,215 $ 4,024,118
============ ============ ============
</TABLE>
Deferred Taxes
--------------
The components of the net deferred tax liability in the balance sheet as of
September 30, 1997, 1996 and 1995, consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax liabilities
Depreciation $ 20,600,000 $ 19,112,000 $ 17,174,000
Finance lease agreement 323,000 178,000 171,000
Deferred installment gain 15,000 29,000 33,000
------------ ------------ ------------
Deferred tax liability 20,938,000 19,319,000 17,378,000
Deferred tax assets
Reserve for doubtful accounts (94,000) (94,000) (94,000)
Vacation accrued (26,000) (26,000) (26,000)
Deferred liability (742,000) (742,000) (602,000)
Income tax credits (1,218,000) (2,099,000) (2,058,000)
------------ ------------ ------------
Deferred tax asset (2,080,000) (2,961,000) (2,780,000)
------------ ------------ ------------
Net deferred income taxes $ 18,858,000 $ 16,358,000 $ 14,598,000
============ ============ ============
</TABLE>
-9-
<PAGE>
Notes to Financial Statements - Continued
SPACE MASTER INTERNATIONAL, INC.
September 30, 1997
Note 1 -- Summary of Significant Accounting Policies and Basis of
Presentation -- Continued
- -----------------------------------------------------------------
Concentration of Credit Risk
----------------------------
The Company frequently has cash deposits in bank accounts in excess of federal
insurance limits in the ordinary course of its operations.
Note 2 -- Transactions with Affiliates
- --------------------------------------
The Company had advances of $6,739,015 and $3,280,837 to its parent company and
affiliates of the Company at September 30, 1997 and 1996, respectively. During
the years ended September 30, 1997, 1996 and 1995, the Company's purchases of
mobile offices and modular buildings from affiliates aggregated approximately
$21,584,000, $22,421,000 and $18,761,000, respectively. The Company has reduced
the advances to the parent company by recording non-cash dividend distributions
of $3,000,000, $1,700,000 and $2,500,000 for the years ending September 30,
1997, 1996 and 1995, respectively.
Note 3 -- Net Investment in Sales-Type Leases
- ---------------------------------------------
The net investment in sales-type leases consists of:
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Total minimum lease payments to be
received $ 4,323,379 $ 4,801,909 $ 2,655,594
Less unearned interest income (901,603) (831,092) (524,335)
------------ ------------ ------------
Net investment in sales-type leases $ 3,421,776 $ 3,970,817 $ 2,131,259
============ ============ ============
</TABLE>
The following is a summary of minimum future lease payments receivable under
such leases:
Year Ending
September 30,
-------------
1998 $1,082,034
1999 1,053,867
2000 967,212
2001 531,655
2002 638,128
Thereafter 50,483
----------
$4,323,379
==========
-10-
<PAGE>
Notes to Financial Statements - Continued
SPACE MASTER INTERNATIONAL, INC.
September 30, 1997
Note 4 -- Property and Equipment
- --------------------------------
The following is a summary of the components of property and equipment:
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Land $ -0- $ 557,446 $ 557,446
Leasehold improvements 1,753,964 1,511,170 1,222,973
Furniture and fixtures 682,354 640,002 585,957
Equipment 5,178,766 4,764,894 4,225,668
------------ ------------ ------------
7,615,084 7,473,512 6,592,044
Less accumulated depreciation and
amortization (5,125,643) (4,359,292) (3,566,069)
------------ ------------ ------------
$ 2,489,441 $ 3,114,220 $ 3,025,975
============ ============ ============
</TABLE>
Note 5 -- Notes Payable and Long-Term Debt
- ------------------------------------------
The Company has entered into a credit agreement with several financial
institutions for a revolving credit and term loan facility. Under the agreement,
as amended, the Company may obtain revolving loans in an aggregate principal
amount up to $100 million through March 31, 1999. Borrowings are severally
funded by each financial institution in an amount equal to its designated
percentage of the total amount to be borrowed.
