<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
September 28, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10182
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Scotsman Industries, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 36-3635892
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
820 Forest Edge Drive, Vernon Hills, Illinois 60061
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (847) 215-4500
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes x No
----- -----
At November 10, 1997 there were 10,567,647 shares of registrant's
----------------- ----------
common stock outstanding.
<PAGE> 2
SCOTSMAN INDUSTRIES, INC.
-------------------------
FORM 10-Q
---------
September 28, 1997
-------------------
INDEX
-----
PART I--FINANCIAL INFORMATION:
Item 1. FINANCIAL STATEMENTS-
HISTORICAL-
Condensed Statement of Income
Condensed Balance Sheet
Condensed Statement of Cash Flows
Notes to Condensed Financial Statements
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
PART II--OTHER INFORMATION:
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
<PAGE> 3
PART I--FINANCIAL INFORMATION
-----------------------------
ITEM 1. Financial Statements
-----------------------------
SCOTSMAN INDUSTRIES, INC.
CONDENSED STATEMENT OF INCOME
-----------------------------
(Unaudited)
----------
(In thousands, except per-share amounts)
---------------------------------------
For the Three
Months Ended
--------------------------
Sept. 28, Sept. 29,
1997 1996
-------- -------
Net sales $159,675 $ 92,764
Cost of sales 119,527 66,558
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Gross profit $ 40,148 $ 26,206
Selling and administrative
expenses 22,346 14,195
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Income from operations $ 17,802 $ 12,011
Interest expense, net 6,426 1,322
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Income before income taxes $ 11,376 $ 10,689
Income taxes 5,343 4,906
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Net income $ 6,033 $ 5,783
Preferred stock dividends - 251
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Net income available
to common shareholders $ 6,033 $ 5,532
======= =======
Primary net income per common
share (i): $ 0.56 $ 0.58
======= =======
Fully diluted net income per
common share (ii): $ 0.56 $ 0.54
======= =======
<PAGE> 4
PART I--FINANCIAL INFORMATION
-----------------------------
ITEM 1. Financial Statements
-----------------------------
CONDENSED STATEMENT OF INCOME - continued
-----------------------------
(i) PRIMARY: 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 during each period: 10,813,359 and
9,474,377, for the three months ended September 28, 1997, and
September 29,1996, respectively. The computation includes the
dilutive effect of common stock options outstanding.
(ii) FULLY DILUTED: 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 three
months ended September 28, 1997, and September 29, 1996, were
10,817,713 and 10,730,902, respectively.
See notes to unaudited condensed financial statements.
<PAGE> 5
SCOTSMAN INDUSTRIES, INC.
CONDENSED STATEMENT OF INCOME
-----------------------------
(Unaudited)
-----------
(In thousands, except per-share amounts)
---------------------------------------
For the Nine
Months Ended
-------------------------
Sept. 28, Sept. 29,
1997 1996
------- ------
Net sales $431,529 $282,720
Cost of sales 320,284 202,250
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Gross profit $111,245 $ 80,470
Selling and administrative expenses 63,449 45,072
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Income from operations $ 47,796 $ 35,398
Interest expense, net 15,207 4,159
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Income before income taxes $ 32,589 $ 31,239
Income taxes 15,605 14,772
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Income before extraordinary loss $ 16,984 $ 16,467
Extraordinary loss (net of income
taxes of $422)(i) (633) -
------- -------
Net income $ 16,351 $ 16,467
Preferred stock dividends - 813
------- -------
Net income available
to common shareholders $ 16,351 $ 15,654
======= =======
Primary net income per common
share (ii):
Income before extraordinary loss $ 1.57 $ 1.68
Extraordinary loss (0.06) -
------- -------
Net income per common share $ 1.51 $ 1.68
======= =======
Fully diluted net income per
common share (iii):
Income before extraordinary loss $ 1.57 $ 1.54
Extraordinary loss (0.06) -
------- -------
Net income per common share $ 1.51 $ 1.54
======= =======
<PAGE> 6
PART I--FINANCIAL INFORMATION
-----------------------------
ITEM 1. Financial Statements
-----------------------------
CONDENSED STATEMENT OF INCOME - continued
-----------------------------
(i) The extraordinary loss resulted from one-time expenses incurred
relating to the early retirement of $20 million of 11.43%
privately-placed notes of the Company prior to the acquisition
of Kysor Industrial Corporation in March of 1997.
