<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SCOTSMAN INDUSTRIES, INC.
SCOTSMAN GROUP INC.
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS)
<TABLE>
<S> <C>
36-3635892
DELAWARE 36-3635935
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
820 FOREST EDGE DRIVE
VERNON HILLS, ILLINOIS 60061
TELEPHONE: (847) 215-4500
(Address, including zip code, and telephone number, including area code, of
principal executive offices)
------------------------
DONALD D. HOLMES
VICE PRESIDENT -- FINANCE AND SECRETARY
SCOTSMAN INDUSTRIES, INC.
820 FOREST EDGE DRIVE
VERNON HILLS, ILLINOIS 60061
(847) 215-4500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
Copies to:
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<S> <C>
IMAD I. QASIM, ESQ. JAMES J. JUNEWICZ, ESQ.
SIDLEY & AUSTIN MAYER, BROWN & PLATT
ONE FIRST NATIONAL PLAZA 190 S. LASALLE STREET
CHICAGO, ILLINOIS 60603 CHICAGO, ILLINOIS 60603
(312) 853-7000 (312) 782-0600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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=================================================================================================================================
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER SHARE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OR NOTE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Subordinated Notes Due
2007............................... $100,000,000 100%(1) $100,000,000(1) $30,304
- ---------------------------------------------------------------------------------------------------------------------------------
Guarantee of % Senior Subordinated
Notes Due 2007..................... $100,000,000 (2) (2) None
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.10 per
share.............................. 1,611,699 shares $26.50(3) $42,710,024(3) $12,943
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock Purchase Rights......... 1,611,699 rights (4) (4) (4)
=================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) No separate fee is payable pursuant to Rule 457(n) under the Securities Act
of 1933, as amended.
(3) Estimated solely for the purpose of calculating the registration fee and,
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based
upon the average of the high and low prices for the Company's Common Stock
as reported on the New York Stock Exchange on October 17, 1997.
(4) The Common Stock Purchase Rights of the Company initially are attached to
and trade with shares of the Company's Common Stock being registered hereby.
Value attributable to such Common Stock Purchase Rights, if any, is
reflected in the market price of the Company's Common Stock.
------------------------
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two prospectuses, one for a debt
offering (the "Debt Prospectus") and one for an equity offering (the "Equity
Prospectus"). The financial statement pages for the Debt Prospectus and the
Equity Prospectus are identical and are included in this Registration Statement
only as part of the Debt Prospectus.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued October 22, 1997
$100,000,000
Scotsman Group Inc.
(a direct wholly owned subsidiary of Scotsman Industries, Inc.)
% SENIOR SUBORDINATED NOTES DUE 2007
Unconditionally guaranteed by
[Scotsman Industries Logo]
------------------------
Interest payable and
------------------------
The Notes are redeemable at the option of Scotsman Group Inc. ("Scotsman Group"
or the "Issuer"), in whole or in part, at any time on or after ,
2002, at % of their principal amount, plus accrued interest, declining
ratably to 100% of their principal amount, plus accrued interest, on or after
, 2004. In addition, at any time prior to 2000,
Scotsman Group may redeem in aggregate up to 35% of the original principal
amount of the Notes with the proceeds of one or more Equity Offerings (as
defined herein), at % of their principal amount, plus accrued interest. Upon
a Change of Control (as defined herein), each holder of Notes will have the
right to require Scotsman Group to purchase all or a portion of such holder's
Notes at a purchase price equal to 101% of the principal amount thereof, plus
accrued interest, if any, to the date of purchase. See "Description of the
Notes."
Scotsman Industries, Inc. (the "Company" or "Scotsman") will issue a Guaranty
(as defined herein) of the Notes under which Scotsman, as primary obligor and
not merely as a surety, will irrevocably and unconditionally guarantee on a
senior subordinated basis the payment of the Notes when due and the due
performance by the Issuer of its other obligations under the Indenture (as
defined herein).
The Notes and the Guaranty will be unsecured general obligations of Scotsman
Group and the Company, respectively, subordinated in right of payment to all
existing and future Senior Indebtedness (as defined herein) of Scotsman Group
and the Company. As of June 29, 1997, after giving effect to this Offering and
the application of the net proceeds herefrom, Scotsman Group and the Company
would have had approximately $268 million of Senior Indebtedness outstanding and
approximately $139 million available under the Bank Credit Agreement (as defined
herein) which, if borrowed, would constitute Senior Indebtedness.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS FOR INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE % AND ACCRUED INTEREST, IF ANY
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
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<S> <C> <C> <C>
Per Note............................................. % % %
Total................................................ $ $ $
</TABLE>
- ------------
(1) Plus accrued interest, if any, from , 1997.
(2) The Company and Scotsman Group have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
(3) Before deducting expenses of the Offerings (as defined herein) payable by
the Company estimated at $ .
------------------------
The Notes are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Mayer, Brown & Platt, counsel for the Underwriters. It is expected that
delivery of the Notes will be made on or about , 1997 at the office
of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor
in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER FIRST CHICAGO CAPITAL MARKETS, INC.
, 1997
<PAGE> 4
[GRAPHIC ILLUSTRATION OF THE PERCENTAGE OF THE COMPANY'S
1996 PRO FORMA NET SALES REPRESENTED BY EACH OF THE COMPANY'S
FIVE PRODUCT LINES, TOGETHER WITH PHOTOGRAPHS OF A
REPRESENTATIVE SAMPLING OF PRODUCTS FROM EACH LINE.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE MARKET PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THIS OFFERING,
AND MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION OF SUCH PERSONS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................... 4
Risk Factors................................ 12
The Company................................. 17
Scotsman Group.............................. 18
Kysor Acquisition........................... 18
Secondary Equity Offering................... 19
Use of Proceeds............................. 19
Capitalization.............................. 20
Selected Consolidated Financial and Other
Information............................... 21
Pro Forma Consolidated Financial
Information............................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 29
</TABLE>
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PAGE
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Business.................................... 36
Management.................................. 46
Description of the Notes.................... 48
Certain United States Federal Tax
Considerations............................ 75
Description of Credit Facility.............. 80
Underwriters................................ 82
Legal Matters............................... 83
Experts..................................... 83
Additional Information...................... 83
Index to Financial Statements............... F-1
</TABLE>
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Securities and
Exchange Commission (the "Commission") are hereby incorporated by reference in
this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 30, 1997 and June 29, 1997, respectively; and
3. The Company's Current Reports on Form 8-K dated March 8, 1997 (as
amended by Form 8-K/A filed with the Commission on May 22, 1997) and
September 29, 1997, respectively.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to the
termination of the offering hereunder shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed documents which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus. The Company
will provide without charge to each person to whom this Prospectus is delivered
upon written or oral request, a copy of any or all of such documents that have
been or may be incorporated by reference into this Prospectus (other than
exhibits to such documents which are not specifically incorporated by reference
into such documents). Requests for such documents should be directed to
Corporate Secretary, Scotsman Industries, Inc., 820 Forest Edge Drive, Vernon
Hills, Illinois 60061, telephone number (847) 215-4500.
------------------------
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing or
incorporated by reference in this Prospectus. As used in this Prospectus, the
term the "Company" or "Scotsman" refers to Scotsman Industries, Inc. and, unless
otherwise stated or indicated by the context, its subsidiaries, and the terms
"Scotsman Group" or the "Issuer" refers to Scotsman Group Inc. As used in this
Prospectus, the term "Kysor" refers to Kysor Industrial Corporation and, unless
otherwise stated or indicated by the context, its subsidiaries, after taking
into account the sale of substantially all of the assets and related liabilities
of Kysor's Transportation Products Group described elsewhere in this Prospectus.
Unless otherwise stated, reference to the Company's 1996 "pro forma" net sales
includes Kysor's 1996 sales. Scotsman reports financial information on a 52-53
week fiscal year ending on the Sunday nearest to December 31, which fell on
December 29, 1996, December 31, 1995, January 1, 1995, January 2, 1994 and
January 3, 1993, respectively, for each of Scotsman's last five fiscal years.
Scotsman's first fiscal six months in 1997 and 1996 ended on June 29, 1997 and
June 30, 1996, respectively.
THE COMPANY
GENERAL
Scotsman is a leading international manufacturer of a diversified line of
commercial refrigeration products, food preparation equipment and beverage
systems that is sold primarily to customers in the restaurant, supermarket,
lodging, healthcare and convenience store industries. The Company has a leading
market position in each of its five product lines, which consist of ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage systems. Scotsman's customers include
many of the largest chains in the quick service restaurant, supermarket, lodging
and convenience store industries, including McDonald's, Boston Market, WalwMart,
Winn-Dixie, Marriott and Mobil, as well as bottlers affiliated with Coca-Cola
and Pepsi.
The Company's revenues are diversified among its five product lines, with
ice machines and refrigerated display cases, its two largest product lines, each
representing approximately 29% of the Company's 1996 pro forma net sales. Within
each of its product lines, the Company offers a broad range of products designed
to meet the diverse equipment needs of its customers. The Company sells its
products in over 100 countries through multiple distribution channels and has
manufacturing capabilities in the United States, the United Kingdom, Germany and
Italy and joint venture interests in Australia, China, the United Kingdom and
Indonesia. International sales of approximately $144 million accounted for
approximately 24% of the Company's 1996 pro forma net sales. The Company
believes that its leading market positions, broad product offering, diverse
customer base, extensive distribution network and strong international presence
provide it with significant competitive advantages and position it for continued
growth.
Since its spin-off from Household International, Inc. in 1989, Scotsman has
expanded through internal growth and through a disciplined acquisition program.
The Company's internal growth has been driven primarily by increased sales of
ice machines in the United States and Europe and beverage systems in Europe. In
addition, from 1992 through 1996, the Company successfully completed and
integrated five acquisitions. As a result of these acquisitions and internal
growth, the Company's net sales increased to $356.4 million in 1996 from $168.7
million in 1992, representing a compound annual growth rate of 20.6%. In March
1997, the Company acquired Kysor for a net purchase price of approximately $299
million (the "Kysor Acquisition"). Kysor is a leading supplier of refrigerated
display cases and walk-in coolers and freezers to the supermarket and
convenience store industries. For 1996, Kysor's sales of commercial
refrigeration products were $245.1 million, an increase of 18.3% from 1995. Pro
forma for the Kysor Acquisition, the Company's 1996 net sales were $601.4
million, a 68.7% increase over the Company's reported 1996 net sales. Through
the addition of Kysor's leading market positions and complementary product
lines, the Company expects to benefit from cross-selling opportunities, as well
as synergies related to reduced overhead, increased purchasing power and shared
research and development efforts.
4
<PAGE> 7
STRATEGY
Scotsman's operating strategy is to continue to capitalize on its
competitive advantages and enhance its customer relationships. The key
components of this strategy include:
CAPITALIZING ON MARKET LEADERSHIP. Scotsman seeks to build and
maintain leading market positions in each of its product lines. Scotsman
believes that its leading market positions, broad product offerings, strong
brand recognition and extensive distribution capabilities position it to
compete successfully as its customers consolidate their supplier base and
expand internationally.
OPTIMIZING MANUFACTURING EFFECTIVENESS AND FLEXIBILITY. To enhance
manufacturing effectiveness, Scotsman has adopted "lean manufacturing"
initiatives that have enhanced product quality, lowered product defects and
inventory costs and reduced lead times for customized products. The
Company's manufacturing processes are designed to produce a range of
different standard or customized models within each manufacturing unit,
thereby increasing efficiency while improving the Company's ability to meet
customers' delivery schedules.
EMPHASIZING PRODUCT QUALITY AND NEW PRODUCT DEVELOPMENT. By applying
its product design, manufacturing and refrigerant technology expertise,
Scotsman seeks to design and manufacture technically superior, durable and
energy efficient products. Scotsman also dedicates substantial resources to
new product development and customizing existing products to meet the
unique performance, size and appearance specifications of individual
customers.
LEVERAGING EXTENSIVE DISTRIBUTION CAPABILITIES TO DELIVER SUPERIOR
CUSTOMER SERVICE. Scotsman has an extensive sales, distribution and service
network that reaches customers in over 100 countries and is comprised of
approximately 200 employees and approximately 3,300 distributors and
dealers. Scotsman believes that this network, which is designed to meet the
needs of customers from product design and purchase through aftermarket
sales and support, provides it with a competitive advantage.
Scotsman also pursues a growth strategy intended to strengthen its
leadership positions within its product lines. The key elements of this strategy
include:
FOCUSING ON MAJOR NATIONAL CHAINS. Scotsman targets major national
chains within the five principal industries it serves. The Company believes
that these national chains are increasingly gaining market share at the
expense of independents and that, as a large diversified manufacturer,
Scotsman is well positioned to benefit from the trend among national chains
to consolidate their supplier base.
PURSUING CROSS-SELLING OPPORTUNITIES. Scotsman actively pursues
opportunities to cross-sell its broad range of products to existing
customers. The broader product range and increased customer base resulting
from the Kysor Acquisition present significant new cross-selling
opportunities for Scotsman.
CAPITALIZING ON INTERNATIONAL OPPORTUNITIES. Over the past several
years, international sales of commercial foodservice and retail food
equipment have grown at rates substantially higher than those for the
United States. The Company expects to use its international marketing,
distribution and manufacturing capabilities as a platform to increase
penetration of growing international markets.
EXPANDING THROUGH STRATEGIC ACQUISITIONS. Scotsman will continue to
explore strategic acquisitions and joint ventures that broaden the
Company's product lines, offer significant operational synergies or
increase the Company's penetration of international markets.
5
<PAGE> 8
THE OFFERING
Issuer........................ Scotsman Group, a Delaware corporation and a
direct wholly owned subsidiary of Scotsman.
Scotsman conducts its domestic ice machine
business through divisions of Scotsman Group
and all of its other businesses through
subsidiaries of Scotsman Group.
Notes Offered................. $100 million principal amount of % Senior
Subordinated Notes due 2007.
Maturity Date................. , 2007.
Interest Payment Dates........ and of each year, commencing
, 1998.
Optional Redemption........... The Notes are redeemable at the option of the
Issuer, in whole or in part, on or after
, 2002, at the redemption prices set
forth herein, together with accrued and unpaid
interest to the date of redemption.
In addition, up to 35% of the original
principal amount of the Notes are redeemable at
the option of the Issuer prior to
, 2000 with the proceeds of
one or more Equity Offerings at the redemption
price set forth herein, together with accrued
and unpaid interest to the date of redemption.
Guaranty...................... Scotsman will issue a Guaranty of the Notes
under which Scotsman, as primary obligor and
not merely as a surety, will irrevocably and
unconditionally guarantee on a senior
subordinated basis the payment of the Notes
when due and the due performance by the Issuer
of its other obligations under the Indenture.
Sinking Fund.................. None.
Change of Control............. Upon the occurrence of a Change of Control,
each holder of the Notes shall have the option
to require the Issuer to repurchase such
holder's Notes at a redemption price equal to
101% of the principal amount thereof, plus
accrued interest to the date of redemption,
pursuant to an Offer to Purchase required to be
made by the Issuer.
Ranking....................... The Notes and the Guaranty are unsecured senior
subordinated obligations of the Issuer and the
Company, respectively, and are subordinated to
all existing and future Senior Indebtedness of
the Issuer and the Company, including
indebtedness under the Bank Credit Agreement.
As of June 29, 1997, after giving pro forma
effect to this Offering and the application of
net proceeds herefrom, the aggregate
outstanding principal amount of Senior
Indebtedness of the Issuer and Scotsman would
have been approximately $268 million. In
addition, the Notes are effectively
subordinated to the obligation of the Issuer's
subsidiaries. As of June 29, 1997, after giving
pro forma effect to this Offering and the
application of net proceeds herefrom, the
Issuer's subsidiaries would have had
approximately $38 million of indebtedness
outstanding. Subject to certain limitations,
Scotsman, the Issuer and their Restricted
Subsidiaries may incur additional indebtedness
in
6
<PAGE> 9
the future. See "Risk Factors -- Leverage" and
"Description of the Notes -- Ranking."
Subordination................. Senior Indebtedness (including allowed interest
thereon) of the Issuer or Scotsman, as the case
may be, shall be paid in full in cash or cash
equivalents from any payment of distribution
(except similarly subordinated securities) in
connection with any dissolution, winding up,
liquidation or reorganization (in bankruptcy or
otherwise) before the Notes shall be entitled
to receive such payments or distributions.
In addition, no payment of any kind or
character may be made on the Notes if any
Obligations with respect to any Designated
Senior Indebtedness are not paid when due or if
any other default occurs with respect to any
Designated Senior Indebtedness and the maturity
thereof has been accelerated. During the
continuance of any default with respect to any
Designated Senior Indebtedness which permits
the maturity thereof to be accelerated, the
Issuer may not make any payment of any kind or
character in respect of the Notes, and the
Company may not make any payment in respect
thereof under the Guaranty, for a period of up
to 179 days after receipt of notice thereof by
the Issuer.
Certain Covenants............. The Indenture contains certain covenants,
including, without limitation, covenants with
respect to the following matters: (i)
limitations on indebtedness, (ii) limitation on
other senior subordinated indebtedness; (iii)
limitation on restricted payments; (iv)
limitation on sale or issuance of restricted
subsidiary stock and indebtedness; (v)
limitation on transactions with affiliates;
(vi) limitation on liens; (vii) limitation on
asset sales; (viii) limitation on dividends and
other payment restrictions affecting restricted
subsidiaries; and (ix) restrictions on mergers
and certain transfers of assets. See
"Description of the Notes -- Certain
Covenants."
Use of Proceeds............... The net proceeds of this Offering are intended
to be used to repay a portion of the borrowings
outstanding under the Credit Facility. See "Use
of Proceeds."
For further information regarding the Notes, see "Description of the Notes"
and for definitions of certain capitalized terms used but not defined in this
Summary, see "Description of the Notes -- Certain Definitions."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning
Scotsman's operations, performance and financial condition, including, in
particular, the likelihood of the Company's success in integrating acquisitions.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those identified under "Risk Factors" and the
Cautionary Statements included as Exhibit 99 to the Company's Form 10-K for the
fiscal year ended December 29, 1996 and elsewhere in this Prospectus. The
forward-looking statements should be considered in light of these factors.
Unless otherwise indicated by the context, when used in this Prospectus or in
the documents incorporated by reference herein, the words "anticipate,"
"believe," "estimate," "intend" and "expect" and similar expressions are
intended to identify forward-looking statements.
7
<PAGE> 10
SECONDARY EQUITY OFFERING
This Prospectus is part of a Registration Statement that also covers the
offer and sale from time to time (the "Equity Offering") of up to 1,611,699
shares of common stock, par value $0.10 per share, of the Company (the "Common
Stock") by certain stockholders of the Company, including Onex Corporation
("Onex") and certain of its affiliates (collectively, the "Selling
Stockholders"), who have the right, pursuant to an agreement among such Selling
Stockholders and the Company (the "Registration Rights Agreement"), to request
that the Company include their shares of Common Stock in registrations by the
Company of its securities under the Securities Act (as herein defined). The
Selling Stockholders have advised the Company, and the Prospectus relating to
the Equity Offering discloses, that they may sell their shares of Common Stock
through an underwritten public offering, in one or more transactions (including
block trades) on the New York Stock Exchange or on the over-the-counter market
or pursuant to privately negotiated transactions. The Company is obligated under
the Registration Rights Agreement to keep the Registration Statement related to
the Equity Offering effective for no more than 90 days. The Company will not
receive any proceeds from the sale of Common Stock in the Equity Offering. This
Offering and the Equity Offering (collectively, the "Offerings") are separate
and independent transactions not contingent upon one another. The Company is
obligated to indemnify the Selling Stockholders and any underwriters of the
Equity Offering against certain liabilities, including certain liabilities
arising under the Securities Act.
8
<PAGE> 11
SUMMARY SCOTSMAN CONSOLIDATED FINANCIAL AND OTHER INFORMATION
Scotsman reports financial information on a 52-53 week fiscal year ending
on the Sunday nearest to December 31, which fell on December 29, 1996, December
31, 1995, January 1, 1995, January 2, 1994 and January 3, 1993, respectively,
for each of Scotsman's last five fiscal years. Scotsman's first fiscal six
months in 1997 and 1996 ended on June 29, 1997 and June 30, 1996, respectively,
and such results are unaudited.
<TABLE>
<CAPTION>
FIRST FISCAL SIX MONTHS FISCAL YEAR
--------------------------------- ------------------------------------------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1997(1) 1997(2) 1996 1996(1) 1996 1995 1994 1993 1992
----------- ------- ---- ----------- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
INFORMATION:
Net sales................. $310,688 $271,854 $189,956 $601,435 $356,373 $324,291 $266,632 $163,952 $168,674
Cost of sales............. 232,463 200,757 135,692 443,787 257,942 236,402 190,518 114,472 122,226
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit.............. 78,225 71,097 54,264 157,648 98,431 87,889 76,114 49,480 46,448
Selling and administrative
expenses................ 46,280 41,103 30,877 89,943 58,135 53,435 47,900 31,874 31,588
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from operations.... 31,945 29,994 23,387 67,705 40,296 34,454 28,214 17,606 14,860
Interest expense, net..... 14,510 8,781 2,837 31,334 5,279 6,326 5,416 4,235 4,675
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes................... 17,435 21,213 20,550 36,371 35,017 28,128 22,798 13,371 10,185
Income taxes.............. 9,163 10,262 9,866 18,358 16,449 12,720 10,013 5,989 3,793
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before
extraordinary loss and
cumulative effect of
accounting changes...... 8,272 10,951 10,684 18,013 18,568 15,408 12,785 7,382 6,392
Extraordinary loss (net of
income taxes of
$422)(3)................ (633) (633) -- -- -- -- -- -- --
Cumulative effect of
accounting changes(4)... -- -- -- -- -- -- -- 29 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income................ $ 7,639 $ 10,318 $ 10,684 $ 18,013 $ 18,568 $ 15,408 $ 12,785 $ 7,411 $ 6,392
Preferred stock
dividends............... -- -- 562 813 813 1,240 885 -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income available to
common shareholders..... $ 7,639 $ 10,318 $ 10,122 $ 17,200 $ 17,755 $ 14,168 $ 11,900 $ 7,411 $ 6,392
======== ======== ======== ======== ======== ======== ======== ======== ========
Income per share before
extraordinary loss and
cumulative effect of
accounting changes,
fully diluted(5)........ $ .77 $ 1.01 $ 1.00 $ 1.68 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income per share,
fully diluted(5)........ $ .71 $ .95 $ 1.00 $ 1.68 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- -------- -------- --------
OTHER INFORMATION:
EBITDA(6)................. $ 41,312 $ 37,393 $ 27,720 $ 86,607 $ 49,166 $ 42,048 $ 34,233 $ 21,280 $ 18,422
Capital expenditures...... 10,529 7,433 3,360 13,129 6,195 6,513 5,434 3,264 2,012
SELECTED RATIOS:
Ratio of earnings to fixed
charges(7).............. 2.1x 3.3x 7.4x 2.1x 6.8x 5.0x 4.8x 3.9x 3.0x
Ratio of EBITDA to
interest expense........ 2.8x 4.3x 9.8x 2.8x 9.3x 6.6x 6.3x 5.0x 3.9x
Ratio of total debt to
EBITDA.................. -- -- -- 4.2x 1.6x 2.1x 2.6x 1.5x 1.7x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 29, 1997
----------------------------
AS ADJUSTED(8) ACTUAL
-------------- ------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET INFORMATION:
Cash and marketable securities.............................. $ 20,760 $ 20,760
Total assets................................................ 687,128 682,878
Total debt and capitalized lease obligations (including
current maturities)....................................... 367,194 362,944
Working capital............................................. 95,487 95,487
Shareholders' equity........................................ 137,527 137,527
</TABLE>
- -------------------------
(Footnotes on following page)
9
<PAGE> 12
- -------------------------
(1) Pro forma for the Kysor Acquisition and as adjusted for the consummation of
this Offering. For a detailed description of the assumptions used in the
preparation of this pro forma as adjusted financial information, see "Pro
Forma Consolidated Financial Information."
(2) Includes results of Kysor for the period from March 10, 1997 through June
29, 1997.
(3) The extraordinary loss resulted from one-time expenses incurred by the
Company relating to the early retirement of certain debt as part of a
refinancing effected by the Company concurrently with the Kysor Acquisition.
(4) Effective January 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions"; Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes"; and Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-employment
Benefits."
(5) The calculation of fully diluted net income per share is based on net income
before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation were:
10,808,946; 10,808,946 and 10,700,100 for the pro forma as adjusted first
fiscal six months of 1997 and the first fiscal six months of 1997 and 1996,
respectively; and 10,728,188; 10,728,188; 10,649,763; 9,488,965; 7,000,651
and 7,096,976 for the 1996 pro forma as adjusted fiscal year and the fiscal
years 1996, 1995, 1994, 1993 and 1992, respectively.
(6) Represents earnings before interest, taxes, accounting charges, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and incur debt. EBITDA
should not be considered by a prospective purchaser of Common Stock as an
alternative to net income or as an indicator of the Company's operating
performance or cash flows.
(7) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before extraordinary loss, cumulative effect of
accounting changes and income taxes, plus fixed charges. Fixed charges
consist of interest expense, amortization of debt expense and implicit
interest expense associated with operating leases.
(8) As adjusted for the consummation of this Offering. See "Use of Proceeds" and
"Capitalization."
10
<PAGE> 13
SUMMARY KYSOR CONSOLIDATED FINANCIAL AND OTHER INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Net sales................................................... $245,062 $207,215 $164,606
Cost of sales............................................... 185,253 159,460 128,631
-------- -------- --------
Gross profit................................................ 59,809 47,755 35,975
Selling and administrative expenses......................... 35,075 37,589 32,815
Loss on disposition of foreign operation(1)................. -- 9,335 --
-------- -------- --------
Income from operations...................................... 24,734 831 3,160
Interest expense, net....................................... 956 (26) 489
-------- -------- --------
Income before income taxes.................................. 23,778 857 2,671
Income taxes (benefit)...................................... 8,650 (4,695) 870
-------- -------- --------
Net income.................................................. $ 15,128 $ 5,552 $ 1,801
Preferred stock dividends................................... 966 987 980
-------- -------- --------
Net income available to common shareholders................. $ 14,162 $ 4,565 $ 821
======== ======== ========
OTHER INFORMATION:
EBITDA(2)................................................... $ 29,505 $ 14,061 $ 7,519
Capital expenditures........................................ 6,934 6,420 3,107
</TABLE>
- -------------------------
(1) Represents the loss on disposition of Kysor's German subsidiary. The
transaction resulted in a tax benefit of $8.8 million.
(2) Represents earnings before interest, taxes, accounting charges, depreciation
and amortization and loss on disposition of foreign operations. EBITDA is
presented because it is a widely accepted financial indicator of a company's
ability to service and incur debt. EBITDA should not be considered by a
prospective purchaser of Common Stock as an alternative to net income or as
an indicator of Kysor's operating performance or cash flows.
11
<PAGE> 14
RISK FACTORS
Prospective investors should carefully consider and evaluate all of the
information set forth in this Prospectus, including the risks set forth below:
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company's business strategy includes making acquisitions that will
expand its international presence or offer complementary products and services.
See "Business -- Growth Strategy." In pursuing a strategy of acquiring other
businesses, the Company will face risks commonly encountered with growth through
acquisitions.
In March 1997, Scotsman acquired Kysor for a net purchase price of
approximately $299 million. Including the Kysor Acquisition, Scotsman has made
six acquisitions and entered into one alliance and three joint ventures since
its spin-off from Household International, Inc. in April 1989. As a result of
these acquisitions and internal growth, the Company's net sales increased from
$168.7 million for fiscal 1992 to pro forma net sales of $601.4 million for
fiscal 1996. The Kysor Acquisition is the largest acquisition undertaken by the
Company to date and will require significant integration efforts. There can be
no assurance that the Company will be able to integrate Kysor effectively or in
a timely manner or that the beneficial effects expected will be obtained even if
Kysor is integrated as contemplated. See "Kysor Acquisition."
Acquiring businesses has been and is expected to continue to be an
important element of the Company's strategy for achieving growth. Acquisitions
vary in size and may include acquisitions that are large relative to the
Company. There can be no assurance that suitable acquisition candidates will be
identified, that financing for such acquisitions will be available on
satisfactory terms, that the Company will be able to accomplish its strategic
objectives as a result of any such acquisition, that any business or assets
acquired by the Company will be integrated successfully or that integration of
acquired businesses will not divert management resources or otherwise have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company is continually evaluating possible
acquisitions and engages in discussions with acquisition candidates from time to
time.
ABILITY TO MANAGE GROWTH
Scotsman's growth will place a strain on its managerial and other
resources. From December 1993 through June 1997, the number of Company employees
increased from 915 to approximately 3,800. The Company's continued rapid growth
can be expected to place a significant strain on its management, operations,
employees and resources. There can be no assurance that the Company will be able
to manage effectively its expanding operations or achieve planned growth on a
timely or profitable basis. If the Company is unable to manage growth
effectively, its business, results of operations or financial condition could be
materially adversely affected. See "Business -- Growth Strategy."
LEVERAGE
The Kysor Acquisition significantly increased the Company's debt service
obligations. As of June 29, 1997, on a pro forma basis for this Offering, the
Company's indebtedness, including capitalized leases and current maturities,
would have been approximately $367 million, or approximately 73% of its book
capitalization. Although the Indenture will, and the Credit Facility does,
contain covenants that limit the incurrence by the Company, Scotsman Group and
certain of their subsidiaries of additional indebtedness, such limitations are
subject to a number of important qualifications and exceptions and the Company's
indebtedness could increase if, among other reasons, future acquisitions are
financed through additional borrowings. The Company's ability to make scheduled
payments of principal and interest or to refinance its indebtedness will depend
on the Company's operating performance and cash flows, which are affected by
prevailing economic conditions and financial, competitive and other factors
beyond the Company's control. The level of the Company's leverage from time to
time could have important consequences to holders of the Notes, including
limiting the Company's ability to (i) obtain additional financing for working
capital, capital expenditures, acquisitions or general corporate purposes; (ii)
adjust to changing market conditions, including
12
<PAGE> 15
business downturns; or (iii) compete effectively with competitors who are less
leveraged than the Company. In addition, certain of the Company's borrowings
under the Credit Facility are and may continue to be at variable rates of
interest, which causes the Company to be vulnerable to increases in interest
rates. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources", "Description of the
Notes" and "Description of Credit Facility."
If the Company is unable to generate sufficient cash flows to service its
debt obligations, it will have to adopt one or more alternatives, such as
reducing or delaying planned acquisitions, expansion and capital expenditures,
selling assets, restructuring debt or obtaining additional equity capital. There
can be no assurance that any of these alternatives could be effected on
satisfactory terms.
RESTRICTIONS IMPOSED BY THE CREDIT FACILITY AND THE INDENTURE
The Credit Facility contains, and the Indenture will contain, certain
restrictive covenants, including, among others, covenants with respect to the
following matters: (i) limitations on indebtedness; (ii) limitations on other
senior subordinated indebtedness; (iii) limitations on restricted payments; (iv)
limitations on sale or issuance of restricted subsidiary stock and indebtedness;
(v) limitations on transactions with affiliates; (vi) limitations on liens;
(vii) limitations on asset sales; (viii) limitations on dividends and other
payment restrictions affecting restricted subsidiaries; and (ix) restrictions on
mergers and certain transfers of assets. Although these covenants are subject to
various exceptions that are designed to allow the Company to operate without
undue restraint, there can be no assurance that such covenants will not
adversely affect its ability to finance future operations or capital needs or
engage in other business activities that may be in the interest of the Company.
In addition, the Credit Facility requires the maintenance of specified financial
ratios. The ability of the Company to comply with such provisions may be
affected by events beyond the Company's control. A breach of any of these
covenants or the inability of the Company to comply with the financial ratios
contained in the Credit Facility could result in a default under the Credit
Facility or the Indenture, which could entitle the lenders or the noteholders to
accelerate the maturity of the Credit Facility or the Notes, and could result in
cross-defaults permitting the acceleration of other indebtedness of the Company
and its subsidiaries. Such an event would have a material adverse effect on the
Company and adversely affect the ability of the Issuer or the Company (pursuant
to the Guaranty) to make payments on the Notes. See "Description of the Notes"
and "Description of Credit Facility."
DEPENDENCE ON CERTAIN CUSTOMERS; CUSTOMER PURCHASING PATTERNS
Although no single customer accounted for 10% or more of Scotsman's 1996
net sales on a historical or pro forma basis, some of the Company's operating
units are dependent upon a limited number of major customers, most of which do
not have long-term purchase contracts with the Company. The Company's five
largest customers represented approximately 9% of the Company's net sales in
1996 and approximately 20% of its 1996 pro forma net sales. Sales of certain
products, including, in particular, refrigerated display cases and food
preparation and storage equipment, are largely dependent upon the expansion and
renovation programs of the Company's large chain customers. Any of these
programs can result in significant revenue for the Company over a limited period
of time, followed by a decline in revenues if the customer's expansion or
upgrade program is modified or terminated. For example, the Company believes the
recently announced slowing of expansion plans by Boston Market, a major customer
of the Company, may negatively impact food preparation and storage equipment
sales in the near term. These purchasing patterns are largely beyond the control
of the Company and can result in substantial fluctuations in the Company's
operating results. Although the Company believes that its relationships with its
customers are good, changes in customer purchasing patterns could have a
material adverse effect on the sales of certain operating units and affect the
volume of the Company's sales.
ECONOMIC CONDITIONS
The Company's performance is affected by fluctuations in economic
conditions in the markets in which the Company sells its products, primarily the
United States and Western Europe. The strength or weakness of these economies
may affect the rate of expansion within the restaurant, supermarket, lodging,
healthcare and convenience store industries. In the event of an economic
downturn in any of the economies in which the
13
<PAGE> 16
Company conducts business, the Company's business, financial condition or
operating results could be materially and adversely affected.
COMPETITION
The primary markets for the Company's products are highly competitive. The
most significant competitive factors are product reliability and performance,
service and price, with the relative importance of such factors varying among
product lines. The Company has a number of competitors in each product line that
it offers. Many of the Company's competitors are small, privately owned
companies. Some of the Company's competitors, however, are divisions of larger
companies, and some have greater financial resources than the Company. The
Company's largest competitors include IMI Cornelius, plc, with whom the Company
competes in beverage systems in Europe; Hussmann Corporation, a subsidiary of
Whitman Corporation, with whom the Company competes in refrigerated display
cases and related equipment in the United States; and The Manitowoc Company,
Inc., with whom the Company competes in walk-in coolers and freezers and ice
machines. Furthermore, the Company believes that the commercial foodservice
equipment industry recently has begun to undergo significant consolidation as
foodservice chains and supermarkets reduce their supplier base. If the Company's
competitors are more successful than the Company in exploiting this
consolidation trend, the Company's profitability or market positions could be
adversely affected.
DEPENDENCE ON KEY PERSONNEL
Scotsman's success to date has depended in large part on the skills and
efforts of Richard C. Osborne, Chairman of the Board, President and Chief
Executive Officer, Donald D. Holmes, Vice President-Finance and Secretary, and
the heads of each of the operating units of the Company. While the Company has
employment agreements with certain of its executive officers, including Messrs.
Osborne and Holmes, there can be no assurance that the Company will be able to
retain the services of its officers and key employees. The loss of Messrs.
Osborne, Holmes or any of the heads of the Company's operating units could have
a material adverse effect on the Company's business, results of operations or
financial condition. See "Management."
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY
The volume of sales of Scotsman's ice machines, food preparation and
storage equipment and beverage systems is somewhat higher in the second and
third fiscal quarters than in the first and fourth fiscal quarters. Sales of
Scotsman's refrigerated display cases and walk-in coolers and freezers are also
subject to seasonal fluctuations, with sales being typically somewhat stronger
in the second half of the fiscal year. The Company expects that, including
Kysor, the second and third fiscal quarters generally will account for a greater
portion of the annual net sales than the first and fourth fiscal quarters. As a
result of the seasonal nature of its sales, the operating results of the Company
will fluctuate from quarter to quarter and the Company may experience greater
cash needs in the second and third fiscal quarters, which could increase the
borrowing needs of the Company during these periods.
LITIGATION
The Company's results of operations can be negatively impacted by product
liability or other lawsuits and/or by warranty claims or other returns of goods.
Although the Company does not believe that outstanding claims will have a
material adverse effect on the Company, such claims, as well as any future
claims, are subject to the uncertainties attendant to litigation, and the
ultimate outcome of any such proceedings or claims cannot be predicted.
FOREIGN OPERATIONS AND CURRENCY FLUCTUATIONS
Scotsman sells products in over 100 countries and has manufacturing
operations in the United States, the United Kingdom, Germany and Italy and joint
venture interests in Australia, China, the United Kingdom and Indonesia. Sales
of the Company's products outside of the United States represented approximately
24% of the Company's 1996 pro forma net sales, and the Company anticipates that
international sales will continue to grow. International operations generally
are subject to various political and other risks that are not present in U.S.
operations, including, among other things, the risk of war or civil unrest,
expropriation and nationalization. In addition, certain international
jurisdictions restrict repatriation of the Company's non-U.S. earnings.
14
<PAGE> 17
Various international jurisdictions also have laws limiting the right and
ability of non-U.S. entities to pay dividends and remit earnings to affiliated
companies unless specified conditions are met. In addition, sales in
international jurisdictions typically are made in local currencies, which
subjects the Company to risks associated with currency fluctuations. Currency
devaluations and unfavorable changes in international monetary and tax policies
and other changes in the international regulatory climate could materially
affect the Company's profitability or growth plans.
ENVIRONMENTAL REGULATION
The operations and properties of the Company are subject to various
federal, state, local and foreign environmental regulations and standards
governing, among other things, emissions to air, discharge to waters and the
generation, storage, handling, transportation, treatment and disposal of a
variety of hazardous and non-hazardous substances and wastes. Because the
requirements imposed by those authorities frequently are revised and
supplemented, with a trend towards greater stringency, expenditures for
compliance responsibilities are difficult to estimate and may exceed anticipated
costs.
The Company or its subsidiaries have been identified as a potentially
responsible party ("PRP") under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and similar state statutes in
connection with a number of hazardous waste sites, including a number of sites
associated with the former Transportation Products Group of Kysor. See "Kysor
Acquisition." Under existing environmental laws, PRPs are jointly and severally
responsible for the cost of clean-up and other remedial action at these sites,
and each PRP is therefore potentially responsible for the full cost of
remediation. As a practical matter, however, costs generally are shared with
other PRPs, based on each PRP's relative contribution to the problem. Moreover,
the purchaser of the Transportation Products Group has assumed all environmental
liabilities associated with that business. Notwithstanding the assumption of
liabilities by the purchaser, under applicable environmental laws the Company
could incur liabilities related to these and other unknown environmental
matters. Based on the foregoing factors, the relative size of the Company's
contribution to the sites for which it has been named a PRP (including those
sites associated with Kysor's former Transportation Products Group), currently
available information about the cost of remediation at such sites and the
probability that other PRPs, many of which are large, solvent public companies,
will pay the costs apportioned to them, the Company does not believe that any
liability imposed in connection with such environmental proceedings, either
individually or in the aggregate, will have a material adverse effect upon the
Company's financial condition or its results of operations. Furthermore, the
Company believes that compliance with existing and publicly proposed
environmental regulations will not have a material adverse effect on the
business, financial condition or results of operations of the Company. However,
there can be no assurance that the cost of compliance with current or future
regulations or the cost of other environmental obligations will not exceed
current estimates.
GOVERNMENTAL AND OTHER REGULATION
Scotsman's products and manufacturing processes are subject to various
health and safety regulations and standards that are subject to change and from
time to time may require significant changes in products or manufacturing
methods. For example, a new standard issued by the National Sanitation
Foundation that requires the temperature for holding many cold foods to be
lowered from 45 DEGREESF to 41 DEGREESF would, if adopted by state and local
health agencies, require the Company to make various engineering changes to its
refrigerated display cases. Although no assurances can be given, the Company
believes that health and safety matters, including the new temperature
requirement for refrigerated cases, will not have a material adverse effect on
its business, results of operations 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 as a
result of currently unidentified future problems or new regulatory developments.
SUBORDINATION OF NOTES AND GUARANTY
The payment of principal of, premium, if any, and interest on, and any
other amounts owing in respect of, the Notes and the Guaranty will be
subordinated to the prior payment in full of all existing and future Senior
Indebtedness, which includes all obligations under the Credit Facility.
Furthermore, the Credit Facility is
15
<PAGE> 18
secured by a pledge of Scotsman's interest in the capital stock of the Issuer
and by a pledge of the Issuer's interest in the capital stock of certain of its
subsidiaries. Therefore, in the event of the bankruptcy, liquidation,
dissolution, reorganization or other winding up of the Issuer or Scotsman, the
assets of the Issuer and Scotsman will be available to pay obligations on the
Notes and the Guaranty only after all Senior Indebtedness has been paid in full,
and there may not be sufficient assets remaining to pay amounts due on any or
all of the Notes or the Guaranty. In addition, no payment of any kind or
character may be made on the Notes if any Obligations with respect to any
Designated Senior Indebtedness are not paid when due or if any other default
occurs with respect to any Designated Senior Indebtedness and the maturity
thereof has been accelerated. During the continuance of any default with respect
to any Designated Senior Indebtedness which permits the maturity thereof to be
accelerated, the Issuer may not make any payment of any kind or character in
respect of the Notes, and the Company may not make any payment in respect
thereof under the Guaranty, for a period of up to 179 days after receipt of
notice thereof by the Issuer. As of June 29, 1997, after giving effect to the
application of the estimated net proceeds herefrom, the aggregate amount of
outstanding Senior Indebtedness of the Company and the Issuer would have been
approximately $268 million. In addition, the Issuer would have had up to
approximately $139 million of available credit under the Credit Facility. All
borrowings under the Credit Facility would constitute Senior Indebtedness and
are guaranteed on a senior basis by Scotsman. See "Use of Proceeds,"
"Capitalization," "Description of Notes--Subordination" and "Description of
Credit Facility."
The Notes will also be effectively subordinated to all existing and future
liabilities of the Issuer's subsidiaries. As of June 29, 1997, after giving pro
forma effect to this Offering and the application of net proceeds herefrom, the
Issuer's subsidiaries would have had approximately $38 million of indebtedness
outstanding.
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes may
require the Company to repurchase all or a portion of such holder's Notes at
101% of the principal amount of the Notes, together with accrued and unpaid
interest to the date of repurchase. The Indenture will require that, prior to
such a repurchase, the Company must either repay all outstanding Senior
Indebtedness or obtain any required consents to such repurchase. If a Change of
Control were to occur, the Company may not have the financial resources to repay
all of the Senior Indebtedness, the Notes and any other indebtedness that would
become payable upon the occurrence of such Change of Control. See "Description
of the Notes -- Certain Covenants -- Change of Control."
LACK OF TRADING MARKET FOR THE NOTES
The Notes are a new issue of securities for which there is currently no
trading market. The Company does not intend to apply for a listing of the Notes
on a securities exchange. The Underwriters have advised the Company that they
currently intend to make a market in the Notes, although the Underwriters are
not obligated to do so, and any market making with respect to the Notes may be
discontinued at any time without notice. See "Underwriters." There can be no
assurance as to the liquidity of any market that may develop for the Notes, the
ability of the holders of the Notes to sell their Notes or the price at which
such holders would be able to sell their Notes. If a market were to exist, the
Notes could trade at prices that may be lower than the initial offering price
thereof depending on many factors, including prevailing interest rates and the
markets for similar securities, general economic conditions and the financial
condition and performance of, and prospects for, the Company.
16
<PAGE> 19
THE COMPANY
Scotsman was formed in 1989 through a spin-off (the "Spin-off") effected by
Household International, Inc. ("Household") of its commercial food service
equipment operations. As a result of the Spin-off, the Company became publicly
traded on the NYSE in April 1989. At the time of the Spin-off, the Company's
businesses consisted of the ice machine businesses of Scotsman Group Inc., the
beverage systems business of Booth, Inc. ("Booth") and various other businesses,
which since have been sold. Since the Spin-off, the Company has grown both
through internal growth and a series of acquisitions. From 1992 through 1996,
the Company successfully completed and integrated the following five strategic
acquisitions:
Crystal Tips. In April 1992, the Company acquired the assets of Crystal
Tips, Inc., a domestic ice machine manufacturer ("Crystal Tips"). The purchase
enabled Scotsman to: (i) broaden its product offerings and increase its brand
recognition; (ii) improve its penetration in secondary market distribution
channels and under-represented segments such as healthcare; and (iii) combine
and re-engineer the manufacturing operations of Booth and Crystal Tips. Crystal
Tips had sales of approximately $15 million for its fiscal year ended prior to
the acquisition.
Simag. In January 1993, Scotsman acquired Simag, an ice machine
manufacturer in Italy. The Simag acquisition reinforced Scotsman's existing
manufacturing and distribution presence in Europe and provided a third Scotsman
brand in the region. Simag had sales of approximately $7 million for its fiscal
year ended prior to the acquisition.
Delfield. In April 1994, the Company acquired The Delfield Company, a maker
of food preparation and storage equipment ("Delfield"). The acquisition
provided: (i) a leading market position in a new, complementary product line;
(ii) opportunities to cross-sell ice machines and other Scotsman products into
Delfield accounts; (iii) benefits of shared knowledge across similar
technologies used by Scotsman's operating units; and (iv) improved purchasing
economies. Delfield had sales of approximately $94 million for its fiscal year
ended prior to the acquisition.
Whitlenge. Simultaneous with the April 1994 Delfield acquisition, Scotsman
acquired Whitlenge Drink Equipment Limited, a U.K.-based beverage systems
manufacturer ("Whitlenge"). Whitlenge gave the Company a leading market position
in beverage systems in the United Kingdom and enhanced the overall strength of
Scotsman's beverage systems product line. In addition, Whitlenge contributed
significantly to the Company's prominence, reputation, distribution strength and
customer relationships in European markets. Whitlenge had sales of approximately
$24 million for its fiscal year ended prior to the acquisition.
Hartek. In December 1995, Scotsman acquired Hartek Beverage Handling GmbH,
a beverage systems manufacturer based in Germany ("Hartek"). Hartek, with
Whitlenge, established the Company as the second largest manufacturer of
beverage systems in Europe, a region Scotsman believes presents substantial
growth prospects. By coordinating technology, purchasing, production and
distribution with Whitlenge, and developing progressive manufacturing
techniques, the Company improved the profitability of Hartek and expanded sales
of beverage systems in Europe. Hartek had sales of approximately $24 million for
its fiscal year ended prior to the acquisition.
In addition to these acquisitions, the Company has entered into two joint
ventures and one strategic alliance as described below:
China. Scotsman owns a 60% interest in a joint venture with Shenyang Xinle
Precision Machinery Company in Shenyang, China, which manufactures and markets
ice machines for the Chinese market. The joint venture sells its ice machines
primarily to commercial foodservice equipment distributors throughout the
People's Republic of China.
United Kingdom. Scotsman is a 50% partner in SAW Technologies Limited, a
joint venture recently formed to develop technologically advanced beverage
dispensing valves ("SAW Technologies"). The joint venture's Aztec valve, already
being sold to a major soft drink bottler in the United Kingdom, is also targeted
for other customers and markets.
17
<PAGE> 20
Howe Strategic Alliance. Scotsman's strategic alliance with Howe
Corporation ("Howe") includes distribution and trademark licensing agreements,
which give the Company exclusive worldwide rights to distribute Howe industrial
ice flakers. The agreements were executed in November 1992 for an initial
five-year term. The agreements were renewed in January 1996, and renew
automatically for successive three-year terms unless terminated by either party
by giving a notice at least two years before the expiration of the then-current
term.
The Company's principal executive offices are located at 820 Forest Edge
Drive, Vernon Hills, Illinois 60061 and its telephone number is (847) 215-4500.
SCOTSMAN GROUP
Scotsman Group is a Delaware corporation and a direct wholly owned
subsidiary of Scotsman. Scotsman conducts its domestic ice machine business
through divisions of Scotsman Group and all of its other businesses through
subsidiaries of Scotsman Group.
The registered office of Scotsman Group is located at 820 Forest Edge
Drive, Vernon Hills, Illinois 60061 and its telephone number is (847) 215-4500.
KYSOR ACQUISITION
REVIEW OF TRANSACTION
In March 1997, Scotsman acquired Kysor, which at the time was comprised of
the Commercial Products Group, through which Kysor's refrigerated display cases
and walk-in coolers and freezers businesses were conducted, and the
Transportation Products Group, through which Kysor sold a line of products to
the transportation industry. The Company paid approximately $309 million in cash
and assumed $35.0 million in debt, net of cash, for both the Commercial Products
Group and the Transportation Products Group. Concurrently with the Kysor
Acquisition, Scotsman sold substantially all of the assets of the Transportation
Products Group for $86.0 million (approximately $68 million net of taxes) to a
subsidiary of Kuhlman Corporation. Including estimated transaction and severance
costs of $22.5 million, the net purchase price for the Commercial Products Group
was approximately $299 million. The subsidiary of Kuhlman Corporation assumed
substantially all liabilities related to the Transportation Products Group,
including environmental and product liabilities. The Company financed the Kysor
Acquisition through a new unsecured bank facility. See "Description of Certain
Indebtedness."
Kysor's Commercial Products Group operates through its Kysor//Warren and
Kysor Panel Systems divisions. Kysor//Warren is the second largest U.S.
manufacturer of refrigerated display cases, and Kysor Panel Systems is the
leading manufacturer of walk-in coolers and freezers in the United States. In
1996, approximately 80% of Kysor's sales were to supermarket chains, with the
remaining 20% primarily to restaurants and convenience stores. In 1996, Kysor's
Commercial Products Group had sales of $245.1 million, an increase of 18.3% over
1995. This increase was driven primarily by strong demand from supermarket
chains and the inclusion of sales of NAX of North America, which was acquired by
Kysor in March 1996.
In addition, as a result of the Kysor Acquisition, the Company now owns
23.8% of the outstanding shares of Austral Refrigeration Pty. Ltd., the parent
company of Kysor//Warren Australia, Pty. Ltd., a licensee and manufacturer of
Kysor refrigerated display cases primarily in Australia ("Kysor//Warren
Australia"). Kysor//Warren Australia is a leading supplier of refrigerated
display cases in the Australian market. Kysor//Warren Australia owns a 50%
interest in an Indonesian joint venture, which the Company believes is the only
manufacturer of refrigerated display cases in Asia.
STRATEGIC RATIONALE
Scotsman believes the addition of Kysor presents significant opportunities
to increase the Company's sales and profitability. While both Scotsman and Kysor
historically have served a similar customer base, Scotsman generally has had
stronger relationships in the restaurant, lodging and healthcare industries and
18
<PAGE> 21
Kysor has had stronger relationships with supermarket and convenience store
chains. The Company believes that significant cross-selling opportunities exist
to broaden penetration and distribution of Scotsman's products to Kysor's
customers and vice versa. The Company believes that similarities in the
marketing, distribution and product technology employed by the two companies
will facilitate integration. Additional benefits from the transaction include
combined purchasing economies, research and development efficiencies, the
sharing of best practices, particularly in manufacturing, and reductions in
overhead expense.
POST-ACQUISITION INTEGRATION
Scotsman has consolidated Kysor's operations from four divisions to two.
Kysor's Bangor unit, a manufacturer of a specialty line of refrigerated display
cases, was integrated with Kysor//Warren, and Kysor's Kalt and Needham
businesses, which manufacture walk-in coolers and freezers, were combined to
form Kysor Panel Systems. This reorganization and the development of coordinated
national sales efforts are expected to result in cost savings and marketing and
distribution efficiencies. In addition, Scotsman eliminated approximately 20
redundant positions, primarily located at Kysor's former headquarters in
Cadillac, Michigan, which resulted in a cost savings of $5.3 million in 1996 on
a pro forma basis.
SECONDARY EQUITY OFFERING
This Prospectus is part of a Registration Statement that also covers the
offer and sale from time to time of up to 1,611,699 shares of Common Stock by
the Selling Stockholders, including Onex and certain of its affiliates, who have
the right, pursuant to the Registration Rights Agreement, to request that the
Company include their shares of Common Stock in registrations by the Company of
its securities under the Securities Act. The Selling Stockholders have advised
the Company, and the Prospectus relating to the Equity Offering discloses, that
they may sell their shares of Common Stock through an underwritten public
offering, in one or more transactions (including block trades) on the New York
Stock Exchange or on the over-the-counter market or pursuant to privately
negotiated transactions. The Company is obligated under the Registration Rights
Agreement to keep the Registration Statement related to the Equity Offering
effective for no more than 90 days. The Company will not receive any proceeds
from the sale of Common Stock in the Equity Offering. The Offerings are separate
and independent transactions not contingent upon one another. The Company is
obligated to indemnify the Selling Stockholders and any underwriters of the
Equity Offering against certain liabilities, including certain liabilities
arising under the Securities Act.
USE OF PROCEEDS
The net proceeds to Scotsman Group in this Offering are estimated to be
approximately $95,750,000. Scotsman Group intends to apply such net proceeds to
repay $30 million of term loan borrowings outstanding under the Credit Facility
and approximately $65,750,000 of revolving loan borrowings outstanding under the
Credit Facility. See "Capitalization" and "Description of Credit Facility." As
of June 29, 1997, interest on the term loan portion of the Credit Facility and
the revolving loan portion of the Credit Facility accrued at rates ranging from
7.0625% to 7.9375% per annum. At June 29, 1997, there was approximately $150
million of term loan borrowings outstanding under the Credit Facility and
approximately $195 million of revolving loan borrowings outstanding under the
Credit Facility.
19
<PAGE> 22
CAPITALIZATION
The following table sets forth (i) the consolidated actual capitalization
of the Company as of June 29, 1997 (including short-term debt and current
maturities of capitalized lease obligations and long-term debt of the Company)
and (ii) the consolidated pro forma capitalization of the Company (including
short-term debt and current maturities of capitalized lease obligations and
long-term debt of the Company) as adjusted for the consummation of this Offering
and the application of the net proceeds to be received by the Company therefrom
as described in "Use of Proceeds," as if such event had occurred on June 29,
1997. This table should be read in conjunction with the consolidated historical
and pro forma financial information included or incorporated by reference
elsewhere in this Prospectus, including the notes thereto.
<TABLE>
<CAPTION>
AS OF JUNE 29, 1997
----------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt and current maturities of capitalized lease
obligations and long-term debt............................ $ 19,410 $ 19,410
Long-term debt and capitalized lease obligations:
Credit Facility........................................ 327,655 231,905
% Senior Subordinated Notes Due 2007.............. -- 100,000
Industrial revenue bonds............................... 12,800 12,800
Foreign and other borrowings........................... 2,801 2,801
Capitalized lease obligations.......................... 278 278
-------- --------
Total long-term debt and capitalized lease
obligations......................................... 343,534 347,784
Shareholders' Equity:
Common stock, $0.10 par value, 50,000,000 shares
authorized; 10,736,463 actual and as adjusted shares
issued................................................ 1,074 1,074
Additional paid in capital............................. 73,320 73,320
Retained earnings...................................... 71,827 71,827
Deferred compensation and unrecognized pension cost.... (177) (177)
Foreign currency translation adjustments............... (7,062) (7,062)
Less: Common stock held in treasury:................... (1,455) (1,455)
-------- --------
Total shareholders' equity........................... 137,527 137,527
-------- --------
Total capitalization (including short-term debt and
current maturities of capitalized lease obligations
and long-term debt)................................. $500,471 $504,721
======== ========
</TABLE>
20
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The consolidated balance sheet information of the Company presented below
as of the end of each of the 1996 and 1995 fiscal years and the income statement
and other information of the Company presented below for each of the 1996, 1995
and 1994 fiscal years have been derived from, and should be read in conjunction
with, the Company's consolidated financial statements and notes thereto, which
have been audited by Arthur Andersen LLP, independent public accountants, and
which are included and incorporated by reference elsewhere in this Prospectus.
The consolidated balance sheet information of the Company presented below as of
the end of each of the 1994, 1993 and 1992 fiscal years and the income statement
and other information of the Company presented below for each of the 1993 and
1992 fiscal years have been derived from audited consolidated financial
statements of the Company not included or incorporated by reference in this
Prospectus. The balance sheet information of the Company presented below as of
June 29, 1997 and the income statement and other information of the Company
presented below for the first fiscal six months ended June 29, 1997 and June 30,
1996, respectively, have been derived from, and should be read in conjunction
with, the Company's unaudited consolidated financial statements which are
included and incorporated by reference elsewhere in this Prospectus. The
unaudited financial information includes all adjustments, consisting of normal
recurring accruals, that the Company considers necessary for a fair presentation
of the consolidated financial position and consolidated results of operations
for the periods reflected therein. All of the consolidated financial information
presented below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the other
consolidated historical and pro forma financial information included or
incorporated by reference elsewhere in this Prospectus, including the notes
thereto.
21
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
<TABLE>
<CAPTION>
FIRST FISCAL SIX
MONTHS FISCAL YEAR ENDED
------------------- ----------------------------------------------------
1997(1) 1996 1996 1995 1994 1993 1992
------- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Net sales..................... $271,854 $189,956 $356,373 $324,291 $266,632 $163,952 $168,674
Cost of sales................. 200,757 135,692 257,942 236,402 190,518 114,472 122,226
-------- -------- -------- -------- -------- -------- --------
Gross profit.................. 71,097 54,264 98,431 87,889 76,114 49,480 46,448
Selling and administrative
expenses.................... 41,103 30,877 58,135 53,435 47,900 31,874 31,588
-------- -------- -------- -------- -------- -------- --------
Income from operations........ 29,994 23,387 40,296 34,454 28,214 17,606 14,860
Interest expense, net......... 8,781 2,837 5,279 6,326 5,416 4,235 4,675
-------- -------- -------- -------- -------- -------- --------
Income before income taxes.... 21,213 20,550 35,017 28,128 22,798 13,371 10,185
Income taxes.................. 10,262 9,866 16,449 12,720 10,013 5,989 3,793
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary
loss and effect of
accounting changes.......... 10,951 10,684 18,568 15,408 12,785 7,382 6,392
Extraordinary loss (net of
income taxes of $422)(2).... (633) -- -- -- -- -- --
Cumulative effect of
accounting changes(3)....... -- -- -- -- -- 29 --
-------- -------- -------- -------- -------- -------- --------
Net income.................... $ 10,318 $ 10,684 $ 18,568 $ 15,408 $ 12,785 $ 7,411 $ 6,392
Preferred stock dividends..... -- 562 813 1,240 885 -- --
-------- -------- -------- -------- -------- -------- --------
Net income available to common
shareholders................ $ 10,318 $ 10,122 $ 17,755 $ 14,168 $ 11,900 $ 7,411 $ 6,392
======== ======== ======== ======== ======== ======== ========
Income per share before
extraordinary loss and
cumulative effect of
accounting changes:
Primary(4).................. $ 1.01 $ 1.10 $ 1.85 $ 1.58 $ 1.49 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
Fully diluted(5)............ $ 1.01 $ 1.00 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
Net income per share:
Primary(4).................. $ .96 $ 1.10 $ 1.85 $ 1.58 $ 1.49 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
Fully diluted(5)............ $ .95 $ 1.00 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
OTHER INFORMATION:
EBITDA(6)..................... $ 37,393 $ 27,720 $ 49,166 $ 42,048 $ 34,233 $ 21,280 $ 18,422
Capital expenditures.......... 7,433 3,360 6,195 6,513 5,434 3,264 2,012
SELECTED RATIOS:
Ratio of earnings to fixed
charges(7).................. 3.3x 7.4x 6.8x 5.0x 4.8x 3.9x 3.0x
Ratio of EBITDA to interest
expense..................... 4.3x 9.8x 9.3x 6.6x 6.3x 5.0x 3.9x
Ratio of total debt to
EBITDA...................... -- -- 1.6x 2.1x 2.6x 1.5x 1.7x
BALANCE SHEET INFORMATION:
(AT END OF PERIODS):
Cash and marketable
securities.................. $ 20,760 $ 16,699 $ 16,501 $ 15,808 $ 9,770 $ 8,462 $ 5,202
Total assets.................. 682,878 302,100 283,264 275,943 244,791 103,173 96,103
Total debt and capitalized
lease obligations (including
current maturities)......... 362,944 86,845 76,606 87,756 88,191 32,176 31,454
Working capital............... 95,487 74,488 59,321 54,828 54,565 36,318 32,355
Shareholders' equity.......... 137,527 122,655 131,712 112,319 86,463 33,994 30,146
</TABLE>
- -------------------------
(Footnotes on following page)
22
<PAGE> 25
- -------------------------
(1) Includes results of Kysor for the period from March 10, 1997 through June
29, 1997.
(2) The extraordinary loss resulted from one-time expenses incurred relating to
the early retirement of certain debt of the Company prior to the Kysor
Acquisition.
(3) Effective January 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions"; Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes"; and Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-employment
Benefits."
(4) Primary earnings per common share are computed by dividing net income
available to common shareholders by the weighted average number of shares of
common stock and common stock equivalents outstanding during each period.
The weighted average number of shares of common stock and common stock
equivalents were: 10,799,284 and 9,228,046 for the first fiscal six months
of 1997 and 1996, respectively; and 9,601,422; 8,983,709; 7,980,996;
7,000,651 and 7,096,976 for the 1996, 1995, 1994, 1993 and 1992 fiscal
years, respectively.
(5) The calculation of fully diluted net income per share is based on net income
before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation were:
10,808,946 and 10,700,100 for the first fiscal six months of 1997 and 1996,
respectively; and 10,728,188; 10,649,763; 9,488,965; 7,000,651 and 7,096,976
for the 1996, 1995, 1994, 1993 and 1992 fiscal years, respectively.
(6) Represents earnings before interest, taxes, accounting charges, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and incur debt. EBITDA
should not be considered by a prospective purchaser of Common Stock as an
alternative to net income or as an indicator of the Company's operating
performance or cash flows.
(7) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before extraordinary loss, cumulative effect of
accounting changes and income taxes, plus fixed charges. Fixed charges
consist of interest expense, amortization of debt expense and implicit
interest expense associated with operating leases.
23
<PAGE> 26
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated financial statements for the fiscal
six months ended June 29, 1997 and the fiscal year ended December 29, 1996 are
presented to illustrate the estimated effects of the completion of the Kysor
Acquisition and the financing thereof and the consummation of this Offering as
if such transactions had occurred at the beginning of the periods shown. See
"Use of Proceeds."
The Kysor Acquisition was accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed were recorded
at their estimated fair values which are subject to further refinement,
including final appraisals and other analyses, with appropriate recognition
given to the effect of current interest rates and income taxes.
The pro forma consolidated financial statements do not purport to represent
the financial position or results of operations that would have resulted if the
transactions had been consummated on the dates assumed or the results of
operations to be expected in the future. In addition to certain cost savings
reflected in the pro forma consolidated income statements, 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.
See "Kysor Acquisition -- Strategic Rationale" and "Kysor Acquisition --
Post-Acquisition Integration."
The pro forma consolidated financial information is based on certain
assumptions and adjustments described in the notes thereto. Such financial
information should be read in conjunction with such notes, the discussion under
"Kysor Acquisition" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and the consolidated financial
statements and related notes of Scotsman and Kysor included and incorporated by
reference in this Prospectus.
