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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 2, 1994.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 0-10182
SCOTSMAN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3635892
(State of incorporation) (I.R.S. Employer Identification No.)
775 Corporate Woods Parkway, 60061
Vernon Hills, Illinois (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (708) 215-4500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common stock $0.10 par value New York Stock Exchange
Common stock purchase rights,
no par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [x]
At March 15, 1994 there were 7,008,654 shares of registrant's common stock
outstanding, and the aggregate market value of the voting stock held by
nonaffiliates of the registrant at February 15, 1994 was approximately $100.4
million.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's 1993 Annual Report to Shareholders for the fiscal year ended
January 2, 1994 (the "1993 Annual Report"): Parts I, II, and IV.
Registrant's definitive Proxy Statement for its 1994 Annual Meeting of
Shareholders to be held on June 10, 1994 (the "1994 Proxy Statement"): Part
III.
Exhibit Index is on page 28.
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PART I
ITEM 1. BUSINESS
The registrant, Scotsman Industries, Inc. (hereinafter referred to, together
with its subsidiaries, as "Scotsman" or the "Company"), is a holding company
with subsidiaries engaged in the manufacture and marketing of refrigeration
products primarily for the foodservice industry, including ice machines, soft
drink dispensing equipment, refrigerators, freezers, and refrigerated bakery
equipment (the "Scotsman Business").
Scotsman was organized under the laws of the state of Delaware on January 26,
1989. Effective April 14, 1989, Scotsman was spun-off from Household
International, Inc. ("Household") through the issuance of one share of Scotsman
common stock for every five shares of Household common stock then outstanding
to Household shareholders ("the Distribution"). Scotsman became a publicly
traded company listed on the New York Stock Exchange, and its operations ceased
to be owned by Household. As part of the Distribution, the Scotsman Business
of Household Manufacturing, Inc. ("HMI"), a wholly-owned subsidiary of
Household, was transferred to Scotsman. Unless the context otherwise requires,
"Scotsman" or the "Company" refers to the Scotsman Business prior to the
Distribution and to Scotsman Industries, Inc. and its subsidiaries after the
Distribution.
Scotsman conducts its domestic ice machine business through its Scotsman Ice
Systems division ("Scotsman Ice Systems") and through the Crystal Tips product
line of its wholly-owned subsidiary, Booth, Inc. ("Booth"). Booth acquired
substantially all of the assets of Crystal Tips, Inc. in April of 1992.
Scotsman conducts its European ice machine business through two Italian
subsidiaries, Frimont S.p.A. ("Frimont") and Castel MAC S.p.A. ("Castel MAC").
In January of 1993, Frimont acquired the assets of Simag, an Italian ice
machine manufacturer, further expanding the Company's European ice machine
line.
Scotsman manufactures and markets soft drink dispensing equipment in the United
States through Booth. Scotsman manufactures and markets a limited line of
water coolers and a line of refrigerated cabinets, dough retarders and blast
freezers in Europe through Frimont and Castel MAC. Prior to the sale of its
Glenco-Star division in September, 1992, Scotsman had engaged in the domestic
refrigerator and freezer business through its Glenco-Star division, and prior
to the sale of its Halsey Taylor division in July, 1991, Scotsman had also
marketed water coolers and drinking fountains through its Halsey Taylor
division, primarily in the United States.
PROPOSED ACQUISITIONS
As of January 11, 1994, Scotsman entered into definitive agreements providing
for the acquisition by Scotsman of The Delfield Company ("Delfield") and
Whitlenge Drink Equipment Limited ("Whitlenge") for approximately $30.3
million in a combination of cash and non-convertible preferred stock of
Scotsman, 1.2 million shares of Scotsman common stock (with a market value of
approximately $17.0 million using the 1993 fiscal year-end closing stock price)
and $22.5 million of $0.62 cumulative convertible preferred stock of Scotsman.
Through the acquisition of Delfield and Whitlenge, Scotsman would also assume
their debt of up to $50 million. In addition, the current stockholders of the
holding companies for Delfield and Whitlenge would be entitled to receive up to
an additional 667,000 shares of Scotsman common stock if Delfield and Whitlenge
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meet a specified level of financial performance for their respective 1994
fiscal years. Completion of the proposed acquisition is subject to approval of
the stock issuance by Scotsman's shareholders and certain other conditions, and
Scotsman will also be required to obtain additional financing to effect the
acquisition. Delfield, headquartered in Mt. Pleasant, Michigan, manufactures
and sells refrigerated food service equipment primarily in the United States.
Whitlenge, located near Birmingham, England, manufactures and sells drink
dispensing equipment, mostly in the United Kingdom. The two businesses
combined had annual revenues in excess of $110 million in 1993. Subject to
satisfaction of the conditions listed above, it is anticipated that the
acquisition of the two companies will be completed early in the second quarter
of 1994.
PRODUCTS AND DISTRIBUTION
Scotsman manufactures refrigeration products that are marketed primarily to the
foodservice industry (restaurants, cafeterias, convenience stores and bars) and
also to the supermarket and lodging industries and to food processors. The
principal commercial products of Scotsman are ice machines, soft drink
dispensing equipment, refrigerated bakery equipment, and refrigerators and
freezers. Scotsman also manufactures compact consumer ice machines and
refrigerators for the luxury segment of the consumer appliance markets.
ICE MACHINES. The Company manufactures and markets commercial ice-making
machines under the Scotsman and Crystal Tips trademarks worldwide, under the
Icematic and Simag trademarks in Europe and Asia and under various brands
through other dealer networks. The Company's ice machines produce three forms
of ice: cubes (consisting of contour, lenticular, gourmet and square cubes),
flakes and nuggets. Each of these forms of ice is designed and marketed for
specific applications. Scotsman ice machines are either self-contained units,
which make, store and, in some cases, dispense ice, or modular units, which
make but do not store ice. Scotsman also manufactures and sells ice storage
bins to accompany modular units.
Scotsman's commercial ice machine business accounted for 83 percent, 76
percent, and 70 percent of the Company's sales in fiscal years 1993, 1992 and
1991, respectively. A significant percentage of the sales of Scotsman
commercial ice machines are for the full service and fast-food restaurant
industry. Other major end-users include schools, government and military
facilities, grocery stores, healthcare facilities, hotels and motels, and
convenience stores.
Scotsman commercial ice machines are sold both through a system of distributors
and directly by Scotsman to national customers, contractors, and governmental
and military buyers. Presently Scotsman Ice Systems has approximately 100
distributors in the United States, and Frimont and Castel MAC combined have
approximately 50 distributors in Europe and Asia. The Crystal Tips line also
has its own distribution network consisting of approximately 68 distributors in
the United States. The distributors generally do not carry competing brands of
ice machines. Independent service dealers also install and service the
equipment. The servicing functions performed by the dealers are particularly
important because ice machines typically require more service, due to variable
water conditions, than other major appliances such as refrigerators. Scotsman
also maintains inventories of replacement parts to support its ice machine
product line.
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In 1991, Scotsman purchased the assets of one of its largest distributors in
Southern California upon the retirement of the former owners. The Company
plans to continue to operate the distributorship indefinitely as part of
Scotsman Ice Systems.
Scotsman sells directly to national customers such as large hotel chains,
fast-food franchisers and convenience stores. Sales to federal and state
governments are also made directly by Scotsman for use in employee dining,
health care and military facilities.
Scotsman is the only United States ice machine company with management and
production facilities in Europe. In foreign markets, Scotsman manufactures and
markets commercial ice machines and related components primarily through its
Castel MAC and Frimont subsidiaries under the Icematic, Scotsman and Simag
trademarks, respectively. Each of these subsidiaries is located in Italy and
manufactures products for sale locally and for export primarily to Eastern and
Western Europe, the Middle East, Africa and the Far East. In the majority of
countries served, Castel MAC and Frimont each sell through a separate
distribution channel. The Company also markets the Crystal Tips line
internationally through four export marketing firms based in the United States
and Canada.
In November of 1992, Scotsman entered into distribution and trademark licensing
agreements with Howe Corporation. Under these agreements, Scotsman has the
exclusive right to distribute Howe industrial flakers in all foreign and
domestic markets for a five-year period, subject to renewal. Scotsman also has
the right to use the trademarks HOWE and Rapid Freeze in connection with the
marketing and distribution of these products.
In addition to commercial ice machines, Scotsman also manufactures compact
consumer ice machines and refrigerators for the luxury segment of the consumer
appliance markets. These products are sold primarily through luxury consumer
appliance distributors who sell to dealers.
BAKERY EQUIPMENT, REFRIGERATORS AND FREEZERS. In Europe, Castel MAC and
Frimont manufacture and market a line of refrigerated cabinets under the
Icematic and Scotsman brand names and a line of dough retarders and blast
freezers under the Tecnomac brand name. Tecnomac dough retarders and blast
freezers are sold primarily to the European commercial bakery industry through
dealers and agents specializing in that industry. Prior to the September 1992
sale of its Glenco-Star division, Scotsman had also manufactured and marketed,
through that division, a complete line of commercial refrigerators and freezers
in the United States. Sales of bakery equipment, refrigerators, and freezers
accounted for approximately 4 percent, 11 percent, and 10 percent of Scotsman's
sales in fiscal years 1993, 1992, and 1991, respectively.
SOFT DRINK DISPENSING EQUIPMENT. Scotsman also manufactures soft drink
beverage dispensing equipment through Booth. Booth manufactures and markets a
complete line of non-coin operated soft drink dispensing products and
accessories. Booth offers both pre-mix and post-mix dispensers which can
either be ice-cooled or electrically-cooled, ice and drink dispensers,
hand-operated valves and other related accessory products used in the fountain
market.
Booth sells its dispensing equipment mostly in the United States, primarily to
soft drink bottlers franchised by The Coca-Cola Company, Pepsico, Inc., Dr.
Pepper and 7-Up, often labeling the
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equipment with the customer's name or trademark and the names of the beverages
that will be dispensed. Major end-users of Booth dispensing equipment are in
the foodservice industry.
Sales of soft drink dispensing equipment accounted for approximately 10
percent, 10 percent, and 9 percent of Scotsman's sales in fiscal years 1993,
1992, and 1991, respectively.
WATER COOLERS AND DRINKING FOUNTAINS. Scotsman markets a limited line of water
coolers in Europe through Frimont and Castel MAC. Prior to the July 1991 sale
of its Halsey Taylor division, Scotsman had also marketed, through that
division, water coolers and drinking fountains, primarily in the United States.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
Financial information pertaining to the Company's foreign and domestic
operations is incorporated herein by reference from Note 17, "Geographic
Information," in the 1993 Annual Report.
ENVIRONMENTAL REGULATIONS
Scotsman believes that environmental, health and safety matters will not have a
material effect on its business or financial condition. However, legal and
regulatory requirements in this area are increasing, and there can be no
assurance that significant costs and liabilities will not be incurred for
currently unidentified or future problems or new regulatory developments.
Chlorofluorocarbons ("CFCs"), a compound found in the refrigerants and
insulation materials used in most refrigeration systems, including those in
Scotsman refrigeration products, are an environmental concern, and the
international supply has been restricted due to their potential impact on the
atmosphere. Under the Federal Clean Air Act Amendments of 1990 (the "Clean Air
Act Amendments"), producers of CFCs were required to phase out production of
CFCs in a series of steps culminating in the termination of all such production
by the year 2000. Pursuant to authority granted under the Clean Air Act
Amendments, on February 11, 1992, former President Bush announced an
accelerated schedule pursuant to which, with certain limited exceptions,
production of CFCs in the United States is to be eliminated by December 31,
1995. Approximately 125 countries which are parties to the Montreal Protocol
on Substances that Deplete the Ozone Layer subsequently agreed to such an
accelerated schedule. Scotsman continues to convert models to non-CFC
refrigerants as required to meet the accelerated phase-out schedule. At this
time, Scotsman does not expect this issue to have a material unfavorable effect
on the Company.
Pursuant to the Lead Contamination Control Act of 1988 (the "Act"), the EPA has
published lists of water cooler models which may have water tanks with interior
surface linings containing more than 0.2 percent lead or which are not "lead
free" because a tin/lead solder was used to connect internal parts of the
cooler. These lists included certain models of water coolers manufactured in
the past by Halsey Taylor, a former division of the Company. The Act provides
for the issuance of a remedial action order by the United States Consumer
Product Safety Commission (the "CPSC") against the manufacturer of any cooler
listed by the EPA as containing a tank having an interior surface lining with
more than 0.2 percent lead. The Act also requires that each state establish a
program that ensures schools remove or remediate coolers identified as being
not "lead free" unless such coolers are water tested and found not to
contribute lead to the water, but the Act does not
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provide for the issuance of remedial action orders by the CPSC against water
cooler manufacturers with respect to these coolers.
On May 25, 1990, the CPSC accepted a Consent Order Agreement (the "Consent
Agreement") between the CPSC staff and the Company under which the Company
agreed to conduct a replacement/refund program for any Halsey Taylor tank-style
water coolers manufactured before April 1, 1979, which are water tested by the
cooler owner and shown to contribute more than twenty parts per billion of lead
to the water. The Consent Agreement resolves all claims that the CPSC might
have under the Act for issuance of an order requiring the repair, replacement,
or recall and refund of the purchase price of water coolers manufactured by the
Halsey Taylor division before the date of the Consent Agreement.
The Company has made provisions to cover expenditures that it expects to result
from the Act. The actual cost to the Company will depend upon, among other
things, the number of cooler owners participating in the replacement/refund
program. Although no assurance can be given, the Company believes, based upon
its present expectations, that expenditures resulting from the Act will not
have a material adverse effect on the Company's financial condition or its
results of operations.
Proposals for new legislation, regulations or regulatory action to reduce the
amount of lead in drinking water and in the environment have, from time to
time, been made at federal and state levels. It is possible that such
legislation, regulations or action could be adopted or taken in the future and
require further action on the part of the Company or compliance by the Company
with newly adopted standards governing the production of its products. The
Company cannot predict whether any such legislation, regulations or action will
be adopted or taken or what effect, if any, such legislation, regulations or
action may have on the financial condition of the Company.
While the Company sold the assets of its Halsey Taylor business in July, 1991,
the purchaser of the Halsey Taylor business did not assume any remedial action
obligations the Company may have under the Act or under any new legislation,
regulations or regulatory action with respect to water coolers manufactured or
sold by the Company prior to the sale of the Halsey Taylor business.
GLENCO-STAR LEASE OBLIGATIONS
In September, 1992, Scotsman transferred the assets of its Glenco-Star division
to a wholly-owned subsidiary, Glenco Star Corporation, and sold the stock of
Glenco Star Corporation to Glenco Holdings, Inc. Glenco Star Corporation
assumed Scotsman's obligations under a lease for a 275,000 square foot facility
in Philadelphia which expires in August, 1996. Although Scotsman was not
released from its obligations to the landlord under the lease, Glenco Holdings,
Inc. furnished Scotsman with a letter of credit in the amount of $1.5 million
under which the issuer of the letter of credit is obligated to reimburse
Scotsman for the amount of any rent payments made by Scotsman to the landlord
under the lease after August 1, 1994.
Glenco Star Corporation defaulted in its obligation to make its February and
March 1994 rent payments to the landlord under the lease and has filed for
bankruptcy under Chapter 11 of the federal Bankruptcy Act. Upon notice of each
of the defaults, Scotsman made a monthly rent payment in the amount of $57,298
due to the landlord under the lease. Scotsman also remains obligated for
certain real estate tax payments and other payments due under the lease if
Glenco
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Star Corporation should fail to comply with such payment obligations. Scotsman
has set up a reserve to cover the remaining monthly rent payments to be made
until August 1, 1994, when it anticipates that it will be able to draw upon the
letter of credit. For a discussion of other developments relating to the
Glenco-Star lease, see "Item 3, Legal Proceedings."
COMPETITION
The primary markets for Scotsman's products are highly competitive. The most
significant competitive factors are price, product performance and service,
with the relative importance of such factors varying among products. Scotsman
has a number of competitors in each product line that it offers. Most of its
competitors are small, privately owned companies, although a few are divisions
of larger companies. Scotsman does not believe that its size, relative to the
size of its competitors, gives it a significant competitive advantage or
disadvantage in the markets in which it competes.
RESEARCH AND DEVELOPMENT
Scotsman conducts an extensive research and development program in its product
fields. These programs seek to develop product improvements and cost
reductions, as well as new products. Scotsman's total research and development
expenditures for fiscal years 1993, 1992, and 1991 were approximately $3.9
million, $3.5 million, and $2.8 million respectively.
RAW MATERIALS
The principal materials used in the manufacture of Scotsman's products are
refrigeration components, including compressors, condensers, motors and
controls. Raw materials include galvanized and stainless steel, aluminum,
copper and plastics. These materials are readily available from several
sources, and Scotsman has not experienced difficulties with respect to their
availability.
GENERAL
CUSTOMERS. Scotsman is not dependent upon any single customer, or upon any
single group of customers, the loss of any one of which would have a material
adverse effect on Scotsman. No material portion of Scotsman's business is
subject to renegotiation of profits or termination of contracts at the election
of the government.
BACKLOG OF ORDERS AND INVENTORY. The backlog of unshipped orders at the end of
fiscal years 1993 and 1992 was $5.5 million and $5.2 million, respectively.
Scotsman expects that all of the orders in the backlog at the end of fiscal
year 1993 will be shipped during 1994.
SEASONALITY. Volume of sales is somewhat higher in the second and third
quarters in most of the Scotsman Business, corresponding with the major selling
season for refrigeration products.
PATENTS AND TRADEMARKS. Scotsman holds or is licensed under many United States
and foreign patents covering various design features used in its products, and
also holds a number of other patents and patent applications, licenses,
trademarks and trade names including the trademarks and trade names mentioned
herein. Scotsman does not believe that any of the foregoing is material to
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its business, with the exception of the Scotsman trademark. Scotsman believes
it possesses adequate protection with respect to the Scotsman trademark.
EMPLOYEES. Scotsman employs approximately 915 people, approximately 325 of
whom are covered by collective bargaining agreements with various labor unions.
Relationships with employees of Scotsman have been satisfactory.
ITEM 2. PROPERTIES
Scotsman's headquarters are located in a 36,000 square foot facility in Vernon
Hills, Illinois which is leased through 1998. Since 1993, Scotsman has had an
option to purchase this property. Scotsman has facilities located in Fairfax,
South Carolina, consisting of a 247,000 square foot plant built in 1980 and an
80,000 square foot separate warehouse. The Fairfax facilities are owned by
Scotsman and produce ice making machines and commercial refrigeration
equipment.
In June, 1993, Booth began leasing 170,000 square feet of a facility located in
Dallas, Texas under a ten-year lease which expires in June, 2003. Booth began
the relocation of the manufacturing operations of its Crystal Tips product line
to this facility in the fourth quarter of 1993 and plans to begin manufacturing
Booth soft drink dispensing equipment at this facility later in 1994. Prior
to December, 1993, Crystal Tips products were manufactured at a leased facility
located in Spirit Lake, Iowa, and Booth soft drink dispensing equipment is
currently manufactured at a 65,000 square foot plant near Dallas, Texas, which
is owned by Scotsman. Following completion of the relocation of Booth's
manufacturing operations to the newly leased facility, Scotsman plans to seek a
tenant for the plant at which Booth's products are currently manufactured. The
Company also leases a 13,000 square foot distribution facility near Los Angeles
under a lease which expires in August, 1996.
The Company operates two plants in Italy which contain 242,000 and 214,000
square feet. The larger of these facilities is owned, and the smaller consists
of a number of buildings leased under separate leases which expire between
December 31, 1994 and June 30, 1999.
Scotsman considers the condition of its plants and other properties to be
generally good and believes the capacity of its plants to be adequate for the
current needs of its business. The Fairfax building secures Industrial
Development Revenue Bonds of $9.3 million. None of the other owned principal
properties are subject to encumbrances material to the operations of Scotsman.
ITEM 3. LEGAL PROCEEDINGS
Patent Litigation Relating to Booth Ice/Drink Dispenser. On March 26, 1993,
Remcor Products Company ("Remcor") filed a lawsuit against the Company's
subsidiary, Scotsman Group Inc. ("SGI"), and Booth in the United States
District Court for the Northern District of Illinois. In its Complaint, Remcor
alleged that certain ice/drink dispensers made and sold by SGI and Booth
infringe a patent owned by Remcor relating to a cold plate system. The
Complaint seeks an unspecified amount of compensatory damages, treble damages
for willful infringement, prejudgment interest and attorneys' fees, and also a
permanent injunction from further alleged acts of infringement.
During the course of discovery, Remcor has asserted that it has suffered
damages attributable to the Company's alleged infringement of approximately
$8.24 million during the period from 1989
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through year-end 1993, exclusive of treble damages, prejudgment interest and
attorneys' fees. This damages claim consists of claims for lost profits and a
royalty on certain sales.
The Company has denied that any of its products infringe Remcor's patent and
has asserted that the Remcor patent is invalid and unenforceable. The Company
also has strongly disputed Remcor's contention that it is appropriate to apply
a lost profits measure of damages in this case and contended that, even
assuming infringement, validity and enforceability of the patent, the amount of
compensatory damages for sales occurring through year-end 1993 would be a
royalty of approximately $500,000.
The Company is vigorously defending this lawsuit. Sales of ice/drink
dispensers accounted for less than 5 percent of the Company's consolidated net
sales in 1993. Although no assurances can be given, after consultation with
legal counsel, the Company does not believe that this lawsuit will have a
material adverse effect on the financial condition of the Company or its
results of operations.
Litigation Relating to Glenco-Star Lease. On July 1, 1993, Jerome P. and Flora
P. Heilweil, as landlord of the facility which housed the Company's former
Glenco-Star division, filed a lawsuit against SGI and Glenco Star Corporation,
the current tenant, in the United States District Court for the Eastern
District of Pennsylvania. In the Complaint, the landlord alleged that the
defendants violated the lease by failing to obtain the landlord's consent to
the assignment of the lease to Glenco Star Corporation in September, 1992, by
failing to make approximately $600,000 in maintenance and repairs to the
facility and by making alterations to the property without the landlord's
consent. The Complaint seeks the recovery of damages in an amount sufficient
to perform the alleged repair and maintenance obligations, and a declaration
that the landlord may accelerate the rent and regain possession of the property
before the lease expires in August, 1996.
On December 29, 1993, the parties agreed to submit all of the matters in
dispute in this case to binding arbitration before the American Arbitration
Association (the "AAA"), To date, there have been no proceedings before the
AAA and an arbitrator has not yet been selected.