(ii) PRIMARY: 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 during each period: 10,803,978 and
9,310,155, for the nine months ended September 28, 1997, and
September 29, 1996, respectively. The computation includes the
dilutive impact of common stock options outstanding.
(iii) FULLY DILUTED: 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 nine
months ended September 28, 1997, and September 29, 1996, were
10,811,621 and 10,726,127, respectively.
See notes to unaudited condensed financial statements.
<PAGE> 7
SCOTSMAN INDUSTRIES, INC. CONDENSED BALANCE SHEET
(In thousands, except per-share amount)
---------------------------------------
Sept. 28, Dec. 29,
A S S E T S 1997 1996
----------- --------- --------
(unaudited)
CURRENT ASSETS:
Cash and temporary cash investments $ 23,191 $ 16,501
Trade accounts receivable, net of
reserves of $4,809 and $2,778 118,963 58,734
Inventories 75,128 52,530
Deferred income taxes 14,485 4,708
Other current assets 7,288 5,101
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Total current assets $239,055 $137,574
PROPERTIES AND EQUIPMENT, net of
accumulated depreciation of $49,302
and $44,654 86,470 46,659
GOODWILL, net 274,625 94,975
DEFERRED INCOME TAXES 26,590 -
OTHER NONCURRENT ASSETS 51,048 4,056
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$677,788 $283,264
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term debt and current maturities
of long-term debt and capitalized
lease obligations $ 22,548 $ 16,317
Trade accounts payable 49,910 22,344
Accrued income taxes 14,702 6,302
Accrued expenses 61,341 33,290
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Total current liabilities $148,501 $ 78,253
LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS 333,370 60,289
DEFERRED INCOME TAXES 7,613 3,710
OTHER NONCURRENT LIABILITIES 45,990 9,300
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Total liabilities $535,474 $151,552
======= =======
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value $ 1,075 $ 1,073
Additional paid in capital 73,549 73,053
Retained earnings 77,596 62,036
Deferred compensation and
unrecognized pension cost (147) (117)
Foreign currency translation adjustments (8,155) (2,877)
Less: Common stock held in treasury (1,604) (1,456)
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Total Shareholders' Equity $142,314 $131,712
------- -------
$677,788 $283,264
======= =======
See notes to unaudited condensed financial statements.
<PAGE> 8
<TABLE>
<CAPTION>
SCOTSMAN INDUSTRIES, INC.
-------------------------
CONDENSED STATEMENT OF CASH FLOWS
---------------------------------
(Unaudited)
----------
(In Thousands)
-------------
For the Nine Months Ended
-------------------------
Sept. 28, Sept. 29,
1997 1996
--------- ---------
CASH FLOW FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 16,351 $ 16,467
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 12,048 6,473
Change in assets and liabilities-
Trade accounts receivable (27,756) (16,278)
Inventories 6,272 1,739
Trade accounts payable and other liabilities 6,296 10,243
Other, net (4,433) 685
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Net cash provided by operating activities $ 8,778 $ 19,329
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CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in properties and equipment $ (9,427) $ (4,840)
Proceeds from disposal of property,
plant and equipment 113 180
Investment in joint ventures - (2,423)
Acquisition of Hartek (635) (991)
Acquisition of Kysor Industrial Corp. (268,540) -
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Net cash used in investing activities $(278,489) $ (8,074)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term debt
and capitalized lease obligations $ (73,278) $(13,153)
Issuance of long-term debt 353,749 16,075
Dividends paid to shareholders (791) (1,551)
Short-term debt, net (1,873) (12,489)
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Net cash provided by (used in)
financing activities $ 277,807 $(11,118)
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Effect of exchange rate changes on cash
and temporary cash investments (1,406) 90
NET INCREASE IN CASH AND TEMPORARY CASH
INVESTMENTS $ 6,690 $ 227
CASH AND TEMPORARY CASH INVESTMENTS,
beginning of period 16,501 15,808
CASH AND TEMPORARY CASH INVESTMENTS, ------- -------
end of period $ 23,191 $ 16,035
======= =======
<PAGE> 9
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 15,193 $ 4,739
======= =======
Income taxes $ 18,034 $ 10,018
======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Investment in properties and equipment through
issuance of capitalized lease obligations $ (440) $ (42)
======= =======
</TABLE>
See notes to unaudited condensed financial statements.