Aggregate borrowings are limited to the lesser of $100 million or the borrowing
base, which consists of set percentages of eligible lease equipment and
receivables. The Company may designate borrowings as prime rate loans or LIBOR
rate loans. Interest on such borrowings varies between prime and one-half
percent above prime and one and one-quarter to one and three-quarters percent
above LIBOR, as applicable, based on the Company's leverage ratio, as defined.
The Company also pays a fee of three-eighths percent of the average daily unused
portion of the facility for each calendar quarter.
On March 31, 1999 ("the commitment termination date"), borrowings outstanding at
such time must be paid in full or converted to term loans payable in forty-eight
equal principal installments. Such term loans would accrue interest at one to
one and three-quarters percent above prime and two and one-quarter to two and
three-quarters percent above LIBOR, as applicable, based on the Company's
leverage ratio. The commitment termination date may be extended for an
additional twelve-month period commencing March 31, 1999, and on each
anniversary thereafter, upon written notice from the Company and subsequent
consent from the financial institutions.
Borrowings under the facility totaled $86,500,000 at September 30, 1997 and
$81,515,000 at September 30, 1996 and are collateralized by a security interest
in substantially all the assets of the Company. The credit agreement places
certain limits and restrictions on the outside borrowings, dividends, and
capital expenditures of the Company. Additionally, the agreement requires the
Company to maintain certain financial covenants at levels specified in the
agreement.
-11-
<PAGE>
Notes to Financial Statements - Continued
SPACE MASTER INTERNATIONAL, INC.
September 30, 1997
Note 6 -- Senior Subordinated Debt
- ----------------------------------
During January 1990, the Company entered into an agreement with a life insurance
company and issued $12,000,000 of senior subordinated notes bearing interest at
12.9 percent. Concurrently, the parent company issued six stock purchase
warrants which give the life insurance company the option to purchase twelve
percent of the issued and outstanding common stock of the parent company between
March 1, 1995 and December 31, 1999. Accordingly, the senior subordinated notes
were recorded at an original issue discount of $1,600,000, the fair market value
of the warrants at the time of their issuance. The amount of unamortized
discount was $118,120, $275,389 and $474,133 at September 30, 1997, 1996 and
1995, respectively. During 1997, the Company's sole stockholder purchased the
six stock warrants from the life insurance company.
The Company made principal payments of $2,400,000, $1,200,000 and $1,200,000
during the years ended September 30, 1997, 1996 and 1995, respectively. The
senior subordinated note agreement requires the Company to make future principal
payments on December 28 of each year as follows: $2,400,000 in 1997 and
$2,600,000 in 1998. Additionally, the agreement requires semi-annual interest
payments on June 28 and December 28 of each year.
The senior subordinated note agreement places certain limits and restrictions on
other outside borrowings, dividends and certain leasing transactions of the
Company. The Company is also required to maintain a certain net worth and fixed
charge and cash flow coverage ratios, as defined in the agreement. Additionally,
the warrant holder has the option of putting the warrants back to the parent
company for repurchase at a price determined by a formula specified in the
agreement. On September 30, 1997, if this option were to be exercised, the put
price would be approximately $8.6 million. The put price increases by eighteen
percent per annum, compounded on a semi-annual basis, through December 1999. The
Company believes it is not practicable to estimate the fair value of the senior
subordinated notes.
Note 7 -- Capital Lease Obligations
- -----------------------------------
In 1988, the Company entered into agreements ("the Agreements") with two
corporations (Space Leasing Corp. or "Space Leasing" and Space Two Leasing Corp.
or "Space Two Leasing") which provided for the sale of a portion of the
Company's lease equipment to Space Leasing and Space Two Leasing. The Company's
president is a shareholder of Space Leasing and Space Two Leasing. In connection
with the Agreements, the Company assigned the operating leases associated with
the lease equipment to Space Leasing and Space Two Leasing.
The Company entered into equipment management agreements ("the Management
Agreement") with Space Leasing and Space Two Leasing which provides for the
Company to manage the lease equipment on their behalf. Pursuant to the
Management Agreement, the Company receives a management fee of fifty-five
percent of rental
-12-
<PAGE>
Notes to Financial Statements - Continued
SPACE MASTER INTERNATIONAL, INC.
