<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 8, 1997
-------------------------------
Scotsman Industries, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-10182 36-3635892
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
775 Corporate Woods Parkway, Vernon Hills, Illinois 60061
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (847) 215-4500
------------------
Exhibit Index is on Page 29
<PAGE> 2
The Current Report on Form 8-K, dated March 8, 1997, of
Scotsman Industries, Inc. ("Scotsman") is hereby amended by deleting Item 7 of
such report in its entirety and adding in lieu thereof the following:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
-----------------------------------------
The following financial statements of Kysor Industrial Corporation
and report of Coopers & Lybrand L.L.P. are filed as part of this
Report:
-- Consolidated Balance Sheet at December 31, 1996 and
1995;
-- Consolidated Statement of Income for the Years Ended
December 31, 1996, 1995 and 1994;
-- Consolidated Statement of Shareholders' Equity at
December 31, 1996, 1995 and 1994;
-- Consolidated Statement of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994;
-- Notes to the Consolidated Financial Statements; and
-- Report of Independent Accountants, dated February 3,
1997.
(b) Pro Forma Financial Information.
-------------------------------
The following pro forma financial information is filed as part of
this Report:
-- Unaudited Pro Forma Consolidated Income
Statement for the Year Ended December 29, 1996;
-- Unaudited Pro Forma Consolidated Balance
Sheet as of December 29, 1996; and
-- Notes to the Unaudited Pro Forma Consolidated
Financial Statements.
-2-
<PAGE> 3
(c) Exhibits:
--------
2.1 Agreement and Plan of Merger, dated as of February 2,
1997, among Scotsman, Purchaser and Kysor
(incorporated by reference from Exhibit (c)(1) to
Scotsman's Tender Offer Statement on Schedule 14D-1
filed by Scotsman with the Securities and Exchange
Commission ("SEC") on February 7, 1997 (the "Schedule
14D-1")).
2.2 First Amendment to Agreement and Plan of Merger,
dated as of March 7, 1997, among Scotsman, Purchaser
and Kysor (previously filed as an Exhibit to this
Form 8-K).
23 Consent of Coopers & Lybrand L.L.P.
99 Press Release of Scotsman, dated March 10, 1997
(incorporated by reference from Exhibit (a)(15) to
Amendment No. 5 to the Schedule 14D-1, filed by
Scotsman with the SEC on March 10, 1997).
-3-
<PAGE> 4
KYSOR INDUSTRIAL CORPORATION
Consolidated Balance Sheet
At December 31,
<TABLE>
<CAPTION>
1996 1995
---- ----
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and equivalents $ 8,353,855 $ 15,746,157
Accounts receivable less $1,212,000 and $1,431,000 allowance
for doubtful accounts 34,654,123 31,534,632
Inventory 26,899,996 19,421,832
Prepaid expenses 928,351 1,445,000
Deferred income taxes 4,927,000 6,182,000
------------ -------------
TOTAL CURRENT ASSETS 75,763,325 74,329,621
PROPERTY, PLANT AND EQUIPMENT
Land 2,590,094 2,565,775
Buildings 22,136,202 21,248,181
Machinery and equipment 34,613,964 29,384,546
------------ -------------
59,340,260 53,198,502
Less accumulated depreciation (29,608,379) (26,084,694)
------------ -------------
TOTAL PROPERTY, PLANT AND EQUIPMENT 29,731,881 27,113,808
INVESTMENT IN AFFILIATE 18,844,774 -
OTHER ASSETS
Goodwill, patents and other intangibles, net of amortization
of $1,310,310 and $625,987 6,474,085 3,001,722
Cash value of officers' life insurance 11,929,773 11,003,100
Deferred income taxes 4,667,000 3,902,000
Miscellaneous receivables and other assets 2,995,387 1,818,545
------------ -------------
TOTAL OTHER ASSETS 26,066,245 19,725,367
------------ -------------
NET ASSETS OF DISCONTINUED TRANSPORTATION
PRODUCTS SEGMENT 38,655,539 34,798,818
------------ -------------
TOTAL ASSETS $189,061,764 $ 155,967,614
============ =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-4-
<PAGE> 5
KYSOR INDUSTRIAL CORPORATION
Consolidated Balance Sheet (continued)
At December 31,
<TABLE>
<CAPTION>
1996 1995
---- ----
LIABILITIES
CURRENT LIABILITIES
<S> <C> <C>
Current maturities of long-term debt $ 5,798,924 $ 4,256,636
Accounts payable 14,045,982 14,041,687
Accrued income taxes payable 1,811,602 -
Accrued expenses and contingent liabilities 16,928,179 19,429,190
-------------- -------------
TOTAL CURRENT LIABILITIES 38,584,687 37,727,513
Long-term debt, less current maturities 32,821,534 25,388,991
Accumulated postretirement benefit obligation 2,891,879 2,731,806
Other long-term liabilities 11,354,940 9,883,751
-------------- -------------
TOTAL LIABILITIES 85,653,040 75,732,061
PREFERRED SHAREHOLDERS' EQUITY
Employee Stock Ownership Plan Preferred Stock, shares
authorized 5,000,000; outstanding 786,869 and 797,517
stated value of $24.375 per share 19,179,931 19,439,472
Unearned deferred compensation under Employee Stock
Ownership Plan (12,935,432) (14,446,112)
-------------- -------------
TOTAL PREFERRED SHAREHOLDERS' EQUITY 6,244,499 4,993,360
COMMON SHAREHOLDERS' EQUITY
Common stock, $1 par value, shares authorized 30,000,000,
outstanding 5,934,724 and 5,639,028 5,934,724 5,639,028
Additional paid-in capital 8,741,604 3,645,084
Retained earnings 82,343,144 66,530,997
Translation adjustment 1,191,456 483,343
Notes receivable-common stock 77,288 and 78,009 shares (1,046,703) (1,056,259)
-------------- -------------
TOTAL COMMON SHAREHOLDERS' EQUITY 97,164,225 75,242,193
-------------- -------------
TOTAL EQUITY 103,408,724 80,235,553
-------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 189,061,764 $ 155,967,614
============== =============
</TABLE>
-5-
<PAGE> 6
KYSOR INDUSTRIAL CORPORATION
Consolidated Statement of Income
Years Ended December 31,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
SALES AND REVENUES
Net sales $245,062,236 $207,215,463 $164,606,458
Interest and other revenues 2,399,334 2,395,323 1,718,786
------------ ------------ ------------
TOTAL SALES AND REVENUES 247,461,570 209,610,786 166,325,244
------------ ------------ ------------
COSTS AND EXPENSES
Cost of sales 185,253,069 159,460,217 128,630,810
Selling and administrative expenses 39,035,732 37,329,235 32,253,125
Interest expense 1,335,865 913,921 1,175,547
Loss on disposition of foreign operation - 9,335,104 -
Other (income) expense (1,941,616) 1,714,893 1,595,026
------------ ------------ ------------
TOTAL COSTS AND EXPENSES 223,683,050 208,753,370 163,654,508
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 23,778,520 857,416 2,670,736
Income taxes 8,650,000 (4,695,000) 870,000
------------ ------------ ------------
INCOME FROM CONTINUING OPERATIONS 15,128,520 5,552,416 1,800,736
Operations of Discontinued Transporation Segment, net
of income taxes of $2,650,000, $6,810,000
and $7,180,000, respectively 5,416,360 11,876,247 11,473,845
------------ ------------ ------------
NET INCOME $ 20,544,880 $ 17,428,663 $ 13,274,581
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-6-
<PAGE> 7
KYSOR INDUSTRIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Unearned
Deferred Additional
Preferred Compensation Common Paid-In Retained Translation
Stock ESOP Stock Capital Earnings Adjustment
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $19,747,731 ($16,174,952) $5,467,840 $3,386,004 $43,997,461 $285,705
Employee Stock Ownership Plan,
deferred compensation earned 864,420
Purchase of common stock,
returned to an unissued status
(24,292 shares) (24,292) (468,710)
Preferred stock distributions
(6,610 shares for 9,463 shares
of common) (161,134) 9,463 156,735
Exercise of employee stock
options, 187,870 shares
issued 187,870 2,312,307
Collections of notes
receivable
Translation adjustment on
investments in foreign
subsidiaries 521,246
Net income 13,274,581
Preferred stock dividends
(net of income tax benefit