24
<PAGE> 27
PRO FORMA CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
FISCAL SIX MONTHS ENDED JUNE 29, 1997
-------------------------------------------------------------------------------------------
SCOTSMAN KYSOR ACQUISITION OFFERING PRO FORMA
ACTUAL(1) ACTUAL(2) ADJUSTMENTS(3) PRO FORMA ADJUSTMENTS AS ADJUSTED
--------- --------- -------------- --------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... $271,854 $38,834 $ -- $310,688 $ -- $310,688
Cost of sales..................... 200,757 31,583 123(4) 232,463 -- 232,463
-------- ------- ------- -------- ------- --------
Gross profit...................... 71,097 7,251 (123) 78,225 -- 78,225
Selling and administrative
expenses........................ 41,103 9,076 (3,899)(5) 46,280 -- 46,280
-------- ------- ------- -------- ------- --------
Income from operations............ 29,994 (1,825) 3,776 31,945 -- 31,945
Interest expense, net............. 8,781 68 4,573(6) 13,422 1,088(7) 14,510
-------- ------- ------- -------- ------- --------
Income before income taxes........ 21,213 (1,893) (797) 18,523 (1,088) 17,435
Income taxes...................... 10,262 (795) 131(8) 9,598 (435)(8) 9,163
-------- ------- ------- -------- ------- --------
Income before extraordinary
loss............................ 10,951 (1,098) (928) 8,925 (653) 8,272
Extraordinary loss (net of income
taxes of $422).................. (633)(9) -- -- (633) -- (633)
-------- ------- ------- -------- ------- --------
Net income........................ $ 10,318 $(1,098) $ (928) $ 8,292 $ (653) $ 7,639
Preferred stock dividends......... -- 176 (176)(10) -- -- --
-------- ------- ------- -------- ------- --------
Net income available to common
shareholders.................... $ 10,318 $(1,274) $ (752) $ 8,292 $ (653) $ 7,639
======== ======= ======= ======== ======= ========
Income per share before
extraordinary loss:
Primary(11)................... $ 1.01 $ .77
-------- --------
Fully diluted(12)............. $ 1.01 $ .77
-------- --------
Net income per share:
Primary(11)................... $ .96 $ .71
-------- --------
Fully diluted(12)............. $ .95 $ .71
-------- --------
</TABLE>
- -------------------------
(1) Includes results of Kysor for the period from March 10, 1997 through June
29, 1997.
(2) Results included for Kysor are those from continuing operations through
March 9, 1997. The results of the discontinued Transportation Products
Group are excluded.
(3) 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.
(4) Represents the incremental increase in depreciation expense caused by the
recording of property, plant and equipment of Kysor at fair value.
(5) Represents the following adjustments:
<TABLE>
<S> <C> <C> <C>
(i) Net decrease in administrative expenses due to the
elimination of Kysor's world headquarters and the
consolidation of four Kysor business units into two business
units;...................................................... $(1,489)
(ii) Elimination of the amortization and deferral components of
pension expense for Kysor's defined benefit and
post-retirement plans (due to the complexities associated
with pension accounting, this benefit may not necessarily be
a representative element of pension expense in the
future);.................................................... (412)
(iii) Net increase in the amortization of goodwill recorded as a
result of the Kysor Acquisition;............................ 874
(iv) One-time costs incurred in anticipation of the completion of
the Kysor Acquisition; and.................................. (2,917)
(v) Incremental depreciation expense resulting from the
recording of property, plant and equipment of Kysor at fair
value....................................................... 45
-------
$(3,899)
=======
</TABLE>
(6) Represents an increase in interest expense due to increased levels of
borrowings under the Credit Facility to finance the Kysor Acquisition and
refinance certain debt of Scotsman and Kysor (the "Kysor Debt") and the
amortization of fees incurred in conjunction with the execution of the
Credit Facility.
(7) Represents the incremental amount of increased interest expense resulting
from the sale of the Notes and the application of the net proceeds thereof
to repay a portion of the Kysor Debt and the amortization of fees incurred
in connection with the sale of the Notes. See "Use of Proceeds."
(8) Represents the tax effect of the adjustments made as a result of the Kysor
Acquisition and this Offering, net of non-deductible goodwill.
(9) The extraordinary loss resulted from one-time expenses incurred relating to
the early retirement of certain debt of the Company prior to the Kysor
Acquisition.
(10) 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.
(11) Primary earnings per common share are computed by dividing net income
available to common shareholders by the weighted average number of common
shares and common stock equivalents outstanding of 10,799,284 for the
actual and pro forma as adjusted periods.
(12) The calculation of fully diluted net income per share is based on net
income before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation for the actual
and pro forma as adjusted periods was 10,808,946.
25
<PAGE> 28
PRO FORMA CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 29, 1996
----------------------------------------------------------------------------------------
SCOTSMAN KYSOR ACQUISITION OFFERING PRO FORMA
ACTUAL ACTUAL(1) ADJUSTMENTS(2) PRO FORMA ADJUSTMENTS AS ADJUSTED
-------- --------- -------------- --------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................. $356,373 $245,062 $ -- $601,435 $ -- $601,435
Cost of sales......................... 257,942 185,253 592(3) 443,787 -- 443,787
-------- -------- -------- -------- ------- --------
Gross profit.......................... 98,431 59,809 (592) 157,648 -- 157,648
Selling and administrative expenses... 58,135 35,157 (3,349)(4) 89,943 -- 89,943
-------- -------- -------- -------- ------- --------
Income from operations................ 40,296 24,652 2,757 67,705 -- 67,705
Interest expense, net................. 5,279 874 23,006(5) 29,159 2,175(6) 31,334
-------- -------- -------- -------- ------- --------
Income before income taxes............ 35,017 23,778 (20,249) 38,546 (2,175) 36,371
Income taxes.......................... 16,449 8,650 (5,871)(7) 19,228 (870)(7) 18,358
-------- -------- -------- -------- ------- --------
Net income............................ $ 18,568 $ 15,128 $(14,378) $ 19,318 $(1,305) $ 18,013
Preferred stock dividends............. 813 966 (966)(8) 813 -- 813
-------- -------- -------- -------- ------- --------
Net income available to common
shareholders........................ $ 17,755 $ 14,162 $(13,412) $ 18,505 $(1,305) $ 17,200
======== ======== ======== ======== ======= ========
Net income per share:
Primary(9).......................... $ 1.85 $ 1.79
-------- --------
Fully diluted(10)................... $ 1.73 $ 1.68
-------- --------
</TABLE>
- -------------------------
(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.
(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
elimination of Kysor's world headquarters and the
consolidation of four Kysor business units into two business
units;...................................................... $(5,957)
(ii) Elimination of the amortization and deferral components of
pension expense for Kysor's defined benefit and
post-retirement plans (due to the complexities associated
with pension accounting, this benefit may not necessarily be
a representative element of pension expense in the
future);.................................................... (1,979)
(iii) Net increase in the amortization of goodwill recorded from
the purchase of Kysor by Scotsman; and...................... 4,374
(iv) Incremental depreciation expense resulting from the
recording of property, plant and equipment of Kysor at fair
value....................................................... 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 and the amortization of
fees incurred in conjunction with the execution of the Credit Facility.
(6) Represents the incremental amount of increased interest expense resulting
from the sale of the Notes and the application of the net proceeds thereof
to repay a portion of the Kysor Debt and the amortization of fees incurred
in connection with the sale of the Notes. See "Use of Proceeds."
(7) Represents the tax effect of the adjustments made as a result of the Kysor
Acquisition and this Offering, net of non-deductible goodwill.
(8) 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.
(9) Primary earnings per common share are computed by dividing net income
available to common shareholders by the weighted average number of common
shares and common stock equivalents outstanding of 9,601,422 for the actual
and pro forma as adjusted periods.
(10) The calculation of fully diluted net income per share is based on net
income before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation for the actual
and pro forma as adjusted periods was 10,728,188.
26
<PAGE> 29
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 29, 1996
------------------------------------------------------------------------------------
SCOTSMAN KYSOR ACQUISITION OFFERING PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS(1) PRO FORMA ADJUSTMENTS AS ADJUSTED
-------- ------ -------------- --------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and temporary cash
investments................. $ 16,501 $ 8,354 $ -- $ 24,855 $ -- $ 24,855
Trade accounts and notes
receivable, net of
allowances.................. 58,734 34,654 -- 93,388 -- 93,388
Inventories................... 52,530 26,900 -- 79,430 -- 79,430
Deferred income taxes......... 4,708 4,927 14,520(2) 24,155 -- 24,155
Other current assets.......... 5,101 928 1,560(3) 7,589 -- 7,589
-------- -------- -------- -------- -------- --------
Total current assets..... 137,574 75,763 16,080 229,417 -- 229,417
Properties and equipment, net..... 46,659 29,732 6,670(4) 83,061 -- 83,061
Goodwill, net..................... 94,975 6,474 184,553(5) 286,002 -- 286,002
Deferred income taxes............. -- 4,667 14,598(6) 19,265 -- 19,265
Other noncurrent assets........... 4,056 33,770 2,842(7) 40,668 4,250(8) 44,918
Net assets of discontinued
operations...................... -- 38,656 (38,656)(9) -- -- --
-------- -------- -------- -------- -------- --------
Total assets............. $283,264 $189,062 $186,087 $658,413 $ 4,250 $662,663
======== ======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities:
Short-term debt and current
maturities of capitalized
lease obligations and
long-term debt.............. $ 16,317 $ 5,799 $ (5,799)(10) $ 16,317 $ -- $ 16,317
Trade accounts payable........ 22,344 14,046 -- 36,390 -- 36,390
Accrued income taxes.......... 6,302 1,812 18,000(11) 26,114 -- 26,114
Accrued expenses.............. 33,290 16,928 18,922(12) 69,140 -- 69,140
-------- -------- -------- -------- -------- --------
Total current
liabilities............ 78,253 38,585 31,123 147,961 -- 147,961
% Senior Subordinated Notes Due
2007............................ -- -- -- -- 100,000(13) 100,000
Long-term debt and capitalized
lease obligations............... 60,289 32,822 248,318(14) 341,429 (95,750)(13) 245,679
Deferred income taxes............. 3,710 -- 3,695(6) 7,405 -- 7,405
Other noncurrent liabilities...... 9,300 14,247 6,359(15) 29,906 -- 29,906
-------- -------- -------- -------- -------- --------
Total liabilities........ 151,552 85,654 289,495 526,701 4,250 530,951
Shareholders' Equity:
Preferred stock............... -- 6,244 (6,244)(16) -- -- --
Common stock.................. 1,073 5,935 (5,935)(16) 1,073 -- 1,073
Additional paid in capital.... 73,053 8,742 (8,742)(16) 73,053 -- 73,053
Retained earnings............. 62,036 82,343 (82,343)(16) 62,036 -- 62,036
Deferred compensation and
unrecognized pension cost... (117) -- -- (117) -- (117)
Note receivable -- common
stock....................... -- (1,047) 1,047(16) -- -- --
Foreign currency translation
adjustments................. (2,877) 1,191 (1,191)(16) (2,877) -- (2,877)
Less: common stock held in
treasury.................... (1,456) -- -- (1,456) -- (1,456)
-------- -------- -------- -------- -------- --------
Total shareholders'
equity................. 131,712 103,408 (103,408) 131,712 0 131,712
-------- -------- -------- -------- -------- --------
Total liabilities and
shareholders' equity... $283,264 $189,062 $186,087 $658,413 $ 4,250 $662,663
======== ======== ======== ======== ======== ========
</TABLE>
- -------------------------
(Footnotes on following page)
27
<PAGE> 30
- -------------------------
(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.
(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, the purchaser of Kysor's Transportation Products Group, and
Scotsman.
(4) Represents the adjustment to record the net book value of Kysor's
properties and equipment at their estimated fair values.
(5) Represents the 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>
<C> <S> <C>
(i) Elimination of previously existing unrecognized net gain,
unrecognized prior service cost, and unrecognized net asset
for Kysor's defined benefit plans;.......................... $ 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) Reflects the capitalization of the estimated amount of (i) underwriting
discounts and commissions to be paid by the Company in this Offering, (ii)
fees and expenses to be paid by the Company in connection with the Credit
Facility Amendment, as described under "Description of Credit Facility,"
and (iii) other fees and expenses to be paid by the Company in connection
with the Offerings.
(9) 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.
(10) Scotsman retired the short-term debt of Kysor assumed by Scotsman and
refinanced a portion of its short-term debt outstanding at December 29,
1996 through utilization of the Credit Facility.
(11) Represents the estimated tax payment on the gain associated with the sale
of the Transportation Products Group of Kysor.
(12) Represents the following adjustments:
<TABLE>
<S> <S> <C>
(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
=======
</TABLE>
(13) Represents the issuance of the Notes and the use of the net proceeds
therefrom as described under "Use of Proceeds."
(14) Represents the net increase in Credit Facility resulting from (i) the
financing of the Kysor Acquisition, including the application of cash
received from the sale of the Transportation Products Group to reduce
borrowings under the Credit Facility; (ii) the refinancing of approximately
$45 million of Scotsman's long-term debt outstanding as of December 29,
1996, through utilization of the Credit Facility; and (iii) the refinancing
of approximately $33 million of long-term debt of Kysor through utilization
of the Credit Facility.
(15) Represents the following adjustments:
<TABLE>
<S> <S> <C>
(i) Severance and other employee benefits payable;.............. $4,297
(ii) Elimination of previously unrecognized loss, unrecognized
prior service cost and unrecognized net obligation for
Kysor's defined benefit and post-retirement plans; and...... 1,367
(iii) Other....................................................... 695
------
$6,359
======
</TABLE>
(16) Represents the elimination of Kysor equity resulting from the Kysor
Acquisition.
28
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of results of operations and capital
resources and liquidity should be read in conjunction with the Company's and
Kysor's audited consolidated financial statements and notes thereto included and
incorporated by reference elsewhere in this Prospectus. In addition to
historical information, the following discussion and analysis of financial
condition and results of operations contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
significantly from those anticipated as a result of unforeseen factors. For a
discussion of certain factors that could cause actual results to differ from
those anticipated, see "Risk Factors" and the Cautionary Statements included in
Exhibit 99 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1996, which is incorporated herein by reference. Unless otherwise
indicated by the context, when used in the following discussion or in the
documents incorporated by reference herein, the words "anticipate," "believe,"
"estimate," "intend" and "expect," and similar expressions are intended to
identify forward-looking statements.
OVERVIEW
Scotsman is a leading international manufacturer of a diversified line of
commercial refrigeration products, food preparation equipment and beverage
systems that is sold primarily to customers in the restaurant, supermarket,
lodging, healthcare and convenience store industries. The Company has a leading
market position in each of its five product lines, which consist of ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage systems. Scotsman's customers include
many of the largest chains in the quick service restaurant, supermarket, lodging
and convenience store industries. The Company sells its products in over 100
countries through multiple distribution channels and has manufacturing
capabilities in the United States, the United Kingdom, Germany and Italy and
interests in joint ventures in Australia, China, the United Kingdom and
Indonesia.
Kysor Acquisition. In March 1997, the Company acquired Kysor for a net
purchase price of approximately $299 million. Due to the significance of the
Kysor Acquisition, the Company's future operating results and capital structure
will be materially different from, and will not be comparable to, prior periods.
For fiscal year 1996, Kysor's sales of commercial refrigeration products were
$245.1 million, an increase of 18.3% from 1995. Combining Kysor's 1996 sales
with those of the Company for the comparable period results in pro forma net
sales for the Company of $601.4 million, a 68.7% increase over the Company's
reported 1996 sales. The Company's operating income in 1997 is expected to
increase significantly as a result of the Kysor Acquisition and associated
benefits, while amortization of goodwill and interest expense also are expected
to increase significantly. Kysor's results are expected to be accretive to
Scotsman's fully diluted earnings per share in the second half of 1997 and for
the full year. The Company expects that, including Kysor, the second and third
fiscal quarters generally will account for a greater portion of the annual net
sales of the Company than the first and fourth fiscal quarters.
Net Sales. The Company's revenues are diversified among its five product
lines, with ice machines and refrigerated display cases, its two largest product
lines, each representing approximately 29% of the Company's 1996 pro forma net
sales, and food preparation and storage equipment, walk-in coolers and freezers
and beverage systems representing approximately 19%, 12% and 11% of the
Company's 1996 pro forma net sales, respectively. In 1996, international sales
of Scotsman's and Kysor's products were approximately $144 million, which
accounted for approximately 24% of the Company's 1996 pro forma net sales, and
the Company anticipates that international sales will continue to grow.
Cost of Sales. The principal elements of cost of sales are raw materials
(such as stainless steel, galvanized steel, aluminum and copper), labor and
manufacturing overhead. The Company's costs are affected by fluctuating raw
material costs. Because of the large quantities of raw materials purchased by
the Company, it is able to buy raw materials at prices that are competitive. The
Company has a number of manufacturing facilities for its five product lines,
and, accordingly, the Company's overall gross margin is impacted by its product
mix, raw material costs and plant utilization rates.
29
<PAGE> 32
Selling and Administrative Expenses. Selling and administrative expenses
include salaries, wages and related expenses associated with developing,
marketing and selling the Company's products. In addition, selling and
administrative expenses include general corporate overhead and costs associated
with various administrative functions. While certain of these expenses vary with
the level of net sales, many are relatively fixed over wide ranges of unit
volume.
Goodwill. The goodwill associated with the businesses acquired by Scotsman
through 1996 is being amortized over 40 years using the straight-line method.
The Company also will amortize the goodwill associated with the Kysor
Acquisition over 40 years using the straight-line method.
KYSOR ACQUISITION PRO FORMA FINANCIAL INFORMATION
The pro forma consolidated financial information included elsewhere herein
gives effect to, among other things, the Kysor Acquisition. See "Pro Forma
Consolidated Financial Information."
On a pro forma basis, the Company's net sales for fiscal 1996 would have
been $601.4 million, compared to actual net sales of $356.4 million for that
period. Pro forma net sales of the Company include sales by Kysor's Commercial
Products Group, but not sales by Kysor's former Transportation Products Group,
which was sold simultaneously with the closing of the Kysor Acquisition.
Pro forma income from operations for the Company for fiscal 1996 would have
been $67.7 million, compared to actual operating income of $40.3 million for the
same period. The increase in operating income of the Company on a pro forma
basis is the result of the addition of $27.4 million of pro forma Kysor
operating income, reflecting the following: a reduction in administrative
expenses due to the elimination of Kysor's world headquarters and the
consolidation of four Kysor business units into two; certain favorable defined
benefit plan adjustments; the effect of the incremental increase in the
amortization of goodwill recorded from the purchase of Kysor by Scotsman; and
the incremental depreciation expense caused by the recording of property, plant
and equipment at fair value. Although the Company's pro forma and actual income
from operations were 11.3% of net sales for fiscal 1996, the Company believes
that potential synergies created by the Kysor Acquisition will improve future
operating margins for the Company.
Pro forma net income for fiscal 1996 would have been $18.5 million,
reflecting the inclusion of Kysor's operating income, incremental interest
expense resulting from additional borrowings related to financing the Kysor
Acquisition and associated income tax expense.
The Kysor Acquisition is being treated for accounting purposes as a
purchase under Accounting Principles Board Opinion No. 16. The excess purchase
price over the fair value of the identifiable assets and liabilities acquired
was approximately $192 million, which was allocated to goodwill and other
intangibles and is being amortized on a straight-line basis over 40 years.
30
<PAGE> 33
RESULTS OF OPERATIONS
The following table sets forth certain items from Scotsman's historical
statements of income expressed as a percentage of net sales for the periods
indicated:
<TABLE>
<CAPTION>
FIRST FISCAL
SIX MONTHS FISCAL YEAR
---------------- ---------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................................... 73.8 71.4 72.4 72.9 71.5
----- ----- ----- ----- -----
Gross profit........................................ 26.2 28.6 27.6 27.1 28.5
Selling and administrative expenses................. 15.2 16.3 16.3 16.5 17.9
----- ----- ----- ----- -----
Income from operations.............................. 11.0 12.3 11.3 10.6 10.6
Interest expense, net............................... 3.2 1.5 1.5 1.9 2.0
----- ----- ----- ----- -----
Income before income taxes.......................... 7.8 10.8 9.8 8.7 8.6
Income taxes........................................ 3.8 5.2 4.6 3.9 3.8
----- ----- ----- ----- -----
Income before extraordinary loss.................... 4.0 5.6 5.2 4.8 4.8
Preferred stock dividends........................... -- .3 .2 .4 .3
Extraordinary loss(1)............................... .2 -- -- -- --
----- ----- ----- ----- -----
Net income.......................................... 3.8% 5.3% 5.0% 4.4% 4.5%
===== ===== ===== ===== =====
</TABLE>
- -------------------------
(1) Net of income taxes.
Six Months ended June 29, 1997, compared to six months ended June 30, 1996
The Company's net sales increased by $81.9 million, or approximately 43%,
to $271.9 million for the six months ended June 29, 1997 from $189.9 for the
first six months of 1996. Results for the first six months of 1997 included
sales from March 10 through June 29 of $87.7 million from the Commercial
Products Group of Kysor, which was acquired by the Company in March 1997.
Sales of refrigerated display cases and walk-in coolers and freezers by
Kysor for the period from March 10, 1997 through June 29, 1997 were $87.7
million, which represented approximately 32% of Scotsman's net sales in the
first half of 1997. On a pro forma basis, sales of refrigerated display cases
and walk-in coolers and freezers by Kysor for the first half of 1997 were $126.5
million, which represented approximately 41% of the Company's pro forma net
sales in the first half of 1997. Kysor's net sales for the first half of 1997
increased by $12.7 million, or approximately 11%, from $113.8 million in the
comparable period of 1996. Management believes that sales of the Kysor business
will remain strong in the second half of 1997, although delivery of orders from
Kysor's supermarket clients has been deferred to future periods at a greater
degree than anticipated.
Ice machine sales, which represented approximately 32% of net sales in the
first half of 1997, decreased by $9.5 million, or approximately 10%, to $86.9
million in the first half of 1997 from $96.4 million in the same period of 1996.
The decline in ice machine sales resulted from lower sales in Europe and the
United States due to soft market conditions in both regions, and high
distributor inventories in Europe at the beginning of the period. Market
conditions for the European businesses appear to be stabilizing and management
believes sales comparisons in that region should improve in the second half of
1997 as compared to 1996. The strong U.S. dollar also adversely impacted
European ice machine sales in U.S. dollar terms. Softness in the U.S. market
appears attributable to cool weather conditions in the spring and early summer,
and some slowdown in U.S. restaurant chain expansion activity.
Food preparation and storage equipment sales, which represented
approximately 22% of the Company's net sales in the first half of 1997,
increased by $8.0 million, or approximately 16%, in the first half of 1997 from
$50.2 million in the same period of 1996. An increase in sales at the Company's
Delfield business to Boston
31
<PAGE> 34
Market, one of Delfield's major customers, was the primary driver of the
increase. Boston Market's announced slowing of expansion plans will likely
soften the rate of sales increase in the near term.
Beverage dispensing equipment sales, which represented approximately 13% of
the Company's net sales in the first half of 1997, decreased by $1.2 million, or
approximately 3%, in the first half of 1997 from $37.7 million in the same
period of 1996. Sales gains by the Company's U.K.-based beverage dispensing
business were offset by soft market conditions for the Company's dispensing
business in Germany and in the United States. The strong U.S. dollar also
adversely impacted beverage dispensing equipment sales in U.S. dollar terms.
The Company's gross profit increased by $16.8 million, or approximately
31%, to $71.1 million in the first half of 1997 from $54.3 million in the first
half of 1996, due to the inclusion of Kysor's results of operations subsequent
to its acquisition by the Company in March 1997. However, the Company's gross
profit margin decreased as a percentage of net sales to 26.2% in the first half
of 1997 from 28.6% in the first half of 1996. The reduction in gross profit
margins is partially due to lower worldwide ice machine sales, and higher
production costs of food preparation and storage equipment. Also contributing to
the decline in gross profit margins was the inclusion of the results of Kysor,
which historically has reported lower gross profit margins. The Company's
Delfield business continues to focus on internal productivity improvement, and
management believes that margin improvement will occur at that unit over the
next 12 months.
Selling and administrative expenses increased by $10.2 million, or
approximately 33%, to $41.1 million in the first half of 1997 from $30.8 million
in the first half of 1996. The increase in selling and administrative expenses
is attributable to the inclusion of Kysor results subsequent to its acquisition
by the Company in March 1997. As a percentage of net sales, selling and
administrative expenses decreased to 15.1% in the first half of 1997 from 16.3%
reported in the first half of 1996. The percentage decrease is primarily
attributable to Kysor business units which, although they have historically
reported lower gross profit margins, also have lower selling and administrative
expenses as a percentage of net sales as compared to the balance of the
Company's businesses.
Income from operations increased by $6.6 million, or 28.2%, to $30.0
million in the first half of 1997 from $23.4 million in the first half of 1996,
which primarily reflects Kysor's contribution to the Company's profits. As a
percentage of net sales, income from operations decreased to 11.0% in the first
half of 1997 from 12.3% in the same period of 1996. The decline is a result of
the lower gross profit margins and an additional $1.2 million of amortization of
intangibles resulting from the Kysor Acquisition.
Net interest expense increased by $6.0 million to $8.8 million in the first
half of 1997 from $2.8 million in the first half of the prior year as a result
of the increased domestic borrowings incurred by the Company to fund the Kysor
Acquisition.
The Company's overall income tax rate increased to 48.4% in the first half
of 1997 from 48.0% in the first half of 1996. The higher income tax rate is
primarily attributable to the impact of $1.2 million of additional amortization
of intangibles resulting from the Kysor Acquisition.
Net income, before a one-time after-tax charge of $633,000 incurred for the
early retirement of $20 million of 11.43% private placement debt, increased by
$.3 million, or approximately 2%, to $11.0 million in the first half of 1997
from $10.7 million in the first half of 1996. On a fully diluted basis, earnings
per share, before the one-time charge, increased by $.01, or approximately 1%,
to $1.01 in the first half of 1997 from $1.00 in the first half of 1996. Net
income, including the one-time charge, declined by $.4 million, or 3.4%, to
$10.3 million in the first half of 1997 from $10.7 million in the first half of
1996. On a fully diluted basis, earnings per share, including the one-time
charge, declined by $0.05, or 5.0%, to $.95 in the first half of 1997 from $1.00
in the first half of 1996.
Management believes that earnings per share for fiscal 1997 may be slightly
below the $1.73 per share for fiscal 1996, before the one-time charge described
above in the first fiscal quarter of 1997.
32
<PAGE> 35
Year ended December 29, 1996 ("1996"), compared with year ended December
31, 1995 ("1995")
The Company experienced strong operating results in 1996 compared with
1995. Sales increased in many of the Company's businesses and operating income
as a percentage of sales increased as well. These positive operating results
were largely attributable to the inclusion of a full year's operations of
Hartek, which was purchased by the Company on December 31, 1995, strong growth
at Whitlenge, solid sales gains from the Company's European ice machine
businesses and a continued emphasis on cost containment.
The Company's net sales increased by $32.1 million, or 10%, to a record
$356.4 million in 1996 from $324.3 million in 1995.
Ice machine sales, which represented 49% of total sales of the Company in
1996, increased by $6.5 million, or 4%, to $176.0 million in 1996 from $169.5
million in 1995 primarily due to 15% growth in sales from European operations
while domestic sales of ice machines remained relatively constant.
Food preparation and storage equipment sales, which represented 29% of
total sales of the Company in 1996, remained constant compared to 1995,
reflecting a decline in European bakery equipment sales and a modest increase in
sales of food preparation equipment by Delfield, which were limited by a slowing
of the domestic market for such products. Sales in this product category are
expected to increase in 1997 due to Delfield's designation by Boston Market as
sole supplier of serving line equipment and certain related products.
Beverage systems sales, which represented 19% of total sales of the Company
in 1996, increased by $27.6 million, or 69%, to $67.6 million in 1996 from $40.0
million in 1995, driven primarily by the inclusion of the operating results of
Hartek and growth of 24% at Whitlenge due to increasing their export sales and a
strong domestic beer market in the United Kingdom.
Niche products sales, which represented 3% of total company sales in 1996,
decreased by $2.3 million, or 21%, to $9.2 million in 1996 from $11.5 million in
1995, driven primarily by a lower volume of certain contract products and
ventilation equipment.
The Company's gross profit increased by $10.5 million, or 12%, to $98.4
million in 1996 from $87.9 million in 1995. The Company's gross profit margin
increased to 27.6% of total sales in 1996 from 27.1% of total sales in 1995 due
to selling price increases in certain products, moderating material costs and
the impact of higher sales in relation to a base of certain fixed production
costs. These gains were partially offset by higher production costs at Delfield
due to inefficiencies incurred while implementing process improvements and
organizational changes in anticipation of future growth requirements.
Selling and administrative expenses increased by $4.7 million, or 9%, to
$58.1 million in 1996 from $53.4 million in 1995. Although selling and
administrative expenses increased due to the inclusion of Hartek, selling and
administrative expenses as a percentage of total sales of the Company declined
to 16.3% in 1996 from 16.5% in 1995, primarily due to higher overall sales and
lower advertising costs.
Income from operations increased by $5.8 million, or 17%, to $40.3 million
in 1996 from $34.5 million in 1995 primarily due to increased sales with higher
associated gross margins and the continued benefit of cost containment plans
initiated during 1996 and in prior years.
Net interest expense decreased by $1.0 million, or 17%, to $5.3 million in
1996 from $6.3 million in 1995 primarily due to the Company's lower average debt
levels and a favorable interest rate environment.
Income taxes increased by $3.7 million to $16.4 million in 1996 from $12.7
million in 1995 due to higher income from operations and a higher effective tax
rate. The Company's tax rate increased to 47.0% in 1996 from 45.2% in 1995
primarily due to the higher percentages of sales generated from foreign
operations with higher relative tax rates.
Overall, net income increased by $3.2 million, or 21%, to $18.6 million in
1996 from $15.4 million in 1995. On a fully diluted basis, earnings per share
increased by $0.28, or 19%, to $1.73 in 1996 from $1.45 in 1995. Of note, the
effects of fluctuations in currency exchange rates on the Company's results of
operations were immaterial.
33
<PAGE> 36
Year ended December 31, 1995 ("1995"), compared with year ended January 1,
1995 ("1994")
The Company's net sales increased 22% in 1995, to $324.3 million, compared
with $266.6 million in 1994. Strong gains in worldwide ice machine sales and the
inclusion of Delfield and Whitlenge results for the full year were primary
contributors to this growth.
Ice machine sales increased 13% from the prior year and represented 52% of
total sales in 1995. Domestic ice machine sales were up 7%, a significantly
greater gain than the market as a whole. New products and expansion of the
distribution system contributed to the share gain. Sales of ice machines outside
the U.S. increased more than 20% due to improvement in Western European markets
and substantial sales increases to the Asia-Pacific region. In December 1995 the
Company's joint venture in Shenyang, China began production of ice machines to
be sold in the domestic China market.
Sales of food preparation and storage equipment increased 39% from 1994 to
1995 due to the inclusion of results for Delfield for a full year in 1995 versus
a partial year (from April 29, 1994) for 1994. Pro forma full-year sales of
these products, as if Delfield had been acquired at the beginning of 1994, were
up 1%. Reduced sales from Delfield to a few large national accounts were largely
offset by sales to other customers. Food preparation and storage equipment
represented approximately one-third of total Company sales in 1995.
The Company's 1995 worldwide beverage systems sales increased 23% versus
the prior year due to the inclusion of Whitlenge's sales for only eight months
of 1994. On a full-year basis, beverage systems realized increased sales of 5%,
compared with the prior year, primarily due to Whitlenge's increased penetration
of continental European markets. Sales of this equipment accounted for 12% of
1995 Company sales. Niche products, including ventilation equipment and certain
contract products, comprised the balance of the Company's sales.
Gross profit increased significantly in dollars but declined as a
percentage of sales, to 27.1% in 1995 from 28.5% in 1994, as a result of the
full-year inclusion of Delfield and Whitlenge results, which historically have
had lower gross profit margins. The impact of the increases of cost of materials
and a shift in sales mix at Delfield toward customers served by higher-cost
distribution channels also impacted gross profit in 1995.
Selling and administrative expenses for the year were up substantially in
dollars, again due in large measure to acquisitions. As a percentage of sales,
however, selling and administrative costs declined to 16.5% from 18.0% in the
prior year due to lower litigation-related costs, favorable health claims costs
and the full-year inclusion of Delfield and Whitlenge and their historically
lower ratios.
Income from operations increased $6.2 million, or 22%, from the prior year
as a result of the above mentioned factors.
Interest expense, net, increased $0.9 million due to the higher average
debt levels associated with the Delfield and Whitlenge acquisitions. A higher
effective income tax rate of 45.2% in 1995, compared with 43.9% in 1994,
reflects a greater proportion of income from the Company's higher-taxed Italian
subsidiaries.
1995 net income of $15.4 million and fully diluted net income per share of
$1.45 were record highs for Scotsman Industries. Hartek, acquired on December
31, 1995, had no impact on the income statement for the year. The effect of
changes in currency exchange rates was immaterial on the Company's results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's liquidity requirements have arisen primarily
from the need to fund its working capital, capital expenditures, acquisitions
and interest expense, including fixed obligations associated with debt or lease
obligations. The Company has met these liquidity requirements through use of
funds generated from operations, along with financing from various sources.
The Company expects to continue to generate significant cash flow from
operations, which will be used to fund the Company's existing operations and
internal growth. Increased levels of working capital, capital expenditures and
interest expense associated with the Kysor Acquisition are not expected to
adversely impact the Company's liquidity and access to capital.
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The Company utilized cash flow from operations of $7.5 million for the
first six months of 1997 compared to cash flow provided by operating activities
of $6.0 million for the first six months of 1996.
The following comparison of certain items in the balance sheets as of June
29, 1997 and December 29, 1996 excludes the initial impact of the Kysor
Acquisition in March of 1997 and the impact of changes in foreign exchange rates
on those categories:
Inventory decreased by $1.3 million, which reflects the reduction in
Kysor inventories since the date of acquisition by the Company. This
decrease in Kysor inventories was partially offset by higher inventories at
some of the Company's other domestic businesses.
Accounts receivable were $29.1 million higher, primarily as a result
of the sales increase in the second quarter of 1997 compared to the fourth
quarter of 1996.
Trade accounts payable were $10.8 million higher, which reflects the
impact of seasonal volume.
All asset and liability accounts as of June 29, 1997, were significantly
impacted by the Kysor Acquisition in March of 1997. Goodwill increased from
December 29, 1996, due to the Kysor Acquisition, which added approximately $192
million.
Cash and temporary cash investments of $20.8 million as of June 29, 1997,
increased by $4.3 million from December 29, 1996, reflecting the increase in
cash balances at the Company's foreign subsidiaries and in part due to the Kysor
Acquisition.
Shareholders' equity increased $5.8 million from December 29, 1996, which
reflects net income of $10.3 million for the first half of 1997, which was
partially offset by a reduction in shareholders' equity caused by changes in
accumulated foreign currency translation adjustments and the impact of
dividends.
Capital expenditures, including those funded through capital leases,
increased $4.5 million, or approximately 131%, to $7.9 million for the first six
months of 1997 from $3.4 million for the first six months of 1996. Capital
expenditures in 1997 were made primarily to fund construction of a new Kysor
facility in Columbus, Georgia, along with productivity improvements, new product
tooling and maintenance and replacement items.
Note 3 to the Company's financial statements included and incorporated by
reference herein contains a summary of the changes in the Company's debt
structure as a result of the Kysor Acquisition. Long-term debt increased by
approximately $283 million as of June 29, 1997 primarily due to funding of the
Kysor Acquisition, along with funding of working capital needs. Short-term debt
was reduced by $3.1 million from December 29, 1996 primarily due to short-term
domestic borrowings being replaced with longer-term borrowings. Total debt,
including capital leases, was $362.9 million as of June 29, 1997 compared to
$76.6 million as of December 29, 1996. The debt to capital ratio was
approximately 73% at June 29, 1997, compared with approximately 37% at December
29, 1996.
On February 13, 1997, May 15, 1997 and August 14, 1997, the Company's Board
of Directors declared a dividend of 2 1/2 cents per share payable to common
shareholders of record on March 28, 1997, June 30, 1997 and September 30, 1997,
respectively.
Since its first quarter as a publicly-held company, the Company has paid a
quarterly dividend of 2 1/2 cents per share. The continuation, amount and timing
of this dividend will be determined by the Board of Directors and may change as
conditions warrant.
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BUSINESS
GENERAL
Scotsman is a leading international manufacturer of a diversified line of
commercial refrigeration products, food preparation equipment and beverage
systems that is sold primarily to customers in the restaurant, supermarket,
lodging, healthcare and convenience store industries. The Company has a leading
market position in each of its five product lines, which consist of ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage systems. Scotsman's customers include
many of the largest chains in the quick service restaurant, supermarket, lodging
and convenience store industries, including McDonald's Corporation
("McDonald's"), Boston Chicken, Inc. ("Boston Market"), Wal-Mart Stores, Inc.
("WalwMart"), Winn-Dixie Stores, Inc. ("Winn-Dixie"), Marriott International,
Inc. ("Marriott") and Mobil Corporation ("Mobil"), as well as bottlers
affiliated with The Coca-Cola Company ("Coca-Cola") and PepsiCo, Inc. ("Pepsi").
The Company's revenues are diversified among its five product lines, with
ice machines and refrigerated display cases, its two largest product lines, each
representing approximately 29% of the Company's 1996 pro forma net sales. Within
each of its product lines, the Company offers a broad range of products designed
to meet the diverse equipment needs of its customers. The Company sells its
products in over 100 countries through multiple distribution channels and has
manufacturing capabilities in the United States, the United Kingdom, Germany and
Italy and joint venture interests in Australia, China, the United Kingdom and
Indonesia. International sales by Scotsman and Kysor of approximately $144
million accounted for approximately 24% of the Company's 1996 pro forma net
sales. The Company believes that its leading market positions, broad product
offering, diverse customer base, extensive distribution network and strong
international presence provide it with significant competitive advantages and
position it for continued growth.
Since its Spin-off from Household in 1989, Scotsman has expanded through
internal growth and through a disciplined acquisition program. The Company's
internal growth has been driven primarily by increased sales of ice machines in
the United States and Europe and beverage systems in Europe. In addition, from
1992 through 1996, the Company successfully completed and integrated five
acquisitions. As a result of these acquisitions and internal growth, the
Company's net sales increased to $356.4 million in 1996 from $168.7 million in
1992, representing a compound annual growth rate of 20.6%. In March 1997, the
Company acquired Kysor for a net purchase price of approximately $299 million.
Kysor is a leading supplier of refrigerated display cases and walk-in coolers
and freezers to the supermarket and convenience store industries. For 1996,
Kysor's sales of commercial refrigeration products were $245.1 million, an
increase of 18.3% from 1995. Pro forma for the Kysor Acquisition, the Company's
1996 net sales were $601.4 million, a 68.7% increase over the Company's reported
1996 net sales. Through the addition of Kysor's leading market positions and
complementary product lines, the Company expects to benefit from cross-selling
opportunities, as well as synergies related to reduced overhead, increased
purchasing power and shared research and development efforts.
Scotsman is a market leader in each of its five product lines with well
recognized, premium brand names. The Company believes it is the largest
worldwide manufacturer of commercial ice machines, the largest manufacturer of
food preparation and storage equipment for the foodservice industry in the
United States and the second largest manufacturer of beverage systems in Europe
and refrigerated display cases and walk-in coolers and freezers in the United
States. Scotsman believes these strong market positions will enable it to take
advantage of favorable trends driving global demand for its products.
INDUSTRY OVERVIEW
Sales of the Company's five product lines are driven primarily by demand
from participants in the food and beverage industry. According to a recent
industry report, sales by the food and beverage industry are expected to grow
from $700 billion in 1995 to approximately $800 billion in the year 2005. Much
of this growth is expected to be captured by the foodservice industry (including
supermarket delis), which continues to gain market share from traditional
groceries. According to published industry sources, total U.S. foodservice sales
climbed from approximately $255 billion in 1990 to an estimated $336 billion in
1997. According to published industry sources, the commercial foodservice
segment of the foodservice industry, the
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<PAGE> 39
largest segment of this industry, is expected to experience real growth of
approximately 3.4% per year through 2005. Growth in the U.S. foodservice market
is driven primarily by population growth, economic growth and demographic
changes, including the number of families with two or more wage-earners and
shifting consumer preferences for convenience in food preparation and
consumption.
According to published industry sources, sales by the U.S. commercial
foodservice equipment industry grew 6.4% to approximately $4.5 billion in 1996
and are expected to grow by 6.8% in 1997. While normal replacement of aging
equipment and that for new construction generally drive sales of new commercial
refrigeration products, the Company expects further demand to result from
remodeling due to product upgrades and expanded perishable sections in
supermarkets and convenience stores, the expansion of national restaurant chains
and the replacement of products containing chlorofluorocarbons ("CFCs"). The
Company expects that a significant portion of the installed commercial
refrigeration systems in the United States that are CFC-based will be replaced
or retrofitted over the next decade, as CFCs become increasingly difficult to
obtain.
The commercial foodservice and retail food equipment industries are being
affected by several key industry trends, including expansion by national
restaurant and lodging chains, increased perishable and prepared food offerings
at supermarkets and convenience stores, supplier consolidation and increased
international foodservice demand.
National Chain Expansion. Large chains have a significant impact on the
commercial foodservice and retail food equipment markets as a result of new
store openings, remodeling and upgrading programs and equipment purchases to
support new menu items. The expansion of national chains is being driven by
increased consumer expenditures for dining out and carry-out meals. According to
an independent industry study, expenditures for food prepared outside of the
home have increased from approximately 38% of the average American's food budget
in 1975 to approximately 52% in 1995. Consistent with this trend, restaurant,
convenience store and supermarket chains continue to add new sites through
construction and acquisition. In 1996, for example, according to an independent
industry study, the top 100 restaurant chains grew at a rate of 5.6% compared
with 4.5% for the industry as a whole. Quick service restaurants continue to
expand into non-traditional sites to offer increased consumer convenience and
capture a greater portion of food expenditures. Locations for such
non-traditional outlets include retail stores, supermarkets, department stores
and gas stations. Quick service chains such as McDonald's and Sbarro, Inc., for
example, are moving into airports, hospitals and schools, which increases demand
for commercial foodservice equipment that is suitable for small, kiosk-type
locations. According to an independent industry study, the top 75 supermarket
chains accounted for approximately 78% of total supermarket industry sales in
1996, with the top 10 chains accounting for approximately 30% of total
supermarket industry sales. The Company believes that continued consolidation
will increase significantly that concentration over the next several years.
Expansion of Supermarket and Convenience Store Food Retail and
Foodservice. In 1996, sales of refrigerated display cases and systems to
supermarkets was approximately $700 million, while sales to convenience stores
totaled approximately $300 million, based on an independent industry study. In
an effort to capitalize on home meal replacement trends, convenience stores and
supermarkets continue to increase the portion of their floor space dedicated to
the sale of prepared and perishable foods. At the same time, expansion of
superstores has led to increased remodeling expenditures by existing stores in
order to remain competitive. The Company believes that national chains, in
particular, are placing added emphasis on store modernization to improve and
differentiate product merchandising.
Supplier Consolidation. National chains are demonstrating an increasing
tendency to purchase from fewer suppliers and to form collaborative
relationships with suppliers in order to minimize purchasing efforts and
optimize product design, responsiveness and pricing plans. Criteria for supplier
selection include not only product reliability and performance, service and
price, but also national presence and full-service design, engineering and
product customization capabilities. The Company believes that because these
criteria favor larger, more integrated suppliers, smaller industry participants
are at a competitive disadvantage in competing for contracts.
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Growth in International Foodservice Demand. International foodservice
demand is driven by economic and disposable income growth, increased penetration
of retail foodservice establishments, increased popularity of chilled beverages
and fundamental changes in consumer attitudes toward dining outside the home.
The Company expects these factors to drive significant growth in foodservice
demand in regions such as Asia, Latin America and Eastern Europe over the next
10 years. Furthermore, the Company expects the developing economies in Eastern
Europe, China and other regions of the world to drive expansion of hotels,
restaurant chains and other foodservice establishments to meet increased
business, consumer and tourist demands. Throughout the world, the concentration
of quick service restaurant and lodging chains is substantially lower than in
the United States and provides opportunities for national chains to expand
internationally. As a result, many of the leading national chains have embarked
upon significant international expansion. For example, the top 100 U.S.
restaurant chains increased their number of international operating units and
sales by approximately 16% and 11%, respectively, in 1996 compared with U.S.
domestic unit and sales growth rates of 5.7% and 5.6%, respectively, according
to an independent industry study. As a result, international chains increasingly
are requiring their suppliers to have the capability to manufacture and service
products in multiple geographic markets.
OPERATING STRATEGY
Scotsman's operating strategy is to continue to capitalize on its
competitive advantages and enhance its customer relationships. The key
components of this strategy include:
CAPITALIZING ON MARKET LEADERSHIP
Scotsman seeks to build and maintain leading market positions in each of
its product lines. The Company believes it is the world's largest manufacturer
of commercial ice machines, the largest manufacturer of food preparation and
storage equipment for the foodservice industry in the United States and the
second largest manufacturer of beverage systems in Europe and refrigerated
display cases and walk-in coolers and freezers in the United States. The Company
believes that these leading market positions help to create a heightened
awareness of its product offerings and brands. Scotsman believes that its
leading market positions, broad product offerings, strong brand recognition and
extensive distribution capabilities position it to compete successfully as its
customers consolidate their supplier base and expand internationally.
OPTIMIZING MANUFACTURING EFFECTIVENESS AND FLEXIBILITY
To enhance manufacturing effectiveness, Scotsman has adopted "lean
manufacturing" initiatives, which include minimizing manufacturing complexity,
standardizing key product subcomponents, adopting cell manufacturing practices
and emphasizing continuous improvement. These efforts throughout the Company
have resulted in enhanced product quality, fewer product defects and lower
inventory costs. Manufacturing flexibility enables each of the Company's
manufacturing facilities to produce a range of standard or customized models
within each manufacturing unit, which increases efficiency while improving the
Company's ability to meet customers' delivery schedules. Scotsman believes that
additional manufacturing efficiencies will result from sharing best practices
among Kysor and Scotsman's other operating units.
EMPHASIZING PRODUCT QUALITY AND NEW PRODUCT DEVELOPMENT
By applying its product design, manufacturing and refrigerant technology
expertise, Scotsman seeks to provide customers with technically superior,
durable and energy efficient products. Scotsman also dedicates substantial
resources to new product development and customizing existing products to meet
the unique performance, size and appearance specifications of individual
customers. This commitment has resulted in the introduction of numerous
innovative new products and product enhancements, including: (i) the CM(3) ice
machine, which offers greater ice making capacity while using less energy and
having approximately 23% fewer parts than prior models; (ii) an ice dispenser
designed to fit within the limited space requirements of many European hotels;
(iii) customized serving counters for Boston Market, which Scotsman designed to
reduce the waiting time of Boston Market customers at peak periods; and (iv) the
Genesis drink dispensing
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tower, which allows the proprietor to change the dispenser's exterior for
different promotions. In addition, Scotsman was the first manufacturer to
convert its entire line of ice machines to CFC-free refrigerants.
LEVERAGING EXTENSIVE DISTRIBUTION CAPABILITIES TO DELIVER SUPERIOR CUSTOMER
SERVICE
Scotsman has an extensive sales, distribution and service network in over
100 countries that is designed to meet the needs of customers from product
design and purchase through aftermarket sales and support. The Company's
salesforce, sales engineers and distributors work closely with customers to
determine the appropriate product for a given application and, if necessary,
assist in the development of customized products. Following a sale, the Company
or its distributors, depending on the product and geographic market, provide
aftermarket support that includes training, maintenance, service and repair. See
"-- Marketing and Distribution."
GROWTH STRATEGY
The Company also pursues a growth strategy intended to strengthen its
leading market positions within its product lines. The key elements of this
strategy include:
FOCUSING ON MAJOR NATIONAL CHAINS
Scotsman targets major national chains within the five principal industries
it serves. The Company believes that these national chains increasingly are
gaining market share at the expense of independents, and the Company expects
this trend to accelerate in both domestic and international markets. Chain
expansion generates demand for new and replacement equipment through new
construction, non-traditional site development and facility redevelopment or
modernization. Scotsman's customers include many of the largest chains in the
quick service restaurant, supermarket, lodging and convenience store industries,
including McDonald's, Boston Market, WalwMart, Winn-Dixie, Marriott and Mobil.
Through strong brands in each product line, the Company seeks to become the
single supplier to its customers in each of its product lines. The Company will
continue to organize product design and sales teams to work closely with
national chains in developing applications to meet their specific requirements.
Furthermore, given the strength of its current relationships and its
capabilities abroad, the Company believes it is well positioned to benefit as
national chains expand into international markets. For example, Scotsman
provides refrigerated display cases and walk-in coolers and freezers to several
WalwMart locations in South America.
PURSUING CROSS-SELLING OPPORTUNITIES
Scotsman has similar customers in each of its five product lines. While the
Company maintains strong relationships with customers in each of its market
segments, penetration of individual accounts varies by product line. As a
result, the Company believes it has significant opportunities to pursue internal
growth through cross-selling initiatives across product lines. The recently
completed Kysor Acquisition, which expanded the Company's product range to
include refrigerated display cases and walk-in coolers and freezers, has
expanded these opportunities by broadening the Company's range of products and
expanding its existing customer base. Specific cross-selling objectives include
(i) increasing sales of Kysor's refrigerated display cases and walk-in coolers
and freezers to restaurants, where Scotsman historically has had significant
market share and (ii) increasing sales of Scotsman's ice machines and food
preparation and storage equipment to supermarkets, Kysor's strong customer base
historically. The Company also believes that the breadth of its product lines
resulting from the Kysor Acquisition enhances its ability to penetrate the
convenience store market, a market in which the Company and Kysor currently have
relationships with only a limited number of chains.
CAPITALIZING ON INTERNATIONAL OPPORTUNITIES
International foodservice equipment markets offer significant opportunities
for growth by the Company. The Company believes, for example, that Western
European foodservice locations have, on a percentage basis, significantly fewer
ice machines than foodservice locations in the United States and that market
penetration of
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ice machines is significantly lower in other international markets. An integral
part of Scotsman's strategy has been to develop production, manufacturing,
marketing and distribution capabilities to serve international markets. The
Company intends to continue to capitalize on the rapid growth of the commercial
foodservice equipment industry in international markets by: (i) taking advantage
of its existing manufacturing presence, including through its joint venture
interests, in Australia, China, Germany, Indonesia, Italy and the United Kingdom
and its extensive distribution network, which extends through over 100
countries; (ii) expanding its presence into new markets through acquisitions,
joint ventures, alliances or startup investments; and (iii) leveraging its
relationships with national chains to participate in their international
expansion. Scotsman believes its brands and those of its subsidiaries are well
recognized internationally, in part from a European presence which dates back to
1963. The scale of the Company's international operations is a competitive
advantage, as most national competitors lack a significant presence in
international markets. In addition, the Company believes that most of its
competitors lack the breadth of international operating, service and
distribution capabilities necessary to meet the needs of large customers in
multiple international markets. The Company believes that it received several
recent contract awards from U.S. chains, in part, because of its ability to meet
such customers' needs across international markets.
EXPANDING THROUGH STRATEGIC ACQUISITIONS AND JOINT VENTURES
Strategic acquisitions are expected to remain an important element of
Scotsman's growth domestically and internationally. The Company has acquired six
businesses (including Kysor) since 1992 and formed three joint ventures and one
strategic alliance. The Company believes there are significant consolidation
opportunities in most of its product lines, particularly walk-in coolers and
freezers, display cases and food preparation and storage equipment, which are
relatively fragmented in the United States and highly fragmented in
international markets. The Company expects that complementary acquisitions will
provide the opportunity to achieve economies of scale through manufacturing,
purchasing and overhead efficiencies and economies of scope through
cross-selling opportunities and the sharing of product design innovation among
its operating units. Scotsman currently targets acquisitions that: (i) relate
closely to the Company's current technology, markets, customer types or product
categories; (ii) position the Company to take advantage of fundamental market
and industry trends; and (iii) will be non-dilutive to earnings. The Company's
management team has substantial experience and expertise in identifying,
completing and successfully integrating strategic acquisitions. See "The
Company" and "Kysor Acquisition" for a description of the Company's acquisitions
from 1992 to the present.
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PRODUCTS
Scotsman manufactures a diversified line of commercial refrigeration
products, food preparation equipment and beverage systems, including ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage dispensing systems. The Company sells
its key products through the following principal product lines:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRO FORMA
1996 NET
PRODUCT LINE BUSINESS UNIT(S) SALES KEY PRODUCTS KEY BRANDS
------------ ---------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Ice Machines................... Scotsman Ice Systems 29% Commercial ice machines Scotsman
Frimont that make cube, flake, Icematic
Castel MAC nugget and scale ice. Crystal Tips
Booth/Crystal Tips Modular, self- contained Rapid Freeze
Scotsman China ice dispensing systems and Simag
storage bins.
Refrigerated Display Cases..... Kysor//Warren 29% Refrigerated self-serve Kysor//Warren
display cases. Bangor
Service deli cases.
Custom merchandisers.
Mechanical refrigeration
systems.
Refrigeration houses.
Electrical distribution
houses.
Food Preparation and Storage
Equipment.................... Delfield 19% Food preparation Delfield
Castel MAC workstations. Icematic
Refrigerators and freezers. Tecnomac
Dough retarders and blast Shelleyglas
freezers. Shelleymatic
Mobile cafeteria systems.
Tray and plate dispensers.
Walk-in Coolers and Freezers... Kysor Panel Systems 12% Modular insulated panels Kysor Needham
and insulated doors for Kysor Kalt
refrigerated enclosures.
Environmental rooms.
Walk-in cold rooms and
freezers.
Beverage Systems............... Booth/Crystal Tips 11% Soft beverage systems. Booth
Whitlenge Combination ice and Whitlenge
Hartek beverage dispensing Hartek
SAW Technologies systems. Aztec
Custom beer cooling
systems.
</TABLE>
Ice Machines. Scotsman believes it is the world leader in the sale of
commercial ice machines. The Company's commercial ice machines are sold in the
United States under the Scotsman and Crystal Tip brand names. The Company sells
a diversified line of commercial ice machines that make ice in all forms,
including cube, nugget, flake and scale. Each type of ice machine is designed
and marketed for specific applications and capacity ranges from 300 to 2,000
pounds of ice per day. The Company's 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. Recent new product introductions have further
augmented the Company's full line of commercial ice machine products. For
example, Scotsman's CM(3) line of cuber ice machines, introduced in 1996, offers
greater ice making capacity while using less energy and having approximately 23%
fewer parts than prior models.
Scotsman's expertise in manufacturing, design and refrigerant technology
enables the Company's ice machines generally to meet or exceed customer's
expectations for reliability and durability. Scotsman's ice machines have an
average life of approximately seven to 10 years and replacement sales typically
represent 70% to 80% of the Company's U.S. sales of ice machines.
The Company believes it is the only U.S. commercial ice machine company
with manufacturing facilities in Europe. The Company manufactures and markets
commercial ice machines and related components
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through its Italian subsidiaries, Castel MAC and Frimont, principally under the
Icematic, Scotsman and Simag trademarks, for sale in Italy and for export
primarily to Eastern and Western Europe, the Middle East, Africa and the Far
East. In China, the Company markets its ice machines under the Scotsman name
through its Chinese joint venture. The Company also markets the Crystal Tips
line internationally through three export marketing firms based in the United
States and Canada.
The Company also distributes Howe industrial ice flakers under distribution
and trademark licensing agreements with Howe Corporation. See "The Company."
Refrigerated Display Cases. Through its Kysor//Warren operating unit,
Scotsman designs and manufactures refrigerated display cases and mechanical
refrigeration systems sold primarily to supermarkets. Refrigerated display cases
are used by supermarkets and convenience stores to display perishable food items
such as vegetables, deli items and prepared meals. Mechanical refrigeration
systems are located away from a store's customer area and provide power, air
filtration and circulation and temperature controls to the refrigerated display
cases located within the store.
Food Preparation and Storage Equipment. Scotsman manufactures and markets a
wide range of commercial food preparation and storage equipment through its
wholly owned subsidiary Delfield. Delfield's principal products are customized
and standard food preparation workstations, commercial up-right and
under-the-counter refrigerators and freezers, mobile cafeteria systems and
self-leveling tray and plate dispensers, all of which are constructed primarily
from stainless steel, as well as wood and other decorative materials. Delfield's
products are customized to address customer requests regarding size, space,
features and performance. Delfield's standard refrigeration products frequently
are incorporated into customers systems or can be sold separately.
Within the Company's food preparation and storage equipment unit, the
Company also manufactures and markets several related products. In Europe,
Castel MAC manufactures and markets a line of refrigerated cabinets under the
Icematic brand name and a line of dough retarders and blast freezers under the
Tecnomac brand name, and Frimont markets a line of refrigerators manufactured by
Castel MAC under the Scotsman brand name.
The Company also manufactures and markets niche products primarily through
Delfield, including air ventilating equipment under the Air Tech trademark, ice
cream dispensing equipment and iced drink mixing and dispensing machines. In
addition, the Company manufactures and markets a limited line of water coolers
through its Italian subsidiaries, Frimont and Castel MAC, and small industrial
applications through Whitlenge.
Walk-in Coolers and Freezers. Scotsman designs, manufactures, markets and
sells walk-in coolers and freezers and environmental control systems through its
Kysor Panel Systems operating unit. Kysor Panel Systems' refrigeration panels
used in the construction of walk-in coolers and freezers are made from all three
primary panel types: wood rail, urethane rail and soft nose. The Company
believes it is the only U.S. panel system supplier that can manufacture any of
the three panel types to meet customer preferences and that Kysor Panel Systems
is the largest supplier in the United States of walk-in coolers and freezers to
the supermarket industry and a leading supplier of walk-in coolers and freezers
to the convenience store industry. Scotsman's environmental control systems are
used in industrial applications to test products under a range of temperatures.
Beverage Systems. In the United States, Scotsman manufactures soft drink
dispensing equipment through its wholly owned subsidiary, Booth. Booth
manufactures and markets a complete line of non-coin operated soft drink
dispensers and accessories. Booth offers both pre-mix and post-mix dispensers,
which can either be ice-cooled or electrically-cooled, as well as ice and drink
dispensers, hand-operated valves and other related accessory products used in
the fountain drink market. Booth is one of only three companies in the United
States that manufacture and market the three major product categories of
beverage systems (mechanically refrigerated, ice cooled and ice/drink) to both
Coca-Cola and Pepsi.
In Europe, Scotsman manufactures and markets soft drink dispensing
equipment, draught beer cooling equipment and related equipment through its
Whitlenge and Hartek subsidiaries. Whitlenge specializes in
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<PAGE> 45
remote beverage cooling installations, including large installations for
restaurants, and also makes a range of refrigerated over and under-the-counter
soft drink units. Hartek manufactures and markets soft drink dispensing
equipment, draught beer cooling equipment and related ancillary equipment.
The Company is a 50% partner in SAW Technologies, a joint venture recently
formed to develop technologically advanced beverage dispensing valves. The joint
venture's Aztec valve, already being sold to a major soft drink bottler in the
United Kingdom, is targeted for other customers and markets. The Aztec valve
differentiates between and monitors different types of soft drink syrups,
continuously regulates the flow and mix of syrups and carbonated water and can
dispense other beverages such as fruit juices, where pulp presents difficulties
for most of the current generation of mechanical valves.
MARKETING AND DISTRIBUTION
Scotsman's sales and distribution network, which extends through over 100
countries, uses a combination of direct sales to national accounts, exclusive
and non-exclusive distributors and independent dealers, wholesalers and sales
representatives. Scotsman has approximately 200 sales and marketing employees
and relationships with over 300 exclusive distributors in over 50 countries and
approximately 3,300 independent dealers, distributors, wholesalers and sales
representatives in over 100 countries. Scotsman believes that these multiple
sales and distribution channels allow it to best serve its diverse customer base
across its five product lines.
While each business unit has its own marketing organization which is
responsible for the marketing and distribution of its products certain
salespeople and distributors may handle more than one of the Company's product
lines. The Company expects that in connection with its cross-selling objectives
more salespeople and distributors will handle more than one of the Company's
product lines.
Ice Machines. In the United States, both of the Company's Scotsman and
Crystal Tips brands maintain their own independent distribution networks.
Scotsman Ice Systems has approximately 85 distributors in the United States and
also sells directly to national customers such as large hotel chains, quick
service restaurants and convenience stores. Crystal Tips sells through
approximately 68 distributors in the United States. Outside the United States,
Crystal Tips has over 20 distributors. Outside the United States, Castel MAC and
Frimont combined have approximately 1,200 dealers and distributors in Europe and
Asia. In the majority of countries served, Castel MAC and Frimont each sell
through separate distribution channels. Distributors generally do not carry
competing brands of ice machines.
Refrigerated Display Cases. Kysor//Warren primarily sells refrigerated
display cases directly to large supermarket and convenience store chains through
its 29 person sales force. A smaller portion of Kysor//Warren's sales are made
through independent commercial refrigeration distributors that market to
independent and small chain supermarkets and convenience stores.
Food Preparation and Storage Equipment. Delfield sells its products
directly to national accounts such as large restaurant chains. Delfield also
sells through a network of approximately 1,400 non-exclusive dealers and
approximately 28 independent sales representative firms. In Europe, Castel MAC
sells through dealers and agents.
Walk-in Coolers and Freezers. Kysor Panel Systems sells its walk-in coolers
and freezers directly to large supermarket chains primarily through its 30
person marketing and sales force. Kysor Panel Systems also sells to smaller
independent supermarkets and convenience stores through a network of
approximately 600 distributors, dealers and wholesalers.
Beverage Systems. Booth sells its beverage systems directly to soft drink
bottlers franchised by large customers such as Coca-Cola and Pepsi. Whitlenge
sells directly to soft-drink bottlers and brewers in the United Kingdom, while
Hartek sells directly to soft-drink bottlers and brewers in Germany. Whitlenge
and Hartek jointly export directly to bottlers and brewers through a 10 person
sales force and over 7 distributors and local agents in various markets
throughout Western and Central Europe and the Middle East.
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<PAGE> 46
RESEARCH AND DEVELOPMENT
Scotsman conducts extensive research and development programs in each of
its product lines. These programs seek to develop product improvements and
achieve cost reductions, as well as develop new products. Approximately 65
employees of the Company are engaged in research and development. Scotsman's
total research and development expenditures for fiscal years 1996, 1995 and 1994
were $5.6 million, $4.8 million and $5.1 million, respectively, and Kysor's
total research and development expenditures for 1996, 1995 and 1994 were $.8
million, $.4 million and $.3 million, respectively.
RAW MATERIALS
The principal materials used in the manufacture of Scotsman's products are
refrigeration components, including compressors, condensers, motors and
controls, and raw materials such as stainless steel, galvanized steel, aluminum,
copper, plastic, glass, foam insulation, brass and wood. These materials are
readily available from several sources, and Scotsman has not experienced
difficulties with respect to their availability.