Although the Company, along with Glenco Star Corporation, remains obligated to
the landlord for the performance of lease obligations, the Company believes
that the landlord's consent to the assignment of the lease was not required,
that the landlord could not have withheld consent to the assignment even if
consent had been required, that the tenant's obligations to maintain and repair
the facility under the lease have been met, and that the landlord approved any
alterations made by the Company which required the landlord's approval. The
Company intends to vigorously defend its position in the arbitration proceeding
and does not believe the suit will have a material adverse effect on the
Company's financial condition or its results of operations. See also "Item 1,
Glenco-Star Lease Obligations."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last fiscal
quarter of 1993.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of all executive
officers of Scotsman, including the period that each has held his position with
the Company, and a brief account of each such officer's business experience
during the past five years. Executive officers are appointed annually at a
meeting of the Board of Directors of the Company held as soon as practicable
after each annual meeting of the Company's shareholders. Officers of the
Company are appointed to serve until the next annual election of officers and
until their respective successors are chosen.
<TABLE>
<CAPTION>
NAME AND AGE OFFICE AND EXPERIENCE
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<S> <C>
Richard C. Osborne, 50 Mr. Osborne is Chairman of the Board and has held that
position since May, 1991. He is also President, Chief
Executive Officer, and a director of the Company and has held
those positions since April, 1989. He was an Executive Vice
President of HMI from 1982 to April, 1989.
Emanuele Lanzani, 59 Mr. Lanzani is an Executive Vice President of the Company and
has held that position since April, 1989. He is also the
Managing Director, Frimont and Castel MAC. Mr. Lanzani has
been Managing Director of Castel MAC since its acquisition by
HMI in October, 1985 and has been Managing Director of
Frimont since 1968.
David W. Campbell, 51 Mr. Campbell is a Vice President of the Company and has held
that position since April, 1989. He is also the President of
Booth and has held that position since 1980, seven years
prior to the acquisition of Booth by HMI.
Richard M. Holden, 43 Mr. Holden is Vice President-Human Resources of the Company
and has held that position since January, 1990. He was
Director of Employee Relations with United States Can
Company, a packaging manufacturer, from 1988 to 1989.
Donald D. Holmes, 56 Mr. Holmes is Vice President-Finance and Secretary of the
Company and has held those positions since April, 1989. He
was Corporate Controller for HMI from 1982 to 1989.
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE OFFICE AND EXPERIENCE
------ ----- -----------------------
<S> <C> <C>
Randall C. Rossi, 42 Mr. Rossi is an Executive Vice President of Scotsman Ice
Systems division and has held that position since January,
1994. From 1989 to January, 1994, he was Vice President-
Sales and Marketing of Scotsman Ice Systems division, and
from 1988 to 1989, he was Vice President of Sales for the
Scotsman Ice Systems and Glenco-Star divisions.
Paolo Faenza, 54 Mr. Faenza is General Manager, Castel MAC, and has held that
position since 1986.
Gerardo Palmieri, 54 Mr. Palmieri is Director-Sales and Marketing, Frimont, and
has held that position since 1980.
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
The information contained in the table entitled "Common Stock" in the 1993
Annual Report and in Note 8 of the "Notes to Consolidated Financial Statements"
in the 1993 Annual Report is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data contained in the table entitled "Five Year Summary"
in the 1993 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the 1993 Annual Report are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of Arthur Andersen & Co., independent public accountants, and the
consolidated financial statements, together with the notes thereto (as set
forth in the List of Financial Statements in Part IV, Item 14 (a) (1), below)
in the 1993 Annual Report are incorporated herein by reference. The selected
financial data contained in the table entitled "Selected Quarterly Financial
Data" in the 1993 Annual Report are also incorporated herein by reference.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants or disagreements with accountants on
accounting and financial disclosures during 1993.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained in "Information Regarding Nominees and Directors" in
the 1994 Proxy Statement is incorporated herein by reference. See also
"Executive Officers of the Registrant," Part I, above.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in the sections entitled "Executive Compensation,"
"Options and Stock Appreciation Rights," "Pension Plan," "Executive
Compensation and Severance Agreements, Including Change of Control Provisions,"
and "Directors' Fees and Compensation" in the 1994 Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The information contained in the sections entitled "Security Ownership of
Management" and "Security Ownership of Certain Beneficial Owners" in the 1994
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
The information contained in the sections entitled "Executive Compensation,"
"Executive Compensation and Severance Agreements, Including Change of Control
Provisions," and "Other Agreements" in the 1994 Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) LIST OF FINANCIAL STATEMENTS
The following financial statements, together with the report thereon of Arthur
Andersen & Co. dated February 17, 1994, appearing in the Company's 1993 Annual
Report, are incorporated herein by reference.
-12-
<PAGE> 13
Scotsman Industries, Inc. and Subsidiaries:
Report of Independent Public Accountants
Consolidated Statement of Income for each of the three years ended
January 2, 1994, January 3, 1993 and December 29, 1991.
Consolidated Balance Sheet as of January 2, 1994 and January 3, 1993.
Consolidated Statement of Cash Flows for each of the three years ended
January 2, 1994, January 3, 1993 and December 29, 1991.
Consolidated Statement of Shareholders' Equity for each of the three
years ended January 2, 1994, January 3, 1993 and December 29, 1991.
Notes to Consolidated Financial Statements.
Five Year Summary.
Selected Quarterly Financial Data (Unaudited).
(A)(2) LIST OF FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Schedules.
V - Properties and Equipment
VI - Accumulated Depreciation and Amortization of Properties and
Equipment
VIII - Valuation and Qualifying Accounts
IX - Short-term Borrowings
X - Supplementary Income Statement Information
(A)(3) LIST OF EXHIBITS
The following exhibits are filed as part of this report. Each management
contract or compensatory plan or arrangement required to be filed as an exhibit
to this report has been marked with an asterisk.
Exhibit 3.1 - Restated Certificate of Incorporation of the
Company (incorporated herein by reference to
the Company's 10-K for the fiscal year ended
December 31, 1989, File No. 0-10182).
-13-
<PAGE> 14
Exhibit 3.2 - By-Laws of the Company, as amended
(incorporated herein by reference to the
Company's 8-K, dated June 21, 1991, File No.
0-10182).
Exhibit 4.1 - Rights Agreement dated as of April 14, 1989
between Scotsman Industries, Inc. and Harris
Trust & Savings Bank (incorporated herein by
reference to the Company's 8-K, dated April
25, 1989, File No. 0-10182), as amended by
Amendment No. 1 thereto, dated as of January
11, 1994 (incorporated herein by reference to
Scotsman Industries, Inc. Amendment No. 4 to
General Form for Registration of Securities
on Form 10/A, as filed with the Commission on
January 27, 1994, File No. 0-10182).
Exhibit 10.1 - Reorganization and Distribution Agreement
dated as of March 15, 1989 by and among
Household International, Inc., Eljer
Industries, Inc., Schwitzer, Inc. and
Scotsman Industries, Inc. (incorporated
herein by reference to the Company's 8-K,
dated April 25, 1989, File No. 0-10182).
Exhibit 10.2 - Tax Sharing Agreement dated as of March 15,
1989 among Household International, Inc.,
Eljer Industries, Inc., Schwitzer, Inc. and
Scotsman Industries, Inc. (incorporated
herein by reference to the Company's 8-K,
dated April 25, 1989, File No. 0-10182).
Exhibit 10.3 - Benefits and Labor Agreement dated as of
March 15, 1989 among Household International,
Inc., Eljer Industries, Inc., Schwitzer, Inc.
and Scotsman Industries, Inc. (incorporated
herein by reference to the Company's 10-K for
the fiscal year ended December 31, 1989, File
No. 0-10182).
Exhibit 10.4 - Reimbursement Agreement dated as of April 14,
1989 by and between Household International,
Inc. and Scotsman Group, Inc. (incorporated
herein by reference to the Company's 10-K for
the fiscal year ended December 31, 1989, File
No. 0-10182).
Exhibit 10.5 - Supplemental Reimbursement Agreement dated as
of August 4, 1989 among Household
International, Inc., Scotsman Industries,
Inc. and Scotsman Group, Inc. (incorporated
herein by reference to the Company's 10-K for
the fiscal year ended December 31, 1989, File
No. 0-10182), as amended by Amendment No. 1
thereto, dated as of September 20, 1993
(incorporated by reference to the Company's
10-Q for the quarter ended October 3, 1993).
Exhibit 10.6 - Note Purchase Agreement dated as of April 17,
1989 among Scotsman Group Inc., Scotsman
Industries, Inc., Connecticut General Life
Insurance Company, individually and for the
account of one or more separate accounts,
Cigna Property and Casualty Insurance
-14-
<PAGE> 15
Company, INA Life Insurance Company of
New York, Life Insurance Company of North
America, Ohio National Life Assurance
Corporation and Southern Farm Bureau Life
Insurance Company, as amended by Amendment
No. 1 thereto, dated December 12, 1989
(incorporated herein by reference to the
Company's 10-K for the fiscal year ended
December 31, 1989, File No. 0-10182), the
Waiver and Amendment, dated as of February 7,
1992 (incorporated herein by reference to the
Company's 10-K for the fiscal year ended
December 29, 1991, File No. 0-10182), the
Waiver and Amendment dated as of June 26,
1992 (incorporated herein by reference to the
Company's 10-Q for the quarter ended June 28,
1992, File No. 0-10182), Amendment No. 4
thereto, dated as of September 27, 1992
(incorporated herein by reference to the
Company's 10-K for the fiscal year ended
January 3, 1993, File No. 0-10182), and
Amendment No. 5 thereto and Waiver, dated as
of March 17, 1993 (incorporated herein by
reference to the Company's 10-K for the
fiscal year ended January 3, 1993, File No.
0-10182).
Exhibit 10.7 - $25,000,000 Revolving Credit Agreement dated
as of November 20, 1992 among Scotsman Group
Inc., Scotsman Industries, Inc., Comerica
Bank-Illinois, individually and as agent, PNC
Bank, National Association (formerly
Pittsburgh National Bank) and The First
National Bank of Chicago, as amended by First
Amendment to Scotsman Group Inc. $25,000,000
Credit Agreement, Waiver and Consent, dated
as of March 17, 1993 (incorporated herein by
reference to the Company's 10-K for the
fiscal year ended January 3, 1993, File No.
0-10182).
Exhibit 10.8 - $5,000,000 Promissory Note made as of June
17, 1993 by Scotsman Group Inc. to Comerica
Bank-Illinois, together with the related
Guaranty Agreement, dated July 1, 1993,
between Scotsman Industries, Inc. and
Comerica Bank-Illinois (incorporated herein
by reference to the Company's 10-Q for the
quarter ended July 4, 1993, File No.
0-10182).
Exhibit 10.9 - Reimbursement Agreement, dated March 1, 1988,
among Household Manufacturing, Inc.,
King-Seeley Thermos Co. and the National
Westminster Bank PLC, as amended by the
Amendments dated as of April 14, 1989,
December 12, 1989, June 26, 1992, November
20, 1992 and March 17, 1993, among Scotsman
Group Inc., Scotsman Industries, Inc. and PNC
Bank, National Association (formerly
Pittsburgh National Bank) (incorporated
herein by reference to the Company's 10-K for
the fiscal year ended January 3, 1993, File
No. 0-10182).
Exhibit 10.10 - Interest Rate and Currency Exchange
Agreement, dated as of April 14, 1989,
between Scotsman Group, Inc. and Morgan
Guaranty Trust
-15-
<PAGE> 16
Company of New York (incorporated herein by
reference to the Company's 10-K for the
fiscal year ended December 29, 1991, File No.
0- 10182),as amended by the letter amendment,
dated as of December 29, 1991 (incorporated
herein by reference to the Company's 10-K for
the fiscal year ended December 29, 1991, File
No. 0-10182), the letter amendment,dated as
of June 26, 1992 (incorporated herein by
reference to the Company's10-K for the fiscal
year ended January 3, 1993, File No.0-10182),
and the letter amendment, dated as of
November 20, 1992, (incorporated herein by
reference to the Company's 10-K for the fiscal
year ended January 3,1993, File No.0- 10182),
together with the related Guaranty, dated as
of April 14, 1989, between Scotsman
Industries, Inc. and Morgan Guaranty Trust
Company of New York (incorporated herein by
reference to the Company's 10-K for the fiscal
year ended December 29, 1991, File No.
0- 10182).
Exhibit 10.11* - Long-Term Executive Incentive Compensation
Plan of Scotsman Industries, Inc., as amended
May 21, 1992 (incorporated herein by
reference to the Company's 10-Q for the
quarter ended June 28, 1992, File No.
0-10182).
Exhibit 10.12* - Scotsman Industries, Inc., Executive
Incentive Compensation Program, Plans AA, A-1
and A-2 (incorporated herein by reference to
the Company's 10-K for the fiscal year ended
December 30, 1990, File No. 0-10182) and B-2
(incorporated herein by reference to the
Company's 10-K for the fiscal year ended
December 29, 1991).
Exhibit 10.13* - Scotsman Group Inc. Supplemental Tax
Reduction Investment Plan, dated as of April
14, 1989 (incorporated herein by reference to
the Company's 10-K for the fiscal year ended
December 30, 1990, File No. 0-10182).
Exhibit 10.14* - Employment Agreement dated September 16, 1991
between Scotsman Group, Inc. and Richard C.
Osborne (incorporated herein by reference to
the Company's 10-Q for the quarter ended
September 29, 1991, File No. 0- 10182).
Exhibit 10.15* - Employment Agreement dated September 16, 1991
between Scotsman Group, Inc. and Emanuele
Lanzani (incorporated herein by reference to
the Company's 10-K for the fiscal year ended
December 29, 1991, File No. 0-10182).
Exhibit 10.16* - Employment Agreement dated September 16, 1991
between Scotsman Group, Inc. and Donald D.
Holmes (incorporated herein by reference to
the Company's 10-Q for the quarter ended
September 29, 1991, File No. 0-10182).
-16-
<PAGE> 17
Exhibit 10.17* - Employment Agreement dated September 16, 1991
between Scotsman Group, Inc. and David W.
Campbell (incorporated herein by reference to
the Company's 10-Q for the quarter ended
September 29, 1991, File No. 0- 10182).
Exhibit 10.18* - Employment Agreement dated July 20, 1992
between Scotsman Group Inc. and
Randall C. Rossi.
Exhibit 10.19* - Executive Severance Agreement dated as of
September 16, 1991 between Richard C. Osborne
and Scotsman Group, Inc. (incorporated herein
by reference to the Company's 10-Q for the
quarter ended September 29, 1991, File No.
0-10182).
Exhibit 10.20* - Amendment No. 1 to Executive Severance
Agreement, dated as of January 11, 1994,
between Richard C. Osborne and Scotsman
Group, Inc.
Exhibit 10.21* - Executive Severance Agreement dated as of
September 16, 1991 between Emanuele Lanzani
and Frimont S.p.A (incorporated herein by
reference to the Company's 10-K for the
fiscal year ended December 29, 1991, File No.
0-10182).
Exhibit 10.22* - Amendment No. 1 to Executive Severance
Agreement, dated as of January 11, 1994,
between Emanuele Lanzani and Scotsman Group,
Inc.
Exhibit 10.23* - Executive Severance Agreement dated as of
September 16, 1991 between Donald D. Holmes
and Scotsman Group, Inc. (incorporated herein
by reference to the Company's 10-Q for the
quarter ended September 29, 1991, File No.
0-10182).
Exhibit 10.24* - Amendment No. 1 to Executive Severance
Agreement, dated as of January 11, 1994,
between Donald D. Holmes and Scotsman Group,
Inc.
Exhibit 10.25* - Executive Severance Agreement dated as of
September 16, 1991 between David W. Campbell
and Booth, Inc. (incorporated herein by
reference to the Company's 10-Q for the
quarter ended September 29, 1991, File No. 0-
10182).
Exhibit 10.26* - Amendment No. 1 to Executive Severance
Agreement, dated as of January 11, 1994,
between David W. Campbell and Booth, Inc.
Inc.
Exhibit 10.27* - Retirement Program for Emanuele Lanzani of
Frimont, S.p.A., Subsidiary of King-Seeley
Thermos Co. dated July 25, 1984 (incorporated
herein by reference to the Company's 10-K for
the fiscal year ended December 31, 1989, File
No. 0-10182).
-17-
<PAGE> 18
Exhibit 10.28 - Agreement dated March 27, 1981 by and between
Emanuele Lanzani and King-Seeley Thermos Co.
and Frimont, S.p.A. (incorporated herein by
reference to the Company's 10-K for the
fiscal year ended December 31, 1989, File No.
0-10182), as amended by the Amendment dated
March 20, 1990 (incorporated herein by
reference to the Company's 10-Q for the
quarter ended September 30, 1990, File No.
0-10182).
Exhibit 10.29 - Industrial Building Lease Agreement dated
September 21, 1988 by and between American
National Bank and Trust Company of Chicago,
as Trustee under Trust Agreement No. 64661
dated June 17, 1985, and Household
Manufacturing, Inc. (incorporated herein by
reference to the Company's 10-K for the
fiscal year ended December 31, 1989, File No.
0-10182).
Exhibit 10.30 - Lease and Purchase Option dated August 21,
1986 by and between Jerome P. Heilweil and
Flora P. Heilweil and Household
Manufacturing, Inc. (incorporated herein by
referenced to the Company's 10-K for the
fiscal year ended December 31, 1989, File No.
0-10182).
Exhibit 10.31 - Lease Agreement, dated as of April 16, 1993,
by and between the Western and Southern Life
Insurance Company and Booth, Inc. together
with the related Guaranty by Scotsman Group
Inc. dated as of April 8, 1993 (incorporated
herein by reference to the Company's 10-Q for
the quarter ended October 2, 1993, File No.
0- 10182).
Exhibit 10.32 - Consent Order Agreement between Scotsman
Group Inc. and the Staff of the United States
Consumer Product Safety Commission
(incorporated by reference to the Company's
8-K, dated May 29, 1990, File No. 0-10182).
Exhibit 10.33 - Purchase Agreement between Glenco Holdings
Inc. and Scotsman Group Inc., dated as of
September 23, 1992 (incorporated herein by
reference to the Company's 8-K, dated
September 28, 1992, File No. 0-10182).
Exhibit 10.34 - Agreement and Plan of Merger, dated as of
January 11, 1994, among Scotsman Industries,
Inc., Scotsman Acquisition Corporation, DFC
Holding Corporation, The Delfield Company,
Onex Corporation, Onex DHC LLC, Pacific
Mutual Life Insurance Co., PM Group Life
Insurance Co., EJJM, Matthew O. Diggs, Jr.,
Timothy C. Collins, W. Joseph Manifold,
Charles R. McCollom, Anita J. Moffatt Trust,
Anita J. Moffatt, Remo Panella, Teddy F.
Reed, Robert L. Schafer, Graham E. Tillotson,
John A. Tilmann Trust, John A. Tilmann, Kevin
E. McCrone, Michael P. McCrone, Ronald A.
Anderson and
-18-
<PAGE> 19
Continental Bank N.A. (incorporated by
reference herein to the Company's 8-K, dated
January 13, 1994, File No. 0-10182).
Exhibit 10.35 - First Amendment to Agreement and Plan of
Merger, dated as of March 17, 1994, among
Scotsman Industries, Inc., Scotsman
Acquisition Corporation, DFC Holding
Corporation, The Delfield Company, Onex
Corporation, Onex DHC LLC, Pacific Mutual
Life Insurance Co., PM Group Life Insurance
Co., EJJM, Matthew O. Diggs, Jr., Timothy C.
Collins, W. Joseph Manifold, Charles R.
McCollom, Anita J. Moffatt Trust, Anita J.
Moffatt, Remo Panella, Teddy F. Reed, Robert
L. Schafer, Graham E. Tillotson, John A.
Tilmann Trust, John A. Tilmann, Ronald A.
Anderson, Kevin E. McCrone, Michael P.
McCrone, and Continental Bank N.A.
Exhibit 10.36 - Share Acquisition Agreement, dated as of
January 11, 1994, among Scotsman Industries,
Inc., Whitlenge Acquisition Limited,
Whitlenge Drink Equipment Limited, Timothy C.
Collins, Graham F. Cook, Christopher R.L.
Wheeler, Michael de St. Paer and John Rushton
(incorporated by reference herein to the
Company's 8-K, dated January 13, 1994, File
No. 0-10182).
Exhibit 10.37 - First Amendment to Share Acquisition
Agreement, dated as of March 17, 1994, among
Scotsman Industries, Inc., Scotsman Drink
Limited, Whitlenge Acquisition Limited,
Whitlenge Drink Equipment Limited, Onex
Corporation, Onex U.S. Investments, Inc.,
EJJM, Matthew O. Diggs, Jr., Timothy C.
Collins, Graham F. Cook, Christopher R.L.
Wheeler, Michael de St. Paer and John
Rushton.
Exhibit 13.1 - Those portions of Scotsman's 1993 Annual
Report to Shareholders which are incorporated
by reference under Part I, Item 1, "Financial
Information about Foreign and Domestic
Operations," and Part II, Items 5, 6, 7, and
8 of the Form 10-K, consisting of
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations," the report of Arthur Andersen &
Co. and the consolidated financial
statements, together with the notes thereto
(as set forth in the list of financial
statements under Item 14(a)(1)), "Five Year
Summary," "Selected Quarterly Financial
Data," and "Common Stock."
Exhibit 21.1 - List of Subsidiaries
Exhibit 23.1 - Consent of Arthur Andersen & Co.
Copies of the exhibits referred to above will be furnished to
shareholders upon written request at a cost of fifteen cents per page.
Requests should be made to Scotsman Industries, Inc. 775 Corporate
Woods Parkway, Vernon Hills, Illinois 60061, Attention: Donald D.
Holmes, Secretary.
-19-
<PAGE> 20
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K dated December 2, 1993,
reporting under Item 5, Other Events.
(C) EXHIBITS
The exhibits required under this Item 14(c) are filed as a separate section of
this report.
(D) FINANCIAL STATEMENT SCHEDULES
See pages 22 through 27 of this report.
-20-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 30, 1994 SCOTSMAN INDUSTRIES, INC.
