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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, 2000
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 September 30, 2000, 6,196,674 shares of common stock ("Common Stock")
of the Registrant were outstanding.
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SCOTSMAN HOLDINGS, INC.
INDEX
FORM 10-Q
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2000
and December 31, 1999 1
Consolidated Statements of Operations for the three
and six months ended September 30, 2000 and 1999 2
Consolidated Statements of Cash Flows for the six
months ended September 30, 2000 and 1999 3
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
2000 December 31,
Assets (Unaudited) 1999
------ ------------- ------------
(dollars in thousands)
<S> <C> <C>
Cash $ 1,158 $ 644
Trade accounts receivable, less allowance for
doubtful accounts 64,948 56,989
Prepaid expenses and other current assets 24,214 17,484
Rental equipment, net of accumulated depreciation of
$148,540 in 2000 and $127,154 in 1999 780,915 726,924
Property and equipment, net 60,673 54,074
Deferred financing costs, net 16,641 20,339
Goodwill and other intangible assets, net 173,130 172,273
Other assets 15,523 17,740
---------- ----------
$1,137,202 $1,066,467
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Accounts payable $ 16,224 $ 20,587
Accrued expenses 45,175 31,858
Rents billed in advance 25,251 23,035
Long-term debt 950,650 915,823
Deferred income taxes 125,527 113,847
---------- ----------
Total liabilities 1,162,827 1,105,150
---------- ----------
Stockholders' equity:
Common stock, $.01 par value. Authorized 10,000,000
shares; issued 9,507,407 shares 95 95
Additional paid-in capital 234,579 233,725
Retained earnings 35,557 23,353
---------- ----------
270,231 257,173
Less treasury stock, at cost - 3,310,733 common shares (295,856) (295,856)
---------- ----------
Net stockholders' deficit (25,625) (38,683)
---------- ----------
$1,137,202 $1,066,467
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
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SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
(in thousands except share and per share amounts)
<S> <C> <C> <C> <C>
Revenues:
Leasing $ 56,586 $ 51,324 $ 162,794 $ 148,921
Sales:
New units 27,349 22,869 57,655 54,078
Rental equipment 5,847 5,071 15,582 16,602
Delivery and installation 24,876 22,885 59,675 52,440
Other 10,108 10,763 27,925 28,215
---------- ---------- ---------- ----------
Total revenues 124,766 112,912 323,631 300,256
---------- ---------- ---------- ----------
Costs of sales and services:
Leasing:
Depreciation and amortization 9,338 8,538 26,940 25,535
Other direct leasing costs 10,068 8,828 26,463 22,767
Sales:
New units 23,131 18,656 47,693 44,190
Rental equipment 4,444 3,729 11,783 12,509
Delivery and installation 18,623 16,608 43,951 37,875
Other 1,928 2,088 4,912 6,103
---------- ---------- ---------- ----------
Total costs of sales and services 67,532 58,447 161,742 148,979
---------- ---------- ---------- ----------
Gross profit 57,234 54,465 161,889 151,277
---------- ---------- ---------- ----------
Selling, general and administrative expenses 18,714 17,369 58,650 53,312
Other depreciation and amortization 4,314 4,069 12,820 11,813
Interest, including amortization of deferred
financing costs 23,447 21,136 67,701 61,885
---------- ---------- ---------- ----------
Total operating expenses 46,475 42,574 139,171 127,010
---------- ---------- ---------- ----------
Income before income taxes 10,759 11,891 22,718 24,267
Income tax expense 4,779 5,323 10,516 11,262
---------- ---------- ---------- ----------
Net Income (Loss) $ 5,980 $ 6,568 $ 12,202 $ 13,005
========== ========== ========== ==========
Earnings (loss) per common share $ .97 $ 1.06 $ 1.97 $ 2.10
========== ========== ========== ==========
Earnings (loss) per common share, assuming
dilution $ .91 $ 1.00 $ 1.87 $ 1.99
========== ========== ========== ==========
Weighted average shares outstanding 6,196,674 6,196,674 6,196,674 6,196,674
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
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SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
(dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,202 $ 13,005
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 43,457 41,031
Provision for bad debts 3,930 2,756
Deferred income tax expense 10,345 10,762
Non-cash option compensation expense 854 1,055
Gain on sale of rental equipment (3,799) (4,093)
Increase in net trade accounts receivable (11,602) (26,279)
Increase in accounts payable and accrued expenses 8,150 17,528
Other (3,945) (6,245)
-------- ---------
Net cash provided by operating activities 59,592 49,520
-------- ---------
Cash flows from investing activities:
Rental equipment additions (88,443) (87,599)
Proceeds from sales of rental equipment 15,582 16,602
Purchases of property and equipment, net (12,429) (11,015)
Net assets of businesses acquired (8,615) (37,000)
-------- ---------
Net cash used in investing activities $(93,905) $(119,012)
-------- ---------
</TABLE>
(continued)
3
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SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
(dollars in thousands)
<S> <C> <C>
Cash flows from financing activities:
Proceeds from long-term debt $ 365,555 $ 362,892
Repayment of long-term debt (330,728) (293,397)
Increase in deferred financing costs -- (46)
Payments to acquire treasury stock -- (55)
