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: 033-78954
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 March 31, 1998, 4,920,135 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 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.
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31,
1998 December 31,
Assets (Unaudited) 1997
------ ----------- ------------
(dollars in thousands)
Cash and temporary investments $ 328 309
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
--------- ---------
$ 526,820 514,175
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable $ 7,580 7,518
Accrued expenses 24,298 14,398
Rents billed in advance 12,584 12,464
Promissory note -- 21,834
Long-term debt 556,477 533,304
Deferred compensation 2,814 2,699
Deferred income taxes 51,227 50,807
--------- ---------
Total liabilities 654,980 643,024
--------- ---------
Stockholder's equity:
Common stock, $.01 par value. Authorized 10,000,000
shares; issued 8,228,468 shares 82 82
Additional paid-in capital 164,494 164,494
Retained earnings 3,047 2,358
--------- ---------
167,623 166,934
Less treasury stock, at cost - 3,308,333 common shares (295,783) (295,783)
--------- ---------
Net stockholders' deficit (128,160) (128,849)
--------- ---------
$ 526,820 514,175
========= =========
See accompanying notes to consolidated financial statements.
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<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
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 13,634 12,132
Other depreciation and amortization 1,539 612
Interest, including amortization of deferred
financing costs 14,057 7,589
------- -------
Total operating expenses 29,230 20,333
------- -------
Income before income taxes 1,147 2,836
Income tax expense 458 1,125
------- -------
Net income $ 689 1,711
======= =======
Earnings per common share $ 0.14 0.17
======= =======
Earnings per common share, assuming dilution $ 0.13 0.17
======= =======
See accompanying notes to consolidated financial statements.
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<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
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 $ 689 1,711
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,293 9,252
Non-cash charges for interest -- 1,527
Provision for bad debts 603 680
Deferred income tax expense 420 1,086
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 9,900 4,556
Other 2,930 (3,486)
-------- --------
Net cash provided by operating activities 23,464 13,266
-------- --------
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)
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<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(Unaudited)
1998 1997
---- ----
(dollars in thousands)
Cash flows from financing activities:
Repayment of promissory note payable (21,834) --
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)
Payments to acquire treasury stock -- (16)
-------- --------
Net cash provided by financing activities 1,067 6,468
-------- --------
Net incease (decrease) in cash 19 (66)
Cash at beginning of period 296 413
-------- --------
Cash at end of period $ 315 347
======== ========
Supplemental cash flow information:
Cash paid for income taxes $ 58 93
======== ========
Cash paid for interest $ 4,223 2,197
======== ========
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(Dollars in thousands, except share amounts)
(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 cash interest to be paid on notes of the Company, are dependent upon
the cash flow of Scotsman.
(2) FINANCIAL STATEMENTS
The financial information for the three months ended March 31, 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 March 31,1998 and its operating results and cash
flows for the three months 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.
(3) 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.
The following table sets for the components of the weighted-average
shares outstanding for the basic and diluted earnings per share
computations:
March 31,
1998 1997
---- ----
Weighted-average shares - basic earnings per share 4,920,135 10,126,772
Effect of employee stock options 228,916 118,424
--------- ----------
Weighted-average shares - diluted earnings
per share 5,149,051 10,245,196
========= ==========
Earnings per share amounts for 1997 have been restated to reflect the
three-for-one stock split that was effected in the form of a 200 percent
dividend which was declared by the Company in December, 1997.
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<PAGE>
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(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 $293,777 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)
the Company 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) Scotsman 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)
Scotsman repaid all of its outstanding indebtedness ($119,017) under its
prior credit facility. Additionally, in a series of subsequent
transactions, Scotsman 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 $18,333.
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 $5,105 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 Scotsman issued
$400,000 in 9 7/8% Senior Notes due 2007 and entered into a $300,000
revolving bank facility. Scotsman paid a dividend of $178,749 to the
Company to pay recapitalization expenses, to repurchase the common
stock and to purchase the Series B 11% Senior Notes.
-6-
<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 $6.5 million or 85.2% in the first quarter
of 1998. This increase is a result of increased borrowings to finance the
recapitalization in May 1997 and as a result of financing the fleet and branch
growth described above.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1998 and 1997, the Company's
principal sources
-7-
<PAGE>
of funds consisted of cash flow from operating and financing sources. Cash flow
from operating activities of $23.5 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 $1.1 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 the repayment of a promissory note payable in 1998.
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: 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
______________________________
Katherin K. Giannelli
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<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: ____________________________
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
---- -------- ----
Senior Vice President and May __, 1998
________________________________ Chief Financial Officer
Gerard E. Keefe
Vice President and Controller May __, 1998
________________________________
Katherine K. Giannelli
-10-
<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> 328
<SECURITIES> 0
<RECEIVABLES> 25,223
<ALLOWANCES> 352
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 555,121
<DEPRECIATION> 95,823
<TOTAL-ASSETS> 526,820
<CURRENT-LIABILITIES> 0
<BONDS> 556,477
0
0
<COMMON> 82
<OTHER-SE> (128,242)
<TOTAL-LIABILITY-AND-EQUITY> 526,820
<SALES> 58,153
<TOTAL-REVENUES> 58,153
<CGS> 27,776
<TOTAL-COSTS> 27,776
<OTHER-EXPENSES> 15,173
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,057
<INCOME-PRETAX> 1,147
<INCOME-TAX> 458
<INCOME-CONTINUING> 689
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 689
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.13
</TABLE>