BY: /s/ R.C. Osborne
-----------------------------------
R.C. Osborne, Chairman of the
Board, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Scotsman and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ R.C. Osborne Chairman of the Board, President, March 30, 1994
--------------------------------- Chief Executive Officer & Director
(R.C. Osborne) (Principal Executive Officer)
/s/ D.C. Clark Director March 30, 1994
---------------------------------
(D.C. Clark)
/s/ F.W. Considine Director March 30, 1994
---------------------------------
(F.W. Considine)
/s/ G.D. Kennedy Director March 30, 1994
---------------------------------
(G.D. Kennedy)
/s/ J.J. O'Connor Director March 30, 1994
---------------------------------
(J.J. O'Connor)
/s/ R.G. Rettig Director March 30, 1994
---------------------------------
(R.G. Rettig)
/s/ D.D. Holmes Vice President-Finance and Secretary March 30, 1994
--------------------------------- (Principal Financial & Accounting
(D.D. Holmes) Officer)
</TABLE>
-21-
<PAGE> 22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To the Shareholders of Scotsman Industries, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Scotsman Industries, Inc.'s 1993
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 17, 1994. Our report on the
consolidated financial statements includes an explanatory paragraph with
respect to the change in accounting for post-retirement benefits other than
pensions, post-employment expenses and income taxes effective January 4, 1993,
as discussed in Note 10 and Note 11 to the consolidated financial statements.
Our audit was made for the purpose of forming an opinion on those statements
taken as a whole. The schedules listed in Item 14(a)(2) Financial Statement
Schedules are the responsibility of the Company's management and are presented
for purposes of complying with the Securities and Exchange Commission's rules
and are not part of the basic consolidated financial statements. These
schedules have been subjected to the auditing procedures applied in the audit
of the basic consolidated financial statements and, in our opinion, fairly
state in all material respects the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as a
whole.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
February 17, 1994
-22-
<PAGE> 23
SCOTSMAN INDUSTRIES, INC.
SCHEDULE V - PROPERTIES AND EQUIPMENT
(In thousands)
<TABLE>
<CAPTION>
Balance at Additions Other Balance
Beginning at Changes Add at End
Classification of Period Cost Retirements (Deduct)(1) of Period
- -------------- --------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1991-
Land $ 1,354 $ - $ - $ - $ 1,354
Buildings &
leasehold
improvements 16,966 288 - (164) 17,090
Machinery, fixtures
& equipment 33,715 2,537 (2,410) (288) 33,554
------ ----- ------ ----- ------
Total $52,035 $2,825 $(2,410) $ (452) $51,998
1992-
Land $ 1,354 $ - $ - $ - $ 1,354
Buildings &
leasehold
improvements 17,090 197 (92) (1,624) 15,571
Machinery, fixtures
& equipment 33,554 1,822 (7,531) (2,590) 25,255
------ ----- ------ ------ ------
Total $51,998 $2,019 $(7,623) $(4,214) $42,180
1993-
Land $ 1,354 $ - $ - $ - $ 1,354
Buildings &
leasehold
improvements 15,571 953 (2) (794) 15,728
Machinery, fixtures
& equipment 25,255 2,311 (31) (1,158) 26,377
------ ----- ------ ------ ------
Total $42,180 $3,264 $ (33) $(1,952) $43,459
</TABLE>
(1) Amounts represent foreign currency translation adjustments related to
the Company's foreign entities and reclassifications between
categories.
-23-
<PAGE> 24
SCOTSMAN INDUSTRIES, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTIES AND EQUIPMENT
(In Thousands)
<TABLE>
<CAPTION>
Additions Other
Balance at Charged Changes Balance
Beginning to Costs/ Add at End
Classification of Period Expenses Retirements (Deduct)(1) of Period
- -------------- --------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1991-
Buildings &
leasehold
improvements $ 5,222 $ 679 $ - $ (36) $ 5,865
Machinery, fixtures
& equipment 18,761 3,140 (1,748) (72) 20,081
------ ----- ------ ------ ------
Total $23,983 $3,819 $(1,748) $ (108) $25,946
1992-
Buildings &
leasehold
improvements $ 5,865 $ 720 $ (32) $ (783) $ 5,770
Machinery, fixtures
& equipment 20,081 2,640 (4,440) (1,911) 16,370
------ ----- ------ ------ ------
Total $25,946 $3,360 $(4,472) $(2,694) $22,140
1993-
Buildings &
leasehold
improvements $ 5,770 $ 662 $ - $ (421) $ 6,011
Machinery, fixtures
& equipment 16,370 2,245 (17) (1,017) 17,581
------ ----- ------ ------ ------
Total $22,140 $2,907 $ (17) $(1,438) $23,592
</TABLE>
(1) Amounts represent foreign currency translation adjustments related to
the Company's foreign entities and reclassifications between
categories.
-24-
<PAGE> 25
SCOTSMAN INDUSTRIES, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Additions
------------------------
Charged Charged
Balance at to to Balance
Beginning Costs/ Other at End
of Period Expenses Accounts Deductions of Period
---------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1991 -
Accounts Receivable
Reserves $1,571 $ 678 $ 90 $ (735) $1,604
1992 -
Accounts Receivable
Reserves $1,604 $ 423 $(417) $ (350) $1,260
1993 -
Accounts Receivable
Reserves $1,260 $ 453 $ 103 $ (268) $1,548
</TABLE>
-25-
<PAGE> 26
SCOTSMAN INDUSTRIES, INC.
SCHEDULE IX - SHORT-TERM BORROWINGS
(In thousands)
<TABLE>
<CAPTION>
Maximum Average Weighted
Weighted Amount Amount Average
Balance at Average Outstanding Outstanding Interest Rate
End of Interest During the During the During the
Period Rate Period Period Period
----------- ---- ------ ----------- ------
<S> <C> <C> <C> <C> <C>
BANK AND OTHER
BORROWINGS:
December 29, 1991 $ 7,485 11.7% $ 9,079 $ 7,583 12.9%
January 3, 1993 $ 1,747 13.9% $ 8,339 $ 5,905 13.3%
January 2, 1994 $ 2,594 7.9% $10,601 $ 6,905 10.9%
</TABLE>
-26-
<PAGE> 27
SCOTSMAN INDUSTRIES, INC.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
<TABLE>
<CAPTION>
Charged to Costs and Expenses
-----------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Maintenance and Repairs $1,691 $2,036 $2,123
Advertising Costs $3,666 $3,850 $4,198
</TABLE>
-27-
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description of Exhibit
------ ----------- ----------
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Company (incorporated herein
by reference to the Company's 10-K for the fiscal year ended December 31,
1989, File No. 0-10182).
3.2 By-Laws of the Company, as amended (incorporated herein by reference to
the Company's 8-K, dated June 21, 1991, File No. 0-10182).
4.1 Rights Agreement dated as of April 14, 1989 between Scotsman Industries,
Inc. and Harris Trust & Savings Bank (incorporated herein by reference to
the Company's 8-K, dated April 25, 1989, File No. 0-10182), as amended by
Amendment No. 1 thereto, dated as of January 11, 1994 (incorporated by
reference herein to Scotsman Industries, Inc. Amendment No. 4 to General
Form for Registration of Securities on Form 10/A, as filed with the
Commission on January 27, 1994, File No. 0-10182).
10.1 Reorganization and Distribution Agreement dated as of March 15, 1989 by
and among Household International, Inc., Eljer Industries, Inc.,
Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated herein by
reference to the Company's 8-K, dated April 25, 1989, File No. 0-10182).
10.2 Tax Sharing Agreement dated as of March 15, 1989 among Household
International, Inc., Eljer Industries, Inc., Schwitzer, Inc. and Scotsman
Industries, Inc. (incorporated herein by reference to the Company's 8-K,
dated April 25, 1989, File No. 0-10182).
10.3 Benefits and Labor Agreement dated as of March 15, 1989 among Household
International, Inc., Eljer Industries, Inc., Schwitzer, Inc. and Scotsman
Industries, Inc. (incorporated herein by reference to the Company's 10-K
for the fiscal year ended December 31, 1989, File No. 0-10182).
10.4 Reimbursement Agreement dated as of April 14, 1989 by and between
Household International, Inc. and Scotsman Group, Inc. (incorporated
herein by reference to the Company's 10-K for the fiscal year ended
December 31, 1989, File No. 0-10182).
</TABLE>
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<PAGE> 29
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description of Exhibit
------- ----------- -----------
<S> <C> <C>
10.5 Supplemental Reimbursement Agreement dated as of August 4, 1989 among
Household International, Inc., Scotsman Industries, Inc. and Scotsman
Group, Inc. (incorporated herein by reference to the Company's 10-K for
the fiscal year ended December 31, 1989, File No. 0-10182), as amended by
Amendment No. 1 thereto, dated as of September 20, 1993 (incorporated by
reference to the Company's 10-Q for the quarter ended October 3, 1993).
10.6 Note Purchase Agreement dated as of April 17, 1989 among Scotsman Group
Inc., Scotsman Industries, Inc., Connecticut General Life Insurance
Company, individually and for the account of one or more separate
accounts, Cigna Property and Casualty Insurance Company, INA Life
Insurance Company of New York, Life Insurance Company of North America,
Ohio National Life Assurance Corporation and Southern Farm Bureau Life
Insurance Company, as amended by Amendment No. 1 thereto, dated December
12, 1989 (incorporated herein by reference to the Company's 10-K for the
fiscal year ended December 31, 1989, File No. 0-10182), the Waiver and
Amendment, dated as of February 7, 1992 (incorporated herein by reference
to the Company's 10-K for the fiscal year ended December 29, 1991, File
No. 0-10182), the Waiver and Amendment dated as of June 26, 1992
(incorporated herein by reference to the Company's 10-Q for the quarter
ended June 28, 1992, File No. 0-10182), Amendment No. 4 thereto, dated as
of September 27, 1992 (incorporated herein by reference to the Company's
10-K for the fiscal year ended January 3, 1993, File No. 0-10182), and
Amendment No. 5 thereto and Waiver, dated as of March 17, 1993
(incorporated herein by reference to the Company's 10-K for the fiscal
year ended January 3, 1993, File No. 0-10182).
10.7 $25,000,000 Revolving Credit Agreement dated as of November 20, 1992 among
Scotsman Group Inc., Scotsman Industries, Inc., Comerica Bank-Illinois,
individually and as agent, PNC Bank, National Association (formerly
Pittsburgh National Bank) and The First National Bank of Chicago, as
amended by First Amendment to Scotsman Group Inc. $25,000,000 Credit
Agreement, Waiver and Consent, dated as of March 17, 1993 (incorporated
herein by reference to the Company's 10-K for the fiscal year ended
January 3, 1993, File No. 0-10182).
</TABLE>
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<PAGE> 30
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description of Exhibit
------- ----------- -----------
<S> <C> <C>
10.8 $5,000,000 Promissory Note made as of June 17, 1993 by Scotsman Group Inc.
to Comerica Bank-Illinois, together with the related Guaranty Agreement,
dated July 1, 1993, between Scotsman Industries, Inc. and Comerica Bank-
Illinois (incorporated herein by reference to the Company's 10-Q for the
quarter ended July 4, 1993, File No. 0-10182).
10.9 Reimbursement Agreement, dated March 1, 1988, among Household
Manufacturing, Inc., King-Seeley Thermos Co. and the National Westminster
Bank PLC, as amended by the Amendments dated as of April 14, 1989,
December 12, 1989, June 26, 1992, November 20, 1992 and March 17, 1993,
among Scotsman Group Inc., Scotsman Industries, Inc. and PNC Bank,
National Association (formerly Pittsburgh National Bank) (incorporated
herein by reference to the Company's 10-K for the fiscal year ended
January 3, 1993, File No. 0-10182).
10.10 Interest Rate and Currency Exchange Agreement, dated as of April 14, 1989,
between Scotsman Group, Inc. and Morgan Guaranty Trust Company of New York
(incorporated herein by reference to the Company's 10-K for the fiscal
year ended December 29, 1991, File No. 0-10182), as amended by the letter
amendment, dated as of December 29, 1991 (incorporated herein by reference
to the Company's 10-K for the fiscal year ended December 29, 1991, File
No. 0-10182), the letter amendment, dated as of June 26, 1992
(incorporated herein by reference to the Company's 10-K for the fiscal
year ended January 3, 1993, File No. 0-10182), and the letter amendment,
dated as of November 20, 1992, (incorporated herein by reference to the
Company's 10-K for the fiscal year ended January 3, 1993, File No. 0-
10182), together with the related Guaranty, dated as of April 14, 1989,
between Scotsman Industries, Inc. and Morgan Guaranty Trust Company of New
York (incorporated herein by reference to the Company's 10-K for the
fiscal year ended December 29, 1991, File No. 0-10182).
10.11 Long-Term Executive Incentive Compensation Plan of Scotsman Industries,
Inc., as amended May 21, 1992 (incorporated herein by reference to the
Company's 10-Q for the quarter ended June 28, 1992, File No. 0-10182).
</TABLE>
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<PAGE> 31
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description of Exhibit
------ ----------- --------------
<S> <C> <C>
10.12 Scotsman Industries, Inc., Executive Incentive Compensation Program, Plans
AA, A-1 and A-2 (incorporated herein by reference to the Company's 10-K
for the fiscal year ended December 30, 1990, File No. 0-10182) and B-2
(incorporated herein by reference to the Company's 10-K for the fiscal
year ended December 29, 1991).
10.13 Scotsman Group Inc. Supplemental Tax Reduction Investment Plan, dated as
of April 14, 1989 (incorporated herein by reference to the Company's 10-K
for the fiscal year ended December 30, 1990, File No. 0-10182).
10.14 Employment Agreement dated September 16, 1991 between Scotsman Group, Inc.
and Richard C. Osborne (incorporated herein by reference to the Company's
10-Q for the quarter ended September 29, 1991, File No. 0-10182).
10.15 Employment Agreement dated September 16, 1991 between Scotsman Group, Inc.
and Emanuele Lanzani (incorporated herein by reference to the Company's
10-K for the fiscal year ended December 29, 1991, File No. 0-10182).
10.16 Employment Agreement dated September 16, 1991 between Scotsman Group, Inc.
and Donald D. Holmes (incorporated herein by reference to the Company's
10-Q for the quarter ended September 29, 1991, File No. 0-10182).
10.17 Employment Agreement dated September 16, 1991 between Scotsman Group, Inc.
and David W. Campbell (incorporated herein by reference to the Company's
10-Q for the quarter ended September 29, 1991, File No. 0-10182).
10.18 Employment Agreement dated July 20, 1992 between Scotsman Group Inc. and
Randall C. Rossi.
10.19 Executive Severance Agreement dated as of September 16, 1991 between
Richard C. Osborne and Scotsman Group, Inc. (incorporated herein by
reference to the Company's 10-Q for the quarter ended September 29, 1991,
File No. 0-10182).
10.20 Amendment No. 1 to Executive Severance Agreement, dated as of January 11,
1994, between Richard C. Osborne and Scotsman Group, Inc.
</TABLE>
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<PAGE> 32
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description of Exhibit
------ ----------- -------------
<S> <C> <C>
10.21 Executive Severance Agreement dated as of September 16, 1991 between
Emanuele Lanzani and Frimont S.p.A (incorporated herein by reference to
the Company's 10-K for the fiscal year ended December 29, 1991, File No.
0-10182).
10.22 Amendment No. 1 to Executive Severance Agreement, dated as of January 11,
1994, between Emanuele Lanzani and Scotsman Group, Inc.
10.23 Executive Severance Agreement dated as of September 16, 1991 between
Donald D. Holmes and Scotsman Group, Inc. (incorporated herein by
reference to the Company's 10-Q for the quarter ended September 29, 1991,
File No. 0-10182).
10.24 Amendment No. 1 to Executive Severance Agreement, dated as of January 11,
1994, between Donald D. Holmes and Scotsman Group, Inc.
10.25 Executive Severance Agreement dated as of September 16, 1991 between David
W. Campbell and Booth, Inc. (incorporated herein by reference to the
Company's 10-Q for the quarter ended September 29, 1991, File No. 0-
10182).
10.26 Amendment No. 1 to Executive Severance Agreement, dated as of January 11,
1994, between David W. Campbell and Booth, Inc.
10.27 Retirement Program for Emanuele Lanzani of Frimont, S.p.A., Subsidiary of
King-Seeley Thermos Co. dated July 25, 1984 (incorporated herein by
reference to the Company's 10-K for the fiscal year ended December 31,
1989, File No. 0-10182).
10.28 Agreement dated March 27, 1981 by and between Emanuele Lanzani and King-
Seeley Thermos Co. and Frimont, S.p.A. (incorporated herein by reference
to the Company's 10-K for the fiscal year ended December 31, 1989, File
No. 0-10182), as amended by the Amendment dated March 20, 1990
(incorporated herein by reference to the Company's 10-Q for the quarter
ended September 30, 1990, File No. 0-10182).
10.29 Industrial Building Lease Agreement dated September 21, 1988 by and
between American National Bank and Trust Company of Chicago, as Trustee
under Trust Agreement No. 64661 dated June 17, 1985, and Household
Manufacturing, Inc. (incorporated herein by reference to the Company's 10-
K for the fiscal year ended December 31, 1989, File No. 0-10182).
</TABLE>
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<PAGE> 33
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description of Exhibit
--------- ----------- ------------
<S> <C> <C>
10.30 Lease and Purchase Option dated August 21, 1986 by and between Jerome P.
Heilweil and Flora P. Heilweil and Household Manufacturing, Inc.
(incorporated herein by referenced to the Company's 10-K for the fiscal
year ended December 31, 1989, File No. 0-10182).
10.31 Lease Agreement, dated as of April 16, 1993, by and between the Western
and Southern Life Insurance Company and Booth, Inc., together with the
related Guaranty by Scotsman Group Inc. dated as of April 8, 1993
(incorporated herein by reference to the Company's 10-Q for the quarter
ended October 2, 1993, File No. 0-10182).
10.32 Consent Order Agreement between Scotsman Group Inc. and the Staff of the
United States Consumer Product Safety Commission (incorporated by
reference to the Company's 8-K, dated May 29, 1990, File No. 0-10182).
10.33 Purchase Agreement between Glenco Holdings Inc. and Scotsman Group Inc.,
dated as of September 23, 1992 (incorporated herein by reference to the
Company's 8-K, dated September 28, 1992, File No. 0-10182).
10.34 Agreement and Plan of Merger, dated as of January 11, 1994, among Scotsman
Industries, Inc., Scotsman Acquisition Corporation, DFC Holding
Corporation, The Delfield Company, Onex Corporation, Onex DHC LLC, Pacific
Mutual Life Insurance Co., PM Group Life Insurance Co., EJJM, Matthew O.
Diggs, Jr., Timothy C. Collins, W. Joseph Manifold, Charles R. McCollom,
Anita J. Moffatt Trust, Anita J. Moffatt, Remo Panella, Teddy F. Reed,
Robert L. Schafer, Graham E. Tillotson, John A. Tilmann Trust, John A.
Tilmann, Kevin E. McCrone, Michael P. McCrone, Ronald A. Anderson and
Continental Bank N.A. (incorporated herein by reference to the Company's
8-K, dated January 13, 1994, File No. 0-10182).
10.35 First Amendment to Agreement and Plan of Merger, dated as of March 17,
1994, among Scotsman Industries, Inc., Scotsman Acquisition Corporation,
DFC Holding Corporation, The Delfield Company, Onex Corporation, Onex DHC
LLC, Pacific Mutual Life Insurance Co., PM Group Life Insurance Co., EJJM,
Matthew O. Diggs, Jr., Timothy C. Collins, W. Joseph Manifold, Charles R.
McCollom, Anita J. Moffatt Trust, Anita J. Moffatt, Remo Panella, Teddy F.
Reed, Robert L. Schafer, Graham E. Tillotson, John A. Tilmann Trust, John
A. Tilmann, Ronald A. Anderson, Kevin E. McCrone, Michael P. McCrone, and
Continental Bank N.A.
</TABLE>
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<PAGE> 34
<TABLE>
<CAPTION>
Exhibit Page Number
Number Description of Exhibit
------ ----------- -----------
<S> <C> <C>
10.36 Share Acquisition Agreement, dated as of January 11, 1994, among Scotsman
Industries, Inc., Whitlenge Acquisition Limited, Whitlenge Drink Equipment
Limited, Timothy C. Collins, Graham F. Cook, Christopher R.L. Wheeler,
Michael de St. Paer and John Rushton (incorporated herein by reference to
the Company's 8-K, dated January 13, 1994, File No. 0-10182)
10.37 First Amendment to Share Acquisition Agreement, dated as of March 17,
1994, among Scotsman Industries, Inc., Scotsman Drink Limited, Whitlenge
Acquisition Limited, Whitlenge Drink Equipment Limited, Onex Corporation,
Onex U.S. Investments, Inc., EJJM, Matthew O. Diggs, Jr., Timothy C.
Collins, Graham F. Cook, Christopher R.L. Wheeler, Michael de St. Paer and
John Rushton.
13.1 Those portions of Scotsman's 1993 Annual Report to Shareholders which are
incorporated by reference under Part I, Item 1, "Financial Information
about Foreign and Domestic Operations," and Part II, Items 5, 6, 7, and 8
of the Form 10-K, consisting of "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the report of Arthur
Andersen & Co. and the consolidated financial statements, together with
the notes thereto (as set forth in the list of financial statements under
Item 14(a)(1)), "Five Year Summary," "Selected Quarterly Financial Data,"
and "Common Stock."
21.1 List of Subsidiaries
23.1 Consent of Arthur Andersen & Co.
</TABLE>
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<PAGE> 1
EXHIBIT 10.18
775 Corporate Woods Parkway
Vernon Hills, Illinois 60061-3112
(708) 215-4500
SCOTSMAN Fax (708) 913-9844
Industries
July 20, 1992
Mr. Randall C. Rossi
457 West Trail
Grayslake, Illinois 60030
RE: EMPLOYMENT AGREEMENT
Dear Randy:
1. This letter confirms your employment by SCOTSMAN GROUP, INC. (the
"Company") as Vice President-Sales & Marketing. In that capacity you are
entitled to the following:
a. An annual salary of $103,800;
b. Benefits as described in, and in accordance with, the Company's benefit
plans; and
c. An annual par bonus equal to 25% of your annual salary. The amount of
bonus that you actually receive, if any, will depend on the achievement
of corporate and your individual goals.
2. During your employment with the Company, you will devote your full time and
energies to the faithful and diligent performance of the duties inherent
in, and implied by, your executive position.