FACILITIES
The following chart lists the domestic and international active
manufacturing, distribution and office facilities owned or leased by Scotsman or
the joint ventures in which Scotsman has an interest:
DOMESTIC FACILITIES
<TABLE>
<CAPTION>
OWNED/
LOCATION DESCRIPTION PRINCIPAL PRODUCT LEASED
-------- ----------- ----------------- ------
<S> <C> <C> <C>
Goodyear, Arizona................... Plant and Office; Walk-in Coolers and Freezers Leased
50,000 square feet
Los Angeles, California............. Distribution Ice Machines Leased
Facility;
13,000 square feet
Columbus, Georgia................... Plant and Office; Refrigerated Display Cases Owned
295,826 square feet
Columbus, Georgia................... Plant and Office; Refrigeration Systems Owned
155,000 square feet
Conyers, Georgia.................... Plant and Office; Refrigerated Display Cases Owned
480,000 square feet
Vernon Hills, Illinois.............. Office; Ice Machines Leased
36,000 square feet
Vernon Hills, Illinois.............. Office; Corporate headquarters Leased
8,800 square feet
South Bend, Indiana................. Plant and Office; Refrigerated Display Cases Owned
90,000 square feet
Des Moines, Iowa.................... Plant, Warehouse Refrigerated Display Cases Leased
and Office;
93,000 square feet
Mt. Pleasant, Michigan.............. Plant and Office; Food Preparation and Storage Owned
327,000 square feet Equipment
Portland, Oregon.................... Plant and Office; Walk-in Coolers and Freezers Owned
84,000 square feet
Fairfax, South Carolina............. Plant and Ice Machines Owned
Warehouse;
327,000 square feet
</TABLE>
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<PAGE> 47
<TABLE>
<CAPTION>
OWNED/
LOCATION DESCRIPTION PRINCIPAL PRODUCT LEASED
-------- ----------- ----------------- ------
<S> <C> <C> <C>
Covington, Tennessee................ Plant and Office; Food Preparation and Storage Leased
188,000 square feet Equipment
Johnson City, Tennessee............. Plant and Office; Walk-in Coolers and Freezers Leased
60,000 square feet
Dallas, Texas....................... Plant and Office; Ice Machines Leased
170,000 square feet
Fort Worth, Texas................... Plant and Office; Walk-in Coolers and Freezers Owned
118,162 square feet
</TABLE>
INTERNATIONAL FACILITIES
<TABLE>
<CAPTION>
OWNED/
LOCATION DESCRIPTION PRINCIPAL PRODUCT LEASED
-------- ----------- ----------------- ------
<S> <C> <C> <C>
Adelaide, Australia.................. Plant and Office; Refrigerated Display Cases *
12,000 square feet
Sydney, Australia.................... Plant and Office; Refrigerated Display Cases *
163,000 square feet
Vienna, Austria...................... Office and Beverage systems Leased
Warehouse;
11,000 square feet
Shenyang, China...................... Plant and Office; Ice Machines *
17,000 square feet
Radevormwald, Germany................ Plant and Office; Beverage systems Owned
35,000 square feet
Jakarta, Indonesia................... Plant and Office; Refrigerated Display Cases *
5,000 square feet
Castelfranco, Italy.................. Plant and Office; Ice Machines Owned
230,000 square feet
Milan, Italy......................... Plant and Office; Ice Machines Leased
152,000 square feet
Halesowen, United Kingdom............ Plant and Office; Beverage systems Leased
76,000 square feet
Irthlingsborough, United Kingdom..... Plant and Office; Beverage systems *
3,900 square feet
</TABLE>
- -------------------------
* Facility owned or leased by a joint venture in which Scotsman has an interest.
Scotsman considers the condition of its plants and other properties to be
generally good and believes the capacity of its plants, as increased by the
plant under construction in Georgia, to be adequate for the current needs of its
business. Except for a lien on a section of its Mt. Pleasant, Michigan facility
and on its Covington, Tennessee facility, both securing industrial revenue
bonds, none of the principal properties owned by Scotsman are subject to
encumbrances material to the operations of Scotsman.
EMPLOYEES
As of June 29, 1997, Scotsman employed approximately 3,850 employees,
approximately 1,400 of whom are covered by collective bargaining agreements. The
Company believes its relationships with employees are generally good.
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<PAGE> 48
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages (as of October 1, 1997) and
positions of all executive officers and directors of Scotsman or its
subsidiaries.
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH COMPANY
------------ ---------------------
<S> <C>
Richard C. Osborne, 53............... Chairman, President, Chief Executive Officer and Director
Paolo Faenza, 58..................... General Manager, Castel MAC
David M. Frase, 50................... Vice President of the Company and President of Kysor Panel
Systems
Richard M. Holden, 47................ Vice President -- Human Resources
Donald D. Holmes, 59................. Vice President -- Finance and Secretary
Christopher D. Hughes, 51............ Vice President of the Company and President of Booth
Ludwig H. Klein, 55.................. Vice President of the Company and Managing Director of
Hartek
Emanuele Lanzani, 63................. Executive Vice President of the Company and Managing
Director, Frimont and Castel MAC
Gerardo Palmieri, 57................. Director -- Sales and Marketing, Frimont
Randall C. Rossi, 45................. Vice President of the Company and President of Scotsman Ice
Systems
William J. Rotenberry, 42............ Vice President -- Business Development
Michael de St. Paer, 52.............. Vice President of the Company and Managing Director of
Whitlenge
Graham E. Tillotson, 46.............. Vice President of the Company and President of Delfield
Logan F. Wernz, 53................... Vice President of the Company and President of Kysor//Warren
Donald C. Clark, 66.................. Director
Timothy C. Collins, 40............... Director
Frank W. Considine, 76............... Director
George D. Kennedy, 71................ Director
Robert G. Rettig, 68................. Director
Richard L. Thomas, 66................ Director
</TABLE>
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.
Mr. Faenza is General Manager, Castel MAC, and has held that position since
1986.
Mr. Frase is a Vice President of the Company and has held that position
since May 1997. He is also President and General Manager of Kysor Panel Systems,
and has held those positions since 1987. From 1982 to 1987, he served as a Vice
President of Kysor's walk-in coolers and freezers business.
Mr. Holden is Vice President -- Human Resources of the Company and has held
that position since January 1990.
Mr. Holmes is Vice President -- Finance and Secretary of the Company and
has held those positions since April 1989.
Mr. Hughes is a Vice President of the Company and has held that position
since June 1994. He is also President of Booth and has held that position since
May 1994. From 1993 to May 1994, he was Vice President/General Manager of the
Central and Western Transit Operations of Morrison Knudsen Corporation, a
division engaged in the business of assembling new and overhauling used
passenger rail cars. From 1991
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<PAGE> 49
to 1993, Mr. Hughes was Vice President of Operations of Scotsman Ice Systems and
Scotsman's former Glenco-Star division.
Mr. Klein is a Vice President of the Company and has held that position
since February 1996. He is also Managing Director of Hartek and has held that
position since February 1995. From June 1994 until February 1995, he worked as
an independent consultant and provided, during that period, consulting services
to Hartek and in the capital goods industry. From July of 1986 until June of
1994, Mr. Klein held the position of General Manager of Haacon Hebetechnik GmbH,
a manufacturer of industrial lifting equipment.
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 a wholly owned subsidiary of Household in October 1985 and has been Managing
Director of Frimont since 1968.
Mr. Palmieri is Director -- Sales and Marketing, Frimont, and has held that
position since 1980.
Mr. Rossi is a Vice President of the Company and has held that position
since January 1995. He is also President of Scotsman Ice Systems and has held
that position since January 1995. From January 1994 to January 1995, he was an
Executive Vice President of Scotsman Ice Systems. From 1989 to January 1994, he
was Vice President -- Sales and Marketing of Scotsman Ice Systems.
Mr. Rotenberry is Vice President -- Business Development. He has been
employed by the Company since January 1996 and became a Vice President of the
Company in February 1996. From 1990 until January 1996, he was Director of
Corporate Development for Joslyn Corporation, a diversified manufacturer.
Mr. de St. Paer is a Vice President of the Company and has held that
position since April 1994. He is also Managing Director of Whitlenge and has
held that position since April 1993. From June 1992 to April 1993 he was
Assistant Managing Director of Whitlenge. From 1991 until June 1992, he was the
Managing Director and a Group Technical Director of Hartek.
Mr. Tillotson is a Vice President of the Company and President of Delfield.
He has held those positions since June 1997. From January 1997 to June 1997, he
served as Interim President of Delfield. From 1984 to December 1996, he was Vice
President, Sales & Marketing of Delfield.
Mr. Wernz is a Vice President of the Company and has held that position
since May 1997. He is also President and General Manager of Kysor//Warren, and
has held those positions since 1988. From October 1984 to March 1988, he served
as President and General Manager of Kysor//Westran. From January 1967 to June
1984, he served in various managerial and executive positions at Parker Hannifin
and Ardco where he last served as President.
Mr. Clark was Chairman of the Board and a director of Household until his
retirement in 1996. Mr. Clark was Chairman of the Board of Household from 1984
to 1996 and Chief Executive Officer of Household from 1982 to September 1994. He
is also director of Armstrong World Industries, Inc., PMI Group, Inc.,
Ripplewood Holdings L.L.C., Ameritech Corporation and Warner-Lambert Co. and
serves as trustee of Clarkson University and Northwestern University. He has
been a director of the Company since April 1989 and served as Chairman of the
Board of the Company from April 1989 to May 1991.
Mr. Collins is Chief Executive Officer and Senior Managing Director of
Ripplewood Holdings L.L.C., an industrial and investment management holding
company, and has held that position since 1995. Mr. Collins was Senior Managing
Director of Onex Investment Corp. (New York), a management company for the U.S.
investments of Onex Corporation, an Ontario corporation, from 1990 to 1995. He
also serves on the board of directors of Dayton Superior Corporation and
Danielson Holding Corporation. He has been a director of the Company since April
1994.
Mr. Considine is Honorary Chairman of the Board, Chairman of the Executive
Committee and a director of American National Can Company, a packaging
manufacturer, and has held those positions since 1990. He was Chairman of the
Board of American National Can Company from 1983 to 1990, President from 1969 to
1988, and Chief Executive Officer from 1973 to 1988. Mr. Considine is Chairman
of the Board of Trustees of
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<PAGE> 50
Loyola University, Chicago, and serves on the Board of Trustees of the Field
Museum of Natural History, Chicago. Mr. Considine has been a director of the
Company since April 1989.
Mr. Kennedy was Chairman and a director of the Mallinckrodt Group Inc., a
producer of medical products and chemicals, from 1991 until his retirement in
October 1994. He was Chairman and Chief Executive Officer of Mallinckrodt Group
Inc. from 1986 to 1991. Mr. Kennedy is also a director of Brunswick Corporation,
Illinois Tool Works, Inc., American National Can Company, Kemper National
Insurance Company and Stone Container Corporation. He has been a director of the
Company since April 1989.
Mr. Rettig is a consultant to Illinois Tool Works, Inc., a manufacturer of
industrial products and components, and a consultant to, and a director of, The
Tech Group, a custom molding company, and has held those positions since 1990.
He was an Executive Vice President of Illinois Tool Works, Inc. from 1983 to
December 1989. Mr. Rettig is also a director of Lawson Products, Inc. and serves
as a trustee of the Illinois Institute of Technology. He has been a director of
the Company since April 1989.
Mr. Thomas was Chairman of First Chicago NBD Corporation and The First
National Bank of Chicago from 1995 until his retirement in May 1996. He was
Chairman, President and Chief Executive Officer of The First National Bank of
Chicago from 1992 to 1995. Mr. Thomas is currently a director of First Chicago
NBD Corporation, The First National Bank of Chicago, CNA Financial Corporation,
IMC Global Inc., The PMI Group, Inc., The Sabre Group Holdings, Inc. and Sara
Lee Corporation. Mr. Thomas is Chairman of the Board and a trustee of Kenyon
College, a trustee of the Chicago Symphony Orchestra, Northwestern University
and Rush Presbyterian-St. Luke's Medical Center, and is Chairman of the Civic
Committee of The Commercial Club of Chicago. He has been a director of the
Company since August 1997.
EXECUTIVE COMPENSATION
The Company's executive compensation program is structured to provide
meaningful incentives to the executive officers to increase shareholder value.
The program is comprised of a base salary, an annual cash incentive compensation
program and a long-term incentive compensation plan in the form of stock
options, stock appreciation rights, restricted stock and restricted stock
rights.
As of February 15, 1997, the directors and certain officers of the Company,
as a group, beneficially owned, or had the right to acquire within 60 days
pursuant to the exercise of stock options, 1,432,665 shares of Common Stock
representing 13.1% of the shares of Common Stock then issued and outstanding.
DESCRIPTION OF THE NOTES
GENERAL
The Notes are to be issued under an Indenture, to be dated as of
, 1997 (the "Indenture"), among the Company, the Issuer and ,
as Trustee (the "Trustee"). A copy of the form of Indenture is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Indenture and the Notes including the definitions of certain terms therein
and those terms made a part of the Indenture by the Trust Indenture Act of 1939,
as amended. Whenever particular defined terms of the Indenture not otherwise
defined herein are referred to, such defined terms are incorporated herein by
reference. For definitions of certain capitalized terms used in the following
summary, see "-- Certain Definitions."
TERMS OF THE NOTES
The Notes will be unsecured senior subordinated obligations of the Issuer,
initially limited to $100 million aggregate principal amount, and will mature on
, 2007. The Notes will bear interest at the rate per annum shown on
the cover page hereof from , 1997, or from the most recent date to
which interest has been paid or provided for, payable semiannually to Holders of
record at the close of business on the or immediately
preceding the interest payment date on and of each
48
<PAGE> 51
year, commencing , 1998. Interest on the Notes will be computed on the
basis of a 360-day year of twelve 30-day months.
Principal of and interest on the Notes will be payable, and the Notes may
be exchanged or transferred, at the office or agency of the Issuer in the
Borough of Manhattan, The City of New York (which initially shall be the
corporate trust office of the Trustee, at New York, New York
), except that, at the option of the Issuer, payment of interest may
be made by check mailed to the address of the Holders as such address appears in
the Note Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
shall be made for any registration of transfer or exchange of Notes, but the
Issuer may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
OPTIONAL REDEMPTION
From and after , 2002, the Notes will be redeemable, at the
Issuer's option, in whole or in part, at any time or from time to time, upon not
less than 30 nor more than 60 days' prior notice mailed by first-class mail to
each Holder's registered address, at the following redemption prices (expressed
in percentages of principal amount), plus accrued and unpaid interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on of the years set
forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2002..................................................... %
2003..................................................... %
2004 and thereafter...................................... 100%
</TABLE>
In addition, at any time and from time to time prior to , 2000,
the Issuer may redeem in the aggregate up to 35% of the original principal
amount of the Notes with the proceeds of one or more Equity Offerings, at a
redemption price (expressed as a percentage of principal amount) of % plus
accrued and unpaid interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that either (i) at least $
million in aggregate principal amount of the Notes must remain outstanding after
each such redemption or (ii) such redemption must retire the Notes in their
entirety and, in any case, that such redemption occurs within 60 days following
the closing of such Equity Offering.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
On and after the redemption date, interest will cease to accrue on the
Notes or the portion thereof called for redemption.
SINKING FUND
There will be no sinking fund payments for the Notes.
COMPANY GUARANTY
The Company will irrevocably and unconditionally Guarantee on a senior
subordinated basis the performance and the punctual payment when due, whether at
Stated Maturity, by acceleration or otherwise, of all the Obligations of the
Issuer under the Indenture and the Notes (the "Guaranty"). The Guaranty will be
49
<PAGE> 52
limited in amount to an amount not to exceed the maximum amount that can, after
giving effect to all other contingent and fixed liabilities of the Company, be
guaranteed by the Company without rendering the Guaranty void or voidable under
applicable law relating to fraudulent transfer or fraudulent conveyance or
similar laws affecting the rights of creditors generally. In addition, the
Company will agree to pay any and all expenses (including reasonable counsel
fees and expenses) incurred by the Trustee and the Holders in enforcing any
rights under the Guaranty with respect to the Company.
RANKING
The indebtedness evidenced by the Notes and the Guaranty will be unsecured,
general obligations of the Issuer or the Company, as the case may be,
subordinated in right of payment, as set forth in the Indenture, to the prior
payment of all Senior Indebtedness of the Issuer or the Company, as the case may
be, whether outstanding on the Issue Date or thereafter incurred, including the
Issuer's and the Company's respective Obligations under the Bank Credit
Agreement. After giving effect to this Offering and the application of the net
proceeds herefrom, as of June 29, 1997, the Company, the Issuer and the
Restricted Subsidiaries would have had approximately $268 million of Senior
Indebtedness outstanding and would have had up to approximately $139 million
available under the Credit Facility and the Comerica Agreement which, if
borrowed, would be Senior Indebtedness. In addition, the Company has pledged all
outstanding Capital Stock of the Issuer owned by the Company to secure its
obligations under its Guarantee of the Credit Facility.
Only Indebtedness of the Issuer or the Company that is Senior Indebtedness
will rank senior to the Notes or the Guaranty, as the case may be, in accordance
with the provisions of the Indenture. The Notes will in all respects rank pari
passu with all other Senior Subordinated Indebtedness of the Issuer. The Issuer
and the Company have agreed in the Indenture that they will not Incur, directly
or indirectly, any Indebtedness that is subordinate or junior in ranking in
right of payment to its Senior Indebtedness unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness. Unsecured Indebtedness is not deemed to be
subordinated or junior to Secured Indebtedness merely because it is unsecured.
A significant portion of the operations of the Issuer and all of the
operations of the Company are currently conducted through their respective
Subsidiaries. Claims of creditors of any Subsidiary of the Issuer, including
trade creditors, secured creditors and creditors holding guarantees issued by
such Subsidiaries, and claims of preferred stockholders (if any) of such
Subsidiaries generally will have priority with respect to the assets and
earnings of such Subsidiaries over the claims of creditors of the Issuer or the
Company, including holders of the Notes, even though such obligations would not
constitute Senior Indebtedness of the Issuer or the Company. The Notes and the
Guaranty, therefore, will be effectively subordinated to creditors (including
trade creditors) and preferred stockholders (if any) of Subsidiaries of the
Issuer. After giving effect to this Offering and the application of the net
proceeds herefrom, as of June 29, 1997, the Issuer's Subsidiaries would have had
approximately $38 million of Indebtedness outstanding and owed to Persons other
than to the Company, the Issuer and its Subsidiaries. Although the Indenture
limits the incurrence of Indebtedness and the issuance of capital stock of
certain of the Issuer's Subsidiaries, such limitations are subject to a number
of significant qualifications; moreover, the Indenture does not impose any
limitation on the incurrence by such Subsidiaries of liabilities that are not
considered Indebtedness under the Indenture. See "-- Certain
Covenants -- Limitation on Indebtedness."
SUBORDINATION
Upon any payment or distribution of assets or securities of the Issuer or
the Company, as the case may be, of any kind or character, whether in cash,
property or securities, in connection with any dissolution or winding up or
total or partial liquidation or reorganization of the Issuer or the Company, as
the case may be, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings or upon any assignment for the benefit of
creditors or any other marshaling of assets for the benefit of creditors, all
amounts due or to become due upon all Senior Indebtedness (including any
interest accruing subsequent to an event of bankruptcy whether or not such
interest is an allowed claim enforceable against the debtor under the United
States Bankruptcy Code) shall first be paid in full, in cash or cash
equivalents, before the Holders or the
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<PAGE> 53
Trustee on their behalf shall be entitled to receive any payment by the Issuer
on account of the Notes, or the Company on the Guaranty, as the case may be, or
any payment to acquire any of the Notes for cash, property or securities, or any
distribution with respect to the Notes of any cash, property or securities.
Before any payment may be made by, or on behalf of, the Issuer on the Notes, or
the Company on the Guaranty, as the case may be, in connection with any such
dissolution, winding up, liquidation or reorganization, any payment or
distribution of assets or securities of the Issuer or the Company, as the case
may be, of any kind or character, whether in cash, property or securities, to
which the Holders or the Trustee on their behalf would be entitled, but for the
subordination provisions of the Indenture, shall be made by the Issuer or the
Company, as the case may be, or by a receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person making such payment or
distribution or by the Holders or the Trustee if received by them or it,
directly to the holders of the Senior Indebtedness (pro rata to such holders on
the basis of the respective amounts of Senior Indebtedness held by such holders)
or their representatives or to any trustee or trustees under any indenture
pursuant to which any such Senior Indebtedness may have been issued, as their
respective interests appear, to the extent necessary to pay all Obligations with
respect to such Senior Indebtedness in full, in cash or cash equivalents, after
giving effect to any concurrent payment, distribution or provision therefor to
or for the holders of such Senior Indebtedness.
In addition, the Issuer or the Company, as the case may be, may not make
any payment of any kind or character from any source on the Notes or make any
deposit pursuant to the provisions described under "Defeasance" below or may not
repurchase, redeem or otherwise retire any Notes whether pursuant to the terms
of the Notes or upon acceleration or otherwise (collectively, "pay the Notes")
if (i) any Obligations with respect to any Designated Senior Indebtedness of the
Issuer or the Company, as the case may be, are not paid when due or (ii) any
other default on Designated Senior Indebtedness of the Issuer or the Company, as
the case may be, occurs and the maturity of such Designated Senior Indebtedness
is accelerated in accordance with its terms (which acceleration occurs
automatically under certain circumstances) unless, in either case, the default
has been cured or waived and any such acceleration has been rescinded or such
Designated Senior Indebtedness has been paid in full. However, the Issuer or the
Company, as the case may be, may pay the Notes without regard to the foregoing
if the Issuer or the Company, as the case may be, and the Trustee receive
written notice approving such payment from the Representative or Representatives
of all Designated Senior Indebtedness with respect to which either of the events
set forth in clause (i) or (ii) of the immediately preceding sentence has
occurred and is continuing. During the continuance of any default (other than a
default described in clause (i) or (ii) of the second preceding sentence) with
respect to any Designated Senior Indebtedness of the Issuer or the Company, as
the case may be, pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Issuer or the Company, as the case may be, may not pay the Notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Trustee (with a
copy to the Issuer or the Company, as the case may be) of written notice (a
"Blockage Notice") of such default from the Representative of the holders of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and the
Issuer or the Company, as the case may be, from the Person or Persons who gave
such Blockage Notice, (ii) because the default giving rise to such Blockage
Notice is no longer continuing or (iii) because such Designated Senior
Indebtedness has been repaid in full). Notwithstanding the provisions described
in the immediately preceding sentence, unless the holders of such Designated
Senior Indebtedness or the Representative of such holders have accelerated the
maturity of such Designated Senior Indebtedness, the Issuer or the Company, as
the case may be, must resume payments when due on the Notes after the end of
such Payment Blockage Period. The Notes shall not be subject to more than one
Payment Blockage Period in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness of the Issuer
or the Company, as the case may be, during such period.
If payment of the Notes is accelerated because of an Event of Default, the
Issuer or the Trustee shall promptly notify the holders of all Designated Senior
Indebtedness or the Representatives of such holders of the acceleration. If any
Designated Senior Indebtedness is outstanding, neither of the Issuer or the
Company may pay the Notes until five Business Days after the Representatives of
all the issues of Designated Senior
51
<PAGE> 54
Indebtedness receive notice of such acceleration and, thereafter, may pay the
Notes only if the Indenture otherwise permits payments at that time.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Issuer or the Company, as the case may
be, who are holders of Senior Indebtedness of the Issuer or the Company, as the
case may be, may recover more from the Issuer or the Company, as the case may
be, ratably, than the Noteholders, and creditors of the Issuer or the Company,
as the case may be, who are not holders of Senior Indebtedness of the Issuer or
the Company, as the case may be, may recover less from the Issuer or the
Company, as the case may be, ratably, than holders of Senior Indebtedness and
may recover more, ratably, than Holders of the Notes.
To the extent any payment of Senior Indebtedness (whether by or on behalf
of the Issuer or the Company, as the case may be, as proceeds of security or
enforcement of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then
if such payment is recovered by, or paid over to, such receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person, the Senior
Indebtedness or part thereof originally intended to be satisfied shall be deemed
to be reinstated and outstanding as if such payment had not occurred.
Notwithstanding the foregoing, payment from the money or the proceeds of
U.S. Government Obligations held in any defeasance trust described under "--
Defeasance" below will not be contractually subordinated in right of payment to
any Senior Indebtedness or subject to the restrictions described herein.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is otherwise provided.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income (or loss) of any Person (other than net income (or loss)
attributable to a Restricted Subsidiary) in which any Person (other than the
Company or any of its Restricted Subsidiaries) has an ownership interest and the
net income (or loss) of any Unrestricted Subsidiary, except, in each case, to
the extent of the amount of dividends or other distributions actually paid to
the Company or any of its Restricted Subsidiaries by such other Person or such
Unrestricted Subsidiary during such period; (ii) solely for the purposes of
calculating the amount of Restricted Payments that may be made pursuant to
clause 3(A) of paragraph (a) of the "Limitation on Restricted Payments" covenant
described below (and in such case, except to the extent includable pursuant to
clause (i) above), the net income (or loss) of any Person accrued prior to the
date it becomes a Restricted Subsidiary or is merged into or consolidated with
the Company or any of its Restricted Subsidiaries or all or substantially all of
the property and assets of such Person are acquired by the Company or any of its
Restricted Subsidiaries; (iii) the net income of any Restricted Subsidiary to
the extent that the declaration or payment of dividends or similar distributions
by such Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
such Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) except for purposes of calculating the amount
of Restricted Payments that may be made pursuant to paragraph (a) of the
"Limitation on Restricted Payments" covenant described below, any amount paid or
accrued as dividends on Preferred Stock of the Company or any Restricted
Subsidiary that is owned by the Persons other than the Company and any of its
Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary
losses.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of
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such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. For purposes of the
provisions described under "-- Certain Covenants -- Limitation on Restricted
Payments," "-- Certain Covenants -- Limitation on Affiliate Transactions" and
"-- Certain Covenants -- Limitations on Asset Sales" only, "Affiliate" shall
also mean any beneficial owner of Capital Stock representing 10% or more of the
total voting power of the Voting Stock (on a fully diluted basis) of the Company
or of rights or warrants to purchase such Capital Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Agent" means the agent or agents, as the case may be, for the lenders from
time to time party to the Bank Credit Agreement.
"Asset Acquisition" means (i) an Investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided, however, that such
Person's primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
Investment or (ii) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any Person other than the Company or
any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; provided, however, that the
property and assets acquired are related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or Sale-Leaseback Transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, except any such disposition of director's qualifying shares or of
shares of Capital Stock of foreign Restricted Subsidiaries to foreign nationals
to the extent required by law, (ii) all or substantially all of the property and
assets of an operating unit or business of the Company or any of its Restricted
Subsidiaries, or (iii) any other property and assets of the Company or any of
its Restricted Subsidiaries outside the ordinary course of business of the
Company or such Restricted Subsidiary and, in each case, that is not governed by
the provisions of the Indenture applicable to mergers, consolidations and sales
of assets and Sale/Leaseback Transactions of the Company or such Restricted
Subsidiary; provided, however, that "Asset Sale" shall not include (v) sales or
other dispositions of inventory, receivables and other current assets, (w) sales
or other dispositions of damaged, worn-out or other obsolete property in the
ordinary course of business so long as such property is not necessary for the
proper conduct of the business of the Company and its Restricted Subsidiaries,
(x) exchanges of property of the Company or any of its Restricted Subsidiaries
for property of any other Person which is related, ancillary or complimentary to
the business of the Company and its Restricted Subsidiaries at the time of such
exchange and where the Board of Directors has determined in good faith that such
exchange is fair and reasonable, (y) creation or assumption of Liens permitted
under the "Limitation on Liens" covenant described below or any foreclosure
thereof, or (z) sales or other dispositions of property or assets with an
aggregate Fair Market Value not in excess of $5 million in any fiscal year.
"Attributable Debt" means, in respect of a Sale/Leaseback Transaction as at
the time of determination, the present value (discounted at the interest rate
implicit in the Sale/Leaseback Transaction, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
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redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Credit Agreement" means that certain Credit Agreement, dated as of
March 12, 1997, as amended, by and among the Company, the Issuer and The First
National Bank of Chicago (or any successor thereto or replacement thereof), as
agent and as a lender, and certain other institutions, as lenders, and certain
other parties thereto, providing for up to $450 million of Indebtedness as well
as, with respect to the Company and any Restricted Subsidiary, any other debt
facilities or commercial paper facilities with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
or credit, including in each case any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, restated, modified, renewed, refunded, replaced or
refinanced, in whole or in part, from time to time by one or more other
agreements, instruments and documents entered into with such Persons and/or
other Persons.
"Board of Directors" means the Board of Directors of the Company or the
Issuer, as the case may be, or any committee thereof duly authorized to act on
behalf of such Board.
"Business Day" means each day which is not a Legal Holiday (as defined in
the Indenture).
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participation or other equivalents of or
interests in equity (however designated) of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (within
the meaning of Rules 13d-3 and 13d-5 under the Exchange Act, except that
for purposes of this clause (i) such person or group shall be deemed to
have "beneficial ownership" of all shares that such person or group has the
right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 35% of the
total voting power of the Voting Stock of the Company; provided, however,
that a person shall not be deemed to be the beneficial owner of, or to own
beneficially, (i) any securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates until such tendered securities are accepted for purchase or
exchange thereunder, or (ii) any securities if such beneficial ownership
(A) arises solely as a result of a revocable proxy delivered in response to
a proxy or consent solicitation made pursuant to applicable law, and (B) is
not also then reportable on Schedule 13D (or any successor schedule) under
the Exchange Act;
(ii) during any period of two consecutive years from and after the
Issue Date, individuals who at the beginning of such period constituted the
Board of Directors (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of
the Company was approved by a vote of a majority of the directors of the
Company then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office;
(iii) the merger or consolidation of the Company with or into another
Person (other than the Issuer), or the sale of all or substantially all the
assets of the Company to another Person, and, in the case of any such
merger or consolidation, the securities of the Company that are outstanding
immediately prior to such transaction and which represent 100% of the
aggregate voting power of the Voting Stock of
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the Company are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent, immediately after such transaction,
at least a majority of the aggregate voting power of the Voting Stock of
the surviving corporation; or
(iv) the Company ceases for any reason to be the beneficial owner,
directly or indirectly, of all Voting Stock of the Issuer, except as a
result of the merger of the Company with and into the Issuer or of the
merger of the Issuer with and into the Company; provided that the pledge of
such Voting Stock (without the transfer of voting rights attributable
thereto) shall not be deemed to transfer the beneficial ownership thereof
by the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Comerica Agreement" means that certain promissory note, dated as of March
12, 1997, by Scotsman Group to Comerica Bank, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, restated, modified, renewed,
refunded, replaced or refinanced, in whole or in part from time to time by one
or more other agreements, instruments and documents entered into with such
Person and/or other Persons.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the Issue Date, including, without limitation, all series and
classes of such common stock.
"Consolidated Coverage Ratio" means, on any date of determination, the
ratio of (i) the aggregate amount of Consolidated EBITDA for the then most
recent four fiscal quarters prior to such date for which reports have been filed
with the SEC pursuant to the "SEC Reports and Reports to Holders" covenant (the
"Four Quarter Period") to (ii) Consolidated Interest Expense for such Four
Quarter Period. In making the foregoing computation, (A) pro forma effect shall
be given to any Indebtedness Incurred or repaid during the period (the
"Reference Period") commencing on the first day of the Four Quarter Period and
ending on such date (other than Indebtedness Incurred or repaid under a
revolving credit or similar arrangement to the extent of the commitment
thereunder (or under any predecessor revolving credit or similar arrangement) in
effect on the last day of such Four Quarter Period adjusted, however, to give
pro forma effect to repayments resulting from the reduction in such commitment
or Indebtedness Incurred in excess of such commitment, in each case after the
end of such Four Quarter Period and on or before such date), in each case as if
such Indebtedness had been Incurred or repaid the first day of such Reference
Period; (B) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro forma basis
and bearing a floating interest rate shall be computed as if the rate in effect
on such date (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months or, if shorter, at least equal to the remaining term of such
Indebtedness) had been the applicable rate for the entire Reference Period; (C)
pro forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur during such Reference Period as if they had occurred and
such proceeds had been applied on the first day of such Reference Period; and
(D) pro forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the
first day of such Reference Period; provided that to the extent that clause (C)
or (D) of this sentence requires that pro forma effect be given to an asset
acquisition or asset disposition, such pro forma computation shall be based upon
the four full fiscal quarters immediately preceding such date of the Person, or
division or line of business of the Person, that is acquired or disposed for
which financial information is available; and provided further that to the
extent that clause (C) or (D) of this sentence requires that pro forma effect be
given to an asset acquisition, such pro forma computation shall
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exclude any expense (net of any expense increase) which, in the good faith
estimate of management, will (in accordance with GAAP and the rules, regulations
and guidelines of the SEC) be eliminated as a result of such acquisition.
"Consolidated EBITDA" means, for any period, the sum of the amounts for
such period of (i) Adjusted Consolidated Net Income, (ii) Consolidated Interest
Expense, to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, (iii) income taxes, to the extent such amount was
deducted in calculating Adjusted Consolidated Net Income (other than income
taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense, to
the extent such amount was deducted in calculating Adjusted Consolidated Net
Income, (v) amortization expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, and (vi) all other non-cash items
reducing Adjusted Consolidated Net Income (other than items that will require
cash payments and for which an accrual or reserve is, or is required by GAAP to
be, made), less all non-cash items increasing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an accrual or
reserve is, or is required by GAAP to be, made), all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in conformity
with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount
of the Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the quotient of (1) the number of shares of
outstanding Common Stock of such Restricted Subsidiary not owned on the last day
of such period by the Company or any of its Restricted Subsidiaries divided by
(2) the total number of shares of outstanding Common Stock of such Restricted
Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate amount
(without duplication) of (x) interest in respect of Indebtedness of the Company
and its Restricted Subsidiaries (including amortization of original issue
discount on any Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method of
accounting; all commissions, discounts and other fees and charges owed with
respect to letters of credit, bankers' acceptance financings and other
financings to the extent attributable to such period; the net costs associated
with Interest Rate Agreements); (y) interest in respect of Indebtedness (other
than Indebtedness of the Company or the Restricted Subsidiaries) that is
Guaranteed or secured by the Company or any of its Restricted Subsidiaries; and
(z) the interest component of Capital Lease Obligations paid, accrued or
scheduled to be paid or to be accrued by the Company and its Restricted
Subsidiaries during such period, all as determined on a consolidated basis in
conformity with GAAP; excluding, however, (i) any amount of such interest of any
Restricted Subsidiary if all or a portion of the net income of such Restricted
Subsidiary is excluded in the calculation of Adjusted Consolidated Net Income
pursuant to the proviso to the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is excluded from the
calculation of Adjusted Consolidated Net Income pursuant to the proviso to the
definition thereof), and (ii) any amount of such interest expense of any
Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary if all or
a portion of the Adjusted Consolidated Net Income of such Restricted Subsidiary
is excluded in the calculation of Consolidated EBITDA pursuant to the proviso to
the definition thereof.
"Consolidated Net Worth" means, as of any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 135 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness and the cost of treasury
stock, each item to be determined in conformity with GAAP (excluding the effects
of foreign currency exchange adjustments under Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 52).
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
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"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" in respect of the Company or the Issuer,
as the case may be, means (i) all the Obligations of the Company or the Issuer,
as the case may be, under the Credit Agreement, dated as of March 12, 1997, that
is referenced in the definition of "Bank Credit Agreement," as the same may be
amended, restated, modified, renewed, refunded, replaced or refinanced, in whole
or in part, and (ii) any other Senior Indebtedness of the Issuer or the Company,
as the case may be, which, at the date of determination, has an aggregate
principal amount outstanding of, or under which, at the date of determination,
the holders thereof are committed to lend up to, at least $10 million and is
specifically designated by the Issuer or the Company, as the case may be, in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Indenture; provided, however, the
Company shall not designate any Senior Indebtedness as Designated Senior
Indebtedness pursuant to clause (ii) above so long as the Credit Agreement,
dated as of March 12, 1997, that is referenced in the definition of "Bank Credit
Agreement" is in effect, as the same may be amended, restated or modified from
time to time but excluding any refunding, replacement or refinancing thereof or
so long as any Obligations remain outstanding under or in connection with such
Credit Agreement.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
to the extent that by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable) or upon the happening of any
event, it (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable, in whole or in part, at the option of
the holder thereof, in each case described in the immediately preceding clauses
(i) , (ii) or (iii), on or prior to the Stated Maturity of the Notes; provided,
however, that (x) any class of Capital Stock of such Person that, by its terms,
authorizes such Person to satisfy in full its obligations with respect to the
payment of dividends or upon maturity, redemption (pursuant to a sinking fund or
otherwise) or repurchase thereof or otherwise by the delivery of Capital Stock
that is not Disqualified Stock, and that is not convertible, puttable or
exchangeable for Disqualified Stock or Indebtedness, shall not be deemed to be
Disqualified Stock so long as such Person satisfies its obligations with respect
thereto solely by the delivery of Capital Stock that is not Disqualified Stock
and (y) any Capital Stock of a Subsidiary of such Person that would otherwise
constitute Disqualified Stock shall not be deemed to be Disqualified Stock so
long as such Capital Stock is held by such Person; and provided further,
however, that any Capital Stock that would not constitute Disqualified Stock but
for provisions thereof giving holders thereof the right to require such Person
to repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" (however designated) occurring prior to the first
anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if (x) the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions described under "-- Certain Covenants --
Limitation on Asset Sales" and "-- Repurchase of Notes upon a Change of Control"
and (y) any such requirement only becomes operative after compliance with such
corresponding terms applicable to the Notes, including the purchase of any Notes
tendered pursuant thereto.
"Equity Offering" means a primary offering, whether public or private, of
shares of common stock of the Company. "Exchange Act" means the Securities
Exchange Act of 1934, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by (i) senior management of the Company if the aggregate amount of
the transaction with respect to which Fair Market Value is being determined does
not exceed $10 million in value or (ii) the Board of Directors of the Company,
whose determination shall be conclusive and evidenced by a Board Resolution, if
the aggregate amount of the transaction with respect to which Fair Market Value
is being determined exceeds $10 million in value.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the Issue Date, including those set forth in (i) the
opinions and pronouncements of the Accounting Principles
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Board of the American Institute of Certified Public Accountants, (ii) statements
and pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC. All ratios and
other computations contained or referred to in the Indenture shall be computed
in conformity with GAAP applied on a consistent basis, except that computations
made for purposes of determining compliance with the terms of the covenants and
with other provisions of the Indenture shall be made without giving effect to
(i) the amortization of any expenses incurred in connection with the offering of
the Notes and (ii) except as otherwise provided, the amortization of any amounts
required or permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means, without duplication, any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of
any Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness of such Person or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning. The
term "Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security and the accrual of interest
shall not be deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of (A) indebtedness of
such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (ii) the amount of all Capital Lease
Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property
(which purchase price is due more than six months after the date of taking
delivery of title to such property), including all obligations of such Person
for the deferred purchase price of property under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course of
business); (iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the tenth Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) the amount of all obligations of such Person with respect
to the redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person the liquidation preference with
respect to, any Preferred Stock (but excluding, in each case, any accrued and
unpaid dividends); (vi) all obligations of the type referred to in clauses (i)
through (v) of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; (vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any
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property or asset of such first-mentioned Person (whether or not such obligation
is assumed by such first-mentioned Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the obligation so secured; and (viii) to the extent not otherwise included in
this definition, the amount of Hedging Obligations of such Person. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, assuming the contingency giving rise to the obligation were to have
occurred on such date, of any Guarantees outstanding at such date.
Notwithstanding the foregoing, none of the following shall constitute
Indebtedness: (i) indebtedness arising from agreements providing for
indemnification or adjustment of purchase price or from guarantees securing any
obligations of the Company or any of its Subsidiaries pursuant to such
agreements, incurred or assumed in connection with the disposition of any
business, assets or Subsidiary of the Company, other than guarantees or similar
credit support by the Company or any of its Subsidiaries of Indebtedness
incurred by any Person acquiring all or any portion of such business, assets or
Subsidiary for the purpose of financing such acquisition; (ii) any trade
accounts payable and other accrued current liabilities incurred in the ordinary
course of business as the deferred purchase price of property; (iii) obligations
arising from guarantees to suppliers, lessors, licensees, contractors,
franchisees or customers incurred in the ordinary course of business; (iv)
obligations (other than Guarantees of indebtedness for borrowed money) in
respect of Indebtedness of other Persons arising in connection with (A) the sale
or discount of accounts receivable, (B) trade acceptances and (C) endorsements
of instruments for deposit in the ordinary course of business; (v) obligations
in respect of performance bonds provided by the Company or its Subsidiaries in
the ordinary course of business and refinancing thereof; (vi) obligations
arising from the honoring by a bank or other financial institution of a check,
draft or similar instrument drawn against insufficient funds in the ordinary
course of business, provided, however, that such obligation is extinguished
within two Business Days of its incurrence; and (vii) obligations in respect of
any obligations under workers' compensation laws and similar legislation;
provided that Indebtedness of the Company or its Restricted Subsidiaries that is
Guaranteed by the Company or any of the Restricted Subsidiaries shall only be
counted once in the calculation of the amount of Indebtedness of the Company and
its Restricted Subsidiaries on a consolidated basis.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means (without duplication) any direct or
indirect advance, loan or other extension of credit (including, without
limitation, by way of Guarantee or similar arrangement (but excluding (x)
advances to customers in the ordinary course of business that are, in conformity
with GAAP, recorded as accounts receivable on the balance sheet of the Company
or its Restricted Subsidiaries and (y) Guarantees of Indebtedness of the Company
or any Restricted Subsidiaries and similar arrangements permitted under the
"Limitation on Indebtedness" covenant below)) or capital contribution to (by
means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by, such Person and shall include (i) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the Fair Market
Value of the Capital Stock (or any other Investment) held by the Company or any
of its Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary. For purposes of the definition of "Unrestricted
Subsidiary" and the "Limitation on Restricted Payments" covenant described
below, (i) "Investment" shall include the Fair Market Value of the assets (net
of liabilities (other than liabilities to the Issuer or any of its Restricted
Subsidiaries)) of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary, (ii) the Fair Market Value
of the assets (net of liabilities (other than liabilities to the Company or any
of its Restricted Subsidiaries)) of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments, and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its Fair
Market Value at the time of such transfer.
"Issue Date" means the date on which the Notes are originally issued.
"Lenders" has the meaning specified in the Bank Credit Agreement.
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"Lien" means any mortgage, pledge, security interest, encumbrance, lien,
or, in the case of a Subsidiary not organized under the laws of a state of the
United States or the District of Columbia, fixed charge or floating charge of
any kind (including any conditional sale or other title retention agreement or
lease in the nature thereof).
"Moody's" means Moody's Investor's Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale, (iii) payments
made to repay Indebtedness or any other obligation outstanding at the time of
such Asset Sale that either (x) is secured by a Lien on the property or assets
sold or (y) is required to be paid as a result of such sale, and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary
as a reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP and (b) with respect to any issuance or sale of Capital
Stock, the proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of attorneys' fees, accountants'
fees, underwriters' or placement agents' fees, discounts or commission and
brokerage, consultant and other fees incurred in connection with such issuance
or sale and net of taxes paid or payable as a result thereof.
"Obligations" means all obligations of every nature whether for principal,
reimbursements, interest, fees, expenses, indemnities or otherwise, and whether
primary, secondary, direct, indirect, contingent, fixed or otherwise (including
obligations of performance) under the documentation governing any Indebtedness.
"Offer to Purchase" means an offer to purchase Notes by the Issuer from the
Holders commenced by mailing a notice to the Trustee and each Holder stating:
(i) the covenant pursuant to which the offer is being made and that all Notes
validly tendered will be accepted for payment on a pro rata basis; (ii) the
purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Issuer defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender the Note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Note duly
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. On the Payment Date, the Issuer shall
(i) accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together
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with an Officers' Certificate specifying the Notes or portions thereof accepted
for payment by the Issuer. The Paying Agent shall promptly mail to the Holders
of Notes so accepted for payment an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail to such Holders a new Note equal in
principal amount to any unpurchased portion of the Note surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. The Issuer will publicly announce the
results of an Offer to Purchase as soon as practicable after the Payment Date.
The Trustee shall act as the Paying Agent for an Offer to Purchase. The Issuer
will comply with Rule 14b-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable, in the event that the Issuer is required to repurchase Notes to an
Offer to Purchase.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) a Temporary Cash
Investment; (iii) commission, payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP; (iv) loans, transactions and arrangements
or advances to directors, officers, employees and agents made in the ordinary
course of business in accordance with past practice of the Company or its
Restricted Subsidiaries and that do not in the aggregate, in the case of loans
or advances, exceed $3 million at any time outstanding, provided that with
respect to any transaction or arrangement which is reasonably expected to
involve more than $1 million, such transaction or arrangement shall be approved
by a majority of the members of the Board of Directors of the Company having no
personal stake in such transaction or arrangement; (v) Investments existing on
the Issue Date and any extension, renewal or other modification thereof (but not
an increase in the amount thereof, other than as a result of the accrual or
accretion of interest or original issue discount pursuant to the original terms
of such Investment); (vi) Investments in any Person received in any dissolution,
winding up, liquidation or reorganization of such Person in satisfaction of
claims against such Person; (vii) Investments received as consideration from
Asset Sales or Asset Dispositions permitted under the "Limitation on Asset
Sales" covenant described below; (viii) stock, obligations or securities
received in satisfaction of judgments or in settlements; (ix) Investments in
Austral Refrigeration Pty. Ltd. ("Austral Investments"); (x) exchanges of
property permitted pursuant to clause (x) of the definition of "Asset Sales";
and (xi) other Investments in any Persons made with an intention to control at a
subsequent time such Persons (as evidenced by a resolution of the Board of
Directors of the Company or the Issuer, as the case may be, to such effect) in
an aggregate amount outstanding at any time not to exceed $10 million plus the
net reduction in such other Investments and in Austral Investments after the
Issue Date; provided, that the Investment in Austral Refrigeration Pty. Ltd. and
any such Person shall be deemed reduced to zero for purposes of this definition
only, among other things, at such times as Austral Refrigeration Pty. Ltd. or
such other Person becomes a Restricted Subsidiary.
"Permitted Liens" means, with respect to any Person, (a) liens incurred or
deposits by such Person under worker's compensation laws, unemployment insurance
laws or similar laws, rules, regulations or other governmental requirements, or
good faith liens incurred or deposits made in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which such
Person is a party, or deposits to secure public or statutory obligations of such
Person or deposits of cash or United States government bonds to secure surety or
appeal bonds to which such Person is a party, or deposits as security for
contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business; (b) Liens imposed by law, such as
landlord's, carriers', warehousemen's and mechanics' Liens, in each case for
sums not yet due or being contested in good faith by appropriate proceedings or
other Liens arising out of judgments or awards against such Person with respect
to which such Person shall then be proceeding with an appeal or other
proceedings for review; (c) Liens for property taxes not yet subject to
penalties for nonpayment or which are being contested in good faith and by
appropriate proceedings; (d) Liens in favor of issuers of surety bonds or
letters of credit issued pursuant to the request of and for the account of such
Person in the ordinary course of its business; provided, however, that such
letters of credit do not constitute Indebtedness; (e) minor survey exceptions,
minor encumbrances, easements or reservations of, or rights of others for,
licenses, rights of way, sewers, electric lines, telegraph and telephone lines
and other similar purposes, or zoning or other restrictions
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as to the use of real property or leases, subleases or other Liens incidental to
the conduct of the business of such Person or to the ownership of its properties
which were not Incurred in connection with Indebtedness and which do not in the
aggregate materially impair their use in the operation of the business of such
Person; (f) Liens securing Indebtedness Incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to, property of such
Person (including Liens securing Indebtedness of the pollution control or
revenue bond type); provided, however, that the Lien may not extend to any other
property owned by such Person or any of its Subsidiaries at the time the Lien is
Incurred, and the Indebtedness secured by the Lien may not be Incurred more than
180 days after the later of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the property subject
to the Lien; (g) Liens to secure Indebtedness permitted under the provisions
described in clauses (a), (b)(1), (b)(4), (b)(7), (b)(8) and (b)(10) under "--
Certain Covenants -- Limitation on Indebtedness"; (h) Liens existing on the
Issue Date; (i) Liens on property or shares of Capital Stock of another Person
at the time such other Person becomes a Subsidiary of such Person; provided,
however, that such Liens are not created, incurred or assumed in connection
with, or in contemplation of, such other Person becoming such a Subsidiary;
provided further, however, that such Lien may not extend to any other property
owned by such Person or any of its Subsidiaries; (j) Liens on property at the
time such Person or any of its Subsidiaries acquires the property, including any
acquisition by means of a merger or consolidation with or into such Person or a
Subsidiary of such Person; provided, however, that such Liens are not created,
incurred or assumed in connection with, or in contemplation of, such
acquisition; provided further, however, that the Liens may not extend to any
other property owned by such Person or any of its Subsidiaries; (k) Liens
securing Indebtedness or other obligations of a Subsidiary of such Person owing
to such Person or a wholly owned Subsidiary of such Person (or, in the case of
the Issuer, to a Wholly Owned Subsidiary); (l) Liens securing Hedging
Obligations so long as such Hedging Obligations relate to Indebtedness that is,
and is permitted to be under the Indenture, secured by a Lien on the same
property securing such Hedging Obligations; (m) Liens arising in the ordinary
course of business in favor of the United States, any state thereof, any foreign
country or any department, agency, instrumentality or political subdivision of
any such jurisdiction, to secure partial, progress, advance or other payments
pursuant to any contract or statute; (n) Liens to secure any Refinancing (or
successive Refinancing) as a whole, or in part, of any Indebtedness secured by
any Lien referred to in the foregoing clause (f), (h), (i) and (j), provided,
however, that (x) such new Lien shall be limited to all or part of the same
property that secured the original Lien (plus improvements to or on such
property) and (y) the Indebtedness secured by such Lien at such time is not
increased to any amount greater than the sum of (A) the outstanding principal
amount or, if greater, committed amount of the Indebtedness described under
clause (f), (h), (i) or (j) at the time the original Lien became a Permitted
Lien or the Issue Date, whichever is greater, and (B) an amount necessary to pay
any fees and expenses, including premiums, related to such refinancing,
refunding, extension, renewal or replacement; (o) judgment and attachment Liens
not giving rise to an Event of Default or Liens created by or existing from any
litigation or legal proceeding that are currently being contested in good faith
by appropriate proceedings and for which adequate reserves have been made; (p)
Liens in favor of collecting or payor banks having a right of setoff,
revocation, refund or chargeback with respect to money or instruments of the
Issuer or any Subsidiary on deposit with or in possession of such bank; and (q)
Liens to secure Sale/Leaseback Transactions that are permitted pursuant to the
"Limitation on Sale/Leaseback Transactions" covenant.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock issuer, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" means, as applied to the Capital Stock of any
corporation, means Capital Stock of any class or classes (however designated)
which is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
The term "principal" of a Note means the principal of the Note plus the
premium, if any, payable on the Note which is due or overdue or is to become due
at the relevant time.
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"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, decease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced or the Notes (whichever is
earlier), (ii) the portion of such Refinancing Indebtedness that has a Stated
Maturity that is earlier than the Stated Maturity of the Notes has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being Refinanced and (iii)
such Refinancing Indebtedness has an aggregate principal amount (or if Incurred
with original issue discount, an aggregate issue price) that is equal to or less
than the aggregate principal amount (or if Incurred with original issue
discount, the aggregate accreted value) then outstanding or committed (plus fees
and expenses, including any premium and defeasance costs) under the Indebtedness
being Refinanced; provided further, however, that Refinancing Indebtedness shall
not include Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of April 24, 1994 among the Company and certain former
shareholders of certain Restricted Subsidiaries.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Issuer or the Company, as the case may be.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than (x) dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock), (y)
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and (z) pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation) ), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company held by any Person
or of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
a sinking fund obligation, principal installment or final maturity, in each case
due within one year of the date of acquisition) or (iv) the making of any
Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means the Issuer and any other Subsidiary of the
Company that is not an Unrestricted Subsidiary.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Issuer, Inc.,
and its successors.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person; provided that the Fair Market Value of such property
(as reasonably determined by the Board of Directors acting in good faith) is $10
million or more.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Issuer or the Company,
as the case may be, secured by a Lien.
"Securities Act" means the Securities Act of 1933, as amended.
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"Senior Indebtedness" means, with respect to any Person, any Indebtedness
of such Person and all other Obligations with respect thereto, including
interest, whether or not allowed, on such Indebtedness accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to such
Person, including all Obligations of such Person under the Bank Credit
Agreement, the Comerica Agreement and Hedging Obligations, whether outstanding
on the Issue Date or thereafter Incurred, unless such Indebtedness, by its terms
or the terms of any instrument creating or evidencing such Indebtedness, is pari
passu with, or subordinated in right of payment to, the Notes; provided,
however, that Senior Indebtedness shall not include (1) any obligation of such
Person to any Subsidiary, director, officer or employee of such Person, (2) any
liability for federal, state, local or other taxes owed or owing by such Person,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of such Person (and any
accrued and unpaid interest in respect thereof) which is expressly subordinated
in right of payment in any respect to any other Indebtedness or other obligation
of such Person, (5) that portion of any Indebtedness (other than under the Bank
Credit Agreement) which at the time of Incurrence is Incurred in violation of
the Indenture, and (6) any Indebtedness of such Person that, when Incurred and
without regard to any election under Section 1111(b) of the United States
Bankruptcy Code, was without recourse to such Person.
"Senior Subordinated Indebtedness" means, with respect to the Issuer or the
Company, as the case may be, the Notes, with respect to the Issuer, and the
Guaranty, with respect to the Company, and any other Indebtedness of the Issuer
or the Company, as the case may be, that specifically provides that such
Indebtedness is to rank pari passu with the Notes or such Guaranty, as the case
may be, in right of payment and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of the Issuer or the Company, as
the case may be, which is not Senior Indebtedness of the Issuer or the Company,
as the case may be.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company or the
Issuer (whether outstanding on the Issue Date or thereafter Incurred), as the
case may be, which is subordinate or junior in right of payment to the Notes or
the Guaranty, as the case may be, pursuant to a written agreement to that
effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America, or in the case of a
Subsidiary not organized under the laws of a state of the United States or the
District of Columbia, any foreign government, or any agency thereof or
obligations guaranteed or insured by the United States of America, or in the
case of a Subsidiary not organized under the laws of a state of the United
States or the District of Columbia, any foreign government, or any agency
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money-market deposits maturing within 365 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $100 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by Moody's, S&P or at least one
nationally recognized statistical
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rating organization (as defined in Rule 436 under the Securities Act) or any
money market fund sponsored by a registered broker dealer or mutual fund
distributor, provided that a foreign Subsidiary of the Company may also make
deposits with any central bank of the jurisdiction in which such Subsidiary is
organized, (iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above or (v) below
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) investments in commercial paper, maturing not more than 270 days
after the date of acquisition, issued by a Person (other than an Affiliate of
the Issuer) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with a
rating at the time as of which any investment therein is made of "P-2" (or
higher) according to Moody's or "A-2" (or higher) according to S&P, (v)
investments in securities with maturities of twelve months or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by S&P or Moody's and (vi)
interests in any investment company which invests solely in instruments of the
type described in clauses (i) through (v).
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company other
than the Issuer that at the time of determination shall be designated an
Unrestricted Subsidiary by the Board of Directors of the Company in the manner
provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board
of Directors of the Company may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital
Stock or Indebtedness of, or holds any Lien on any property of, the Company or
any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary
to be so designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments." The Board of Directors of the Company may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"-- Certain Covenants -- Limitation on Indebtedness" and (y) no Default shall
have occurred and be continuing. Any such designation by the Board of Directors
of the Company shall be evidenced by the Company to the Trustee by promptly
filing with the Trustee a copy of the board resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness
(other than the Notes and Indebtedness existing on the Issue Date); provided,
however, that the Company or a Restricted Subsidiary (in the case of such
Restricted Subsidiary other than the Issuer to the extent permitted under the
"Limitation on the Sale or Issuance of Capital Stock or Indebtedness of
Restricted Subsidiaries" covenant below) may Incur such Indebtedness if,
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on the date of such Incurrence and after giving effect thereto, the Consolidated
Coverage Ratio equals or exceeds (x) for the period from the Issue Date and
ending on the third anniversary thereof, 2.0:1.0, and (y) thereafter, 2.25:1.00.
(b) Notwithstanding the foregoing paragraph (a), the Company and any
Restricted Subsidiary (in the case of such Restricted Subsidiary other than the
Issuer to the extent permitted under the "Limitation on the Sale or Issuance of
Capital Stock or Indebtedness of Restricted Subsidiaries" covenant below) may
Incur the following Indebtedness:
(1) (x) Indebtedness Incurred pursuant to the Bank Credit Agreement,
so long as the aggregate principal amount of all Indebtedness outstanding
under the Bank Credit Agreement does not, at any time, exceed the aggregate
amount of borrowing availability from time to time allowed under the Bank
Credit Agreement that determine availability on the basis of a borrowing
base or other asset-based calculation, if available and (y) other
Indebtedness up to $150 million in aggregate principal amount outstanding
at any time; provided, however, that in no event shall the aggregate
principal amount of such indebtedness exceed $450 million as of the date of
such Incurrence minus the aggregate amount of Indebtedness permanently
repaid as provided under the "Limitation on Asset Sales" covenant described
below;
(2) Indebtedness owed to and held by the Company or a Wholly Owned
Restricted Subsidiary; provided, however, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned
Restricted Subsidiary ceasing to be a Wholly Owned Restricted Subsidiary or
any subsequent transfer of such Indebtedness (other than to the Company or
another Wholly Owned Restricted Subsidiary) shall be deemed, in each case,
to constitute the Incurrence of such Indebtedness by the issuer thereof;
(3) the Notes;
(4) Indebtedness Incurred pursuant to the Comerica Agreement, so long
as the aggregate principal amount of all Indebtedness outstanding
thereunder does not exceed $15 million at any time;
(5) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1), (2), (3) or (4) of this covenant);
(6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3) or (5) above or clause
(9) below, or this clause (6);
(7) Indebtedness consisting of Interest Rate Agreements directly
related to Indebtedness permitted to be Incurred by the Company and its
Restricted Subsidiaries pursuant to the Indenture;
(8) Indebtedness under Currency Agreements entered into in the
ordinary course of business for the purpose of limiting risks that arise in
the ordinary course of business of the Company and its Restricted
Subsidiaries;
(9) Indebtedness Incurred to finance capital expenditures in an
aggregate principal amount not to exceed $20 million in any fiscal year;
and
(10) Indebtedness in an aggregate principal amount which, together
with the principal amount of all other Indebtedness of the Company and its
Restricted Subsidiaries outstanding on the date of such Incurrence (other
than Indebtedness permitted by clauses (1) through (9) above or paragraph
(a)), does not exceed $40 million.
(c) Notwithstanding the foregoing, the Company and the Issuer shall not
Incur any Indebtedness pursuant to the foregoing paragraph (b) if the proceeds
thereof are used, directly or indirectly, to Refinance any Subordinated
Obligations unless such Indebtedness shall be subordinated to the Notes or the
Guaranty, as the case may be, at least to the same extent as such Subordinated
Obligations.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company,
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in its sole discretion, will classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of the above
clauses and (ii) an item of Indebtedness may be divided and classified in more
than one of the types of Indebtedness described above.
Limitation on Senior Subordinated Indebtedness. The Issuer or the Company,
as the case may be, will not Incur any Indebtedness that is expressly made
subordinate in right of payment to any Senior Indebtedness of the Issuer or the
Company, as the case may be, unless such Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the Notes, with respect to the Issuer, or the Guaranty with respect
to the Company; provided that the foregoing limitation shall not apply to
distinctions between categories of Senior Indebtedness of the Issuer or the
Company that exist by reason of any Liens or Guarantees arising or created in
respect of some but not all of such Senior Indebtedness.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under "--
Limitation on Indebtedness;" or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of:
(A) 50% of the Adjusted Consolidated Net Income accrued during the
period (treated as one accounting period) from the beginning of the
fiscal quarter immediately following the fiscal quarter during which the
Notes are originally issued to the end of the most recent fiscal quarter
ending at least 45 days prior to the date of such Restricted Payment
(or, in case such Adjusted Consolidated Net Income shall be a deficit,
minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from
the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of their employees);
(C) the aggregate Net Cash Proceeds received by the Company from
the issue or sale subsequent to the Issue Date of its Capital Stock
(other than Disqualified Stock) to an employee stock ownership plan;
provided, however, that if such employee stock ownership plan incurs any
Indebtedness with respect thereto, such aggregate amount shall be
limited to an amount equal to any increase in the Consolidated Net Worth
of the Company resulting from principal repayments made by such employee
stock ownership plan with respect to such Indebtedness;
(D) the amount by which Indebtedness of the Company or any
Restricted Subsidiary is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date, of any Indebtedness of the Company or any
Restricted Subsidiary convertible or exchangeable for Capital Stock
(other than Disqualified Stock) of the Company (less the amount of any
cash, or the fair value of any other property, distributed by the
Company or any Restricted Subsidiary upon such conversion or exchange);
and
(E) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets, in each
case to the Company or any Restricted Subsidiary from or with respect to
Unrestricted Subsidiaries, and (ii) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the Fair Market Value
of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; provided,
however, that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments
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previously made (and treated as a Restricted Payment) by the Company
or any Restricted Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company or a Restricted Subsidiary made by exchange for,
or out of the proceeds of the substantially concurrent sale of, Capital
Stock of the Company (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary of the Company); provided, however,
that (A) such purchase or redemption shall be excluded in the calculation
of the amount of Restricted Payments and (B) the Net Cash Proceeds from
such sale shall be excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) above (but only to the extent that such Net Cash
Proceeds were used to purchase or redeem such Capital Stock as provided in
this clause (i));
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale
of, Refinancing Indebtedness which is permitted to be Incurred pursuant to
clause (b)(6) of the covenant described under "-- Limitation on
Indebtedness;" provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value shall
be excluded in the calculation of the amount of Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided, however, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or result
therefrom); and provided further, however, that such dividends shall be
included in the calculation of the amount of Restricted Payments;
(iv) dividends paid from the Net Cash Proceeds received by the Company
from the issue or sale of its Capital Stock (other than Disqualified Stock)
subsequent to the Issue Date (other than an issue or sale to a Subsidiary
of the Company and other than an issue or sale to an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees) in an aggregate amount not
to exceed 6% of such Net Cash Proceeds in any calendar year; provided,
however, that such dividends shall be included in the calculation of the
amount of Restricted Payments;
(v) the repurchase of shares of, or options to purchase shares of,
common stock or stock equivalents of the Company or any of its Subsidiaries
from employees, former employees, directors or former directors of the
Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors), pursuant to
the terms of the agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under which such
individuals purchase or sell or are granted the option to purchase or sell,
shares of such common stock or stock equivalents; provided, however, that
the aggregate amount of such repurchases shall not exceed $1 million in any
calendar year and $5 million in the aggregate; provided further, however,
that such repurchases shall be excluded in the calculation of the amount of
Restricted Payments; or
(vi) other Restricted Payments in an aggregate amount not to exceed
$10 million; provided, however, that such Restricted Payments shall be
excluded in the calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
other than the Issuer. The Company shall not, and shall not permit any
Restricted Subsidiary other than the Issuer to, create or otherwise cause or
permit to exist or become effective any consensual encumbrance or restriction on
the ability of any Restricted Subsidiary other than the Issuer (a) to pay
dividends or make any other distributions on its Capital Stock or pay any
Indebtedness owed to the Issuer or another Restricted Subsidiary, (b) to make
any loans or advances to the Issuer or another Restricted Subsidiary or (c) to
transfer any of its property or assets to the Issuer or another Restricted
Subsidiary, except: (i) any encumbrance or restriction pursuant to an agreement
in effect at or entered into on the Issue Date; (ii) any encumbrance or
restriction with respect to a Restricted Subsidiary other than the Issuer
pursuant to an agreement relating to any Indebtedness Incurred by
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such Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Issuer (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Issuer) and outstanding on such date; (iii)
any encumbrance or restriction pursuant to an agreement effecting a Refinancing
of Indebtedness Incurred pursuant to an agreement referred to in clause (i) or
(ii) of this covenant or this clause (iii) or contained in any amendment to an
agreement referred to in clause (i) or (ii) of this covenant or this clause
(iii); provided, however, that the encumbrances and restrictions with respect to
such Restricted Subsidiary contained in any such refinancing agreement or
amendment are no less favorable to the Noteholders than encumbrances and
restrictions with respect to such Restricted Subsidiary contained in such
agreements; (iv) any such encumbrance or restriction consisting of customary
nonassignment provisions related to intellectual property and in leases
governing leasehold interests to the extent such provisions restrict the
transfer of the lease or the property leased thereunder; (v) in the case of
clause (c) above, restrictions contained in security agreements or mortgages
securing Indebtedness of a Restricted Subsidiary other than the Issuer to the
extent such restrictions restrict the transfer of the property subject to such
security agreements or mortgages; (vi) any restriction with respect to a
Restricted Subsidiary other than the Issuer imposed pursuant to an agreement
entered into for the sale or disposition of all or substantially all the Capital
Stock or assets of such Restricted Subsidiary pending the closing of such sale
or disposition; and (vii) any encumbrance or restriction pursuant to an
agreement relating to Indebtedness permitted by clause (iii) of paragraph (b)
under the "Limitation on this Sale or Issuance of Capital Stock and Indebtedness
of Restricted Subsidiaries" covenant below.
