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
June 29, 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.)
775 Corporate Woods Parkway, 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
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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 AUGUST 8, 1997 there were 10,555,038 shares of registrant's common
stock outstanding. ----------
<PAGE> 2
SCOTSMAN INDUSTRIES, INC.
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FORM 10-Q
---------
June 29, 1997
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INDEX
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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 2. RECENT SALES OF UNREGISTERED SECURITIES
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
-------------------------
June 29, June 30,
1997 1996
-------- --------
Net sales $173,777 $104,423
Cost of sales 128,311 73,562
------- ------
Gross profit $ 45,466 $ 30,861
Selling and administrative expenses 24,979 15,854
------ ------
Income from operations $ 20,487 $ 15,007
Interest expense, net 6,574 1,422
------- -------
Income before income taxes $ 13,913 $ 13,585
Income taxes 6,827 6,520
------- -------
Net income $ 7,086 $ 7,065
Preferred stock dividends - 252
Net income available ------ ------
to common shareholders $ 7,086 $ 6,813
======= =======
Primary net income per common
share (i): $ 0.66 $ 0.73
======= =======
Fully diluted net income per
common share (ii): $ 0.66 $ 0.66
======= ======
<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: 10,803,127 and
9,315,726, for the three months ended June 29, 1997, and
June 30, 1996, respectively. The computation includes the
dilutive impact 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 Company's outstanding convertible preferred stock from
the date of issue. The total number of shares used in the
fully-diluted calculation for the three months ended June
29, 1997, and June 30, 1996, were 10,811,641 and 10,701,692,
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 Six
Months Ended
-------------------------
June 29, June 30,
1997 1996
-------- --------
Net sales $271,854 $189,956
Cost of sales 200,757 135,692
-------- --------
Gross profit $ 71,097 $ 54,264
Selling and administrative expenses 41,103 30,877
-------- --------
Income from operations $ 29,994 $ 23,387
Interest expense, net 8,781 2,837
-------- --------
Income before income taxes $ 21,213 $ 20,550
Income taxes 10,262 9,866
-------- --------
Income before extraordinary
loss $ 10,951 $ 10,684
Extraordinary
loss (net of income
taxes of $422)(i) (633) -
-------- --------
Net income $ 10,318 $ 10,684
Preferred stock dividends - 562
Net income available -------- --------
to common shareholders $ 10,318 $ 10,122
======== ========
Primary net income per common
share (ii):
Income before extraordinary loss $ 1.01 $ 1.10
Extraordinary loss (0.06) -
-------- --------
Net income per common share $ 0.96 $ 1.10
======== ========
Fully diluted net income per
common share (iii):
Income before extraordinary loss $ 1.01 $ 1.00
Extraordinary loss (0.06) -
-------- -------
Net income per common share $ 0.95 $ 1.00
======= =======
<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: 10,799,284 and
9,228,046, for the six months ended June 29, 1997, and June
30, 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 Company's outstanding convertible preferred stock from
the date of issue. The total number of shares used in the
fully-diluted calculation for the six months ended June 29,
1997, and June 30, 1996, were 10,808,946 and 10,700,100,
respectively.
See notes to unaudited condensed financial statements.
<PAGE> 7
SCOTSMAN INDUSTRIES, INC.
CONDENSED BALANCE SHEET
(In thousands, except per-share amount)
June 29, Dec. 29,
A S S E T S 1997 1996
--------------- ------- --------
CURRENT ASSETS: (unaudited)
Cash and temporary cash investments $ 20,760 $ 16,501
Trade accounts receivable, net of
reserves of $4,862 and $2,778 120,768 58,734
Inventories 80,507 52,530
Deferred income taxes 14,491 4,708
Other current assets 7,295 5,101
-------- --------
Total current assets $243,821 $137,574
PROPERTIES AND EQUIPMENT, net of
accumulated depreciation of $74,133
and $44,654 87,496 46,659
GOODWILL, net 284,547 94,975
DEFERRED INCOME TAXES 26,589 -
OTHER NONCURRENT ASSETS 40,425 4,056
-------- --------
$682,878 $283,264
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term debt and current maturities
of long-term debt and capitalized lease
obligations $ 19,410 $ 16,317
Trade accounts payable 52,349 22,344
Accrued income taxes 17,551 6,302
Accrued expenses 59,024 33,290
-------- --------
Total current liabilities $148,334 $ 78,253
LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS 343,534 60,289
DEFERRED INCOME TAXES 7,506 3,710
OTHER NONCURRENT LIABILITIES 45,977 9,300
-------- --------
Total liabilities $545,351 $151,552
======== ========
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value $ 1,074 $ 1,073
Additional paid in capital 73,320 73,053
Retained earnings 71,827 62,036
Deferred compensation and
unrecognized pension cost (177) (117)
Foreign currency translation adjustments (7,062) (2,877)
Less: Common stock held in treasury (1,455) (1,456)
-------- --------
Total Shareholders' Equity $137,527 $131,712
-------- --------
$682,878 $283,264
======== ========
See notes to unaudited condensed financial statements.