3. In consideration of your having accepted employment with the Company, it is
mutually agreed that:
a. In the event your employment with the Company is terminated by the
Company before July 20, 1994 for any reason other than:
i. willful and deliberate misconduct; or
<PAGE> 2
Mr. Randall C. Rossi
July 20, 1992
Page 2
ii. inability, for reasons of disability, reasonably to perform your
duties for six consecutive calendar months; or
b. In the event before July 20, 1994 you resign your position with the
Company because:
i. you are assigned to a position of lesser rank or status;
ii. your annual salary, annual par bonus or your benefits are
reduced; or
iii. you are reassigned to a geographical area more than 50 miles from
your residence,
the Company shall be required, and hereby agrees, to continue paying your
then annual salary, to pay your then annual bonus at par level and to
provide all pension, profit sharing, deferred compensation, medical and life
insurance benefits under the Company's benefit plans, or the economic
equivalent thereof, for a period of twelve (12) months from the date of such
termination or resignation. If, pursuant to the terms of a benefit plan, a
benefit would be earned or accrued during such 12 month period but would be
payable on a deferred basis (were you to be employed during such 12 month
period) the benefit similarly shall be deferred hereunder; provided,
however, that the Company reserves the right to pay the present value of
such benefit to you in cash at the end of such 12 month period.
4. You are not required to mitigate the amount of any payments to be made by
the Company pursuant to this Agreement by seeking other employment, or
otherwise, nor shall the amount of any payments provided for in this
Agreement be reduced by any compensation earned by you as the result of
self-employment or your employment by another employer after the date of
termination of your employment with the Company.
5. If a dispute arises regarding the termination of your employment or the
interpretation or enforcement of this Agreement and you obtain a final
judgement in your favor from a court of competent jurisdiction from which
no appeal may be taken, whether because the time to do so has expired or
otherwise, or your claim is settled by the Company prior to the rendering
of such a judgment, all reasonable legal and other professional fees and
expenses incurred by you in contesting or disputing any such termination or
in seeking to obtain or enforce any right or benefit provided for this
Agreement or in otherwise pursuing your claim will be promptly paid by the
company with interest thereon at the highest statutory rate of your state
of domicile for interest on judgments against private parties from the date
of payment thereof by you to the date of reimbursement to you by the
Company.
<PAGE> 3
Mr. Randall C. Rossi
July 20, 1992
Page 3
If the foregoing terms and provisions are acceptable to you, please sign where
indicated on the enclosed copy of this Agreement and return it to me. We look
forward to your many contributions to the success of SCOTSMAN GROUP, INC.
Sincerely,
SCOTSMAN GROUP, INC.
/s/ R.C. Osborne
R.C. Osborne
ACCEPTED AND AGREED to the date first above set forth.
/s/ Randall C. Rossi
Randall C. Rossi
<PAGE> 1
EXHIBIT 10.20
AMENDMENT NO. 1 TO
EXECUTIVE SEVERANCE AGREEMENT
AMENDMENT, dated as of January 11, 1994 (this "Amendment"), to the Executive
Severance Agreement dated September 16, 1991 (the "Severance Agreement"),
between Scotsman Group, Inc., a Delaware corporation (the "Company"), and
Richard C. Osborne (the "Employee").
WHEREAS, Scotsman Industries, Inc., a Delaware corporation and the sole
shareholder of the Company ("Scotsman Industries"), has entered into (i) an
Agreement and Plan of Merger dated as of January 11, 1994 (the "Delfield Merger
Agreement") among Scotsman Industries, Scotsman Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of Scotsman Industries
("Sub"), DFC Holding Corporation, a Delaware corporation ("Holding"), The
Delfield Company, a Delaware corporation, and certain other parties thereto,
and (ii) a Share Acquisition Agreement dated as of January 11, 1994 (the
"Whitlenge Share Acquisition Agreement") among Scotsman Industries, Whitlenge
Acquisition Limited, a private company limited by shares registered in England
("WAL"), Whitlenge Drink Equipment Limited, a private company limited by shares
registered in England, and certain other parties thereto;
WHEREAS, (i) the Delfield Merger Agreement provides for, among other things,
the delivery by Sub to the stockholders of Holding of shares of Common Stock,
together with associated Rights, of Scotsman Industries, shares of Series A
$0.62 Cumulative Convertible Preferred Stock of Scotsman Industries and shares
of Series B Cumulative Preferred Stock of Scotsman Industries ("Series B
Preferred Stock") and (ii) the Delfield Merger Agreement and the Whitlenge
Share Acquisition Agreement provide for, among other things, the issuance to
the Stockholders of Holding and the Shareholders of WAL of up to an additional
667,000 shares of Common Stock, together with associated Rights, of Scotsman
Industries, and of additional shares of Series B Preferred Stock, in each case
on the terms and subject to the conditions set forth therein;
WHEREAS, the Company and the Employee desire to amend the Severance Agreement
as set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein and in the Severance Agreement, the parties hereto hereby
agree as follows:
<PAGE> 2
Section 1. Subsection (c) of Section 1 of the Severance Agreement is hereby
amended by adding the following paragraphs at the end of such subsection (c):
"Notwithstanding the provisions of this Section 1(c), a "Change in
Control" shall not occur as a result of (i) the acquisition of beneficial
ownership of securities of the Company by the Delfield/Whitlenge Group (as
such term is hereinafter defined) pursuant to the Delfield Merger Agreement
(as such term is hereinafter defined) or the Whitlenge Share Acquisition
Agreement (as such term is hereinafter defined) or (ii) approval by the
stockholders of the Company of the issuances of such securities pursuant to
the Delfield Merger Agreement and the Whitlege Share Acquisition Agreement.
For purposes of this Section 1(c), (i) "Delfield Merger Agreement" shall
mean the Agreement and Plan of Merger dated as of January 11, 1994 among the
Company, Scotsman Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of the Company, DFC Holding Corporation, a Delaware
corporation, The Delfield Company, a Delaware corporation, and certain other
parties thereto, (ii) "Whitlenge Share Acquisition Agreement" shall mean the
Share Acquisition Agreement dated as of January 11, 1994 among the Company,
Whitlenge Acquisition Limited, a private company limited by shares
registered in England, Whitlenge Drink Equipment Limited, a private company
limited by shares registered in England, and certain other parties thereto
and (iii) "Delfield/Whitlenge Group" shall mean any group comprised of New
Scotsman Stockholders (as defined in the Delfield Merger Agreement),
Continental Bank N.A. and the persons listed on Schedule 3.3(b) to the
Delfield Merger Agreement as beneficially owning shares of Common Stock of
the Company, acting or agreeing to act as a partnership, limited
partnership, syndicate or other group for the purpose of acquiring, holding,
voting or disposing of Common Stock of the Company."
Section 2. Notwithstanding anything to the contrary set forth herein, in
the event that either or both of the Delfield Merger Agreement or the Whitlenge
Share Acquisition Agreement is terminated, this Amendment shall thereupon
terminate and be of no further force or effect.
Section 3. This Amendment may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and all such
-2-
<PAGE> 3
counterparts shall together constitute but one and the same instrument.
Section 4. Except as expressly set forth herein, this Amendment shall not
by implication or otherwise alter, modify, amend or in any way affect any of
the terms, conditions, obligations, covenants or agreements contained in the
Severance Agreement, all of which are ratified and affirmed in all respects and
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and attested, all as of the day and year first above written.
SCOTSMAN GROUP, INC.
By: /s/ Donald D. Holmes
Name: Donald D. Holmes
Title: Vice President-Finance
/s/ Richard C. Osborne
Richard C. Osborne
-3-
<PAGE> 1
EXHIBIT 10.22
AMENDMENT NO. 1 TO
EXECUTIVE SEVERANCE AGREEMENT
AMENDMENT, dated as of January 11, 1994 (this "Amendment"), to the Executive
Severance Agreement dated September 16, 1991 (the "Severance Agreement"),
between Frimont S.p.A. (the "Company"), and Emanuele Lanzani (the "Employee").
WHEREAS, Scotsman Industries, Inc., a Delaware corporation and the sole
shareholder of the Company ("Scotsman Industries"), has entered into (i) an
Agreement and Plan of Merger dated as of January 11, 1994 (the "Delfield Merger
Agreement") among Scotsman Industries, Scotsman Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of Scotsman Industries
("Sub"), DFC Holding Corporation, a Delaware corporation ("Holding"), The
Delfield Company, a Delaware corporation, and certain other parties thereto,
and (ii) a Share Acquisition Agreement dated as of January 11, 1994 (the
"Whitlenge Share Acquisition Agreement") among Scotsman Industries, Whitlenge
Acquisition Limited, a private company limited by shares registered in England
("WAL"), Whitlenge Drink Equipment Limited, a private company limited by shares
registered in England, and certain other parties thereto;
WHEREAS, (i) the Delfield Merger Agreement provides for, among other things,
the delivery by Sub to the stockholders of Holding of shares of Common Stock,
together with associated Rights, of Scotsman Industries, shares of Series A
$0.62 Cumulative Convertible Preferred Stock of Scotsman Industries and shares
of Series B Cumulative Preferred Stock of Scotsman Industries ("Series B
Preferred Stock") and (ii) the Delfield Merger Agreement and the Whitlenge
Share Acquisition Agreement provide for, among other things, the issuance to
the Stockholders of Holding and the Shareholders of WAL of up to an additional
667,000 shares of Common Stock, together with associated Rights, of Scotsman
Industries, and of additional shares of Series B Preferred Stock, in each case
on the terms and subject to the conditions set forth therein;
WHEREAS, the Company and the Employee desire to amend the Severance Agreement
as set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein and in the Severance Agreement, the parties hereto hereby
agree as follows:
Section 1. Subsection (c) of Section 1 of the Severance Agreement is hereby
amended by adding the following paragraphs at the end of such subsection (c):
<PAGE> 2
"Notwithstanding the provisions of this Section 1(c), a "Change in
Control" shall not occur as a result of (i) the acquisition of beneficial
ownership of securities of the Company by the Delfield/Whitlenge Group (as
such term is hereinafter defined) pursuant to the Delfield Merger Agreement
(as such term is hereinafter defined) or the Whitlenge Share Acquisition
Agreement (as such term is hereinafter defined) or (ii) approval by the
stockholders of the Company of the issuances of such securities pursuant to
the Delfield Merger Agreement and the Whitlege Share Acquisition Agreement.
For purposes of this Section 1(c), (i) "Delfield Merger Agreement" shall
mean the Agreement and Plan of Merger dated as of January 11, 1994 among the
Company, Scotsman Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of the Company, DFC Holding Corporation, a Delaware
corporation, The Delfield Company, a Delaware corporation, and certain other
parties thereto, (ii) "Whitlenge Share Acquisition Agreement" shall mean the
Share Acquisition Agreement dated as of January 11, 1994 among the Company,
Whitlenge Acquisition Limited, a private company limited by shares
registered in England, Whitlenge Drink Equipment Limited, a private company
limited by shares registered in England, and certain other parties thereto
and (iii) "Delfield/Whitlenge Group" shall mean any group comprised of New
Scotsman Stockholders (as defined in the Delfield Merger Agreement),
Continental Bank N.A. and the persons listed on Schedule 3.3(b) to the
Delfield Merger Agreement as beneficially owning shares of Common Stock of
the Company, acting or agreeing to act as a partnership, limited
partnership, syndicate or other group for the purpose of acquiring, holding,
voting or disposing of Common Stock of the Company."
Section 2. Notwithstanding anything to the contrary set forth herein, in
the event that either or both of the Delfield Merger Agreement or the Whitlenge
Share Acquisition Agreement is terminated, this Amendment shall thereupon
terminate and be of no further force or effect.
Section 3. This Amendment may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and all such counterparts shall together constitute but one and the same
instrument.
-2-
<PAGE> 3
Section 4. Except as expressly set forth herein, this Amendment shall not
by implication or otherwise alter, modify, amend or in any way affect any of
the terms, conditions, obligations, covenants or agreements contained in the
Severance Agreement, all of which are ratified and affirmed in all respects and
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and attested, all as of the day and year first above written.
FRIMONT S.P.A.
By: /s/ Richard C. Osborne
Name: Richard C. Osborne
Title: Director
/s/ Emanuele Lanzani
Emanuele Lanzani
-3-
<PAGE> 1
EXHIBIT 10.24
AMENDMENT NO. 1 TO
EXECUTIVE SEVERANCE AGREEMENT
AMENDMENT, dated as of January 11, 1994 (this "Amendment"), to the Executive
Severance Agreement dated September 16, 1991 (the "Severance Agreement"),
between Scotsman Group, Inc., a Delaware corporation (the "Company"), and
Donald D. Holmes (the "Employee").
WHEREAS, Scotsman Industries, Inc., a Delaware corporation and the sole
shareholder of the Company ("Scotsman Industries"), has entered into (i) an
Agreement and Plan of Merger dated as of January 11, 1994 (the "Delfield Merger
Agreement") among Scotsman Industries, Scotsman Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of Scotsman Industries
("Sub"), DFC Holding Corporation, a Delaware corporation ("Holding"), The
Delfield Company, a Delaware corporation, and certain other parties thereto,
and (ii) a Share Acquisition Agreement dated as of January 11, 1994 (the
"Whitlenge Share Acquisition Agreement") among Scotsman Industries, Whitlenge
Acquisition Limited, a private company limited by shares registered in England
("WAL"), Whitlenge Drink Equipment Limited, a private company limited by shares
registered in England, and certain other parties thereto;
WHEREAS, (i) the Delfield Merger Agreement provides for, among other things,
the delivery by Sub to the stockholders of Holding of shares of Common Stock,
together with associated Rights, of Scotsman Industries, shares of Series A
$0.62 Cumulative Convertible Preferred Stock of Scotsman Industries and shares
of Series B Cumulative Preferred Stock of Scotsman Industries ("Series B
Preferred Stock") and (ii) the Delfield Merger Agreement and the Whitlenge
Share Acquisition Agreement provide for, among other things, the issuance to
the Stockholders of Holding and the Shareholders of WAL of up to an additional
667,000 shares of Common Stock, together with associated Rights, of Scotsman
Industries, and of additional shares of Series B Preferred Stock, in each case
on the terms and subject to the conditions set forth therein;
WHEREAS, the Company and the Employee desire to amend the Severance
Agreement as set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein and in the Severance Agreement, the parties hereto hereby
agree as follows:
<PAGE> 2
Section 1. Subsection (c) of Section 1 of the Severance Agreement is hereby
amended by adding the following paragraphs at the end of such subsection (c):
"Notwithstanding the provisions of this Section 1(c), a "Change in
Control" shall not occur as a result of (i) the acquisition of beneficial
ownership of securities of the Company by the Delfield/Whitlenge Group (as
such term is hereinafter defined) pursuant to the Delfield Merger Agreement
(as such term is hereinafter defined) or the Whitlenge Share Acquisition
Agreement (as such term is hereinafter defined) or (ii) approval by the
stockholders of the Company of the issuances of such securities pursuant to
the Delfield Merger Agreement and the Whitlege Share Acquisition Agreement.
For purposes of this Section 1(c), (i) "Delfield Merger Agreement" shall
mean the Agreement and Plan of Merger dated as of January 11, 1994 among the
Company, Scotsman Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of the Company, DFC Holding Corporation, a Delaware
corporation, The Delfield Company, a Delaware corporation, and certain other
parties thereto, (ii) "Whitlenge Share Acquisition Agreement" shall mean the
Share Acquisition Agreement dated as of January 11, 1994 among the Company,
Whitlenge Acquisition Limited, a private company limited by shares
registered in England, Whitlenge Drink Equipment Limited, a private company
limited by shares registered in England, and certain other parties thereto
and (iii) "Delfield/Whitlenge Group" shall mean any group comprised of New
Scotsman Stockholders (as defined in the Delfield Merger Agreement),
Continental Bank N.A. and the persons listed on Schedule 3.3(b) to the
Delfield Merger Agreement as beneficially owning shares of Common Stock of
the Company, acting or agreeing to act as a partnership, limited
partnership, syndicate or other group for the purpose of acquiring, holding,
voting or disposing of Common Stock of the Company."
Section 2. Notwithstanding anything to the contrary set forth herein, in
the event that either or both of the Delfield Merger Agreement or the Whitlenge
Share Acquisition Agreement is terminated, this Amendment shall thereupon
terminate and be of no further force or effect.
Section 3. This Amendment may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and all such
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<PAGE> 3
counterparts shall together constitute but one and the same instrument.
Section 4. Except as expressly set forth herein, this Amendment shall not
by implication or otherwise alter, modify, amend or in any way affect any of
the terms, conditions, obligations, covenants or agreements contained in the
Severance Agreement, all of which are ratified and affirmed in all respects and
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and attested, all as of the day and year first above written.
SCOTSMAN GROUP, INC.
By: /s/ Richard C. Osborne
-----------------------
Name: Richard C. Osborne
Title: President
/s Donald D. Holmes
-------------------------
Donald D. Holmes
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<PAGE> 1
EXHIBIT 10.26
AMENDMENT NO. 1 TO
EXECUTIVE SEVERANCE AGREEMENT
AMENDMENT, dated as of January 11, 1994 (this "Amendment"), to the Executive
Severance Agreement dated September 16, 1991 (the "Severance Agreement"),
between Booth, Inc., a Texas corporation (the "Company"), and David W. Campbell
(the "Employee").
WHEREAS, Scotsman Industries, Inc., a Delaware corporation and the sole
shareholder of the Company ("Scotsman Industries"), has entered into (i) an
Agreement and Plan of Merger dated as of January 11, 1994 (the "Delfield Merger
Agreement") among Scotsman Industries, Scotsman Acquisition Corporation, a
Delaware corporation and wholly-owned subsidiary of Scotsman Industries
("Sub"), DFC Holding Corporation, a Delaware corporation ("Holding"), The
Delfield Company, a Delaware corporation, and certain other parties thereto,
and (ii) a Share Acquisition Agreement dated as of January 11, 1994 (the
"Whitlenge Share Acquisition Agreement") among Scotsman Industries, Whitlenge
Acquisition Limited, a private company limited by shares registered in England
("WAL"), Whitlenge Drink Equipment Limited, a private company limited by shares
registered in England, and certain other parties thereto;
WHEREAS, (i) the Delfield Merger Agreement provides for, among other things,
the delivery by Sub to the stockholders of Holding of shares of Common Stock,
together with associated Rights, of Scotsman Industries, shares of Series A
$0.62 Cumulative Convertible Preferred Stock of Scotsman Industries and shares
of Series B Cumulative Preferred Stock of Scotsman Industries ("Series B
Preferred Stock") and (ii) the Delfield Merger Agreement and the Whitlenge
Share Acquisition Agreement provide for, among other things, the issuance to
the Stockholders of Holding and the Shareholders of WAL of up to an additional
667,000 shares of Common Stock, together with associated Rights, of Scotsman
Industries, and of additional shares of Series B Preferred Stock, in each case
on the terms and subject to the conditions set forth therein;
WHEREAS, the Company and the Employee desire to amend the Severance
Agreement as set forth in this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein and in the Severance Agreement, the parties hereto hereby
agree as follows:
Section 1. Subsection (c) of Section 1 of the Severance Agreement is hereby
amended by adding the following paragraphs at the end of such subsection (c):
<PAGE> 2
"Notwithstanding the provisions of this Section 1(c), a "Change in
Control" shall not occur as a result of (i) the acquisition of beneficial
ownership of securities of the Company by the Delfield/Whitlenge Group (as
such term is hereinafter defined) pursuant to the Delfield Merger Agreement
(as such term is hereinafter defined) or the Whitlenge Share Acquisition
Agreement (as such term is hereinafter defined) or (ii) approval by the
stockholders of the Company of the issuances of such securities pursuant to
the Delfield Merger Agreement and the Whitlege Share Acquisition Agreement.
For purposes of this Section 1(c), (i) "Delfield Merger Agreement" shall
mean the Agreement and Plan of Merger dated as of January 11, 1994 among the
Company, Scotsman Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of the Company, DFC Holding Corporation, a Delaware
corporation, The Delfield Company, a Delaware corporation, and certain other
parties thereto, (ii) "Whitlenge Share Acquisition Agreement" shall mean the
Share Acquisition Agreement dated as of January 11, 1994 among the Company,
Whitlenge Acquisition Limited, a private company limited by shares
registered in England, Whitlenge Drink Equipment Limited, a private company
limited by shares registered in England, and certain other parties thereto
and (iii) "Delfield/Whitlenge Group" shall mean any group comprised of New
Scotsman Stockholders (as defined in the Delfield Merger Agreement),
Continental Bank N.A. and the persons listed on Schedule 3.3(b) to the
Delfield Merger Agreement as beneficially owning shares of Common Stock of
the Company, acting or agreeing to act as a partnership, limited
partnership, syndicate or other group for the purpose of acquiring, holding,
voting or disposing of Common Stock of the Company."
Section 2. Notwithstanding anything to the contrary set forth herein, in
the event that either or both of the Delfield Merger Agreement or the Whitlenge
Share Acquisition Agreement is terminated, this Amendment shall thereupon
terminate and be of no further force or effect.
Section 3. This Amendment may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original,
and all such counterparts shall together constitute but one and the same
instrument.
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<PAGE> 3
Section 4. Except as expressly set forth herein, this Amendment shall not
by implication or otherwise alter, modify, amend or in any way affect any of
the terms, conditions, obligations, covenants or agreements contained in the
Severance Agreement, all of which are ratified and affirmed in all respects and
shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and attested, all as of the day and year first above written.
BOOTH, INC.
By: /s/ Richard C. Osborne
Name: Richard C. Osborne
Title: Vice President
/s/ David W. Campbell
David W. Campbell
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<PAGE> 1
EXHIBIT 10.35
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER, dated as of March 17,
1994 (this "First Amendment"), among Scotsman Industries, Inc., a Delaware
corporation ("Scotsman"), Scotsman Acquisition Corporation, a Delaware
corporation ("Sub"), DFC Holding Corporation, a Delaware corporation
("Holding"), The Delfield Company, a Delaware corporation ("TDC"), Onex
Corporation, an Ontario corporation ("Onex"), Onex DHC LLC, a limited liability
corporation formed under the laws of the State of Wyoming ("Onex DHC"), Pacific
Mutual Life Insurance Company, a California corporation ("Pacific"), PM Group
Life Insurance Co., an Arizona corporation ("PM"), EJJM, an Ohio limited
partnership ("EJJM"), Matthew O. Diggs, Jr. ("Diggs"), Timothy C. Collins
("Collins"), W. Joseph Manifold ("Manifold"), Charles R. McCollom ("McCollom"),
Anita J. Moffatt Trust u/a dated July 23, 1993 ("Moffatt Trust"), Anita J.