<PAGE> 10
SCOTSMAN INDUSTRIES, INC.
-------------------------
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
-------------------------------------------------
(1) BASIS OF PRESENTATION:
-------------------------
The condensed consolidated financial statements include the accounts of
Scotsman Industries, Inc. and its consolidated subsidiaries (the
"Company").
All accounting policies used in the preparation of the quarterly
condensed financial statements are consistent with the accounting
policies described in the notes to financial statements for the year
ended December 29, 1996, appearing in the Company's 1996 Annual Report to
Shareholders ("Annual Report"). In the opinion of management, the
interim financial statements reflect all adjustments which are necessary
for a fair presentation of the Company's financial position, results of
operations and cash flows for the interim periods presented. The results
for such interim periods are not necessarily indicative of results for
the full year. These financial statements should be read in conjunction
with the consolidated financial statements and the accompanying notes to
consolidated financial statements included in the Annual Report.
(2) INVENTORIES:
---------------
Inventories consisted of the following (in thousands):
Sept. 28, Dec. 29,
1997 1996
--------- --------
Finished goods $32,791 $23,207
Work-in-process 13,737 9,052
Raw materials 28,600 20,271
------ ------
Total inventories $75,128 $52,530
====== ======
<PAGE> 11
(3) ACQUISITION OF KYSOR:
-------------------------
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 supermarkets and
convenience stores. Prior to the acquisition, Kysor also manufactured a
line of products for the transportation industry through its
transportation products group (the "Transportation Products Group"). The
Company purchased Kysor (herein after referred to as the "Kysor
Acquisition") for an aggregate purchase price of $309 million in cash and
assumed $35 million in debt, net of cash, related to both Kysor's
Transportation Products Group and its Commercial Products Group, through
which Kysor sold its refrigerated display cases and walk-in coolers and
freezers. Concurrent with the acquisition, Kysor sold Kysor's
Transportation Products Group to a third party for an aggregate purchase
price of $86 million in pre-tax proceeds ($68 million of after-tax
proceeds) plus assumption of certain liabilities related to the
Transportation Products Group. Including transaction and severance costs
of $22.5 million, the net purchase price for the Commercial Products
Group was approximately $299 million.
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. Goodwill relating to the Kysor Acquisition of
approximately $198 million will be finalized within 12 months of the
acquisition date and is being amortized for book purposes over 40 years
using the straight-line method.
The Kysor Acquisition was financed through a $415 million loan facility
between the Company and The First National Bank of Chicago (the "FNBC
Facility"). The FNBC Facility consists of a $150 million seven-year term
loan and a $265 million seven-year 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.
<PAGE> 12
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 stockholders 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 any future issuance of equity securities
by the Company after the closing of the FNBC Facility. Shareholders'
equity was $142 million as of September 28, 1997. Under the FNBC
Facility, 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.
The FNBC Facility requires that a notional amount of $150 million be
hedged to reduce interest rate exposure for three years. 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.
In addition to financing the Kysor Acquisition, proceeds of the FNBC
Facility were used to pay expenses associated with this acquisition and
were used to repay existing long-term debt, including the portion of debt
outstanding under the Company's former $90.0 million reducing credit
agreement and a $20.0 million private placement agreement.
Due to the significance of the Kysor Acquisition to the Company, the
Company's operating results 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, which when
combined with the comparable period for the Company would have resulted
in pro forma combined sales of $601.4 million, a 69 percent increase over
the Company's reported 1996 sales.
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
acquisition of Kysor had occurred as of the first day of each of the
periods presented.
<PAGE> 13
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 pro forma results of operations for the
year-to-date period ended September 28, 1997, include certain adjustments
made by Kysor prior to acquisition anticipating the completion of the
transaction. These adjustments related to changes in the accounting
estimates for the carrying values of certain assets and liabilities and
the combining of four of Kysor's business units into two business units.
These adjustments are not reflected in the pro forma results for the
nine-month period ended September 29, 1996. Management does not expect
these adjustments to occur in the future.
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.