September 30, 1997
Note 7 -- Capital Lease Obligations -- Continued
- ------------------------------------------------
payments collected. For the year ended September 30, 1997, the Company recorded
management fee revenues of $1,216,445 from Space Leasing and $1,113,170 from
Space Two Leasing. For the year ended September 30, 1996, the Company recorded
management fee revenues of $1,211,423 from Space Leasing and $1,052,976 from
Space Two Leasing. The Management Agreement also provides for the Company to
receive sixty percent of the sales proceeds of any managed lease equipment sold.
Pursuant to the terms of the agreements, the Company's investment in the managed
lease equipment has been included in the accompanying financial statements as
Lease Equipment. For financial reporting purposes, revenues and expenses
associated with the managed lease equipment are recognized in a manner similar
to the Company's conventional operating lease activities, and gains or losses
resulting from sales of the equipment to third parties are recognized at the
time of transfer to the third party. Management fees are recorded as income when
realized.
During August 1997, the Company acquired the capital stock of Space Leasing and
Space Two Leasing for $5,110,351. The purchase price was assigned to the lease
equipment.
Note 8 -- Commitments and Contingencies
- ---------------------------------------
The Company is a guarantor of loans obtained by affiliates from a bank. The
amounts outstanding under these loans are approximately $364,480 at September
30, 1997.
The Company leases land at aggregate monthly payments of approximately $5,600
from an affiliate. The Company also rents certain of its office and storage
facilities, lease equipment and office equipment under operating leases expiring
at various dates through 2005. Total rent expense for the years ended September
30, 1997, 1996 and 1995 was approximately $1,898,000, $1,882,000 and $1,712,000,
respectively.
The following is a summary of the minimum future rental payments due under
operating leases:
Year Ending
September 30, Amount
------------- ------
1998 $1,849,568
1999 1,028,347
2000 879,831
2001 649,242
2002 650,628
Thereafter 1,030,949
----------
$6,088,565
==========
-13-
<PAGE>
Notes to Financial Statements - Continued
SPACE MASTER INTERNATIONAL, INC.
September 30, 1997
Note 8 -- Commitments and Contingencies -- Continued
- ----------------------------------------------------
The Company has entered into an agreement with a financial institution under
which receivables from sales-type leases will be sold to the institution with
limited recourse, as defined in the credit agreement. The aggregate balance of
outstanding receivables sold under this arrangement at September 30, 1997 was
approximately $13,114,350. The proceeds from the sale of the sales-type lease
receivables were $9,403,329, $2,810,652 and $3,010,801 at September 30, 1997,
1996 and 1995, respectively.
Note 9 -- Employee Benefit Plan
- -------------------------------
The Company sponsors a 401(k) profit sharing plan ("the Plan") covering
substantially all employees who are at least 21 years old and have completed one
year of service, as defined in the Plan. The Company incurred expenses of
approximately $213,000, $163,000 and $141,000 in connection with the Plan for
the years ended September 30, 1997, 1996 and 1995, respectively. Participants
may make voluntary compensation reduction contributions up to the statutory
amount determined by the Internal Revenue Service but not in excess of fifteen
percent of compensation. The Company matches fifty percent of compensation
reduction contributions up to six percent of compensation. Additional
discretionary contributions may be made by the Company as resolved by the Board
of Directors. Participants are vested twenty percent in their accounts for each
year of service, with full vesting after five years of service. The Company may
terminate the Plan at any time.
Note 10 -- Subsequent Events
- ----------------------------
The stock of the Company was sold on September 1, 1998 to Williams Scotsman,
Inc.
-14-
<PAGE>
SPACE MASTER INTERNATIONAL, INC.