Limitation on the Sale or Issuance of Capital Stock and Indebtedness of
Restricted Subsidiaries. (a) The Company will not sell, and will not permit any
Restricted Subsidiary other than the Issuer, directly or indirectly, to issue or
sell, any shares of Capital Stock of such Restricted Subsidiary (including
options, warrants or other rights to purchase shares of such Capital Stock),
except (i) to the Company, the Issuer or a Wholly Owned Restricted Subsidiary
other than the Issuer; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; and (iii) as Asset Sales
and Asset Dispositions permitted under the "Limitation on Asset Sales" covenant
described below.
(b) The Company will not permit any Restricted Subsidiary other than the
Issuer, directly or indirectly, to Incur any Indebtedness except (i)
Indebtedness of such Restricted Subsidiary existing on the Issue Date or the
time such Restricted Subsidiary was acquired by the Company (other than
Indebtedness Incurred in connection with or anticipation of such acquisition);
(ii) Indebtedness permitted pursuant to clause (1), (2), (4), (5), (6) (to the
extent that such Refinancing Indebtedness Refinances any Indebtedness of such
Restricted Subsidiary), (7), (8) or (9) of paragraph (b) of the "Limitation on
Indebtedness" covenant; and (iii) other Indebtedness in an aggregate principal
amount which, together with all other Indebtedness of all Restricted
Subsidiaries other than the Issuer outstanding on the date of such Incurrence
(other than Indebtedness permitted by clause (i) or (ii) of this paragraph (b)),
does not exceed $50 million or an amount equal to 1.5 times the aggregate amount
of Consolidated EBITDA for the then most recent four fiscal quarters prior to
the date of such Incurrence for which reports have been filed with the SEC
pursuant to the "SEC Reports and Reports to Holders" covenant (whichever is
greater).
(c) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
Limitation on Asset Sales. The Company will not, and will not permit any
Restricted Subsidiary to, consummate any Asset Sale, unless (i) the
consideration received by the Company or such Restricted Subsidiary is at least
equal to the Fair Market Value of the assets sold or disposed of, and (ii) at
least 75% of the consideration received consists of cash or Temporary Cash
Investments; provided, that the amount of any liabilities of the Company or any
Subsidiary that are assumed by the transferee in such Asset Sale shall be
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deemed to be cash or cash equivalents, as the case may be, for purposes of this
provision, provided further that this clause (ii) shall not apply to any sale or
other disposition of assets as a result of a foreclosure (or a secured party
taking ownership of such assets in lieu thereof) or any involuntary proceeding
in which the Company and its Restricted Subsidiaries cannot, directly or
indirectly, determine the type of proceeds received from such sale or other
disposition. In the event and to the extent that the Net Cash Proceeds received
by the Company or any of its Restricted Subsidiaries from one or more Asset
Sales occurring on or after the Issue Date in any period of 12 consecutive
months exceed $20 million, then the Company shall or shall cause the relevant
Restricted Subsidiary to (i)(A) within twelve months after the date Net Cash
Proceeds so received exceed $20 million, apply an amount equal to such excess
Net Cash Proceeds to permanently repay Senior Indebtedness of the Company or
Indebtedness of any Restricted Subsidiary (and to the extent that such Senior
Indebtedness or Indebtedness, as the case may be, was Incurred under a revolving
credit or similar arrangement, the permanent reduction or cancellation of the
commitment thereunder), in each case owing to a Person other than the Company or
any of its Restricted Subsidiaries or (B)(x) within twelve months after the date
Net Cash Proceeds so received exceed $20 million, invest an equal amount, or the
amount not so applied pursuant to clause (A) or (y) within eighteen months after
the date Net Cash Proceeds so received exceed $20 million, enter into a
definitive agreement committing to so invest not later than 24 months after the
date Net Cash Proceeds so received exceed $20 million, in property or assets
(other than current assets) of a nature or type or that are used in a business
(or in a company having property and assets of a nature or type, or engaged in a
business) similar or related to the nature or type of the property and assets
of, or the business of, the Company and its Restricted Subsidiaries existing on
the date of such investment and (iii) apply (no later than the end of the
12-month period referred to in clause (i) or the 24-month period referred to in
clause (ii)(B)(y)) such excess Net Cash Proceeds (to the extent not applied or
committed to be applied pursuant to clause (i)) as provided in the following
paragraph of this "Limitation on Asset Sales" covenant. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period or 24-month period, as the case may be, of
the preceding sentence and not applied (or committed to be applied) as so
required by the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $20 million, the Issuer
must commence, not later than the fifteenth Business Day of such month, and
consummate a similar offer to purchase from the Holders and the holders of any
Senior Indebtedness or any other Indebtedness ranking pari passu with, the Notes
which by its terms requires the Issuer to make an Offer to Purchase, on a pro
rata basis, an aggregate principal amount of Notes, Senior Indebtedness or such
other Indebtedness (if any) equal to the Excess Proceeds on such date, at a
purchase price equal to 100% of the principal amount of the Notes, Senior
Indebtedness or such other Indebtedness (if any), plus, in each case, accrued
interest (if any) to the date of purchase.
There can be no assurance that the Issuer will have sufficient funds
available at the time of debt payment (including repurchases of Notes) required
by the foregoing covenant (as well as any contained in the Bank Credit Agreement
or other securities of the Issuer which might be outstanding at the time). The
above covenant requiring the Issuer to repurchase the Notes will, unless
appropriate consents are obtained, require the Issuer to repay all indebtedness
then outstanding which by its terms would prohibit such Note repurchase, either
prior to or concurrently with such Note repurchase.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or such Restricted Subsidiary than
those that could reasonably be expected to be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an Affiliate,
(2) if such Affiliate Transaction involves an amount in excess of $10 million,
is set forth in writing and has been approved by a majority of the members of
the Board of Directors of the Company or the Issuer, as the case may be, having
no personal stake in such Affiliate Transaction or (3) if such Affiliate
Transaction involves an amount in excess of $20 million, has been determined by
a nationally recognized investment banking firm or other
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qualified independent appraiser to be fair, from a financial standpoint, to the
Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
transactions between or among the Company and/or its Restricted Subsidiaries;
(ii) Restricted Payments, Permitted Investments and other transactions and
payments that are permitted by the provisions of the Indenture described above
under the caption "-- Limitation on Restricted Payments"; (iii) loans,
transactions and arrangements or advances to officers, directors, employees and
agents in the ordinary course of business in an aggregate principal amount not
to exceed, in the case of loans or advances, $3 million outstanding at any one
time, provided that with respect to any transaction or arrangement which is
reasonably be expected to involve more than $1 million, such transaction or
arrangement shall be approved by a majority of the members of the Board of
Directors of the Company having no personal stake in such transaction or
arrangement; (iv) compensation, indemnification and other benefits paid or made
available (x) pursuant to employment and consultant agreements, (y) for and in
connection with services actually rendered and generally comparable to those
paid or made by entities engaged in the same or similar business (including,
reimbursement for advancement of out-of-pocket expenses and directors' and
officers' liability insurance, or (z) indemnification under the Company's and
any Subsidiary's charter, by-laws or other organizational documents; (v)
transactions, expenses and payments pursuant to the Registration Rights
Agreement; (vi) transactions between and among the Company and its Subsidiaries
or between or among Subsidiaries of the Company, provided that any ownership
interest in any such Subsidiary which is not beneficially owned directly or
indirectly by the Company or any of its Subsidiaries is not beneficially owned
by an Affiliate of the Company other than by virtue of the direct or indirect
ownership interest in such Subsidiary held (in the aggregate) by the Company
and/or one or more of its Subsidiaries; (vii) transactions between or among the
Company and its Affiliates not involving in excess of $1 million during any
fiscal year; and (viii) any acquisition by the Company of Capital Stock (other
than Disqualified Stock) of the Company or any Subsidiary thereof and any
capital contribution by the Company to any Restricted Subsidiary.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien (other than Permitted Liens) of any nature whatsoever on any of its
properties (including Capital Stock of a Restricted Subsidiary), whether owned
at the Issue Date or thereafter acquired, to secure any Indebtedness of the
Company or the Issuer, without effectively providing that the Notes or the
Guaranty, as the case may be, shall be secured equally and ratably with (or
prior to) the obligations so secured for so long as such obligations are so
secured.
Limitation on Sale/Leaseback Transactions. The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Company or such
Restricted Subsidiary would be entitled to (A) Incur Indebtedness in an amount
equal to the Attributable Debt with respect to such Sale/Leaseback Transaction
pursuant to the covenant described under "-- Limitation on Indebtedness" and (B)
create a Lien on such property securing such Attributable Debt without equally
and ratably securing the Notes pursuant to the covenant described under "--
Limitation on Liens," (ii) the net proceeds received by the Company or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the Fair Market Value of such property and (iii) the Company or
the Issuer, as the case may be, applies the proceeds of such transaction in
compliance with the covenant described under "-- Limitation on Asset Sales."
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Issuer must commence, within 30 days of the occurrence of a Change of
Control, and within 60 days thereof consummate, an Offer to Purchase for all
Notes then outstanding, at a purchase price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest (if any) to the date of
purchase.
There can be no assurance that the Issuer will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
any contained in the Bank Credit Agreement or other securities of the Issuer
which might be outstanding at the time). The above covenant requiring the Issuer
to repurchase the Notes will, unless
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appropriate consents are obtained, require the Issuer to repay all indebtedness
then outstanding which by its terms would prohibit such Note repurchase, either
prior to or concurrently with such Note repurchase.
SEC REPORTS AND REPORTS TO HOLDERS
Whether or not the Company is required to file reports with the SEC, for so
long as any Notes are outstanding, the Company shall file with the SEC all such
reports and other information as it would be required to file with the SEC by
Sections 13(a) or 15(d) under the Exchange Act, if it were subject thereto. See
"Additional Information." The Company shall supply the Trustee and, subject to
certain limitations, each Holder or shall supply to the Trustee for forwarding
to each such Holder, without cost to such Holder, copies of such reports and
other information.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company or the Issuer to comply with their respective
obligations under "Consolidation, Merger and Sale of Assets" below, (iv) the
failure by the Company or the Issuer to comply for 30 days after notice with any
of their respective obligations in the covenants described above under "--
Certain Covenants," "-- Limitation on Indebtedness," "-- Limitation on
Restricted Payments," "-- Limitation on Restrictions on Distributions from
Restricted Subsidiaries," "-- Limitation on Asset Sales" (other than a failure
to purchase Notes), "-- Limitation on Affiliate Transactions," "-- Limitation on
the Sale or Issuance of Capital Stock and Indebtedness of Restricted
Subsidiaries," "-- Change of Control" (other than a failure to purchase Notes),
"-- Limitation on Liens," "-- Limitation on Sale/Leaseback Transactions" or "--
SEC Reports," (v) the failure by the Company or the Issuer to comply for 60 days
after notice with their respective other agreements contained in the Indenture,
(vi) Indebtedness of the Company or the Issuer is not paid within any applicable
grace period after final maturity or the maturity of such Indebtedness is
accelerated by the holders thereof because of a default (and such acceleration
is not rescinded or annulled) and the total amount of such Indebtedness unpaid
or accelerated exceeds $10 million (the "cross acceleration provision"), (vii)
certain events of bankruptcy, insolvency or reorganization of the Company, the
Issuer or a Significant Subsidiary (the "bankruptcy provisions"), (viii) any
judgment or decree for the payment of money in excess of $10 million is rendered
against the Company, the Issuer or a Significant Subsidiary, remains outstanding
for a period of 60 days following such judgment and is not discharged, waived or
stayed within 10 days after notice (the "judgment default provision") or (ix)
the Guaranty of the Company ceases to be in full force and effect (other than in
accordance with the terms of such Guaranty) or the Company denies or disaffirms
its obligations under its Guaranty if such default continues for a period of ten
days after notice thereof to the Issuer. However, a default under clauses (iii),
(iv), (v), (vi), (viii) and (ix) will not constitute an Event of Default until
the Trustee or the holders of 25% in principal amount of the outstanding Notes
notify the Issuer of the default and the Issuer does not cure such default
within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately; provided such acceleration shall not be effective until
after five (5) Business Days after the Representatives of Designated Senior
Indebtedness shall have been notified of such acceleration. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of the Issuer occurs and is continuing, the principal of and interest on all the
Notes will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders of the Notes.
Under certain circumstances, the holders of a majority in principal amount of
the outstanding Notes may rescind any such acceleration with respect to the
Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have
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offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no holder of a Note may pursue
any remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity and (v) the holders of a
majority in principal amount of the outstanding Notes have not given the Trustee
a direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the holders of a majority in principal amount of the
outstanding Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
holder of a Note or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the Notes.
In addition, the Issuer and the Company are required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Issuer and the Company also are required to deliver to the
Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action the
Issuer or the Company is taking or proposes to take in respect thereof.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Issuer and the Company will not consolidate with, merge with or into,
or sell, convey, transfer, lease or otherwise dispose of all or substantially
all of their respective property and assets (as an entirety or substantially as
an entirety in one transaction or a series of related transactions) to, any
Person or permit any Person to merge with or into the Issuer or the Company, as
the case may be, unless: (i) the Company or the Issuer, as the case may be,
shall be the continuing Person, or the Person (if other than the Issuer or the
Company) formed by such consolidation or into which the Company or the Issuer is
merged or that acquired or leased such property and assets of the Company or the
Issuer shall be a corporation organized and validly existing under the laws of
the United States of America or any jurisdiction thereof and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, all
of the obligations of the Issuer on all of the Notes or all of the obligations
of the Company on the Guaranty, as the case may be, and under the Indenture;
(ii) immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis the Company or the Issuer or any
Person becoming the successor obligor of the Notes or the Guaranty shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company or the Issuer immediately prior to such transaction; (iv)
immediately after giving effect to such transaction on a pro forma basis the
Company, the Issuer, or any Person becoming the successor obligor of the Notes,
as the case may be, could Incur at least $1.00 of Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant; and (v) the Company or
the Issuer, as the case may be, delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with the
clauses (iii) and (iv)) and Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture complies with
this provision and that all conditions precedent provided for herein relating to
such transaction have been complied with; provided, however, that (x) clauses
(iii) and (iv) above do not apply if, in the good faith determination of the
Board of Directors of the Company or the Issuer, whose determination shall be
evidenced by a Board Resolution, the principal purpose of such transaction is to
change the state of incorporation of the Company or the Issuer; and provided
further, however, that any such transaction shall not have as one of its
purposes the evasion of the foregoing limitations; and (y) clauses (iii)
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and (iv) above do not apply to any transaction between the Issuer and any Wholly
Owned Restricted Subsidiary or between the Company and the Issuer.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected thereby, no amendment may, among other
things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) \reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-- Optional
Redemption," (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes, (vii) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions or
(viii) make any change to the subordination provisions of the Indenture that
would adversely affect the Noteholders.
Without the consent of any holder of the Notes, the Company, the Issuer and
the Trustee may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company or the Issuer under the Indenture, to provide for
uncertificated Notes in addition to or in place of certificated Notes (provided
that the uncertificated Notes are issued in registered form for purposes of
Section 163(f) of the Code, or in a manner such that the uncertificated Notes
are described in Section 163(f)(2)(B) of the Code), to add guarantees with
respect to the Notes, to secure the Notes, to add to the covenants of the
Company or the Issuer for the benefit of the holders of the Notes or to
surrender any right or power conferred upon the Company or the Issuer, to make
any change that does not adversely affect the rights of any holder of the Notes
or to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Issuer is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Issuer may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges.
DEFEASANCE
The Issuer at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Issuer at any time may terminate its obligations under the covenants
described under "-- Certain Covenants," the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Significant Subsidiaries
and the judgment default provision described under "-- Defaults" above and the
limitations contained in clauses (iii) and (iv) under Consolidation above
("covenant defeasance").
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If the Issuer exercises its legal defeasance option or its covenant
defeasance option, the Company will be released from all of its obligations
under the Guaranty to the extent the Issuer's obligations under the Notes and
the Indenture have been terminated.
The Issuer may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuer exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Issuer exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "-- Defaults" above or because of the
failure of the Issuer to comply with clause (iii) or (iv) under "Consolidation,
Merger and Sale of Assets" above.
In order to exercise either defeasance option, the Issuer must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
is to be the Trustee under the Indenture and has
been appointed by the Issuer as Registrar and Paying Agent with regard to the
Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it (including the Guaranty) and the Notes will
be governed by, and construed in accordance with, the laws of the State of New
York without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following discussion is a summary of certain United States federal
income and estate tax considerations relevant to the purchase, ownership and
disposition of the Notes by the beneficial owners thereof ("Holders"). The
discussion is limited to initial purchasers of the Notes and does not address
the tax consequences to subsequent purchasers of Notes. This summary does not
purport to be a complete analysis of all the potential federal income tax
effects relating to the purchase, ownership and disposition of the Notes. There
can be no assurance that the Internal Revenue Service (the "Service") will take
a similar view of such consequences. Further, the discussion does not address
all aspects of taxation that might be relevant to particular purchasers in light
of their individual circumstances (including the effect of any state, local,
non-United States or other tax laws) or to certain types of purchasers
(including dealers in securities,
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insurance companies, financial institutions and tax-exempt entities) subject to
special treatment under United States federal income tax laws. The discussion
below assumes that the Notes are held as capital assets.
The discussion of the United States federal income tax consequences set
forth below is based upon provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), judicial decisions, and administrative interpretations,
all in effect as of the date hereof, all of which are subject to change at
anytime, and any such change may be applied retroactively. Because individual
circumstances may differ, each prospective purchaser of the Notes is strongly
urged to consult its own tax advisor with respect to its particular tax
situation and the particular tax effects of any state, local, non-United States,
or other tax laws and possible changes in the tax laws.
As used herein, the term "United States Holder" means a Holder of a Note
who or which is for United States federal income tax purposes either (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in the United States or organized under the
laws of the United States or of any State thereof, (iii) an estate the income of
which is subject to United States federal income taxation regardless of its
source, or (iv) a trust described in Section 7701(a)(30) of the Code (taking
into account changes thereto and associated with effective dates, elections and
transition rules). The term "United States Holder" also includes certain former
citizens and residents of the United States whose income and gain on the Notes
will be subject to United States taxation. As used herein, the term "Foreign
Holder" means a Holder of a Note who or which is not a United States Holder.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
Payments of Interest
Interest paid on a Note will generally be taxable to a United States Holder
as ordinary interest income at the time it accrues or is received in accordance
with the United States Holder's method of accounting for United States federal
income tax purposes.
Sale, Exchange or Retirement of Notes
Upon the sale, exchange, redemption or retirement of a Note, a United
States Holder will recognize taxable gain or loss equal to the difference
between the amount realized on the sale, exchange, redemption or retirement (not
including any amount attributable to accrued but unpaid interest) and such
Holder's adjusted tax basis in the Note. To the extent attributable to accrued
but unpaid interest, the amount realized by the United States Holder will be
treated as a payment of interest. See "Payments of Interest" above. A United
States Holder's adjusted tax basis in a Note will equal the cost of the Note to
such Holder, reduced by any principal payments received by such Holder.
Gain or loss realized on the sale, exchange, redemption or retirement of a
Note by a United States Holder generally will be capital gain or loss. The
recently enacted Taxpayer Relief Act of 1997 made certain changes to the Code
with respect to the taxation of capital gains of taxpayers other than
corporations. Under the Taxpayer Relief Act of 1997, capital gain realized by a
non-corporate taxpayer on the disposition of a capital asset held for more than
one year but not more than 18 months is taxed at a maximum rate of 28% and
capital gain realized on the disposition of a capital asset held for more than
18 months generally is taxed at a maximum rate of 20%. Capital gain on the
disposition of assets by non-corporate taxpayers held for not more than one year
continues to be taxed at the rates applicable to ordinary income (i.e., up to
39.6%). The distinction between capital gain or loss and ordinary income or loss
is also relevant for purposes of, among other things, limitations on the
deductibility of capital losses.
TAX CONSEQUENCES TO FOREIGN HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) payments of principal and interest on the Notes by the Issuer or
any paying agent to a Foreign Holder, as defined above, will not be subject
to withholding of United States federal income tax, provided
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that, in the case of interest, (i) such Foreign Holder does not own,
actually or constructively, 10 percent or more of the total combined voting
power of all classes of stock of the Issuer entitled to vote, (ii) such
Foreign Holder is not, for United States federal income tax purposes, a
controlled foreign corporation related, directly or indirectly, to the
Issuer through stock ownership, (iii) such Foreign Holder is not a bank
receiving interest described in Section 881(c)(3)(A) of the Code and (iv)
the certification requirements under Section 871(h) or Section 881(c) of
the Code and Treasury regulations thereunder (summarized below) are met;
(b) a Foreign Holder will not be subject to United States federal
income tax on gain realized on the sale, exchange or other disposition of a
Note, unless (i) such holder is an individual who is present in the United
States for 183 days or more in the taxable year of sale, exchange or other
disposition, and certain conditions are met or (ii) such gain is
effectively connected with the conduct by such Holder of a trade or
business in the United States; and
(c) a Note held by an individual who is not a citizen or resident of
the United States (as defined for United States federal estate tax
purposes) at the time of his death will not be subject to United States
federal estate tax as a result of such individual's death, provided that,
at the time of such individual's death, the individual does not own,
actually or constructively, 10 percent or more of the total combined voting
power of all classes of stock of the Issuer entitled to vote and payments
with respect to such Note, if received at the time of the individual's
death, would not have been effectively connected to the conduct by such
individual of a trade or business in the United States.
Certification Requirements
Sections 871(h) and 881(c) of the Code and Treasury Regulations relating
thereto require that, in order to obtain the exemption from withholding tax
described in paragraph (a) above, either (i) the beneficial owner of a Note must
certify, under penalties of perjury, to the Issuer or paying agent, as the case
may be, that such owner is a Foreign Holder and must provide such owner's name
and address, and United States taxpayer identification number, if any, or (ii) a
securities clearing organization, bank or other financial institution that holds
customers securities in the ordinary course of its trade or business (a
"Financial Institution") and holds the Note on behalf of the beneficial owner
thereof must certify, under penalties of perjury, to the Issuer or paying agent,
as the case may be, that such certificate has been received from the beneficial
owner by it or by a Financial Institution between it and the beneficial owner
and must furnish the payor with a copy thereof. A certificate described in this
paragraph is effective only with respect to payments of interest made to the
certifying Foreign Holder after delivery of the certificate in the calendar year
of its delivery and the two immediately succeeding calendar years. Such
requirement will be fulfilled if the beneficial owner of a Note certifies on
Internal Revenue Service Form W-8, under penalties of perjury, that it is a
Foreign Holder and provides its name and address, and any Financial Institution
holding the Note on behalf of the beneficial owner files a statement with the
withholding agent to the effect that it has received such a statement from the
beneficial owner (and furnishes the withholding agent with a copy thereof).
The United States Treasury Department recently adopted new Treasury
Regulations (the "New Regulations") with respect to withholding and backup
withholding generally effective, subject to certain transition rules described
below, for payments after December 31, 1998, regardless of the issue date of the
instrument with respect to which such payments are made.
The New Regulations provide documentation procedures designed to simplify
compliance by withholding agents. The New Regulations generally do not affect
the documentation rules described above, but add other certification options.
Under one such option, a withholding agent will be allowed to rely on an
intermediary withholding certificate furnished by a "qualified intermediary" (as
defined below) on behalf of one or more beneficial owners (or other
intermediaries) without the withholding agent having to obtain the beneficial
owner certificate described above. "Qualified intermediaries" include: (i)
foreign financial institutions or foreign clearing organizations (other than a
United States branch or United States office of such institution or
organization) or (ii) foreign branches or offices of United States financial
institutions or foreign branches of offices of United States clearing
organizations, which, as to both (i) and (ii), have entered into withholding
agreements with the Service. In addition to certain other requirements,
qualified intermediaries must obtain
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withholding certificates, such as revised Internal Revenue Service Form W-8 (see
below), from each beneficial owner. Under another option, an authorized foreign
agent of a United States withholding agent will be permitted to act on behalf of
the United States withholding agent, provided certain conditions are met.
For purposes of the certification requirements, the New Regulations
generally treat as the beneficial owners of payments on a Note those persons
that, under United States tax principles, are the taxpayers with respect to such
payments, rather than persons such as nominees or agents legally entitled to
such payments. In the case of payments to an entity classified as a foreign
partnership under United States tax principles, the partners, rather than the
partnership, generally will be required to provide the required certifications
to qualify for the withholding exemption described above. A payment to a United
States partnership, however, is treated for these purposes as payment to a
United States payee, even if the partnership has one or more foreign partners.
The New Regulations provide certain presumptions with respect to withholding for
beneficial owners not furnishing the required certifications to qualify for the
withholding exemption described above. In addition, the New Regulations will
replace a number of current tax certification forms (including Internal Revenue
Service Form W-8, Form 1001 (treaty exemptions) and possibly Form 4224 (U.S.
effectively connected income)) with a single, revised Internal Revenue Service
Form W-8 (which, in certain circumstances, will require information in addition
to that previously required). Under the New Regulations, this Internal Revenue
Service Form W-8 will remain valid until the last day of the third calendar year
following the year in which the certificate is signed.
Under the New Regulations, withholding of United States federal income tax
may apply to payments on a taxable sale or other disposition of a Note by a
Foreign Holder who does not provide appropriate certification to the withholding
agent with respect to such transaction.
The New Regulations provide transition rules concerning existing
certificates, such as Internal Revenue Service Form W-8. Valid withholding
certificates that are held on December 31, 1998 will generally remain valid
until the earlier of December 31, 1999 or the date of expiration of the
certificate under the law in effect prior to January 1, 1999. Further,
certificates dated prior to January 1, 1998 will generally remain valid until
the end of 1998, irrespective of the fact that their validity expires during
1998.
United States Trade or Business
If a Foreign Holder is engaged in a trade or business in the United States,
and if interest on the Note, or gain realized on the sale, exchange or other
disposition of the Note, is effectively connected with the conduct of such trade
or business, the Foreign Holder, although exempt from United States withholding
tax, will generally be subject to United States income tax on such interest or
gain in the same manner as if it were a United States Holder. See "Tax
Consequences to United States Holders" above. In lieu of the certificates
described above, such a Foreign Holder will be required to provide the Issuer a
properly executed Internal Revenue Service Form 4224 (Statement Claiming
Exemption of Tax on Income Effectively Connected with the Conduct of Business in
the United States) in order to claim an exemption from withholding tax. The New
Regulations, though, might require a revised Form W-8 in place of the Form 4224.
If such Foreign Holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or such lower rate provided by an applicable treaty)
of its effectively connected earnings and profits for the taxable year, subject
to certain adjustments. For purposes of the branch profits tax, interest on and
any gain recognized on the sale, exchange or other disposition of a Note will be
included in the earnings and profits of such Foreign Holder if such interest or
gain is effectively connected with the conduct by the Foreign Holder of a trade
or business in the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under current United States federal income tax law, a 31% backup
withholding tax requirement applies to certain payments of interest on, and the
proceeds of a sale, exchange or redemption of, the Notes. In addition, certain
persons making such payments are required to submit information returns (i.e.,
Internal Revenue Service Forms 1099) to the Service with regard to those
payments.
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Backup withholding and information reporting will generally not apply with
respect to payments made to certain "exempt recipients" such as corporations or
certain tax-exempt entities. In the case of a non-corporate United States
Holder, backup withholding generally will apply only if such Holder (i) fails to
furnish to the payor in the manner required its Taxpayer Identification Number
("TIN") which, for an individual, would be his Social Security number, (ii)
furnishes an incorrect TIN and the payor is so notified by the Service, (iii) is
notified by the Service that it has failed to properly report payments of
interest and dividends and the payor is so notified by the Service or (iv) under
certain circumstances, fails to certify, under penalties of perjury, that it has
furnished a correct TIN and has not been notified by the Service that it is
subject to backup withholding for failure to report interest and dividend
payments.
In the case of a Foreign Holder, under current United States federal income
tax law, information reporting on Internal Revenue Service Form 1099 (including
Internal Revenue Service Form 1099B) and backup withholding will not apply to
payments of principal or interest made by the Issuer or any paying agent thereof
on a Note if such holder has provided the required certification on Internal
Revenue Service Form W-8 (as described above under "Tax Consequences to Foreign
Holders") under penalties of perjury that it is not a United States Holder or
has otherwise established an exemption, provided in each case that the Issuer or
such paying agent, as the case may be, does not have actual knowledge that the
payee is a United States Holder. However, interest on a Note beneficially owned
by a Foreign Holder will be required to be reported annually on Internal Revenue
Service Form 1042S.
Under current United States federal income tax laws, if payments of
principal or interest on a Note are made to or through a foreign office of a
custodian, nominee, broker or other agent acting on behalf of a beneficial owner
of a Note, such custodian, nominee, broker or other agent will not be required
to apply backup withholding to such payments made to such beneficial owner.
However, if such custodian, nominee, broker or other agent is a United States
person for United States federal income tax purposes, a controlled foreign
corporation for United States federal income tax purposes, or a foreign person
50% or more of whose gross income is effectively connected with the conduct of a
United States trade or business for a specified three-year period, such
custodian, nominee, broker or other agent may be subject to certain information
reporting requirements with respect to such payments unless it has in its
records documentary evidence that the beneficial owner is a Foreign Holder and
certain conditions are met or the beneficial owner otherwise establishes an
exemption.
Under current United States federal income tax law, payments on the sale,
exchange, retirement or other disposition of a Note made to or through a foreign
office of a broker generally will not be subject to backup withholding. Such
payments, however, will be subject to information reporting if the broker is a
United States person for United States federal income tax purposes, a controlled
foreign corporation for United States federal income tax purposes, or a foreign
person 50% or more of whose gross income is effectively connected with the
conduct of a United States trade or business for a specified three year period,
unless the broker has in its records documentary evidence that the beneficial
owner is not a United States person and certain other conditions are met, or the
beneficial owner otherwise establishes an exemption.
Under the New Regulations, in the case of a Foreign Holder, backup
withholding and information reporting will not apply to payments of principal
and interest with respect to a Note if such Holder provides the required
certification to establish an exemption from the withholding of United States
federal income tax or otherwise establishes an exemption.
Under the New Regulations, payments of principal and interest with respect
to a Note made to a custodian, nominee or broker will not be subject to backup
withholding or information reporting, irrespective of the place of payment or
the location of the office of the custodian, nominee or broker, although
payments of interest with respect to a Note paid to a foreign intermediary
(whether or not a qualified intermediary) will be subject to withholding of
United States federal income tax at the rate of 30% unless the beneficial owner
(whether or not a United States person) establishes an exemption by furnishing a
withholding certificate or other appropriate documentation. Unless the
beneficial owner establishes an exemption, a payment by a custodian, nominee or
broker may be subject to information reporting and to backup withholding as
well, although no backup withholding will apply if (i) the payment has been
subject to withholding of United States
79
<PAGE> 82
federal income tax at the rate of 30% or (ii) the payment is made outside the
United States to an offshore account in a financial institution that maintains
certain procedures related to account documentation.
Under the New Regulations, payment on the sale, exchange, redemption or
retirement of a Note to or through a broker may be subject to information
reporting and backup withholding unless (i) the transaction is effected outside
the United States and the broker is not a United States person, a controlled
foreign corporation for United States federal income tax purposes, a United
States branch of a foreign bank or foreign insurance company, a foreign
partnership controlled by United States persons or engaged in a United States
trade or business or a foreign person 50% or more of whose gross income is
effectively connected with the conduct of a United States trade or business for
a specified three-year period or (ii) the beneficial owner otherwise establishes
an exemption. If the broker in the transaction described in clause (i) above is
not described therein, the payments on the sale, exchange, redemption or
retirement of the Note will be subject to information reporting if the broker
does not receive an appropriate certification or documentary evidence
establishing an exception, but will not be subject to backup withholding in the
absence of such certification or documentary evidence unless the broker has
actual knowledge that the owner is a United States person.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a person under the backup withholding rules are
allowed as a refund or a credit against such person's United States federal
income tax, provided that the required information is furnished to the Service.
Holders should consult their tax advisors regarding the application of
backup withholding in their particular situations, the availability of an
exemption therefrom, and the procedure for obtaining such an exemption, if
available.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE HOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO THE PROSPECTIVE HOLDER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR NON-UNITED STATES INCOME TAX
LAWS AND ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
DESCRIPTION OF CREDIT FACILITY
The following summary description of the Credit Facility does not purport
to be complete and is subject in all respects to the provisions thereof, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part and is incorporated herein by reference.
In connection with the closing of the Kysor Acquisition in March 1997, the
Company, Scotsman Group, certain other subsidiaries of the Company, certain
financial institutions ("Lenders") and The First National Bank of Chicago, as
agent for the Lenders ("First Chicago"), entered into a loan agreement providing
for a credit facility in the aggregate principal amount of $415 million and, in
contemplation of this Offering, the Company has entered into negotiations with
First Chicago and the Lenders to amend such loan agreement to, among other
things, permit the consummation of the Debt Offering and change certain
covenants (the "Credit Facility Amendment" and, together with such loan
agreement, as amended to date, the "Credit Facility"). The following description
of the Credit Facility assumes the effectiveness of the Credit Facility
Amendment and the application of the net proceeds of this Offering to repay $30
million of term loan borrowings outstanding under the Credit Facility. The
Credit Facility consists of a $120 million term loan facility (the "Term
Facility") and a $265 million revolving loan facility (the "Revolving
Facility").
The Revolving Facility will mature on March 12, 2004 (unless otherwise
earlier terminated or extended in accordance with the terms of the Credit
Facility). The aggregate principal amount which may be borrowed thereunder will
be reduced on December 31, 1998 by $10 million and by $15 million on each
December 31 thereafter until maturity, at which time the remaining commitment
amount under the Revolving Facility will be reduced to zero. The Term Facility
will mature on December 31, 2002 and be amortized with semi-annual principal
payments (in varying amounts) starting on December 31, 1997 and continuing
thereafter until maturity.
80
<PAGE> 83
Borrowings under the Credit Facility bear interest at a floating rate based
upon, at the borrower's option, (i) the higher of First Chicago's corporate base
rate or the Federal funds rate plus 1/2% per annum, or (ii) the rate offered by
First Chicago for deposits in the relevant Eurocurrency, plus, in each case, an
applicable margin. As of June 29, 1997, borrowings under the Term Facility and
the Revolving Facility accrued interest at rates ranging from 7.0625% to 7.9375%
per annum (equal to 1.375% above Eurocurrency rates, but the applicable margin
will vary depending upon the "Debt/Earnings Ratio" (as defined below)).
The Credit Facility is guaranteed by Scotsman and certain of its
subsidiaries and secured by a pledge of stock of certain subsidiaries of
Scotsman.
The Credit Facility contains conditions precedent, representations and
warranties, covenants, events of default and other provisions customary for such
financings. Financial covenants in the Credit Facility require Scotsman to
maintain: (a) net worth on a consolidated basis of not less than the sum of $120
million plus 60% of Scotsman's consolidated net income for all quarters ending
after December 31, 1996 plus 60% of the proceeds of any equity issuances by
Scotsman less certain other adjustment amounts identified therein; (b) a ratio
(the "Debt/Earnings Ratio") of total indebtedness to EBITDA (net income, plus
income tax expense, minus equity in net income of affiliates (net of cash
dividends received), plus interest expense, plus depreciation expense, plus
amortization expense, plus other non-cash charges, minus interest income) of not
more than certain specified amounts measured on a rolling four-quarter basis for
each quarter end (such ratio for the period ending December 28, 1997 not to
exceed 5.0 to 1.00); (c) a ratio of EBITDAR (EBITDA plus rents) minus capital
expenditures to "Fixed Charges" (interest expense, plus scheduled principal
repayments (including mandatory Revolving Facility reductions), plus income tax
expense, plus rents, plus dividends paid) of not less than 1.0 to 1 for all
fiscal quarters ending in 1997 and 1.05 to 1 thereafter; and (d) a ratio of
total senior indebtedness to EBITDA of not more than certain specified amounts
measured on a rolling four quarter basis for each quarter end (such ratio for
the period ending December 28, 1997 not to exceed 4.25 to 1.00). The covenant
described in (a) above could restrict the Company's ability to make future
distributions to its stockholders if such distributions would cause the Company
to violate the net worth maintenance requirement. At June 29, 1997, consolidated
stockholders' equity of the Company was $137.5 million. The Company is also
precluded from paying dividends to its stockholders (other than dividends
payable in its own capital stock) if a default or an unmatured default under the
agreement has occurred and is continuing or would occur after giving effect to
the payment of such dividends.
The Credit Facility requires that a notional amount of $150 million be
hedged to reduce interest rate exposure until March 12, 2000. Subsequent to the
Kysor Acquisition, the Company entered into interest rate swap agreements to
hedge its interest rate exposure on the $150 million until March 27, 2000. One
of the interest rate swap agreements is extendable for an additional two years
at First Chicago's option at the end of three years.
81
<PAGE> 84
UNDERWRITERS
Under the terms and subject to the conditions in an Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the Underwriters named
below (the "Underwriters") have severally agreed to purchase, and the Company
has agreed to sell to them, severally, the respective principal amounts of Notes
set forth opposite their respective names below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
----------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated........................... $
First Chicago Capital Markets, Inc..........................
------------
Total............................................. $100,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Notes is subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all the Notes if
any are taken.
The Underwriters initially propose to offer the Notes directly to the
public at the public offering price set forth on the cover page hereof and to
certain dealers at a price that represents a concession not in excess of %
of the principal amount of the Notes. Each Underwriter may allow, and such
dealers may reallow, a concession to certain other dealers not in excess of
% of the principal amount of the Notes. After the initial offering of the
Notes, the offering price and other selling terms may from time to time be
varied by the Underwriters.
The Company does not intend to apply for listing of the Notes on any
national securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Notes and any such market making may be discontinued at any time at the
sole discretion of the Underwriters. Accordingly, no assurance can be given as
to the liquidity of, or the existence of trading markets for, the Notes.
In order to facilitate this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may overallot in connection with this
Offering, creating a short position in the Notes for their own account. In
addition, to cover overallotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, shares of Notes in the open market.
Finally, the underwriting syndicate may reclaim selling concessions allowed to
an underwriter or a dealer for distributing the Notes in this Offering, if the
syndicate repurchases previously distributed Notes in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Notes above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
The Company and Scotsman Group, on the one hand, and the Underwriters, on
the other hand, have agreed to indemnify each other against certain liabilities,
including certain liabilities under the Securities Act.
In the ordinary course of its business, Morgan Stanley & Co. Incorporated
("Morgan Stanley") has from time to time performed investment banking services
for the Company. In particular, Morgan Stanley served as financial advisor to
the Company in the Kysor Acquisition.
The rules of the National Association of Securities Dealers, Inc. (the
"NASD") provide that no NASD member shall participate in a public offering of an
issuer's securities where more than 10% of the net offering proceeds are
intended to be paid to members participating in the distribution of the offering
or associated or
82
<PAGE> 85
affiliated persons of such members, unless a "qualified independent underwriter"
shall have been engaged on the terms provided in such rules. First Chicago
Capital Markets, Inc. ("FCCM") may be deemed to be participating in such a
transaction since it is anticipated that greater than 10% of the net proceeds
from the sale of the Notes will be used to repay outstanding indebtedness of the
Company to First Chicago, an affiliate of FCCM, under the Credit Facility.
In view of such anticipated use of proceeds, this Offering is being
conducted in accordance with the rules of the NASD and Morgan Stanley is acting
as "qualified independent underwriter" within the meaning of such rules. In
connection therewith, Morgan Stanley has participated in the preparation of the
Registration Statement of which this Prospectus forms a part. It has exercised
its usual standards of "due diligence" with respect thereto and has recommended
the maximum price at which the Notes may be offered hereby. Morgan Stanley will
receive no separate fee for its services as qualified independent underwriter,
although the Company has agreed to reimburse its expenses incurred as a result
of such engagement.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Sidley & Austin, Chicago, Illinois and for the Underwriters by Mayer,
Brown & Platt, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company at December 29, 1996
and December 31, 1995 and for each of the three years ended December 29, 1996,
December 31, 1995 and January 1, 1995, respectively, included and incorporated
by reference elsewhere in this Prospectus have been audited by Arthur Andersen
LLP, independent public auditors, as set forth in their report thereon included
and incorporated by reference elsewhere herein. The financial statements
referred to above are included and incorporated by reference herein in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated balance sheet of Kysor Industrial Corporation and
Subsidiaries as of December 31, 1996 and 1995 and the consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996, included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand, L.L.P., independent
public accountants, given on the authority of that firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission. Reports, proxy and information statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission;
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and Northeast Regional Office, Seven World Trade Center, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy information statements and
other information regarding companies which file electronically with the
Commission. In addition, reports, proxy and information statements and other
information concerning the Company may also be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
83
<PAGE> 86
Booth(R), Delfield(R), Kysor(R), Kysor//Warren(R), Scotsman(R),
Shelleyglas(R) and Simag(R), are registered trademarks or trade names of the
Company or its subsidiaries. Boston Market(R) is a registered trademark of
Boston Chicken, Inc. Coca-Cola(R) is a registered trademark of The Coca-Cola
Company. Howe(R) and Rapid Freeze(R) are registered trademarks of Howe
Corporation. Marriott(R) is a registered trademark of Marriott International,
Inc. McDonald's(R) is a registered trademark of McDonald's Corporation. Mobil(R)
is a registered trademark of Mobil Corporation. Pepsi(R) is a trademark of
Pepsico, Inc. WalwMart(R) is a registered trademark of Wal-Mart Stores, Inc.
Winn-Dixie(R) is a registered trademark of Winn-Dixie Stores, Inc.
84
<PAGE> 87
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Income Financial Statements of Scotsman
Industries, Inc.:
Report of Independent Public Accountants.................. F-2
Unaudited Consolidated Statement of Income for the Fiscal
Six Months Ended June 29, 1997 and June 30, 1996 and
Audited Consolidated Statement of Income for the Fiscal
Years Ended December 29, 1996, December 31, 1995 and
January 1, 1995........................................ F-3
Unaudited Consolidated Balance Sheet as of June 29, 1997
and Audited Consolidated Balance Sheet as of December
29, 1996 and December 31, 1995......................... F-4
Unaudited Consolidated Statement of Cash Flows for the
Fiscal Six Months Ended June 29, 1997 and June 30, 1996
and Audited Consolidated Statement of Cash Flows for
the Fiscal Years Ended December 29, 1996, December 31,
1995 and January 1, 1995............................... F-5
Unaudited Consolidated Statement of Shareholders' Equity
for the Fiscal Six Months Ended June 29, 1997 and
Audited Consolidated Statement of Shareholders' Equity
for the Fiscal Years Ended December 29, 1996, December
31, 1995 and January 1, 1995........................... F-6
Notes to Consolidated Financial Statements................ F-7
Financial Statements of Completed Acquisition:
Kysor Industrial Corporation
Report of Independent Accountants...................... F-25
Consolidated Balance Sheet as of December 31, 1996 and
1995.................................................. F-26
Consolidated Statement of Income for the Years Ended
December 31, 1996, 1995 and 1994...................... F-27
Consolidated Statement of Shareholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994.......... F-28
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994................ F-30
Notes to Consolidated Financial Statements............. F-31
</TABLE>
F-1
<PAGE> 88
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 December 29,
1996, and December 31, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 29, 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 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 December 29, 1996, and December 31, 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 29, 1996, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois
February 4, 1997
F-2
<PAGE> 89
SCOTSMAN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL
SIX MONTHS ENDED FOR THE FISCAL YEARS ENDED
-------------------- ------------------------------------------------
JUNE 29, JUNE 30, DECEMBER 29, DECEMBER 31, JANUARY 1,
1997 1996 1996 1995 1995
-------- -------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... $271,854 $189,956 $356,373 $324,291 $266,632
Cost of sales..................... 200,757 135,692 257,942 236,402 190,518
-------- -------- -------- -------- --------
Gross profit...................... 71,097 54,264 98,431 87,889 76,114
Selling and administrative
expenses........................ 41,103 30,877 58,135 53,435 47,900
-------- -------- -------- -------- --------
Income from operations............ 29,994 23,387 40,296 34,454 28,214
Interest expense, net............. 8,781 2,837 5,279 6,326 5,416
-------- -------- -------- -------- --------
Income before income taxes........ 21,213 20,550 35,017 28,128 22,798
Income taxes...................... 10,262 9,866 16,449 12,720 10,013
-------- -------- -------- -------- --------
Income before extraordinary
loss............................ 10,951 10,684 18,568 15,408 12,785
Extraordinary loss (net of income
taxes of $422).................. (633) -- -- -- --
-------- -------- -------- -------- --------
Net income........................ $ 10,318 $ 10,684 $ 18,568 $ 15,408 $ 12,785
Preferred stock dividends......... -- 562 813 1,240 885
-------- -------- -------- -------- --------
Net income available to common
shareholders.................... $ 10,318 $ 10,122 $ 17,755 $ 14,168 $ 11,900
======== ======== ======== ======== ========
Income per share before
extraordinary loss:
Primary......................... $ 1.01 $ 1.10 $ 1.85 $ 1.58 $ 1.49
-------- -------- -------- -------- --------
Fully diluted................... $ 1.01 $ 1.00 $ 1.73 $ 1.45 $ 1.35
-------- -------- -------- -------- --------
Net income per share:
Primary......................... $ .96 $ 1.10 $ 1.85 $ 1.58 $ 1.49
-------- -------- -------- -------- --------
Fully diluted................... $ .95 $ 1.00 $ 1.73 $ 1.45 $ 1.35
-------- -------- -------- -------- --------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-3
<PAGE> 90
SCOTSMAN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 29, DECEMBER 31,
1997 1996 1995
-------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and temporary cash investments................... $ 20,760 $ 16,501 $ 15,808
Trade accounts and notes receivable, net of allowances
of $4,862 in 1997, $2,778 in 1996 and $2,960 in
1995............................................... 120,768 58,734 54,500
Inventories........................................... 80,507 52,530 52,251
Deferred income taxes................................. 14,491 4,708 5,690
Other current assets.................................. 7,295 5,101 3,093
-------- -------- --------
Total current assets............................. 243,821 137,574 131,342
Properties and equipment, net........................... 87,496 46,659 46,373
Goodwill, net........................................... 284,547 94,975 94,732
Deferred Income Taxes................................... 26,589 -- --
Other noncurrent assets................................. 40,425 4,056 3,496
-------- -------- --------
Total assets..................................... $682,878 $283,264 $275,943
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current maturities of capitalized
lease obligations and long-term debt............... $ 19,410 $ 16,317 $ 13,037
Trade accounts payable................................ 52,349 22,344 24,174
Accrued income taxes.................................. 17,551 6,302 4,491
Accrued expenses...................................... 59,024 33,290 34,812
-------- -------- --------
Total current liabilities........................ 148,334 78,253 76,514
Long-term debt and capitalized lease obligations........ 343,534 60,289 74,719
Deferred income taxes................................... 7,506 3,710 3,814
Other noncurrent liabilities............................ 45,977 9,300 8,577
-------- -------- --------
Total liabilities................................ 545,351 151,552 163,624
Shareholders' Equity:
Common stock, $.10 par value, authorized 50,000,000
shares; issued 10,736,463 shares, 10,729,513 shares
and 9,153,014 shares, respectively................. 1,074 1,073 915
Preferred stock, $1.00 par value, authorized
10,000,000 shares; issued 0 shares, 0 shares and
1,999,992 shares, respectively..................... -- -- 2,000
Additional paid in capital............................ 73,320 73,053 70,514
Retained earnings..................................... 71,827 62,036 45,232
Deferred compensation and unrecognized pension cost... (177) (117) (88)
Foreign currency translation adjustments.............. (7,062) (2,877) (4,911)
Less: Common stock held in treasury; 182,175 shares,
187,049 shares and 188,040 shares, respectively.... (1,455) (1,456) (1,343)
-------- -------- --------
Total shareholders' equity....................... 137,527 131,712 112,319
-------- -------- --------
Total liabilities and shareholders' equity....... $682,878 $283,264 $275,943
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-4
<PAGE> 91
SCOTSMAN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL
SIX MONTHS ENDED FOR THE FISCAL YEARS ENDED
-------------------- ----------------------------------------
JUNE 29, JUNE 30, DECEMBER 29, DECEMBER 31, JANUARY 1,
1997 1996 1996 1995 1995
-------- -------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 10,318 $ 10,684 $ 18,568 $ 15,408 $ 12,785
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 7,399 4,333 8,870 7,594 6,019
Loss (gain) on property dispositions............. -- -- (82) (39) 45
Change in assets and liabilities:
Trade accounts receivable........................ (29,147) (22,235) (3,310) (2,607) (7,779)
Inventories...................................... 1,251 (2,290) 237 2,006 (3,815)
Trade accounts payable and other liabilities..... 2,647 15,577 (1,877) (2,074) 10,290
Other, net....................................... 77 (113) 1,101 3,162 (1,369)
--------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities....................................... (7,455) 5,956 23,507 23,450 16,176
Cash flows from investing activities:
Investment in properties and equipment............. (7,433) (3,360) (6,195) (6,513) (5,434)
Proceeds from dispositions of properties and
equipment........................................ 72 178 230 215 34
Acquisition of Delfield and Whitlenge.............. -- -- -- -- (28,689)
Investment in U.K. joint venture................... -- -- (2,024) -- --
Investment in China joint venture, net............. -- -- (399) (665) --
Acquisition of Hartek.............................. -- (231) (991) (1,491) --
Acquisition of Kysor Industrial Corp. ............. (264,768) -- -- -- --
--------- -------- -------- -------- --------
Net cash used in investing activities.............. (272,129) (3,413) (9,379) (8,454) (34,089)
Cash flows from financing and capital activities:
Short-term debt, net............................... (4,852) (9,755) (6,524) 3,616 (74)
Issuance of long-term debt......................... 349,607 14,517 16,074 17,806 63,000
Principal payments under long-term debt and
capitalized leases............................... (59,290) (5,340) (21,128) (28,071) (42,831)
Dividends paid to shareholders..................... (528) (1,068) (2,035) (2,118) (1,339)
--------- -------- -------- -------- --------
Net cash provided by (used in) financing and
capital activities............................... 284,937 (1,646) (13,613) (8,767) 18,756
Effect of exchange rate changes on cash and temporary
cash investments................................... (1,094) (6) 178 (191) 465
--------- -------- -------- -------- --------
Net increase in cash and temporary cash
investments........................................ 4,259 891 693 6,038 1,308
Cash and temporary cash investments at beginning of
period............................................. 16,501 15,808 15,808 9,77 8,462
--------- -------- -------- -------- --------
Cash and temporary cash investments at end of
period............................................. $ 20,760 $ 16,699 $ 16,501 $ 15,808 $ 9,770
========= ======== ======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest......................................... $ 9,418 $ 3,758 $ 6,812 $ 7,431 $ 4,566
========= ======== ======== ======== ========
Income taxes..................................... $ 6,043 $ 3,711 $ 14,957 $ 10,992 $ 10,685
========= ======== ======== ======== ========
Supplemental schedule of noncash investing and
financing activities:
Investment in properties and equipment through
issuance of capitalized lease obligations...... $ (419) $ (42) $ (42) $ (96) $ (56)
========= ======== ======== ======== ========
Issuance of stock for acquisition of Delfield and
Whitlenge...................................... $ -- $(12,089) $(39,000)
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5
<PAGE> 92
SCOTSMAN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
FOREIGN
TREASURY COMMON PREFERRED ADDITIONAL CURRENCY
STOCK STOCK STOCK PAID IN RETAINED TRANSLATION
NUMBER PAR VALUE PAR VALUE CAPITAL EARNINGS OTHER(a) ADJUSTMENTS
-------- --------- --------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 2, 1994............ 202,295 $ 721 $ -- $20,557 $20,855 $ (54) $(6,741)
------- ------ ------- ------- ------- ----- -------
Net income.......................... -- -- -- -- 12,785 -- --
Foreign currency translation
adjustments....................... -- -- -- -- -- -- 1,710
Issuance of deferred compensation... (8,038) -- -- 118 -- (119) --
Amortization of deferred
compensation...................... -- -- -- -- -- 99 --
Dividends declared to common
shareholders...................... -- -- -- -- (796) -- --
Dividends declared to preferred
shareholders...................... -- -- -- -- (885) -- --
Issuance of common and preferred
stock relating to acquisition of
Delfield and Whitlenge............ -- 120 2,000 36,880 -- -- --
Stock options exercised............. -- 5 -- 530 -- -- --
Unrecognized pension cost........... -- -- -- -- -- 21 --
Other............................... 2 -- -- -- -- -- --
------- ------ ------- ------- ------- ----- -------
Balance at January 1, 1995............ 194,259 $ 846 $ 2,000 $58,085 $31,959 $ (53) $(5,031)
======= ====== ======= ======= ======= ===== =======
Net income.......................... -- -- -- -- 15,408 -- --
Foreign currency translation
adjustments....................... -- -- -- -- -- -- 120
Issuance of deferred compensation... (6,219) -- -- 120 -- (120) --
Amortization of deferred
compensation...................... -- -- -- -- -- 129 --
Dividends declared to common
shareholders...................... -- -- -- -- (895) -- --
Dividends declared to preferred
shareholders...................... -- -- -- -- (1,240) -- --
Issuance of common stock relating to
acquisition of Delfield and
Whitlenge......................... -- 67 -- 12,022 -- -- --
Stock options exercised............. -- 2 -- 287 -- -- --
Unrecognized pension cost........... -- -- -- -- -- (44) --
------- ------ ------- ------- ------- ----- -------
Balance at December 31, 1995.......... 188,040 $ 915 $ 2,000 $70,514 $45,232 $ (88) $(4,911)
Net income.......................... -- -- -- -- 18,568 -- --
Foreign currency translation
adjustments....................... -- -- -- -- -- -- 2,034
Issuance of deferred compensation... (5,965) -- -- 119 -- (119) --
Amortization of deferred
compensation...................... -- -- -- -- -- 120 --
Dividends declared to common
shareholders...................... -- -- -- -- (951) -- --
Dividends declared to preferred
shareholders...................... -- -- -- -- (813) -- --
Conversion of preferred stock into
common stock...................... -- 153 (2,000) 1,847 -- -- --
Stock options exercised............. 4,974 5 -- 573 -- -- --
Unrecognized pension cost........... -- -- -- -- -- (30) --
------- ------ ------- ------- ------- ----- -------
Balance at December 29, 1996.......... 187,049 $1,073 $ -- $73,053 $62,036 $(117) $(2,877)
Net income.......................... -- -- -- -- 10,318 -- --
Foreign currency translation
adjustments....................... -- -- -- -- -- -- (4,185)
Issuance of deferred compensation... (4,874) -- -- 120 -- (120) --
Amortization of deferred
compensation...................... -- -- -- -- -- 60 --
Dividends declared to common
shareholders...................... -- -- -- -- (527) -- --
Conversion of preferred stock into
common stock...................... -- -- -- -- -- -- --
Stock options exercised............. -- 1 -- 147 -- -- --
Unrecognized pension cost........... -- -- -- -- -- -- --
------- ------ ------- ------- ------- ----- -------
Balance at June 29, 1997
(unaudited)......................... 182,175 $1,074 $ -- $73,320 $71,827 $(177) $(7,062)
======= ====== ======= ======= ======= ===== =======
<CAPTION>
TREASURY
STOCK TOTAL
-------- -----
<S> <C> <C>
Balance at January 2, 1994............ $(1,344) $ 33,994
------- --------
Net income.......................... -- 12,785
Foreign currency translation
adjustments....................... -- 1,710
Issuance of deferred compensation... 1 --
Amortization of deferred
compensation...................... -- 99
Dividends declared to common
shareholders...................... -- (796)
Dividends declared to preferred
shareholders...................... -- (885)
Issuance of common and preferred
stock relating to acquisition of
Delfield and Whitlenge............ -- 39,000
Stock options exercised............. -- 535
Unrecognized pension cost........... -- 21
Other............................... -- --
------- --------
Balance at January 1, 1995............ $(1,343) $ 86,463
======= ========
Net income.......................... -- 15,408
Foreign currency translation
adjustments....................... -- 120
Issuance of deferred compensation... -- --
Amortization of deferred
compensation...................... -- 129
Dividends declared to common
shareholders...................... -- (895)
Dividends declared to preferred
shareholders...................... -- (1,240)
Issuance of common stock relating to
acquisition of Delfield and
Whitlenge......................... -- 12,089
Stock options exercised............. -- 289
Unrecognized pension cost........... -- (44)
------- --------
Balance at December 31, 1995.......... $(1,343) $112,319
Net income.......................... -- 18,568
Foreign currency translation
adjustments....................... -- 2,034
Issuance of deferred compensation... -- --
Amortization of deferred
compensation...................... -- 120
Dividends declared to common
shareholders...................... -- (951)
Dividends declared to preferred
shareholders...................... -- (813)
Conversion of preferred stock into
common stock...................... -- --
Stock options exercised............. (113) 465
Unrecognized pension cost........... -- (30)
------- --------
Balance at December 29, 1996.......... $(1,456) $131,712
Net income.......................... -- 10,318
Foreign currency translation
adjustments....................... -- (4,185)
Issuance of deferred compensation... 1 1
Amortization of deferred
compensation...................... -- 60
Dividends declared to common
shareholders...................... -- (527)
Conversion of preferred stock into
common stock...................... -- --
Stock options exercised............. -- 148
Unrecognized pension cost........... -- --
------- --------
Balance at June 29, 1997
(unaudited)......................... $(1,455) $137,527
======= ========
</TABLE>
- -------------------------
(a) Other shareholders' equity includes deferred compensation and unrecognized
pension cost.
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-6
<PAGE> 93
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Scotsman
Industries, Inc. ("Scotsman" or "the Company") 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 1996.
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying consolidated financial statements as of June 29, 1997 and
for the six month periods ended June 29, 1997 and June 30, 1996, are unaudited
condensed statements and have been prepared on a basis consistent with the
accounting policies used in preparing the annual financial statements. In the
opinion of management, the interim financial statements reflect all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of such financial information. The results of such interim periods are not
necessarily indicative of the results to be expected for a full year.
See Note 16 for information regarding the acquisition of Kysor Industrial
Corporation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities 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.
FISCAL YEAR
The Company reports on a 52-53 week fiscal year ending on the Sunday
nearest to December 31. Fiscal years 1996, 1995 and 1994 had 52 weeks.
CASH MANAGEMENT
The Company considers all highly liquid investments with original
maturities of three months or less to be temporary cash investments.
Temporary cash investments, primarily Eurodollar deposits or repurchase
agreements with maturities of 90 days or less, are carried at cost, which
approximates market. Interest income (in thousands) included in interest
expense, net was $791, $633 and $277 for fiscal years 1996, 1995 and 1994,
respectively.
TRADE ACCOUNTS AND NOTES RECEIVABLE
Trade accounts and notes receivable at December 29, 1996, and December 31,
1995, included notes of $7.5 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 a portion of
domestic inventories and the first-in, first-out ("FIFO") method for the balance
of domestic and all foreign inventories.
F-7
<PAGE> 94
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
GOODWILL
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.
The related amortization expense was $2.5 million, $2.4 million and $1.5 million
for the fiscal years 1996, 1995 and 1994, respectively. At December 29, 1996,
and December 31, 1995, accumulated amortization was $8.0 million and $5.4
million, respectively. After an acquisition, the Company continually reviews
whether subsequent events and circumstances have occurred that indicate that the
remaining estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. If events and
circumstances indicate that goodwill related to a particular business should be
reviewed for possible impairment, the Company uses projections to assess whether
future operating income of the business on a non-discounted basis is likely to
exceed the goodwill amortization over the remaining life of the goodwill, to
determine whether a writedown of goodwill to recoverable value (as determined by
the same projections) is appropriate.
FINANCIAL INSTRUMENTS
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Company's
participation in derivatives is limited primarily to interest rate swap
agreements and forward exchange contracts. The Company enters 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. The cash impacts of these
instruments are included with the cash flows of the items to which they relate
in the Consolidated Statement of Cash Flows.
INTEREST EXPENSE
Interest expense included in the Consolidated Statement of Income is
related to private placement debt, debt covered under a credit agreement,
industrial development revenue bonds, capitalized lease obligations, and
borrowings on 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
1996, 1995 and 1994 were $5.6 million, $4.8 million and $5.1 million,
respectively.
FOREIGN CURRENCY TRANSLATION
The Company has foreign subsidiaries located in Italy, Germany, Austria,
China and the United Kingdom. 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.
F-8
<PAGE> 95
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TAXES
Federal and state income taxes are not provided on undistributed earnings
of foreign subsidiaries that have been or are intended to be reinvested
indefinitely.
STOCK OPTIONS
In 1995 the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS
123"). Currently, when stock options are exercised proceeds from the sale of
common stock issued under those options are credited to common stock and
additional paid in capital. Therefore, under the method used by the Company, no
charges or credits are made to income for stock options. As permitted by SFAS
123, the Company will continue to account for stock options as described above.
The financial statement effect of this new standard is limited to additional
required footnote disclosure in 1996 which is provided in Note 12.
EARNINGS PER SHARE
Primary earnings per share are computed based on income after preferred
stock dividends. The number of shares includes common stock and common stock
equivalents.
The calculation of fully-diluted net income per share is based on net
income before preferred stock dividends. The number of shares includes common
stock and common stock equivalents, assumes conversion of the convertible
preferred stock from the date of issue and also includes the dilutive impact, as
if issuance had occurred on the acquisition date of Delfield and Whitlenge, of
contingent shares that were issued subsequent to January 1, 1995.
2. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Finished goods........................................ $23,207 $21,604
Work-in-process....................................... 9,052 8,023
Raw materials......................................... 20,271 22,624
------- -------
Total inventories................................ $52,530 $52,251
======= =======
</TABLE>
Approximately $7.0 million and $7.5 million of total Company inventories
were valued on the LIFO method in fiscal 1996 and 1995, respectively. In 1996
there were reductions in levels of inventory valued on LIFO which reduced cost
of sales by $0.1 million. If inventories valued on the LIFO method had been
valued using the FIFO method, they would have been $3.9 million and $4.1 million
higher at December 29, 1996, and December 31, 1995, respectively.