(Amounts in thousands, except per-share data)
PRO FORMA (Unaudited)
Three Months Ended Sept. 28, Sept. 29,
1997 1996
--------- ---------
Net sales $159,675 $162,728
Net income $ 6,033 $ 6,626
Net income per common share $ 0.56 $ 0.62
Average number of common shares
outstanding - fully diluted 10,818 10,731
Nine Months Ended Sept. 28, Sept. 29,
1997 1996
--------- ---------
Net sales $470,363 $466,524
Net income before
extraordinary item $ 14,958 $ 15,991
Net income per common share before
extraordinary item $ 1.38 $ 1.49
Average number of common shares
outstanding - fully diluted 10,812 10,726
<PAGE> 14
SCOTSMAN INDUSTRIES, INC.
-------------------------
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-----------------------------------------------------------
Results of Operations
---------------------
The following discussion and analysis of the Company's financial
condition and results of operations contains forward looking statements
that involve risks and uncertainties. The Company's results could differ
significantly from those anticipated as a result of unforeseen factors.
Factors that could cause actual results to differ from those anticipated
include (i) the strength or weakness of the various economies in which
the Company markets its products, (ii) weather conditions, (iii) the
utilization rate of the Company's facilities, (iv) labor difficulties,
(v) increased prices of raw materials and purchased components, (vi)
scheduling and transportation dislocations, (vii) delays in development
of new products or construction of new facilities, (viii) product
liability or other lawsuits, warranty claims or return of goods, (ix)
foreign currency fluctuations, (x) changes in buying patterns of certain
large customers as a result of internal cost-control measures adopted by
those customers and (xi) changes in environmental, health, safety or
refrigerant regulations or standards. See the Cautionary Statements
included as Exhibit 99 to the Company's most recent Form 10-K filed with
the Securities and Exchange Commission for a more detailed discussion of
the foregoing and other factors.
Net sales for the third quarter of 1997 were a record $159.7 million, up
$66.9 million or 72 percent from sales for the third quarter of 1996.
Third quarter 1997 results included sales of $65.0 million from the
Commercial Products Group of Kysor Industrial Corporation ("Kysor"),
which was acquired by the Company in March 1997.
Net sales for the nine months ended September 28, 1997, were $431.5
million, up $148.8 million or 53 percent from sales for the first nine
months of 1996. Results for the first nine months of 1997 included sales
from March 10 through September 28 of $152.7 million from the Kysor
business.
Sales of refrigerated display cases and walk-in coolers and freezers by
Kysor, representing approximately 41 percent of the Company's sales in
the third quarter and 35 percent of sales in the first nine months of
1997, decreased 7 percent over Kysor's pro forma sales for the third
quarter of 1996. However, Kysor sales increased 4 percent in the first
nine months of 1997 on a pro forma basis compared to 1996. Kysor's
backlog of orders from supermarkets remains at record levels, although
delivery schedules have been deferred to future periods to a greater
degree than anticipated.
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
----------------------------------------------------------
Results of Operations - continued
---------------------
Scotsman's worldwide ice machine sales, representing 27 percent of the
Company's sales for the third quarter and 30 percent of sales for the
first nine months of 1997, were flat in the third quarter and declined 5
percent year-to-date compared to the same periods of 1996 using constant
foreign exchange rates. Sales in U.S. dollars decreased 4 percent in the
third quarter, and 8 percent in the first nine months of 1997. The year-
to-date decline in worldwide ice machine sales resulted from soft market
conditions in Europe and the U.S. in the first half of the year, some
slowdown in restaurant chain activity in the U.S., and high European
distributor inventory levels at the beginning of the period. Sales in
the U.S. stabilized during the third quarter, and the company
believes that the improving year over year sales comparison for the
third quarter in Europe is an indication that the European market for
ice machines is also stablizing.
Sales of food preparation and storage equipment, which represented
approximately 20 percent and 22 percent of the Company's sales in the
third quarter and first nine months of 1997, increased 11 percent in the
third quarter of 1997 compared to the third quarter of 1996. Sales in
the first nine months of 1997 increased 14 percent compared to the same
period in 1996. Sales at the Company's Delfield business benefitted from
an expanding customer base in the third quarter of 1997 over 1996.
Sales of beverage dispensing equipment, which represented approximately
12 percent and 13 percent of the Company's sales for the quarter and the
September year-to-date period, increased 7 percent compared to the third
quarter of 1996, ignoring the effect of changes in exchange rates. Third
quarter sales in U.S. dollars increased 4 percent compared to 1996.