--------- ---------
Net cash provided by financing activities 34,827 69,394
--------- ---------
Net increase (decrease) in cash 514 (98)
Cash at beginning of period 644 800
--------- ---------
Cash at end of period $ 1,158 $ 702
========= =========
Supplemental cash flow information:
Cash paid for income taxes $ 202 $ 205
========= =========
Cash paid for interest $ 52,994 $ 47,686
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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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 nine months ended September 30, 2000 and
1999 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, 2000 and its operating results and cash flows
for the six month periods ended September 30, 2000 and 1999. The results of
operations for the periods ended September 30, 2000 and 1999 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) GOODWILL AND OTHER INTANGIBLE ASSETS
The excess of cost over fair values of net assets acquired in purchase
transactions has been recorded as goodwill and is being amortized on a
straight line basis over 20 to 40 years. Other identifiable intangibles
acquired include assembled workforce and covenants not to compete, which are
being amortized on a straight line basis over periods of 21 to 228 months.
As of September 30, 2000 and 1999, accumulated amortization was $10,629 and
$5,809, respectively.
On a periodic basis, the Company evaluates the carrying value of its
intangible assets to determine if the facts and circumstances suggest that
intangible assets may be impaired. If this review indicates that intangible
assets may not be recoverable, as determined by the undiscounted cash flow
of the entity acquired over the remaining amortization period, the Company's
carrying value of intangible assets is reduced by the estimated shortfall of
cash flows.
5
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SCOTSMAN HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(4) 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 forth the components of the weighted-average shares
outstanding for the basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted-average shares - basic earnings
per share 6,196,674 6,196,674 6,196,674 6,196,674
Effect of employee stock options 347,040 346,545 345,673 350,859
--------- --------- --------- ---------
Weighted-average shares - diluted earnings
per share 6,543,714 6,543,219 6,542,347 6,547,533
========= ========= ========= =========
</TABLE>
(5) INCOME TAXES
The difference between the Company's reported tax provision for the three
and six months ended June 30, 2000 and the tax provision computed based on
U.S. statutory rates is primarily attributed to non-deductible goodwill
amortization expense of $1,269 and $3,813, respectively.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Forward Looking Statements
Certain statements in this Form 10-Q for the quarter ended September 30, 2000
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors, which may cause actual results to differ materially from future results
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: substantial leverage and the ability to service
debt; changing market trends in the mobile office industry; general economic and
business conditions including a prolonged or substantial recession; the ability
to finance fleet and branch expansion and to locate and finance acquisitions;
the ability of the Company to implement its business and growth strategy and
maintain and enhance its competitive strengths; the ability of the Company to
obtain financing for general corporate purposes; intense industry competition;
availability of key personnel; industry over-capacity; and changes in, or the
failure to comply with, government regulations. No assurance can be given as to
future results and neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these forward-looking
statements. Consequently, undue reliance should not be placed on such forward-
looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revision to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Three Months Ended September 30, 2000 Compared with Three Months Ended
September 30, 1999.
Revenues in the quarter ended September 30, 2000 were $124.8 million, a $11.9
million or 10.5% increase from revenues of $112.9 million in the same period of
1999. The increase resulted primarily from a $5.3 million or 10.3% increase in
leasing revenue, a $4.5 million or 19.6% increase in sales of new units, and a
$2.0 million or 8.7% increase in delivery and installation revenue. The
increase in leasing revenue is attributable to an 10.1% increase in average
lease fleet to 84,500 units at September 30, 2000, combined with a slight
increase in the average monthly rental rate of $2, offset by a slight decrease
in the average fleet utilization of less than one percentage point to 85%. The
increase in delivery and installation revenue is primarily attributable to the
increases in the leasing and new unit sales revenue described above.
Gross profit for the quarter was $57.2 million, a $2.8 million or 5.1%
increase from the third quarter 1999 of $54.5 million. This increase is
primarily a result of an increase in leasing gross profit of $3.2 million or
9.5% due to the increase in leasing revenue described above. Excluding
depreciation and amortization, leasing margins decreased from 82.8% in 1999 to
82.2% in 2000, due to a concerted effort by the Company to accelerate the
refurbishment of units in the existing fleet.