F-9
<PAGE> 96
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTIES AND EQUIPMENT
Properties and equipment consisted of assets owned and leased under capital
lease arrangements as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Owned:
Land...................................................... $ 1,966 $ 1,995
Buildings and leasehold improvements...................... 28,521 28,046
Machinery, fixtures and equipment......................... 54,564 49,294
Accumulated depreciation and amortization................. (43,000) (37,949)
-------- --------
Owned, net................................................ 42,051 41,386
-------- --------
Leased:
Buildings and leasehold improvements...................... 5,141 5,029
Machinery, fixtures and equipment......................... 1,121 1,540
Accumulated depreciation and amortization................. (1,654) (1,582)
-------- --------
Leased, net............................................... 4,608 4,987
-------- --------
Properties and equipment, net............................. $ 46,659 $ 46,373
======== ========
</TABLE>
4. SHORT-TERM DEBT
Short-term debt (in thousands) at December 29, 1996, and December 31, 1995,
was $6,115 and $12,767, respectively, and principally related to amounts owed
under lines of credit. The weighted average interest rate based on short-term
debt outstanding as of December 29, 1996, and December 31, 1995, was 6.1 percent
and 7.3 percent, respectively. Average borrowings (in thousands) and the related
weighted average interest rates were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Bank and other borrowings................................... $4,888 $2,463
Weighted average interest rate.............................. 6.4% 7.9%
====== ======
</TABLE>
The maximum aggregate short-term debt outstanding (in thousands) at the end
of any month during fiscal years 1996 and 1995 was $11,109 and $12,767,
respectively.
5. LINES OF CREDIT
The Company maintains various credit agreements which are used primarily to
fund the Company's working capital needs. At December 29, 1996, these agreements
(in thousands) included foreign and domestic lines of credit of $18,472 and
$11,000, respectively. Lines of credit are reviewed annually, with amounts
borrowed under lines of credit included in short-term debt.
At December 29, 1996, foreign and domestic lines of credit not in use were
(in thousands) $18,216 and $5,141, 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.
F-10
<PAGE> 97
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Payroll and employee benefits............................... $ 7,818 $ 6,394
Current portion of product warranties....................... 6,673 5,994
Reserve for customer allowances............................. 4,264 3,446
Other current liabilities................................... 14,535 18,978
------- -------
Total accrued expenses...................................... $33,290 $34,812
======= =======
</TABLE>
7. LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS
Long-term debt and capitalized lease obligations consisted of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Credit Agreement with floating interest rates; due 2000..... $35,473 $41,765
11.43% private placement agreement; due 1997-1998........... 20,000 20,000
Allendale County Industrial Revenue Bonds with floating
interest rate; due 2001................................... 9,250 9,250
Town of Covington Industrial Revenue Bonds with floating
interest rate; due 2002-2006.............................. 3,150 3,150
Isabella County Industrial Revenue Bonds with floating
interest rate; due 1996-2003.............................. 450 500
Foreign borrowings with various interest rates; due
1997-2011................................................. 2,047 --
Capital lease obligations with various interest rates; due
1996-1998................................................. 121 324
------- -------
Total.................................................. $70,491 $74,989
Current portion........................................ 10,202 270
------- -------
Long-term portion...................................... $60,289 $74,719
======= =======
</TABLE>
In April 1994 a $90 million reducing revolving credit agreement ("Credit
Agreement") was established to provide the financing for the cash consideration
paid in connection with the acquisitions of Delfield and Whitlenge, the
refinancing of the majority of approximately $35 million in existing
indebtedness of Delfield and Whitlenge, replacement of letters of credit of
approximately $10.1 million, working capital for the Company and its
subsidiaries following the acquisitions, and transaction costs associated with
the acquisitions. Under the terms of the Credit Agreement, the revolving credit
facility reduces by $7 million at the end of years one and two, $12 million at
the end of year three and $5 million at the end of years four and five, with the
remaining balance due at the end of year six. As of December 29, 1996, of the
$76.0 million of credit available under this agreement, $30.4 million was
unused.
Borrowings under the Credit Agreement will bear interest at a floating rate
based upon, at the Company's option, (a) the higher of the agent bank's
corporate base rate or the federal funds rate plus 0.5 percent per annum, or (b)
the rate offered by the agent bank for deposits in the relevant Eurocurrency,
plus an applicable margin. The applicable margin varies between 0.50 percent and
1.0 percent per annum, depending upon the Company's ratio of earnings before
interest, taxes and amortization to total interest. As of December 29, 1996,
interest rates under the Credit Agreement ranged from approximately 6.1 percent
for Eurodollar loans to approximately 6.9 percent for borrowings denominated in
pounds sterling. Commitment fees on the Credit Agreement vary from 0.175 percent
to 0.25 percent per annum on the unused portion.
F-11
<PAGE> 98
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1989 the Company issued $20.0 million of private placement debt held
primarily by insurance companies.
The Allendale County Industrial Revenue Bonds are secured by a bank letter
of credit for $9.6 million. The current cost of the commitment fee on the letter
of credit ranges from 0.50 percent to 1.0 percent on outstanding principal and
interest depending on the Company's interest coverage ratio as defined in the
Credit Agreement as described above. The interest rate applicable to the
Allendale County Industrial Revenue Bonds was 4.21 percent and 5.23 percent at
December 29, 1996, and December 31, 1995, respectively.
Delfield had two industrial revenue bonds outstanding which the Company
assumed as of the acquisition in April 1994. One series was issued by the town
of Covington, Tennessee and the other was issued by Isabella County, Michigan.
The Town of Covington Industrial Revenue Bonds are secured by a building with a
net book value of $4.4 million as of December 29, 1996. The Isabella County
Industrial Revenue Bonds are secured by a building section with a net book value
of $0.8 million as of December 29, 1996. The interest rates for these two
industrial revenue bonds as of December 29, 1996, were 5.16 percent and 5.94
percent, respectively. The interest rates for these two industrial revenue bonds
as of December 31, 1995, were 5.31 percent and 6.12 percent, respectively.
The Company also has various capital lease obligations which are
collateralized by properties and equipment with a net book value of
approximately $0.2 million.
The weighted average effective interest rate was 7.5 percent and 7.7
percent at December 29, 1996, and December 31, 1995, respectively. Future
required maturities of long-term debt and capital leases assuming letters of
credit are outstanding at the same level as December 29, 1996, were as follows
(in thousands):
<TABLE>
<S> <C>
1997........................................................ $10,202
1998........................................................ 10,710
1999........................................................ 415
2000........................................................ 35,888
2001........................................................ 9,320
Thereafter.................................................. 3,956
-------
Total....................................................... $70,491
=======
</TABLE>
The Credit Agreement and private placement agreement contain various
financial covenants that, among other things, require the Company to maintain,
on a consolidated basis, specified leverage, interest expense coverage and cash
flow coverage ratios, and a minimum adjusted consolidated tangible net worth.
The Company was in compliance with these covenants as of December 29, 1996.
Among other restrictions, one of the Company's covenants has the effect of
restricting the amount of the Company's dividends to its shareholders to an
amount equal to $2.0 million plus 40 percent of the sum of cumulative net income
from May 2, 1994, forward and the net cash proceeds from the issuance of equity
securities after April 29, 1994. Under such a covenant, $45.4 million of
retained earnings was restricted as of December 29, 1996. The Company is
precluded from paying dividends to its shareholders if a default or an event
which, but for the lapse of time or giving of notice, or both, would constitute
a default under the Credit Agreement has occurred and is continuing or would
occur after giving effect to the payment of such dividends.
8. OPERATING LEASES
The Company leases certain of its offices, buildings, and machinery and
equipment for periods up to 10 years with various renewal options. Rental
expense under operating leases was $2.5 million in 1996, $2.4 million in 1995
and $2.0 million in 1994.
F-12
<PAGE> 99
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease commitments under noncancelable operating leases with
initial lease terms greater than one year at December 29, 1996, were as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997........................................................ $1,584
1998........................................................ 1,390
1999........................................................ 979
2000........................................................ 1,019
2001........................................................ 1,000
Thereafter.................................................. 1,955
------
Total minimum lease commitments............................. $7,927
======
</TABLE>
9. EMPLOYEE BENEFIT PLANS
The Company sponsors defined benefit pension plans for certain salaried and
hourly employees. Plans covering salaried employees provide benefits that are
based on years of service and compensation. Plans covering hourly employees
provide benefits of stated amounts for each year of service. The pension assets
are invested in institutional mutual funds which contain both equities and fixed
investments. The Company complies with funding requirements under the Employee
Retirement Income Security Act.
As a result of the spin-off of the Company from Household International,
Inc. ("Household") in 1989, Household became responsible for all domestic
salaried pension benefits accrued prior to March 31, 1989.
The Company adopted a supplemental executive retirement plan ("SERP") for
certain employees in 1994.
Net periodic pension cost included in the Consolidated Statement of Income
was as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
Service cost............................................... $ 1,141 $ 919 $ 815
Interest cost.............................................. 790 667 475
Actual return on plan assets............................... (1,050) (797) (213)
Net amortization and deferral.............................. 519 365 (60)
------- ------ ------
Net periodic pension cost.................................. $ 1,400 $1,154 $1,017
======= ====== ======
</TABLE>
F-13
<PAGE> 100
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Company's pension plans (in thousands), excluding
the Italian and German pension plans, was as follows:
<TABLE>
<CAPTION>
DECEMBER 29, 1996 DECEMBER 31, 1995
------------------------------ ------------------------------
PLAN ASSETS PLAN ASSETS
EXCEED ACCUMULATED EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS PLAN ASSETS BENEFITS PLAN ASSETS
----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested benefits obligation........................... $(4,425) $(4,435) $(1,688) $(5,193)
Non-vested benefits obligation....................... (419) (586) -- (1,542)
------- ------- ------- -------
Accumulated benefit obligation....................... (4,844) (5,021) (1,688) (6,735)
Effects of anticipated future compensation levels.... (1,838) (612) (292) (1,607)
------- ------- ------- -------
Projected benefit obligation......................... (6,682) (5,633) (1,980) (8,342)
Plan assets at fair value............................ 5,115 3,771 1,772 5,393
------- ------- ------- -------
Projected benefit obligation in excess of plan
assets............................................. (1,567) (1,862) (208) (2,949)
Unrecognized net asset............................... -- (9) -- (12)
Unrecognized prior service cost...................... 464 835 -- 1,289
Unrecognized net (gain) or loss...................... (396) 74 (79) 1
Adjustment required to recognize minimum liability... -- (344) -- (482)
------- ------- ------- -------
Accrued pension cost................................. $(1,499) $(1,306) $ (287) $(2,153)
======= ======= ======= =======
</TABLE>
Assumptions used in the actuarial computations were:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
Discount rate........................................... 7.5 - 9.0% 7.5 - 9.0% 8.0 - 9.0%
Rate of increase in compensation levels................. 4.0 - 7.0% 4.0 - 7.0% 4.0 - 7.0%
Expected long-term rate of return on assets............. 8.5 - 10.0% 8.5 - 10.0% 9.0 - 10.0%
</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 $895, $888, and $785 in
fiscal years 1996, 1995 and 1994, respectively. The unfunded liability for these
plans included in the Consolidated Balance Sheet at December 29, 1996, and
December 31, 1995, (in thousands) was $4,578 and $4,286, respectively. The
Company also has a Hartek pension plan in Germany which covers only a former
employee and his spouse. Information for the Hartek pension plan has not been
included in the tables presented as the amounts were immaterial as of December
29, 1996.
The Company also sponsors defined contribution benefit plans. Participation
in one of these plans is available to substantially all domestic employees.
Company contributions to these plans are based on either a percentage of
employee contributions or a specified amount depending on the provisions of the
plan. Total costs incurred under the plans were (in thousands) $742, $568, and
$643 for fiscal years 1996, 1995 and 1994, 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.
F-14
<PAGE> 101
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic post-retirement benefit cost for the fiscal years ended
December 29, 1996, December 31, 1995, and January 1, 1995, included the
following components (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
Service cost on benefits earned............................ $146 $132 $161
Interest cost on accumulated post-retirement benefit
obligation............................................... 148 139 142
Amortization of net loss subsequent to transition.......... -- -- 4
---- ---- ----
Net periodic post-retirement benefit cost.................. $294 $271 $307
==== ==== ====
</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>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees.................................................. $ 755 $ 820
Fully-eligible active plan participants................... 171 141
Other active plan participants............................ 1,110 1,161
------ ------
Total....................................................... $2,036 $2,122
Unrecognized net (loss) gain................................ 64 (126)
------ ------
Accrued post-retirement benefit cost recognized in the
balance sheet............................................. $2,100 $1,996
====== ======
</TABLE>
Assumptions used in the actuarial computations were:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Discount rate............................................... 7.5% 7.5%
Projected health care cost trend rates:
Pre-65 benefits........................................... 8.5% 12.6%
Post-65 benefits.......................................... 8.5% 11.3%
Ultimate health care cost trend rates:
Pre-65 benefits........................................... 5.0% 5.5%
Post-65 benefits.......................................... 5.0% 5.5%
</TABLE>
Increasing the assumed health care cost trend rate by one percentage point
in each year would increase the accumulated post-retirement benefit obligation
by approximately (in thousands) $360 for 1996 and $378 for 1995, and the
aggregate of the service and interest cost components of net periodic
post-retirement benefit cost by approximately (in thousands) $64 for 1996, $57
for 1995 and $63 for 1994.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
During 1994 the Company adopted Statement of Financial Accounting Standards
No. 107, "Disclosures About Fair Value of Financial Instruments," ("SFAS 107")
and Statement of Financial Accounting Standards No. 119, "Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments"("SFAS
119"). These statements require certain disclosures about the fair value of
financial instruments, including derivative financial instruments, for which it
is practicable to estimate fair value.
F-15
<PAGE> 102
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following methods and assumptions were used to estimate the fair market
value of each class of financial instrument for which it is practicable to
estimate that value:
Cash and Temporary Cash Investments
Temporary cash investments consist principally of investments in
short-term, interest-bearing instruments. The carrying amount approximates
fair market value.
Trade Accounts and Notes Receivable and Payable
The carrying amount of the Company's trade accounts and notes
receivable and payable approximates market value.
Long-Term Debt
The carrying amount of most of the Company's long-term debt and the
Company's short-term debt approximates market value since rates on those
debt agreements are variable and are set periodically based on current
rates during the year. An exception would be the private placement
agreement which has a fixed interest rate of 11.43 percent. The fair value
of the private placement agreement was estimated based on the current rates
quoted to the Company for debt with the same maturities.
Letters of Credit
As collateral for the Company's industrial revenue bonds and for
certain of its insurance programs, the Company had a total of $10.1 million
of letters of credit outstanding as of December 29, 1996. The Company pays
letter of credit fees to its bank group that range from 0.50 to 1.0 percent
based upon the Company's interest coverage ratio as defined in the Credit
Agreement. It is the Company's opinion that the replacement costs for such
letters of credit would not significantly vary from the present fee
structure. No material loss is anticipated due to nonperformance by
counterparties to these agreements.
Swap Agreements and Forward Contracts
Effective May 1994 the Company entered into two interest rate swap
agreements to reduce the impact of changes in interest rates on its
domestic floating-rate long-term debt. Both of the interest rate swap
agreements had a notional principal amount of $10 million and interest
payable was at a fixed rate of 5.64 percent and 6.33 percent, respectively.
In return for both of these agreements, the Company will receive floating
rate interest payments based on three-month London Interbank Offered Rate.
These agreements will expire in May 1997. These two swap agreements are
accounted for as hedges. The Company had a forward exchange contract
outstanding as of December 29, 1996, to hedge exposure relating to an
intercompany transaction. The Company had no forward exchange contracts
outstanding as of December 31, 1995.
The fair value of interest rate swaps and forward exchange contracts
is the estimated amount that the Company would receive or pay to terminate
the agreements as of the balance sheet date.
F-16
<PAGE> 103
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair value of the Company's financial instruments at December
29, 1996, (in thousands) was as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -----
<S> <C> <C>
Assets:
Cash and temporary cash investments....................... $16,501 $16,501
Trade accounts and notes receivable....................... 58,734 58,734
Forward exchange contract................................. -- 229
Liabilities:
Short-term debt........................................... 6,115 6,115
Trade accounts payable.................................... 22,344 22,344
Long-term debt............................................ 70,370 71,535
Interest rate swap agreements............................. -- 44
</TABLE>
The estimated fair value of the Company's financial instruments at December
31, 1995, (in thousands) was as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- -----
<S> <C> <C>
Assets:
Cash and temporary cash investments....................... $15,808 $15,808
Trade accounts and notes receivable....................... 54,500 54,500
Liabilities:
Short-term debt........................................... 12,767 12,767
Trade accounts payable.................................... 24,174 24,174
Long-term debt............................................ 74,665 76,675
Interest rate swap agreements............................. -- 176
</TABLE>
F-17
<PAGE> 104
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
The components of the consolidated net deferred tax assets and liabilities
as of December 29, 1996, and December 31, 1995, were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Gross deferred tax assets:
Tax credits due to Italian reorganization................. $ 530 $ 556
Warranty accruals......................................... 3,110 2,907
Reserve for Delfield and Whitlenge........................ 291 1,055
Hartek reserve............................................ 461 1,091
Receivable allowances..................................... 812 797
Inventory reserves........................................ 720 754
Reserve for post-retirement medical costs................. 823 791
Tax benefit of German net operating loss carry forwards... 3,562 4,851
Other..................................................... 3,502 2,989
------- -------
Total gross deferred tax assets........................... 13,811 15,791
Valuation allowance....................................... (3,681) (4,991)
------- -------
Total deferred tax assets................................. $10,130 $10,800
======= =======
Gross deferred tax liabilities:
Properties and equipment.................................. $(6,102) $(5,702)
Inventory related items................................... (180) (909)
Simag goodwill amortization............................... (1,611) (1,186)
Other..................................................... (1,239) (1,157)
------- -------
Total gross deferred tax liabilities...................... $(9,132) $(8,954)
======= =======
</TABLE>
Deferred taxes reflected in the accompanying balance sheets as of December
29, 1996, and December 31, 1995, were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Current portion of deferred tax asset....................... $ 4,708 $ 5,690
Noncurrent portion of deferred tax asset (included in other
noncurrent assets)........................................ -- 22
Current portion of deferred tax liability (included in
accrued expenses)......................................... -- (52)
Noncurrent portion of deferred tax liability................ (3,710) (3,814)
</TABLE>
The valuation allowance as of December 29, 1996, includes $3.6 million to
entirely offset the tax asset established for Hartek pre-acquisition net
operating loss carry forwards which might not be realized due to the terms of
the purchase agreement of Hartek (see Note 14) which requires substantial
repayment to the seller if utilized and due to a pending decision of the Supreme
Tax Court in Germany which may result in such carry forwards being not
utilizable by the Company. The German net operating loss carry forwards, if
realized, will result in a reduction of goodwill and the benefit of utilizing
the net operating loss carry forwards will not flow through the income
statement.
The valuation allowance also includes $0.1 million 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 for the
Italian tax asset due to the limited carry forward life of net operating losses
in Italy.
F-18
<PAGE> 105
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
United States:
Current............................................. $ 7,518 $ 7,431 $ 7,300
Deferred............................................ 837 855 (746)
------- ------- -------
8,355 8,286 6,554
------- ------- -------
Foreign:
Current............................................. 7,407 3,605 2,412
Deferred............................................ 687 829 1,047
------- ------- -------
8,094 4,434 3,459
------- ------- -------
Provision for income taxes............................ $16,449 $12,720 $10,013
======= ======= =======
</TABLE>
The provision (benefit) for deferred income taxes included the following
(in thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
Amortization of Italian reorganization benefits....... $ 58 $ 122 $ 535
Depreciation.......................................... 458 307 203
Reserve for Glenco-Star disposition................... -- 249 56
Reserve for swap loss................................. -- -- 38
Warranty reserve...................................... (311) (33) (304)
Inventory adjustments................................. (732) 913 (95)
Reserve for relocation of Crystal Tips................ -- -- 167
Valuation allowance changes........................... (27) (51) (117)
Reserve for Delfield and Whitlenge.................... 727 -- --
Utilization of German net operating loss carry
forwards............................................ 952 -- --
Other, net............................................ 399 177 (182)
------ ------ -----
Total................................................. $1,524 $1,684 $ 301
====== ====== =====
</TABLE>
Income before income taxes from foreign operations was $15.7 million in
1996, $8.9 million in 1995, and $6.9 million in 1994. 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
------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
Statutory federal income tax rate..................... 35.0% 35.0% 35.0%
Increase in rate resulting from:
State and local income taxes, net of federal tax
benefit.......................................... 1.7 2.9 2.7
Foreign tax effect.................................. 7.6 4.9 4.9
Other............................................... 2.7 2.4 1.3
---- ---- ----
47.0% 45.2% 43.9%
==== ==== ====
</TABLE>
In accordance with the Company's accounting policy, provision for U.S.
income taxes has not been made on $38.6 million of undistributed earnings of
foreign subsidiaries at December 29, 1996.
F-19
<PAGE> 106
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. STOCK-BASED COMPENSATION PLANS
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
10 years and one day from the date of the grant.
In August 1994 the Board of Directors adopted, subject to shareholder
approval, the Non-Employee Directors Stock Option Plan. The plan was approved by
the shareholders at the 1995 Annual Meeting of Shareholders. The plan provides
for (a) an automatic award of options to purchase shares of the Company's common
stock to non-employee directors as of the effective date of the plan, (b)
automatic awards to non-employee directors who are elected or appointed to the
Board of Directors after the effective date and (c) automatic annual awards
thereafter. The options will vest 100 percent on the date preceding the first
annual meeting of shareholders following the date of the grant of the options.
The option price per share may not be less than the fair market value of one
share on the date of the grant. An option may not be exercisable after more than
10 years and one day from the date of the grant.
The Company accounts for these plans under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with FASB Statement No. 123 ("SFAS 123"), the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income:
As reported............................................... $18,568 $15,408
Pro forma................................................. 18,306 15,281
Primary net income per share:
As reported............................................... $ 1.85 $ 1.58
Pro forma................................................. $ 1.82 $ 1.56
Fully diluted net income per share:
As reported............................................... $ 1.73 $ 1.45
Pro forma................................................. $ 1.71 $ 1.43
</TABLE>
A summary of the status of the Company's two stock option plans at December
29, 1996, December 31, 1995, and January 1, 1995, and changes during the years
then ended is presented in the following table:
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE (000) PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............ 525 $12 473 $10 472 $ 9
Granted..................................... 92 18 79 18 71 16
Exercised................................... (51) 10 (24) 9 (52) 9
Forfeited................................... (6) 17 (3) 16 (18) 11
--- --- ---
Outstanding at end of year.................. 560 13 525 12 473 10
--- --- ---
Exercisable at end of year.................. 377 10 357 10 294 9
Weighted average fair value of options
granted during the year................... $9.74 $10.73 --
</TABLE>
F-20
<PAGE> 107
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 29, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------------------
WEIGHTED AVERAGE OPTIONS EXERCISABLE
REMAINING --------------------------------------
NUMBER OUTSTANDING CONTRACTUAL WEIGHTED AVERAGE NUMBER EXERCISABLE WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES AT 12/29/96 LIFE(YEARS) EXERCISE PRICE AT 12/29/96 EXERCISE PRICE
- ------------------------ ------------------ ---------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
$7 to $9................. 224,187 3.2 $ 8 224,187 $ 8
$11 to $15............... 121,300 3.8 $12 104,645 $12
$16 to $20............... 214,675 8.2 $18 48,525 $18
-------- --------
$7 to $20................ 560,162 4.3 $13 377,357 $10
======== ========
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively: risk-free interest
rates of 5.93 percent and 7.56 percent for the executive options and 6.86
percent and 6.77 percent for the Non-Employee Directors Plan options; expected
dividend yields of 0.60 percent for the executive plan options for both years
and 0.50 percent for the Non-Employee Directors plan options for both years;
expected lives of 10.01 for both plans in both years; and expected volatility of
36.60 percent for both plans in both years.
The Company issued from treasury 5,965, 6,219, and 8,038 shares of common
stock in fiscal years 1996, 1995 and 1994, respectively, as annual Board of
Directors fees. Costs relating to these fees (in thousands) of $120, $129, and
$99 were recorded in fiscal years 1996, 1995 and 1994, respectively.
13. ACQUISITION OF DELFIELD AND WHITLENGE
On April 29, 1994, the Company completed the acquisition of The Delfield
Company, a maker of food preparation and storage equipment, and Whitlenge Drink
Equipment Limited, a U.K.-based beverage systems manufacturer, for an aggregate
price of approximately $69.3 million in a combination of cash, preferred stock
and common stock. The cash outlay was offset by cash on the books of the
acquired businesses at closing of $3.9 million. Scotsman shareholders approved
the issuance of common and preferred stock related to the acquisition at a
special shareholders meeting on April 28, 1994.
The method of accounting used for the combination was the purchase method.
The initial amount of goodwill allocated to Delfield and Whitlenge was $73.7
million and is being amortized over 40 years using the straight-line method. The
acquisition price included: (a) $30.4 million in cash, (b) 1.2 million shares of
common stock (with a market value of approximately $16.5 million on the
acquisition date) and (c) 2.0 million shares of Series A $0.62 cumulative
convertible preferred stock with an aggregate liquidation preference of $22.5
million which were convertible into 1,525,393 shares of common stock. (If such
conversion had taken place on January 1, 1996, primary earnings per share would
have been $1.73.) All the cumulative convertible preferred stock was converted
to common stock during 1996. Also, the acquisition price of $69.3 million was
increased by $12.1 million to include 667,000 shares of additional common stock
based upon the businesses of Delfield and Whitlenge meeting a specified level of
earnings before interest, income taxes, depreciation and amortization in fiscal
year 1994. These additional shares were issued subsequent to January 1, 1995. In
addition, Scotsman also assumed Delfield and Whitlenge debt of approximately $35
million which was substantially repaid on the acquisition date. (See Note 7.)
The results of Delfield and Whitlenge are included in the income statements for
the Company beginning after April 29, 1994.
The accompanying unaudited condensed pro forma income statement information
is presented to illustrate the effect of certain events on the historical income
statement information of the Company as if the acquisitions of Delfield and
Whitlenge had occurred as of the first day of the period presented.
F-21
<PAGE> 108
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma information includes assumptions and estimates and is not
necessarily indicative of the results of operations of the Company as they may
be in the future or as they might have been had the transaction occurred as
discussed above.
The unaudited condensed pro forma income statement information should be
read in conjunction with the historical condensed financial statements and notes
thereto of the Company appearing elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED)
----------------------
TWELVE MONTHS ENDED
JANUARY 1, 1995
-------------------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C>
Net sales............................................. $304,144
Net income............................................ 13,547
Net income per share, fully diluted................... $ 1.28
</TABLE>
14. ACQUISITION OF HARTEK
The Company's Scotsman Group Inc. subsidiary acquired on December 31, 1995,
the stock of Hartek Beverage Handling GmbH and the stock of Hartek Awagem
Vertriebsges. m.b.H., a beverage dispensing manufacturer and a small distributor
of Hartek and other products located in Radevormwald, Germany and Vienna,
Austria, respectively (collectively, "Hartek"). Hartek had 1995 annual sales of
approximately $24 million. The method of accounting used for the combination was
the purchase method. The results of the Hartek businesses have been included in
the income statements for the Company beginning on the date of acquisition,
December 31, 1995. Hartek was acquired for an initial cost of $5.8 million,
including acquisition costs. No shares of stock were or will be issued as a
result of these acquisitions. The cash outlay was partially offset by cash on
the books of Hartek at closing of $3.3 million. Goodwill of $1.9 million has
been recorded as of December 29, 1996. The amount of goodwill from this
acquisition will be amortized for book purposes over 40 years using the
straight-line method.
Under the terms of the agreement governing the purchase of the Hartek
businesses, the Company is required to pay to the seller 75 percent of the
actual amount of any tax saving realized by Hartek in respect of each of its
financial years 1996 through 1998 through the use of the amount of any tax loss
carry forward available to Hartek as of December 31, 1995, in reduction of
taxable profits for those financial years 1996 through 1998. This additional
consideration is not to exceed an amount of 2.2 million deutsche marks or, as of
December 29, 1996, approximately $1.4 million. In addition, at the date of
acquisition, Scotsman also assumed Hartek debt of approximately $6.4 million.
Pro forma unaudited 1995 net sales of the Company, as if Hartek were
acquired on the first day of the fiscal year 1995 would have been $349 million.
Pro forma information relating to net income and earnings per share has not been
presented as the pro forma impact of those numbers on the Company's results was
not material. Pro forma information includes assumptions and estimates and is
not necessarily indicative of the results of operations of the Company as they
may be in the future or as they might have been had the transaction occurred as
discussed above.
F-22
<PAGE> 109
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. GEOGRAPHIC INFORMATION
The Company's geographic data, based on the locations of operations, are as
follows (in thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
------------ ------------ ----------
<S> <C> <C> <C>
Sales to unaffiliated customers:
United States....................................... $235,302 $239,110 $201,746
Europe.............................................. 121,071 85,181 64,886
-------- -------- --------
Total.......................................... $356,373 $324,291 $266,632
======== ======== ========
Operating profit:
United States....................................... $ 24,248 $ 25,309 $ 20,773
Europe.............................................. 16,048 9,145 7,441
-------- -------- --------
Total.......................................... $ 40,296 $ 34,454 $ 28,214
======== ======== ========
Identifiable assets:
United States....................................... $181,259 $181,994 $172,608
Europe.............................................. 102,005 93,949 72,183
-------- -------- --------
Total.......................................... $283,264 $275,943 $244,791
======== ======== ========
</TABLE>
Export sales from the United States were less than 10 percent of
consolidated net sales for all years presented.
16. SUBSEQUENT EVENT (UNAUDITED)
In March of 1997 the Company completed the acquisition of Kysor Industrial
Corporation ("Kysor"), a leading supplier of refrigerated display cases and
walk-in coolers and freezers to the supermarket and convenience store
industries. The Company purchased Kysor's common and preferred stock
(hereinafter referred to as the "Kysor Acquisition") for an aggregate purchase
price of $309 million. Concurrent with the purchase, the Company sold
substantially all of the assets of Kysor's Transportation Products Group to a
third party for $86 million (approximately $68 million net of taxes). The
Company retained possession of Kysor's Commercial Products Group. Goodwill
relating to the Kysor Acquisition will be finalized within 12 months of the
acquisition date and will be amortized for book purposes over 40 years using the
straight-line method.
Kysor, headquartered in Cadillac, Michigan, reported total sales in 1996 of
$381 million, of which $245 million related to commercial refrigeration
products.
The Kysor Acquisition, after giving effect to the divestiture of the
Transportation Products Group and other acquisition related transactions, was
financed through a $415 million loan facility between the Company, Scotsman
Group Inc. and the other parties named therein and The First National Bank of
Chicago (the "FNBC Facility"). The FNBC Facility consists of a $150 million term
loan and a $265 million revolving loan facility, both with an initial interest
rate of 1.375 percent above Eurocurrency rates. The interest rates on both
facilities adjust based on a certain ratio tied to the strength of the Company's
balance sheet.
The agreement governing the FNBC Facility includes various financial
covenants. One of those covenants has the effect of restricting the amount of
the Company's dividends to its shareholders by requiring the Company to maintain
consolidated stockholders' equity of at least $120 million (without giving
effect to the cumulative effect of future changes in accumulated translation
adjustments), plus 60 percent of (i) the cumulative net income of the Company
from December 30, 1996, forward and (ii) the net cash proceeds from
F-23
<PAGE> 110
SCOTSMAN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
any future issuance of equity securities by the Company after the closing of the
FNBC Facility. At December 29, 1996, consolidated stockholders' equity of the
Company was $131.7 million. The Company is also precluded from paying dividends
to its shareholders (other than dividends payable in its own capital stock) if a
default or an unmatured default under the agreement has occurred and is
continuing or would occur after giving effect to the payment of such dividends.
Subsequent to the acquisition of Kysor, the Company entered into interest
rate swap agreements to hedge its interest rate exposure on $150 million of the
aggregate borrowing under the FNBC Facility for a three-year period. One of the
interest rate swap agreements, covering a notional amount of $50 million, is
extendable for an additional two years at the bank's option.
F-24
<PAGE> 111
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
F-25
<PAGE> 112
KYSOR INDUSTRIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
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
============ ============
LIABILITIES
CURRENT LIABILITIES
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>
The accompanying notes are an integral part of the consolidated financial
statements.
F-26
<PAGE> 113
KYSOR INDUSTRIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
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 Transportation
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.
F-27
<PAGE> 114
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
=========== ============ ========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-28
<PAGE> 115
KYSOR INDUSTRIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY -- (CONTINUED)
<TABLE>
<CAPTION>
NOTES UNEARNED
RECEIVABLE - DEFERRED TOTAL
COMMON COMPENSATION SHAREHOLDERS'
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.
F-29
<PAGE> 116
KYSOR INDUSTRIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
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) -- --
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) -- --
Dividends received from foreign affiliate................. 2,218,723 -- --
(Increase) in other long-term assets...................... (2,603,514) (376,119) (1,799,644)
Unrealized translation gain (loss)........................ -- (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.................................. -- (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.
F-30
<PAGE> 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. Kysor Industrial Corporation is a leading supplier of
refrigerated display cases, walk-in coolers and freezers to the supermarket and
convenience store industries 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.
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
F-31
<PAGE> 118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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
Components of Inventory are as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
(AMOUNTS IN
THOUSANDS)
<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>
1996 1995
---- ----
(AMOUNTS IN
THOUSANDS)
<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>
F-32
<PAGE> 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. FINANCING
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995
---- ----
(AMOUNTS IN THOUSANDS)
<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>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS)
<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."
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
F-33
<PAGE> 120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. STOCK OPTION PLANS -- (CONTINUED)
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>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
1996 EXERCISE 1995 EXERCISE 1994 EXERCISE
SHARES PRICE SHARES PRICE SHARES 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>
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
F-34
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. ACQUISITIONS AND DIVESTITURES -- (CONTINUED)
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>
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.
F-35
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
---- ---- ----
(AMOUNTS IN THOUSANDS)
<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>
F-36
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. PENSION AND RETIREMENT PLANS -- (CONTINUED)
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>
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
-------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<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>
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.
F-37
<PAGE> 124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. PENSION AND RETIREMENT PLANS -- (CONTINUED)
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>
YEARS ENDED
DECEMBER 31,
----------------------
1996 1995
---- ----
(AMOUNTS IN THOUSANDS)
<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>
The actuarial and recorded liabilities for those postretirement benefits,
none of which have been funded, were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1996 1995
---- ----
(AMOUNTS IN
THOUSANDS)
<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.
F-38
<PAGE> 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. PENSION AND RETIREMENT PLANS -- (CONTINUED)
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 noncancelable
lease terms in excess of one year in the following amounts, for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS)
<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>
1996 1995 1994
---- ---- ----
(AMOUNTS IN THOUSANDS)
<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>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
---- ---- ----
(AMOUNTS IN THOUSANDS)
<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>
F-39
<PAGE> 126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. INCOME TAXES -- (CONTINUED)
The components of deferred income tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
---- ---- ----
(AMOUNTS IN THOUSANDS)
<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>
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995 1994
---- ---- ----
(AMOUNTS IN THOUSANDS)
<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.
F-40
<PAGE> 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
F-41
<PAGE> 128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
YEARS ENDED
DECEMBER 31,
------------------
1996 1995
---- ----
(AMOUNTS IN
THOUSANDS)
<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>
F-42
<PAGE> 129
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED OCTOBER 22, 1997
1,611,699 SHARES
[SCOTSMAN INDUSTRIES LOGO]
COMMON STOCK
PAR VALUE, $0.10 PER SHARE
------------------------
All of the 1,611,699 shares of Common Stock offered hereby (the "Shares")
which may be offered from time to time are being sold by the Selling
Stockholders. See "Selling Stockholders." The Company will not receive any
proceeds from the sale of the Shares.
The distribution of the Shares by the Selling Stockholders may be effected
from time to time in one or more transactions (which may be block transactions)
on the New York Stock Exchange ("NYSE") or otherwise, in special offerings,
exchange distributions or secondary distributions pursuant to and in accordance
with the rules of the NYSE, in the over-the-counter-market, in negotiated
transactions, through the writing of options on shares (whether such options are
listed on an options exchange or otherwise), or a combination of such methods of
sale, at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Stockholders may
effect such transactions through underwriters, broker-dealers or agents, who may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Selling Stockholders and/or purchasers of shares for whom
they may act (which compensation may be in excess of customary commissions). See
"Plan of Distribution." The Company will bear the costs of this Offering, except
that the Selling Stockholders will pay all brokerage commissions and charges as
well as fees and expenses of any counsel retained by them.
On October 21, 1997, the last reported sale price of the Common Stock on
the NYSE was $26 15/16 per share.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 130
[GRAPHIC ILLUSTRATION OF THE PERCENTAGE OF THE COMPANY'S
1996 PRO FORMA NET SALES REPRESENTED BY EACH OF THE COMPANY'S
FIVE PRODUCT LINES, TOGETHER WITH PHOTOGRAPHS OF A
REPRESENTATIVE SAMPLING OF PRODUCTS FROM EACH LINE.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THIS OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET. IN
ADDITION, UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET
MAKING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
2
<PAGE> 131
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THE PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING STOCKHOLDERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SHARES OF COMMON STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION OF SUCH PERSONS. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................... 4
Risk Factors................................ 10
The Company................................. 15
Kysor Acquisition........................... 16
Debt Offering............................... 17
Use of Proceeds............................. 17
Price Range of Common Stock and Dividends... 18
Capitalization.............................. 19
Selected Consolidated Financial and Other
Information............................... 20
Pro Forma Consolidated Financial
Information............................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 28
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.................................... 35
Management.................................. 45
Certain Transactions........................ 48
Selling Stockholders........................ 50
Description of Capital Stock................ 51
Description of Certain Indebtedness......... 54
Plan of Distribution........................ 57
Legal Matters............................... 57
Experts..................................... 57
Additional Information...................... 58
Index to Financial Statements............... F-1
</TABLE>
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Securities and
Exchange Commission (the "Commission") are hereby incorporated by reference in
this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 30, 1997 and June 29, 1997, respectively;
3. The Company's Current Reports on Form 8-K dated March 8, 1997 (as
amended by Form 8-K/A filed with the Commission on May 22, 1997) and
September 29, 1997, respectively; and
4. The description of the Company's Common Stock, par value $0.10 per
share, and the Common Stock Purchase Rights contained in the Company's
Registration Statement on Form 10, filed with the Commission on February
14, 1989, as amended by Amendment No. 1 on Form 8, filed with the
Commission on March 14, 1989, Amendment No. 2 on Form 8, filed with the
Commission on March 23, 1989, Amendment No. 3 on Form 8, filed with the
Commission on March 27, 1989, and Amendment No. 4 on Form 10/A, filed with
the Commission on January 27, 1994.
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to the date of this Prospectus and prior to the
termination of the offering hereunder shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed documents which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus. The Company
will provide without charge to each person to whom this Prospectus is delivered
upon written or oral request, a copy of any or all of such documents that have
been or may be incorporated by reference into this Prospectus (other than
exhibits to such documents which are not specifically incorporated by reference
into such documents). Requests for such documents should be directed to
Corporate Secretary, Scotsman Industries, Inc., 820 Forest Edge Drive, Vernon
Hills, Illinois 60061, telephone number (847) 215-4500.
------------------------
3
<PAGE> 132
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing or
incorporated by reference in this Prospectus. As used in this Prospectus, the
term the "Company" or "Scotsman" refers to Scotsman Industries, Inc. and, unless
otherwise stated or indicated by the context, its subsidiaries. As used in this
Prospectus, the term "Kysor" refers to Kysor Industrial Corporation and, unless
otherwise stated or indicated by the context, its subsidiaries, after taking
into account the sale of substantially all of the assets and related liabilities
of Kysor's Transportation Products Group described elsewhere in this Prospectus.
Unless otherwise stated, reference to the Company's 1996 "pro forma" net sales
includes Kysor's 1996 sales. Scotsman reports financial information on a 52-53
week fiscal year ending on the Sunday nearest to December 31, which fell on
December 29, 1996, December 31, 1995, January 1, 1995, January 2, 1994 and
January 3, 1993, respectively, for each of Scotsman's last five fiscal years.
Scotsman's first fiscal six months in 1997 and 1996 ended on June 29, 1997 and
June 30, 1996, respectively. Unless otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
GENERAL
Scotsman is a leading international manufacturer of a diversified line of
commercial refrigeration products, food preparation equipment and beverage
systems that is sold primarily to customers in the restaurant, supermarket,
lodging, healthcare and convenience store industries. The Company has a leading
market position in each of its five product lines, which consist of ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage systems. Scotsman's customers include
many of the largest chains in the quick service restaurant, supermarket, lodging
and convenience store industries, including McDonald's, Boston Market, WalwMart,
Winn-Dixie, Marriott and Mobil, as well as bottlers affiliated with Coca-Cola
and Pepsi.
The Company's revenues are diversified among its five product lines, with
ice machines and refrigerated display cases, its two largest product lines, each
representing approximately 29% of the Company's 1996 pro forma net sales. Within
each of its product lines, the Company offers a broad range of products designed
to meet the diverse equipment needs of its customers. The Company sells its
products in over 100 countries through multiple distribution channels and has
manufacturing capabilities in the United States, the United Kingdom, Germany and
Italy and joint venture interests in Australia, China, the United Kingdom and
Indonesia. International sales of approximately $144 million accounted for
approximately 24% of the Company's 1996 pro forma net sales. The Company
believes that its leading market positions, broad product offering, diverse
customer base, extensive distribution network and strong international presence
provide it with significant competitive advantages and position it for continued
growth.
Since its spin-off from Household International, Inc. in 1989, Scotsman has
expanded through internal growth and through a disciplined acquisition program.
The Company's internal growth has been driven primarily by increased sales of
ice machines in the United States and Europe and beverage systems in Europe. In
addition, from 1992 through 1996, the Company successfully completed and
integrated five acquisitions. As a result of these acquisitions and internal
growth, the Company's net sales increased to $356.4 million in 1996 from $168.7
million in 1992, representing a compound annual growth rate of 20.6%. In March
1997, the Company acquired Kysor for a net purchase price of approximately $299
million (the "Kysor Acquisition"). Kysor is a leading supplier of refrigerated
display cases and walk-in coolers and freezers to the supermarket and
convenience store industries. For 1996, Kysor's sales of commercial
refrigeration products were $245.1 million, an increase of 18.3% from 1995. Pro
forma for the Kysor Acquisition, the Company's 1996 net sales were $601.4
million, a 68.7% increase over the Company's reported 1996 net sales. Through
the addition of Kysor's leading market positions and complementary product
lines, the Company expects to benefit from cross-selling opportunities, as well
as synergies related to reduced overhead, increased purchasing power and shared
research and development efforts.
4
<PAGE> 133
STRATEGY
Scotsman's operating strategy is to continue to capitalize on its
competitive advantages and enhance its customer relationships. The key
components of this strategy include:
CAPITALIZING ON MARKET LEADERSHIP. Scotsman seeks to build and
maintain leading market positions in each of its product lines. Scotsman
believes that its leading market positions, broad product offerings, strong
brand recognition and extensive distribution capabilities position it to
compete successfully as its customers consolidate their supplier base and
expand internationally.
OPTIMIZING MANUFACTURING EFFECTIVENESS AND FLEXIBILITY. To enhance
manufacturing effectiveness, Scotsman has adopted "lean manufacturing"
initiatives that have enhanced product quality, lowered product defects and
inventory costs and reduced lead times for customized products. The
Company's manufacturing processes are designed to produce a range of
different standard or customized models within each manufacturing unit,
thereby increasing efficiency while improving the Company's ability to meet
customers' delivery schedules.
EMPHASIZING PRODUCT QUALITY AND NEW PRODUCT DEVELOPMENT. By applying
its product design, manufacturing and refrigerant technology expertise,
Scotsman seeks to design and manufacture technically superior, durable and
energy efficient products. Scotsman also dedicates substantial resources to
new product development and customizing existing products to meet the
unique performance, size and appearance specifications of individual
customers.
LEVERAGING EXTENSIVE DISTRIBUTION CAPABILITIES TO DELIVER SUPERIOR
CUSTOMER SERVICE. Scotsman has an extensive sales, distribution and service
network that reaches customers in over 100 countries and is comprised of
approximately 200 employees and approximately 3,300 distributors and
dealers. Scotsman believes that this network, which is designed to meet the
needs of customers from product design and purchase through aftermarket
sales and support, provides it with a competitive advantage.
Scotsman also pursues a growth strategy intended to strengthen its
leadership positions within its product lines. The key elements of this strategy
include:
FOCUSING ON MAJOR NATIONAL CHAINS. Scotsman targets major national
chains within the five principal industries it serves. The Company believes
that these national chains are increasingly gaining market share at the
expense of independents and that, as a large diversified manufacturer,
Scotsman is well positioned to benefit from the trend among national chains
to consolidate their supplier base.
PURSUING CROSS-SELLING OPPORTUNITIES. Scotsman actively pursues
opportunities to cross-sell its broad range of products to existing
customers. The broader product range and increased customer base resulting
from the Kysor Acquisition present significant new cross-selling
opportunities for Scotsman.
CAPITALIZING ON INTERNATIONAL OPPORTUNITIES. Over the past several
years, international sales of commercial foodservice and retail food
equipment have grown at rates substantially higher than those for the
United States. The Company expects to use its international marketing,
distribution and manufacturing capabilities as a platform to increase
penetration of growing international markets.
EXPANDING THROUGH STRATEGIC ACQUISITIONS. Scotsman will continue to
explore strategic acquisitions and joint ventures that broaden the
Company's product lines, offer significant operational synergies or
increase the Company's penetration of international markets.
5
<PAGE> 134
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Selling
Stockholders............................ 1,611,699 shares
Common Stock outstanding.................. 10,555,038 shares(1)
Use of proceeds........................... The Company will not receive any proceeds from the sale
of shares of Common Stock in this Offering by the
Selling Stockholders.
New York Stock Exchange ("NYSE") symbol... SCT
</TABLE>
- -------------------------
(1) Based on the shares outstanding as of August 8, 1997 and excluding 637,287
shares then issuable upon the exercise of outstanding stock options and
942,022 shares of Common Stock that were then reserved for future grants
under the Company's stock option plans.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning
Scotsman's operations, performance and financial condition, including, in
particular, the likelihood of the Company's success in integrating acquisitions.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those identified under "Risk Factors" and the
Cautionary Statements included as Exhibit 99 to the Company's Form 10-K for the
fiscal year ended December 29, 1996 and elsewhere in this Prospectus. The
forward-looking statements should be considered in light of these factors.
Unless otherwise indicated by the context, when used in this Prospectus or in
the documents incorporated by reference herein, the words "anticipate,"
"believe," "estimate," "intend" and "expect" and similar expressions are
intended to identify forward-looking statements.
DEBT OFFERING
This Prospectus is part of a Registration Statement that also covers the
offer and sale (the "Debt Offering" and, together with this Offering, the
"Offerings") by the Company's direct wholly owned subsidiary, Scotsman Group
Inc. ("Scotsman Group"), of $100 million aggregate principal amount of its
% Senior Subordinated Notes Due 2007 (the "Notes").
6
<PAGE> 135
SUMMARY SCOTSMAN CONSOLIDATED FINANCIAL AND OTHER INFORMATION
Scotsman reports financial information on a 52-53 week fiscal year ending
on the Sunday nearest to December 31, which fell on December 29, 1996, December
31, 1995, January 1, 1995, January 2, 1994 and January 3, 1993, respectively,
for each of Scotsman's last five fiscal years. Scotsman's first fiscal six
months in 1997 and 1996 ended on June 29, 1997 and June 30, 1996, respectively,
and such results are unaudited.
<TABLE>
<CAPTION>
FIRST FISCAL SIX MONTHS FISCAL YEAR
--------------------------------- ------------------------------------------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1997(1) 1997(2) 1996 1996(1) 1996 1995 1994 1993 1992
----------- ------- ---- ----------- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
INFORMATION:
Net sales................. $310,688 $271,854 $189,956 $601,435 $356,373 $324,291 $266,632 $163,952 $168,674
Cost of sales............. 232,463 200,757 135,692 443,787 257,942 236,402 190,518 114,472 122,226
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit.............. 78,225 71,097 54,264 157,648 98,431 87,889 76,114 49,480 46,448
Selling and administrative
expenses................ 46,280 41,103 30,877 89,943 58,135 53,435 47,900 31,874 31,588
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income from operations.... 31,945 29,994 23,387 67,705 40,296 34,454 28,214 17,606 14,860
Interest expense, net..... 14,510 8,781 2,837 31,334 5,279 6,326 5,416 4,235 4,675
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before income
taxes................... 17,435 21,213 20,550 36,371 35,017 28,128 22,798 13,371 10,185
Income taxes.............. 9,163 10,262 9,866 18,358 16,449 12,720 10,013 5,989 3,793
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before
extraordinary loss and
cumulative effect of
accounting changes...... 8,272 10,951 10,684 18,013 18,568 15,408 12,785 7,382 6,392
Extraordinary loss (net of
income taxes of
$422)(3)................ (633) (633) -- -- -- -- -- -- --
Cumulative effect of
accounting changes(4)... -- -- -- -- -- -- -- 29 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income................ $ 7,639 $ 10,318 $ 10,684 $ 18,013 $ 18,568 $ 15,408 $ 12,785 $ 7,411 $ 6,392
Preferred stock
dividends............... -- -- 562 813 813 1,240 885 -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income available to
common shareholders..... $ 7,639 $ 10,318 $ 10,122 $ 17,200 $ 17,755 $ 14,168 $ 11,900 $ 7,411 $ 6,392
======== ======== ======== ======== ======== ======== ======== ======== ========
Income per share before
extraordinary loss and
cumulative effect of
accounting changes,
fully diluted(5)........ $ .77 $ 1.01 $ 1.00 $ 1.68 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income per share,
fully diluted(5)........ $ .71 $ .95 $ 1.00 $ 1.68 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- -------- -------- --------
OTHER INFORMATION:
EBITDA(6)................. $ 41,312 $ 37,393 $ 27,720 $ 86,607 $ 49,166 $ 42,048 $ 34,233 $ 21,280 $ 18,422
Capital expenditures...... 10,529 7,433 3,360 13,129 6,195 6,513 5,434 3,264 2,012
SELECTED RATIOS:
Ratio of earnings to fixed
charges(7).............. 2.1x 3.3x 7.4x 2.1x 6.8x 5.0x 4.8x 3.9x 3.0x
Ratio of EBITDA to
interest expense........ 2.8x 4.3x 9.8x 2.8x 9.3x 6.6x 6.3x 5.0x 3.9x
Ratio of total debt to
EBITDA.................. -- -- -- 4.2x 1.6x 2.1x 2.6x 1.5x 1.7x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 29, 1997
----------------------------
AS ADJUSTED(8) ACTUAL
-------------- ------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET INFORMATION:
Cash and marketable securities.............................. $ 20,760 $ 20,760
Total assets................................................ 687,128 682,878
Total debt and capitalized lease obligations (including
current maturities)....................................... 367,194 362,944
Working capital............................................. 95,487 95,487
Shareholders' equity........................................ 137,527 137,527
</TABLE>
- -------------------------
(Footnotes on following page)
7
<PAGE> 136
(1) Pro forma for the Kysor Acquisition and as adjusted for the consummation of
the Debt Offering. For a detailed description of the assumptions used in the
preparation of this pro forma as adjusted financial information, see "Pro
Forma Consolidated Financial Information."
(2) Includes results of Kysor for the period from March 10, 1997 through June
29, 1997.
(3) The extraordinary loss resulted from one-time expenses incurred by the
Company relating to the early retirement of certain debt as part of a
refinancing effected by the Company concurrently with the Kysor Acquisition.
(4) Effective January 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions"; Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes"; and Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-employment
Benefits."
(5) The calculation of fully diluted net income per share is based on net income
before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation were:
10,808,946; 10,808,946 and 10,700,100 for the pro forma as adjusted first
fiscal six months of 1997 and the first fiscal six months of 1997 and 1996,
respectively; and 10,728,188; 10,728,188; 10,649,763; 9,488,965; 7,000,651
and 7,096,976 for the 1996 pro forma as adjusted fiscal year and the fiscal
years 1996, 1995, 1994, 1993 and 1992, respectively.
(6) Represents earnings before interest, taxes, accounting charges, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and incur debt. EBITDA
should not be considered by a prospective purchaser of Common Stock as an
alternative to net income or as an indicator of the Company's operating
performance or cash flows.
(7) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before extraordinary loss, cumulative effect of
accounting changes and income taxes, plus fixed charges. Fixed charges
consist of interest expense, amortization of debt expense and implicit
interest expense associated with operating leases.
(8) As adjusted for the consummation of the Debt Offering. See "Debt Offering"
and "Capitalization."
8
<PAGE> 137
SUMMARY KYSOR CONSOLIDATED FINANCIAL AND OTHER INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Net sales................................................... $245,062 $207,215 $164,606
Cost of sales............................................... 185,253 159,460 128,631
-------- -------- --------
Gross profit................................................ 59,809 47,755 35,975
Selling and administrative expenses......................... 35,075 37,589 32,815
Loss on disposition of foreign operation(1)................. -- 9,335 --
-------- -------- --------
Income from operations...................................... 24,734 831 3,160
Interest expense, net....................................... 956 (26) 489
-------- -------- --------
Income before income taxes.................................. 23,778 857 2,671
Income taxes (benefit)...................................... 8,650 (4,695) 870
-------- -------- --------
Net income.................................................. $ 15,128 $ 5,552 $ 1,801
Preferred stock dividends................................... 966 987 980
-------- -------- --------
Net income available to common shareholders................. $ 14,162 $ 4,565 $ 821
======== ======== ========
OTHER INFORMATION:
EBITDA(2)................................................... $ 29,505 $ 14,061 $ 7,519
Capital expenditures........................................ 6,934 6,420 3,107
</TABLE>
- -------------------------
(1) Represents the loss on disposition of Kysor's German subsidiary. The
transaction resulted in a tax benefit of $8.8 million.
(2) Represents earnings before interest, taxes, accounting charges, depreciation
and amortization and loss on disposition of foreign operations. EBITDA is
presented because it is a widely accepted financial indicator of a company's
ability to service and incur debt. EBITDA should not be considered by a
prospective purchaser of Common Stock as an alternative to net income or as
an indicator of Kysor's operating performance or cash flows.
9
<PAGE> 138
RISK FACTORS
Prospective investors should carefully consider and evaluate all of the
information set forth in this Prospectus, including the risks set forth below:
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company's business strategy includes making acquisitions that will
expand its international presence or offer complementary products and services.
See "Business -- Growth Strategy." In pursuing a strategy of acquiring other
businesses, the Company will face risks commonly encountered with growth through
acquisitions.
In March 1997, Scotsman acquired Kysor for a net purchase price of
approximately $299 million. Including the Kysor Acquisition, Scotsman has made
six acquisitions and entered into one alliance and three joint ventures since
its spin-off from Household International, Inc. in April 1989. As a result of
these acquisitions and internal growth, the Company's net sales increased from
$168.7 million for fiscal 1992 to pro forma net sales of $601.4 million for
fiscal 1996. The Kysor Acquisition is the largest acquisition undertaken by the
Company to date and will require significant integration efforts. There can be
no assurance that the Company will be able to integrate Kysor effectively or in
a timely manner or that the beneficial effects expected will be obtained even if
Kysor is integrated as contemplated. See "Kysor Acquisition."
Acquiring businesses has been and is expected to continue to be an
important element of the Company's strategy for achieving growth. Acquisitions
vary in size and may include acquisitions that are large relative to the
Company. There can be no assurance that suitable acquisition candidates will be
identified, that financing for such acquisitions will be available on
satisfactory terms, that the Company will be able to accomplish its strategic
objectives as a result of any such acquisition, that any business or assets
acquired by the Company will be integrated successfully or that integration of
acquired businesses will not divert management resources or otherwise have a
material adverse effect on the Company's business, financial condition or
results of operations. The Company is continually evaluating possible
acquisitions and engages in discussions with acquisition candidates from time to
time.
ABILITY TO MANAGE GROWTH
Scotsman's growth will place a strain on its managerial and other
resources. From December 1993 through June 1997, the number of Company employees
increased from 915 to approximately 3,800. The Company's continued rapid growth
can be expected to place a significant strain on its management, operations,
employees and resources. There can be no assurance that the Company will be able
to manage effectively its expanding operations or achieve planned growth on a
timely or profitable basis. If the Company is unable to manage growth
effectively, its business, results of operations or financial condition could be
materially adversely affected. See "Business -- Growth Strategy."
LEVERAGE
The Kysor Acquisition significantly increased the Company's debt service
obligations. As of June 29, 1997, on a pro forma basis for the Debt Offering,
the Company's indebtedness, including capitalized leases and current maturities,
would have been approximately $367 million, or approximately 73% of its book
capitalization. As of June 29, 1997, without giving effect to the Debt Offering,
the Company's indebtedness, including capitalized leases and current maturities,
was approximately $363 million, or approximately 72% of its book capitalization.
Although the indenture to be executed in conjunction with the Debt Offering (the
"Indenture") will, and the Credit Facility does, contain covenants that limit
the incurrence by the Company, Scotsman Group and certain of their subsidiaries
of additional indebtedness, such limitations are subject to a number of
important qualifications and exceptions and the Company's indebtedness could
increase if, among other reasons, future acquisitions are financed through
additional borrowings. The Company's ability to make scheduled payments of
principal and interest or to refinance its indebtedness will depend on the
Company's operating performance and cash flows, which are affected by prevailing
economic conditions and financial, competitive and other factors beyond the
Company's control. The level of the Company's leverage from time
10
<PAGE> 139
to time could have important consequences to holders of the Common Stock,
including limiting the Company's ability to (i) obtain additional financing for
working capital, capital expenditures, acquisitions or general corporate
purposes; (ii) adjust to changing market conditions, including business
downturns; or (iii) compete effectively with competitors who are less leveraged
than the Company. In addition, certain of the Company's borrowings under the
Credit Facility are and may continue to be at variable rates of interest, which
causes the Company to be vulnerable to increases in interest rates. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
If the Company is unable to generate sufficient cash flows to service its
debt obligations, it will have to adopt one or more alternatives, such as
reducing or delaying planned acquisitions, expansion and capital expenditures,
selling assets, restructuring debt or obtaining additional equity capital. There
can be no assurance that any of these alternatives could be effected on
satisfactory terms.
RESTRICTIONS IMPOSED BY THE CREDIT FACILITY AND THE INDENTURE
The Credit Facility contains, and the Indenture will contain, certain
restrictive covenants, including, among others, covenants with respect to the
following matters: (i) limitations on indebtedness; (ii) limitations on other
senior subordinated indebtedness; (iii) limitations on restricted payments; (iv)
limitations on sale or issuance of restricted subsidiary stock and indebtedness;
(v) limitations on transactions with affiliates; (vi) limitations on liens;
(vii) limitations on asset sales; (viii) limitations on dividends and other
payment restrictions affecting restricted subsidiaries; and (ix) restrictions on
mergers and certain transfers of assets. Although these covenants are subject to
various exceptions that are designed to allow the Company to operate without
undue restraint, there can be no assurance that such covenants will not
adversely affect its ability to finance future operations or capital needs or
engage in other business activities that may be in the interest of the Company.
In addition, the Credit Facility requires the maintenance of specified financial
ratios. The ability of the Company to comply with such provisions may be
affected by events beyond the Company's control. A breach of any of these
covenants or the inability of the Company to comply with the financial ratios
contained in the Credit Facility could result in a default under the Credit
Facility or the Indenture, which could entitle the lenders or the noteholders to
accelerate the maturity of the Credit Facility or the Notes, and could result in
cross-defaults permitting the acceleration of other indebtedness of the Company
and its subsidiaries. Such an event would have a material adverse effect on the
Company. See "Description of Certain Indebtedness."
DEPENDENCE ON CERTAIN CUSTOMERS; CUSTOMER PURCHASING PATTERNS
Although no single customer accounted for 10% or more of Scotsman's 1996
net sales on a historical or pro forma basis, some of the Company's operating
units are dependent upon a limited number of major customers, most of which do
not have long-term purchase contracts with the Company. The Company's five
largest customers represented approximately 9% of the Company's net sales in
1996 and approximately 20% of its 1996 pro forma net sales. Sales of certain
products, including, in particular, refrigerated display cases and food
preparation and storage equipment, are largely dependent upon the expansion and
renovation programs of the Company's large chain customers. Any of these
programs can result in significant revenue for the Company over a limited period
of time, followed by a decline in revenues if the customer's expansion or
upgrade program is modified or terminated. For example, the Company believes the
recently announced slowing of expansion plans by Boston Market, a major customer
of the Company, may negatively impact food preparation and storage equipment
sales in the near term. These purchasing patterns are largely beyond the control
of the Company and can result in substantial fluctuations in the Company's
operating results. Although the Company believes that its relationships with its
customers are good, changes in customer purchasing patterns could have a
material adverse effect on the sales of certain operating units and affect the
volume of the Company's sales.
11
<PAGE> 140
ECONOMIC CONDITIONS
The Company's performance is affected by fluctuations in economic
conditions in the markets in which the Company sells its products, primarily the
United States and Western Europe. The strength or weakness of these economies
may affect the rate of expansion within the restaurant, supermarket, lodging,
healthcare and convenience store industries. In the event of an economic
downturn in any of the economies in which the Company conducts business, the
Company's business, financial condition or operating results could be materially
and adversely affected.
COMPETITION
The primary markets for the Company's products are highly competitive. The
most significant competitive factors are product reliability and performance,
service and price, with the relative importance of such factors varying among
product lines. The Company has a number of competitors in each product line that
it offers. Many of the Company's competitors are small, privately owned
companies. Some of the Company's competitors, however, are divisions of larger
companies, and some have greater financial resources than the Company. The
Company's largest competitors include IMI Cornelius, plc, with whom the Company
competes in beverage systems in Europe; Hussmann Corporation, a subsidiary of
Whitman Corporation, with whom the Company competes in refrigerated display
cases and related equipment in the United States; and The Manitowoc Company,
Inc., with whom the Company competes in walk-in coolers and freezers and ice
machines. Furthermore, the Company believes that the commercial foodservice
equipment industry recently has begun to undergo significant consolidation as
foodservice chains and supermarkets reduce their supplier base. If the Company's
competitors are more successful than the Company in exploiting this
consolidation trend, the Company's profitability or market positions could be
adversely affected.
DEPENDENCE ON KEY PERSONNEL
Scotsman's success to date has depended in large part on the skills and
efforts of Richard C. Osborne, Chairman of the Board, President and Chief
Executive Officer, Donald D. Holmes, Vice President-Finance and Secretary, and
the heads of each of the operating units of the Company. While the Company has
employment agreements with certain of its executive officers, including Messrs.
Osborne and Holmes, there can be no assurance that the Company will be able to
retain the services of its officers and key employees. The loss of Messrs.
Osborne, Holmes or any of the heads of the Company's operating units could have
a material adverse effect on the Company's business, results of operations or
financial condition. See "Management."
FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY
The volume of sales of Scotsman's ice machines, food preparation and
storage equipment and beverage systems is somewhat higher in the second and
third fiscal quarters than in the first and fourth fiscal quarters. Sales of
Scotsman's refrigerated display cases and walk-in coolers and freezers are also
subject to seasonal fluctuations, with sales being typically somewhat stronger
in the second half of the fiscal year. The Company expects that, including
Kysor, the second and third fiscal quarters generally will account for a greater
portion of the annual net sales than the first and fourth fiscal quarters. As a
result of the seasonal nature of its sales, the operating results of the Company
will fluctuate from quarter to quarter and the Company may experience greater
cash needs in the second and third fiscal quarters, which could increase the
borrowing needs of the Company during these periods.
LITIGATION
The Company's results of operations can be negatively impacted by product
liability or other lawsuits and/or by warranty claims or other returns of goods.
Although the Company does not believe that outstanding claims will have a
material adverse effect on the Company, such claims, as well as any future
claims, are subject to the uncertainties attendant to litigation, and the
ultimate outcome of any such proceedings or claims cannot be predicted.
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<PAGE> 141
FOREIGN OPERATIONS AND CURRENCY FLUCTUATIONS
Scotsman sells products in over 100 countries and has manufacturing
operations in the United States, the United Kingdom, Germany and Italy and joint
venture interests in Australia, China, the United Kingdom and Indonesia. Sales
of the Company's products outside of the United States represented approximately
24% of the Company's 1996 pro forma net sales, and the Company anticipates that
international sales will continue to grow. International operations generally
are subject to various political and other risks that are not present in U.S.
operations, including, among other things, the risk of war or civil unrest,
expropriation and nationalization. In addition, certain international
jurisdictions restrict repatriation of the Company's non-U.S. earnings. Various
international jurisdictions also have laws limiting the right and ability of
non-U.S. entities to pay dividends and remit earnings to affiliated companies
unless specified conditions are met. In addition, sales in international
jurisdictions typically are made in local currencies, which subjects the Company
to risks associated with currency fluctuations. Currency devaluations and
unfavorable changes in international monetary and tax policies and other changes
in the international regulatory climate could materially affect the Company's
profitability or growth plans.
ENVIRONMENTAL REGULATION
The operations and properties of the Company are subject to various
federal, state, local and foreign environmental regulations and standards
governing, among other things, emissions to air, discharge to waters and the
generation, storage, handling, transportation, treatment and disposal of a
variety of hazardous and non-hazardous substances and wastes. Because the
requirements imposed by those authorities frequently are revised and
supplemented, with a trend towards greater stringency, expenditures for
compliance responsibilities are difficult to estimate and may exceed anticipated
costs.
The Company or its subsidiaries have been identified as a potentially
responsible party ("PRP") under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") and similar state statutes in
connection with a number of hazardous waste sites, including a number of sites
associated with the former Transportation Products Group of Kysor. See "Kysor
Acquisition." Under existing environmental laws, PRPs are jointly and severally
responsible for the cost of clean-up and other remedial action at these sites,
and each PRP is therefore potentially responsible for the full cost of
remediation. As a practical matter, however, costs generally are shared with
other PRPs, based on each PRP's relative contribution to the problem. Moreover,
the purchaser of the Transportation Products Group has assumed all environmental
liabilities associated with that business. Notwithstanding the assumption of
liabilities by the purchaser, under applicable environmental laws the Company
could incur liabilities related to these and other unknown environmental
matters. Based on the foregoing factors, the relative size of the Company's
contribution to the sites for which it has been named a PRP (including those
sites associated with Kysor's former Transportation Products Group), currently
available information about the cost of remediation at such sites and the
probability that other PRPs, many of which are large, solvent public companies,
will pay the costs apportioned to them, the Company does not believe that any
liability imposed in connection with such environmental proceedings, either
individually or in the aggregate, will have a material adverse effect upon the
Company's financial condition or its results of operations. Furthermore, the
Company believes that compliance with existing and publicly proposed
environmental regulations will not have a material adverse effect on the
business, financial condition or results of operations of the Company. However,
there can be no assurance that the cost of compliance with current or future
regulations or the cost of other environmental obligations will not exceed
current estimates.
GOVERNMENTAL AND OTHER REGULATION
Scotsman's products and manufacturing processes are subject to various
health and safety regulations and standards that are subject to change and from
time to time may require significant changes in products or manufacturing
methods. For example, a new standard issued by the National Sanitation
Foundation that requires the temperature for holding many cold foods to be
lowered from 45 DEGREESF to 41 DEGREESF would, if adopted by state and local
health agencies, require the Company to make various engineering changes to its
refrigerated display cases. Although no assurances can be given, the Company
believes that health and safety matters,
13
<PAGE> 142
including the new temperature requirement for refrigerated cases, will not have
a material adverse effect on its business, results of operations 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 as a result of currently unidentified future problems or
new regulatory developments.
PRICE VOLATILITY
The market price of the Common Stock may be highly volatile and could be
subject to wide fluctuations in response to quarterly variations in operating
results, announcements of significant new contracts or contract cancellations,
announcements of technological innovations or new products or services offered
by the Company or its competitors, changes in financial estimates by securities
analysts or other events or factors. The market price of the Common Stock also
may be affected by the Company's ability to meet analysts' expectations, and any
failure to meet such expectations, even if minor, could have a material adverse
effect on the market price of the Common Stock. In addition, the stock market
has recently experienced significant price and volume fluctuations that have
affected the market prices of equity securities of many companies and that have
often been unrelated to the operating performance of such companies. These broad
market fluctuations may adversely affect the market price of the Common Stock.
Periods of volatility in the market price of a company's securities increase the
likelihood of securities class action litigation. Any such litigation instigated
against the Company could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
on the Company's business, results of operations or financial condition. See
"Price Range of Common Stock and Dividends."
ANTI-TAKEOVER PROVISIONS
Certain provisions in Scotsman's Restated Certificate of Incorporation,
By-Laws, Rights Agreement, Delaware law and the Indenture could have the effect
of making more difficult or discouraging an acquisition of the Company deemed
undesirable by its Board of Directors. These provisions include: (i) a
classified Board of Directors; (ii) the existence of authorized but unissued
preferred stock, which could be issued by the Company's Board of Directors
without stockholder approval, containing such terms as the Board of Directors
may approve; (iii) provisions permitting the Board of Directors to amend the
By-Laws without stockholder vote; (iv) provisions permitting the Board to
increase or decrease the size of the Board; (v) removal of directors only for
cause; (vi) a prohibition against stockholder action by written consent; (vii)
provisions prohibiting stockholders from calling a special meeting; (viii)
advance notice provisions governing stockholder proposals and stockholder
nominations of directions; (ix) the Fair Price Provision of the Company's
Restated Certificate of Incorporation; (x) the Rights Plan; and (xi) the option
granted to holders of the Notes that allows such holders to require Scotsman
Group to repurchase Notes at a redemption price equal to 101% of the principal
amount thereof, plus accrued interest to the date of redemption, upon a Change
of Control (as defined in the Indenture). In addition, certain provisions of
Delaware law applicable to the Company, including Section 203 of the Delaware
General Corporation Law, could have the effect of delaying, deferring or
preventing a change of control of the Company. For a discussion of the foregoing
provisions, see "Description of Capital Stock" and "Description of Certain
Indebtedness -- Senior Subordinated Notes."
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<PAGE> 143
THE COMPANY
Scotsman was formed in 1989 through a spin-off (the "Spin-off") effected by
Household International, Inc. ("Household") of its commercial food service
equipment operations. As a result of the Spin-off, the Company became publicly
traded on the NYSE in April 1989. At the time of the Spin-off, the Company's
businesses consisted of the ice machine businesses of Scotsman Group Inc., the
beverage systems business of Booth, Inc. ("Booth") and various other businesses,
which since have been sold. Since the Spin-off, the Company has grown both
through internal growth and a series of acquisitions. From 1992 through 1996,
the Company successfully completed and integrated the following five strategic
acquisitions:
Crystal Tips. In April 1992, the Company acquired the assets of Crystal
Tips, Inc., a domestic ice machine manufacturer ("Crystal Tips"). The purchase
enabled Scotsman to: (i) broaden its product offerings and increase its brand
recognition; (ii) improve its penetration in secondary market distribution
channels and under-represented segments such as healthcare; and (iii) combine
and re-engineer the manufacturing operations of Booth and Crystal Tips. Crystal
Tips had sales of approximately $15 million for its fiscal year ended prior to
the acquisition.
Simag. In January 1993, Scotsman acquired Simag, an ice machine
manufacturer in Italy. The Simag acquisition reinforced Scotsman's existing
manufacturing and distribution presence in Europe and provided a third Scotsman
brand in the region. Simag had sales of approximately $7 million for its fiscal
year ended prior to the acquisition.
Delfield. In April 1994, the Company acquired The Delfield Company, a maker
of food preparation and storage equipment ("Delfield"). The acquisition
provided: (i) a leading market position in a new, complementary product line;
(ii) opportunities to cross-sell ice machines and other Scotsman products into
Delfield accounts; (iii) benefits of shared knowledge across similar
technologies used by Scotsman's operating units; and (iv) improved purchasing
economies. Delfield had sales of approximately $94 million for its fiscal year
ended prior to the acquisition.
Whitlenge. Simultaneous with the April 1994 Delfield acquisition, Scotsman
acquired Whitlenge Drink Equipment Limited, a U.K.-based beverage systems
manufacturer ("Whitlenge"). Whitlenge gave the Company a leading market position
in beverage systems in the United Kingdom and enhanced the overall strength of
Scotsman's beverage systems product line. In addition, Whitlenge contributed
significantly to the Company's prominence, reputation, distribution strength and
customer relationships in European markets. Whitlenge had sales of approximately
$24 million for its fiscal year ended prior to the acquisition.
Hartek. In December 1995, Scotsman acquired Hartek Beverage Handling GmbH,
a beverage systems manufacturer based in Germany ("Hartek"). Hartek, with
Whitlenge, established the Company as the second largest manufacturer of
beverage systems in Europe, a region Scotsman believes presents substantial
growth prospects. By coordinating technology, purchasing, production and
distribution with Whitlenge, and developing progressive manufacturing
techniques, the Company improved the profitability of Hartek and expanded sales
of beverage systems in Europe. Hartek had sales of approximately $24 million for
its fiscal year ended prior to the acquisition.
In addition to these acquisitions, the Company has entered into two joint
ventures and one strategic alliance as described below:
China. Scotsman owns a 60% interest in a joint venture with Shenyang Xinle
Precision Machinery Company in Shenyang, China, which manufactures and markets
ice machines for the Chinese market. The joint venture sells its ice machines
primarily to commercial foodservice equipment distributors throughout the
People's Republic of China.
United Kingdom. Scotsman is a 50% partner in SAW Technologies Limited, a
joint venture recently formed to develop technologically advanced beverage
dispensing valves ("SAW Technologies"). The joint venture's Aztec valve, already
being sold to a major soft drink bottler in the United Kingdom, is also targeted
for other customers and markets.
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<PAGE> 144
Howe Strategic Alliance. Scotsman's strategic alliance with Howe
Corporation ("Howe") includes distribution and trademark licensing agreements,
which give the Company exclusive worldwide rights to distribute Howe industrial
ice flakers. The agreements were executed in November 1992 for an initial
five-year term. The agreements were renewed in January 1996, and renew
automatically for successive three-year terms unless terminated by either party
by giving a notice at least two years before the expiration of the then-current
term.
The Company's principal executive offices are located at 820 Forest Edge
Drive, Vernon Hills, Illinois 60061 and its telephone number is (847) 215-4500.
KYSOR ACQUISITION
REVIEW OF TRANSACTION
In March 1997, Scotsman acquired Kysor, which at the time was comprised of
the Commercial Products Group, through which Kysor's refrigerated display cases
and walk-in coolers and freezers businesses were conducted, and the
Transportation Products Group, through which Kysor sold a line of products to
the transportation industry. The Company paid approximately $309 million in cash
and assumed $35.0 million in debt, net of cash, for both the Commercial Products
Group and the Transportation Products Group. Concurrently with the Kysor
Acquisition, Scotsman sold substantially all of the assets of the Transportation
Products Group for $86.0 million (approximately $68 million net of taxes) to a
subsidiary of Kuhlman Corporation. Including estimated transaction and severance
costs of $22.5 million, the net purchase price for the Commercial Products Group
was approximately $299 million. The subsidiary of Kuhlman Corporation assumed
substantially all liabilities related to the Transportation Products Group,
including environmental and product liabilities. The Company financed the Kysor
Acquisition through a new unsecured bank facility. See "Description of Certain
Indebtedness."
Kysor's Commercial Products Group operates through its Kysor//Warren and
Kysor Panel Systems divisions. Kysor//Warren is the second largest U.S.
manufacturer of refrigerated display cases, and Kysor Panel Systems is the
leading manufacturer of walk-in coolers and freezers in the United States. In
1996, approximately 80% of Kysor's sales were to supermarket chains, with the
remaining 20% primarily to restaurants and convenience stores. In 1996, Kysor's
Commercial Products Group had sales of $245.1 million, an increase of 18.3% over
1995. This increase was driven primarily by strong demand from supermarket
chains and the inclusion of sales of NAX of North America, which was acquired by
Kysor in March 1996.
In addition, as a result of the Kysor Acquisition, the Company now owns
23.8% of the outstanding shares of Austral Refrigeration Pty. Ltd., the parent
company of Kysor//Warren Australia, Pty. Ltd., a licensee and manufacturer of
Kysor refrigerated display cases primarily in Australia ("Kysor//Warren
Australia"). Kysor//Warren Australia is a leading supplier of refrigerated
display cases in the Australian market. Kysor//Warren Australia owns a 50%
interest in an Indonesian joint venture, which the Company believes is the only
manufacturer of refrigerated display cases in Asia.
STRATEGIC RATIONALE
Scotsman believes the addition of Kysor presents significant opportunities
to increase the Company's sales and profitability. While both Scotsman and Kysor
historically have served a similar customer base, Scotsman generally has had
stronger relationships in the restaurant, lodging and healthcare industries and
Kysor has had stronger relationships with supermarket and convenience store
chains. The Company believes that significant cross-selling opportunities exist
to broaden penetration and distribution of Scotsman's products to Kysor's
customers and vice versa. The Company believes that similarities in the
marketing, distribution and product technology employed by the two companies
will facilitate integration. Additional benefits from the transaction include
combined purchasing economies, research and development efficiencies, the
sharing of best practices, particularly in manufacturing, and reductions in
overhead expense.
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<PAGE> 145
POST-ACQUISITION INTEGRATION
Scotsman has consolidated Kysor's operations from four divisions to two.
Kysor's Bangor unit, a manufacturer of a specialty line of refrigerated display
cases, was integrated with Kysor//Warren, and Kysor's Kalt and Needham
businesses, which manufacture walk-in coolers and freezers, were combined to
form Kysor Panel Systems. This reorganization and the development of coordinated
national sales efforts are expected to result in cost savings and marketing and
distribution efficiencies. In addition, Scotsman eliminated approximately 20
redundant positions, primarily located at Kysor's former headquarters in
Cadillac, Michigan, which resulted in a cost savings of $5.3 million in 1996 on
a pro forma basis.
DEBT OFFERING
This Prospectus is part of a Registration Statement that also covers the
offer and sale by the Company's direct wholly owned subsidiary, Scotsman Group,
of $100 million aggregate principal amount of its Senior Subordinated Notes Due
2007 to the public. The payment of principal and interest in respect of the
Notes is unconditionally guaranteed by the Company. The Indenture will contain
certain covenants, including covenants with respect to the following matters:
(i) limitations on indebtedness; (ii) limitations on other senior subordinated
indebtedness; (iii) limitations on restricted payments; (iv) limitations on sale
or issuance of restricted subsidiary stock and indebtedness; (v) limitations on
transactions with affiliates; (vi) limitations on liens; (vii) limitations on
asset sales; (viii) limitations on dividends and other payment restrictions
affecting restricted subsidiaries; and (ix) restrictions on mergers and certain
transfers of assets. See "Description of Certain Indebtedness -- Senior
Subordinated Notes." The Offerings are separate and independent transactions not
contingent upon one another. There can be no assurance that the Debt Offering
will be consummated concurrently with this Offering or at all.
The net proceeds to Scotsman Group in the Debt Offering are estimated to be
approximately $95,750,000. Scotsman Group intends to apply such net proceeds to
repay $30 million of term loan borrowings outstanding under the Credit Facility
and approximately $65,750,000 of revolving loan borrowings outstanding under the
Credit Facility. See "Capitalization" and "Description of Certain Indebtedness."
As of June 29, 1997, interest on the term loan portion of the Credit Facility
and the revolving loan portion of the Credit Facility accrued at rates ranging
from 7.0625% to 7.9375% per annum. At June 29, 1997, there was approximately
$150 million of term loan borrowings outstanding under the Credit Facility and
approximately $195 million of revolving loan borrowings outstanding under the
Credit Facility.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders in this Offering.
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<PAGE> 146
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed and traded on the NYSE under the symbol "SCT."
The following table sets forth the high and low sale prices of the Common Stock
for the periods indicated and the cash dividends per share of Common Stock
declared and paid during such periods.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PER SHARE
---- --- ---------
<S> <C> <C> <C> <C> <C>
FISCAL YEAR 1995:
First Quarter............................................... $18 5/8 $16 7/8 $0.025
Second Quarter.............................................. 19 3/4 17 0.025
Third Quarter............................................... 20 15 1/8 0.025
Fourth Quarter.............................................. 17 3/4 16 0.025
FISCAL YEAR 1996:
First Quarter............................................... $18 $17 $0.025
Second Quarter.............................................. 21 17 7/8 0.025
Third Quarter............................................... 24 19 1/2 0.025
Fourth Quarter.............................................. 24 7/8 22 3/4 0.025
FISCAL YEAR 1997:
First Quarter............................................... $29 3/8 $23 $0.025
Second Quarter.............................................. 28 1/2 24 1/2 0.025
Third Quarter............................................... 28 11/16 25 1/4 0.025
Fourth Quarter (through October 21, 1997)................... 27 9/16 25 5/16
</TABLE>
For a recent sale price of the Common Stock, see the cover page of this
Prospectus. On September 9, 1997, there were approximately 4,200 holders of
record of the Common Stock.
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<PAGE> 147
CAPITALIZATION
The following table sets forth (i) the consolidated actual capitalization
of the Company as of June 29, 1997 (including short-term debt and current
maturities of capitalized lease obligations and long-term debt of the Company)
and (ii) the consolidated pro forma capitalization of the Company (including
short-term debt and current maturities of capitalized lease obligations and
long-term debt of the Company) as adjusted for the consummation of the Debt
Offering and the application of the net proceeds to be received by the Company
therefrom as described in "Debt Offering," as if such event had occurred on June
29, 1997. This table should be read in conjunction with the consolidated
historical and pro forma financial information included or incorporated by
reference elsewhere in this Prospectus, including the notes thereto.
<TABLE>
<CAPTION>
AS OF JUNE 29, 1997
----------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt and current maturities of capitalized lease
obligations and long-term debt............................ $ 19,410 $ 19,410
Long-term debt and capitalized lease obligations:
Credit Facility........................................ 327,655 231,905
% Senior Subordinated Notes Due 2007.............. -- 100,000
Industrial revenue bonds............................... 12,800 12,800
Foreign and other borrowings........................... 2,801 2,801
Capitalized lease obligations.......................... 278 278
-------- --------
Total long-term debt and capitalized lease
obligations......................................... 343,534 347,784
Shareholders' Equity:
Common stock, $0.10 par value, 50,000,000 shares
authorized; 10,736,463 actual and as adjusted shares
issued................................................ 1,074 1,074
Additional paid in capital............................. 73,320 73,320
Retained earnings...................................... 71,827 71,827
Deferred compensation and unrecognized pension cost.... (177) (177)
Foreign currency translation adjustments............... (7,062) (7,062)
Less: Common stock held in treasury:................... (1,455) (1,455)
-------- --------
Total shareholders' equity........................... 137,527 137,527
-------- --------
Total capitalization (including short-term debt and
current maturities of capitalized lease obligations
and long-term debt)................................. $500,471 $504,721
======== ========
</TABLE>
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<PAGE> 148
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The consolidated balance sheet information of the Company presented below
as of the end of each of the 1996 and 1995 fiscal years and the income statement
and other information of the Company presented below for each of the 1996, 1995
and 1994 fiscal years have been derived from, and should be read in conjunction
with, the Company's consolidated financial statements and notes thereto, which
have been audited by Arthur Andersen LLP, independent public accountants, and
which are included and incorporated by reference elsewhere in this Prospectus.
The consolidated balance sheet information of the Company presented below as of
the end of each of the 1994, 1993 and 1992 fiscal years and the income statement
and other information of the Company presented below for each of the 1993 and
1992 fiscal years have been derived from audited consolidated financial
statements of the Company not included or incorporated by reference in this
Prospectus. The balance sheet information of the Company presented below as of
June 29, 1997 and the income statement and other information of the Company
presented below for the first fiscal six months ended June 29, 1997 and June 30,
1996, respectively, have been derived from, and should be read in conjunction
with, the Company's unaudited consolidated financial statements which are
included and incorporated by reference elsewhere in this Prospectus. The
unaudited financial information includes all adjustments, consisting only of
normal recurring accruals, that the Company considers necessary for a fair
presentation of the consolidated financial position and consolidated results of
operations for the periods reflected therein. All of the consolidated financial
information presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the other consolidated historical and pro forma financial information included
or incorporated by reference elsewhere in this Prospectus, including the notes
thereto.
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<PAGE> 149
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
<TABLE>
<CAPTION>
FIRST FISCAL SIX
MONTHS FISCAL YEAR ENDED
------------------- ----------------------------------------------------
1997(1) 1996 1996 1995 1994 1993 1992
------- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Net sales..................... $271,854 $189,956 $356,373 $324,291 $266,632 $163,952 $168,674
Cost of sales................. 200,757 135,692 257,942 236,402 190,518 114,472 122,226
-------- -------- -------- -------- -------- -------- --------
Gross profit.................. 71,097 54,264 98,431 87,889 76,114 49,480 46,448
Selling and administrative
expenses.................... 41,103 30,877 58,135 53,435 47,900 31,874 31,588
-------- -------- -------- -------- -------- -------- --------
Income from operations........ 29,994 23,387 40,296 34,454 28,214 17,606 14,860
Interest expense, net......... 8,781 2,837 5,279 6,326 5,416 4,235 4,675
-------- -------- -------- -------- -------- -------- --------
Income before income taxes.... 21,213 20,550 35,017 28,128 22,798 13,371 10,185
Income taxes.................. 10,262 9,866 16,449 12,720 10,013 5,989 3,793
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary
loss and effect of
accounting changes.......... 10,951 10,684 18,568 15,408 12,785 7,382 6,392
Extraordinary loss (net of
income taxes of $422)(2).... (633) -- -- -- -- -- --
Cumulative effect of
accounting changes(3)....... -- -- -- -- -- 29 --
-------- -------- -------- -------- -------- -------- --------
Net income.................... $ 10,318 $ 10,684 $ 18,568 $ 15,408 $ 12,785 $ 7,411 $ 6,392
Preferred stock dividends..... -- 562 813 1,240 885 -- --
-------- -------- -------- -------- -------- -------- --------
Net income available to common
shareholders................ $ 10,318 $ 10,122 $ 17,755 $ 14,168 $ 11,900 $ 7,411 $ 6,392
======== ======== ======== ======== ======== ======== ========
Income per share before
extraordinary loss and
cumulative effect of
accounting changes:
Primary(4).................. $ 1.01 $ 1.10 $ 1.85 $ 1.58 $ 1.49 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
Fully diluted(5)............ $ 1.01 $ 1.00 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
Net income per share:
Primary(4).................. $ .96 $ 1.10 $ 1.85 $ 1.58 $ 1.49 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
Fully diluted(5)............ $ .95 $ 1.00 $ 1.73 $ 1.45 $ 1.35 $ 1.06 $ .90
-------- -------- -------- -------- -------- -------- --------
OTHER INFORMATION:
EBITDA(6)..................... $ 37,393 $ 27,720 $ 49,166 $ 42,048 $ 34,233 $ 21,280 $ 18,422
Capital expenditures.......... 7,433 3,360 6,195 6,513 5,434 3,264 2,012
SELECTED RATIOS:
Ratio of earnings to fixed
charges(7).................. 3.3x 7.4x 6.8x 5.0x 4.8x 3.9x 3.0x
Ratio of EBITDA to interest
expense..................... 4.3x 9.8x 9.3x 6.6x 6.3x 5.0x 3.9x
Ratio of total debt to
EBITDA...................... -- -- 1.6x 2.1x 2.6x 1.5x 1.7x
BALANCE SHEET INFORMATION:
(AT END OF PERIODS):
Cash and marketable
securities.................. $ 20,760 $ 16,699 $ 16,501 $ 15,808 $ 9,770 $ 8,462 $ 5,202
Total assets.................. 682,878 302,100 283,264 275,943 244,791 103,173 96,103
Total debt and capitalized
lease obligations (including
current maturities)......... 362,944 86,845 76,606 87,756 88,191 32,176 31,454
Working capital............... 95,487 74,488 59,321 54,828 54,565 36,318 32,355
Shareholders' equity.......... 137,527 122,655 131,712 112,319 86,463 33,994 30,146
</TABLE>
- -------------------------
(Footnotes on following page)
21
<PAGE> 150
- -------------------------
(1) Includes results of Kysor for the period from March 10, 1997 through June
29, 1997.
(2) The extraordinary loss resulted from one-time expenses incurred relating to
the early retirement of certain debt of the Company prior to the Kysor
Acquisition.
(3) Effective January 4, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions"; Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes"; and Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-employment
Benefits."
(4) Primary earnings per common share are computed by dividing net income
available to common shareholders by the weighted average number of shares of
common stock and common stock equivalents outstanding during each period.
The weighted average number of shares of common stock and common stock
equivalents were: 10,799,284 and 9,228,046 for the first fiscal six months
of 1997 and 1996, respectively; and 9,601,422; 8,983,709; 7,980,996;
7,000,651 and 7,096,976 for the 1996, 1995, 1994, 1993 and 1992 fiscal
years, respectively.
(5) The calculation of fully diluted net income per share is based on net income
before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation were:
10,808,946 and 10,700,100 for the first fiscal six months of 1997 and 1996,
respectively; and 10,728,188; 10,649,763; 9,488,965; 7,000,651 and 7,096,976
for the 1996, 1995, 1994, 1993 and 1992 fiscal years, respectively.
(6) Represents earnings before interest, taxes, accounting charges, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and incur debt. EBITDA
should not be considered by a prospective purchaser of Common Stock as an
alternative to net income or as an indicator of the Company's operating
performance or cash flows.
(7) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before extraordinary loss, cumulative effect of
accounting changes and income taxes, plus fixed charges. Fixed charges
consist of interest expense, amortization of debt expense and implicit
interest expense associated with operating leases.
22
<PAGE> 151
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following pro forma consolidated financial statements for the fiscal
six months ended June 29, 1997 and the fiscal year ended December 29, 1996 are
presented to illustrate the estimated effects of the completion of the Kysor
Acquisition and the financing thereof and the consummation of the Debt Offering
as if such transactions had occurred at the beginning of the periods shown. See
"Debt Offering."
The Kysor Acquisition was accounted for using the purchase method of
accounting. Accordingly, assets acquired and liabilities assumed were recorded
at their estimated fair values which are subject to further refinement,
including final appraisals and other analyses, with appropriate recognition
given to the effect of current interest rates and income taxes.
The pro forma consolidated financial statements do not purport to represent
the financial position or results of operations that would have resulted if the
transactions had been consummated on the dates assumed or the results of
operations to be expected in the future. In addition to certain cost savings
reflected in the pro forma consolidated income statements, 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.
See "Kysor Acquisition -- Strategic Rationale" and "Kysor Acquisition --
Post-Acquisition Integration."
The pro forma consolidated financial information is based on certain
assumptions and adjustments described in the notes thereto. Such financial
information should be read in conjunction with such notes, the discussion under
"Kysor Acquisition" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and the consolidated financial
statements and related notes of Scotsman and Kysor included and incorporated by
reference in this Prospectus.
23
<PAGE> 152
PRO FORMA CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
FISCAL SIX MONTHS ENDED JUNE 29, 1997
-----------------------------------------------------------------------------------------
SCOTSMAN KYSOR ACQUISITION DEBT OFFERING PRO FORMA
ACTUAL(1) ACTUAL(2) ADJUSTMENTS(3) PRO FORMA ADJUSTMENTS AS ADJUSTED
--------- --------- -------------- --------- ------------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... $271,854 $38,834 $ -- $310,688 $ -- $310,688
Cost of sales....................... 200,757 31,583 123(4) 232,463 -- 232,463
-------- ------- ------- -------- ------- --------
Gross profit........................ 71,097 7,251 (123) 78,225 -- 78,225
Selling and administrative
expenses.......................... 41,103 9,076 (3,899)(5) 46,280 -- 46,280
-------- ------- ------- -------- ------- --------
Income from operations.............. 29,994 (1,825) 3,776 31,945 -- 31,945
Interest expense, net............... 8,781 68 4,573(6) 13,422 1,088(7) 14,510
-------- ------- ------- -------- ------- --------
Income before income taxes.......... 21,213 (1,893) (797) 18,523 (1,088) 17,435
Income taxes........................ 10,262 (795) 131(8) 9,598 (435)(8) 9,163
-------- ------- ------- -------- ------- --------
Income before extraordinary loss.... 10,951 (1,098) (928) 8,925 (653) 8,272
Extraordinary loss (net of income
taxes of $422).................... (633)(9) -- -- (633) -- (633)
-------- ------- ------- -------- ------- --------
Net income.......................... $ 10,318 $(1,098) $ (928) $ 8,292 $ (653) $ 7,639
Preferred stock dividends........... -- 176 (176)(10) -- -- --
-------- ------- ------- -------- ------- --------
Net income available to common
shareholders...................... $ 10,318 $(1,274) $ (752) $ 8,292 $ (653) $ 7,639
======== ======= ======= ======== ======= ========
Income per share before
extraordinary loss:
Primary(11)..................... $ 1.01 $ .77
-------- --------
Fully diluted(12)............... $ 1.01 $ .77
-------- --------
Net income per share:
Primary(11)..................... $ .96 $ .71
-------- --------
Fully diluted(12)............... $ .95 $ .71
-------- --------
</TABLE>
- -------------------------
(1) Includes results of Kysor for the period from March 10, 1997 through June
29, 1997.
(2) Results included for Kysor are those from continuing operations through
March 9, 1997. The results of the discontinued Transportation Products
Group are excluded.
(3) 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.
(4) Represents the incremental increase in depreciation expense caused by the
recording of property, plant and equipment of Kysor at fair value.
(5) Represents the following adjustments:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(i) Net decrease in administrative expenses due to the
elimination of Kysor's world headquarters and the
consolidation of four Kysor business units into two business
units;...................................................... $(1,489)
(ii) Elimination of the amortization and deferral components of
pension expense for Kysor's defined benefit and
post-retirement plans (due to the complexities associated
with pension accounting, this benefit may not necessarily be
a representative element of pension expense in the
future);.................................................... (412)
(iii) Net increase in the amortization of goodwill recorded as a
result of the Kysor Acquisition;............................ 874
(iv) One-time costs incurred in anticipation of the completion of
the Kysor Acquisition; and.................................. (2,917)
(v) Incremental depreciation expense resulting from the
recording of property, plant and equipment of Kysor at fair
value....................................................... 45
-------
$(3,899)
=======
</TABLE>
(6) Represents an increase in interest expense due to increased levels of
borrowings under the Credit Facility to finance the Kysor Acquisition and
refinance certain debt of Scotsman and Kysor (the "Kysor Debt") and the
amortization of fees incurred in conjunction with the execution of the
Credit Facility.
(7) Represents the incremental amount of increased interest expense resulting
from the sale of the Notes and the application of the net proceeds thereof
to repay a portion of the Kysor Debt and the amortization of fees incurred
in connection with the sale of the Notes. See "Debt Offering."
(8) Represents the tax effect of the adjustments made as a result of the Kysor
Acquisition and the Debt Offering, net of non-deductible goodwill.
(9) The extraordinary loss resulted from one-time expenses incurred relating to
the early retirement of certain debt of the Company prior to the Kysor
Acquisition.
(10) 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.
(11) Primary earnings per common share are computed by dividing net income
available to common shareholders by the weighted average number of common
shares and common stock equivalents outstanding of 10,799,284 for the
actual and pro forma as adjusted periods.
(12) The calculation of fully diluted net income per share is based on net
income before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation for the actual
and pro forma as adjusted periods was 10,808,946.
24
<PAGE> 153
PRO FORMA CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 29, 1996
----------------------------------------------------------------------------------------
SCOTSMAN KYSOR ACQUISITION DEBT OFFERING PRO FORMA
ACTUAL ACTUAL(1) ADJUSTMENTS(2) PRO FORMA ADJUSTMENTS AS ADJUSTED
-------- --------- -------------- --------- ------------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................. $356,373 $245,062 $ -- $601,435 $ -- $601,435
Cost of sales......................... 257,942 185,253 592(3) 443,787 -- 443,787
-------- -------- -------- -------- ------- --------
Gross profit.......................... 98,431 59,809 (592) 157,648 -- 157,648
Selling and administrative expenses... 58,135 35,157 (3,349)(4) 89,943 -- 89,943
-------- -------- -------- -------- ------- --------
Income from operations................ 40,296 24,652 2,757 67,705 -- 67,705
Interest expense, net................. 5,279 874 23,006(5) 29,159 2,175(6) 31,334
-------- -------- -------- -------- ------- --------
Income before income taxes............ 35,017 23,778 (20,249) 38,546 (2,175) 36,371
Income taxes.......................... 16,449 8,650 (5,871)(7) 19,228 (870)(7) 18,358
-------- -------- -------- -------- ------- --------
Net income............................ $ 18,568 $ 15,128 $(14,378) $ 19,318 $(1,305) $ 18,013
Preferred stock dividends............. 813 966 (966)(8) 813 -- 813
-------- -------- -------- -------- ------- --------
Net income available to common
shareholders........................ $ 17,755 $ 14,162 $(13,412) $ 18,505 $(1,305) $ 17,200
======== ======== ======== ======== ======= ========
Net income per share:
Primary(9).......................... $ 1.85 $ 1.79
-------- --------
Fully diluted(10)................... $ 1.73 $ 1.68
-------- --------
</TABLE>
- -------------------------
(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.
(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
elimination of Kysor's world headquarters and the
consolidation of four Kysor business units into two business
units;...................................................... $(5,957)
(ii) Elimination of the amortization and deferral components of
pension expense for Kysor's defined benefit and
post-retirement plans (due to the complexities associated
with pension accounting, this benefit may not necessarily be
a representative element of pension expense in the
future);.................................................... (1,979)
(iii) Net increase in the amortization of goodwill recorded from
the purchase of Kysor by Scotsman; and...................... 4,374
(iv) Incremental depreciation expense resulting from the
recording of property, plant and equipment at fair value.... 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 and the amortization of
fees incurred in conjunction with the execution of the Credit Facility.
(6) Represents the incremental amount of increased interest expense resulting
from the sale of the Notes and the application of the net proceeds thereof
to repay a portion of the Kysor Debt and the amortization of fees incurred
in connection with the sale of the Notes. See "Debt Offering."
(7) Represents the tax effect of the adjustments made as a result of the Kysor
Acquisition and the Debt Offering, net of non-deductible goodwill.
(8) 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.
(9) Primary earnings per common share are computed by dividing net income
available to common shareholders by the weighted average number of common
shares and common stock equivalents outstanding of 9,601,422 for the actual
and pro forma as adjusted periods.
(10) The calculation of fully diluted net income per share is based on net
income before preferred stock dividends. The number of shares assumes the
conversion of the convertible preferred stock from the date of issue. The
total number of shares used in the fully diluted calculation for the actual
and pro forma as adjusted periods was 10,728,188.
25
<PAGE> 154
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 29, 1996
------------------------------------------------------------------------------------
SCOTSMAN KYSOR ACQUISITION DEBT OFFERING PRO FORMA
ACTUAL ACTUAL ADJUSTMENTS(1) PRO FORMA ADJUSTMENTS AS ADJUSTED
-------- ------ -------------- --------- ------------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and temporary cash
investments................. $ 16,501 $ 8,354 $ -- $ 24,855 $ -- $ 24,855
Trade accounts and notes
receivable, net of
allowances.................. 58,734 34,654 -- 93,388 -- 93,388
Inventories................... 52,530 26,900 -- 79,430 -- 79,430
Deferred income taxes......... 4,708 4,927 14,520(2) 24,155 -- 24,155
Other current assets.......... 5,101 928 1,560(3) 7,589 -- 7,589
-------- -------- -------- -------- -------- --------
Total current assets..... 137,574 75,763 16,080 229,417 -- 229,417
Properties and equipment, net..... 46,659 29,732 6,670(4) 83,061 -- 83,061
Goodwill, net..................... 94,975 6,474 184,553(5) 286,002 -- 286,002
Deferred income taxes............. -- 4,667 14,598(6) 19,265 -- 19,265
Other noncurrent assets........... 4,056 33,770 2,842(7) 40,668 4,250(8) 44,918
Net assets of discontinued
operations...................... -- 38,656 (38,656)(9) -- -- --
-------- -------- -------- -------- -------- --------
Total assets............. $283,264 $189,062 $186,087 $658,413 $ 4,250 $662,663
======== ======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities:
Short-term debt and current
maturities of capitalized
lease obligations and
long-term
debt........................ $ 16,317 $ 5,799 $ (5,799)(10) $ 16,317 $ -- $ 16,317
Trade accounts payable........ 22,344 14,046 -- 36,390 -- 36,390
Accrued income taxes.......... 6,302 1,812 18,000(11) 26,114 -- 26,114
Accrued expenses.............. 33,290 16,928 18,922(12) 69,140 -- 69,140
-------- -------- -------- -------- -------- --------
Total current
liabilities............ 78,253 38,585 31,123 147,961 -- 147,961
% Senior Subordinated Notes Due
2007............................ -- -- -- -- 100,000(13) 100,000
Long-term debt and capitalized
lease obligations............... 60,289 32,822 248,318(14) 341,429 (95,750)(13) 245,679
Deferred income taxes............. 3,710 -- 3,695(6) 7,405 -- 7,405
Other noncurrent liabilities...... 9,300 14,247 6,359(15) 29,906 -- 29,906
-------- -------- -------- -------- -------- --------
Total liabilities........ 151,552 85,654 289,495 526,701 4,250 530,951
Shareholders' Equity:
Preferred stock............... -- 6,244 (6,244)(16) -- -- --
Common stock.................. 1,073 5,935 (5,935)(16) 1,073 -- 1,073
Additional paid in capital.... 73,053 8,742 (8,742)(16) 73,053 -- 73,053
Retained earnings............. 62,036 82,343 (82,343)(16) 62,036 -- 62,036
Deferred compensation and
unrecognized pension cost... (117) -- -- (117) -- (117)
Note receivable -- common
stock....................... -- (1,047) 1,047(16) -- -- --
Foreign currency translation
adjustments................. (2,877) 1,191 (1,191)(16) (2,877) -- (2,877)
Less: Common stock held in
treasury.................... (1,456) -- -- (1,456) -- (1,456)
-------- -------- -------- -------- -------- --------
Total shareholders'
equity................. 131,712 103,408 (103,408) 131,712 0 131,712
-------- -------- -------- -------- -------- --------
Total liabilities and
shareholders' equity... $283,264 $189,062 $186,087 $658,413 $ 4,250 $662,663
======== ======== ======== ======== ======== ========
</TABLE>
- -------------------------
(Footnotes on following page)
26
<PAGE> 155
- -------------------------
(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.
(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, the purchaser of Kysor's Transportation Products Group, and
Scotsman.
(4) Represents the adjustment to record the net book value of Kysor's
properties and equipment at their estimated fair values.
(5) Represents the 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>
<C> <S> <C>
(i) Elimination of previously existing unrecognized net gain,
unrecognized prior service cost, and unrecognized net asset
for Kysor's defined benefit plans;.......................... $ 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) Reflects the capitalization of the estimated amount of (i) underwriting
discounts and commissions to be paid by the Company in the Debt Offering,
(ii) fees and expenses to be paid by the Company in connection with the
Credit Facility Amendment, as described under "Description of Certain
Indebtedness -- Credit Facility," and (iii) other fees and expenses to be
paid by the Company in connection with the Offerings.
(9) 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.
(10) Scotsman retired the short-term debt of Kysor assumed by Scotsman and
refinanced a portion of its short-term debt outstanding at December 29,
1996 through utilization of the Credit Facility.
(11) Represents the estimated tax payment on the gain associated with the sale
of the Transportation Products Group of Kysor.
(12) Represents the following adjustments:
<TABLE>
<S> <S> <C>
(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
=======
</TABLE>
(13) Represents the issuance of the Notes and the use of the net proceeds
therefrom as described under "Debt Offering."
(14) Represents the net increase in Credit Facility resulting from (i) the
financing of the Kysor Acquisition, including the application of cash
received from the sale of the Transportation Products Group to reduce
borrowings under the Credit Facility; (ii) the refinancing of approximately
$45 million of Scotsman's long-term debt outstanding as of December 29,
1996, through utilization of the Credit Facility; and (iii) the refinancing
of approximately $33 million of long-term debt of Kysor through utilization
of the Credit Facility.
(15) Represents the following adjustments:
<TABLE>
<S> <S> <C>
(i) Severance and other employee benefits payable;.............. $4,297
(ii) Elimination of previously unrecognized loss, unrecognized
prior service cost and unrecognized net obligation for
Kysor's defined benefit and post-retirement plans; and...... 1,367
(iii) Other....................................................... 695
------
$6,359
======
</TABLE>
(16) Represents the elimination of Kysor equity resulting from the Kysor
Acquisition.
27
<PAGE> 156
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of results of operations and capital
resources and liquidity should be read in conjunction with the Company's and
Kysor's audited consolidated financial statements and notes thereto included and
incorporated by reference elsewhere in this Prospectus. In addition to
historical information, the following discussion and analysis of financial
condition and results of operations contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
significantly from those anticipated as a result of unforeseen factors. For a
discussion of certain factors that could cause actual results to differ from
those anticipated, see "Risk Factors" and the Cautionary Statements included in
Exhibit 99 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 29, 1996, which is incorporated herein by reference. Unless otherwise
indicated by the context, when used in the following discussion or in the
documents incorporated by reference herein, the words "anticipate," "believe,"
"estimate," "intend" and "expect," and similar expressions are intended to
identify forward-looking statements.
OVERVIEW
Scotsman is a leading international manufacturer of a diversified line of
commercial refrigeration products, food preparation equipment and beverage
systems that is sold primarily to customers in the restaurant, supermarket,
lodging, healthcare and convenience store industries. The Company has a leading
market position in each of its five product lines, which consist of ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage systems. Scotsman's customers include
many of the largest chains in the quick service restaurant, supermarket, lodging
and convenience store industries. The Company sells its products in over 100
countries through multiple distribution channels and has manufacturing
capabilities in the United States, the United Kingdom, Germany and Italy and
interests in joint ventures in Australia, China, the United Kingdom and
Indonesia.
Kysor Acquisition. In March 1997, the Company acquired Kysor for a net
purchase price of approximately $299 million. Due to the significance of the
Kysor Acquisition, the Company's future operating results and capital structure
will be materially different from, and will not be comparable to, prior periods.
For fiscal year 1996, Kysor's sales of commercial refrigeration products were
$245.1 million, an increase of 18.3% from 1995. Combining Kysor's 1996 sales
with those of the Company for the comparable period results in pro forma net
sales for the Company of $601.4 million, a 68.7% increase over the Company's
reported 1996 sales. The Company's operating income in 1997 is expected to
increase significantly as a result of the Kysor Acquisition and associated
benefits, while amortization of goodwill and interest expense also are expected
to increase significantly. Kysor's results are expected to be accretive to
Scotsman's fully diluted earnings per share in the second half of 1997 and for
the full year. The Company expects that, including Kysor, the second and third
fiscal quarters generally will account for a greater portion of the annual net
sales of the Company than the first and fourth fiscal quarters.
Net Sales. The Company's revenues are diversified among its five product
lines, with ice machines and refrigerated display cases, its two largest product
lines, each representing approximately 29% of the Company's 1996 pro forma net
sales, and food preparation and storage equipment, walk-in coolers and freezers
and beverage systems representing approximately 19%, 12% and 11% of the
Company's 1996 pro forma net sales, respectively. In 1996, international sales
of Scotsman's and Kysor's products were approximately $144 million, which
accounted for approximately 24% of the Company's 1996 pro forma net sales, and
the Company anticipates that international sales will continue to grow.
Cost of Sales. The principal elements of cost of sales are raw materials
(such as stainless steel, galvanized steel, aluminum and copper), labor and
manufacturing overhead. The Company's costs are affected by fluctuating raw
material costs. Because of the large quantities of raw materials purchased by
the Company, it is able to buy raw materials at prices that are competitive. The
Company has a number of manufacturing facilities for its five product lines,
and, accordingly, the Company's overall gross margin is impacted by its product
mix, raw material costs and plant utilization rates.
28
<PAGE> 157
Selling and Administrative Expenses. Selling and administrative expenses
include salaries, wages and related expenses associated with developing,
marketing and selling the Company's products. In addition, selling and
administrative expenses include general corporate overhead and costs associated
with various administrative functions. While certain of these expenses vary with
the level of net sales, many are relatively fixed over wide ranges of unit
volume.
Goodwill. The goodwill associated with the businesses acquired by Scotsman
through 1996 is being amortized over 40 years using the straight-line method.
The Company also will amortize the goodwill associated with the Kysor
Acquisition over 40 years using the straight-line method.
KYSOR ACQUISITION PRO FORMA FINANCIAL INFORMATION
The pro forma consolidated financial information included elsewhere herein
gives effect to, among other things, the Kysor Acquisition. See "Pro Forma
Consolidated Financial Information."
On a pro forma basis, the Company's net sales for fiscal 1996 would have
been $601.4 million, compared to actual net sales of $356.4 million for that
period. Pro forma net sales of the Company include sales by Kysor's Commercial
Products Group, but not sales by Kysor's former Transportation Products Group,
which was sold simultaneously with the closing of the Kysor Acquisition.
Pro forma income from operations for the Company for fiscal 1996 would have
been $67.7 million, compared to actual operating income of $40.3 million for the
same period. The increase in operating income of the Company on a pro forma
basis is the result of the addition of $27.4 million of pro forma Kysor
operating income, reflecting the following: a reduction in administrative
expenses due to the elimination of Kysor's world headquarters and the
consolidation of four Kysor business units into two; certain favorable defined
benefit plan adjustments; the effect of the incremental increase in the
amortization of goodwill recorded from the purchase of Kysor by Scotsman; and
the incremental depreciation expense caused by the recording of property, plant
and equipment at fair value. Although the Company's pro forma and actual income
from operations were 11.3% of net sales for fiscal 1996, the Company believes
that potential synergies created by the Kysor Acquisition will improve future
operating margins for the Company.
Pro forma net income for fiscal 1996 would have been $18.5 million,
reflecting the inclusion of Kysor's operating income, incremental interest
expense resulting from additional borrowings related to financing the Kysor
Acquisition and associated income tax expense.
The Kysor Acquisition is being treated for accounting purposes as a
purchase under Accounting Principles Board Opinion No. 16. The excess purchase
price over the fair value of the identifiable assets and liabilities acquired
was approximately $192 million, which was allocated to goodwill and other
intangibles and is being amortized on a straight-line basis over 40 years.
29
<PAGE> 158
RESULTS OF OPERATIONS
The following table sets forth certain items from Scotsman's historical
statements of income expressed as a percentage of net sales for the periods
indicated:
<TABLE>
<CAPTION>
FIRST FISCAL
SIX MONTHS FISCAL YEAR
---------------- ---------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................................... 73.8 71.4 72.4 72.9 71.5
----- ----- ----- ----- -----
Gross profit........................................ 26.2 28.6 27.6 27.1 28.5
Selling and administrative expenses................. 15.2 16.3 16.3 16.5 17.9
----- ----- ----- ----- -----
Income from operations.............................. 11.0 12.3 11.3 10.6 10.6
Interest expense, net............................... 3.2 1.5 1.5 1.9 2.0
----- ----- ----- ----- -----
Income before income taxes.......................... 7.8 10.8 9.8 8.7 8.6
Income taxes........................................ 3.8 5.2 4.6 3.9 3.8
----- ----- ----- ----- -----
Income before extraordinary loss.................... 4.0 5.6 5.2 4.8 4.8
Preferred stock dividends........................... -- .3 .2 .4 .3
Extraordinary loss(1)............................... .2 -- -- -- --
----- ----- ----- ----- -----
Net income.......................................... 3.8% 5.3% 5.0% 4.4% 4.5%
===== ===== ===== ===== =====
</TABLE>
- -------------------------
(1) Net of income taxes.
Six Months ended June 29, 1997, compared to six months ended June 30, 1996
The Company's net sales increased by $81.9 million, or approximately 43%,
to $271.9 million for the six months ended June 29, 1997 from $189.9 for the
first six months of 1996. Results for the first six months of 1997 included
sales from March 10 through June 29 of $87.7 million from the Commercial
Products Group of Kysor, which was acquired by the Company in March 1997.
Sales of refrigerated display cases and walk-in coolers and freezers by
Kysor for the period from March 10, 1997 through June 29, 1997 were $87.7
million, which represented approximately 32% of Scotsman's net sales in the
first half of 1997. On a pro forma basis, sales of refrigerated display cases
and walk-in coolers and freezers by Kysor for the first half of 1997 were $126.5
million, which represented approximately 41% of the Company's pro forma net
sales in the first half of 1997. Kysor's net sales for the first half of 1997
increased by $12.7 million, or approximately 11%, from $113.8 million in the
comparable period of 1996. Management believes that sales of the Kysor business
will remain strong in the second half of 1997, although delivery of orders from
Kysor's supermarket clients has been deferred to future periods at a greater
degree than anticipated.
Ice machine sales, which represented approximately 32% of net sales in the
first half of 1997, decreased by $9.5 million, or approximately 10%, to $86.9
million in the first half of 1997 from $96.4 million in the same period of 1996.
The decline in ice machine sales resulted from lower sales in Europe and the
United States due to soft market conditions in both regions, and high
distributor inventories in Europe at the beginning of the period. Market
conditions for the European businesses appear to be stabilizing and management
believes sales comparisons in that region should improve in the second half of
1997 as compared to 1996. The strong U.S. dollar also adversely impacted
European ice machine sales in U.S. dollar terms. Softness in the U.S. market
appears attributable to cool weather conditions in the spring and early summer,
and some slowdown in U.S. restaurant chain expansion activity.
Food preparation and storage equipment sales, which represented
approximately 22% of the Company's net sales in the first half of 1997,
increased by $8.0 million, or approximately 16%, in the first half of 1997 from
$50.2 million in the same period of 1996. An increase in sales at the Company's
Delfield business to Boston
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Market, one of Delfield's major customers, was the primary driver of the
increase. Boston Market's announced slowing of expansion plans will likely
soften the rate of sales increase in the near term.
Beverage dispensing equipment sales, which represented approximately 13% of
the Company's net sales in the first half of 1997, decreased by $1.2 million, or
approximately 3%, in the first half of 1997 from $37.7 million in the same
period of 1996. Sales gains by the Company's U.K.-based beverage dispensing
business were offset by soft market conditions for the Company's dispensing
business in Germany and in the United States. The strong U.S. dollar also
adversely impacted beverage dispensing equipment sales in U.S. dollar terms.
The Company's gross profit increased by $16.8 million, or approximately
31%, to $71.1 million in the first half of 1997 from $54.3 million in the first
half of 1996, due to the inclusion of Kysor's results of operations subsequent
to its acquisition by the Company in March 1997. However, the Company's gross
profit margin decreased as a percentage of net sales to 26.2% in the first half
of 1997 from 28.6% in the first half of 1996. The reduction in gross profit
margins is partially due to lower worldwide ice machine sales, and higher
production costs of food preparation and storage equipment. Also contributing to
the decline in gross profit margins was the inclusion of the results of Kysor,
which historically has reported lower gross profit margins. The Company's
Delfield business continues to focus on internal productivity improvement, and
management believes that margin improvement will occur at that unit over the
next 12 months.
Selling and administrative expenses increased by $10.2 million, or
approximately 33%, to $41.1 million in the first half of 1997 from $30.8 million
in the first half of 1996. The increase in selling and administrative expenses
is attributable to the inclusion of Kysor results subsequent to its acquisition
by the Company in March 1997. As a percentage of net sales, selling and
administrative expenses decreased to 15.1% in the first half of 1997 from 16.3%
reported in the first half of 1996. The percentage decrease is primarily
attributable to Kysor business units which, although they have historically
reported lower gross profit margins, also have lower selling and administrative
expenses as a percentage of net sales as compared to the balance of the
Company's businesses.
Income from operations increased by $6.6 million, or 28.2%, to $30.0
million in the first half of 1997 from $23.4 million in the first half of 1996,
which primarily reflects Kysor's contribution to the Company's profits. As a
percentage of net sales, income from operations decreased to 11.0% in the first
half of 1997 from 12.3% in the same period of 1996. The decline is a result of
the lower gross profit margins and an additional $1.2 million of amortization of
intangibles resulting from the Kysor Acquisition.
Net interest expense increased by $6.0 million to $8.8 million in the first
half of 1997 from $2.8 million in the first half of the prior year as a result
of the increased domestic borrowings incurred by the Company to fund the Kysor
Acquisition.
The Company's overall income tax rate increased to 48.4% in the first half
of 1997 from 48.0% in the first half of 1996. The higher income tax rate is
primarily attributable to the impact of $1.2 million of additional amortization
of intangibles resulting from the Kysor Acquisition.
Net income, before a one-time after-tax charge of $633,000 incurred for the
early retirement of $20 million of 11.43% private placement debt, increased by
$.3 million, or approximately 2%, to $11.0 million in the first half of 1997
from $10.7 million in the first half of 1996. On a fully diluted basis, earnings
per share, before the one-time charge, increased by $.01, or approximately 1%,
to $1.01 in the first half of 1997 from $1.00 in the first half of 1996. Net
income, including the one-time charge, declined by $.4 million, or 3.4%, to
$10.3 million in the first half of 1997 from $10.7 million in the first half of
1996. On a fully diluted basis, earnings per share, including the one-time
charge, declined by $0.05, or 5.0%, to $.95 in the first half of 1997 from $1.00
in the first half of 1996.
Management believes that earnings per share for fiscal 1997 may be slightly
below the $1.73 per share for fiscal 1996, before the one-time charge described
above in the first fiscal quarter of 1997.
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Year ended December 29, 1996 ("1996"), compared with year ended December
31, 1995 ("1995")
The Company experienced strong operating results in 1996 compared with
1995. Sales increased in many of the Company's businesses and operating income
as a percentage of sales increased as well. These positive operating results
were largely attributable to the inclusion of a full year's operations of
Hartek, which was purchased by the Company on December 31, 1995, strong growth
at Whitlenge, solid sales gains from the Company's European ice machine
businesses and a continued emphasis on cost containment.
The Company's net sales increased by $32.1 million, or 10%, to a record
$356.4 million in 1996 from $324.3 million in 1995.
Ice machine sales, which represented 49% of total sales of the Company in
1996, increased by $6.5 million, or 4%, to $176.0 million in 1996 from $169.5
million in 1995 primarily due to 15% growth in sales from European operations
while domestic sales of ice machines remained relatively constant.
Food preparation and storage equipment sales, which represented 29% of
total sales of the Company in 1996, remained constant compared to 1995,
reflecting a decline in European bakery equipment sales and a modest increase in
sales of food preparation equipment by Delfield, which were limited by a slowing
of the domestic market for such products. Sales in this product category are
expected to increase in 1997 due to Delfield's designation by Boston Market as
sole supplier of serving line equipment and certain related products.
Beverage systems sales, which represented 19% of total sales of the Company
in 1996, increased by $27.6 million, or 69%, to $67.6 million in 1996 from $40.0
million in 1995, driven primarily by the inclusion of the operating results of
Hartek and growth of 24% at Whitlenge due to increasing their export sales and a
strong domestic beer market in the United Kingdom.
Niche products sales, which represented 3% of total company sales in 1996,
decreased by $2.3 million, or 21%, to $9.2 million in 1996 from $11.5 million in
1995, driven primarily by a lower volume of certain contract products and
ventilation equipment.
The Company's gross profit increased by $10.5 million, or 12%, to $98.4
million in 1996 from $87.9 million in 1995. The Company's gross profit margin
increased to 27.6% of total sales in 1996 from 27.1% of total sales in 1995 due
to selling price increases in certain products, moderating material costs and
the impact of higher sales in relation to a base of certain fixed production
costs. These gains were partially offset by higher production costs at Delfield
due to inefficiencies incurred while implementing process improvements and
organizational changes in anticipation of future growth requirements.
Selling and administrative expenses increased by $4.7 million, or 9%, to
$58.1 million in 1996 from $53.4 million in 1995. Although selling and
administrative expenses increased due to the inclusion of Hartek, selling and
administrative expenses as a percentage of total sales of the Company declined
to 16.3% in 1996 from 16.5% in 1995, primarily due to higher overall sales and
lower advertising costs.
Income from operations increased by $5.8 million, or 17%, to $40.3 million
in 1996 from $34.5 million in 1995 primarily due to increased sales with higher
associated gross margins and the continued benefit of cost containment plans
initiated during 1996 and in prior years.
Net interest expense decreased by $1.0 million, or 17%, to $5.3 million in
1996 from $6.3 million in 1995 primarily due to the Company's lower average debt
levels and a favorable interest rate environment.
Income taxes increased by $3.7 million to $16.4 million in 1996 from $12.7
million in 1995 due to higher income from operations and a higher effective tax
rate. The Company's tax rate increased to 47.0% in 1996 from 45.2% in 1995
primarily due to the higher percentages of sales generated from foreign
operations with higher relative tax rates.
Overall, net income increased by $3.2 million, or 21%, to $18.6 million in
1996 from $15.4 million in 1995. On a fully diluted basis, earnings per share
increased by $0.28, or 19%, to $1.73 in 1996 from $1.45 in 1995. Of note, the
effects of fluctuations in currency exchange rates on the Company's results of
operations were immaterial.
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Year ended December 31, 1995 ("1995"), compared with year ended January 1,
1995 ("1994")
The Company's net sales increased 22% in 1995, to $324.3 million, compared
with $266.6 million in 1994. Strong gains in worldwide ice machine sales and the
inclusion of Delfield and Whitlenge results for the full year were primary
contributors to this growth.
Ice machine sales increased 13% from the prior year and represented 52% of
total sales in 1995. Domestic ice machine sales were up 7%, a significantly
greater gain than the market as a whole. New products and expansion of the
distribution system contributed to the share gain. Sales of ice machines outside
the U.S. increased more than 20% due to improvement in Western European markets
and substantial sales increases to the Asia-Pacific region. In December 1995 the
Company's joint venture in Shenyang, China began production of ice machines to
be sold in the domestic China market.
Sales of food preparation and storage equipment increased 39% from 1994 to
1995 due to the inclusion of results for Delfield for a full year in 1995 versus
a partial year (from April 29, 1994) for 1994. Pro forma full-year sales of
these products, as if Delfield had been acquired at the beginning of 1994, were
up 1%. Reduced sales from Delfield to a few large national accounts were largely
offset by sales to other customers. Food preparation and storage equipment
represented approximately one-third of total Company sales in 1995.
The Company's 1995 worldwide beverage systems sales increased 23% versus
the prior year due to the inclusion of Whitlenge's sales for only eight months
of 1994. On a full-year basis, beverage systems realized increased sales of 5%,
compared with the prior year, primarily due to Whitlenge's increased penetration
of continental European markets. Sales of this equipment accounted for 12% of
1995 Company sales. Niche products, including ventilation equipment and certain
contract products, comprised the balance of the Company's sales.
Gross profit increased significantly in dollars but declined as a
percentage of sales, to 27.1% in 1995 from 28.5% in 1994, as a result of the
full-year inclusion of Delfield and Whitlenge results, which historically have
had lower gross profit margins. The impact of the increases of cost of materials
and a shift in sales mix at Delfield toward customers served by higher-cost
distribution channels also impacted gross profit in 1995.
Selling and administrative expenses for the year were up substantially in
dollars, again due in large measure to acquisitions. As a percentage of sales,
however, selling and administrative costs declined to 16.5% from 18.0% in the
prior year due to lower litigation-related costs, favorable health claims costs
and the full-year inclusion of Delfield and Whitlenge and their historically
lower ratios.
Income from operations increased $6.2 million, or 22%, from the prior year
as a result of the above mentioned factors.
Interest expense, net, increased $0.9 million due to the higher average
debt levels associated with the Delfield and Whitlenge acquisitions. A higher
effective income tax rate of 45.2% in 1995, compared with 43.9% in 1994,
reflects a greater proportion of income from the Company's higher-taxed Italian
subsidiaries.
1995 net income of $15.4 million and fully diluted net income per share of
$1.45 were record highs for Scotsman Industries. Hartek, acquired on December
31, 1995, had no impact on the income statement for the year. The effect of
changes in currency exchange rates was immaterial on the Company's results of
operations.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's liquidity requirements have arisen primarily
from the need to fund its working capital, capital expenditures, acquisitions
and interest expense, including fixed obligations associated with debt or lease
obligations. The Company has met these liquidity requirements through use of
funds generated from operations, along with financing from various sources.
The Company expects to continue to generate significant cash flow from
operations, which will be used to fund the Company's existing operations and
internal growth. Increased levels of working capital, capital expenditures and
interest expense associated with the Kysor Acquisition are not expected to
adversely impact the Company's liquidity and access to capital.
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The Company utilized cash flow from operations of $7.5 million for the
first six months of 1997 compared to cash flow provided by operating activities
of $6.0 million for the first six months of 1996.
The following comparison of certain items in the balance sheets as of June
29, 1997 and December 29, 1996 excludes the initial impact of the Kysor
Acquisition in March of 1997 and the impact of changes in foreign exchange rates
on those categories:
Inventory decreased by $1.3 million, which reflects the reduction in
Kysor inventories since the date of acquisition by the Company. This
decrease in Kysor inventories was partially offset by higher inventories at
some of the Company's other domestic businesses.
Accounts receivable were $29.1 million higher, primarily as a result
of the sales increase in the second quarter of 1997 compared to the fourth
quarter of 1996.
Trade accounts payable were $10.8 million higher, which reflects the
impact of seasonal volume.
All asset and liability accounts as of June 29, 1997, were significantly
impacted by the Kysor Acquisition in March of 1997. Goodwill increased from
December 29, 1996, due to the Kysor Acquisition, which added approximately $192
million.
Cash and temporary cash investments of $20.8 million as of June 29, 1997,
increased by $4.3 million from December 29, 1996, reflecting the increase in
cash balances at the Company's foreign subsidiaries and in part due to the Kysor
Acquisition.
Shareholders' equity increased $5.8 million from December 29, 1996, which
reflects net income of $10.3 million for the first half of 1997, which was
partially offset by a reduction in shareholders' equity caused by changes in
accumulated foreign currency translation adjustments and the impact of
dividends.
Capital expenditures, including those funded through capital leases,
increased $4.5 million, or approximately 131%, to $7.9 million for the first six
months of 1997 from $3.4 million for the first six months of 1996. Capital
expenditures in 1997 were made primarily to fund construction of a new Kysor
facility in Columbus, Georgia, along with productivity improvements, new product
tooling and maintenance and replacement items.