September year-to-date sales increased 1 percent, ignoring the effect of
exchange rates, and decreased 1 percent in U.S. dollars compared to the
prior year. Increased European market penetration and continued sales
gains by the Company's U.K.-based beverage dispensing business more than
offset soft market conditions for the Company's dispensing businesses in
Germany and in the United States.
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-----------------------------------------------------------
Results of Operations - continued
---------------------
The Company's gross profit increased by $13.9 million, or 53 percent, to
$40.1 million in the third quarter of 1997 from $26.2 million in the
third quarter of 1996, due to the impact of the Kysor Acquisition.
However, the Company's gross profit margin decreased as a percentage of
net sales to 25.1 percent in the third quarter of 1997 from 28.3 percent
in the third quarter of 1996. The reduction in margins in the quarter is
partially attributable to the inclusion of the results of Kysor, which
historically has reported lower gross profit margins. However, also
contributing to the decline in gross profit margins were higher
production costs of food preparation and storage equipment. These
factors, along with the 8 percent year-to-date decline in worldwide ice
machine sales, also affected the Company's gross profit margins for the
nine month period ended September, 1997.
Selling and administrative expenses of $22.3 million increased by $8.2
million or 57 percent in the third quarter of 1997 as compared to the
third quarter of 1996. The first nine months of selling and
administrative expenses of $63.4 million increased by $18.4 million or 41
percent from the prior period. 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, including
amortization of intangibles related to the purchase of Kysor of $1.2
million in the third quarter and $2.6 million in the first nine months of
1997. As a percentage of net sales, selling and administrative expenses
decreased in the third quarter of 1997 to 14.0 percent from 15.3 percent
reported in the third quarter of 1996. The Kysor business units have
historically reported lower gross profit margins, but also lower selling
and administrative expenses as a percent of sales as compared to the
balance of the Company's businesses.
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-----------------------------------------------------------
Results of Operations - continued
---------------------
Income from operations of $17.8 million for the third quarter of 1997
increased by $5.8 million or 48 percent from the third quarter of 1996
which reflects primarily the contribution to profits of the Kysor
business. As a percentage of net sales, 1997 third quarter income from
operations decreased to 11.1 percent from 12.9 percent in 1996. The
decline is the result of lower gross profit margins discussed above, and
additional amortization of intangibles of $1.2 million in the third
quarter of 1997 resulting from the Kysor Acquisition.
Net interest expense of $6.4 million for the third quarter of 1997
increased by $5.1 million when compared to the third quarter 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 for the third quarter of 1997 was
47.0 percent and the rate for the first nine months of 1997 was 47.9
percent compared to 45.9 percent for the third quarter of 1996 and 47.3
percent for the first nine months of 1996. The higher income tax rates
in 1997 are primarily attributable to the impact of $1.2 million per
quarter of additional amortization of intangibles resulting from the
Kysor Acquisition, which is not tax deductible.
Net income for the third quarter of 1997 was $6.0 million, or $0.56 per
share compared to $5.5 million, or $0.54 per share in the third quarter
of 1996. Net income for the nine months of 1997, before a one-time after-
tax charge of $633,000 incurred for the early retirement of $20 million
of 11.43 percent private placement debt, increased 3 percent to $17.0
million, or $1.57 per share. Net income for the first nine months of
1997 including the one-time charge declined 1 percent from the same
period in 1996 to $16.4 million or $1.51 per share.
The Kysor Acquisition was accretive to the Company's earnings per share
for the third quarter of 1997 and year-to-date period, and is expected to
be accretive for the full year. Management believes earnings per share
for total year 1997, before the extraordinary charge taken in the first
quarter of 1997, may be slightly below the 1996 record level.
<PAGE> 18
Item 2. Management's Discussion and Analysis of Financial
Condition and 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 run the Company's businesses and fund
further 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.
The Company provided cash flow from operations of $8.8 million for the
first nine months of 1997 compared to cash flow provided by operating
activities of $19.3 million for the first nine months of 1996.
The following changes in the balance sheet categories from December 29,
1996, until Sept. 28, 1997, exclude opening balances from the Kysor
Acquisition in March of 1997 and the impact of changes in foreign
exchange rates on those categories:
Inventory decreased by $6.3 million, which reflects the reduction in
Kysor inventories since the date of acquisition by the Company along
with decreases at some of the Company's other domestic businesses.