Balance Sheets
<TABLE>
<CAPTION>
June 30,
1998 September 30,
(unaudited) 1997
------------ ------------
ASSETS
------
<S> <C> <C>
Cash $ 5,185,752 $ 5,357,658
Accounts receivable, net of allowance
for doubtful accounts of $642,930 at
June 30, 1998 and $510,000 at
September 30, 1997 7,825,095 9,538,499
Receivables from affiliates 1,962,851 6,739,015
Net investment in sales-type leases 3,625,088 3,421,776
Lease equipment, net of accumulated
depreciation of $37,209,515 at June 30, 1998 and
$32,906,752 at September 30, 1997 119,344,719 116,777,202
Property and equipment, net 7,240,952 2,489,441
Prepaid expenses and other assets 4,544,936 1,427,512
Costs and estimated earnings in excess of
billings on uncompleted contracts 999,708 1,426,048
------------ ------------
Total Assets $150,729,101 $147,177,151
============ ============
</TABLE>
<PAGE>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Notes payable and long-term debt $ 94,900,000 $86,500,000
Senior subordinated debt 3,774,139 4,881,880
Accounts payable 1,883,108 3,915,917
Accrued liabilities 2,222,652 7,486,881
Accrued income taxes 107,672 1,262,330
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,436,106 530,223
Deferred liabilities 1,560,000 1,523,695
Deferred income taxes 22,134,695 18,858,000
------------ ------------
Total Liabilities $128,018,372 $124,958,926
------------ ------------
Stockholder's equity
Common stock, $1 par value:
Authorized - 100,000 shares
Issued and outstanding -
49,000 at June 30, 1998 and
13,913 at September 30, 1997 49,000 13,913
Additional paid-in capital 1,007,776 1,042,862
Retained earnings 21,653,953 21,161,450
------------ ------------
Total Stockholder's Equity 22,710,729 22,218,225
------------ ------------
Total Liabilities & Stockholder's Equity $150,729,101 $147,177,151
============ ============
See accompanying notes to financial statements.
<PAGE>
SPACE MASTER INTERNATIONAL, INC.
Statements of Operations
Nine months ended June 30, 1998 and 1997
1998 1997
---- ----
Revenues:
Sales $30,175,586 $36,615,147
Leases 29,247,456 26,860,011
Service 11,589,268 10,402,506
Interest 91,419 91,566
----------- -----------
Total revenues 71,103,729 73,969,230
Costs and expenses:
Cost of units sold 25,560,714 30,713,296
Operating 24,893,502 26,600,204
Interest 5,670,754 5,358,421
Depreciation and amortization 7,590,131 7,034,415
----------- -----------
Total costs and expenses 63,715,101 69,706,336
----------- -----------
Income before income taxes 7,388,628 4,262,894
Provision for income taxes:
Current 671,704 225,000
Deferred 2,112,546 1,380,000
----------- -----------
2,784,250 1,605,000
----------- -----------
Net income $ 4,604,378 $ 2,657,894
=========== ===========
See accompanying notes to financial statements.
<PAGE>
SPACE MASTER INTERNATIONAL, INC.
Statements of Cash Flows
Nine months ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,604,378 $ 2,657,894
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 7,456,640 6,902,062
Amortization 133,491 132,353
Decrease in original issue discount 77,854 117,952
Gain on sale of lease equipment (2,202,167) (1,888,579)
Gain on sale of finance leases (120,835) (180,842)
Decrease (increase) in:
Receivables 1,713,404 2,354,544
Net investment in sales-type leases (2,049,485) (7,268,911)
Prepaid expenses and other assets (262,438) 220,930
Costs in excess of billings and estimated
earnings on uncompleted contracts 426,340 3,979,151
Increase (decrease) in:
Accounts payable (2,032,809) (3,084,682)
Accrued income taxes (254,658) 0
Accrued liabilities (5,264,229) (3,069,954)
Deferred liabilities 36,305 0
Deferred income taxes 2,534,695 1,380,000
Billings in excess of costs and estimated
earnings on uncompleted contracts 905,883 0
----------- -----------
Total adjustments 1,097,991 (405,976)
----------- -----------
Net Cash provided by operating activities 5,702,369 2,251,918
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of lease equipment (14,156,019) (15,736,839)
Proceeds from sale of lease equipment 7,000,657 6,456,335
Proceeds from sale of finance leases 1,967,008 5,914,297
Purchases of fixed assets (585,671) (45,559)
Merger of Affiliates 41,998 0
Net decrease (increase) in receivables
from affiliates 254,379 (2,292,855)
----------- -----------
Net cash used by investing activities (5,477,648) (5,704,621)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (repayments) under revolving loan
agreements 8,400,000 2,600,000
Payments on long term debt (8,796,627) (2,400,000)
----------- -----------
Net cash provided by financing activities (396,627) 200,000
----------- -----------
INCREASE (DECREASE) IN CASH (171,906) (3,252,703)
CASH BALANCE AT BEGINNING OF YEAR 5,357,658 5,127,358
----------- -----------
CASH BALANCE AT JUNE 30, 1998 $ 5,185,752 $ 1,874,655
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the nine months for:
Interest $ 5,693,972 $ 5,086,642
=========== ===========
Income taxes $ 504,213 $ 225,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SPACE MASTER INTERNATIONAL, INC.