of $598,000) (979,580)
Common dividends declared,
$ .51 per share (2,849,427)
------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 $19,586,597 ($15,310,532) $5,640,881 $5,386,336 $53,443,035 $806,951
Employee Stock Ownership Plan,
deferred compensation earned 864,420
Purchase of common stock,
returned to an unissued
status (276,178 shares) (276,178) (5,528,670)
Preferred stock distributions
(6,036 shares for 7,148 shares
of common) (147,125) 7,148 139,545
Exercise of employee stock
options, 267,177 shares issued 267,177 3,647,873
Collections of notes receivable
Translation adjustment on
investments in foreign
subsidiaries (323,608)
Net income 17,428,663
Preferred stock dividends
(net of income tax benefit
of $580,000) (987,047)
Common dividends declared,
$ .60 per share (3,353,654)
------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $19,439,472 ($14,446,112) $5,639,028 $3,645,084 $66,530,997 $483,343
Employee Stock Ownership Plan,
deferred compensation earned 1,510,680
Preferred stock distributions
(10,648 shares for 10,803 shares
of common) (259,541) 10,803 259,394
Exercise of employee stock
options, 284,893 shares issued 284,893 4,837,126
Collections of notes receivable
Translation adjustment on
investments in foreign
subsidiaries and affiliates 708,113
Net income 20,544,880
Preferred stock dividends
(net of income tax benefit
of $590,000) (966,179)
Common dividends declared,
$ .645 per share (3,766,554)
------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $19,179,931 ($12,935,432) $5,934,724 $8,741,604 $82,343,144 $1,191,456
==========================================================================================
<CAPTION>
Notes Unearned Total
Receivable- Deferred Share-
Common Compensation holders'
Stock ESOP Equity
--------------------------------------------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 ($1,319,260) ($697,453) $54,693,076
Employee Stock Ownership Plan,
deferred compensation earned 348,727 1,213,147
Purchase of common stock,
returned to an unissued status
(24,292 shares) (493,002)
Preferred stock distributions
(6,610 shares for 9,463 shares
of common) 5,064
Exercise of employee stock
options, 187,870 shares
issued 2,500,177
Collections of notes
receivable 32,852 32,852
Translation adjustment on
investments in foreign
subsidiaries 521,246
Net income 13,274,581
Preferred stock dividends
(net of income tax benefit
of $598,000) (979,580)
Common dividends declared,
$ .51 per share (2,849,427)
--------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 ($1,286,408) ($348,726) $67,918,134
Employee Stock Ownership Plan,
deferred compensation earned 348,726 1,213,146
Purchase of common stock,
returned to an unissued
status (276,178 shares) (5,804,848)
Preferred stock distributions
(6,036 shares for 7,148 shares
of common) (432)
Exercise of employee stock
options, 267,177 shares issued 3,915,050
Collections of notes receivable 230,149 230,149
Translation adjustment on
investments in foreign
subsidiaries (323,608)
Net income 17,428,663
Preferred stock dividends
(net of income tax benefit
of $580,000) (987,047)
Common dividends declared,
$ .60 per share (3,353,654)
--------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 ($1,056,259) $ 80,235,553
Employee Stock Ownership Plan,
deferred compensation earned 1,510,680
Preferred stock distributions
(10,648 shares for 10,803 shares
of common) 10,656
Exercise of employee stock
options, 284,893 shares issued 5,122,019
Collections of notes receivable 9,556 9,556
Translation adjustment on
investments in foreign
subsidiaries and affiliates 708,113
Net income 20,544,880
Preferred stock dividends
(net of income tax benefit
of $590,000) (966,179)
Common dividends declared,
$ .645 per share (3,766,554)
--------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 ($1,046,703) $103,408,724
==========================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-7-
<PAGE> 8
KYSOR INDUSTRIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31,
<TABLE>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Income from continuing operations $15,128,520 $5,552,416 $1,800,736
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 4,852,585 3,944,499 4,388,663
Provision for losses on accounts receivable 368,474 276,983 688,281
(Gain) Loss on sales of fixed assets 64,975 15,560 (129,961)
Undistributed earnings of affiliate (1,747,766) 0 0
Deferred compensation (ESOP) 1,510,680 1,213,146 1,213,147
Deferred income taxes 490,000 (2,647,000) (1,432,000)
Changes in assets and liabilities providing
(consuming) cash:
Accounts receivable (1,544,323) (4,356) (4,019,570)
Inventories (5,028,023) 923,692 (3,050,632)
Prepaid expenses 543,944 108,037 (542,702)
Accounts payable (3,861,193) (422,984) 2,093,555
Accrued expenses and contingent liabilities (3,766,788) 2,614,862 658,159
Accrued income taxes payable 4,210,458 694,591 41,901
Other long-term liabilities 2,621,653 2,359,203 1,178,144
----------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES
OF CONTINUING OPERATIONS 13,843,196 14,628,649 2,887,721
Cash provided (used) by operating activities of discontinued
operations 11,994,531 18,290,625 10,999,658
----------- ----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 25,837,727 32,919,274 13,887,379
----------- ----------- ----------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Additions to property, plant and equipment (6,934,360) (6,420,318) (3,107,202)
Proceeds from sales of property and equipment 735,235 3,821,016 897,954
Acquisitions, net of cash acquired 9,316 (3,372,448) (4,127,916)
Investment in affiliate (18,315,732) 0 0
Dividends received from foreign affiliate 2,218,723 0 0
(Increase) in other long-term assets (2,603,514) (376,119) (1,799,644)
Unrealized translation gain (loss) 0 (374,582) 403,761
Investing activities of discontinued operations (10,235,072) (7,963,078) (6,211,792)
----------- ---------- ----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (35,125,404) (14,685,529) (13,944,839)
----------- ----------- -----------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Current borrowings 13,000,000 4,482,120 625,510
Principal payments against long-term debt (9,381,656) (14,009,858) (3,348,726)
Proceeds from issuance of common stock 3,466,231 2,802,766 1,767,093
Purchase of common stock 0 (5,804,848) (493,002)
Common stock and preferred stock dividends paid (5,197,493) (4,813,484) (4,353,866)
Financing activities of discontinued operations 8,293 (1,682,102) 1,303,334
----------- ---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,895,375 (19,025,406) (4,499,657)
----------- ----------- ----------
NET (DECREASE) IN CASH AND EQUIVALENTS (7,392,302) (791,661) (4,557,117)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 15,746,157 16,537,818 21,094,935
----------- ----------- ----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 8,353,855 $15,746,157 $16,537,818
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-8-
<PAGE> 9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
================================================================================
NATURE OF OPERATIONS Kysor Industrial Corporation is a multinational
manufacturer of refrigerated display cases, commercial refrigeration systems
and insulated panels for the supermarket industry and a producer of components
for the medium- and heavy-duty commercial vehicle market. The principal
markets for the Company's products include the United States, Europe, South
America and the Pacific Rim. Sales to major customers aggregated approximately
$104 million, $72 million and $27 million for the years ended December 31,
1996, 1995 and 1994 respectively.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of Kysor Industrial Corporation and all of its subsidiaries ("Kysor"
or "Company").