Selling, general and administrative (SG&A) expenses for the quarter ended
September 30, 2000 were $18.7 million, a $1.3 million or 7.7% increase from
third quarter 1999 SG&A expenses of $17.4 million. This increase is the result
of the growth experienced by the Company, both in terms
7
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of fleet size as described above and number of branches, which increased from 83
branches at September 30, 1999 to 86 branches at September 30, 2000. The overall
increases in SG&A expenses are due to increases in field related expenses,
primarily payroll and occupancy, incurred in connection with this fleet growth
and branch expansion.
Interest expense increased $2.3 million or 10.9% to $23.4 million in the third
quarter of 2000 from the same period in 1999. This increase is a result of
increased borrowings to finance fleet and branch growth, as well as an increase
in the interest rate charged on the variable portion of our bank debt.
Nine Months Ended September 30, 2000 Compared with Nine Months Ended September
30, 1999.
Revenues in the nine months ended September 30, 2000 were $323.6 million, a
$23.4 million or 7.8% increase from revenues of $300.3 million in the same
period of 1999. The increase resulted primarily from a $13.9 million or 9.3%
increase in leasing revenue and a $7.2 million or 13.8% increase in delivery and
installation revenue. The increase in leasing revenue is attributable to a
10.4% increase in average lease fleet to 82,000 units for the nine months ended
September 30, 2000, combined with a slight increase in the average monthly
rental rate of $2, offset by a slight decrease in the average fleet utilization
of approximately one percentage point to 84%. The increase in delivery and
installation revenue is primarily attributable to the increases in the leasing
revenue described above.
Gross profit for the nine months ended September 30, 2000 was $161.9 million,
a $10.6 million or 7.0% increase from the same period of 1999 of $151.3 million.
This increase is primarily a result of an increase in leasing gross profit of
$8.8 million or 8.7% and an increase in delivery and installation gross profit
of $1.2 million or 8.0%. The increase in leasing and delivery and installation
gross profit is due to the increase in leasing revenue described above.
Excluding depreciation and amortization, leasing margins decreased from 84.7% in
1999 to 83.7% in 2000 due to a concerted effort by the Company to accelerate the
refurbishment of units in the existing fleet, the majority of which occurred
prior to its busier summer season. Although other revenue was essentially flat,
the increase in related gross profit was attributed to a favorable mix of higher
margin ancillary products, as 1999 results included revenue associated with a
large project to relocate customer-owned units.
SG&A expenses for the nine months ended September 30, 2000 were $58.6 million,
a $5.3 million or 10.0% increase from 1999 expenses of $53.3 million. This
increase is the result of the growth experienced by the Company, both in terms
of fleet size and number of branches, which increased from 83 branches at
September 30, 1999 to 86 branches at September 30, 2000. The overall increases
in SG&A expenses are due to increases in field related expenses, primarily
payroll and occupancy, incurred in connection with this fleet growth and branch
expansion.
Interest expense increased $5.8 million or 9.4% to $67.7 million to date in
2000 from the same period in 1999. This increase is a result of increased
borrowings to finance fleet and branch growth as well as an increase in the
interest rate charged on the variable portion of our bank debt.
Liquidity and Capital Resources
During the nine months ended September 30, 2000 and 1999, the Company's
principal sources
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of funds consisted of cash flows from operating and financing sources. Cash
flows from operating activities of $59.6 million and $49.5 million for the nine
months ended September 30, 2000 and 1999, respectively, were 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 non-
cash compensation expense. 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 $6.5 million or 5.2% to $131.0 million for the nine months ended
September 30, 2000 compared to $124.6 million for the same period of 1999. This
increase in EBITDA is a result of increased leasing activity resulting from the
overall growth in the number of units in the fleet and a slight increase in
average monthly rental rates, partially offset by a slight decrease in
utilization and increased SG&A expenses required to support the expanded
activities of the Company during the nine months ended September 30, 2000.
Cash used in investing activities was $93.9 million and $119.0 million for the
nine months ended September 30, 2000 and 1999, respectively. The Company's
primary capital expenditures are for the discretionary purchase of new units for
the lease fleet and units purchased through acquisitions. 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. The difference in investing
activities between September, 1999 and September, 2000 is primarily attributable
to the February 1, 1999 purchase of Evergreen Mobile Company for approximately
$37 million. Cash provided by financing activities of $34.8 million and $69.4
million for the nine months ended September 30, 2000 and 1999, respectively was
primarily from borrowings under the Company's line of credit.
Availability under the Credit Agreement was $45.6 million at September 30,
2000. 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
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
10
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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 9, 2000
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 November 9, 2000
------------------------- Chief Financial Officer
Gerard E. Keefe
/s/ Glenn A. Schultz Controller November 9, 2000
-------------------------
Glenn A. Schultz
11