Note 3 to the Company's financial statements included and incorporated by
reference herein contains a summary of the changes in the Company's debt
structure as a result of the Kysor Acquisition. Long-term debt increased by
approximately $283 million as of June 29, 1997 primarily due to funding of the
Kysor Acquisition, along with funding of working capital needs. Short-term debt
was reduced by $3.1 million from December 29, 1996 primarily due to short-term
domestic borrowings being replaced with longer-term borrowings. Total debt,
including capital leases, was $362.9 million as of June 29, 1997 compared to
$76.6 million as of December 29, 1996. The debt to capital ratio was
approximately 73% at June 29, 1997, compared with approximately 37% at December
29, 1996.
On February 13, 1997, May 15, 1997 and August 14, 1997, the Company's Board
of Directors declared a dividend of 2 1/2 cents per share payable to common
shareholders of record on March 28, 1997, June 30, 1997 and September 30, 1997,
respectively.
Since its first quarter as a publicly-held company, the Company has paid a
quarterly dividend of 2 1/2 cents per share. The continuation, amount and timing
of this dividend will be determined by the Board of Directors and may change as
conditions warrant.
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BUSINESS
GENERAL
Scotsman is a leading international manufacturer of a diversified line of
commercial refrigeration products, food preparation equipment and beverage
systems that is sold primarily to customers in the restaurant, supermarket,
lodging, healthcare and convenience store industries. The Company has a leading
market position in each of its five product lines, which consist of ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage systems. Scotsman's customers include
many of the largest chains in the quick service restaurant, supermarket, lodging
and convenience store industries, including McDonald's Corporation
("McDonald's"), Boston Chicken, Inc. ("Boston Market"), Wal-Mart Stores, Inc.
("WalwMart"), Winn-Dixie Stores, Inc. ("Winn-Dixie"), Marriott International,
Inc. ("Marriott") and Mobil Corporation ("Mobil"), as well as bottlers
affiliated with The Coca-Cola Company ("Coca-Cola") and PepsiCo, Inc. ("Pepsi").
The Company's revenues are diversified among its five product lines, with
ice machines and refrigerated display cases, its two largest product lines, each
representing approximately 29% of the Company's 1996 pro forma net sales. Within
each of its product lines, the Company offers a broad range of products designed
to meet the diverse equipment needs of its customers. The Company sells its
products in over 100 countries through multiple distribution channels and has
manufacturing capabilities in the United States, the United Kingdom, Germany and
Italy and joint venture interests in Australia, China, the United Kingdom and
Indonesia. International sales by Scotsman and Kysor of approximately $144
million accounted for approximately 24% of the Company's 1996 pro forma net
sales. The Company believes that its leading market positions, broad product
offering, diverse customer base, extensive distribution network and strong
international presence provide it with significant competitive advantages and
position it for continued growth.
Since its Spin-off from Household in 1989, Scotsman has expanded through
internal growth and through a disciplined acquisition program. The Company's
internal growth has been driven primarily by increased sales of ice machines in
the United States and Europe and beverage systems in Europe. In addition, from
1992 through 1996, the Company successfully completed and integrated five
acquisitions. As a result of these acquisitions and internal growth, the
Company's net sales increased to $356.4 million in 1996 from $168.7 million in
1992, representing a compound annual growth rate of 20.6%. In March 1997, the
Company acquired Kysor for a net purchase price of approximately $299 million.
Kysor is a leading supplier of refrigerated display cases and walk-in coolers
and freezers to the supermarket and convenience store industries. For 1996,
Kysor's sales of commercial refrigeration products were $245.1 million, an
increase of 18.3% from 1995. Pro forma for the Kysor Acquisition, the Company's
1996 net sales were $601.4 million, a 68.7% increase over the Company's reported
1996 net sales. Through the addition of Kysor's leading market positions and
complementary product lines, the Company expects to benefit from cross-selling
opportunities, as well as synergies related to reduced overhead, increased
purchasing power and shared research and development efforts.
Scotsman is a market leader in each of its five product lines with well
recognized, premium brand names. The Company believes it is the largest
worldwide manufacturer of commercial ice machines, the largest manufacturer of
food preparation and storage equipment for the foodservice industry in the
United States and the second largest manufacturer of beverage systems in Europe
and refrigerated display cases and walk-in coolers and freezers in the United
States. Scotsman believes these strong market positions will enable it to take
advantage of favorable trends driving global demand for its products.
INDUSTRY OVERVIEW
Sales of the Company's five product lines are driven primarily by demand
from participants in the food and beverage industry. According to a recent
industry report, sales by the food and beverage industry are expected to grow
from $700 billion in 1995 to approximately $800 billion in the year 2005. Much
of this growth is expected to be captured by the foodservice industry (including
supermarket delis), which continues to gain market share from traditional
groceries. According to published industry sources, total U.S. foodservice sales
climbed from approximately $255 billion in 1990 to an estimated $336 billion in
1997. According to published industry sources, the commercial foodservice
segment of the foodservice industry, the
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largest segment of this industry, is expected to experience real growth of
approximately 3.4% per year through 2005. Growth in the U.S. foodservice market
is driven primarily by population growth, economic growth and demographic
changes, including the number of families with two or more wage-earners and
shifting consumer preferences for convenience in food preparation and
consumption.
According to published industry sources, sales by the U.S. commercial
foodservice equipment industry grew 6.4% to approximately $4.5 billion in 1996
and are expected to grow by 6.8% in 1997. While normal replacement of aging
equipment and that for new construction generally drive sales of new commercial
refrigeration products, the Company expects further demand to result from
remodeling due to product upgrades and expanded perishable sections in
supermarkets and convenience stores, the expansion of national restaurant chains
and the replacement of products containing chlorofluorocarbons ("CFCs"). The
Company expects that a significant portion of the installed commercial
refrigeration systems in the United States that are CFC-based will be replaced
or retrofitted over the next decade, as CFCs become increasingly difficult to
obtain.
The commercial foodservice and retail food equipment industries are being
affected by several key industry trends, including expansion by national
restaurant and lodging chains, increased perishable and prepared food offerings
at supermarkets and convenience stores, supplier consolidation and increased
international foodservice demand.
National Chain Expansion. Large chains have a significant impact on the
commercial foodservice and retail food equipment markets as a result of new
store openings, remodeling and upgrading programs and equipment purchases to
support new menu items. The expansion of national chains is being driven by
increased consumer expenditures for dining out and carry-out meals. According to
an independent industry study, expenditures for food prepared outside of the
home have increased from approximately 38% of the average American's food budget
in 1975 to approximately 52% in 1995. Consistent with this trend, restaurant,
convenience store and supermarket chains continue to add new sites through
construction and acquisition. In 1996, for example, according to an independent
industry study, the top 100 restaurant chains grew at a rate of 5.6% compared
with 4.5% for the industry as a whole. Quick service restaurants continue to
expand into non-traditional sites to offer increased consumer convenience and
capture a greater portion of food expenditures. Locations for such
non-traditional outlets include retail stores, supermarkets, department stores
and gas stations. Quick service chains such as McDonald's and Sbarro, Inc., for
example, are moving into airports, hospitals and schools, which increases demand
for commercial foodservice equipment that is suitable for small, kiosk-type
locations. According to an independent industry study, the top 75 supermarket
chains accounted for approximately 78% of total supermarket industry sales in
1996, with the top 10 chains accounting for approximately 30% of total
supermarket industry sales. The Company believes that continued consolidation
will increase significantly that concentration over the next several years.
Expansion of Supermarket and Convenience Store Food Retail and
Foodservice. In 1996, sales of refrigerated display cases and systems to
supermarkets was approximately $700 million, while sales to convenience stores
totaled approximately $300 million, based on an independent industry study. In
an effort to capitalize on home meal replacement trends, convenience stores and
supermarkets continue to increase the portion of their floor space dedicated to
the sale of prepared and perishable foods. At the same time, expansion of
superstores has led to increased remodeling expenditures by existing stores in
order to remain competitive. The Company believes that national chains, in
particular, are placing added emphasis on store modernization to improve and
differentiate product merchandising.
Supplier Consolidation. National chains are demonstrating an increasing
tendency to purchase from fewer suppliers and to form collaborative
relationships with suppliers in order to minimize purchasing efforts and
optimize product design, responsiveness and pricing plans. Criteria for supplier
selection include not only product reliability and performance, service and
price, but also national presence and full-service design, engineering and
product customization capabilities. The Company believes that because these
criteria favor larger, more integrated suppliers, smaller industry participants
are at a competitive disadvantage in competing for contracts.
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Growth in International Foodservice Demand. International foodservice
demand is driven by economic and disposable income growth, increased penetration
of retail foodservice establishments, increased popularity of chilled beverages
and fundamental changes in consumer attitudes toward dining outside the home.
The Company expects these factors to drive significant growth in foodservice
demand in regions such as Asia, Latin America and Eastern Europe over the next
10 years. Furthermore, the Company expects the developing economies in Eastern
Europe, China and other regions of the world to drive expansion of hotels,
restaurant chains and other foodservice establishments to meet increased
business, consumer and tourist demands. Throughout the world, the concentration
of quick service restaurant and lodging chains is substantially lower than in
the United States and provides opportunities for national chains to expand
internationally. As a result, many of the leading national chains have embarked
upon significant international expansion. For example, the top 100 U.S.
restaurant chains increased their number of international operating units and
sales by approximately 16% and 11%, respectively, in 1996 compared with U.S.
domestic unit and sales growth rates of 5.7% and 5.6%, respectively, according
to an independent industry study. As a result, international chains increasingly
are requiring their suppliers to have the capability to manufacture and service
products in multiple geographic markets.
OPERATING STRATEGY
Scotsman's operating strategy is to continue to capitalize on its
competitive advantages and enhance its customer relationships. The key
components of this strategy include:
CAPITALIZING ON MARKET LEADERSHIP
Scotsman seeks to build and maintain leading market positions in each of
its product lines. The Company believes it is the world's largest manufacturer
of commercial ice machines, the largest manufacturer of food preparation and
storage equipment for the foodservice industry in the United States and the
second largest manufacturer of beverage systems in Europe and refrigerated
display cases and walk-in coolers and freezers in the United States. The Company
believes that these leading market positions help to create a heightened
awareness of its product offerings and brands. Scotsman believes that its
leading market positions, broad product offerings, strong brand recognition and
extensive distribution capabilities position it to compete successfully as its
customers consolidate their supplier base and expand internationally.
OPTIMIZING MANUFACTURING EFFECTIVENESS AND FLEXIBILITY
To enhance manufacturing effectiveness, Scotsman has adopted "lean
manufacturing" initiatives, which include minimizing manufacturing complexity,
standardizing key product subcomponents, adopting cell manufacturing practices
and emphasizing continuous improvement. These efforts throughout the Company
have resulted in enhanced product quality, fewer product defects and lower
inventory costs. Manufacturing flexibility enables each of the Company's
manufacturing facilities to produce a range of standard or customized models
within each manufacturing unit, which increases efficiency while improving the
Company's ability to meet customers' delivery schedules. Scotsman believes that
additional manufacturing efficiencies will result from sharing best practices
among Kysor and Scotsman's other operating units.
EMPHASIZING PRODUCT QUALITY AND NEW PRODUCT DEVELOPMENT
By applying its product design, manufacturing and refrigerant technology
expertise, Scotsman seeks to provide customers with technically superior,
durable and energy efficient products. Scotsman also dedicates substantial
resources to new product development and customizing existing products to meet
the unique performance, size and appearance specifications of individual
customers. This commitment has resulted in the introduction of numerous
innovative new products and product enhancements, including: (i) the CM(3) ice
machine, which offers greater ice making capacity while using less energy and
having approximately 23% fewer parts than prior models; (ii) an ice dispenser
designed to fit within the limited space requirements of many European hotels;
(iii) customized serving counters for Boston Market, which Scotsman designed to
reduce the waiting time of Boston Market customers at peak periods; and (iv) the
Genesis drink dispensing
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tower, which allows the proprietor to change the dispenser's exterior for
different promotions. In addition, Scotsman was the first manufacturer to
convert its entire line of ice machines to CFC-free refrigerants.
LEVERAGING EXTENSIVE DISTRIBUTION CAPABILITIES TO DELIVER SUPERIOR CUSTOMER
SERVICE
Scotsman has an extensive sales, distribution and service network in over
100 countries that is designed to meet the needs of customers from product
design and purchase through aftermarket sales and support. The Company's
salesforce, sales engineers and distributors work closely with customers to
determine the appropriate product for a given application and, if necessary,
assist in the development of customized products. Following a sale, the Company
or its distributors, depending on the product and geographic market, provide
aftermarket support that includes training, maintenance, service and repair. See
"-- Marketing and Distribution."
GROWTH STRATEGY
The Company also pursues a growth strategy intended to strengthen its
leading market positions within its product lines. The key elements of this
strategy include:
FOCUSING ON MAJOR NATIONAL CHAINS
Scotsman targets major national chains within the five principal industries
it serves. The Company believes that these national chains increasingly are
gaining market share at the expense of independents, and the Company expects
this trend to accelerate in both domestic and international markets. Chain
expansion generates demand for new and replacement equipment through new
construction, non-traditional site development and facility redevelopment or
modernization. Scotsman's customers include many of the largest chains in the
quick service restaurant, supermarket, lodging and convenience store industries,
including McDonald's, Boston Market, WalwMart, Winn-Dixie, Marriott and Mobil.
Through strong brands in each product line, the Company seeks to become the
single supplier to its customers in each of its product lines. The Company will
continue to organize product design and sales teams to work closely with
national chains in developing applications to meet their specific requirements.
Furthermore, given the strength of its current relationships and its
capabilities abroad, the Company believes it is well positioned to benefit as
national chains expand into international markets. For example, Scotsman
provides refrigerated display cases and walk-in coolers and freezers to several
WalwMart locations in South America.
PURSUING CROSS-SELLING OPPORTUNITIES
Scotsman has similar customers in each of its five product lines. While the
Company maintains strong relationships with customers in each of its market
segments, penetration of individual accounts varies by product line. As a
result, the Company believes it has significant opportunities to pursue internal
growth through cross-selling initiatives across product lines. The recently
completed Kysor Acquisition, which expanded the Company's product range to
include refrigerated display cases and walk-in coolers and freezers, has
expanded these opportunities by broadening the Company's range of products and
expanding its existing customer base. Specific cross-selling objectives include
(i) increasing sales of Kysor's refrigerated display cases and walk-in coolers
and freezers to restaurants, where Scotsman historically has had significant
market share and (ii) increasing sales of Scotsman's ice machines and food
preparation and storage equipment to supermarkets, Kysor's strong customer base
historically. The Company also believes that the breadth of its product lines
resulting from the Kysor Acquisition enhances its ability to penetrate the
convenience store market, a market in which the Company and Kysor currently have
relationships with only a limited number of chains.
CAPITALIZING ON INTERNATIONAL OPPORTUNITIES
International foodservice equipment markets offer significant opportunities
for growth by the Company. The Company believes, for example, that Western
European foodservice locations have, on a percentage basis, significantly fewer
ice machines than foodservice locations in the United States, and that market
penetration
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<PAGE> 167
of ice machines is significantly lower in other international markets. An
integral part of Scotsman's strategy has been to develop production,
manufacturing, marketing and distribution capabilities to serve international
markets. The Company intends to continue to capitalize on the rapid growth of
the commercial foodservice equipment industry in international markets by: (i)
taking advantage of its existing manufacturing presence, including through its
joint venture interests, in Australia, China, Germany, Indonesia, Italy and the
United Kingdom and its extensive distribution network, which extends through
over 100 countries; (ii) expanding its presence into new markets through
acquisitions, joint ventures, alliances or startup investments; and (iii)
leveraging its relationships with national chains to participate in their
international expansion. Scotsman believes its brands and those of its
subsidiaries are well recognized internationally, in part from a European
presence which dates back to 1963. The scale of the Company's international
operations is a competitive advantage, as most national competitors lack a
significant presence in international markets. In addition, the Company believes
that most of its competitors lack the breadth of international operating,
service and distribution capabilities necessary to meet the needs of large
customers in multiple international markets. The Company believes that it
received several recent contract awards from U.S. chains, in part, because of
its ability to meet such customers' needs across international markets.
EXPANDING THROUGH STRATEGIC ACQUISITIONS AND JOINT VENTURES
Strategic acquisitions are expected to remain an important element of
Scotsman's growth domestically and internationally. The Company has acquired six
businesses (including Kysor) since 1992 and formed three joint ventures and one
strategic alliance. The Company believes there are significant consolidation
opportunities in most of its product lines, particularly walk-in coolers and
freezers, display cases and food preparation and storage equipment, which are
relatively fragmented in the United States and highly fragmented in
international markets. The Company expects that complementary acquisitions will
provide the opportunity to achieve economies of scale through manufacturing,
purchasing and overhead efficiencies and economies of scope through
cross-selling opportunities and the sharing of product design innovation among
its operating units. Scotsman currently targets acquisitions that: (i) relate
closely to the Company's current technology, markets, customer types or product
categories; (ii) position the Company to take advantage of fundamental market
and industry trends; and (iii) will be non-dilutive to earnings. The Company's
management team has substantial experience and expertise in identifying,
completing and successfully integrating strategic acquisitions. See "The
Company" and "Kysor Acquisition" for a description of the Company's acquisitions
from 1992 to the present.
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<PAGE> 168
PRODUCTS
Scotsman manufactures a diversified line of commercial refrigeration
products, food preparation equipment and beverage systems, including ice
machines, refrigerated display cases, food preparation and storage equipment,
walk-in coolers and freezers and beverage dispensing systems. The Company sells
its key products through the following principal product lines:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRO FORMA
1996 NET
PRODUCT LINE BUSINESS UNIT(S) SALES KEY PRODUCTS KEY BRANDS
------------ ---------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Ice Machines................... Scotsman Ice Systems 29% Commercial ice machines Scotsman
Frimont that make cube, flake, Icematic
Castel MAC nugget and scale ice. Crystal Tips
Booth/Crystal Tips Modular, self- contained Rapid Freeze
Scotsman China ice dispensing systems and Simag
storage bins.
Refrigerated Display Cases..... Kysor//Warren 29% Refrigerated self-serve Kysor//Warren
display cases. Bangor
Service deli cases.
Custom merchandisers.
Mechanical refrigeration
systems.
Refrigeration houses.
Electrical distribution
houses.
Food Preparation and Storage
Equipment.................... Delfield 19% Food preparation Delfield
Castel MAC workstations. Icematic
Refrigerators and freezers. Tecnomac
Dough retarders and blast Shelleyglas
freezers. Shelleymatic
Mobile cafeteria systems.
Tray and plate dispensers.
Walk-in Coolers and Freezers... Kysor Panel Systems 12% Modular insulated panels Kysor Needham
and insulated doors for Kysor Kalt
refrigerated enclosures.
Environmental rooms.
Walk-in cold rooms and
freezers.
Beverage Systems............... Booth/Crystal Tips 11% Soft beverage systems. Booth
Whitlenge Combination ice and Whitlenge
Hartek beverage dispensing Hartek
SAW Technologies systems. Aztec
Custom beer cooling
systems.
</TABLE>
Ice Machines. Scotsman believes it is the world leader in the sale of
commercial ice machines. The Company's commercial ice machines are sold in the
United States under the Scotsman and Crystal Tip brand names. The Company sells
a diversified line of commercial ice machines that make ice in all forms,
including cube, nugget, flake and scale. Each type of ice machine is designed
and marketed for specific applications and capacity ranges from 300 to 2,000
pounds of ice per day. The Company's 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. Recent new product introductions have further
augmented the Company's full line of commercial ice machine products. For
example, Scotsman's CM(3) line of cuber ice machines, introduced in 1996, offers
greater ice making capacity while using less energy and having approximately 23%
fewer parts than prior models.
Scotsman's expertise in manufacturing, design and refrigerant technology
enables the Company's ice machines generally to meet or exceed customer's
expectations for reliability and durability. Scotsman's ice machines have an
average life of approximately seven to 10 years and replacement sales typically
represent 70% to 80% of the Company's U.S. sales of ice machines.
The Company believes it is the only U.S. commercial ice machine company
with manufacturing facilities in Europe. The Company manufactures and markets
commercial ice machines and related components
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<PAGE> 169
through its Italian subsidiaries, Castel MAC and Frimont, principally under the
Icematic, Scotsman and Simag trademarks, for sale in Italy and for export
primarily to Eastern and Western Europe, the Middle East, Africa and the Far
East. In China, the Company markets its ice machines under the Scotsman name
through its Chinese joint venture. The Company also markets the Crystal Tips
line internationally through three export marketing firms based in the United
States and Canada.
The Company also distributes Howe industrial ice flakers under distribution
and trademark licensing agreements with Howe Corporation. See "The Company."
Refrigerated Display Cases. Through its Kysor//Warren operating unit,
Scotsman designs and manufactures refrigerated display cases and mechanical
refrigeration systems sold primarily to supermarkets. Refrigerated display cases
are used by supermarkets and convenience stores to display perishable food items
such as vegetables, deli items and prepared meals. Mechanical refrigeration
systems are located away from a store's customer area and provide power, air
filtration and circulation and temperature controls to the refrigerated display
cases located within the store.
Food Preparation and Storage Equipment. Scotsman manufactures and markets a
wide range of commercial food preparation and storage equipment through its
wholly owned subsidiary Delfield. Delfield's principal products are customized
and standard food preparation workstations, commercial up-right and
under-the-counter refrigerators and freezers, mobile cafeteria systems and
self-leveling tray and plate dispensers, all of which are constructed primarily
from stainless steel, as well as wood and other decorative materials. Delfield's
products are customized to address customer requests regarding size, space,
features and performance. Delfield's standard refrigeration products frequently
are incorporated into customers systems or can be sold separately.
Within the Company's food preparation and storage equipment unit, the
Company also manufactures and markets several related products. In Europe,
Castel MAC manufactures and markets a line of refrigerated cabinets under the
Icematic brand name and a line of dough retarders and blast freezers under the
Tecnomac brand name, and Frimont markets a line of refrigerators manufactured by
Castel MAC under the Scotsman brand name.
The Company also manufactures and markets niche products primarily through
Delfield, including air ventilating equipment under the Air Tech trademark, ice
cream dispensing equipment and iced drink mixing and dispensing machines. In
addition, the Company manufactures and markets a limited line of water coolers
through its Italian subsidiaries, Frimont and Castel MAC, and small industrial
applications through Whitlenge.
Walk-in Coolers and Freezers. Scotsman designs, manufactures, markets and
sells walk-in coolers and freezers and environmental control systems through its
Kysor Panel Systems operating unit. Kysor Panel Systems' refrigeration panels
used in the construction of walk-in coolers and freezers are made from all three
primary panel types: wood rail, urethane rail and soft nose. The Company
believes it is the only U.S. panel system supplier that can manufacture any of
the three panel types to meet customer preferences and that Kysor Panel Systems
is the largest supplier in the United States of walk-in coolers and freezers to
the supermarket industry and a leading supplier of walk-in coolers and freezers
to the convenience store industry. Scotsman's environmental control systems are
used in industrial applications to test products under a range of temperatures.
Beverage Systems. In the United States, Scotsman manufactures soft drink
dispensing equipment through its wholly owned subsidiary, Booth. Booth
manufactures and markets a complete line of non-coin operated soft drink
dispensers and accessories. Booth offers both pre-mix and post-mix dispensers,
which can either be ice-cooled or electrically-cooled, as well as ice and drink
dispensers, hand-operated valves and other related accessory products used in
the fountain drink market. Booth is one of only three companies in the United
States that manufacture and market the three major product categories of
beverage systems (mechanically refrigerated, ice cooled and ice/drink) to both
Coca-Cola and Pepsi.
In Europe, Scotsman manufactures and markets soft drink dispensing
equipment, draught beer cooling equipment and related equipment through its
Whitlenge and Hartek subsidiaries. Whitlenge specializes in
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<PAGE> 170
remote beverage cooling installations, including large installations for
restaurants, and also makes a range of refrigerated over and under-the-counter
soft drink units. Hartek manufactures and markets soft drink dispensing
equipment, draught beer cooling equipment and related ancillary equipment.
The Company is a 50% partner in SAW Technologies, a joint venture recently
formed to develop technologically advanced beverage dispensing valves. The joint
venture's Aztec valve, already being sold to a major soft drink bottler in the
United Kingdom, is targeted for other customers and markets. The Aztec valve
differentiates between and monitors different types of soft drink syrups,
continuously regulates the flow and mix of syrups and carbonated water and can
dispense other beverages such as fruit juices, where pulp presents difficulties
for most of the current generation of mechanical valves.
MARKETING AND DISTRIBUTION
Scotsman's sales and distribution network, which extends through over 100
countries, uses a combination of direct sales to national accounts, exclusive
and non-exclusive distributors and independent dealers, wholesalers and sales
representatives. Scotsman has approximately 200 sales and marketing employees
and relationships with over 300 exclusive distributors in over 50 countries and
approximately 3,300 independent dealers, distributors, wholesalers and sales
representatives in over 100 countries. Scotsman believes that these multiple
sales and distribution channels allow it to best serve its diverse customer base
across its five product lines.
While each business unit has its own marketing organization which is
responsible for the marketing and distribution of its products certain
salespeople and distributors may handle more than one of the Company's product
lines. The Company expects that in connection with its cross-selling objectives
more salespeople and distributors will handle more than one of the Company's
product lines.
Ice Machines. In the United States, both of the Company's Scotsman and
Crystal Tips brands maintain their own independent distribution networks.
Scotsman Ice Systems has approximately 85 distributors in the United States and
also sells directly to national customers such as large hotel chains, quick
service restaurants and convenience stores. Crystal Tips sells through
approximately 68 distributors in the United States. Outside the United States,
Crystal Tips has over 20 distributors. Outside the United States, Castel MAC and
Frimont combined have approximately 1,200 dealers and distributors in Europe and
Asia. In the majority of countries served, Castel MAC and Frimont each sell
through separate distribution channels. Distributors generally do not carry
competing brands of ice machines.
Refrigerated Display Cases. Kysor//Warren primarily sells refrigerated
display cases directly to large supermarket and convenience store chains through
its 29 person sales force. A smaller portion of Kysor//Warren's sales are made
through independent commercial refrigeration distributors that market to
independent and small chain supermarkets and convenience stores.
Food Preparation and Storage Equipment. Delfield sells its products
directly to national accounts such as large restaurant chains. Delfield also
sells through a network of approximately 1,400 non-exclusive dealers and
approximately 28 independent sales representative firms. In Europe, Castel MAC
sells through dealers and agents.
Walk-in Coolers and Freezers. Kysor Panel Systems sells its walk-in coolers
and freezers directly to large supermarket chains primarily through its 30
person marketing and sales force. Kysor Panel Systems also sells to smaller
independent supermarkets and convenience stores through a network of
approximately 600 distributors, dealers and wholesalers.
Beverage Systems. Booth sells its beverage systems directly to soft drink
bottlers franchised by large customers such as Coca-Cola and Pepsi. Whitlenge
sells directly to soft-drink bottlers and brewers in the United Kingdom, while
Hartek sells directly to soft-drink bottlers and brewers in Germany. Whitlenge
and Hartek jointly export directly to bottlers and brewers through a 10 person
sales force and over 7 distributors and local agents in various markets
throughout Western and Central Europe and the Middle East.
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<PAGE> 171
RESEARCH AND DEVELOPMENT
Scotsman conducts extensive research and development programs in each of
its product lines. These programs seek to develop product improvements and
achieve cost reductions, as well as develop new products. Approximately 65
employees of the Company are engaged in research and development. Scotsman's
total research and development expenditures for fiscal years 1996, 1995 and 1994
were $5.6 million, $4.8 million and $5.1 million, respectively, and Kysor's
total research and development expenditures for 1996, 1995 and 1994 were $.8
million, $.4 million and $.3 million, respectively.
RAW MATERIALS
The principal materials used in the manufacture of Scotsman's products are
refrigeration components, including compressors, condensers, motors and
controls, and raw materials such as stainless steel, galvanized steel, aluminum,
copper, plastic, glass, foam insulation, brass and wood. These materials are
readily available from several sources, and Scotsman has not experienced
difficulties with respect to their availability.
FACILITIES
The following chart lists the domestic and international active
manufacturing, distribution and office facilities owned or leased by Scotsman or
the joint ventures in which Scotsman has an interest:
DOMESTIC FACILITIES
<TABLE>
<CAPTION>
OWNED/
LOCATION DESCRIPTION PRINCIPAL PRODUCT LEASED
-------- ----------- ----------------- ------
<S> <C> <C> <C>
Goodyear, Arizona................... Plant and Office; Walk-in Coolers and Freezers Leased
50,000 square feet
Los Angeles, California............. Distribution Ice Machines Leased
Facility;
13,000 square feet
Columbus, Georgia................... Plant and Office; Refrigerated Display Cases Owned
295,826 square feet
Columbus, Georgia................... Plant and Office; Refrigeration Systems Owned
155,000 square feet
Conyers, Georgia.................... Plant and Office; Refrigerated Display Cases Owned
480,000 square feet
Vernon Hills, Illinois.............. Office; Ice Machines Leased
36,000 square feet
Vernon Hills, Illinois.............. Office; Corporate headquarters Leased
8,800 square feet
South Bend, Indiana................. Plant and Office; Refrigerated Display Cases Owned
90,000 square feet
Des Moines, Iowa.................... Plant, Warehouse Refrigerated Display Cases Leased
and Office;
93,000 square feet
Mt. Pleasant, Michigan.............. Plant and Office; Food Preparation and Storage Owned
327,000 square feet Equipment
Portland, Oregon.................... Plant and Office; Walk-in Coolers and Freezers Owned
84,000 square feet
Fairfax, South Carolina............. Plant and Ice Machines Owned
Warehouse;
327,000 square feet
</TABLE>
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<PAGE> 172
<TABLE>
<CAPTION>
OWNED/
LOCATION DESCRIPTION PRINCIPAL PRODUCT LEASED
-------- ----------- ----------------- ------
<S> <C> <C> <C>
Covington, Tennessee................ Plant and Office; Food Preparation and Storage Leased
188,000 square feet Equipment
Johnson City, Tennessee............. Plant and Office; Walk-in Coolers and Freezers Leased
60,000 square feet
Dallas, Texas....................... Plant and Office; Ice Machines Leased
170,000 square feet
Fort Worth, Texas................... Plant and Office; Walk-in Coolers and Freezers Owned
118,162 square feet
</TABLE>
INTERNATIONAL FACILITIES
<TABLE>
<CAPTION>
OWNED/
LOCATION DESCRIPTION PRINCIPAL PRODUCT LEASED
-------- ----------- ----------------- ------
<S> <C> <C> <C>
Adelaide, Australia.................. Plant and Office; Refrigerated Display Cases *
12,000 square feet
Sydney, Australia.................... Plant and Office; Refrigerated Display Cases *
163,000 square feet
Vienna, Austria...................... Office and Beverage systems Leased
Warehouse;
11,000 square feet
Shenyang, China...................... Plant and Office; Ice Machines *
17,000 square feet
Radevormwald, Germany................ Plant and Office; Beverage systems Owned
35,000 square feet
Jakarta, Indonesia................... Plant and Office; Refrigerated Display Cases *
5,000 square feet
Castelfranco, Italy.................. Plant and Office; Ice Machines Owned
230,000 square feet
Milan, Italy......................... Plant and Office; Ice Machines Leased
152,000 square feet
Halesowen, United Kingdom............ Plant and Office; Beverage systems Leased
76,000 square feet
Irthlingsborough, United Kingdom..... Plant and Office; Beverage systems *
3,900 square feet
</TABLE>
- -------------------------
* Facility owned or leased by a joint venture in which Scotsman has an interest.
Scotsman considers the condition of its plants and other properties to be
generally good and believes the capacity of its plants, as increased by the
plant under construction in Georgia, to be adequate for the current needs of its
business. Except for a lien on a section of its Mt. Pleasant, Michigan facility
and on its Covington, Tennessee facility, both securing industrial revenue
bonds, none of the principal properties owned by Scotsman are subject to
encumbrances material to the operations of Scotsman.
EMPLOYEES
As of June 29, 1997, Scotsman employed approximately 3,850 employees,
approximately 1,400 of whom are covered by collective bargaining agreements. The
Company believes its relationships with employees are generally good.
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<PAGE> 173
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages (as of October 1, 1997) and
positions of all executive officers and directors of Scotsman or its
subsidiaries.
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH COMPANY
------------ ---------------------
<S> <C>
Richard C. Osborne, 53............... Chairman, President, Chief Executive Officer and Director
Paolo Faenza, 58..................... General Manager, Castel MAC
David M. Frase, 50................... Vice President of the Company and President of Kysor Panel
Systems
Richard M. Holden, 47................ Vice President -- Human Resources
Donald D. Holmes, 59................. Vice President -- Finance and Secretary
Christopher D. Hughes, 51............ Vice President of the Company and President of Booth
Ludwig H. Klein, 55.................. Vice President of the Company and Managing Director of
Hartek
Emanuele Lanzani, 63................. Executive Vice President of the Company and Managing
Director, Frimont and Castel MAC
Gerardo Palmieri, 57................. Director -- Sales and Marketing, Frimont
Randall C. Rossi, 45................. Vice President of the Company and President of Scotsman Ice
Systems
William J. Rotenberry, 42............ Vice President -- Business Development
Michael de St. Paer, 52.............. Vice President of the Company and Managing Director of
Whitlenge
Graham E. Tillotson, 46.............. Vice President of the Company and President of Delfield
Logan F. Wernz, 53................... Vice President of the Company and President of Kysor//Warren
Donald C. Clark, 66.................. Director
Timothy C. Collins, 40............... Director
Frank W. Considine, 76............... Director
George D. Kennedy, 71................ Director
Robert G. Rettig, 68................. Director
Richard L. Thomas, 66................ Director
</TABLE>
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.
Mr. Faenza is General Manager, Castel MAC, and has held that position since
1986.
Mr. Frase is a Vice President of the Company and has held that position
since May 1997. He is also President and General Manager of Kysor Panel Systems,
and has held those positions since 1987. From 1982 to 1987, he served as a Vice
President of Kysor's walk-in coolers and freezers business.
Mr. Holden is Vice President -- Human Resources of the Company and has held
that position since January 1990.
Mr. Holmes is Vice President -- Finance and Secretary of the Company and
has held those positions since April 1989.
Mr. Hughes is a Vice President of the Company and has held that position
since June 1994. He is also President of Booth and has held that position since
May 1994. From 1993 to May 1994, he was Vice President/General Manager of the
Central and Western Transit Operations of Morrison Knudsen Corporation, a
division engaged in the business of assembling new and overhauling used
passenger rail cars. From 1991
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<PAGE> 174
to 1993, Mr. Hughes was Vice President of Operations of Scotsman Ice Systems and
Scotsman's former Glenco-Star division.
Mr. Klein is a Vice President of the Company and has held that position
since February 1996. He is also Managing Director of Hartek and has held that
position since February 1995. From June 1994 until February 1995, he worked as
an independent consultant and provided, during that period, consulting services
to Hartek and in the capital goods industry. From July of 1986 until June of
1994, Mr. Klein held the position of General Manager of Haacon Hebetechnik GmbH,
a manufacturer of industrial lifting equipment.
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 a wholly owned subsidiary of Household in October 1985 and has been Managing
Director of Frimont since 1968.
Mr. Palmieri is Director -- Sales and Marketing, Frimont, and has held that
position since 1980.
Mr. Rossi is a Vice President of the Company and has held that position
since January 1995. He is also President of Scotsman Ice Systems and has held
that position since January 1995. From January 1994 to January 1995, he was an
Executive Vice President of Scotsman Ice Systems. From 1989 to January 1994, he
was Vice President -- Sales and Marketing of Scotsman Ice Systems.
Mr. Rotenberry is Vice President -- Business Development. He has been
employed by the Company since January 1996 and became a Vice President of the
Company in February 1996. From 1990 until January 1996, he was Director of
Corporate Development for Joslyn Corporation, a diversified manufacturer.
Mr. de St. Paer is a Vice President of the Company and has held that
position since April 1994. He is also Managing Director of Whitlenge and has
held that position since April 1993. From June 1992 to April 1993 he was
Assistant Managing Director of Whitlenge. From 1991 until June 1992, he was the
Managing Director and a Group Technical Director of Hartek.
Mr. Tillotson is a Vice President of the Company and President of Delfield.
He has held those positions since June 1997. From January 1997 to June 1997, he
served as Interim President of Delfield. From 1984 to December 1996, he was Vice
President, Sales & Marketing of Delfield.
Mr. Wernz is a Vice President of the Company and has held that position
since May 1997. He is also President and General Manager of Kysor//Warren, and
has held those positions since 1988. From October 1984 to March 1988, he served
as President and General Manager of Kysor//Westran. From January 1967 to June
1984, he served in various managerial and executive positions at Parker Hannifin
and Ardco where he last served as President.
Mr. Clark was Chairman of the Board and a director of Household until his
retirement in 1996. Mr. Clark was Chairman of the Board of Household from 1984
to 1996 and Chief Executive Officer of Household from 1982 to September 1994. He
is also director of Armstrong World Industries, Inc., PMI Group, Inc.,
Ripplewood Holdings L.L.C., Ameritech Corporation and Warner-Lambert Co. and
serves as trustee of Clarkson University and Northwestern University. He has
been a director of the Company since April 1989 and served as Chairman of the
Board of the Company from April 1989 to May 1991.
Mr. Collins is Chief Executive Officer and Senior Managing Director of
Ripplewood Holdings L.L.C., an industrial and investment management holding
company, and has held that position since 1995. Mr. Collins was Senior Managing
Director of Onex Investment Corp. (New York), a management company for the U.S.
investments of Onex Corporation, an Ontario corporation, from 1990 to 1995. He
also serves on the board of directors of Dayton Superior Corporation and
Danielson Holding Corporation. He has been a director of the Company since April
1994.
Mr. Considine is Honorary Chairman of the Board, Chairman of the Executive
Committee and a director of American National Can Company, a packaging
manufacturer, and has held those positions since 1990. He was Chairman of the
Board of American National Can Company from 1983 to 1990, President from 1969 to
1988, and Chief Executive Officer from 1973 to 1988. Mr. Considine is Chairman
of the Board of Trustees of
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<PAGE> 175
Loyola University, Chicago, and serves on the Board of Trustees of the Field
Museum of Natural History, Chicago. Mr. Considine has been a director of the
Company since April 1989.
Mr. Kennedy was Chairman and a director of the Mallinckrodt Group Inc., a
producer of medical products and chemicals, from 1991 until his retirement in
October 1994. He was Chairman and Chief Executive Officer of Mallinckrodt Group
Inc. from 1986 to 1991. Mr. Kennedy is also a director of Brunswick Corporation,
Illinois Tool Works, Inc., American National Can Company, Kemper National
Insurance Company and Stone Container Corporation. He has been a director of the
Company since April 1989.
Mr. Rettig is a consultant to Illinois Tool Works, Inc., a manufacturer of
industrial products and components, and a consultant to, and a director of, The
Tech Group, a custom molding company, and has held those positions since 1990.
He was an Executive Vice President of Illinois Tool Works, Inc. from 1983 to
December 1989. Mr. Rettig is also a director of Lawson Products, Inc. and serves
as a trustee of the Illinois Institute of Technology. He has been a director of
the Company since April 1989.
Mr. Thomas was Chairman of First Chicago NBD Corporation and The First
National Bank of Chicago from 1995 until his retirement in May 1996. He was
Chairman, President and Chief Executive Officer of The First National Bank of
Chicago from 1992 to 1995. Mr. Thomas is currently a director of First Chicago
NBD Corporation, The First National Bank of Chicago, CNA Financial Corporation,
IMC Global Inc., The PMI Group, Inc., The Sabre Group Holdings, Inc. and Sara
Lee Corporation. Mr. Thomas is Chairman of the Board and a trustee of Kenyon
College, a trustee of the Chicago Symphony Orchestra, Northwestern University
and Rush Presbyterian-St. Luke's Medical Center, and is Chairman of the Civic
Committee of The Commercial Club of Chicago. He has been a director of the
Company since August 1997.
EXECUTIVE COMPENSATION
The Company's executive compensation program is structured to provide
meaningful incentives to the executive officers to increase shareholder value.
The program is comprised of a base salary, an annual cash incentive compensation
program and a long-term incentive compensation plan in the form of stock
options, stock appreciation rights, restricted stock and restricted stock
rights.
As of February 15, 1997, the directors and certain officers of the Company,
as a group, beneficially owned, or had the right to acquire within 60 days
pursuant to the exercise of stock options, 1,432,665 shares of Common Stock
representing 13.1% of the shares of Common Stock then issued and outstanding.
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<PAGE> 176
CERTAIN TRANSACTIONS
Timothy C. Collins and Matthew O. Diggs, Jr. (who resigned from the Board
of Directors on August 13, 1997) were appointed directors of the Company,
effective April 29, 1994, pursuant to the terms and conditions of the agreements
pursuant to which Scotsman acquired Delfield and Whitlenge (the "Acquisition
Agreements"). Pursuant to the Acquisition Agreements, the Company also agreed
that, (i) so long as certain former shareholders of Delfield and Whitlenge,
together in each case, with certain permitted transferees (collectively, the
"New Scotsman Shareholders") own at least 1,688,578 shares of Common Stock
(appropriately adjusted for any subsequent recapitalization, stock dividend,
split or other change in the capital stock), they will be entitled to designate
the persons nominated by the Board of Directors to fill the directorships
currently held by Mr. Collins and formerly held by Mr. Diggs, and (ii) so long
as the New Scotsman Shareholders own at least 1,114,462 shares of Common Stock
(appropriately adjusted for any subsequent recapitalization, stock dividend,
split or other change in the capital stock), they will be entitled to designate
one such nominee.
Certain of the New Scotsman Shareholders entered into a Stockholders'
Agreement dated as of January 11, 1994 (the "Stockholders' Agreement"), under
which they have, among other things, allocated among themselves the power to
designate the person or persons to be nominated as directors. The Stockholders'
Agreement provides that, (i) so long as the New Scotsman Shareholders are
entitled to designate directors pursuant to the Acquisition Agreements, Onex
Corporation ("Onex"), so long as it and its affiliates, Onex DHC LLC and Onex
U.S. Investments (the "Onex Affiliates"), hold Common Stock, will have the right
to designate (and remove) one such director, and EJJM, an Ohio general
partnership of which Mr. Diggs is the sole managing general partner ("EJJM"), so
long as it holds Common Stock, will have the right to designate (and remove) the
other such director, (ii) if the New Scotsman Shareholders are entitled to
designate only one nominee to the Board of Directors, whichever of Onex and the
Onex Affiliates or EJJM owns the higher percentage of Common Stock at the time
of such designation will be entitled to designate the nominee, and (iii) in all
other cases, the holders of a majority of the Common Stock held by the New
Scotsman Shareholders at the time that they are entitled to designate one or
more nominees to the Board of Directors shall make such designation. Scotsman is
not a party to the Stockholders' Agreement.
Under the Stockholders' Agreement, Onex and the Onex Affiliates have also
been granted an irrevocable proxy (the "Onex Proxy") to vote all of the shares
of Common Stock held by the New Scotsman Shareholders. The Onex Proxy includes
the right to vote for the transaction of any and all business that may come
before an annual, general or special meeting of the Company's shareholders,
including the right to vote for the sale of all or any part of the assets, the
liquidation or the dissolution of the Company. The Onex Proxy will terminate
automatically on January 10, 1999 or at such time that Onex, together with the
Onex Affiliates, holds less than 30% of the number of shares of Common Stock
initially acquired by it pursuant to the merger provided for in the Acquisition
Agreement related to Delfield. The Onex Proxy will also terminate with respect
to specific shares of Common Stock upon the transfer of such shares to any
person other than certain specified types of affiliates or associates of certain
former Delfield and Whitlenge shareholders that have granted Onex and the Onex
Affiliates the Onex Proxy.
According to the information provided in a Schedule 13D, as amended by
Amendment No. 4, dated August 13, 1997 (the "New Scotsman Shareholders 13D"),
filed by certain of the New Scotsman Shareholders, on August 13, 1997, EJJM
assigned to Onex all of its rights under the Stockholders' Agreement to
designate a nominee to the Board of Directors of Scotsman, and Onex released
EJJM and all of the shares of capital stock of Scotsman owned by EJJM and its
affiliates from the Onex Proxy. According to the New Scotsman Shareholders 13D,
EJJM and The Diggs Family Foundation sold substantially all of the shares of
Common Stock that were subject to the Stockholders' Agreement and held by EJJM
and its affiliates.
The agreements regarding the rights of the New Scotsman Shareholders to
designate one or two nominees to the Board of Directors are expected to become
inapplicable after the consummation of this Offering because of the sale of
shares by certain of the New Scotsman Shareholders. See "Selling Stockholders."
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<PAGE> 177
So long as the New Scotsman Shareholders are entitled to designate at least
one nominee to the Board of Directors, (i) the Company has agreed that, subject
to the right of the holders of preferred stock, if any, to elect directors under
certain circumstances, it will not increase the number of directors to more than
eight directors, and (ii) the New Scotsman Shareholders have agreed to vote, to
cause any affiliate or associates controlled by them to vote, and to use
reasonable efforts to cause any other affiliates or associates to vote, all
shares of capital stock of the Company owned by them in favor of all of the
nominees to the Board of Directors recommended by the Board of Directors.
The right of the New Scotsman Shareholders to designate one or more
nominees to the Company's Board of Directors will terminate on January 11, 2004
unless such obligation is extended by written agreement among the Company and
the New Scotsman Shareholders after January 11, 2002 but before the termination
date. Upon termination of the right of the New Scotsman Shareholders to
designate one or more nominees to the Board of Directors at a time when any
designee of the New Scotsman Shareholders is currently on the Board and upon the
request of the Company, (i) any such designee who is a New Scotsman Shareholder
shall promptly resign as a director, and (ii) the New Scotsman Shareholders will
use their best efforts to cause any such designee or designees who are not New
Scotsman Shareholders to promptly resign.
As a condition to the obligations of each party to consummate the
transactions contemplated by the Acquisition Agreements, Scotsman and the New
Scotsman Shareholders entered into a Registration Rights Agreement (the
"Registration Rights Agreement"). Under the Registration Rights Agreement, New
Scotsman Shareholders who (together with their affiliates and associates) hold
not less than 250,000 shares of the Common Stock may, subject to certain
limitations, require Scotsman to effect up to three registrations of such shares
under the Securities Act of 1933, as amended (the "Securities Act"). Under the
Registration Rights Agreement, New Scotsman Shareholders who, in the aggregate,
hold not less than 100,000 shares of the Common Stock also have rights, subject
to certain exemptions and limitations, to request that Scotsman include such
shares in other registrations by Scotsman of its securities under the Securities
Act (the "Piggy Back Registration Rights"). All expenses incident to such
registrations (other than underwriting discounts and selling commissions
applicable to the sale of such shareholders' shares and fees and expenses of
counsel to the selling shareholders) are to be borne by Scotsman.
The foregoing summary description of the Acquisition Agreements, the
Stockholders' Agreement and the Registration Rights Agreement does not purport
to be complete and is subject in all respects to the provisions of such
agreements, copies of which are filed as exhibits to the Registration Statement
of which this Prospectus is a part and are incorporated herein by reference.
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<PAGE> 178
SELLING STOCKHOLDERS
The following table sets forth information concerning the identity of the
persons who propose to sell shares of Common Stock in this Offering
(individually, a "Selling Stockholder" and, collectively, the "Selling
Stockholders"):
<TABLE>
<CAPTION>
SHARES BEING
SELLING STOCKHOLDERS(1) OFFERED
----------------------- ------------
<S> <C>
Onex DHC LLC and/or OMI Quebec FCI LLC or another subsidiary
of Onex...................................................
---------
1,611,699
=========
</TABLE>
- -------------------------
(1) Onex DHC LLC and/or one or more Onex Affiliates are participating in this
Offering pursuant to the exercise of their Piggy Back Registration Rights in
respect of the Debt Offering. For purposes of this section, it is assumed
that Onex DHC LLC and/or one or more Onex Affiliates are the only Selling
Stockholders. Scotsman will notify the New Scotsman Shareholders of the
Offerings, and, subject to the terms of the Registration Rights Agreement,
any of the New Scotsman Shareholders may exercise their Piggy Back
Registration Rights. In that event, the total number of shares of Common
Stock offered by the Selling Stockholders may exceed 1,611,699. See "Certain
Transactions."
Based on information included in Form 4s filed with the Commission by Onex
DHC LLC and other information available to the Company, Onex DHC LLC owns
1,611,699 shares of Common Stock (15.3% of the 10,555,038 shares outstanding as
of August 8, 1997). Onex DHC LLC has indicated that prior to selling shares in
this Offering, it may transfer all or a part of such shares to OMI Quebec FCI
LLC or to another subsidiary of Onex. After giving effect to the sale of shares
of Common Stock to be sold in this Offering, the Onex Group will own no shares
of Common Stock.
The New Scotsman Shareholders, including the Selling Stockholders, are
parties to agreements with the Company and among themselves that govern the
appointment and future nomination of certain directors to the Board of Directors
of the Company. See "Certain Transactions."
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<PAGE> 179
DESCRIPTION OF CAPITAL STOCK
The following summary description of Scotsman's capital stock does not
purport to be complete and is subject in all respects to applicable Delaware law
and to the provisions of the Restated Certificate of Incorporation of the
Company (the "Company Certificate"), the By-Laws of the Company, as amended (the
"Company By-Laws"), and the Rights Agreement (as defined below), copies of which
are exhibits to the Registration Statement of which this Prospectus is a part.
GENERAL
The authorized capital stock of the Company consists of (i) 50,000,000
shares of Common Stock, $0.10 par value per share, and (ii) 10,000,000 shares of
Preferred Stock, par value $1.00 per share (the "Preferred Stock"). 10,555,038
shares of Common Stock were issued and outstanding as of August 8, 1997, and no
shares of Preferred Stock were issued and outstanding as of such date.
COMMON STOCK
The holders of Common Stock of the Company are entitled to one vote for
each share on all matters voted on by stockholders of the Company, including the
election of directors, and, except for such voting rights as may be granted by
the board of directors of the Company with respect to any series of Preferred
Stock of the Company, the holders of such shares possess all voting power
applicable to the Company's capital stock. The Company Certificate does not
provide for cumulative voting for the election of directors. Subject to any
preferential rights of any outstanding series of Preferred Stock of the Company
designated by the board of directors of the Company from time to time, the
holders of Common Stock of the Company are entitled to such dividends as may be
declared from time to time by the board of directors from funds available
therefor, and upon liquidation will be entitled to receive pro rata all assets
of the Company available for distribution to such holders.
The outstanding shares of Common Stock are, and the shares of Common Stock
offered by the Company in this Offering will be, when issued and paid for, fully
paid and nonassessable. The Company will apply for the listing of the Common
Stock offered hereby on the NYSE, effective upon official notice of issuance.
PREFERRED STOCK
The Company Certificate authorizes the board of directors of the Company to
provide for the issue of shares of Preferred Stock of the Company, in one or
more series, and to fix for each such series such voting powers, designations,
preferences, and relative, participating, optional and other special rights, and
such qualifications, limitations or restrictions, as are stated in the
resolution adopted by the board of directors of the Company providing for the
issue of such series and as are permitted by the Delaware General Corporation
Law (the "DGCL").
CLASSIFIED BOARD OF DIRECTORS
The Company Certificate provides for the board of directors of the Company
to be divided into three classes serving staggered terms so that one class of
directors is elected each year for a three-year term.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Company Certificate and the Company By-Laws provide that the number of
directors will be fixed from time to time exclusively by the board of directors
of the Company. In addition, the Company Certificate and the Company By-Laws
provide that, subject to any rights of the holders of Preferred Stock of the
Company and unless the board of directors of the Company otherwise determines, a
majority of the board of directors of the Company then in office may fill any
vacancies on the board of directors and directors so chosen to fill a vacancy
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires
and until such director's successor shall have been duly elected and qualified.
Accordingly, the board of directors of the Company could prevent any stockholder
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<PAGE> 180
of the Company from obtaining majority representation on the board of directors
of the Company by enlarging the board and filling the new directorships with its
own nominees.
Moreover, the DGCL, the Company Certificate and the Company By-Laws provide
that directors may be removed only for cause. The Company Certificate and the
Company By-Laws also provide that directors may be removed only by affirmative
vote of holders of at least a majority of the voting power of all the then
outstanding shares of Voting Stock (as defined) voting together as a single
class.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETING
The Company Certificate and the Company By-Laws provide that stockholder
action can be taken only at an annual or special meeting of stockholders and
prohibit stockholder action by written consent in lieu of a meeting. The Company
Certificate and the Company By-laws provide that, subject to the rights of
holders of any series of Preferred Stock of the Company, special meetings of
stockholders can be called only by a majority of the total number of directors
which the board of directors of the Company would have if there were no
vacancies (the "Whole Board"). Stockholders are not permitted to call a special
meeting or to require that the board of directors of the Company call a special
meeting of stockholders. Moreover, the business permitted to be conducted at any
special meeting of stockholders is limited to the business brought before the
meeting by or at the direction of the board of directors of the Company.
ADVANCE NOTICE PROVISIONS OF STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS
OF DIRECTORS
The Company By-Laws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the board of directors of
the Company, of candidates for election as directors and with regard to certain
matters to be brought before an annual meeting of shareholders of the Company.
Any such notice must contain certain specified information.
FAIR PRICE PROVISION
The Company is able to merge or consolidate with other corporations, sell
or transfer all or substantially all of its assets or adopt a plan of
recapitalization, liquidation or dissolution ("Business Combinations") with the
approval of the holders of a majority of the outstanding shares of Common Stock
of the Company, subject to the "fair price" provision in the Company
Certificate.
In general, the fair price provision requires the approval of the holders
of 80% of the voting power of the outstanding capital stock of the Company
entitled to vote generally in the election of directors as a condition for
Business Combinations involving any beneficial holder of more than 10% of such
voting power (an "Interested Stockholder"), unless the transaction is either
approved by at least a majority of the members of the Board of Directors who are
unaffiliated with the Interested Stockholder and were directors before the
Interested Stockholder became an Interested Stockholder (the "Continuing
Directors") or certain minimum price and procedural requirements are met. The
term Continuing Directors also includes certain successors to Continuing
Directors if unaffiliated with the Interested Stockholder. The term "Interested
Stockholder" also refers to certain assignees of Interested Stockholders and to
affiliates of the Company who, within two years prior to the date in question,
beneficially held 10% or more of the voting power of the outstanding stock of
the Company entitled to vote generally in the election of directors.
SECTION 203
The Company is subject to Section 203 of the DGCL. Section 203 of the DGCL
prevents an "interested stockholder" (defined in Section 203, generally, as a
person owning 15% or more of a corporation's outstanding voting stock) from
engaging in a "business combination" (as defined in Section 203) with a
publicly-held Delaware corporation for three years following the date such
person became an interested stockholder unless: (i) before such person became an
interested stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested stockholder
or approved the business combination; (ii) upon consummation of the transaction
that resulted in the interested stockholder's becoming an interested
stockholder, the interested stockholder owns at least 85% of the voting
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stock of the corporation outstanding at the time the transaction commenced
(excluding stock held by directors who are also officers of the corporation and
by employee stock plans that do not provide employees with the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer); or (iii) at or subsequent to the
transaction in which such person became an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of 66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder.
THE RIGHTS PLAN
Pursuant to the Rights Agreement dated April 14, 1989, as amended (the
"Rights Agreement"), with Harris Trust and Savings Bank, as Rights Agent, upon
the occurrence of certain events described below, each holder of a share of
Common Stock of the Company outstanding as of the date of this Prospectus has
received and each holder of a share of Common Stock offered hereby will receive,
one Common Stock purchase right (a "Right") for each share of Common Stock held
by such holder entitling such holder until the earlier of May 1, 1999 (the
"Final Expiration Date") or the redemption of the Rights (the "Redemption Date")
to purchase shares of Common Stock of the Company at a price of $48 per share
(the "Purchase Price"), subject to adjustment.
Until the earlier of (i) 10 days after a public announcement that a Person
(other than a Scotsman related entity) has become the Beneficial Owner (as
defined in the Rights Agreement) of 20% (or such lower threshold not less than
10% as may be established by the Board of Directors of the Company) or more of
the outstanding shares of Common Stock of the Company or (ii) 10 business days
(or such later date as may be determined by action of the Board of Directors of
the Company prior to such time as any Person becomes an Acquiring Person (as
defined in the Rights Agreement)) following the commencement of, or announcement
of an intention to commence, an offer the consummation of which would result in
a Person beneficially owning 20% (or such lower threshold not less than 10% as
may be established by the Board of Directors of the Company) or more of the
outstanding shares of Common Stock of the Company (the earlier of (i) or (ii)
being called the "Rights Distribution Date"), the Rights are represented by the
certificates for the Common Stock of the Company, are not exercisable and are
not transferable apart from the Common Stock of the Company. After the Rights
Distribution Date, the Rights become exercisable, and separate certificates for
the Rights will be mailed to holders of record of the shares of Common Stock as
of such date. Such separate certificates will thereafter constitute the sole
evidence of the Rights.
In the event that on or after the first date of public announcement by the
Company or an Acquiring Person that an Acquiring Person has become such the
Company is acquired in a merger or other business combination transaction or 50%
or more of its consolidated assets or earning power are sold in one or a series
of transactions (other than in the ordinary course of business), proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current Purchase Price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
Purchase Price of the Right. Subject to certain exceptions, in the event that
any Person, together with its Affiliates and Associates (as such terms are
defined in the Rights Agreement), has become the Beneficial Owner of 20% (or
such lower threshold not less than 10% as may be established by the Board of
Directors of the Company) or more of the shares of Common Stock of the Company
then outstanding, proper provision will be made so that each holder of a Right,
other than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of Common Stock of the Company having a market value of
two times the Purchase Price of the Right. Under no circumstances may a Right be
exercised following the occurrence of the event set forth in the preceding
sentence prior to the expiration of the Company's right of redemption.
Under certain circumstances, the Company may (i) exchange the Rights (other
than those Rights owned by the Acquiring Person or its Affiliates or Associates
which have become void), in whole or in part, for additional shares of Common
Stock of the Company at an exchange ratio of one share of Common Stock of
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<PAGE> 182
the Company per Right or (ii) redeem the Rights in whole, but not in part, at
the price of $0.01 per Right, in each case subject to adjustment.
The Rights are not exercisable until the Rights Distribution Date. The
Rights will expire on the Final Expiration Date, unless earlier redeemed or
exchanged or unless such expiration date is extended. Until a Right is
exercised, the holder thereof, as such, will have no rights as a stockholder of
the Company, including, without limitation, the right to vote or to receive
dividends.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank.
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
The following summary description of the Credit Facility does not purport
to be complete and is subject in all respects to the provisions thereof, a copy
of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part and is incorporated herein by reference.
In connection with the closing of the Kysor Acquisition in March 1997, the
Company, Scotsman Group, certain other subsidiaries of the Company, certain
financial institutions ("Lenders") and The First National Bank of Chicago, as
agent for the Lenders ("First Chicago"), entered into a loan agreement providing
for a credit facility in the aggregate principal amount of $415 million and, in
contemplation of the Debt Offering, the Company has entered into negotiations
with First Chicago to amend such loan agreement to, among other things, permit
the consummation of the Debt Offering and change certain covenants (the "Credit
Facility Amendment" and, together with such loan agreement, as amended to date,
the "Credit Facility"). The following description of the Credit Facility assumes
the effectiveness of the Credit Facility Amendment and the application of the
net proceeds from this Offering to repay $30 million of term loan borrowings
outstanding under the Credit Facility. The Credit Facility consists of a $120
million term loan facility (the "Term Facility") and a $265 million revolving
loan facility (the "Revolving Facility").
The Revolving Facility will mature on March 12, 2004 (unless otherwise
earlier terminated or extended in accordance with the terms of the Credit
Facility). The aggregate principal amount which may be borrowed thereunder will
be reduced on December 31, 1998 by $10 million and by $15 million on each
December 31 thereafter until maturity, at which time the remaining commitment
amount under the Revolving Facility will be reduced to zero. The Term Facility
will mature on December 31, 2002 and be amortized with semi-annual principal
payments (in varying amounts) starting on December 31, 1997 and continuing
thereafter until maturity.
Borrowings under the Credit Facility bear interest at a floating rate based
upon, at the borrower's option, (i) the higher of First Chicago's corporate base
rate or the Federal funds rate plus 1/2% per annum, or (ii) the rate offered by
First Chicago for deposits in the relevant Eurocurrency, plus, in each case, an
applicable margin. As of June 29, 1997, borrowings under the Term Facility and
the Revolving Facility accrued interest at rates ranging from 7.0625% to 7.9375%
per annum (equal to 1.375% above Eurocurrency rates, but the applicable margin
will vary depending upon the "Debt/Earnings Ratio" (as defined below)).
The Credit Facility is guaranteed by Scotsman and certain of its
subsidiaries and secured by a pledge of stock of certain subsidiaries of
Scotsman.
The Credit Facility contains conditions precedent, representations and
warranties, covenants, events of default and other provisions customary for such
financings. Financial covenants in the Credit Facility require Scotsman to
maintain: (a) net worth on a consolidated basis of not less than the sum of $120
million plus 60% of Scotsman's consolidated net income for all quarters ending
after December 31, 1996 plus 60% of the proceeds of any equity issuances by
Scotsman less certain other adjustment amounts identified therein; (b) a ratio
(the "Debt/Earnings Ratio") of total indebtedness to EBITDA (net income, plus
income tax expense,
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minus equity in net income of affiliates (net of cash dividends received), plus
interest expense, plus depreciation expense, plus amortization expense, plus
other non-cash charges, minus interest income) of not more than certain
specified amounts measured on a rolling four-quarter basis for each quarter end
(such ratio for the period ending December 28, 1997 not to exceed 5.0 to 1.00);
(c) a ratio of EBITDAR (EBITDA plus rents) minus capital expenditures to "Fixed
Charges" (interest expense, plus scheduled principal repayments (including
mandatory Revolving Facility reductions), plus income tax expense, plus rents,
plus dividends paid) of not less than 1.0 to 1 for all fiscal quarters ending in
1997 and 1.05 to 1 thereafter; and (d) a ratio of total senior indebtedness to
EBITDA of not more than certain specified amounts measured on a rolling four
quarter basis for each quarter end (such ratio for the period ending December
28, 1997 not to exceed 4.25 to 1.00). The covenant described in (a) above could
restrict the Company's ability to make future distributions to its stockholders
if such distributions would cause the Company to violate the net worth
maintenance requirement. At June 29, 1997, consolidated stockholders' equity of
the Company was $137.5 million. The Company is also precluded from paying
dividends to its stockholders (other than dividends payable in its own capital
stock) if a default or an unmatured default under the agreement has occurred and
is continuing or would occur after giving effect to the payment of such
dividends.
The Credit Facility requires that a notional amount of $150 million be
hedged to reduce interest rate exposure until March 12, 2000. Subsequent to the
Kysor Acquisition, the Company entered into interest rate swap agreements to
hedge its interest rate exposure on the $150 million until March 27, 2000. One
of the interest rate swap agreements is extendable for an additional two years
at First Chicago's option at the end of three years.