Moffatt ("Moffatt"), Remo Panella ("Panella"), Teddy F. Reed ("Reed"), Robert
L. Schafer ("Schafer"), Graham E. Tillotson ("Tillotson"), John A. Tilmann
Trust dated July 23, 1993 ("Tilmann Trust"), John A. Tilmann ("Tilmann"),
Ronald A. Anderson ("Anderson"), Kevin E. McCrone ("KE McCrone"), Michael P.
McCrone ("MP McCrone") (Onex, Onex DHC, Pacific, PM, EJJM, Diggs, Collins,
Manifold, McCollom, Moffatt Trust, Moffatt, Panella, Reed, Schafer, Tillotson,
Tilmann Trust, Tilmann, Anderson, KE McCrone and MP McCrone are each referred
to individually as a "Stockholder" and collectively as the "Stockholders") and
Continental Bank N.A. ("Continental").
W I T N E S S E T H:
WHEREAS, Scotsman, Sub, Holding, TDC, Continental and the Stockholders have
entered into that certain Agreement and Plan of Merger, dated as of January 11,
1994 (the "Agreement"), providing for the merger of Sub into Holding; and
WHEREAS, Scotsman, Sub, Holding, TDC, Continental and the Stockholders
desire to amend the Agreement in certain respects in accordance with Section
12.10 thereof.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth herein, the parties hereto agree as follows:
1. Section 10.1 of the Agreement is hereby amended by deleting the first
sentence of such section in its entirety and substituting therefor the
following:
"From and after the Effective Time, each of the Stockholders shall indemnify
and hold harmless
<PAGE> 2
Scotsman, TDC, the Surviving Corporation and their subsidiaries, affiliates
and successors from and against any and all (a) liabilities, losses, costs or
damages ("Loss") and (b) reasonable attorneys', consultants' and accountants'
fees and expenses, court costs and all other reasonable out-of-pocket
expenses ("Expense") incurred by Scotsman, TDC, the Surviving Corporation and
their subsidiaries, affiliates and successors in connection with or arising
from (x) any breach or failure to perform by any Stockholder or Shareholder
(as defined in the Whitlenge Share Acquisition Agreement) of any of their
respective agreements, covenants or obligations in this Agreement or the
Whitlenge Share Acquisition Agreement, in each case to be performed or
complied with after the Effective Time or the Expiration Date (as defined in
the Whitlenge Share Acquisition Agreement), as the case may be, (y) any
breach of any warranty or the inaccuracy of any representation of Holding,
TDC, WAL, Whitlenge Drink or any Stockholder or Shareholder contained in this
Agreement or the Whitlenge Share Acquisition Agreement, as updated in
accordance with Section 10.7 hereof and Section 8.7 of the Whitlenge Share
Acquisition Agreement, or in any certificate delivered by or on behalf of
Holding, TDC, WAL, Whitlenge Drink or any Stockholder or Shareholder pursuant
hereto or thereto and (z)(A) the actions listed in item 1 of Schedule 3.17 or
(B) any other claim, suit, action, proceeding or other matter in connection
with or arising out of the fire that occurred on or about February 5, 1992 at
the Indianapolis Athletic Club (including, without limitation, any claim,
suit, action or proceeding brought by or on behalf of Holding or TDC to seek
or enforce indemnification from Alco Standard or any of its affiliates or
insurance coverage under any insurance policy maintained by or for the
benefit of Alco Standard, Holding, TDC, Onex or any of their affiliates);
provided, however, that the Stockholders shall be required to indemnify and
hold harmless under this Section 10.1 only to the extent that the aggregate
amount of (without duplication) (i) Loss and Expense referred to above in
this Section 10.1 and (ii) Loss and Expense referred to in Section 8.1 of the
Whitlenge Share Acquisition Agreement exceeds U.S. $250,000; and provided,
further, (X) each Stockholder's obligation to indemnify and hold harmless
pursuant to this Section 10.1 shall be limited to the payment by such
Stockholder of cash (1) with respect to any individual Loss or Expense (other
than any Loss or Expense arising from a breach of a warranty, or inaccuracy
of a representation, of such Stockholder contained in Section 3.3(b) or
3.4(b), as to which this clause (1) shall be inapplicable), in an amount that
does not
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<PAGE> 3
exceed the product obtained by multiplying such Stockholder's Applicable
Percentage (as set forth on Schedule 10.1) by the amount of such Loss or
Expense, and (2) in the aggregate in an amount equal to the product obtained
by multiplying such Stockholder's Applicable Percentage (as set forth on
Schedule 10.1) by U.S. $30,000,000 (without limiting the foregoing, it being
understood that, for purposes of clause (2) above, with respect to the
Indianapolis Athletic Club fire matters or otherwise, the payment of any
amount by, or with funds furnished by, an insurer or Alco Standard, shall
not be deemed to be the payment by any Stockholder) and (Y) no Stockholder
shall indemnify and hold harmless any indemnified party with respect to any
Loss or Expense arising from any breach of a warranty, or inaccuracy of a
representation, of any other Stockholder or Continental contained in Section
3.3(b) or 3.4(b) or of any Shareholder contained in Section 2.3(b) or 2.4(b)
of the Whitlenge Share Acquisition Agreement."
2. Section 10.2 of the Agreement is hereby amended by deleting the first
sentence of such section in its entirety and substituting therefor the
following:
"From and after the Effective Time, Scotsman and the Surviving Corporation
shall jointly and severally indemnify and hold harmless the Stockholders and
their subsidiaries, affiliates and successors from and against any and all
Loss and Expense incurred by the Stockholders and their subsidiaries,
affiliates and successors in connection with or arising from (a) any breach
or failure to perform by Scotsman or the Surviving Corporation of any of
their respective agreements, covenants or obligations in this Agreement or
the Whitlenge Share Acquisition Agreement, in each case to be performed or
complied with after the Effective Time or the Expiration Time, as the case
may be, and (b) any breach of any warranty or the inaccuracy of any
representation of Scotsman or Sub contained in this Agreement or the
Whitlenge Share Acquisition Agreement or in any certificate delivered by or
on behalf of Scotsman or Sub pursuant hereto or thereto; provided, however,
that Scotsman and the Surviving Corporation shall be required to indemnify
and hold harmless under this Section 10.2 only to the extent that the
aggregate amount of (without duplication) (i) Loss and Expense referred to
above in this Section 10.2 and (ii) Loss and Expense referred to in Section
8.2 of the Whitlenge Share Acquisition Agreement exceeds U.S. $250,000; and
provided, further, Scotsman's and the Surviving Corporation's obligation to
indemnify and hold harmless pursuant to this Section 10.2 shall be limited
to the aggregate payment by
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<PAGE> 4
Scotsman and/or the Surviving Corporation of cash in an amount equal to the
excess of (i) U.S. $30,000,000 over (ii) any amount theretofore paid in
indemnification by Scotsman and/or any of its subsidiaries under Section 8.2
of the Whitlenge Share Acquisition Agreement."
3. Section 10.5 of the Agreement is hereby amended by inserting the
following between the first and second sentences thereof:
"Except as set forth in the immediately following sentence, nothing in this
Agreement (including, without limitation, this Article X) shall limit the
contractual or other remedies available against a party in breach thereof
for such party's breach of the Noncompetition Agreements entered pursuant to
Section 8.7 or the Registration Rights Agreement entered pursuant to
Sections 8.8 and 9.6."
4. The Agreement, as amended by this First Amendment, shall remain in full
force and effect in accordance with its terms. This First Amendment may be
executed in one or more counterparts. No modification of this First Amendment
shall be valid unless in writing and signed by the parties hereto. In the
event of any conflict between the provisions of this First Amendment and the
provisions of the Agreement, the provisions of this First Amendment shall
control.
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed as of the date first above written.
SCOTSMAN INDUSTRIES, INC.
By /s/ Donald D. Holmes
Name: Donald D. Holmes
Title: Vice President
SCOTSMAN ACQUISITION CORPORATION
By /s/ Donald D. Holmes
Name: Donald D. Holmes
Title: Vice President
DFC HOLDING CORPORATION
By /s/ Matthew O. Diggs, Jr.
Name: Matthew O. Diggs, Jr.
Title: Director
THE DELFIELD COMPANY
By /s/ Matthew O. Diggs, Jr.
Name: Matthew O. Diggs, JR.
Title: Director
ONEX CORPORATION
By /s/ Ewout Heersink
Name: Ewout Heersink
Title: Vice President
By /s/ Anthony Melman
Name: Anthony Melman
Title: Vice President
ONEX DHC LLC
By /s/ Eric Rosen
Name: Eric Rosen
Title: Representative
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<PAGE> 6
By /s/ Donald F. West
Name: Donald F. West
Title: Representative
PACIFIC MUTUAL LIFE INSURANCE COMPANY
By /s/ Schuyler G. Lance
Name: Schuyler G. Lance
Title: Assistant Vice President
PM GROUP LIFE INSURANCE CO.
By /s/ Larry J. Card
Name: Larry J. Card
Title: Vice President
EJJM
By /s/ Matthew O. Diggs, Jr.
Name: Matthew O. Diggs, Jr.
Title: Managing General Partner
MATTHEW O. DIGGS, JR.
/s/ Matthew O. Diggs, Jr.
TIMOTHY C. COLLINS
/s/ Timothy C. Collins
W. JOSEPH MANIFOLD
/s/ W. Joseph Manifold
CHARLES R. McCOLLOM
/s/ Charles R. McCollom
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<PAGE> 7
ANITA J. MOFFATT TRUST
By /s/ Anita J. Moffatt
Name: Anita J. Moffatt
Title: Trustee
ANITA J. MOFFATT
/s/ Anita J. Moffatt
REMO PANELLA
/s/ Remo Panella
TEDDY F. REED
/s/ Teddy F. Reed
ROBERT L. SCHAFER
/s/ Robert L. Schafer
GRAHAM E. TILLOTSON
/s/ Graham E. Tillotson
JOHN A. TILMANN TRUST
By /s/ John A. Tilmann
Name: John A. Tilmann
Title: Trustee
JOHN A. TILMANN
/s/ John A. Tilmann
-7-
<PAGE> 8
KEVIN E. McCRONE
/s/ Kevin E. McCrone
MICHAEL P. McCRONE
/s/ Michael P. McCrone
RONALD A. ANDERSON
/s/ Ronald A. Anderson
CONTINENTAL BANK N.A.
By /s/ David Pattie
Name: David Pattie
Title: Vice President
-8-
<PAGE> 1
EXHIBIT 10.37
FIRST AMENDMENT TO SHARE ACQUISITION AGREEMENT
THIS FIRST AMENDMENT TO SHARE ACQUISITION AGREEMENT, dated as of March 17,
1994 (this "First Amendment"), among Scotsman Industries, Inc., a Delaware
corporation ("Scotsman"), Scotsman Drink Limited, a private company limited by
shares registered in England ("SDL"), Whitlenge Acquisition Limited, a private
company limited by shares registered in England ("WAL"), Whitlenge Drink
Equipment Limited, a private company limited by shares registered in England
("Whitlenge"), Onex Corporation, an Ontario corporation ("Onex"), Onex U.S.
Investments, Inc., an Ontario corporation ("Onex Investments"), EJJM, an Ohio
limited partnership ("EJJM"), Matthew O. Diggs, Jr. ("Diggs"), Timothy C.
Collins ("Collins"), Graham F. Cook ("Cook"), Christopher R.L. Wheeler
("Wheeler"), Michael de St. Paer ("de St. Paer") and John Rushton ("Rushton")
(Onex, Onex Investments, EJJM, Diggs, Collins, Cook, Wheeler, de St. Paer and
Rushton are each referred to individually as a "Shareholder" and collectively
as the "Shareholders").
W I T N E S S E T H:
WHEREAS, Scotsman, WAL, Whitlenge and the Shareholders have entered into
that certain Share Acquisition Agreement, dated as of January 11, 1994 (the
"Agreement"), providing for the acquisition of all of the issued shares of
capital stock of WAL by Scotsman or a wholly-owned subsidiary of Scotsman
pursuant to a tender offer by Scotsman or such subsidiary; and
WHEREAS, Scotsman, WAL, Whitlenge and the Shareholders desire to amend the
Agreement in certain respects in accordance with Section 10.10 thereof.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements set forth herein, the parties hereto agree as follows:
1. Section 8.1 of the Agreement is hereby amended by deleting the first
sentence of such section in its entirety and substituting therefor the
following:
"From and after the Expiration Time, each of the Shareholders shall
indemnify and hold harmless Scotsman, WAL, Whitlenge, WB and their
subsidiaries, affiliates and successors from and against any and all (a)
liabilities, losses, costs or damages ("Loss") and (b) reasonable
attorneys', consultants' and accountants' fees and expenses, court costs and
all other reasonable out-of-pocket expenses ("Expense") incurred by
Scotsman, WAL, Whitlenge, WB and their subsidiaries, affiliates and
successors in connection with or arising from (x) any breach or failure to
perform by any Shareholder or Stockholder (as defined
<PAGE> 2
in the Merger Agreement) of any of their respective agreements, covenants or
obligations in this Agreement or the Merger Agreement, in each case to be
performed or complied with after the Expiration Time or Effective Time (as
defined in the Merger Agreement), as the case may be, (y) any breach of any
warranty or the inaccuracy of any representation of Holding, TDC, WAL,
Whitlenge or any Shareholder or Stockholder contained in this Agreement or
the Merger Agreement, as updated in accordance with Section 8.7 hereof and
Section 10.7 of the Merger Agreement, or in any certificate delivered by or
on behalf of Holding, TDC, WAL, Whitlenge or any Stockholder or Shareholder
pursuant hereto or thereto or (z) the matters referred to in clause (z) of
Section 10.1 of the Merger Agreement; provided, however, that the
Shareholders shall be required to indemnify and hold harmless under this
Section 8.1 only to the extent that the aggregate amount of (without
duplication) (i) Loss and Expense referred to above in this Section 8.1 and
(ii) Loss and Expense referred to in Section 10.1 of the Merger Agreement
exceeds U.S. $250,000; and provided, further, (X) each Shareholder's
obligation to indemnify and hold harmless pursuant to this Section 8.1 shall
be limited to the payment by such Shareholder of cash (1) with respect to any
individual Loss or Expense (other than any Loss or Expense arising from a
breach of a warranty, or inaccuracy of a representation, of such Shareholder
contained in Section 2.3(b) or 2.4(b), as to which this clause (1) shall be
inapplicable), in an amount that does not exceed the product obtained by
multiplying such Shareholder's Applicable Percentage (as set forth on
Schedule 8.1) by the amount of such Loss or Expense, and (2) in the aggregate
in an amount equal to the product obtained by multiplying such Shareholder's
Applicable Percentage (as set forth on Schedule 8.1) by U.S. $30,000,000
(without limiting the foregoing, it being understood that, for purposes of
clause (2) above, with respect to the matters described in clause (z) of
Section 10.1 of the Merger Agreement or otherwise, the payment of any amount
by, or with funds furnished by, an insurer or Alco Standard shall not be
deemed to be the payment by any Shareholder) and (Y) no Shareholder shall
indemnify and hold harmless any indemnified party with respect to any Loss or
Expense arising from any breach of a warranty, or inaccuracy of a
representation, of any other Shareholder contained in Section 2.3(b) or
2.4(b) or of any Stockholder or Continental Bank N.A. contained in Section
3.3(b) or 3.4(b) of the Merger Agreement."
2. Section 8.2 of the Agreement is hereby amended by deleting the first
sentence of such section in its entirety and substituting therefor the
following:
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<PAGE> 3
"From and after the Expiration Time, Scotsman shall indemnify and hold
harmless the Shareholders and their subsidiaries, affiliates and successors
from and against any and all Loss and Expense incurred by the Shareholders
and their subsidiaries, affiliates and successors in connection with or
arising from (a) any breach or failure to perform by Scotsman or the
Surviving Corporation (as defined in the Merger Agreement) of any of their
respective agreements, covenants or obligations in this Agreement or the
Merger Agreement, in each case to be performed or complied with after the
Expiration Time or the Effective Time, as the case may be, and (b) any
breach of any warranty or the inaccuracy of any representation of Scotsman
or Sub (as defined in the Merger Agreement) contained in this Agreement or
the Merger Agreement or in any certificate delivered by or on behalf of
Scotsman or Sub pursuant hereto or thereto; provided, however, that Scotsman
shall be required to indemnify and hold harmless under this Section 8.2 only
to the extent that the aggregate amount of (without duplication) (i) Loss
and Expense referred to above in this Section 8.2 and (ii) Loss and Expense
referred to in Section 10.2 of the Merger Agreement exceeds U.S. $250,000;
and provided, further, Scotsman's obligation to indemnify and hold harmless
pursuant to this Section 8.2 shall be limited to the aggregate payment by
Scotsman of cash in an amount equal to the excess of (i) U.S. $30,000,000
over (ii) any amount theretofore paid in indemnification by Scotsman and/or
any of its subsidiaries under Section 10.2 of the Merger Agreement."
3. Section 8.5 of the Agreement is hereby amended by inserting the
following between the first and second sentences thereof:
"Except as set forth in the immediately following sentence, nothing in this
Agreement (including, without limitation, this Article VIII) shall limit the
contractual or other remedies available against a party in breach thereof
for such party's breach of the Noncompetition Agreements entered pursuant to
Section 6.8 or the Registration Rights Agreement entered pursuant to
Sections 6.9 and 7.6."
4. By executing this First Amendment, SDL, a wholly-owned subsidiary of
Scotsman, agrees to perform all duties and obligations of Tender Subsidiary (as
defined in the Agreement) referred to in the Agreement.
5. The Agreement, as amended by this First Amendment, shall remain in full
force and effect in accordance with its terms. This First Amendment may be
executed in one or more
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<PAGE> 4
counterparts. No modification of this First Amendment shall be valid unless in
writing and signed by the parties hereto. In the event of any conflict between
the provisions of this First Amendment and the provisions of the Agreement, the
provisions of this First Amendment shall control.
6. Except to the extent that the laws of England are mandatorily applicable
to WAL, Whitlenge or their shareholders, this First Amendment, and the
application or interpretation thereof, shall be governed exclusively by its
terms and by the internal laws of the State of New York, without regard to
principles of conflicts of laws as applied in the State of New York or any
other jurisdiction which, if applied, would result in the application of any
laws other than the internal laws of the State of New York. Each of the
parties hereto irrevocably submits and consents to the exclusive jurisdiction
of the Supreme Court of the State of New York in the County of New York, or the
United States District Court for the Southern District of New York in
connection with any action or proceeding arising out of or relating to this
First Amendment, and irrevocably waives any immunity from jurisdiction thereof
and any claim of improper venue, forum non conveniens or any similar basis to
which it might otherwise be entitled in any such action or proceeding. Each of
the Shareholders hereby appoints as its or his authorized agent the Stockholder
Representative (as defined in the Agreement) (such agent hereinafter referred
to as the "Authorized Agent") upon which process may be served in any action to
enforce any claim arising out of or relating to this First Amendment which may
be instituted in any court described above; such appointment shall be
irrevocable until the appointment, similarly irrevocable, of a successor
Authorized Agent reasonably acceptable to Scotsman and such successor's
acceptance of such appointment. Service of such process upon the Authorized
Agent shall be deemed in every respect effective service of process upon each
of the Shareholders.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be duly executed as of the date first above written.
SCOTSMAN INDUSTRIES, INC.
By /s/ Donald D. Holmes
Name: Donald D. Holmes
Title: Vice President
SCOTSMAN DRINK LIMITED
By /s/ Donald D. Holmes
Name: Donald D. Holmes
Title: Vice President
WHITLENGE ACQUISITION LIMITED
By /s/ Matthew O. Diggs, Jr.
Name: Matthew O. Diggs, Jr.
Title: Director
WHITLENGE DRINK EQUIPMENT LIMITED
By /s/ Michael de St. Paer
Name: Michael de St. Paer
Title: Director
ONEX CORPORATION
By /s/ Ewout Heersink
Name: Ewout Heersink
Title: Vice President
By /s/ Anthony Melman
Name: Anthony Melman
Title: Vice President
-5-
<PAGE> 6
ONEX U.S. INVESTMENTS, INC.
By /s/ Ewout Heersink
Name: Ewout Heersink
Title: Vice President
By /s/ Anthony Melman
Name: Anthony Melman
Title: Vice President
EJJM
By /s/ Matthew O. Diggs, Jr.
Name: Matthew O. Diggs, Jr.
Title: Managing General Partner
MATTHEW O. DIGGS, JR.
/s/ Matthew O. Diggs, Jr.
TIMOTHY C. COLLINS
/s/ Timothy C. Collins
GRAHAM F. COOK
/s/ Graham F. Cook
CHRISTOPHER R.L. WHEELER
/s/ Christopher R.L. Wheeler
MICHAEL DE ST. PAER
/s/ Michael de St. Paer
JOHN RUSHTON
/s/ John Rushton
-6-
<PAGE> 1
EXHIBIT 13.1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company generated cash from operating activities of $11.7 million in the
fiscal year ended January 2, 1994 ("1993"), compared to $11.3 million in the
prior year. Net income plus depreciation and amortization of $11.1 million in
1993 increased $1.1 million over the prior year amount of $10.0 million.
Changes in assets and liabilities generated an additional $0.6 million due
primarily to working capital changes. Inventories, excluding the effect of
changes in exchange rates and the addition of approximately $1.3 million
resulting from the January, 1993 acquisition of Simag, declined by $1.0
million. This reduction in inventory levels reflects the Company's continuing
emphasis on more effective utilization of working capital. Trade accounts
payable and other liabilities increased by $2.2 million primarily due to the
recording of an accrual for post-retirement health care costs as required by
the change in accounting as described below. Partially offsetting these
factors was an increase in deferred income tax assets resulting from the
implementation of the new standard for accounting for income taxes.
Scotsman's total assets and liabilities increased moderately, reflecting the
generation of cash and the acquisition of Simag. Simag was acquired for $5.5
million of cash in January, 1993. The increases were partially offset by the
devaluation of the Italian lira which reduced the U.S. dollar value of
Scotsman's Italian operations' net assets by $3.0 million.
Capital expenditures, including those financed through capital lease
obligations, were $3.3 million, compared to $2.0 million in the prior year.