<PAGE> 8
SCOTSMAN INDUSTRIES, INC.
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
For the Six
Months Ended
----------------------
June 29, June 30,
1997 1996
-------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 10,318 $ 10,684
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 7,399 4,333
Change in assets and liabilities-
Trade accounts receivable (29,147) (22,235)
Inventories 1,251 (2,290)
Trade accounts payable and other
liabilities 2,647 15,577
Other, net 77 (113)
------- -------
Net cash provided by (used in)
operating activities $ (7,455) $ 5,956
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in properties and equipment $ (7,433) $(3,360)
Proceeds from disposal of property,
plant and equipment 72 178
Acquisition of Hartek - (231)
Acquisition of Kysor Industrial Corp. (264,768) -
--------- --------
Net cash used in investing activities $(272,129) $ (3,413)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term debt
and capitalized lease obligations $ (59,290) $ (5,340)
Issuance of long-term debt 349,607 14,517
Dividends paid to shareholders (528) (1,068)
Short-term debt, net (4,852) (9,755)
-------- --------
Net cash (used in) provided by
financing activities $284,937 $ (1,646)
-------- --------
Effect of exchange rate changes on cash
and temporary cash investments (1,094) (6)
NET INCREASE IN CASH AND TEMPORARY CASH
INVESTMENTS $ 4,259 $ 891
CASH AND TEMPORARY CASH INVESTMENTS, beginning
of period 16,501 15,808
CASH AND TEMPORARY CASH INVESTMENTS, -------- --------
end of period $ 20,760 $ 16,699
======== ========
<PAGE> 9
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 9,418 $ 3,758
======== ========
Income taxes $ 6,043 $ 3,711
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Investment in properties and equipment through
issuance of capitalized lease obligations $ (419) $ (42)
======== ========
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):
June 29, Dec. 29,
1997 1996
-------- ---------
Finished goods $30,825 $23,207
Work-in-process 16,079 9,052
Raw materials 33,603 20,271
------ ------
Total inventories $80,507 $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 will be accounted for using the purchase method
of accounting. Accordingly, assets acquired and liabilities assumed
will be recorded at their estimated fair values which are subject to
further refinement, including 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 $192 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.
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 any future issuance of
equity securities by the Company after the closing of the FNBC
Facility. Under such a covenant, approximately $122 million of
consolidated stockholders' equity was restricted at June 29, 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
<PAGE> 12
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 has been 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.
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 June 29, 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 six-month period ended June 30, 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 June 29, June 30,
1997 1996
-------- --------
Net sales $173,777 $171,306
Net income $ 7,086 $ 6,387
Net income per common share $ 0.66 $ 0.60
Average number of common shares
outstanding - fully diluted 10,812 10,702
Six Months Ended June 29, June 30,
1997 1996
-------- --------
Net sales $310,688 $303,796
Net income before
extraordinary item $ 8,925 $ 9,365
Net income per common share before
extraordinary item $ 0.83 $ 0.88
Average number of common shares
outstanding - fully diluted 10,809 10,700
<PAGE> 13
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 second quarter of 1997 were a record $173.8 million,
up $69.4 million or 66 percent from sales for the second quarter of
1996. Second quarter 1997 results included sales of $73.2 million
from the Commercial Products Group of KysorIndustrial Corporation
("Kysor"), which was acquired by the Company in March 1997.
Net sales for the six months ended June 29, 1997, were $271.9 million,
up $81.9 million or 43 percent from sales 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 Kysor business.
Sales of refrigerated display cases and walk-in coolers and freezers
by Kysor, representing 42 percent of the Company's sales in the second
quarter and 32 percent of sales in the first half of 1997, increased 9
percent over Kysor's pro forma sales for the second quarter of 1996.
Management believes that sales of this business will remain strong in
the second half of 1997.
<PAGE> 14
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 approximately 28
percent of the Company's sales for the second quarter and 32 percent
of sales in the first half of 1997, decreased 10 percent in U.S.
dollars in both the second quarter and the first half of 1997 compared
to the same periods of 1996. The decline in ice machine sales resulted
from lower sales in Europe and the U.S. 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 the
year 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
activity.
Sales of food preparation and storage equipment, which represented 18
percent of the Company's sales in the second quarter and 22 percent of
the Company's sales in the first half of 1997, increased 15 percent in
the second quarter and 16 percent in the first half of 1997 compared
to the same periods of 1996. An increase in sales at the Company's
Delfield business to Boston 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.
Sales of beverage dispensing equipment, which represented approximately
12 percent and 13 percent of the Company's sales for the quarter and
year-to-date period, decreased 3 percent in U.S. dollars compared to
the same periods of 1996. Year-to-date 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.
<PAGE> 15
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 $14.6 million, or 47 percent,
to $45.5 million in the second quarter of 1997 from $30.9 million in
the second 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 26.2 percent in the second quarter of 1997 from 29.6
percent in the second quarter of 1996. The reduction in margins is
partially due 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 lower worldwide ice machine
sales, and higher production costs of food preparation and storage
equipment. These factors also affected the Company's gross profit
margins in the first half of 1997. 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
twelve months.