SENIOR SUBORDINATED NOTES
The Company's direct wholly owned subsidiary, Scotsman Group, is offering
up to $100 million aggregate principal amount of its % Senior Subordinated
Notes Due 2007, pursuant to the Debt Offering. The following is a summary of
certain terms of the Notes and is qualified in its entirety by reference to the
Indenture. A copy of the proposed form of Indenture has been filed with the
Registration Statement of which this Prospectus is a part. Scotsman will
irrevocably and unconditionally guarantee on a senior subordinated basis the
payment of principal and interest in respect of the Notes and the performance by
Scotsman Group of its other obligations under the Indenture (the "Parent
Guarantee").
The Notes and the Parent Guarantee will be unsecured senior subordinated
obligations of Scotsman Group and the Company, respectively, and will rank pari
passu in right of payment with all existing and future senior subordinated
indebtedness of Scotsman Group and the Company, respectively, and will be
subordinated to existing and future senior indebtedness of Scotsman Group and
the Company, respectively. The Notes will mature on , 2007. The Notes
will bear interest from , 1997 at a rate of % per annum payable
semi-annually, commencing on , 1998.
The Notes will be redeemable at the option of Scotsman Group, in whole or
in part, at any time and from time to time, on or after , 2002 and prior
to maturity at the following redemption prices (expressed as a percentage of the
principal amount), plus accrued but unpaid interest, if redeemed during the
twelve-month period commencing on of the years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------ ----------------
<S> <C>
2002............................................ %
2003............................................ %
2004 and thereafter............................. 100%
</TABLE>
In the event the Company consummates an Equity Offering (as defined in the
Indenture) prior to 2000, Scotsman Group may, at its option, redeem in
the aggregate up to 35% of the original principal amount of the Notes at a
redemption price equal to % of the aggregate principal amount of the Notes to
be redeemed, plus accrued and unpaid interest to the redemption date, provided
at least $ million aggregate principal amount of the Notes remains outstanding
after such redemption.
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<PAGE> 184
Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder of the Notes will have the option to require Scotsman Group to
repurchase the Notes held by such holders at a redemption price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest through the
redemption date.
The Indenture will contain certain covenants, including without limitation,
covenants with respect to the following matters: (i) limitations on
indebtedness; (ii) limitations on other senior subordinated indebtedness; (iii)
limitations on restricted payments; (iv) limitations on sale or issuance of
restricted subsidiary stock and indebtedness; (v) limitations on transactions
with affiliates; (vi) limitations on liens; (vii) limitations on asset sales;
(viii) limitations on dividends and other payment restrictions affecting
restricted subsidiaries; and (ix) restrictions on mergers and certain transfers
of assets.
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PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Stockholders may be effected
from time to time in one or more transactions (which may be block transactions)
on the NYSE or otherwise, in special offerings, exchange distributions or
secondary distributions pursuant to and in accordance with the rules of the
NYSE, in the over-the-counter-market, in negotiated transactions, through the
writing of options on shares (whether such options are listed on an options
exchange or otherwise), or a combination of such methods of sale, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. The Selling Stockholders may effect such
transactions directly or to or through underwriters, broker-dealers or agents
who may receive compensation in the form of underwriting discounts, concessions
or commissions from the Selling Stockholders and/or purchasers of shares for
whom they may act (which compensation may be in excess of customary
commissions). The Selling Stockholders and underwriters, broker-dealers and
agents that participate with the Selling Stockholders in the distribution of the
Shares may be deemed to be "underwriters" within the meaning of Section 2(11) of
the Securities Act, and any commissions received by them and any profit on the
resale of the Shares may be deemed to be underwriting compensation. At the time
a particular offer of shares of Common Stock is made, to the extent required, a
supplement to this Prospectus will be distributed which will set forth, to the
extent required, the number of shares being offered and the terms of the
offering, including the name or names of any underwriters, dealers or agents,
any discounts, commissions and other items constituting compensation and any
discounts, commissions or concessions allowed or reallowed or paid to dealers
and the proposed selling price to the public.
There is no assurance that the Selling Stockholders will sell any or all of
the Shares described herein and they may transfer, devise or gift the Shares by
other means not described herein, including, without limitation, pursuant to
Rule 144 or Rule 145 under the Securities Act.
Under the contractual arrangements between the Company and the Selling
Stockholders, the Company is obligated to indemnify the Selling Stockholders and
any underwriters of the Shares, and the Selling Stockholders are obligated to
indemnify the Company and any such underwriters, in each case against certain
civil liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Sidley & Austin, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company at December 29, 1996
and December 31, 1995 and for each of the three years ended December 29, 1996,
December 31, 1995 and January 1, 1995, respectively, included and incorporated
by reference elsewhere in this Prospectus have been audited by Arthur Andersen
LLP, independent public accountants, as set forth in their report thereon
included and incorporated by reference elsewhere herein. The financial
statements referred to above are included and incorporated by reference herein
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated balance sheet of Kysor Industrial Corporation and
Subsidiaries as of December 31, 1996 and 1995 and the consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996, included in this Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand, L.L.P., independent
public accountants, given on the authority of that firm as experts in accounting
and auditing.
57
<PAGE> 186
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports and other information with the
Commission. Reports, proxy and information statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission;
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and Northeast Regional Office, Seven World Trade Center, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy information statements and
other information regarding companies which file electronically with the
Commission. In addition, reports, proxy and information statements and other
information concerning the Company may also be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
Booth(R), Delfield(R), Kysor(R), Kysor//Warren(R), Scotsman(R),
Shelleyglas(R) and Simag(R), are registered trademarks or trade names of the
Company or its subsidiaries. Boston Market(R) is a registered trademark of
Boston Chicken, Inc. Coca-Cola(R) is a registered trademark of The Coca-Cola
Company. Howe(R) and Rapid Freeze(R) are registered trademarks of Howe
Corporation. Marriott(R) is a registered trademark of Marriott International,
Inc. McDonald's(R) is a registered trademark of McDonald's Corporation. Mobil(R)
is a registered trademark of Mobil Corporation. Pepsi(R) is a trademark of
Pepsico, Inc. WalwMart(R) is a registered trademark of Wal-Mart Stores, Inc.
Winn-Dixie(R) is a registered trademark of Winn-Dixie Stores, Inc.
58
<PAGE> 187
[OUTSIDE BACK COVER]
[GRAPHIC ILLUSTRATION OF MATERIAL DESCRIBED ELSEWHERE IN
THIS PROSPECTUS REGARDING THE COMPANY'S FIVE PRODUCT LINES]
<PAGE> 188
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses (other than underwriting discounts and commissions) payable in
connection with the sale of the Common Stock and the Notes offered hereby
(including the Common Stock which may be issued pursuant to an over allotment
option) are as follows:
<TABLE>
<CAPTION>
AMOUNT*
-------
<S> <C>
SEC Registration fee........................................ $ 43,247
NASD fee.................................................... 15,652
NYSE fee.................................................... 29,500
Printing and engraving expenses............................. 250,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 150,000
Blue sky fees and expenses (including legal fees and
expenses)................................................. 2,500
Transfer agent, trustee and registrar fees and expenses..... 15,000
Rating agency fees.......................................... 62,500
Miscellaneous............................................... 31,601
--------
Total.................................................. $850,000
========
</TABLE>
- -------------------------
* All amounts are estimated, except the SEC Registration fee, the NASD fee and
the NYSE fee.
The Company will bear all expenses shown above.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law (the "DGCL") permits a corporation to
indemnify officers, directors, employees and agents for actions taken in good
faith and in a manner they reasonably believed to be in, or not opposed to, the
best interests of the corporation, and with respect to any criminal action,
which they had no reasonable cause to believe was unlawful. The DGCL provides
that a corporation may pay expenses (including attorneys' fees) incurred by an
officer or Director in defending any civil, criminal, administrative or
investigative action (upon receipt of a written undertaking to reimburse the
corporation if indemnification is not appropriate), and must reimburse a
successful defendant for expenses, including attorney's fees, actually and
reasonably incurred, and permits a corporation to purchase and maintain
liability insurance for its directors and officers. The DGCL provides that
indemnification may be made for any claim, issue or matter as to which a person
has been adjudged by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable to the corporation, unless and only to the
extent a court determines that the person is entitled to indemnity for such
expenses as the court deems proper.
Article Ninth of the Restated Certificate of Incorporation of the Company
("Article Ninth") provides that each person who was or is made a party to, or is
involved in, any action, suit or proceeding by reason of the fact that he or she
is or was a director, officer or employee of the Company (or was serving at the
request of the Company as a director, officer, employee or agent for another
entity) will be indemnified and held harmless by the Company, to the full extent
authorized by the DGCL, as currently in effect (or, to the extent
indemnification is broadened, as it may be amended) against all expense,
liability or loss (including attorneys' fees, judgments, fines, Employee
Retirement Income Security Act excise taxes or penalties and amounts to be paid
in settlement) reasonably incurred by such person in connection therewith.
Article Ninth provides that the rights conferred thereby are contract rights and
will include the right to be paid by the Company for the expenses incurred in
defending the proceedings specified above, in advance of their final
disposition, except that, if the DGCL so requires, such payment will only be
made upon delivery to the Company by the indemnified party of an undertaking to
repay all amounts so advanced if it is ultimately determined that the person
receiving such payments is not entitled to be indemnified under such provision
or otherwise. Article
II-1
<PAGE> 189
Ninth provides that the Company may, by action of its board of directors,
provide indemnification to its agents with the same scope and effect as the
foregoing indemnification of directors, officers and employees.
Article Ninth provides that persons indemnified thereunder may bring suit
against the Company to recover unpaid amounts claimed thereunder, and that if
such suit is successful, the expense of bringing such a suit will be reimbursed
by the Company. Article Ninth further provides that while it is a defense to
such a suit that the person claiming indemnification has not met the applicable
standards of conduct making indemnification permissible under the DGCL, the
burden of proving the defense will be on the Company and neither the failure of
the Company's board of directors to have made a determination that
indemnification is proper nor an actual determination that the claimant has not
met the applicable standard of conduct will be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
Article Ninth provides that the rights to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred therein will not be exclusive of any other right which any
person may have or acquire under any statute, provision of the Company's
Restated Certificate of Incorporation or By-Laws, or otherwise. Finally, Article
Ninth provides that the Company may maintain insurance, at its expense, to
protect itself and any of its directors, officers, employees or agents against
any expense, liability or loss, whether or not the Company would have the power
to indemnify such person against such expense, liability or loss under the DGCL.
The Company has insurance which insures directors and officers of the
Company for acts committed in their capacity as directors and officers or claims
made against them by reason of their status as directors or officers, except for
and to the extent the Company has indemnified the directors or officers.
ITEM 16. EXHIBITS
Exhibits: Unless otherwise indicated, all documents incorporated by
reference to prior filings have been filed under Commission File No. 1-10182.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement for Notes.
2.1** Agreement and Plan of Merger dated as of February 2, 1997
among the Company, K Acquisition Corp. and Kysor
(incorporated herein by reference to Exhibit (c)(1) of the
Company's Schedule 14D-1 filed with the Commission on
February 7, 1997), as amended by the First Amendment to
Agreement and Plan of Merger dated as of March 7, 1997
(incorporated herein by reference to Exhibit (2) of the
Company's Form 8-K dated March 8, 1997).
2.2** Asset Purchase Agreement dated as of February 2, 1997 among
Kuhlman, Transpro, Kysor and certain subsidiaries of Kysor
(incorporated herein by reference to Exhibit (c)(2) of the
Company's Schedule 14D-1 filed with the Commission on
February 7, 1997).
2.3** 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), as amended by
the First Amendment thereto, dated as of March 17, 1994
(incorporated herein by reference to the Company's 10-K for
the fiscal year ended January 2, 1994).
</TABLE>
II-2
<PAGE> 190
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
2.4** 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), as
amended by the First Amendment thereto, dated as of March
17, 1994 (incorporated herein by reference to the Company's
10-K for the fiscal year ended January 2, 1994).
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to the Company Form 10-K
for the fiscal year ended December 31, 1989).
3.2 By-Laws of the Company, as amended (incorporated herein by
reference to the Company Form 8-K dated June 21, 1991).
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), 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).
4.2* Indenture for Notes (including the form of Note and Parent
Guarantee).
5.1* Opinion of Sidley & Austin in respect of the Common Stock.
5.2* Opinion of Sidley & Austin in respect of the Notes.
10.1** Credit Agreement dated March 12, 1997 among Scotsman Group
Inc. and the other parties named therein, as Borrower,
Scotsman Industries, Inc., the Lenders named therein and The
First National Bank of Chicago, as Agent (incorporated
herein by reference to the Company's 10-K for the fiscal
year ended December 29, 1996).
10.2* Third Amendment to the Credit Agreement filed as Exhibit
10.1.
12.1*** Statement of computation of ratios.
23.1*** Consent of Arthur Andersen LLP.
23.2*** Consent of Coopers & Lybrand L.L.P.
23.3*** Consent of Sidley & Austin (included in Exhibit 5.1).
24.1*** Powers of attorney.
25.1* Statement of Eligibility of Trustee.
99.1*** Registration Rights Agreement dated as of April 29, 1994
among Scotsman Industries, Inc. and the persons and entities
listed in Schedule A thereto.
99.2 Stockholders' Agreement dated as of January 11, 1994 among
shareholders of DFC Holding Corporation and Whitlenge
Acquisition Limited (incorporated herein by reference to
Exhibit K of the Schedule 13D filed by Onex Corporation and
certain other persons and entities on December 30, 1994).
</TABLE>
- -------------------------
* To be filed by pre-effective amendment to this Registration Statement.
** The Company hereby undertakes to provide the Commission supplementally with
any omitted exhibits or schedules to these agreements upon request.
*** Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-3
<PAGE> 191
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended, that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described under Item 15 above, or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 192
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
COMPANY CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF
THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT ON FORM S-3 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN VERNON HILLS, ILLINOIS ON OCTOBER 20, 1997.
SCOTSMAN INDUSTRIES, INC.
By: /s/ R.C. OSBORNE
------------------------------------
Chairman and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON OCTOBER 20, 1997 BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ R.C. OSBORNE Chairman of the Board, President,
- --------------------------------------------- Chief Executive Officer &
(R.C. Osborne) Director (Principal Executive
Officer)
/s/ D.D. HOLMES Vice President-Finance and
- --------------------------------------------- Secretary (Principal Financial &
(D.D. Holmes) Accounting Officer)
* Director
- ---------------------------------------------
(D.C. Clark)
* Director
- ---------------------------------------------
(T.C. Collins)
* Director
- ---------------------------------------------
(F.W. Considine)
* Director
- ---------------------------------------------
(G.D. Kennedy)
* Director
- ---------------------------------------------
(R.G. Rettig)
* Director
- ---------------------------------------------
(R.L. Thomas)
*By: /s/ D.D. HOLMES
---------------------------------------
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 1
EXHIBIT 12.1
Exhibit X - Ratio of Earnings to Fixed Charges
000's omitted
<TABLE>
<CAPTION>
First Fiscal Six Months Fiscal Year
----------------------------- ---------------------------------------------------------------
Pro Forma Pro Forma
As Adjusted As Adjusted
1997 1997 1996 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) before
income taxes,
extraordinary item
and cumulative effect
of change in accounting
principal $17,435 $21,213 $20,550 $36,371 $35,017 $28,128 $22,798 $13,371 $10,185
============================= ===============================================================
Capitalized Interest -- -- -- -- -- -- -- -- --
Interest Expense (1) 14,510 8,781 2,837 31,334 5,279 6,326 5,416 4,235 4,675
----------------------------- ---------------------------------------------------------------
Total Interest Expense $14,510 $ 8,781 $ 2,837 $31,334 $ 5,279 $ 6,326 $ 5,416 $ 4,235 $ 4,675
============================= ===============================================================
Amortization of deferred
debt issue costs -- -- -- -- -- -- -- -- --
============================= ===============================================================
Rental expense assumed
to be representative of
interest factor $ 615 $ 492 $ 362 $ 1,275 $ 750 $ 720 $ 600 $ 420 $ 510
============================= ===============================================================
Earnings:
Pre-tax earnings $17,435 $21,213 $20,550 $36,371 $35,017 $28,128 $22,798 $13,371 $10,185
Fixed charge less
capitalized interest 15,125 9,273 3,199 32,609 6,029 7,046 6,016 4,655 5,185
Less undistributed
earnings of less-than-50%-
owned affiliates (311) (177) -- -- -- -- -- -- --
----------------------------- ---------------------------------------------------------------
Total earnings
for ratio $32,249 $30,309 $23,749 $68,980 $41,046 $35,174 $28,814 $18,026 $15,370
----------------------------- ---------------------------------------------------------------
Fixed charges:
Total Interest Expense (1) $14,510 $ 8,781 $ 2,837 $31,334 $ 5,279 $ 6,326 $ 5,416 $ 4,235 $ 4,675
Amortization of Debt
Issue Costs -- -- -- -- -- -- -- -- --
Rental Expense
representing interest 615 492 362 1,275 750 720 600 420 510
Preferred Stock Dividend -- -- -- -- -- -- -- -- --
----------------------------- ---------------------------------------------------------------
Total fixed charges
for ratio $15,125 $ 9,273 $ 3,199 $32,609 $ 6,029 $ 7,046 $ 6,016 $ 4,655 $ 5,185
----------------------------- ---------------------------------------------------------------
Ratio
Earnings/Fixed Charges 2.1 3.3 7.4 2.1 6.8 5.0 4.8 3.9 3.0
</TABLE>
(1) Debt issuance cost is included as a component of interest expense.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion or
incorporation by reference in this registration statement of our reports dated
February 4, 1997 included or incorporated by reference in Scotsman Industries,
Inc. Form 10-K for the year ended December 29, 1996 and to all references to our
Firm included in this registration statement.
/s/ Arthur Andersen LLP
Chicago, Illinois
October 17, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Scotsman
Industries, Inc. on Form S-3 of our report dated February 3, 1997, on our audits
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.
We also consent to the reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND LLP
Detroit, Michigan
October 21, 1997
<PAGE> 1
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Donald D. Holmes and
William J. Rotenberry, and each of them, the true and lawful attorneys-in-fact
and agents of the undersigned, with full power of substitution and
resubstitution, for and in the name, place and stead of the undersigned as a
director and/or officer of Scotsman Industries, Inc., a Delaware corporation
(the "Company"), to sign a Registration Statement on Form S-3 for the
registration under the Securities Act of 1933, as amended (the "Act"), of the
Company's Common Stock, par value $0.10 per share, and unsecured notes or other
unsecured evidences of indebtedness of the Company and/or one or more of its
subsidiaries, and any and all amendments (including post-effective amendments)
to such Registration Statement, as well as any related registration statements
(or amendment thereto) filed pursuant to Rule 462(b) promulgated under the Act,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and
hereby grants to such attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
R. C. Osborne
-----------------------------
(R. C. Osborne)
<PAGE> 2
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Richard C. Osborne,
Donald D. Holmes and William J. Rotenberry, and each of them, the true and
lawful attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned as a director and/or officer of Scotsman Industries, Inc., a
Delaware corporation (the "Company"), to sign a Registration Statement on Form
S-3 for the registration under the Securities Act of 1933, as amended (the
"Act"), of the Company's Common Stock, par value $0.10 per share, and unsecured
notes or other unsecured evidences of indebtedness of the Company and/or one or
more of its subsidiaries, and any and all amendments (including post-effective
amendments) to such Registration Statement, as well as any related registration
statements (or amendment thereto) filed pursuant to Rule 462(b) promulgated
under the Act, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and hereby grants to such attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
D.C. Clark
-----------------------------
(D.C. Clark)
<PAGE> 3
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Richard C. Osborne,
Donald D. Holmes and William J. Rotenberry, and each of them, the true and
lawful attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned as a director and/or officer of Scotsman Industries, Inc., a
Delaware corporation (the "Company"), to sign a Registration Statement on Form
S-3 for the registration under the Securities Act of 1933, as amended (the
"Act"), of the Company's Common Stock, par value $0.10 per share, and unsecured
notes or other unsecured evidences of indebtedness of the Company and/or one or
more of its subsidiaries, and any and all amendments (including post-effective
amendments) to such Registration Statement, as well as any related registration
statements (or amendment thereto) filed pursuant to Rule 462(b) promulgated
under the Act, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and hereby grants to such attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
T.C. Collins
-----------------------------
(T.C. Collins)
<PAGE> 4
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Richard C. Osborne,
Donald D. Holmes and William J. Rotenberry, and each of them, the true and
lawful attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned as a director and/or officer of Scotsman Industries, Inc., a
Delaware corporation (the "Company"), to sign a Registration Statement on Form
S-3 for the registration under the Securities Act of 1933, as amended (the
"Act"), of the Company's Common Stock, par value $0.10 per share, and unsecured
notes or other unsecured evidences of indebtedness of the Company and/or one or
more of its subsidiaries, and any and all amendments (including post-effective
amendments) to such Registration Statement, as well as any related registration
statements (or amendment thereto) filed pursuant to Rule 462(b) promulgated
under the Act, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and hereby grants to such attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
F.W. Considine
-----------------------------
(F.W. Considine)
<PAGE> 5
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Richard C. Osborne,
Donald D. Holmes and William J. Rotenberry, and each of them, the true and
lawful attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned as a director and/or officer of Scotsman Industries, Inc., a
Delaware corporation (the "Company"), to sign a Registration Statement on Form
S-3 for the registration under the Securities Act of 1933, as amended (the
"Act"), of the Company's Common Stock, par value $0.10 per share, and unsecured
notes or other unsecured evidences of indebtedness of the Company and/or one or
more of its subsidiaries, and any and all amendments (including post-effective
amendments) to such Registration Statement, as well as any related registration
statements (or amendment thereto) filed pursuant to Rule 462(b) promulgated
under the Act, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and hereby grants to such attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
G.D. Kennedy
-----------------------------
(G.D. Kennedy)
<PAGE> 6
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Richard C. Osborne,
Donald D. Holmes and William J. Rotenberry, and each of them, the true and
lawful attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned as a director and/or officer of Scotsman Industries, Inc., a
Delaware corporation (the "Company"), to sign a Registration Statement on Form
S-3 for the registration under the Securities Act of 1933, as amended (the
"Act"), of the Company's Common Stock, par value $0.10 per share, and unsecured
notes or other unsecured evidences of indebtedness of the Company and/or one or
more of its subsidiaries, and any and all amendments (including post-effective
amendments) to such Registration Statement, as well as any related registration
statements (or amendment thereto) filed pursuant to Rule 462(b) promulgated
under the Act, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and hereby grants to such attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
R.G. Rettig
-----------------------------
(R.G. Rettig)
<PAGE> 7
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Richard C. Osborne,
Donald D. Holmes and William J. Rotenberry, and each of them, the true and
lawful attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned as a director and/or officer of Scotsman Industries, Inc., a
Delaware corporation (the "Company"), to sign a Registration Statement on Form
S-3 for the registration under the Securities Act of 1933, as amended (the
"Act"), of the Company's Common Stock, par value $0.10 per share, and unsecured
notes or other unsecured evidences of indebtedness of the Company and/or one or
more of its subsidiaries, and any and all amendments (including post-effective
amendments) to such Registration Statement, as well as any related registration
statements (or amendment thereto) filed pursuant to Rule 462(b) promulgated
under the Act, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and hereby grants to such attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
R.L. Thomas
-----------------------------
(R.L. Thomas)
<PAGE> 1
Exhibit 99.1
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of April
29, 1994, among Scotsman Industries, Inc., a Delaware corporation (the
"Company") and the persons and entities listed on Schedule A hereto (such
persons and entities being hereinafter referred to as the "Investors").
1. Background. Pursuant to an Agreement and Plan of Merger dated as of
January 11, 1994, as amended, among the Company, Scotsman Acquisition
Corporation, a Delaware corporation, DFC Holding Corporation, a Delaware
corporation, The Delfield Company, a Delaware corporation, and certain of the
Investors (the "Merger Agreement"), the Investors are acquiring 2,000,000
shares (the "Preferred Shares") of the Company's Series A $0.62 Cumulative
Convertible Preferred Stock, par value $1.00 per share (the "Preferred Stock"),
1,200,000 shares of the Company's Common Stock, par value $.10 per share (the
"Common Stock"), together with associated common stock purchase rights (the
"Common Stock Purchase Rights") issued pursuant to the Rights Agreement, dated
as of April 1, 1989, as amended, between the Company and Harris Trust & Savings
Bank, as rights agent (such shares of Common Stock and associated Common Stock
Purchase Rights being referred to as the "Scotsman Fixed Shares"). Pursuant to
the Merger Agreement and the Whitlenge Share Acquisition Agreement dated as of
January 11, 1994, as amended, among the Company, Whitlenge Acquisition Limited,
Whitlenge Drink Equipment Limited and certain of the Investors, the Investors
may acquire up to an additional 651,733 shares of Common Stock, together with
associated Common Stock Purchase Rights (such additional shares of Common Stock
and associated Common Stock Purchase Rights being referred to as the "Scotsman
Contingent Shares"). The Preferred Shares are convertible into shares of
Common Stock (the "Conversion Shares") in accordance with the Certificate of
Designation of the Preferred Stock.
2. Registration Under Securities Act, etc.
2.1 Registration on Request. (a) Request. Subject to Section 2.9
hereof, upon the written request of one or more holders (the "Initiating
Holders") of Registrable Securities representing not less than 250,000 shares
of the Registrable Securities that the Company effect the registration under
the Securities Act of all or part of such Initiating Holders' Registrable
Securities, the Company will promptly give written notice of such requested
registration to all registered holders of Registrable Securities, and thereupon
the Company will file with the Commission a registration statement under the
Securities Act in accordance with Section 2.3 covering, and will use its
<PAGE> 2
best efforts to effect the registration under the Securities Act as
expeditiously as practicable of,
(i) the Registrable Securities which the Company has been so
requested to register by such Initiating Holders, and
(ii) all other Registrable Securities which the Company has been
requested to register by the holders thereof (such holders together with
the Initiating Holders are hereinafter referred to as the "Selling
Holders") by written request given to the Company within 30 days after
the giving of such written notice by the Company,
all to the extent requisite to permit the disposition of the Registrable
Securities so to be registered in the manner requested by the Selling Holders
as specified herein.
(b) Registration of Other Securities. Whenever the Company shall
effect a registration pursuant to this Section 2.1 in connection with an
offering and sale of Registrable Securities by one or more Selling Holders of
Registrable Securities (i) any Person other than a Selling Holder who holds
registration rights with respect to securities of the Company (each, a
"Registration Rights Holder"), shall have the right to include, to the extent
provided in the relevant agreement between the Company and the Registration
Rights Holder, in the registration made pursuant to this Section 2.1 the
securities held by the Registration Rights Holders to which such registration
rights relate, and (ii) the Company shall have the right to include in the
registration made pursuant to this Section 2.1 securities to be issued by the
Company (the securities for which Registration Rights Holders and the Company
can so require registration are herein referred to as "Additional Securities"),
unless in the case of an underwritten offering, the managing underwriter or
underwriters of such offering shall have advised the Selling Holders and the
Company in writing that the inclusion of such Additional Securities would
adversely affect such offering, in which case the number of Additional
Securities included in such registration shall be limited to the number that
will not, in the judgment of the managing underwriter or underwriters,
adversely affect the offering (such limited number to be allocated between the
Company and the affected Registration Rights Holders as they determine).
(c) Registration Statement Form. Registrations under this Section
2.1 shall be on an appropriate registration form of the Commission, as
reasonably determined by the Company consistent with the manner of sale
intended by the Selling Holders.
(d) Effective Registration Statement. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected (i)
unless a registration statement with
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<PAGE> 3
respect thereto has become effective and the Minimum Period has been completed
without the occurrence of any interference described in clause (ii) below, (ii)
if after it has become effective, such registration is interfered with by any
stop order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason not attributable to the Selling
Holders and such stop order, injunction, order or requirement has not been
lifted, and the effectiveness of such registration statement has not thereafter
been maintained for the number of days of the Minimum Period that remained at
the time such registration statement was first interfered with, or (iii) if the
conditions to closing specified in the underwriting agreement, if any, entered
into in connection with such registration are not satisfied, other than by
reason of some act or omission on the part of the Selling Holders, or waived.
(e) Selection of Underwriters. The underwriter or underwriters of
each underwritten offering of the Registrable Securities so to be registered
shall be selected by the Selling Holders of more than 50% of the Registrable
Securities so to be registered, subject to approval (not to be unreasonably
withheld) by the Company.
(f) Revocation of Request. Any Initiating Holder requesting
registration pursuant to Section 2.1(a) may revoke such request prior to the
effective date of the registration statement relating to such request, without
incurring any liability to the Company or any other holder of Registrable
Securities or other Person requesting registration of securities of the
Company, by providing a written notice to the Company revoking such request not
less than three business days prior to the proposed date of effectiveness of
such registration statement; provided, that if such registration statement does
not become effective solely because of such revocation, such Initiating Holder
shall reimburse the Company for all Registration Expenses incurred in
connection with such registration prior to or in connection with such
revocation and, provided further, that after any such revocation, such
Initiating Holder shall not, within six months after such revocation, again be
entitled to revoke a request for registration pursuant to this Section 2.1(f).
(g) Limitations on Registration on Request. Notwithstanding
anything in this Agreement to the contrary, in no event will the Company be
required to (i) effect, in the aggregate, more than three registrations
pursuant to this Section 2.1, or (ii) effect a registration in which the
aggregate number of shares of Registrable Securities is less than 250,000, or
(iii) file a registration statement pursuant to a request made under Section
2.1 within 120 days of the end of the Minimum Period relating to a previous
registration requested under Section 2.1.
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<PAGE> 4
2.2 Incidental Registration. (a) Right to Include Registrable
Securities. If the Company at any time proposes to register any of its
securities under the Securities Act by registration on Forms S-1, S-2 or S-3 or
any successor or similar form(s) (except registrations on such Forms or similar
form(s) solely for registration of securities in connection with an employee
benefit plan (on Form S-8 or any successor form) or dividend reinvestment plan
or in connection with a merger or consolidation or an exchange offer), whether
or not for sale for its own account, it will, subject to Section 2.9 hereof,
each such time give prompt written notice to all registered holders of
Registrable Securities of its intention to do so (and, if such registration is
an underwritten offering, the proposed managing underwriter or underwriters of
such offering). Upon the written request of any such holder (a "Requesting
Holder") made as promptly as practicable and in any event within 30 days after
the receipt of any such notice (7 days after telephonic notice if the Company
gives telephonic notice to all registered holders of Registrable Securities,
with written confirmation to follow promptly thereafter, stating that (i) such
registration will be on Form S-3 and (ii) such shorter period of time is
required because of a planned filing date), which request shall specify the
Registrable Securities intended to be disposed of by such Requesting Holder,
the Company will, subject to Section 2.9 hereof, use its best efforts to effect
the registration under the Securities Act of all Registrable Securities which
the Company has been so requested to register by the Requesting Holders
thereof, provided that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities the Company may, at its election, give written notice of such
determination to each Requesting Holder of Registrable Securities and (i) in
the case of a determination not to register, shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (but not its obligation to pay Registration Expenses incurred in
connection with such registration) and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities, for the same period as the delay in registering such securities.
No registration effected under this Section 2.2 shall relieve the Company of
its obligation to effect any registration upon request under Section 2.1.
(b) Priority in Incidental Registrations. If a registration
pursuant to this Section 2.2 involves an underwritten offering and the senior
managing underwriter of such underwritten offering shall advise the Company in
writing (with a copy to each holder of Registrable Securities requesting
registration) that, in its opinion, the number or type of Registrable
Securities requested to be included in such
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<PAGE> 5
registration is a number or type which would adversely affect such offering,
then the Company shall include in such registration, to the extent of the
number and type which the Company is so advised can be sold in (or during the
time of) such offering, first, all securities proposed by the Company to be
sold for its own account, second, such Registrable Securities and other
securities of the Company with respect to which the holders thereof have the
right to require the Company to register such securities in connection with any
registration of securities to be offered by the Company ("Other Securities")
requested to be included in such registration, such Registrable Securities and
Other Securities to be included in such registration pro rata on the basis of
the estimated gross proceeds from the sale thereof, and third, any other
securities of the Company requested to be included in such registration. There
shall be no limit on the number or registrations that may be requested pursuant
to this Section 2.2.
(c) Limitations on Incidental Registrations. Notwithstanding
anything in this Section 2.2 to the contrary, in no event will the Company be
required to (i) grant a request to include Registrable Securities in any
"shelf" registration filed pursuant to Rule 415 under the Securities Act, or
any successor rule, relating solely to the offering of debt securities by the
Company, or (ii) grant a request to include Registrable Securities in any
registration unless the number of shares of all Registrable Securities which
the Company has been so requested to register by the Requesting Holders thereof
(without giving effect to the application of the foregoing subsection (b)) is
at least 100,000.
2.3 Registration Procedures. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Sections 2.1 and 2.2, the
Company will as expeditiously as possible:
(i) prepare and file with the Commission, as promptly as
practicable, but in any event no later than 120 days after receipt of a
request for registration with respect to Registrable Securities (60 days
in the event of a registration pursuant to Section 2.1 that is not a
registration statement on Form S-1 or any successor or similar form), the
requisite registration statement to effect such registration and
thereafter use its best efforts to cause such registration statement to
become and remain effective for the Minimum Period (defined in clause
(ii) below), provided, however, that the Company may discontinue any
registration of its securities which are not Registrable Securities (and,
under the circumstances specified in the proviso to the second sentence
of Section 2.2(a), its securities which are Registrable Securities) at
any time
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<PAGE> 6
prior to the effective date of the registration statement relating
thereto;
(ii) prepare and file with the Commission such amendments,
including post-effective amendments, and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act and the rules and regulations
thereunder with respect to the disposition of all Registrable Securities
covered by such registration statement for such period as shall be
required for the disposition of all of such Registrable Securities,
provided that such period need not exceed 90 days (such period being
referred to in this Agreement as the "Minimum Period"); furnish, prior to
filing with the Commission, to each seller of Registrable Securities
covered by a registration statement in connection with a registration
pursuant to Section 2.1 a copy of any amendment, post-effective amendment
or supplement to such registration statement or the prospectus used in
connection therewith and shall not, unless required by law as advised by
counsel in writing, file any such amendment or supplement to which the
holders of at least 50% of the Registrable Securities covered by such
registration statement shall have reasonably objected within two days
after receipt of such document; notify each seller of Registrable
Securities covered by a registration statement pursuant to Section 2.1 or
2.2 of any stop order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to
remove it if entered; and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement during the Minimum Period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement;
(iii) furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and the prospectus included therein (including
each preliminary prospectus) and of each such amendment, including
post-effective amendments, and supplement thereto (in each case including
all exhibits), such number of copies of the prospectus contained in such
registration statement (including each preliminary prospectus) and any
other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, such documents,
if any, incorporated by reference in such registration statement or
prospectus, and such other documents, as such seller may reasonably
request;
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<PAGE> 7
(iv) use its best efforts (x) to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such States and
territories of the United States of America where an exemption is not
available and as the sellers of Registrable Securities covered by such
registration statement shall reasonably request in writing, (y) to keep
such registration or qualification in effect for so long as such
registration statement remains in effect, and (z) to take any other
action which may be reasonably necessary or advisable to enable such
sellers to consummate the disposition in such jurisdictions of the
securities to be sold by such sellers, except that the Company shall not
for any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (iv) be obligated to be so qualified or
to consent to general service of process in any such jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved
by such other Federal or state governmental agencies or authorities as
may be necessary to enable the seller or sellers thereof to consummate
the disposition of such Registrable Securities;
(vi) furnish to each seller of such Registrable Securities a signed
counterpart, addressed to each such seller, of (i) an opinion of counsel
for the Company (who may be in-house counsel for the Company), and (ii)
a "comfort" letter signed by the independent public accountants who have
certified the Company's financial statements included in such
registration statement, covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of such comfort letter, with respect to events
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in comfort letters delivered
to underwriters in underwritten public offerings of such securities (and
dated the dates such opinions and comfort letters are customarily dated)
and, in the case of the comfort letter, such other financial matters as
the holders of more than 50% of the Registrable Securities covered by
such registration statement may reasonably request;
(vii) notify, as soon as reasonably practicable, each seller of
Registrable Securities covered by such registration statement, (A) when
or if the prospectus or any prospectus supplement or post-effective
amendment has been filed, and, with respect to the registration statement
or any post-effective amendment, when the same has become
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<PAGE> 8
effective, (B) of any request by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information, (C) of the receipt by the Company of any
notification with respect to the suspension of the qualification of
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (D) at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event
as a result of which, the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, in the light of
the circumstances under which they were made, and at the request of any
such seller promptly prepare and furnish (subject to the proviso below)
to it a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were
made; provided, however, that the prompt delivery of such a supplement to
or amendment of such prospectus may be delayed by the Company pursuant to
Section 2.6(b) below.
(viii) use its best efforts to list the Registrable Securities
which are shares of Common Stock and which are covered by such
registration statement with any securities exchange or automated
quotation system on which the Common Stock of the Company is then listed;
(ix) enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions
as the holders of at least 50% of the Registrable Securities being sold
or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities, including
customary indemnification;
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least 12 months beginning with the
first full month after the effective date of such registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act (it being understood that the Company may rely upon
Rule 158 of the Securities Act in its compliance with this subclause
(x)).
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<PAGE> 9
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company
may from time to time reasonably request in writing and as shall be required by
law or by the Commission in connection therewith.
Each seller of Registrable Securities agrees, by requesting
registration thereof, that upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (vii)(D) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition
of Registrable Securities pursuant to the registration statement relating to
such Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (vii)(D) of this
Section 2.3 or until it is advised in writing by the Company that the use of
the prospectus may be resumed (the "Advice") and, if so directed by the
Company, will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in such holder's possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice. In the event that the Company shall give any notice of
the happening of any event of the kind described in subdivision (vii)(D) of
this Section 2.3, the Minimum Period with respect to such registration
statement shall be extended by the number of days during the period from and
including the date of the giving of such notice to and including the date of
the Advice or the date when the Company furnishes to each seller of Registrable
Securities covered by such registration statement copies of the amended or
supplemented prospectus contemplated by subdivision (vii)(D) of this Section
2.3.
2.4 Underwritten Offerings. (a) Requested Underwritten Offerings.
If requested by the underwriters for any underwritten offering by holders of
Registrable Securities pursuant to a registration requested under Section 2.1,
the Company will use its best efforts to enter into an underwriting agreement
with such underwriters for such offering, such agreement to be reasonably
satisfactory in substance and form to the Company, each such holder and the
underwriters and to contain such representations and warranties by the Company
and such other terms as are generally prevailing in agreements of that type,
including, without limitation, indemnities and the furnishing of an opinion of
counsel and "comfort" letters from the Company's independent public
accountants. The holders of the Registrable Securities proposed to be
distributed by such underwriters will cooperate with the Company in the
negotiation of the underwriting agreement. The holders of Registrable
Securities to be distributed by such underwriters shall, at the request of such
underwriters, be parties to the underwriting agreement between the Company and
such underwriters, and such holders may, at their option, require that the
representations and warranties by, and
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<PAGE> 10
the other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and the conditions precedent to the obligations of the
underwriters shall be conditions precedent to the obligations of such holders.
Such holders of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than reasonable representations, warranties and agreements
regarding such holder, such holder's Registrable Securities, such holder's
intended method of disposition and any other representations or warranties
required by law.
(b) Incidental Underwritten Offerings. If the Company proposes to
register any of its securities under the Securities Act as contemplated by
Section 2.2 and such securities are to be distributed by or through one or more
underwriters, the Company will, subject to Section 2.9 hereof, if requested by
any Requesting Holder of Registrable Securities, use its best efforts to
arrange for such underwriters to include all the Registrable Securities to be
offered and sold by such Requesting Holder among the securities of the Company
to be distributed by such underwriters. The holders of Registrable Securities
to be distributed by such underwriters shall, at the request of such
underwriters, be parties to the underwriting agreement between the Company and
such underwriters and such holders may, at their option, require that the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and the conditions
precedent to the obligations of the underwriters shall be conditions precedent
to the obligations of such holders. Such holders of Registrable Securities
shall not be required to make any representations or warranties to or
agreements with the Company or the underwriters other than reasonable
representations, warranties and agreements regarding such holder, such holder's
Registrable Securities, such holder's intended method of disposition and any
other representations or warranties required by law. Notwithstanding the
foregoing provisions of this Section 2.4(b), the Company need not include any
Registrable Securities of any such Requesting Holder in an underwritten
offering of the Company's securities under the circumstances contemplated by
Section 2.2(b) above.
2.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel the opportunity to participate in the
preparation of such registration statement, and, to the extent practicable,
each amendment thereof or supplement thereto, and give each of them such access
to the
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<PAGE> 11
books, records and properties of the Company and its subsidiaries (to the
extent customarily given to the underwriters of the Company's securities), such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements, and
to have such officers and accountants supply such information, as shall be
reasonably requested by any such person in connection with a reasonable
investigation within the meaning of the Securities Act.
2.6 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The obligations of the Company to use its best efforts
to cause the Registrable Securities to be registered under the Securities Act
are subject to each of the following limitations, conditions and
qualifications:
(a) The Company shall not be obligated to file any registration
statement pursuant to Section 2.1 hereof at any time if the Company would be
required to include financial statements audited as of any date other than the
end of its fiscal year.
(b) The Company shall be entitled to postpone for a reasonable
period of time (but not exceeding 90 days) the filing, effectiveness,
supplementing or amending of any registration statement otherwise required to
be prepared and filed by it pursuant to Section 2.1 if the Company in its good
faith judgment determines that such registration and offering would interfere
with any material financing, acquisition, disposition, corporate reorganization
or other material transaction involving the Company or any of its subsidiaries
or Affiliates then planned, pending or in progress or would require public
disclosure thereof (unless public disclosure thereof has previously been made)
and gives the holders of Registrable Securities requesting registration thereof
pursuant to Section 2.1 prompt written notice of such determination and an
approximation of the anticipated delay; provided, however, that after any
exercise of its right to postpone the filing, effectiveness, supplementing or
amending of a registration statement under this Section 2.6(b), the Company
shall not, within six months of the expiration of any such postponement,
exercise again its right of postponement under this Section 2.6(b). If the
Company shall so postpone the filing of a registration statement, such holders
of Registrable Securities requesting registration thereof pursuant to Section
2.1 shall have the right to withdraw the request for registration by giving
written notice to the Company within 30 days after receipt of the notice of
postponement and, in the event of such withdrawal, such request shall not be
counted for purposes of the requests for registration to which holders of
Registrable Securities are entitled pursuant to Section 2.1 hereof. The
Investors hereby acknowledge that any notice given by the Company pursuant to
this Section 2.6(b) shall constitute material non-public information and that
the United States securities laws
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<PAGE> 12
prohibit any Person who has material non-public information about a company
from purchasing or selling securities of such company or from communicating
such information to any other Person under circumstances in which it is
reasonably foreseeable that such Person is likely to purchase or sell such
securities.
(c) The Company shall not be obligated to file any registration
statement pursuant to Section 2.1 hereof if, within 15 days after the Company's
receipt of the written request of the Initiating Holders, the Company notifies
such Initiating Holders that, prior to the Company's receipt of such request,
it had, and it currently has, a plan or intention promptly to register its
equity securities under the Securities Act. Holders of Registrable Securities
shall have any rights to participate in any such registration on the terms
provided in Section 2.2 hereof.
2.7 Indemnification and Contribution. (a) In the event of a
registration of any Registrable Securities under the Securities Act pursuant to
Section 2, the Company will indemnify and hold harmless, to the full extent
permitted by law, each seller of Registrable Securities thereunder, its
directors, officers, partners and Affiliates, each underwriter of such
Registrable Securities thereunder and each other Person, if any, who controls
such seller of Registrable Securities or underwriter within the meaning of the
Securities Act or the Exchange Act, against any and all losses, claims,
damages, liabilities and expenses (including reasonable costs of investigation
and reasonable attorneys' fees), joint or several, to which such seller of
Registrable Securities, its directors, officers, partners or Affiliates,
underwriters or controlling persons may become subject under the Securities
Act, common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Registrable
Securities were registered under the Securities Act pursuant to Section 2, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will pay or reimburse each such seller
of Registrable Securities, its directors, officers, partners and Affiliates,
each such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage or liability (or action in respect thereof) arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in reliance upon and in conformity with
information furnished in
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<PAGE> 13
writing by any such seller of Registrable Securities, its directors, officers,
partners or Affiliates, any such underwriter or any such controlling person, as
the case may be, specifically for use in such registration statement,
prospectus, amendment or supplement, and provided further that the Company
shall not be liable to any Person who participates as an underwriter in the
offering or sale of Registrable Securities or any other Person, if any, who
controls such underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage, liability (or action in
respect thereof) or expense arises out of such Person's failure, at or prior to
the written confirmation of the sale of Registrable Securities to the Person
asserting an untrue statement or alleged untrue statement or omission or
alleged omission in a preliminary prospectus, to send or give a copy of the
final prospectus, as the same may be then supplemented or amended, to such
Person if such statement or omission was corrected in such final prospectus and
copies thereof were previously furnished to such underwriter. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of such seller or underwriter or any such director, officer,
controlling person, partner or Affiliate and shall survive the transfer of such
securities by such seller.
(b) In the event of a registration of any Registrable Securities
under the Securities Act pursuant to Section 2, each seller of Registrable
Securities thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each Person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company, each director of
the Company, each underwriter and each Person who controls any underwriter
within the meaning of the Securities Act or Exchange Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the Securities Act, common law or otherwise, but only insofar as such losses,
claims, damages or liabilities (or actions in respect thereof), arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, made in reliance upon and in conformity with information furnished
in writing to the Company by such seller of Registrable Securities specifically
for use in such registration statement under which such Registrable Securities
were registered under the Securities Act pursuant to Section 2, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, and will pay or reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided further
that such seller of Registrable Securities shall not be
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<PAGE> 14
liable to any Person who participates as an underwriter in the offering or sale
of Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action in respect
thereof) or expense arises out of such Person's failure, at or prior to the
written confirmation of the sale of Registrable Securities to the Person
asserting an untrue statement or alleged untrue statement or omission or
alleged omission in a preliminary prospectus, to send or give a copy of the
final prospectus, as the same may be then supplemented or amended, to such
Person if such statement or omission was corrected in such final prospectus and
copies thereof were previously furnished to such underwriter.
(c) Promptly after receipt by an indemnified party hereunder of
written notice of any claim or the commencement of any action or proceeding,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party other
than under this Section 2.7 and shall only relieve it from any liability which
it may have to such indemnified party under this Section 2.7 if and to the
extent the indemnifying party is materially prejudiced by such omission. In
case any such action shall be brought against any indemnified party and the
indemnified party shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
selected by the indemnifying party and reasonably satisfactory to the
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 2.7 for legal and other expenses subsequently incurred by
such indemnified party in connection with the defense thereof; provided,
however, that if the indemnified party shall have reasonably concluded that
there are or may be legal defenses or rights available to the indemnified party
(which have not been waived) in any such action which are or may be in actual
or potential conflict with those available to the indemnifying party, the
indemnified party shall have the right to select one law firm to act as
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable fees and expenses of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred. The parties agree to
cooperate in any such defense and to give each other full access to all
information relevant thereto. The indemnifying party shall not be obligated to
indemnify any party hereunder for any settlement entered into without the
indemnifying party's prior written consent (not to be
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<PAGE> 15
unreasonably withheld). No indemnifying party, in the defense of any such
claim or litigation against an indemnified party, shall consent to entry of any
judgment or enter into any settlement which provides for injunctive relief or
other non-monetary relief affecting the indemnified party or that does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
of such claim or litigation, unless in each such case such indemnified party
shall otherwise consent in writing (not to be unreasonably withheld).
(d) In order to provide for just and equitable contribution in any
case in which either (i) any seller of Registrable Securities exercising
registration rights under Section 2, its directors, officers, partners or
Affiliates, or any controlling person of any such seller of Registrable
Securities, makes a claim for indemnification pursuant to this Section 2.7, but
such indemnification is unavailable for any reason, notwithstanding the fact
that this Section 2.7 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
seller of Registrable Securities, its directors, officers, partners or
Affiliates, or any such controlling person in circumstances for which
indemnification is provided under this Section 2.7; then, and in each such
case, the Company and such seller of Registrable Securities shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion as is appropriate
to reflect both the relative benefit received by the Company and such seller of
Registrable Securities, its directors, officers, partners or Affiliates or any
such controlling person and the relative fault of the Company and such seller
of Registrable Securities, its directors, officers, partners or Affiliates or a
such controlling person; provided, however, that, in any such case, no Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) will be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation. For purposes of the preceding sentence, the
relative benefit received by a Person shall be deemed to be in the same
proportion as the public offering price of its Registrable Securities offered
by the registration statement bears to the public offering price of all
securities offered by such registration statement; and the relative fault of
the Company and seller of Registrable Securities, its directors, officers,
partners or Affiliates or any such controlling person shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission of a material fact relates to
information supplied by the Company or by the seller of Registrable Securities,
its directors, officers, partners or Affiliates or any such controlling person
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
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<PAGE> 16
2.8 Restriction on Public Sale by Holders of Registrable Securities.
Each holder of Registrable Securities agrees, if so requested by the managing
underwriter or underwriters in connection with any registration statement filed
by the Company pursuant to Section 2.2 in an underwritten public offering, not
to effect any public sale or distribution of equity securities of the Company,
or any securities convertible into or exchangeable or exercisable for such
equity securities, during the three days prior to, and during the 90 day period
beginning on, the effective date of such registration statement (except as a
part of such registration).
2.9 Conditions and Limitations on Registrations of Registrable
Securities. The Company shall not be required to effect any registration of
Registrable Securities pursuant to Section 2.2 hereof if it shall deliver to
the holder or holders requesting such registration an opinion of counsel
reasonably satisfactory to such holders to the effect that the Registrable
Securities requested to be registered may be sold by such holder without
restriction or limitation and without registration under the Securities Act.
2.10 Expenses. All Registration Expenses, but not Selling Expenses,
shall be borne by the Company.
2.11 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
times permit the sale of the Registrable Securities to the public without
registration, the Company agrees that it will:
(a) make and keep public information available, as contemplated by
Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Registrable Securities forthwith upon
its request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144.
3. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
"Additional Securities" has the meaning specified in Section 2.1.
"Advice" has the meaning specified in Section 2.3.
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<PAGE> 17
"Affiliate" of a Person means any other Person that directly or
indirectly, through one or more intermediaries, is controlled by, controls, or
is under common control with, such Person.
"Associate" of a Person means (i) a corporation or organization of
which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of a class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar capacity
and (iii) any relative or spouse of such Person, or any relative of such
spouse, who has the same home as such Person or who is a director or officer of
the Person or any of its parents or subsidiaries.
"Commission" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act.
"Common Stock" has the meaning specified in Section 1.
"Common Stock Purchase Rights" has the meaning specified in Section
1.
"Conversion Shares" has the meaning specified in Section 1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Initiating Holder" has the meaning specified in Section 2.1.
"Merger Agreement" has the meaning specified in Section 1.
"Minimum Period" has the meaning specified in Section 2.3(ii).
"Other Securities" has the meaning specified in Section 2.2.
"Person" means a corporation, an association, a partnership, an
organization, a business, an individual, a governmental or political
subdivision thereof or a governmental agency.
"Preferred Shares" has the meaning specified in Section 1.
-17-
<PAGE> 18
"Preferred Stock" has the meaning specified in Section 1.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation, all
SEC, stock exchange and NASD registration, filing and other fees, all fees and
expenses of complying with securities or blue sky laws (including, without
limitation, reasonable fees and disbursements of counsel for the underwriters
in connection with "blue sky" qualifications of the Registrable Securities),
all word processing, duplicating and printing expenses, messenger and delivery
expenses, all fees and expenses incurred in connection with the listing of the
Registrable Securities which are Common Stock to be registered on each
securities exchange or national market system on which such securities are to
be listed, all fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, the fees and disbursements of counsel for the
Company and of its independent public accountants, including the expenses of
"cold comfort" letters required by or incident to such performance and
compliance, and fees of transfer agents.
"Registrable Securities" means (i) the Preferred Shares, (ii) when
issued, any Conversion Shares, (iii) the Scotsman Fixed Shares and (iv) when is
sued, any Scotsman Contingent Shares. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable
Securities when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities have been sold, (b) such securities shall have been sold as
permitted by Rule 144 (or any successor provision) under the Securities Act,
(c) such securities shall have been otherwise transferred to a Person other
than an Investor, new certificates for them not bearing a legend restricting
further transfer shall have been delivered by the Company and subsequent public
distribution of such securities shall not require registration of them under
the Securities Act, or (d) such securities shall have ceased to be outstanding.
"Registration Rights Holder" has the meaning specified in Section
2.1.
"Requesting Holder" has the meaning specified in Section 2.2.
"Scotsman Contingent Shares" has the meaning specified in Section 1.
"Scotsman Fixed Shares" has the meaning specified Section 1.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and
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<PAGE> 19
regulations of the Commission thereunder, all as the same shall be in effect
at the time.
"Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
expenses of counsel to Selling Holders.
"Selling Holder" has the meaning specified in Section 2.1.
4. Amendments and Waivers. This Agreement may be amended with the
consent of the Company and the Company may take any action herein prohibited,
or omit to perform any act herein required to be performed by it, only if the
Company shall have obtained the written consent to such amendment, action or
omission to act, of the holder or holders of at least a majority of the shares
of the Registrable Securities; provided, however, that if a proposed amendment,
action or omission to act will affect only Preferred Shares, only Conversion
Shares, only Scotsman Fixed Shares, or only Scotsman Contingent Shares, then
such amendment, action or omission to act may be approved by the holder or
holders of a majority or more of the affected Preferred Shares, Conversion
Shares, Scotsman Fixed Shares, or Scotsman Contingent Shares, as the case may
be. Each holder of any Registrable Securities at the time or thereafter
outstanding shall be bound by any consent authorized by this Section 4, whether
or not such Registrable Securities shall have been marked to indicate such
consent.
5. Nominees for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee or trustee for the beneficial
owner thereof, the beneficial owner thereof may, at its election in writing
delivered to the Company, be treated as the holder of such Registrable
Securities for purposes of any request or other action by any holder or holders
of Registrable Securities pursuant to this Agreement or any determination of
any number or percentage of Registrable Securities held by any holder or
holders of Registrable Securities contemplated by this Agreement. If the
beneficial owner of any Registrable Securities so elects, the Company may
require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities.
6. Notices. All communication provided for hereunder shall be
sent by postage-prepaid first-class mail, shall be deemed to be received three
days after being sent, or, if earlier, the date of actual receipt, and shall be
addressed as follows:
(a) if to an Investor, addressed in the manner set forth in the
Merger Agreement, or at such other address as such Investor shall have
furnished to the Company in writing;
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<PAGE> 20
(b) if to any other holder of Registrable Securities, at the
address that such holder shall have furnished to the Company in writing, or,
until any such other holder so furnishes to the Company an address, then to and
at the address of the last holder of such Registrable Securities who has
furnished an address to the Company; or
(c) if to the Company, addressed to it in the manner set forth
in the Merger Agreement, or at such other address as the Company shall have
furnished to each holder of Registrable Securities at the time outstanding.
7. Exercise of Registration Rights; Calculation of Interests. (a)
Any holder of Registrable Securities may exercise the rights described in
Section 2.1, subject to the terms and conditions of this Agreement, provided
that such holder is an Investor or an Affiliate or an Associate of an Investor.
(b) For purposes of this Agreement (i) all references to a number
or percentage of the Registrable Securities which includes Preferred Shares
shall include, in respect of such Preferred Shares, a number of shares equal to
the number of shares of Common Stock into which the Preferred Shares then
outstanding are then convertible, and (ii) all references to a percentage of
the Registrable Securities shall be calculated based upon the number of shares
of Registrable Securities outstanding at the time such calculation is made.
8. Successors and Assigns; Amendments. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by transferees of
the Registrable Securities (except as otherwise provided in Section 7 and as
otherwise provided herein), the parties hereto and their respective successors
and assigns. The parties hereto may amend this Agreement as provided in
Section 4 without the consent of any other Person.
9. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any of the provisions of this Agreement were
not to be performed in accordance with the terms hereof and that the parties
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or in equity.
10. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement, except to the extent that such
prohibition or invalidity would constitute a material change in the terms of
this Agreement taken as a whole.
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<PAGE> 21
11. Descriptive Headings. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
12. Governing Law. This Agreement shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the laws
of the State of New York.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.
SCOTSMAN INDUSTRIES, INC.
By:_____________________________
Name:
Title:
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<PAGE> 22
Signature Page
REGISTRATION RIGHTS AGREEMENT
TEDDY F. REED
/s/ Teddy F. Reed
------------------------------
<PAGE> 23
Signature Page
REGISTRATION RIGHTS AGREEMENT
RONALD A. ANDERSON
/s/ Ronald A. Anderson
---------------------------
<PAGE> 24
Signature Page
REGISTRATION RIGHTS AGREEMENT
W. JOSEPH MANIFOLD
/s/ Joseph Manifold
---------------------------
<PAGE> 25
Signature Page
REGISTRATION RIGHTS AGREEMENT
CHARLES R. McCOLLOM
/s/ Charles R. McCollom
---------------------------
<PAGE> 26
Signature Page
REGISTRATION RIGHTS AGREEMENT
JOHN A. TILMANN
/s/ John A. Tilmann
---------------------------
<PAGE> 27
Signature Page
REGISTRATION RIGHTS AGREEMENT
ROBERT L. SCHAFER
/s/ Robert L. Schafer
---------------------------
<PAGE> 28
Signature Page
REGISTRATION RIGHTS AGREEMENT
GRAHAM E. TILLOTSON
/s/ Graham E. Tillotson
---------------------------
<PAGE> 29
Signature Page
REGISTRATION RIGHTS AGREEMENT
ANITA J. MOFFATT
/s/ Anita J. Moffatt
---------------------------
<PAGE> 30
Signature Page
REGISTRATION RIGHTS AGREEMENT
ANITA J. MOFFATT TRUST
By /s/ Anita J. Moffatt
----------------------------
Name: Anita J. Moffatt
Title: Trustee
<PAGE> 31
Signature Page
REGISTRATION RIGHTS AGREEMENT
JOHN A. TILMANN TRUST
By /s/ John A. Tilmann
----------------------------
Name: John A. Tilmann
Title: Trustee
<PAGE> 32
Signature Page
REGISTRATION RIGHTS AGREEMENT
KEVIN E. McCRONE
/s/ Kevin E. McCrone
---------------------------
<PAGE> 33
Signature Page
REGISTRATION RIGHTS AGREEMENT
MICHAEL P. McCRONE
/s/ Michael P. McCrone
---------------------------
<PAGE> 34
Signature Page
REGISTRATION RIGHTS AGREEMENT
REMO PANELLA
/s/ Remo Panella
---------------------------
<PAGE> 35
Signature Page
REGISTRATION RIGHTS AGREEMENT
PM GROUP LIFE INSURANCE CO.
By /s/ Larry J. Card
-------------------------
Name: LARRY J. CARD
Title: VICE PRESIDENT
<PAGE> 36
Signature Page
REGISTRATION RIGHTS AGREEMENT
PACIFIC MUTUAL LIFE INSURANCE COMPANY
By /s/ Schuyler G. Lance
----------------------------------
Name: Schuyler G. Lance
Title: Assistant Vice President
<PAGE> 37
Signature Page
REGISTRATION RIGHTS AGREEMENT
EJJM
By Matthew O. Diggs, Jr.
----------------------------------
Name:
Title:
<PAGE> 38
Signature Page
REGISTRATION RIGHTS AGREEMENT
TIMOTHY C. COLLINS
/s/ TIMOTHY C. COLLINS
----------------------------------
<PAGE> 39
Signature Page
REGISTRATION RIGHTS AGREEMENT
MATTHHEW O. DIGGS, JR.
/s/ MATTHEW O. DIGGS, JR
----------------------------------
<PAGE> 40
Signature Page
REGISTRATION RIGHTS AGREEMENT
ONEX DHC LLC
By /s/ Donald F. West
----------------------------------
Name: Donald F. West
Title: Representative
<PAGE> 41
Signature Page
REGISTRATION RIGHTS AGREEMENT
ONEX DHC LLC
By /s/ Eric Rosen
----------------------------------
Name: ERIC ROSEN
Title:
<PAGE> 42
Signature Page
REGISTRATION RIGHTS AGREEMENT
ONEX CORPORATION
By /s/ signature illegible
----------------------------------
Name:
Title:
<PAGE> 43
Signature Page
REGISTRATION RIGHTS AGREEMENT
ONEX U.S. INVESTMENTS, INC.
By /s/ signature illegible
----------------------------------
Name:
Title:
<PAGE> 44
Signature Page
REGISTRATION RIGHTS AGREEMENT
Graham F. Cook
/s/ Graham F. Cook
----------------------------------
<PAGE> 45
Signature Page
REGISTRATION RIGHTS AGREEMENT
Catherine J. Cook
/s/ signature illegible
----------------------------------
as her attorney
<PAGE> 46
Signature Page
REGISTRATION RIGHTS AGREEMENT
John Rushton
/s/ J Rushton
----------------------------------
<PAGE> 47
Signature Page
REGISTRATION RIGHTS AGREEMENT
Margaret L. Rushton
/s/ J. Rushton
----------------------------------
as her attorney
<PAGE> 48
Signature Page
REGISTRATION RIGHTS AGREEMENT
J & ML. Rushton (A/C JGR) Trust
By J. Rushton
----------------------------------
Name:
Title:
By J. Rushton
----------------------------------
Name:
Title:
as her attorney
<PAGE> 49
Signature Page
REGISTRATION RIGHTS AGREEMENT
Michael J. de St. Paer
/s/ Michael J. de st. Paer
----------------------------------
<PAGE> 50
Signature Page
REGISTRATION RIGHTS AGREEMENT
Wendy M. de St. Paer
/s/ M. de St. Paer
----------------------------------
as her attorney
<PAGE> 51
Signature Page
REGISTRATION RIGHTS AGREEMENT
Margaret A. de St. Paer
/s/ M. de St. Paer
----------------------------------
as her attorney
<PAGE> 52
Signature Page
REGISTRATION RIGHTS AGREEMENT
Paul L. de St. Paer
/s/ M. de St. Paer
----------------------------------
as his attorney
<PAGE> 53
Signature Page
REGISTRATION RIGHTS AGREEMENT
GF & JE Cook (A/C AJC) Trust
By GF Cook
----------------------------------
Name:
Title:
By JE Cook
----------------------------------
Name:
Title:
<PAGE> 54
Signature Page
REGISTRATION RIGHTS AGREEMENT
CF & JE Cook (A/C SEC) Trust
By CF Cook
----------------------------------
Name:
Title:
By JE Cook
----------------------------------
Name:
Title:
<PAGE> 55
Signature Page
REGISTRATION RIGHTS AGREEMENT
Jane E. Cook
/s/ Jane E. Cook
----------------------------------
<PAGE> 56
Signature Page
REGISTRATION RIGHTS AGREEMENT
Christopher R.L. Wheeler
/s/ Christopher R. L. Wheeler
----------------------------------
<PAGE> 57
Signature Page
REGISTRATION RIGHTS AGREEMENT
Jonathan R. Wheeler
/s/ signature illegible
----------------------------------
as his attorney
<PAGE> 58
Signature Page
REGISTRATION RIGHTS AGREEMENT
Josephine V. Wheeler
/s/ signature illegible
----------------------------------
as her attorney
<PAGE> 59
SCHEDULE A TO
REGISTRATION RIGHTS AGREEMENT
-----------------------------
Scotsman
Investor Fixed Shares Preferred Shares
- -------- ------------ ----------------