Notes to Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying financial statements include the accounts of Space
Master International, Inc. (the Company), after giving effect to the
downward merger on December 11, 1997 of an affiliated company, Space
Master Enterprises, Inc., its parent company prior to the merger along
with its wholly-owned subsidiary, Space Master Investments, Inc. All
significant intercompany accounts and transactions have been eliminated
in the merger of Space Master International, Inc. and Space Master
Enterprises, Inc.
The Company is primarily engaged in the selling and leasing of
pre-engineered buildings and mobile offices.
(2) FINANCIAL STATEMENTS
The financial information for the nine months ended June 30, 1998 and
1997 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, 1998 and its operating results and cash
flows for the nine months ended June 30, 1998 and 1997. The results of
operations for the periods ended June 30, 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 audited financial
statements being filed herewith.
<PAGE>
Item 7 (b). Pro Forma Financial Information
Scotsman completed its acquisition of SMI on September 1, 1998
(the Acquisition). The total purchase price of approximately
$273 million has been allocated to the assets and liabilities
of SMI based upon an estimate of their respective fair values
in accordance with the purchase method of accounting. These
estimates may vary from actual amounts ultimately recorded.
The accompanying unaudited pro forma condensed combined
statements of operations for the year ended December 31, 1997
and the nine months ended September 30, 1998 have been derived
by the application of pro forma adjustments to the historical
combined statements of operations and give effect to the
Acquisition as if it was consummated at the beginning of
fiscal 1997. The historical statements of operations of SMI
included in this pro forma information exclude results
relating to certain net assets of SMI transferred to an entity
owned by the Seller immediately prior to the Acquisition. A
consolidated balance sheet as of September 30, 1998, which
includes the fair value of net assets acquired from SMI, is
included in Holdings' Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998. Accordingly, a
separate pro forma combined balance sheet is not included
herein.
The pro forma adjustments are described in the accompanying
notes and are based upon available information and upon
certain assumptions that management believes are reasonable.
The unaudited pro forma combined statements of operations and
accompanying notes are presented for illustrative purposes
only and do not purport to represent what Holdings' results of
operations would have been had the Acquisition occurred on the
dates indicated or for any future period or date, and are
therefore qualified in their entirety by reference to and
should be read in conjunction with the historical financial
statements of Holdings and SMI.
4
<PAGE>
Item 7 (b). Pro Forma Financial Information
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1998
(Unaudited)
(in millions, except share data)
<TABLE>
<CAPTION>
SHI SMI
Historical Historical
------------------------
Nine Months Eight Months
Ended Ended Pro Forma
9/30/98 8/31/98 Adjustments Pro Forma
------------------------------------- -----------
<S> <C> <C> <C> <C>
Total revenue $ 202.2 $ 58.5 $ $ 260.7
Total cost of revenue 98.9 35.1 (3.3)(b) 130.8
------------------------------------- -----------
Gross profit 103.3 23.4 3.3 129.9
Selling, general and administrative expenses 41.8 10.2 52.0
Other expenses 5.9 0.1 2.7 (a) 8.7
Interest, including amortization of
debt issuance costs 45.1 5.1 12.6 (c) 62.8
------------------------------------- -----------
Income before income taxes 10.6 7.9 (12.1) 6.4
Income tax expense 7.6 3.0 (3.6)(d) 7.0
------------------------------------- -----------
Net income (loss) $ 2.9 $ 5.0 $ (8.5) $ (0.6)
===================================== ===========
Earnings (loss) per common share $ 0.58 $ (0.10)
Weighted average shares--basic earnings per share 5,059,671 5,912,297
Earnings (loss) per common share, assuming dilution $ 0.55 $ (0.09)
Weighted average shares--diluted earnings per share 5,305,887 6,158,513
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
combined financial statements.