BASIS OF PRESENTATION In connection with the sale of the Company (see footnote
12), the net assets of the transportation products group (which was formerly
accounted for as a segment) were simultaneously sold. The measurement date
occurred after the balance sheet date and before the issuance of the Company's
financial statements and, accordingly, this segment has been reflected as a
discontinued operation in the consolidated financial statements for all years
presented.
CASH AND EQUIVALENTS Kysor considers all highly-liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
INVENTORIES Inventories are stated at the lower of FIFO (first in, first out)
cost or market.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION Property, plant and equipment
are stated at cost. Depreciation is computed by the straight-line method based
on the estimated useful lives of the assets which range from 3 to 40 years.
GOODWILL Goodwill, resulting from the excess of cost over the net assets of
purchased companies, is amortized on a straight-line basis over periods not
exceeding 20 years.
INCOME TAXES Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse.
FOREIGN CURRENCY TRANSLATION Translation adjustments have been accumulated as
a separate component of Shareholders' Equity.
FINANCIAL INSTRUMENTS The Company has cash, cash equivalents, and long-term
debt which are considered financial instruments. The fair values of these
financial instruments, as determined through information obtained from banking
sources and management estimates, approximate their carrying values.
PENSION AND RETIREMENT PLANS Annual provisions for pension and retirement
plan costs recognize amortization of prior service costs over the expected
service period of active employees. Accrued pension costs are funded annually
to the extent deductible for federal income tax purposes.
-9-
<PAGE> 10
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
================================================================================
Postretirement health and life insurance benefits are accounted for in
accordance with Statement of Financial Accounting Standards No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions".
ENVIRONMENTAL COSTS Environmental expenditures that relate to an existing
condition caused by past operations, and do not contribute to current or future
revenues, are expensed. Liabilities are recorded when environmental
assessments and/or cleanups are probable and the costs can be reasonably
estimated. Generally, the timing of these accruals coincides with Kysor's
commitment to a formal plan of action.
ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENT PROFESSIONAL ACCOUNTING STANDARDS The Company adopted the provisions of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed Of", and SFAS No.
123, "Accounting for Stock-Based Compensation", effective January 1, 1996. As
permitted by SFAS 123, the Company has elected to continue to measure
stock-based compensation using the intrinsic value method in accordance with
APB Opinion No. 25 "Accounting for Stock Issued to Employees". The adoption of
SFAS 121 and SFAS 123 did not have a material impact on the financial position
or the results of operations of the Company.
NOTE 2. INVENTORY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Components of Inventory are as follows at December 31,
(Amounts in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 6,381 $ 4,406
Work-in-process 7,631 5,512
Raw materials 12,887 9,504
- --------------------------------------------------------------------------------------------------------------
$ 26,899 $ 19,422
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 3. ACCRUED EXPENSES AND CONTINGENT LIABILITIES
=============================================================================
Components of Accrued Expenses and Contingent Liabilities are as follows at
December 31:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Workers' compensation and liability insurance $ 4,491 $ 4,341
Compensation 5,348 4,664
Warranty 1,317 1,220
Litigation 1,010 1,682
Other 4,762 7,622
- --------------------------------------------------------------------------------------------------------------
Total Accrued Expenses and Contingent Liabilities $ 16,928 $ 19,429
==============================================================================================================
</TABLE>
-10-
<PAGE> 11
NOTE 4. FINANCING
================================================================================
<TABLE>
<CAPTION>
(Amounts in thousands) YEARS ENDED DECEMBER 31, 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Long-term debt consists of the following:
Term note, $750 quarterly principal payments,
plus fixed interest rate at 9.9% $ 6,000 $ 9,000
Loan agreement for Kysor Industrial Corporation
Employee Stock Ownership Plan, $1,250 semiannual
principal payments, plus fixed interest rate at 8.36% 18,750 20,000
Revolving Credit Facility 13,000 -
Other, principal payments due in 1997, plus interest at
rates ranging from 5.0% to 9.2% 871 646
- ---------------------------------------------------------------------------------------------------------------
38,621 29,646
Less current maturities 5,799 4,257
- ---------------------------------------------------------------------------------------------------------------
Total Long-Term Debt $ 32,822 $ 25,389
===============================================================================================================
</TABLE>
At December 31, 1996, the Company maintained revolving credit agreements with
two banks which provide for borrowings up to $30 million. Interest rates are
fixed at the date of borrowing based on current LIBOR rates plus a spread of
.375%. An annual commitment fee of .1875% is paid on the unused balance. The
Company has an interest rate swap under which the variable rate of interest on
the term note is converted to a fixed rate of 9.4% plus a spread of .50%. The
weighted average variable rate of interest received and paid is equal to the
three-month LIBOR (5.56% at December 31, 1996) and is reset quarterly. The
term of the swap matches the maturity of the corresponding term note.
During the years ended December 31, 1996 and 1995, there was no short-term
debt.
Aggregate maturities of obligations under long-term debt, during the next five
years ended December 31, are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1998 1999 2000 2001
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maturities of long-term debt $ 5,799 $ 5,974 $ 2,996 $ 2,596 $ 2,500
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Interest paid was $1,953,000, $1,763,000, and $2,105,000 for the years ended
December 31, 1996, 1995, and 1994 respectively.
NOTE 5. STOCK OPTION PLANS
================================================================================
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", effective with the 1996 financial statements. The Company,
however, has elected to measure compensation cost using the intrinsic value
method, in accordance with APB Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees."