Accounts receivable were $27.8 million higher, primarily as a result
of the sales increase in the third quarter of 1997 compared to the
fourth quarter of 1996.
Trade accounts payable were $8.6 million higher which reflects the
impact of seasonal volume.
<PAGE> 19
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-----------------------------------------------------------
Liquidity and Capital Resources - continued
Capital expenditures, including those funded through capital leases,
increased $5.0 million, or 102 percent to $9.9 million for the first nine
months of 1997 from $4.9 million for the first nine months of 1996.
Capital expenditures in 1997 were made primarily to fund construction of
a new Kysor facility in Columbus, Georgia, along with equipment to realize
productivity improvements, new product tooling, and maintenance and
replacement items.
All asset and liability accounts as of September 28, 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 $198 million.
Cash and temporary cash investments of $23.2 million as of September 28,
1997, increased by $6.7 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 $10.6 million from December 29, 1996,
which reflects net income of $16.4 million for the first nine months of
1997, which was partially offset by a reduction in shareholders' equity
caused by changes in accumulated foreign currency translation adjustments
of $5.3 million and the impact of dividends.
Note 3 to the condensed financial statements 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 $281 million as
of September 28, 1997 primarily due to funding of the Kysor Acquisition,
along with funding of working capital needs. Short-term debt reduced
$1.9 million from December 29, 1996 primarily due to short-term domestic
borrowings being replaced with longer-term borrowings. Total debt,
including capital leases, was $355.9 million as of September 28, 1997
compared to $76.6 million as of December 29, 1996. The debt to capital
ratio was 71 percent at September 28, 1997, compared with 37 percent at
December 29, 1996.
<PAGE> 20
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-----------------------------------------------------------
Liquidity and Capital Resources - continued
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.
On October 22, 1997, the Company filed a registration statement with the
Securities and Exchange Commission for a proposed offering of $100
million of 10-year senior subordinated notes. The proceeds from the
offering will be used to repay outstanding debt. At the same time, the
existing bank credit agreement is being renegotiated to gain additional
flexibility. In conjunction with the registration, the Company also
registered approximately 1.6 million shares of common stock for a proposed
secondary offering of shares held by affiliates of Onex Corporation,
which has exercised its registration rights under a prior agreement with
the Company. The proceeds of this secondary offering will be for the
benefit of such Onex affiliates.
PART II. OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports
on Form 8-K
--------------------
(a) Exhibits
Exhibit 27 Article 5 Financial Data Schedule for
the Period Ended September 28, 1997.
(b) The Registrant filed no reports on Form 8-K during
the quarterly period ended September 28, 1997.
<PAGE> 21
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SCOTSMAN INDUSTRIES, INC.
-------------------------
Date November 10, 1997 By:/s/ Donald D. Holmes
------------------- -----------------------------
Donald D. Holmes
Vice President-Finance
and Secretary<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information
extracted from Scotsman Industries, Inc. Condensed
Balance Sheet (Unaudited) as of Sept. 28, 1997 and
Scotsman Industries, Inc. Condensed Statement of
Income (Unaudited) for the Nine Months Ended
Sept. 28, 1997 and is qualified in its entirety by
reference to such financial statements.
<MULTIPLIER> 1000
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<PERIOD-TYPE> 9-MOS
<CASH> 23,191
<SECURITIES> 0
<RECEIVABLES> 118,963
<ALLOWANCES> 4,809
<INVENTORY> 75,128
<CURRENT-ASSETS> 239,055
<PP&E> 86,470
<DEPRECIATION> 49,302
<TOTAL-ASSETS> 677,788
<CURRENT-LIABILITIES> 148,501
<BONDS> 333,370
<COMMON> 1,075
0
0
<OTHER-SE> 141,239
<TOTAL-LIABILITY-AND-EQUITY> 677,788
<SALES> 431,529
<TOTAL-REVENUES> 431,529
<CGS> 320,284
<TOTAL-COSTS> 320,284
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,207
<INCOME-PRETAX> 32,589
<INCOME-TAX> 15,605
<INCOME-CONTINUING> 16,984
<DISCONTINUED> 0
<EXTRAORDINARY> (633)
<CHANGES> 0
<NET-INCOME> 16,351
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.51
</TABLE>