<PAGE>
Item 7 (b) Pro Forma Financial Information
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
Year Ended December 31, 1997
(Unaudited)
(in millions, except share data)
<TABLE>
<CAPTION>
Historical
------------------------ Pro Forma
SHI SMI Adjustments Pro Forma
------------------------------------- -----------
<S> <C> <C> <C> <C>
Total revenue $ 236.2 $ 89.3 $ $ 325.5
Total cost of revenue 128.4 51.6 (1.5)(b) 178.4
------------------------------------- -----------
Gross profit 107.8 37.7 1.5 147.1
Selling, general and administrative expenses 46.3 14.1 60.4
Other expenses 8.0 0.4 4.1 (a) 12.5
Interest, including amortization of
debt issuance costs 45.7 8.0 18.9 (c) 72.7
------------------------------------- -----------
Income before income taxes and extraordinary item 7.8 15.2 (21.5) 1.5
Income tax expense 3.2 5.7 (6.7)(d) 2.2
------------------------------------- -----------
Income before extraordinary item $ 4.5 $ 9.5 $ (14.8) $ (0.8)
===================================== ===========
Earnings (loss) per common share $ 0.64 $ (0.09)
Weighted average shares--basic earnings per share 6,934,374 8,213,313
Earnings (loss) per common share, assuming dilution $ 0.61 $ (0.09)
Weighted average shares--diluted earnings per share 7,307,050 8,585,989
</TABLE>
The accompanying notes are an integral part of these pro forma condensed
combined financial statements.
<PAGE>
Item 7 (b). Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
(a) To increase amortization based on Acquisition-related
goodwill and other intangible assets of $163.7
million amortized primarily over 40 years.
(b) To adjust fleet depreciation to reflect $157.2
million in fair value of fleet acquired, calculated
in a manner consistent with the Scotsman's policy.
(c) To reflect additional interest expense based on debt
issued in connection with the Acquisition as follows
($ in millions):
Revolver (8.0%) $155.1
Term loan (8.875%) 60.0
------
$215.1
======
Interest on this debt is based on either prime or
Eurodollar rates plus applicable margins as required
by Scotsman's credit facility. The rates indicated
above represent approximate rates at September 1,
1998.
Pro forma interest expense also includes amortization
of deferred financing costs of $6.3 million related
to Acquisition debt. Such costs are being amortized
over the lives of the related debt (Term loan: 7
years; Revolver: 5 years).
(d) To reflect income tax expense based on Holdings'
estimated statutory combined rate of 38.6% applied to
pro forma adjustments, excluding non-deductible
goodwill amortization.
(e) Historical September results include (i) a $2.0
million non-cash stock option compensation expense
accrual in accordance with variable plan accounting
as part of selling, general and administrative
expenses, and (ii) a $3.4 million additional charge
to income tax expense relating to an increase in the
deferred tax asset valuation allowance as a result of
management's decision to abandon tax planning
strategies associated with the recoverability of
certain net operating loss carryforwards.
6
<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.
Date: November 16, 1998
SCOTSMAN HOLDINGS, INC.
By: /s/ Gerard E. Keefe
-------------------
Senior Vice President and
Chief Financial Officer
7
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Number Description of Exhibit Numbered Page
- -------------- ---------------------- -------------
2 Stock Purchase Agreement, dated as of (a)
July 23, 1998, among Williams
Scotsman, Inc. and Raymond A.
Wooldridge
99.1 Press Release, dated as of September 1, (a)
1998
(a) Exhibits previously filed with Current Report on Form 8-K dated September 1,
1998.
8