-11-
<PAGE> 12
NOTE 5. STOCK OPTION PLANS (continued)
================================================================================
As of December 31, 1996, Kysor administered its 1980 Nonqualified Stock Option
Plan; 1983 Incentive Stock Option Plan; 1984 Stock Option Plan; 1987 Stock
Option and Restricted Stock Plan; and 1993 Long-Term Incentive Plan. All
outstanding options granted prior to January 1, 1990 are currently exercisable.
All options granted after January 1, 1990 vest at the rate of 20% at date of
grant and 20% each year thereafter, except for the final 20% which vests only
upon exercise and retention for one year of the entire vested 80%.
Under the 1987 Stock Option and Restricted Stock Plan, the Company granted key
employees and directors 13,500 and 6,000 shares of common stock during 1996 and
1995, respectively. Under the 1993 Long-term Incentive Plan, the Company has
made available for key employees and directors 225,250 and 226,000 shares of
common stock during 1996 and 1995, respectively. Under the 1987 Stock Option
Plan, 9,316 and 1,516 remained available for grant as of December 31, 1996 and
1995, respectively. Under the 1993 Long-Term Incentive Plan, 459,100 and
639,000 remained available for grant as of December 31, 1996 and 1995,
respectively.
Information concerning stock options is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
SHARES Shares Shares
------ WEIGHTED- ------ Weighted- ------ Weighted-
AVERAGE Average Average
EXERCISE Exercise Exercise
PRICE Price Price
----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period 1,582,120 $15.65 1,731,000 $14.19 1,732,300 $13.40
New grants (based on fair value of
Common Stock at dates of grant) 238,750 22.89 232,000 22.61 221,000 16.63
Terminated and expired (71,970) 17.66 (9,510) 11.97 (8,030) 8.60
*Exercised (327,670) 14.02 (371,370) 13.29 (214,270) 10.54
**Outstanding at end of period 1,421,230 17.14 1,582,120 15.65 1,731,000 14.19
Outstanding but not exercisable 530,850 19.07 552,590 18.05 571,070 14.78
Exercisable at end of period 890,380 15.83 1,029,530 14.36 1,159,930 13.90
</TABLE>
* Exercised at option prices ranging from $7.25 to $22.5625 during 1996,
$7.25 to $22.5625 during 1995, and $7.25 to $18.9375 during 1994.
** Outstanding shares have option prices ranging from $7.25 to $29.00 per
share. At December 31, 1996, the weighted-average remaining contractual
life relating to the outstanding shares was 5.80 years.
The fair value of each option grant was estimated as of date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
options granted in:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Estimated fair value per share of
options granted during the year $ 6.70 $ 7.48
Assumptions:
Annualized dividend yield 2.50% 2.50%
Common Stock price volatility 27.17% 27.19%
Risk-free rate of return 5.71% 7.33%
Expected option term (in years) 6.25 6.25
</TABLE>
-12-
<PAGE> 13
NOTE 5. STOCK OPTION PLANS (continued)
================================================================================
The Company has elected to continue applying the provisions of APB 25 and,
accordingly, no stock option compensation cost is included in income for the
1980, 1983, 1984, 1987, and 1993 Plans. Had stock option compensation cost for
these Plans been determined based on the fair value at the 1996 and 1995 grant
dates for awards under those Plans consistent with the methodology of SFAS 123,
the Company's net income would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1995
----------------------------- ------------------------------
As Pro As Pro
Reported Forma Reported Forma
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Net income (in thousands) $ 20,545 $ 20,102 $ 17,429 $ 16,775
</TABLE>
NOTE 6. ACQUISITIONS AND DIVESTITURES
================================================================================
On March 19, 1996, Kysor acquired certain assets and assumed certain
liabilities of Nax of North America (NAX), located in Des Moines, Iowa. NAX is
a manufacturer and assembler of European style deli cases and hot food cases
sold to the supermarket and fast food industries.
On February 14, 1996, the Company purchased 24.255% of the outstanding shares
of Austral Refrigeration Pty. Ltd. (Austral), headquartered in Sydney,
Australia. Austral is the parent company of Kysor/Warren Australia Pty. Ltd.
which has been a licensee and manufacturer of Kysor refrigerated display cases
for over 25 years. Also included as a part of Austral is a group of businesses
that perform installation and maintenance of refrigeration products throughout
Australia and other Asian markets.
The following unaudited proforma consolidated information gives effect to the
acquisition of Austral as if the acquisition had occurred on January 1 of the
respective period. Unaudited consolidated proforma income from operations
before income taxes approximates $24 million and $5.2 million for the year
ended December 31, 1996 and 1995 and proforma consolidated net income
approximates $20.7 million and $20.0 million for the respective periods.
The Company's share of Austral's income is recorded using the
"equity method" of accounting and aggregated $1.7 million in 1996
and is included in other (income)/expense in the accompanying
consolidated statement of income.
Summarized financial information of the unconsolidated company as
of and for the year ended December 31, 1996: (amounts in thousands)
<TABLE>
<S> <C>
Current assets $ 35,804
Non-current assets 17,354
Current liabilities 22,298
Non-current liabilities 1,259
Revenues $ 98,579
Income before taxes 15,187
Net income 9,380
</TABLE>
-13-
<PAGE> 14
NOTE 6. ACQUISITIONS AND DIVESTITURES (continued)
================================================================================
The difference between the Company's recorded investment in
affiliate and it's proportionate share of Austral's net assets
relates primarily to goodwill included in the investment.
On October 2, 1995, the Company acquired substantially all of the assets and
assumed certain liabilities of Cooler Technology, Inc. (Cool-Tech) located in
Puyallup, Washington. Cool-Tech manufactures insulated panels and doors for
the supermarket and food service industries. On October 4, 1995, Kysor
acquired certain assets and assumed certain liabilities of Bangor Refrigeration
Corporation (Bangor) located in South Bend, Indiana. Bangor is a manufacturer
of specialty refrigeration display cases and walk-in coolers for grocery
stores, convenience stores and the food service industry. The 1995
acquisitions did not have a material impact on the operations of the Company.
On February 4, 1994, Kysor acquired certain assets and assumed certain
liabilities of Kalt Manufacturing Company, Inc. (Kalt), located in Portland,
Oregon. Kalt manufactures insulated panels and doors for the supermarket and
convenience store industries and also has a manufacturing facility in Goodyear,
Arizona. The acquisition did not have a material impact on the operations of
the Company.
The NAX, Kalt, Cool-Tech and Bangor acquisitions were all accounted for as
purchases and, accordingly, the results of operations of each entity have been
included in the Consolidated Statement of Income since their respective
acquisition dates. The excess of the purchase price over the estimated fair
value of the net assets acquired for each transaction is being amortized on a
straight-line basis over periods ranging from 10 to 15 years.
On December 14, 1995, Kysor sold the assets of its German subsidiary,
Kysor/Warren Refrigeration, GmbH, in exchange for the assumption of certain
liabilities. After several years of significant operating losses, the
operation was sold to existing German management. The transaction resulted in
a loss on disposition of $9.3 million and a tax benefit of $8.8 million.