Expenditures were made for productivity improvements, new product tooling,
normal maintenance and replacement items and for capital requirements
associated with the relocation of the Crystal Tips operation to a newly leased
facility in Dallas, Texas. Capital expenditures in 1994, other than those
associated with the proposed acquisitions of The Delfield Company ("Delfield")
and Whitlenge Drink Equipment Limited ("Whitlenge"), are expected to increase
moderately from 1993 levels and are expected to be financed from internally
generated funds.
Cash and temporary cash investments of $8.5 million increased by $3.3 million
as a result of cash generated from operating activities, partially offset by
cash applied to the purchase of Simag and investments in properties and
equipment. Short-term debt, net, excluding the effect of changes in exchange
rates, increased by $1.7 million, reflecting the increase in the year-end
borrowing position of an Italian subsidiary which borrowed funds earlier in
the year for the purchase of Simag. Total debt, including capital leases, of
$32.2 million, compared to year-end shareholders' equity of $34.0 million,
resulted in a debt-to-equity ratio of 0.9 to 1, compared to 1 to 1 at the end
of the prior year. This was achieved in spite of further devaluation of the
Italian lira and its negative effect on shareholders' equity during the year.
Long-term debt outstanding at January 2, 1994 of $29.3 million remained the
same as at the end of the prior year and is maintained under agreements which
require compliance with specified financial ratios. The Company also maintains
a long-term $25 million credit agreement, under which no amounts were
outstanding at year end, with a bank group containing similar compliance
requirements. This credit agreement was established to provide funds for
acquisitions as well as working capital needs. As of January 2, 1994 the
Company was in compliance with all debt compliance covenants.
Scotsman initiated a quarterly dividend of 2 1/2 cents per share in its first
quarter as a public company which it has maintained since that time. However,
the decision to pay dividends, and the amount of such dividends, is determined
by the Scotsman Board of Directors from time to time, and may change as
conditions warrant.
1
<PAGE> 2
The Company believes that its available cash resources and cash flows are
adequate to finance its future internal growth.
The Company signed definitive agreements as of January 11, 1994 to acquire
Delfield and Whitlenge for a combination of cash and stock. These acquisitions
are expected to be consummated in the second quarter of 1994, subject to the
approval of the stock issuance by Scotsman's shareholders and certain other
conditions, at which time Scotsman would issue an additional 1.2 million
shares of common stock, with a market value of approximately $17.0 million
(using the 1993 fiscal year-end closing stock price), and $22.5 million of
$0.62 cumulative convertible preferred stock of Scotsman. Scotsman will also
be required to pay consideration of $30.3 million in a combination of cash and
non-convertible preferred stock of Scotsman. Scotsman also anticipates
replacing the existing $25.0 million credit agreement with a new larger credit
facility with a bank group, for which commitments have been received, at the
time of the acquisitions and in conjunction therewith to refinance certain
existing debt of Scotsman, Delfield and Whitlenge and to provide the cash
consideration to be paid in the acquisitions.
Results of Operations
Year ended January 2, 1994 ("1993") Compared
With Year Ended January 3, 1993 ("1992")
Net income of $7.4 million was reported for 1993, compared to $6.4 million for
1992, which represents an increase of 16 percent. The current year net income
included a net favorable amount of $29,000 from the cumulative effect of
accounting changes adopted in the first quarter of the year.
The current year results were achieved on sales of $164.0 million compared to
$168.7 million in the prior year. 1992 sales included $10.2 million from the
Glenco-Star business which was divested in September, 1992. 1993 sales were up
3 percent compared to sales from the 1992 operations other than Glenco-Star.
The comparison to prior year was also impacted by approximately $12 million
due to the translation effect of a weakening Italian lira during 1993. Current
year sales from ongoing operations, excluding the effect of foreign currency
changes, were up approximately 12 percent.
Sales from ongoing U.S. businesses were $119.1 million, up 12 percent from the
previous year. Domestic ice machine sales increased 15 percent as the result
of an improved domestic market, the January, 1993 addition of the Howe flaker
product line and the full year effect of sales of the products of Crystal
Tips, a U.S. based ice machine business acquired in April, 1992. Sales of
Booth soft drink dispensers were essentially the same as the record level of
the prior year.
Sales from the Company's European operations increased 10 percent in local
currency in 1993 compared to the prior year. This increase was due to the
sales of the products of Simag, the Italian ice machine business acquired in
January, 1993. European operations' sales, excluding the products of Simag,
were essentially flat with the prior year. Increased sales to the Far East and
to the Middle East offset declines in sales to Western European countries
where the markets continue to suffer from a major recession. Due to the
devaluation of the Italian lira relative to the U.S. dollar during 1993, sales
from the European operations, when translated into U.S. dollars, declined 14
percent.
Gross profit increased $3.0 million, an improvement of 2.7 points from 27.5 in
1992 to 30.2 percent of sales in 1993. This improvement reflects the Company's
continuing efforts to improve productivity. Warranty expense reductions were
achieved, primarily in the U.S. commercial ice machine business. Cost
reductions in the European operations, reflecting the partial year benefits of
a significant work force reduction early in the year at Frimont, the Company's
2
<PAGE> 3
larger Italian operation and the incremental margin contributed by the
addition of Simag sales volume, in combination with the September
consolidation of Simag within the operations of Frimont and Castel MAC, also
contributed to the improvement in gross profit margin.
Selling and administrative expenses for 1993 were up $0.3 million or 1 percent
from the prior year. A 10 percent increase in research and development
expenditures was incurred in the current year, reflecting resources applied to
conversion of products to incorporate non-ozone depleting refrigerants as well
as new product development efforts. Increased legal costs were recorded
related to a certain matter in litigation. A full year of Crystal Tips'
expenses also added to the current year totals compared to the prior year.
These increases were offset by the elimination of Glenco-Star expenses
incurred in 1992 prior to its divestiture and by the translation of Italian
operations' expenses at stronger U.S. dollar exchange rates.
Income from operations increased $2.7 million or 18 percent as a result of the
above mentioned factors. As a percent of sales, income from operations
improved to 10.7 percent, a 1.9 point increase over the prior year. The
productivity increases in the European operations resulted in a 90 percent
increase in operating income in U.S. dollars from those businesses. The full
year effect of actions implemented in 1993 should further add to their income
levels in 1994.
Interest expense, net, declined $0.4 million due primarily to lower interest
rates. An interest rate swap agreement which contributed to 1993 interest
expense will expire in April, 1994.
Income tax expense of $6.0 million reflects an effective tax rate of 44.8
percent, up from a rate of 37.2 percent in the prior year which included a tax
benefit of $0.6 million arising from a prior reorganization within the
European operations. All remaining tax benefits relating to this
reorganization have been reflected in the net deferred tax asset resulting
from the first quarter, 1993, adoption of SFAS No. 109, "Accounting for Income
Taxes".
Year Ended January 3, 1993 ("1992") Compared
With Year Ended December 29, 1991 ("1991")
Net income of $6.4 million was reported for 1992, compared to a $1.7 million
loss in the prior year. 1991 results reflected operating losses of Glenco-Star
and Halsey Taylor and special charges related to their dispositions. Glenco-
Star operating results for 1992 were charged to reserves established in the
prior year and therefore had no significant impact on 1992 earnings.
Net sales of $168.7 million were up $4.6 million from 1991 sales of $164.1
million. Sales from U.S. ongoing businesses were $106.3 million in 1992, up 18
percent from the previous year. Sales from European businesses were $52.2
million, down 3 percent from $53.5 million in 1991. Commercial ice machine
sales increased 12 percent over the prior year, largely due to the acquisition
of Crystal Tips in April, 1992. Scotsman Ice Systems, the U.S. commercial ice
machine business, gained market share in both the primary cube and flake type
ice machine segments while the market improved approximately 4 percent.
Scotsman's two European businesses reported a decline in ice machine sales of
7 percent in lire, 5 percent in dollars, compared to the prior year. This
decline was the result of the severe recession affecting most European
countries, which Scotsman believes has impacted the European ice machine
markets in excess of 7 percent. Scotsman's consumer ice machine sales declined
14 percent, experiencing softness in the luxury home construction market.
Sales of Booth soft drink dispensers rose to record levels, up 10 percent from
the prior year, reflecting market share gains with its major customers. Sales
of the Tecnomac bakery equipment line increased significantly due to market
penetration in several European countries, up 13 percent in lire, 16 percent
3
<PAGE> 4
in dollars.
Gross profit in 1992 was essentially the same as the prior year but the margin
as a percent of sales declined to 27.5 percent from 28.2 percent. Gross profit
margins improved in U.S. operations, despite higher warranty costs, as
increased productivity accompanied the higher sales volume. Margins in the
European ice machine businesses declined significantly, however, impacted by
lower sales volume and competitive pricing pressures, and by the effects of
lowering production levels to reduce finished goods inventories.
Selling and administrative expenses for fiscal year 1992 were down
substantially compared to prior year historical amounts. Selling and
administrative expenses in 1992 included the addition of Crystal Tips' costs
for approximately eight months of the year and Glenco-Star costs through
September, 1992. Prior year selling and administrative expenses included
Glenco-Star costs and a partial year of Halsey Taylor costs, as well as $6.0
million in charges related to the dispositions of Halsey Taylor and Glenco-
Star.
Operating profit in the U.S. was $12.7 million, up 44 percent from $8.8
million pro forma results in 1991. This increase was realized despite only
minimal price increases. Higher volumes together with a continuing program of
waste reduction were major factors in this improvement. Operating profit in
Europe was $5.8 million in 1991, and declined to $2.2 million in 1992. Lower
sales volume and pricing pressures, together with the impact of reduced
production levels to trim finished goods inventories, were major contributors
to this decline.
Interest expense, net, declined $1.1 million as a result of significant
decreases in outstanding debt during the latter half of 1991 and in 1992. Tax
expense of $3.8 million in 1992 reflected an effective tax rate of 37.2
percent on pre-tax income and included a tax benefit of $0.6 million which
reflected the favorable tax effects arising from a prior reorganization within
the European operations.
Accounting Standards
Effective January 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-retirement
Benefits Other Than Pensions" ("SFAS 106") on the immediate recognition basis.
The new standard requires that the expected cost of post-retirement benefits
be charged to expense during the years that the employees render service.
Previously, the Company recognized these costs on a pay-as-you-go basis.
The cumulative effect of this accounting change was to decrease income for
fiscal year 1993 by $1,660,000 ($1,029,000, or $0.15 per share, after-tax),
representing the amount of unfunded obligation measured as of the date of
adoption, January 4, 1993. This accounting change is not expected to
materially impact future operating results and is not expected to affect the
Company's cash flows because the Company plans to continue paying the cost of
post-retirement benefits when incurred. Other than the cumulative catch-up,
the impact of this accounting change on the current year was not material.
Financial statements for prior years have not been restated to reflect the
adoption of SFAS 106.
Effective January 4, 1993, the Company changed its method of accounting for
income taxes as a result of the required adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires a change in accounting for income taxes to an asset and liability
approach. The cumulative effect of this change in 1993 was a favorable impact
of $1,301,000, or $.19 per share. The cumulative effect resulted primarily
from the recognition of the remainder of Italian tax benefits which resulted
from a prior year reorganization and adjustments for rate differences. This
change impacted 1993 operating results by lowering Italian tax credits by
4
<PAGE> 5
approximately $0.6 million for the fiscal year (when compared to 1992), but
does not affect the Company's cash flows. The adoption of SFAS 109 has no
impact on pre-tax income. Financial statements for prior years have not been
restated to reflect the adoption of SFAS 109.
As of January 4, 1993, the Company had $2,302,000 of foreign tax credits which
will expire in 1994. The Company has established a full valuation allowance
against these tax assets, due to the improbability of using these credits
within the carryforward period. The valuation allowance also included $467,000
(of which $289,000 remains as of January 2, 1994) to partially offset the tax
asset in Italy relating to a prior year reorganization of one of the Company's
Italian subsidiaries. The Company established this reserve due to the limited
carryforward life of net operating losses in Italy.
Effective January 4, 1993, the Company also adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-employment
Benefits" ("SFAS 112"). The statement requires accrual accounting for benefits
provided to former or inactive employees after employment but before
retirement. The Company previously accounted for a certain portion of these
post-employment benefits on a pay-as-you-go basis. The impact of the change to
SFAS 112, was an unfavorable pre-tax amount of $508,000 ($243,000, net of tax
or $.03 per share). Other than the effect of the cumulative catch-up, the
impact on pre-tax income of this accounting change for the current year was
not material. Financial statements for prior years have not been restated to
reflect the adoption of SFAS 112.
The net effect of adoption of the above changes in accounting standards for
1993 was an increase to net income of $29,000.
5
<PAGE> 6
Scotsman Industries, Inc.
Consolidated Statement of Income
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
For the Fiscal Years Ended Jan. 2, Jan. 3, Dec. 29,
1994 1993 1991
<S> <C> <C> <C>
Net sales $163,952 $168,674 $164,126
Cost of sales 114,472 122,226 117,807
-------- -------- --------
Gross profit 49,480 46,448 46,319
Selling and administrative expenses 31,874 31,588 39,607
-------- -------- --------
Income from operations 17,606 14,860 6,712
Interest expense, net 4,235 4,675 5,776
-------- -------- --------
Income before income taxes 13,371 10,185 936
Income taxes 5,989 3,793 2,610
-------- -------- --------
Income (loss) before cumulative effect of accounting changes 7,382 6,392 (1,674)
Cumulative effect of accounting changes 29 -- --
-------- -------- --------
Net income (loss) $ 7,411 $ 6,392 $ (1,674)
-------- -------- --------
-------- -------- --------
Income per Share:
Income (loss) before cumulative effect of
accounting changes $1.06 $0.90 ($0.24)
Cumulative effect of accounting changes -- -- --
-------- -------- --------
Net income (loss) per share $1.06 $0.90 ($0.24)
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
-6-
<PAGE> 7
Scotsman Industries, Inc.
Consolidated Balance Sheet
(Amounts in thousands)
<TABLE>
<CAPTION>
Jan. 2, Jan. 3,
1994 1993
<S> <C> <C>
Assets
Current Assets:
Cash and temporary cash investments $ 8,462 $ 5,202
Trade accounts and notes receivable, net of allowances
of $1,548 in 1993 and $1,260 in 1992 28,578 28,806
Inventories 25,693 27,158
Deferred income taxes 3,748 --
Other current assets 1,701 2,183
-------- -------
Total current assets 68,182 63,349
Properties and equipment, net 19,867 20,040
Cost of investments in acquired businesses in excess of
net assets at acquisition, net 11,320 7,345
Deferred income taxes -- 1,318
Other noncurrent assets 3,804 4,051
-------- -------
Total assets $103,173 $96,103
-------- -------
-------- -------
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt and current maturities of capitalized
lease obligations $ 2,707 $ 1,865
Trade accounts payable 11,743 11,758
Accrued income taxes 2,087 1,428
Accrued expenses 15,327 15,943
-------- -------
Total current liabilities 31,864 30,994
Capitalized lease obligations 219 339
Long-term debt 29,250 29,250
Deferred income taxes 435 --
Other noncurrent liabilities 7,411 5,374
-------- -------
Total liabilities 69,179 65,957
Shareholders' Equity:
Common stock, $.10 par value, authorized 50,000,000 shares;
issued 7,210,549 shares and 7,200,661 shares, respectively 721 720
Preferred stock, $1.00 par value, authorized 10,000,000 shares;
issued-none -- --
Additional paid in capital 20,557 20,375
Retained earnings 20,855 14,144
Deferred compensation and unrecognized pension cost (54) (34)
Foreign currency translation adjustments (6,741) (3,753)
Less: Common stock held in treasury;
202,295 shares and 209,577 shares, respectively (1,344) (1,306)
-------- -------
Total shareholders' equity 33,994 30,146
-------- -------
Total liabilities and shareholders' equity $103,173 $96,103
-------- -------
-------- -------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
-7-
<PAGE> 8
Scotsman Industries, Inc.
Consolidated Statement of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
For the Fiscal Years Ended Jan. 2, Jan. 3, Dec. 29,
1994 1993 1991
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 7,411 $ 6,392 $ (1,674)
Adjustments to reconcile net income to net
cash provided by operating activities--
Depreciation and amortization 3,674 3,562 4,031
Loss (gain) on property dispositions (52) 201 274
Loss on disposal of Halsey Taylor -- -- 1,000
Loss related to decision to dispose of Glenco-Star -- -- 5,000
Change in assets and liabilities:
Trade accounts receivable (677) (285) 1,659
Inventories 1,018 3,293 1,570
Trade accounts payable and other liabilities 2,248 (2,491) (4,757)
Other, net (1,962) 611 1,214
-------- -------- --------
Net cash provided by operating activities 11,660 11,283 8,317
Cash flows from investing activities:
Investment in properties and equipment (3,264) (2,012) (2,432)
Proceeds from dispositions of properties and equipment 67 32 70
Proceeds received from disposal of Halsey Taylor -- -- 9,182
Proceeds received from disposal of Glenco-Star -- 2,856 --
Acquisition of Crystal Tips -- (5,341) --
Acquisition of Simag (5,506) -- --
-------- -------- --------
Net cash provided by (used in) investing activities (8,703) (4,465) 6,820
Cash flows from financing and capital activities:
Short-term debt, net 1,662 (4,729) 672
Principal payments under long-term debt and capitalized
leases (115) (245) (19,666)
Purchase of Scotsman Industries, Inc. common stock (38) (1,299) --
Dividends paid to shareholders (700) (710) (710)
-------- -------- --------
Net cash provided by (used in) financing
and capital activities 809 (6,983) (19,704)
Effect of exchange rate changes on cash and
temporary cash investments (506) (777) 284
-------- -------- --------
Net increase (decrease) in cash and temporary cash
investments 3,260 (942) (4,283)
Cash and temporary cash investments at beginning of year 5,202 6,144 10,427
-------- -------- --------
Cash and temporary cash investments at end of year $ 8,462 $ 5,202 $ 6,144
-------- -------- --------
-------- -------- --------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 4,356 $ 4,944 $ 6,121
-------- -------- --------
-------- -------- --------
Income taxes $ 5,048 $ 3,142 $ 6,208
-------- -------- --------
-------- -------- --------
Supplemental schedule of noncash investing and financing
activities:
Investment in properties and equipment through issuance
of capitalized lease obligations $ -- $ (7) $ (393)
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
-8-
<PAGE> 9
Scotsman Industries, Inc.
Consolidated Statement of Shareholders' Equity
(Amounts in thousands, except number of shares)
<TABLE>
<CAPTION>
Deferred
Compensation Foreign
Treasury Common Stock Additional and Currency Total
Stock Paid in Retained Unrecognized Translation Treasury Shareholders'
Number Number Par Value Capital Earnings Pension Cost Adjustment Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 30, 1990 95,320 7,186,875 $719 $20,067 $10,844 $(226) $2,213 ($10) $33,607
Net income (loss) -- -- -- -- (1,674) -- -- -- (1,674)
Foreign currency translation
adjustments -- -- -- -- -- -- (273) -- (273)
Issuance of deferred
compensation (11,835) -- -- 100 -- (101) -- 1 --
Amortization of deferred
compensation -- -- -- -- -- 251 -- -- 251
Dividends declared to common
shareholders -- -- -- -- (710) -- -- -- (710)
------- --------- ------ -------- -------- ------ ------- -------- --------
Balance at December 29, 1991 83,485 7,186,875 719 20,167 8,460 (76) 1,940 (9) 31,201
Net income -- -- -- -- 6,392 -- -- -- 6,392
Foreign currency translation
adjustments -- -- -- -- -- -- (5,693) -- (5,693)
Issuance of deferred
compensation (9,660) -- -- 101 -- (103) -- 2 --
Amortization of deferred
compensation -- -- -- -- -- 145 -- -- 145
Dividends declared to common
shareholders -- -- -- -- (708) -- -- -- (708)
Stock options exercised -- 13,786 1 107 -- -- -- -- 108
Purchase of Scotsman
Industries, Inc. common
stock for treasury 135,752 -- -- -- -- -- -- (1,299) (1,299)
------- --------- ------ -------- -------- ------ ------- -------- --------
Balance at January 3, 1993 209,577 7,200,661 720 20,375 14,144 (34) (3,753) (1,306) 30,146
Net income -- -- -- -- 7,411 -- -- -- 7,411
Foreign currency translation
adjustments -- -- -- -- -- -- (2,988) -- (2,988)
Issuance of deferred
compensation (7,282) -- -- 85 -- (85) -- -- --
Amortization of deferred
compensation -- -- -- -- -- 91 -- -- 91
Dividends declared to common
shareholders -- -- -- -- (700) -- -- -- (700)
Additional costs relating to
prior year purchase of
Scotsman Industries, Inc.
common stock for treasury -- -- -- -- -- -- -- (38) (38)
Stock options exercised -- 9,888 1 97 -- -- -- -- 98
Unrecognized pension cost -- -- -- -- -- (26) -- -- (26)
------- --------- ------ -------- -------- ------ ------- -------- --------
Balance at January 2, 1994 202,295 7,210,549 $721 $20,557 $20,855 $(54) $(6,741) $(1,344) $33,994
------- --------- ------ -------- -------- ------ ------- -------- --------
------- --------- ------ -------- -------- ------ ------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of this statement.
9
<PAGE> 10
DESCRIPTION OF BUSINESS
The Company is engaged in the manufacture and marketing of refrigeration
products primarily for the foodservice industry, including ice machines, soft
drink dispensing equipment, and refrigerated bakery equipment, as well as
commercial refrigerators and freezers.
Scotsman's commercial ice machine business accounted for 83 percent, 76
percent, and 70 percent of sales in fiscal years 1993, 1992, and 1991,
respectively. Scotsman ice machines are sold both through a system of
distributors and directly by Scotsman to national customers and governmental
and military buyers. Scotsman also manufactures and markets a line of consumer
ice machines primarily for the luxury home market.
Scotsman also manufactures soft drink dispensing equipment which is sold
primarily in the United States to soft drink bottlers. Soft drink dispensing
equipment accounted for 10 percent, 10 percent, and 9 percent of sales in
fiscal years 1993, 1992, and 1991, respectively.
Scotsman also manufactures and markets a line of bakery equipment and
commercial refrigerators and freezers through its European businesses.
Scotsman formerly manufactured and marketed a line of commercial refrigerators
and freezers through its Glenco-Star division, which was sold in September of
1992. Bakery equipment, refrigerators and freezers accounted for 4 percent, 11
percent, and 10 percent of Scotsman's business in fiscal years 1993, 1992, and
1991, respectively.