NOTE 7. PREFERRED STOCK
================================================================================
On February 24, 1989, Kysor sold 820,513 shares of newly issued 8% cumulative
Series A Convertible Voting preferred stock, $24.375 stated value per share
(the "convertible stock"), to the Kysor Industrial Corporation Employee Stock
Ownership Plan (the "ESOP"). The convertible stock may be voluntarily
converted at the option of the holder, unless previously redeemed, into shares
of Kysor Industrial Corporation common stock (the "common stock") on a
one-for-one basis, subject to certain antidilution adjustments, and will
convert automatically into common stock (in certain instances subject to a
conversion floor equal to liquidation value of $24.375 per share, plus accrued
and unpaid dividends) if transferred to a holder other than the ESOP or another
Kysor Industrial Corporation employee benefit plan. The convertible stock is
subject to redemption by the Company. Each share of convertible stock entitles
its holder to one vote on all matters submitted for a vote of shareholders,
again subject to possible antidilution adjustments. The convertible stock
ranks senior to the common stock and is at least on a parity with any other
series of preferred stock that may be subsequently issued.
Preferred Stock issued and outstanding was 786,869 and 797,517 shares at
December 31, 1996 and 1995, respectively. Preferred shares allocated to ESOP
participants were 61,977 and 35,463 for each of the years ended December 31,
1996 and 1995, respectively.
-14-
<PAGE> 15
NOTE 8. PENSION AND RETIREMENT PLANS
================================================================================
Kysor has several noncontributory defined benefit pension plans and defined
contribution plans covering substantially all of its domestic employees. The
defined benefit plans provide benefits based on the participants' years of
service and compensation or stated amounts for each year's service. The
Company's funding policy is to make annual contributions as required by
contract or applicable regulations.
The pension cost components were:
<TABLE>
<CAPTION>
(Amounts in thousands) YEARS ENDED DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Defined Benefit Plans:
Service cost benefits earned during period $ 1,558 $ 1,247 $ 1,327
Interest cost on projected benefit obligation 2,731 2,458 2,255
Actual investment return on plan assets (3,420) (6,019) 731
Net amortization and deferral 1,989 5,415 (3,069)
------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 2,858 $ 3,101 $ 1,244
-----------------------------------------------------------------------------------------------------
</TABLE>
Assumptions used in the accounting were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rates 7.5% 7.5% 8.0%
Rates of increase in compensation levels 4.8% 4.8% 4.9%
Expected long-term rate of return on assets 8.0% 8.0% 8.0%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the funded status and amounts recognized in the
Company's statement of financial position for defined benefit plans:
<TABLE>
<CAPTION>
(Amounts in thousands) YEARS ENDED DECEMBER 31, 1996 1995
PLANS IN WHICH Plans in Which
-------------- --------------
ASSETS ACCUM. Assets Accum.
EXCEED BENEFITS Exceed Benefits
ACCUM. EXCEED Accum. Exceed
BENEFITS ASSETS Benefits Assets
------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ (21,048) $ (7,881) $ (18,191) $ (6,617)
============================================================
Accumulated benefit obligation $ (22,624) $ (10,637) $ (19,414) $ (8,590)
============================================================
Projected benefit obligation $ (26,993) $ (12,300) $ (22,710) $ (10,156)
Plan assets at fair market value 33,487 - 30,387 -
------------------------------------------------------------
Projected benefit obligation (in
excess of) or less than plan assets 6,494 (12,300) 7,677 (10,156)
Unrecognized net (gain) or loss (4,051) 3,340 (5,061) 2,810
Prior service cost not yet recognized
in net periodic pension cost 973 284 653 334
Unrecognized net (asset) obligation
at January 1, ( 551) 352 ( 661) 440
------------------------------------------------------------
Pension asset (liability) recognized in
the statement of financial position $ 2,865 $ (8,324) $ 2,608 $ (6,572)
============================================================
</TABLE>
-15-
<PAGE> 16
NOTE 8. PENSION AND RETIREMENT PLANS (continued)
================================================================================
At both December 31, 1996 and 1995, 100 percent of plan assets was invested in
publicly traded stocks, bonds, and money market investments.
In 1985, Kysor adopted a nonqualified, unfunded supplemental executive
retirement plan for senior management. Kysor has purchased life insurance
policies on the lives of participants and is the sole owner and beneficiary of
such policies. The amount of coverage is designed to provide sufficient
revenues to cover all costs of the plan if the assumptions made as to mortality
experience, policy earnings, and other factors are realized. The Company is
charging earnings with the present value of the future cost of the plan over
the remaining working life of the participants. The above tables include
information related to this plan.
In September 1985, Kysor established an Employee Stock Ownership Plan ("ESOP")
and trust for its domestic salaried employees. The ESOP authorized the trust
to borrow $3,487,000 from a bank in September 1985. The proceeds were used to
purchase 357,668 shares of common stock at $9.75 per share, that being the mean
market price on the New York Stock Exchange on August 22, 1985, the day
preceding the date the transaction was agreed upon. The loan obligation was
paid in full during 1996.
In February 1989, Kysor expanded the ESOP with the sale to the ESOP of $20
million of newly issued Series A Convertible Voting preferred stock from the
Company (see Note 7). The ESOP purchase of preferred stock was financed by a
loan from the Company which issued a $20 million, 15-year ESOP note to raise
the necessary funds. In 1996, 1995 and 1994, dividends on Preferred Stock of
$1,556,000, $1,567,000, and $1,578,000 plus interest expense of $116,000,
$111,000, and $101,000, respectively, were used to service the debt obligation
related to the ESOP. The Company amortized unearned deferred compensation
relating to the shares allocated for the year as a percentage of the total
shares to be allocated of $1,512,000 in 1996 and $864,000 in 1995 and 1994.
POSTRETIREMENT HEALTH AND LIFE INSURANCE BENEFITS
Kysor provides certain defined health care and life insurance benefits for
retired employees. All salaried and certain hourly employees may become
eligible for these benefits if they reach retirement age while working for the
Company. Retiree benefit payments under these programs were $187,000, $307,000
and $164,000 in 1996, 1995, and 1994, respectively.
The components of periodic expenses for the postretirement benefits were as
follows:
<TABLE>
<CAPTION>
(Amounts in thousands) YEARS ENDED DECEMBER 31, 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service cost - benefits earned during the year $ 118 $ 91
Interest cost on accumulated postretirement benefit obligation 252 253
Net amortization (10) (7)
- -------------------------------------------------------------------------------------------------------
Net periodic benefit costs $ 360 $ 337
=======================================================================================================
</TABLE>
-16-
<PAGE> 17
NOTE 8. PENSION AND RETIREMENT PLANS (continued)
================================================================================
The actuarial and recorded liabilities for those postretirement benefits, none
of which have been funded, were as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) YEARS ENDED DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $ 1,503 $ 1,580
Fully eligible active plan participants 661 575
Other active participants 1,403 966
---------------------------------------------------------------------------------------------------
Total APBO 3,567 3,121
Fair market value of plan assets - -
---------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation in
excess of plan assets 3,567 3,121
Unrecognized net (loss) (856) (389)
---------------------------------------------------------------------------------------------------
Accrued postretirement benefit liability at December 31, $ 2,892 $ 2,732
============================================================================================================
</TABLE>
Assumptions used to determine the net periodic postretirement benefit cost
were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.5% 7.5%
Present health care trend rate (decreasing uniformly to the
year 2005)
Under age 65 8.45% 8.9%
Age 65 and older 7.12% 7.4%
Ultimate trend rate in 2005 5.0% 5.5%
=============================================================================================================
</TABLE>
A 1% increase each year in the health care cost trend rate used would have
resulted in a 10.6% increase in the aggregate service and interest components
of expense for the year ended December 31, 1996, and a 8.2% increase in the
accumulated postretirement benefit obligation at December 31, 1996.
The Company has a continuing deferred compensation arrangement with Raymond A.
Weigel, former chairman, which provides for annual payments of $350,000.
NOTE 9. LEASE COMMITMENTS
================================================================================
Kysor leases certain real estate and equipment. In most cases, management
expects that in the normal course of business these leases will be renewed and
replaced by other leases. Kysor has future minimum rental payments required
through 2001 under operating leases that have initial or remaining
-17-
<PAGE> 18
NOTE 9. LEASE COMMITMENTS (continued)
================================================================================
noncancelable lease terms in excess of one year in the following amounts, for
the years ended December 31:
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1998 1999 2000 2001
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Future minimum rental
payments $ 961 $ 850 $ 699 $ 616 $ 150
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
In addition to fixed rentals, certain of these leases requires Kysor to pay
maintenance, property taxes, and insurance. Rental expense charged to
operations is as follows, for the years ended December 31:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $ 1,749 $ 1,739 $ 1,758
</TABLE>
NOTE 10. INCOME TAXES
================================================================================
The provision (credit) for income tax consists of the following:
<TABLE>
<CAPTION>
(Amounts in thousands) YEARS ENDED DECEMBER 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable
Federal $ 7,056 $(2,896) $ 1,525
State and local 997 727 275
Foreign 107 121 102
-----------------------------------------------------------------------------------------------------------
Total currently payable 8,160 (2,048) 1,902
-----------------------------------------------------------------------------------------------------------
Deferred
Federal 479 (2,381) (908)
State, local and foreign (11) (266) (124)
-----------------------------------------------------------------------------------------------------------
Total deferred 490 (2,647) (1,032)
-----------------------------------------------------------------------------------------------------------
Total Provision $ 8,650 $ (4,695) $ 870
=================================================================================================================
</TABLE>
-18-
<PAGE> 19
NOTE 10. INCOME TAXES (continued)
The components of deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) YEARS ENDED DECEMBER 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GROSS DEFERRED TAX ASSETS:
Employee benefit plans $ 5,750 $ 4,798 $ 3,891
Postretirement health care 1,096 1,035 983
Workers' compensation/liability insurance 1,659 1,603 1,549
Warranty 471 462 353
Service contract 777 829 876
Bad debts 360 530 453
Vacation pay 374 329 295
Slow-moving inventory 576 288 286
Alternative minimum tax - 400 -
Litigation 269 286 357
Other 1,365 2,565 1,217
- -------------------------------------------------------------------------------------------------------------------
Total Deferred Tax Assets 13,297 13,125 10,260
- -------------------------------------------------------------------------------------------------------------------
GROSS DEFERRED TAX LIABILITIES:
Depreciation 2,125 2,169 1,984
Pension 969 872 838
Other 9 - 1
- -------------------------------------------------------------------------------------------------------------------
Total Deferred Tax Liabilities 3,103 3,041 2,823
- -------------------------------------------------------------------------------------------------------------------
Net Deferred Income Tax Asset $ 9,594 $ 15,084 $ 7,437
===================================================================================================================
</TABLE>
Major differences between the income taxes computed, using the United States
statutory tax rate and the actual income tax expense, were as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) YEARS ENDED DECEMBER 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes at statutory rate $ 8,332 $ 292 $ 936
Net nondeductible losses (nontaxable income) related
to foreign subsidiaries and other foreign expenses - 3,959 376
Tax benefit related to disposition of foreign operation - (8,842) -
State and local income taxes (net of federal benefit) 645 301 98
Life insurance (150) (147) (172)
Other (177) (258) (368)
- ------------------------------------------------------------------------------------------------------------------
Provision for Income Taxes $ 8,650 $ 4,695 $ 870
==================================================================================================================
</TABLE>
Income taxes paid (net of refunds) were $6,861,548, $4,273,000, and $10,195,000
for the years ended December 31, 1996, 1995, and 1994, respectively. Domestic
operations contributed a profit of $28,998,000, $24,911,000, and $23,321,000 to
income before income taxes for 1996, 1995 and 1994, respectively. Foreign
operations contributed a profit (loss) of $1,099,000, ($5,368,000), and
($1,996,000), for the same periods. Income tax benefits of $1,676,000,
$1,342,000, and $771,000 have been credited to shareholders' equity for the
years ended December 31, 1996, 1995, and 1994, respectively, for deemed
compensation deductions attributable to stock options. Income tax benefits of
$590,000, $580,000, and $598,000 for preferred stock dividends related to the
Company's ESOP have been credited to shareholders' equity in 1996, 1995, and
1994, respectively.
-19-
<PAGE> 20
NOTE 11. CONTINGENT LIABILITIES
================================================================================
As previously reported, the Company has been involved in ongoing proceedings
relating to environmental contamination at the Cadillac Industrial Park in
Cadillac, Michigan (the "Site"). A U.S. EPA administrative order was issued in
1995 to the Company and other potentially responsible parties (PRPs) requiring
soil and groundwater remediation at the Site. It is intended that the
remediation will be conducted through a joint effort involving other PRPs and a
Local Development Finance Authority established by the City of Cadillac
("LDFA"), which has sold approximately $7 million of nonrecourse bonds to pay
the anticipated capital costs of constructing an area-wide environmental
cleanup facility. The Company believes that the bond proceeds received by the
LDFA will be adequate to cover the capital costs of the area-wide cleanup
facility. If the proceeds are insufficient to pay the required capital costs,
Kysor and the other PRPs would be responsible for the additional costs pursuant
to the pending administrative order. It is anticipated that operating and
maintenance costs of the cleanup facility will be shared primarily by the PRPs,
including Kysor, as well as other parties within the Cadillac Industrial Park
pursuant to a special assessment district proposed by the City of Cadillac.
The extent of any assessment to Kysor cannot be determined at the present time.
The Company has reserved its right to seek mixed funding for certain costs
related to the cleanup, and will continue to pursue insurance coverage for any
costs it may incur at the Site. There still has been no determination as to
the availability or extent of such funding or insurance coverage.