Geographic information for Scotsman can be found in Note 17 of Notes to
Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Effective April 14, 1989, Scotsman Industries, Inc. ("Scotsman" or "the
Company") was spun-off from Household International, Inc. ("Household")
through the issuance of one share of Scotsman common stock for every five
shares of Household common stock then outstanding to Household shareholders
("the Distribution"). Scotsman became a publicly traded company listed on the
New York Stock Exchange and its operations ceased to be owned by Household.
Basis of Consolidation
The consolidated financial statements include the accounts of Scotsman
Industries, Inc. and its consolidated subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
Certain amounts in the consolidated financial statements for previous years
have been reclassified to conform to the presentation used for fiscal year
1993.
Fiscal Year
The Company reports on a 52-53 week fiscal year ending on the Sunday nearest
to December 31. Fiscal years 1993 and 1991 had 52 weeks; fiscal year 1992 had
53 weeks.
Cash Management
Scotsman uses a centralized cash management system to provide financing for
domestic operations.
Temporary cash investments, primarily Eurodollar deposits with maturities of
ninety days or less, are carried at cost, which approximates market. Interest
-10-
<PAGE> 11
income (in thousands) included in interest expense, net was $125, $136 and
$556 for fiscal years 1993, 1992 and 1991, respectively.
Trade Accounts and Notes Receivable
Trade accounts and notes receivable at January 2, 1994 and January 3, 1993
included notes of $6.5 million and $7.3 million, respectively.
Inventories
Inventories are stated at the lower of cost or market and include the
appropriate elements of material, labor and manufacturing overhead expenses.
Cost is determined using the last-in, first-out ("LIFO") method for
approximately half of domestic inventories and the first-in, first-out
("FIFO") method for the balance of domestic and all foreign inventories.
Properties and Equipment
Properties and equipment, including capitalized leases, are recorded at cost
to the Company at date of acquisition and depreciated over either their
estimated useful lives, ranging from 3 to 40 years, or lease terms, whichever
is shorter, using principally the straight-line method for financial reporting
purposes and accelerated methods for tax reporting purposes.
Cost of Businesses Acquired
Cost of investments in excess of net assets of businesses acquired after
October 1970, is being amortized using the straight-line method over 40 years.
At January 2, 1994 accumulated amortization was $1.5 million.
Interest Rate Swap Agreements
The Company has entered into interest rate swap agreements to reduce the
impact of changes in interest rates on its floating-rate long-term debt. The
difference between the fixed and floating rates, which is to be paid or
received, is accrued as interest rates change and is recognized over the life
of the swap agreements.
Interest Expense
Interest expense included in the consolidated statement of income related to
private placement debt, debt covered under a credit agreement, Industrial
Development Revenue Bonds, capitalized lease obligations, borrowings on
domestic revolving credit agreements and domestic lines of credit, and foreign
lines of credit.
Research and Development Costs
Research and development costs related to both present and future products are
expensed currently. Research and development expenditures for fiscal years
1993, 1992 and 1991, were $3.9 million, $3.5 million, and $2.8 million,
respectively.
Foreign Currency Translation
The Company has foreign subsidiaries located in Italy. Foreign subsidiary
income and expenses are translated into United States dollars at the average
rates of exchange prevailing during the year. The assets and liabilities are
translated into U.S. dollars at the rates of exchange on the balance sheet
date, and the related translation adjustments are accumulated as a separate
component of shareholders' equity. As the Company intends to maintain its
investments in these subsidiaries indefinitely, ultimate realization of these
translation adjustments is highly uncertain. Foreign currency transaction
gains and losses are minimal and are recorded in income as they occur.
-11-
<PAGE> 12
Income Taxes
Federal and state income taxes are not provided on undistributed earnings of
foreign subsidiaries that had been or are intended to be reinvested
indefinitely.
2. Cumulative Effect of Accounting Changes
In the first quarter of 1993, the Company implemented changes in accounting
principles for post-retirement health care, post-employment expenses and
income taxes. The cumulative effect of these accounting changes was as
follows:
Unfavorable cumulative effect of accounting change due to post-
retirement health care benefits (in thousands) of $(1,660) pre-tax and
$(1,029) after-tax. See Note 10 of Notes to Consolidated Financial
Statements.
Unfavorable cumulative effect of accounting change due to other post-
employment benefits (in thousands) of $(508) pre-tax and $(243) after-tax.
See Note 10 of Notes to Consolidated Financial Statements.
Favorable cumulative effect of accounting change relating to income
taxes (in thousands) of $1,301. See Note 11 of Notes to Consolidated
Financial Statements.
3. Inventories
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
Jan. 2, Jan. 3,
1994 1993
<S> <C> <C>
Finished goods $14,755 $15,372
Work-in-process 2,232 2,372
Raw materials 8,706 9,414
------- -------
Total inventories $25,693 $27,158
------- -------
------- -------
</TABLE>
Approximately $7.2 million and $8.2 million of total Company inventories were
valued on the LIFO method in fiscal year 1993 and 1992, respectively. In 1993,
lower levels of certain inventories resulted in liquidation of LIFO inventory
quantities which were carried at costs prevailing in earlier years. These
liquidations reduced cost of sales by approximately $0.6 million in 1993. If
inventories valued on the LIFO method had been valued using the FIFO method,
they would have been $3.7 million and $4.1 million higher at January 2, 1994
and January 3, 1993, respectively.
4. Properties and Equipment
Properties and equipment consisted of assets owned and leased under capital
lease arrangements as follows (in thousands):
<TABLE>
<CAPTION>
Jan. 2, Jan. 3,
1994 1993
<S> <C> <C>
Owned:
Land $ 1,354 $ 1,354
Buildings and leasehold improvements 15,728 15,571
Machinery, fixtures and equipment 25,525 24,331
Accumulated depreciation and amortization (23,087) (21,724)
-------- --------
Owned, net 19,520 19,532
-------- --------
</TABLE>
-12-
<PAGE> 13
<TABLE>
<S> <C> <C>
Leased:
Machinery, fixtures and equipment 852 924
Accumulated depreciation and amortization (505) (416)
-------- --------
Leased, net 347 508
-------- --------
Properties and equipment, net $ 19,867 $ 20,040
-------- --------
-------- --------
</TABLE>
5. Short-Term Debt
Short-term debt (in thousands) at January 2, 1994 and January 3, 1993 was
$2,594 and $1,747, respectively, and principally related to amounts owed under
lines of credit. Average borrowings (in thousands) and the related weighted
average interest rates were as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Bank and other borrowings $ 6,905 $ 5,905
Weighted average interest rate 10.9% 13.3%
</TABLE>
The maximum aggregate short-term debt outstanding (in thousands) at the end of
any month during fiscal years 1993 and 1992 was $10,601 and $8,339,
respectively.
6. Lines of Credit
The Company maintains various credit agreements. At January 2, 1994 these
agreements (in thousands) included foreign and domestic lines of credit of
$16,055 and $5,000, respectively. Lines of credit are reviewed annually, with
amounts borrowed under lines of credit included in short-term debt.
At January 2, 1994, foreign and domestic lines of credit not in use were (in
thousands) $13,461 and $5,000, respectively. Borrowings under these agreements
are available at the prime rate, or other prevailing market rates. There are
no fees or compensating balance requirements on the lines of credit.
7. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
Jan. 2, Jan. 3,
1994 1993
<S> <C> <C>
Payroll and employee benefits $ 2,843 $ 2,877
Reserve for relocation of Crystal Tips 890 2,235
Casualty insurance 794 1,066
Current portion of product warranties 4,400 3,823
Other current liabilities 6,400 5,942
-------- --------
Total accrued expenses $ 15,327 $ 15,943
-------- --------
-------- --------
</TABLE>
8. Long-Term Debt
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
Jan. 2, Jan. 3,
1994 1993
<S> <C> <C>
11.43% Private Placement Agreement; due 1997-1998 $ 20,000 $ 20,000
Industrial Revenue Bonds with floating interest
rate; due 2001 9,250 9,250
</TABLE>
-13-
<PAGE> 14
<TABLE>
<S> <C> <C>
-------- --------
Total $ 29,250 $ 29,250
Current portion -- --
-------- --------
Long-term portion $ 29,250 $ 29,250
-------- --------
-------- --------
</TABLE>
In April of 1989, the Company issued $37.5 million of long-term debt under a
Credit Agreement with a group of banks. In the same month, the Company also
issued $20.0 million of private placement debt held primarily by insurance
companies. Funds generated were used to pay Household $10.0 million in
dividends and to repay intercompany debt to Household of $47.5 million.
In fiscal year 1991, the Company pre-paid $19.5 million, resulting in the
Credit Agreement established in 1989 being retired prior to maturity.
In April of 1989, the Company entered into two interest rate swap agreements
to reduce the impact of changes in interest rates on the floating-rate long-
term debt. One swap agreement had a notional principal amount of $15 million
and interest payable was at a fixed rate of 10.29 percent. The other swap
agreement had a notional principal amount of $20 million and interest payable
was at a fixed rate of 10.355 percent. In return, for both of these
agreements, the Company received or will receive floating rate interest
payments based on six-month LIBOR. These agreements expired or will expire as
follows: $20 million in April of 1992 and $15 million in April of 1994. As of
January 2, 1994, the notional principal of the swap agreements outstanding was
greater than the amount of floating-rate long-term debt outstanding. In
connection with the over-hedged position, the Company recognized a pre-tax
loss of $0.8 million in 1991 relating to these swap agreements.
The interest rate applicable to the Industrial Revenue Bonds was 3.2 percent
and 4.2 percent at January 2, 1994 and January 3, 1993, respectively. The
bonds are secured by certain buildings carried at a cost of $9.3 million and a
bank letter of credit. The commitment fee on the letter of credit is
calculated at 1 percent per annum on outstanding principal and interest.
The weighted average effective interest rate was 11.0 percent at January 2,
1994 and 11.3 percent at January 3, 1993. Maturities at January 2, 1994 were
as follows (in thousands):
<TABLE>
<S> <C>
1994 through 1996 $ --
1997 10,000
1998 10,000
Thereafter 9,250
--------
Total long-term debt $ 29,250
--------
--------
</TABLE>
In November of 1992, the Company established with a bank group a new $25.0
million Credit Agreement which will expire in 1995. This Credit Agreement
permits the Company to choose between two interest rate options as follows:
the sum of a margin which varies between 1/2 percent to zero percent
based on the Company's financial ratios, as defined in the Credit Agreement,
plus the greater of the bank's Prime Rate or the Federal Funds Rate plus 1
percent, or
the adjusted London Interbank Offered Rate (LIBOR) plus a margin which
varies between 1 3/4 percent and 3/4 percent based on the Company's
financial ratios as defined in the Credit Agreement, with funding periods
restricted to one, two, three or six months.
Commitment fees on this new agreement range from 1/4 to 3/8 of 1 percent per
annum on the unused portion.
-14-
<PAGE> 15
This new credit agreement was established primarily for financing of future
acquisitions and the financing of working capital needs during the Company's
major selling season. As of January 2, 1994, the Company had not borrowed any
amounts under this facility.
The Company's long-term debt agreements contain covenants that require the
maintenance of specified financial ratios. The Company was in compliance with
these covenants as of January 2, 1994. Among other restrictions, one of the
Company's covenants restricts dividends to shareholders and repurchase of
Company stock to a maximum of 40 percent of earnings since the Distribution.
Under such a covenant $15.8 million of retained earnings was restricted at
January 2, 1994.
9. Leases
The Company leases certain of its offices, buildings, and machinery and
equipment for periods up to 20 years with various renewal options. Rental
expense under operating leases was $1.4 million in 1993, $1.7 million in 1992,
and $1.6 million in 1991. Capital lease obligations vary in amounts (in
thousands) up to $287 with various interest rates, both fixed and floating.
Future minimum lease commitments under noncancelable operating and capital
leases (together with the present value of the net minimum lease commitments)
at January 2, 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
<S> <C> <C>
1994 $ 1,434 $137
1995 1,611 97
1996 1,378 92
1997 965 49
1998 837 --
Thereafter 2,439 --
-------- ----
Total minimum lease commitments $ 8,664 $375
Amounts representing interest -- (43)
Present value of net minimum lease commitments -- 332
Current portion -- (113)
-------- ----
Long-term portion $ -- $219
-------- ----
-------- ----
</TABLE>
Certain capital lease obligations are collateralized by properties and
equipment with a net book value (in thousands) of approximately $347.
10. Employee Benefit Plans
On March 31, 1989, Household assumed the assets and liabilities of all
domestic pension plans, except for the Fairfax hourly plan, which covered
Company employees prior to that date. Employees who were deemed to be
participants in the plans became 100 percent vested in their accrued benefits
as of that date. With the exception of the Fairfax hourly plan, Household is
responsible for all domestic pension benefits accrued prior to March 31, 1989.
On March 31, 1989, the sponsorship of, and all assets and liabilities of the
Fairfax hourly plan were transferred to the Company from Household.
As of April 1, 1989, the Company established new plans covering substantially
all salaried domestic employees and hourly domestic employees at Glenco-Star
and Booth. The plan covering domestic salaried employees provides benefits
that are based on years of service and compensation for the five highest
consecutive years during the last ten years prior to retirement. Plans
-15-
<PAGE> 16
covering domestic hourly employees provide benefits of stated amounts for each
year of service.
In the fourth quarter of 1992, the Company incurred a pension curtailment due
to the sale of Glenco-Star. The result was a loss (in thousands) of $37 which
is included in net periodic pension cost for 1992.
The Company's funding policy is to contribute the minimum required amount
under the Employee Retirement Income Security Act.
Net periodic pension cost (in thousands) for the above plans included in the
consolidated statement of income was $524 in 1993, $554 in 1992 and $467 in
1991. The components of net periodic pension cost are (in thousands):
<TABLE>
<CAPTION>
For the Fiscal Years Ended Jan. 2, Jan. 3, Dec. 29,
1994 1993 1991
<S> <C> <C> <C>
Service cost $ 442 $ 404 $ 359
Interest cost 175 165 116
Actual return on plan assets (116) (90) (57)
Net amortization and deferral 23 38 49
Curtailment loss -- 37 --
-------- -------- --------
Net periodic pension cost $ 524 $ 554 $ 467
-------- -------- --------
-------- -------- --------
</TABLE>
The funded status of the Company's domestic pension plans (in thousands) was
as follows:
<TABLE>
<CAPTION>
Jan. 2, 1994 Jan. 3, 1993
Plan Accumulated Plan Accumulated
Assets Benefits Assets Benefits
Exceed Exceed Exceed Exceed
Accumulated Plan Accumulated Plan
Benefits Assets Benefits Assets
<S> <C> <C> <C> <C>
Actuarial Present Value of:
Vested Benefits Obligation $ (1,069) $ (189) $ (675) $ (137)
Nonvested Benefits Obligation (343) (56) (359) (72)
-------- -------- -------- --------
Accumulated Benefit Obligation (1,412) (245) (1,034) (209)
Effects of Anticipated Future
Compensation Levels (1,076) -- (1,097) --
-------- -------- -------- --------
Projected Benefit Obligation (2,488) (245) (2,131) (209)
Plan Assets at Fair Value 1,519 174 1,133 161
-------- -------- -------- --------
Projected Benefit Obligation
(In Excess of) Plan Assets (969) (71) (998) (48)
Unrecognized (Net Asset) -- (16) -- (19)
Unrecognized Prior
Service Cost 469 12 516 34
Unrecognized Net (Gain) or Loss (24) 36 46 (3)
Adjustment Required to
Recognize Minimum Liability -- (34) -- (20)
-------- -------- -------- --------
Accrued Pension Cost $ (524) $ (73) $ (436) $ (56)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Assumptions used in the actuarial computations were:
<TABLE>
<CAPTION>
Jan. 2, Jan. 3, Dec. 29,
1994 1993 1991
<S> <C> <C> <C>
Salaried Plan
Discount rate 7.5% 8.5% 8.5%
</TABLE>
-16-
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
Rate of increase in compensation levels 4.0% 5.0% 5.0%
Expected long-term rate of return on assets 8.5% 9.0% 9.0%
Hourly Plan
Discount rate 7.5% 8.5% 8.25%
Expected long-term rate of return on assets 8.5% 9.0% 9.0%
</TABLE>
The Company has pension plans covering employees in its Italian subsidiaries.
These plans combine aspects of both government mandated and non-contributory
plans. Total pension expense under these plans included in the consolidated
statement of income (in thousands) was $828, $1,021 and $855 in fiscal years
1993, 1992 and 1991, respectively. The unfunded liability for these plans
included in the consolidated balance sheet at January 2, 1994 and January 3,
1993 (in thousands) was $3,817 and $3,870, respectively.
The Company also has a defined contribution plan in which each participant's
contribution may be matched in whole or in part by the Company up to a maximum
of 6 percent of the participant's compensation. To date, the Company has
matched 50 percent of participant contributions up to a maximum of 3 percent
of a participant's compensation. Total costs incurred under the plan were (in
thousands) $203, $180 and $165 for fiscal years 1993, 1992 and 1991,
respectively.
The Company maintains plans that provide certain health care benefits to
certain employees retiring from the Company on or after attaining age 55 who
have rendered at least 10 years of service to the Company. These plans are
unfunded. The Company reserves the right to change or terminate the benefits
at any time.
Effective January 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-retirement
Benefits Other Than Pensions" ("SFAS 106") on the immediate recognition basis.
The standard requires that the expected cost of post-retirement benefits be
charged to expense during the years that the employees render service.
Previously, the Company recognized these costs on a pay-as-you-go basis.
The cumulative effect of this accounting change was to decrease income for the
twelve months ended January 2, 1994 by (in thousands) $1,660 ($1,029 or $0.15
per share, after-tax), representing the amount of unfunded obligation measured
as of January 4, 1993. This accounting change is not expected to materially
impact future operating results and is not expected to affect the Company's
cash flow because the Company plans to continue paying the cost of post-
retirement benefits when incurred. Financial statements for the prior years
have not been restated to reflect the adoption of SFAS 106.
Net periodic post-retirement benefit cost for 1993 included the following
components (in thousands):
<TABLE>
<CAPTION>
1993
<S> <C>
Service cost on benefits earned $ 108
Interest cost on accumulated post-retirement benefit obligation 135
------
Net periodic post-retirement benefit cost $ 243
------
------
</TABLE>
The following table sets forth the status of the plan, reconciled to the
accrued post-retirement benefit cost recognized in the Company's balance sheet
(in thousands):
<TABLE>
<CAPTION>
End of Beginning of
1993 1993
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees $ 1,071 $ 923
Fully eligible active plan participants 81 68
Other active plan participants 878 669
</TABLE>
-17-
<PAGE> 18
<TABLE>
<S> <C> <C>
-------- --------
Total $ 2,030 $ 1,660
Unrecognized loss (367) --
-------- --------
Accrued post-retirement benefit cost recognized
in the balance sheet $ 1,663 $ 1,660
-------- --------
-------- --------
</TABLE>
The accumulated post-retirement benefit obligation was determined using a 7.5
percent discount rate. The health care cost trend rates were assumed to be
15.0 percent and 8.6 percent in 1994 for pre-65 and post-65 benefits,
respectively, with both rates gradually declining to 5.5 percent and remaining
at that level thereafter. Increasing the assumed health care cost trend rate
by one percentage point in each year would increase the accumulated post-
retirement benefit obligation as of January 2, 1994 by approximately (in
thousands) $335 and the aggregate of the service and interest cost components
of net periodic post-retirement benefit cost for the year by approximately (in
thousands) $47.
Prior to the adoption of SFAS 106, the cost of post-retirement benefits was
recognized as an expense when the benefits were paid to retirees or payments
were made to insurance companies or other third parties. The total cost of
these post-retirement benefits charged to income (in thousands) was
approximately $414 and $402 for 1992 and 1991, respectively.
Effective January 4, 1993, the Company also adopted the Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-employment
Benefits" ("SFAS 112"). The statement requires accrual accounting for benefits
provided to former or inactive employees after employment but before
retirement. The Company previously accounted for a certain portion of these
post-employment benefits on a pay-as-you-go-basis. The impact of the change to
SFAS 112, is an unfavorable pre-tax amount of $508,000 ($243,000, net of tax
or $.03 per share). Other than the effect of the cumulative catch-up, the
impact on pre-tax income of this accounting change for the year was not
material. Financial statements for the prior years have not been restated to
reflect the adoption of SFAS 112.
11. Income Taxes
Effective January 4, 1993, the Company changed its method of accounting for
income taxes as a result of the required adoption of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires a change in accounting for income taxes to an asset and liability
approach. The cumulative effect of this change in 1993 was a favorable impact
of $1,301,000, or $.19 per share. The cumulative effect resulted primarily
from the recognition of the remainder of Italian tax benefits which resulted
from a prior year reorganization and adjustments for rate differences. This
change impacted 1993 operating results by lowering Italian tax credits by
approximately $0.6 million for the fiscal year (when compared to 1992), but
did not affect the Company's cash flows. The adoption of SFAS 109 had no
impact on pre-tax income for the fiscal year 1993. Financial statements for
the prior years have not been restated to reflect the adoption of SFAS 109.
In accordance with SFAS 109, net deferred tax assets and liabilities related
to different tax jurisdictions are not offset in the Company's balance sheet.