Other contingent liabilities include various legal actions, proceedings and
claims which are pending or which may be instituted or asserted in the future
against the Company. For example, in 1994 the Company settled a lawsuit filed
by the State of Michigan seeking to recover past response costs, penalties and
natural resource damages concerning the Site described above. That settlement
did not affect the State's right to pursue additional claims for natural
resource damages if certain additional contamination is discovered. To the
Company's knowledge, at this juncture such additional contamination has not
been detected. Litigation is subject to many uncertainties, the outcome of
individual matters is not predictable with assurance and it is reasonably
possible that some of these other legal actions, proceedings and claims could be
decided unfavorable to the Company. Although the liability with regard to
these matters at December 31, 1996 cannot be ascertained, it is the opinion of
management, after conferring with counsel, that any liability resulting from
these other matters should not materially affect the consolidated financial
position, results of operation, or liquidity of the Company and its
subsidiaries at December 31, 1996.
NOTE 12 SUBSEQUENT EVENT (UNAUDITED)
================================================================================
In March of 1997, the Company's common and preferred stock was acquired by
Scotsman Industries, Inc. ("Scotsman") for an aggregate purchase price of $309
million. Concurrent with the transaction, Scotsman sold the Transportation
Products Group (which was formerly reported as a segment) to a third party for
an aggregate purchase price of $86 million plus the assumption of certain
liabilities. The Transportation Products Group ("TPG") had revenues of
$136,229,237, $154,690,727, and $148,054,042 at December 31, 1996, 1995 and
1994, respectively. Interest expense of Kysor has been allocated to TPG based
on the ratio of net assets of TPG to the sum of consolidated net assets and
debt of Kysor.
-20-
<PAGE> 21
NOTE 12 SUBSEQUENT EVENT (UNAUDITED) (continued)
================================================================================
The following is a summary of assets and liabilities of the TPG which have been
classified as a discontinued operation in the accompanying consolidated
financial statements:
<TABLE>
<CAPTION>
(Amounts in thousands) Years Ended December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 34,177 $ 34,507
Net fixed assets 27,986 21,447
Other noncurrent assets 8,713 10,250
- ------------------------------------------------------------------------------------------------------------------
Subtotal assets 70,876 66,204
- ------------------------------------------------------------------------------------------------------------------
Current liabilities 19,035 19,069
Noncurrent liabilities 13,785 12,936
- ------------------------------------------------------------------------------------------------------------------
Subtotal liabilities 32,820 32,005
- ------------------------------------------------------------------------------------------------------------------
Net assets of discontinued Transportation segment $ 38,056 $ 34,199
==================================================================================================================
</TABLE>
-21-
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Scotsman Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Kysor Industrial
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. 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
from 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 consolidated financial position of Kysor Industrial
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in the subsequent event note (Note 12), Kysor Industrial
Corporation's common stock and preferred stock were acquired in March 1997 for
an aggregate purchase price of approximately $309 million.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
February 3, 1997
-22-
<PAGE> 23
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The pro forma consolidated financial statements included herein are
presented to illustrate the estimated effects of the following transactions as
if such transactions had occurred at the beginning of the period shown: (i) the
acquisition of Kysor Industrial Corporation (Kysor), which at the time was
comprised of the Commercial Products Group and the Transportation Products
Group (Kysor Acquisition); (ii) the concurrent sale of substantially all of the
assets of the Transportation Products Group to a subsidiary of Kuhlman
Corporation; and (iii) the financing of the acquisition through an unsecured
bank facility (Credit Facility).
The Kysor Acquisition will be accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed will be
recorded at their estimated fair values which are subject to further
refinement, including obtaining final appraisals and other analyses, with
appropriate recognition given to the effect of current interest rates and
income taxes. The operations of Kysor from January 1, 1997 to the closing date
of March 9, 1997, and final appraisals and other analyses could materially
affect the final allocation of purchase price.
The pro forma consolidated financial statements do not purport to
represent the financial position or results of operations (i) that would have
resulted if the transactions had been consummated on the date assumed, or (ii)
the results of operations to be expected in the future. In addition to certain
cost savings reflected in the pro forma consolidated income statement,
management believes that certain additional cost savings and revenue
enhancements may be realized following the Kysor Acquisition. No assurances
can be made as to the amount of cost savings or revenue enhancements, if any,
that actually will be realized.
The unaudited pro forma consolidated financial statements are based on
certain assumptions and adjustments described in the notes to pro forma
consolidated financial statements and should be read in conjunction therewith.
<PAGE> 24
PRO FORMA CONSOLIDATED INCOME STATEMENT
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Year ended December 29, 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Scotsman Kysor
Actual Actual (1) Adjustments (2) Pro Forma
--------------- --------------- --------------- ---------
Net sales $ 356,373 $ 245,062 $ - $ 601,435
Cost of sales 257,942 185,253 592 (3) 443,787
--------------- --------------- --------------- ----------
Gross profit 98,431 59,809 (592) 157,648
Selling and administrative expenses 58,135 35,157 (3,349)(4) 89,943
--------------- --------------- --------------- ----------
Income from operations 40,296 24,652 2,757 67,705
Interest expense, net 5,279 874 23,006 (5) 29,159
--------------- --------------- --------------- ----------
Income before income taxes 35,017 23,778 (20,249) 38,546
Income taxes 16,449 8,650 (5,871)(6) 19,228
--------------- --------------- --------------- ----------
Net income $ 18,568 $ 15,128 $ (14,378) $ 19,318
Preferred stock dividends 813 966 (966)(7) 813
--------------- --------------- --------------- ----------
Net income available to common
shareholders $ 17,755 $ 14,162 $ (13,412) $ 18,505
=============== =============== =============== =========
</TABLE>
NOTES
(1) Results included for Kysor are those from continuing operations. The
results of the discontinued Transportation Products Group are excluded.
(2) The allocation of the purchase price to assets acquired and liabilities
assumed has been calculated on a preliminary basis. The final allocation
will be completed within twelve months of the acquisition date once final
appraisals and other analyses are completed. Such appraisals and analyses
could materially affect the final allocation of purchase price.
(3) Represents the incremental increase in depreciation expense caused by the
recording of property, plant and equipment of Kysor at fair value.
(4) Represents the following adjustments:
<TABLE>
<S> <C> <C>
(i) Net decrease in administrative expenses due to the $(5,957)
elimination of Kysor's world headquarters and the combining of
four of Kysor's business units into two business units;
(ii) Defined benefit plan adjustments. Due to the complexities (1,979)
associated with pension accounting, this benefit may not
necessarily be a representative element of pension expense
in the future;
(iii) Net increase in the amortization of goodwill recorded from the 4,374
purchase of Kysor by Scotsman; and
(iv) Depreciation expense. 213
-------
$(3,349)
=======
</TABLE>
(5) Represents an increase in interest expense due to increased levels of
borrowings under the Credit Facility to finance the acquisition of Kysor
and refinance certain debt of Scotsman and Kysor.
(6) Represents the tax effect of the adjustments made as a result of the
Kysor Acquisition, net of non-deductible goodwill.
(7) Represents the elimination of preferred stock dividends for Kysor due to
the purchase of the outstanding preferred stock of Kysor in conjunction
with the Kysor Acquisition.
<PAGE> 25
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Year ended December 29, 1996
-------------------------------------------------------------------------
Scotsman Kysor
Actual Actual Adjustments (1) Pro Forma
---------- ----------- --------------- -------------
ASSETS
------
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash and temporary cash investments $ 16,501 $ 8,354 - $ 24,855
Trade accounts and notes receivable, 58,734 34,654 - 93,388
net of allowances
Inventories 52,530 26,900 - 79,430
Deferred income taxes 4,708 4,927 14,520(2) 24,155
Other current assets 5,101 928 1,560(3) 7,589
-------- ----------- --------- -----------
Total current assets 137,574 75,763 16,080 229,417
PROPERTIES AND EQUIPMENT, net 46,659 29,732 6,670(4) 83,061
GOODWILL AND OTHER INTANGIBLES, net 94,975 6,474 184,553(5) 286,002
DEFERRED INCOME TAXES - 4,667 14,598(6) 19,265
OTHER NONCURRENT ASSETS 4,056 33,770 2,842(7) 40,668
NET ASSETS OF DISCONTINUED OPERATIONS - 38,656 (38,656)(8) -
-------- ----------- --------- -----------
$283,264 $ 189,062 $ 186,087 $ 658,413
======== =========== ========= ===========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Short-term debt and current maturities $ 16,317 $ 5,799 $ (5,799) (9) $ 16,317
of long-term debt and capitalized lease
obligations
Trade accounts payable 22,344 14,046 - 36,390
Accrued income taxes 6,302 1,812 18,000(10) 26,114
Accrued expenses 33,290 16,928 18,922(11) 69,140
-------- ----------- --------- ------------
Total current liabilities 78,253 38,585 31,123 147,961
LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS 60,289 32,822 248,318(12) 341,429
DEFERRED INCOME TAXES 3,710 - 3,695(6) 7,405
OTHER NONCURRENT LIABILITIES 9,300 14,247 6,359(13) 29,906
-------- ----------- --------- ------------
Total liabilities 151,552 85,654 289,495 526,701
SHAREHOLDERS' EQUITY:
Preferred Stock - 6,244 (6,244)(14) -
Common stock 1,073 5,935 (5,935)(14) 1,073
Additional paid in capital 73,053 8,742 (8,742)(14) 73,053
Retained earnings 62,036 82,343 (82,343)(14) 62,036
Deferred compensation and (117) - - (117)
unrecognized pension cost
Note Receivable - common stock - (1,047) 1,047 (14) -
Foreign currency translation adjustments (2,877) 1,191 (1,191)(14) (2,877)
Less: Common stock held in treasury (1,456) - - (1,456)
-------- ----------- --------- ------------
Total Shareholder's Equity 131,712 103,408 (103,408) 131,712
-------- ----------- --------- ------------
$283,264 $ 189,062 $ 186,087 $ 658,413
======== =========== ========= ============
</TABLE>
<PAGE> 26
NOTES
- -----
(1) The allocation of the purchase price to assets acquired and liabilities
assumed has been calculated on a preliminary basis. The final allocation
will be completed within twelve months of the acquisition date once final
appraisals and other analyses are completed. Such appraisals and analyses
could materially affect the final allocation of purchase price.
(2) Represents the tax benefit derived from the exercise of stock options by
former option holders of Kysor prior to the closing of the Kysor
Acquisition.
(3) Represents the estimated settlement of final accounts between Kuhlman
Corporation and Scotsman.
(4) The adjustment to record the net book value of Kysor's properties and
equipment at their estimated fair values.
(5) Adjustment to record goodwill and other intangible assets acquired.
(6) Represents the deferred tax effect of purchase accounting and financing
transactions.
(7) Represents the following adjustments:
<TABLE>
<S> <C> <C>
(i) Defined benefit plan adjustments; $ 3,629
(ii) Estimated costs of the Credit Facility; and 5,000
(iii) Monetization of cash surrender value of certain life insurance policies
held by Kysor. (5,787)
-------
$ 2,842
=======
</TABLE>
(8) Represents the net assets of the Transportation Products Group of Kysor.
Pre-tax proceeds of $86 million were used to reduce borrowings under the
Credit Facility.
(9) Scotsman retired the short-term debt of Kysor assumed by Scotsman through
utilization of the Credit Facility and refinanced a portion of its
short-term debt outstanding at December 29, 1996 through utilization of
the Credit Facility.
(10) Represents the estimated tax payment on the gain associated with the sale
of the Transportation Products Group of Kysor.
<PAGE> 27
NOTES
(11) Represents the following adjustments:
(i) The estimated costs of closing Kysor facilities; $ 2,359
(ii) Severance and other employee benefits payable
to employees of Kysor; and 13,267
(iii) Acquisition costs 3,296
-------
$18,922
=======
(12) Net increase in Credit Facility. Also, in conjunction with the
transaction, Scotsman refinanced approximately $45 million of its
long-term debt outstanding as of December 29, 1996, through
utilization of the Credit Facility. In addition, Scotsman refinanced the
long-term debt of Kysor through utilization of the Credit Facility.
(13) Represents the following adjustments:
(i) Severance and other employee benefits payable; $4,297
(ii) Defined benefit plan adjustments; and 1,367
(iii) Other 695
-------
$6,359
=======
(14) Represents the elimination of Kysor equity resulting from the Kysor
Acquisition.
<PAGE> 28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this Amendment No. 1 to its Current Report
on Form 8-K to be signed on its behalf by the undersigned thereunto duly
authorized.
SCOTSMAN INDUSTRIES, INC.
(Registrant)
Date: May 22, 1997 By: /s/ Donald D. Holmes
-------------------------------
Donald D. Holmes
Vice President-Finance
<PAGE> 29
EXHIBIT INDEX
Exhibit No.
2.1 Agreement and Plan of Merger, dated as of February 2, 1997,
among Scotsman, Purchaser and Kysor (incorporated by reference
from Exhibit (c)(1) to the Schedule 14D-1).
2.2 First Amendment to Agreement and Plan of Merger, dated as of
March 7, 1997, among Scotsman, Purchaser and Kysor (previously
filed as an Exhibit to this Form 8-K).
23 Consent of Coopers & Lybrand L.L.P.
99 Press Release of Scotsman, dated March 10, 1997 (incorporated
by reference from Exhibit (a)(15) to Amendment No. 5 to the
Schedule 14D-1, filed by Scotsman with the SEC on March 10,
1997).
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Scotsman Industries, Inc. on Form S-8 (File Nos. 33-35870, 33-35871, 33-53482,
33-57219, 33-56353, 33-59397, and 33-60377) of our report dated February 3,
1997 on our audit of the consolidated financial statements of Kysor Industrial
Corporation and Subsidiaries as of December 31, 1996 and 1995 and for each of
the three years in the period ended December 31, 1996, which report is included
in Amendment No. 1 to Form 8-K/A dated May 22, 1997.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
May 21, 1997