The components as of January 2, 1994 and as of the date of adoption, January
4, 1993, of the consolidated net deferred tax assets and liabilities
(including the tax impact of the adoption of SFAS 106 and SFAS 112) were as
follows (in thousands):
<TABLE>
<CAPTION>
Jan. 2, Jan. 4,
1994 1993
<S> <C> <C>
Gross deferred tax assets:
Foreign tax credits $ 2,302 $ 2,302
</TABLE>
-18-
<PAGE> 19
<TABLE>
<S> <C> <C>
Tax credits due to Italian reorganization 930 1,504
Warranty accruals 2,511 1,925
Relocation accrual for Crystal Tips 163 836
Reserve for bad debts 646 625
Inventory accruals 850 473
Reserve for post-retirement medical costs 632 631
Other 1,861 1,271
-------- --------
Total gross deferred tax assets 9,895 9,567
-------- --------
Gross deferred tax liabilities:
Properties and equipment (2,396) (2,407)
Inventory related items (256) (478)
Other (1,339) (377)
-------- --------
Total gross deferred tax liabilities (3,991) (3,262)
-------- --------
Valuation allowance (2,591) (2,769)
-------- --------
Net deferred tax asset $ 3,313 $ 3,536
-------- --------
-------- --------
</TABLE>
The components of the net deferred tax asset at January 2, 1994 and January 4,
1993 (the date of adoption) were as follows (in thousands):
<TABLE>
<CAPTION>
Jan. 2, Jan. 4,
1994 1993
<S> <C> <C>
Current portion of deferred tax asset $ 3,748 $ 3,904
Noncurrent portion of deferred tax asset -- 702
Noncurrent portion of deferred tax liability (435) (1,070)
-------- --------
Net deferred tax asset $ 3,313 $ 3,536
-------- --------
-------- --------
</TABLE>
As of January 2, 1994, the Company had $2,302,000 of foreign tax credits which
will expire in 1994. The Company has established a full valuation allowance
against these tax assets, due to the improbability of using these credits
within the carryforward period. The valuation allowance also includes $289,000
to partially offset the tax asset in Italy relating to a prior year
reorganization of one of the Company's Italian subsidiaries. The Company
established this reserve due to the limited carryforward life of net operating
losses in Italy. The provision (benefit) for income taxes consisted of the
following (in thousands):
<TABLE>
<CAPTION>
For the Fiscal Years Ended Jan. 2, Jan. 3, Dec. 29,
1994 1993 1991
<S> <C> <C> <C>
United States-
Current $ 4,209 $ 1,606 $ 2,277
Deferred (327) 1,772 (1,168)
-------- -------- --------
3,882 3,378 1,109
-------- -------- --------
Foreign-
Current 2,055 166 1,533
Deferred 52 249 (32)
-------- -------- --------
2,107 415 1,501
-------- -------- --------
Provision for income taxes $ 5,989 $ 3,793 $ 2,610
-------- -------- --------
</TABLE>
The provision (benefit) for deferred income taxes included the following (in
thousands):
-19-
<PAGE> 20
<TABLE>
<CAPTION>
For the Fiscal Years Ended Jan. 2, Jan. 3, Dec. 29,
1994 1993 1991
<S> <C> <C> <C>
Amortization of Italian
reorganization benefits $ 507 $ -- $ --
Depreciation 43 343 (248)
Relocation reserve -- -- 1,330
Reserve for Glenco-Star disposition (108) 2,894 (2,946)
Reserve for Halsey Taylor costs 54 146 (295)
Reserve for swap loss 143 197 (294)
Warranty reserve (553) (284) 227
Inventory adjustments (619) 444 880
Water cooler LCCA reserve (See Note 16) 33 130 183
Reserve for relocation of Crystal Tips 673 (837) --
Fixed asset disposals -- (1,118) --
Valuation allowance reduction (157) -- --
Other, net (291) 106 (37)
-------- -------- --------
Total $ (275) $ 2,021 $ (1,200)
-------- -------- --------
-------- -------- --------
</TABLE>
Income before income taxes from foreign operations was $3.4 million in 1993,
$1.5 million in 1992, and $4.6 million in 1991. The differences between the
Company's effective tax rate and the statutory federal income tax rate were as
follows:
<TABLE>
<CAPTION>
For the Fiscal Years Ended Jan. 2, Jan. 3, Dec. 29,
1994 1993 1991
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increase (decrease) in rate resulting
from-
State and local income taxes,
net of federal tax benefit 3.1 3.5 8.7
Foreign tax effect 7.0 (0.9) (7.3)
Foreign withholding taxes 0.2 -- 21.8
Halsey Taylor goodwill write-off -- -- 201.1
Other 0.5 0.6 20.5
-------- -------- --------
44.8% 37.2% 278.8%
-------- -------- --------
-------- -------- --------
</TABLE>
In accordance with the Company's accounting policy, provision for U.S. income
taxes has not been made on $14.2 million of undistributed earnings of foreign
subsidiaries at January 2, 1994.
12. Stock Options and Deferred Compensation
The Company has a long-term executive incentive program which provides for
granting key employees options to purchase the Company's common stock. Under
the program, options are exercisable at a rate set by the Compensation
Committee of the Board of Directors of the Company. To date, options have been
exercisable in cumulative annual increments of 25 percent commencing one year
after the date of grant. The option price per share is not less than the fair
market value of one share on the date of the grant. An option may not be
exercisable after more than ten years and one day from the date of the grant.
Information with respect to the plan is as follows:
<TABLE>
<CAPTION>
Option Option Price
Shares Range Per Share
<S> <C> <C>
Outstanding at December 30, 1990 256,560 $7.75 - $12.88
Granted 127,940 $7.25
Exercised -- --
</TABLE>
-20-
<PAGE> 21
<TABLE>
<S> <C> <C>
Forfeited (7,650) $7.25 - $12.88
-------- --------------
Outstanding at December 29, 1991 376,850 $7.25 - $12.88
Granted 89,000 $9.0625
Exercised (13,786) $7.25 - $8.61
Forfeited (26,720) $7.25 - $12.88
-------- --------------
Outstanding at January 3, 1993 425,344 $7.25 - $12.88
Granted 77,250 $11.1875
Exercised (9,888) $7.25 - $12.88
Forfeited (22,320) $7.25 - $12.88
-------- --------------
Outstanding at January 2, 1994 470,386 $7.25 - $12.88
Exercisable at January 2, 1994 257,186 $7.25 - $12.88
</TABLE>
In 1989, the Company issued from treasury 34,625 shares of restricted common
stock as additional compensation to the Chief Executive Officer. These shares
vested three years from the date of grant at which point such shares became
non-forfeitable. Costs relating to this benefit of (in thousands) $43 and $148
were recorded in fiscal years 1992 and 1991. The Company also issued from
treasury 7,282, 9,660 and 11,835 shares of common stock in fiscal years 1993,
1992 and 1991, respectively, as annual Board of Directors' fees. Costs
relating to these fees (in thousands) of $91, $102 and $103 were recorded in
fiscal years 1993, 1992 and 1991, respectively.
13. Sale of Halsey Taylor and Glenco-Star Businesses
The results for the fiscal year 1991 included an after-tax loss of $1.0
million related to the sale of the assets of the Halsey Taylor business which
was completed in July, 1991. The sale of the Halsey Taylor assets resulted in
a pre-tax gain of $2.0 million but an after-tax loss of $1.0 million due to
the write-off of $5.5 million of goodwill on its books having a tax basis of
zero. Accordingly, selling and administrative expenses for the year-to-date
period included a pre-tax gain of $2.0 million. Income taxes for the year-to-
date period included $3.0 million of expense for this transaction.
In fiscal year 1991, the Company recorded a reserve of $7.8 million (which was
included in selling and administrative expenses on the income statement),
related to the decision to dispose of the assets of its Glenco-Star division
("Glenco-Star"), and reduced Glenco-Star's goodwill balance of $.2 million to
its market value of $0. The Company completed the sale of Glenco-Star in the
fourth quarter of 1992. Excess restructuring reserves for the Glenco-Star
disposition were utilized to establish a relocation reserve for Crystal Tips
(See Note 15).
14. Acquisition of Crystal Tips and Simag Businesses
The Company's Booth, Inc. subsidiary acquired on April 28, 1992, the assets of
Crystal Tips, an ice machine manufacturer located in Spirit Lake, Iowa. The
method of accounting used for the combination was the purchase method. The
results of Crystal Tips are included in the income statements for the Company
beginning after April 28, 1992. Crystal Tips was acquired for a total cost of
$5.3 million. No shares of stock were or will be issued as a result of this
acquisition. Goodwill of $.5 million which resulted from the Crystal Tips
acquisition will be amortized for book purposes over 40 years using the
straight-line method. No contingent payments, options or commitments were
specified in the acquisition agreement of Crystal Tips.
The Company's Frimont, S.p.A. subsidiary acquired on January 8, 1993, the
assets of Simag, an ice machine manufacturer located in Milan, Italy. The
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<PAGE> 22
method of accounting used for the combination was the purchase method. The
results of Simag are included in the income statement for the Company
beginning after January 8, 1993. Simag was acquired for $5.5 million and no
shares of stock were or will be issued as a result of this acquisition.
Goodwill of $4.4 million resulting from the Simag acquisition will be
amortized for book purposes over 40 years using the straight-line method. No
contingent payments, options, or commitments were specified in the acquisition
agreement of Simag.
15. Reserve for Relocation of Crystal Tips
In the fall of 1993, the Company closed the Spirit Lake, Iowa plant occupied
by the Crystal Tips division of Booth, Inc. and began to consolidate its
manufacturing with Booth, Inc. in facilities located in Dallas, Texas. As
discussed in Note 13, the Company used excess restructuring reserves
originally established for the planned disposition of Glenco-Star to provide
for certain of these relocation costs. This relocation is expected to be
completed in the first half of 1994.
16. Contingencies
Pursuant to the Lead Contamination Control Act of 1988 ("LCCA" or the "Act"),
the United States Environmental Protection Agency (the "EPA") has published
lists of water cooler models which may have water tanks with interior surface
linings containing more than 0.2 percent lead or which are not "lead free"
because a tin/lead solder was used to connect internal parts of the cooler.
These lists include certain models of water coolers manufactured by Halsey
Taylor, a former division of a Company subsidiary. The Act provides for the
issuance of a remedial action order by the United States Consumer Product
Safety Commission (the "CPSC") against the manufacturer of any cooler listed
by the EPA as containing a tank having an interior surface lining with more
than 0.2 percent lead.
On May 25, 1990, the CPSC accepted a Consent Order Agreement (the "Consent
Agreement") between the CPSC staff and the Company's subsidiary under which
the subsidiary agreed to conduct a replacement/refund program for any Halsey
Taylor tank-style water coolers manufactured before April 1, 1979, which are
water tested by the cooler owner and shown to contribute more than twenty
parts per billion of lead to the water. The Consent Agreement resolves all
claims that the CPSC might have under the Act for issuance of an order
requiring the repair, replacement, or recall and refund of the purchase price
of water coolers manufactured by the Halsey Taylor division before the date of
the Consent Agreement.
The Company has made provisions to cover expenditures that it expects to
result from the Act. The actual cost to the Company will depend upon, among
other things, the number of cooler owners participating in the
replacement/refund program. Although no assurance can be given, the Company
believes, based upon its present expectations, that expenditures resulting
from the Act will not have a material adverse effect on the Company's
financial condition or its results of operations. While the Company sold the
assets of its Halsey Taylor business in July, 1991, the purchaser of the
Halsey Taylor business did not assume any liability for this contingency.
On March 26, 1993, Remcor Products Company filed a lawsuit against the
Company's subsidiary, Scotsman Group, Inc., and Scotsman Group's subsidiary,
Booth, Inc., in the United States District Court for the Northern District of
Illinois. In its Complaint, Remcor alleged that certain ice/drink dispensers
made and sold by Scotsman Group and Booth infringe a patent owned by Remcor
relating to a cold plate system. The Complaint seeks an unspecified amount of
compensatory damages, treble damages for willful infringement, prejudgment
interest and attorneys' fees, and also a permanent injunction from further
alleged acts of infringement.
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<PAGE> 23
During the course of discovery, Remcor has asserted that it has suffered
damages attributable to the Company's alleged infringement of approximately
$8.24 million during the period from 1989 through year-end 1993, exclusive of
treble damages, prejudgment interest and attorneys' fees. This damages claim
consists of claims for lost profits and a royalty on certain sales.
The Company has denied that any of its products infringe Remcor's patent and
has asserted that the Remcor patent is invalid and unenforceable. The Company
also has strongly disputed Remcor's contention that it is appropriate to apply
a lost profits measure of damages in this case and contended that, even
assuming infringement, validity and enforceability of the patent, the amount
of compensatory damages for sales occurring through year-end 1993 would be a
royalty of approximately $500,000.
The Company is vigorously defending this lawsuit. Sales of ice/drink
dispensers accounted for less than 5 percent of the Company's consolidated net
sales in 1993. Although no assurances can be given, after consultation with
legal counsel, the Company does not believe that this lawsuit will have a
material adverse effect upon the financial condition of the Company or its
results of operations.
17. Geographic Information
The Company's geographic data, based on the locations of the Company's
operations are as follows (in thousands):
<TABLE>
<CAPTION>
For the Fiscal Years Ended Jan. 2, Jan. 3, Dec. 29,
1994 1993 1991
<S> <C> <C> <C>
Sales to unaffiliated customers-
United States $ 119,127 $ 116,517 $ 110,595
Europe 44,825 52,157 53,531
--------- --------- ---------
Total $ 163,952 $ 168,674 $ 164,126
--------- --------- ---------
--------- --------- ---------
Operating profit-
United States $ 13,450 $ 12,670 $ 924
Europe 4,156 2,190 5,788
--------- --------- ---------
Total $ 17,606 $ 14,860 $ 6,712
--------- --------- ---------
--------- --------- ---------
Identifiable assets-
United States $ 66,069 $ 59,682 $ 62,618
Europe 37,104 36,421 50,190
--------- --------- ---------
Total $ 103,173 $ 96,103 $ 112,808
--------- --------- ---------
--------- --------- ---------
</TABLE>
Export sales were not significant for all years presented.
18. Subsequent Event
As of January 11, 1994, the Company entered into definitive agreements
providing for the acquisition by Scotsman of The Delfield Company ("Delfield")
and Whitlenge Drink Equipment Limited ("Whitlenge") for approximately $30.3
million in a combination of cash and non-convertible preferred stock of
Scotsman, 1.2 million shares of Scotsman common stock with a market value of
approximately $17.0 million (using the 1993 fiscal year-end closing stock
price) and $22.5 million of $0.62 cumulative convertible preferred stock of
Scotsman. Through the acquisition of Delfield and Whitlenge, Scotsman would
also assume their debt of up to $50 million. In addition, the current
stockholders of the holding companies for Delfield and Whitlenge would be
entitled to receive up to an additional 667,000 shares of Scotsman common
stock if Delfield and Whitlenge meet a specified level of financial
performance for their respective 1994 fiscal years. Completion of the proposed
-23-
<PAGE> 24
acquisition is subject to approval of the stock issuance by Scotsman's
shareholders and certain other conditions and Scotsman will also be required
to obtain additional financing to effect the acquisition. Delfield,
headquartered in Mt. Pleasant, Michigan, manufactures and sells refrigerated
foodservice equipment primarily in the United States. Whitlenge, located near
Birmingham, England, manufactures and sells drink dispensing equipment, mostly
in the United Kingdom. The two businesses combined had annual revenues in
excess of $110 million in 1993. Subject to satisfaction of the conditions
listed above, it is anticipated that the acquisition of the two companies will
be completed early in the second quarter of 1994.
-24-
<PAGE> 25
Report of Independent Public Accountants
To the Shareholders of Scotsman Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Scotsman
Industries, Inc. (a Delaware Corporation) and subsidiaries as of January 2,
1994 and January 3, 1993, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended January 2, 1994. 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 Scotsman Industries, Inc. and
subsidiaries as of January 2, 1994 and January 3, 1993, and the results of
their operations and their cash flows for each of the three years in the
period ended January 2, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 10 and Note 11 to the consolidated financial statements,
the Company changed its methods of accounting for post-retirement benefits
other than pensions, post-employment expenses and income taxes effective
January 4, 1993.
Arthur Andersen & Co.
Chicago, Illinois,
February 17, 1994
-25-
<PAGE> 26
Scotsman Industries, Inc.
Selected Quarterly Financial Data
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
For The Three Months Ended Jan. 2, Oct. 3, July 4, April 4, Jan. 3, Sept. 27, June 28, March 29,
1994 1993 1993 1993 1993 1992 1992 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 32,123 $ 45,247 $ 48,686 $ 37,896 $ 32,206 $ 46,853 $ 51,481 $ 38,134
Cost of sales 23,168 31,339 33,707 26,258 24,332 34,329 36,092 27,473
-------- -------- -------- -------- -------- -------- ------- --------
Gross profit 8,955 13,908 14,979 11,638 7,874 12,524 15,389 10,661
Selling and administrative expenses 7,569 8,285 8,118 7,902 6,900 8,012 9,326 7,350
-------- -------- -------- -------- -------- -------- ------- --------
Income (loss) from operations 1,386 5,623 6,861 3,736 974 4,512 6,063 3,311
Interest expense, net 907 1,069 1,156 1,103 1,019 1,139 1,231 1,286
-------- -------- -------- -------- -------- -------- ------- --------
Income (loss) before income taxes 479 4,554 5,705 2,633 (45) 3,373 4,832 2,025
Income taxes 270 1,971 2,563 1,185 52 1,207 1,813 721
-------- -------- -------- -------- -------- -------- ------- --------
Income (loss) before cumulative
effect of accounting changes $ 209 $ 2,583 $ 3,142 $ 1,448 $ (97) $ 2,166 $ 3,019 $ 1,304
Cumulative effect of accounting
changes (i) -- -- -- 29 -- -- -- --
-------- -------- -------- -------- -------- -------- ------- --------
Net income (loss) $ 209 $ 2,583 $ 3,142 $ 1,477 $ (97) $ 2,166 $ 3,019 $ 1,304
-------- -------- -------- -------- -------- -------- ------- --------
-------- -------- -------- -------- -------- -------- ------- --------
Income per share:
Income (loss) before cumulative
effect of accounting changes $0.03 $0.37 $0.45 $0.21 $(0.01) $0.30 $0.43 $0.18
Cumulative effect of accounting
changes -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------- --------
Net income (loss) per share (ii) $0.03 $0.37 $0.45 $0.21 $(0.01) $0.30 $0.43 $0.18
-------- -------- -------- -------- -------- -------- ------- --------
-------- -------- -------- -------- -------- -------- ------- --------
Weighted average common shares
outstanding 7,006,668 7,005,273 6,999,224 6,991,438 7,066,294 7,113,050 7,107,530 7,103,390
</TABLE>
(i) Changes in accounting principles relating to post-retirement healthcare,
post-employment expenses and income taxes were implemented in the first quarter
of 1993. These accounting changes had a cumulative after-tax impact (in
thousands) of $(1,029), $(243), and $1,301, respectively.
(ii) The net income per share calculation excluded the dilutive effect of
stock options outstanding as the dilutive effect was immaterial.
-26-
<PAGE> 27
Scotsman Industries, Inc.
Five Year Summary
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
For the Fiscal Years Ended Jan. 2, Jan. 3, Dec. 29, Dec. 30, Dec. 31,
1994 1993 1991 (3) 1990 1989 (4)
<S> <C> <C> <C> <C> <C>
Net sales $163,952 $168,674 $164,126 $179,857 $174,383
Income before income taxes 13,371 10,185 936 12,320 13,747
Net income (loss) 7,411 6,392 (1,674) 7,412 7,465
Net income (loss) per share (1) 1.06 0.90 (0.24) 1.05 --
Total assets (2) 103,173 96,103 112,808 133,706 141,082
Long-term debt and capitalized
lease obligations, excluding
current portion (2) 29,469 29,589 29,807 48,663 58,750
Cash dividends declared per
common share 0.10 0.10 0.10 0.10 0.075
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
(1) The calculation of net income per share for the fiscal years 1993, 1992,
1991 and 1990 was based on 7,000,651, 7,096,976, 7,098,968 and 7,086,825
weighted average shares of common stock, respectively. The net income per share
calculation did not reflect the dilutive effect of stock options outstanding as
the dilutive effect was immaterial. Net income per share has been provided only
for full years subsequent to the Distribution as an amount for the Distribution
year would not be meaningful.
(2) At year end
(3) The results for the fiscal year ended December 29, 1991 included a $1.0
million after-tax loss recognized from the sale of the assets of the Halsey
Taylor business in July, 1991 and a $5.0 million after-tax reserve established
for the then planned disposition of the Glenco-Star division which took place in
September of 1992. Net income on an unaudited pro forma basis for the fiscal
year ended December 29, 1991 adjusted to exclude the losses of $6.0 million
described above and the results of operations of Glenco-Star and Halsey Taylor
would have been $5.6 million or $.79 per share. Pro forma results are based on
assumptions and estimates and are not necessarily indicative of the results of
the Company as they might have been had the transaction occurred as discussed
above.
(4) The results for the fiscal year ended December 31, 1989 did not reflect a
full year impact of the additional costs that occurred due to the Distribution
from Household International in April of 1989. Restating fiscal year 1989
results to reflect the Distribution as if it took place as of the first day of
the fiscal year would have resulted in unaudited pro forma net income of $6.1
million or $.86 per share. Pro forma results are based on assumptions and
estimates and are not necessarily indicative of the results of operations of
the Company as they might have been had the transaction occurred as discussed
above.
27
<PAGE> 28
Scotsman Industries, Inc.
Common Stock
Scotsman Industries, Inc. common stock is listed on the New York Stock
Exchange. The common stock ticker symbol is SCT.
<TABLE>
<CAPTION>
Dividends
1992 High Low Declared
<S> <C> <C> <C>
1st Quarter 9 1/2 7 1/8 $0.025
2nd Quarter 10 5/8 8 $0.025
3rd Quarter 9 5/8 8 $0.025
4th Quarter 9 7/8 8 3/4 $0.025
--------
Total Dividends Declared $0.100
Shares Outstanding at January 3, 1993 6,991,084
Shareholders of Record at January 3, 1993 5,825
</TABLE>
<TABLE>
<CAPTION>
Dividends
1993 High Low Declared
<S> <C> <C> <C>
1st Quarter 11 3/4 9 1/8 $0.025
2nd Quarter 13 1/4 11 $0.025
3rd Quarter 13 7/8 11 1/8 $0.025
4th Quarter 14 3/8 11 3/4 $0.025
--------
Total Dividends Declared $0.100
Shares Outstanding at January 2, 1994 7,008,254
Shareholders of Record at January 2, 1994 5,564
</TABLE>
28
<PAGE> 1
EXHIBIT 21.1
List of Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Jurisdiction of Other Names under Which
Name of Subsidiary Incorporation Subsidiary Does Business
- ------------------ -------------- ------------------------
<S> <C> <C>
Scotsman Group, Inc. Delaware Scotsman
Scotsman Ice Systems
Scotsman of Los Angeles
Booth, Inc. Texas Crystal Tips
Castel MAC, S.p.A. Italy None
Frimont, S.p.A. Italy None
Scotsman Acquisition
Corporation Delaware None
Scotsman Drink
Limited England None
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in, or incorporated by reference to, this Form 10-K into
the Company's previously filed Registration Statements, File Nos. 33-52033,
33-35870, 33-35871, and 33-53482.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
March 30, 1994