Selling and administrative expenses of $25.0 million increased by $9.1
million or 58 percent in the second quarter of 1997 as compared to the
second quarter of 1996. First half selling and administrative expenses
of $41.1 million increased by $10.2 million or 33 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. As a percentage of net sales,
selling and administrative expenses decreased in the second quarter of
1997 to 14.4 percent from 15.2 percent reported in the second 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.
Income from operations of $20.5 million for the second quarter of 1997
increased by $5.5 million or 37 percent from the second quarter of
1996 which reflects primarily the contribution to profits of the Kysor
business. As a percentage of net sales, 1997 second quarter income
from operations decreased to 11.8 percent from 14.4 percent in 1996.
The decline is the result of the lower gross profit margins and
additional amortization of intangibles of $1.2 million resulting from
the Kysor Acquisition.
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
------------------------------------------------------------------------
RESULTS OF OPERATIONS - CONTINUED
Net interest expense of $6.6 million for the second quarter of 1997
increased by $5.2 million when compared to the second 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 second quarter of 1997
was 49.1 percent and the rate for the first half of 1997 was 48.4
percent compared to 48.0 percent for both the second quarter and 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 for the second quarter of 1997 was $7.1 million, or $0.66
per share, which was equal to the second quarter of 1996. Net income
for the first half 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, was up 2 percent to $11.0 million, or
$1.01 per share. Net income for the first half of 1997 including the
one-time charge declined 3.4 percent to $10.3 million, or $0.95 per
share, compared with the first half of 1996.
Kysor's sales have traditionally been strongest in the third and
fourth quarters of the year and Kysor's results are expected to be
accretive to Scotsman's fully-diluted earnings per share in the second
half of this year and for the full year. On a continuing basis,
Kysor's seasonal pattern is expected to shift Scotsman's historical
pattern of sales and earnings more to the second half of the year.
Management believes that the second half of 1997 will show improved
earnings per share compared to the second half of the prior year.
<PAGE> 17
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 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 changes in the balance sheet categories from December
29, 1996, until June 29, 1997, exclude 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.
Capital expenditures, including those funded through capital leases,
increased $4.5 million, or 131 percent 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.
<PAGE> 18
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
----------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
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.
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 $291 million
as of June 29, 1997 primarily due to funding of the Kysor Acquisition,
along with funding of working capital needs. Short-term debt reduced
$4.9 million from December 29, 1996 primarily due to short-term
domestic borrowings being replaced with longer-term borrowings. Total
debt, including capital leases, was $362.9 million as of June 29, 1997
compared to $76.6 million as of December 29, 1996. The debt to
capital ratio was 73 percent at June 29, 1997, compared with 37 percent
at December 29, 1996.
On February 13, 1997, and May 15, 1997, the Company's Board of Directors
declared a dividend of 2 1/2 cents per share payable to common hareholders
of record on March 28, 1997 and June 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.
<PAGE> 19
PART II. OTHER INFORMATION
Item 2. Recent Sales of Unregistered Securities
Each non-employee director of the Company receives, for his
services, an annual retainer fee paid in shares of the Company's
common stock, par value $0.10 per share (the "Common Stock"),
with a total market value of approximately $18,000, determined as
of the day immediately preceding the date of the annual meeting
of stockholders. Each non-employee director who serves as chairman
of the Audit, Compensation, Executive, or Governance Committee of
the Board of Directors receives, as compensation for those services,
additional shares of Common Stock with a total market value of
approximately $3,000, determined as of the same valuation date. On
May 15, 1997, a total of 4,874 shares of Common Stock with an
aggregate market value of approximately $120,000 were issued to the
six non-employee directors of the Company as compensation for their
services.
The offer and sale of such shares has not been registered under
the Securities Act of 1933, as amended (the "1933 Act"), and is
made in reliance upon the private placement exemption under
Section 4(2) of the 1933 Act. All of the shares issued to non-
employee directors for their services are issued from treasury
stock.
<PAGE> 20
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Scotsman Industries,
Inc. was held on May 15, 1997, for the purpose of electing
two directors each to serve for a term of three years and
to approve an amendment to the Scotsman Industries Long-
Term Executive Incentive Compensation Plan to establish
a maximum number of shares with respect to which options
or stock appreciation rights may be granted to any employee
under the Plan. Proxies for the meeting were solicited
by management pursuant to Regulation 14A under the
Securities Exchange Act of 1934, and there was no
solicitation in opposition to management's solicitation.
Both of management's nominees for director listed in
the proxy statement were elected. The results of the
vote were as follows:
Shares Broker
Voted Shares Non-
"FOR" "WITHHELD" Votes
-------- ----------- -------
Frank W. Considine 9,880,951 23,026 -0-
George D. Kennedy 9,880,941 23,036 -0-
The following persons continued their terms of
office as directors of the Company following the
Annual Meeting:
Richard C. Osborne, Donald C. Clark, Timothy C.
Collins, Matthew O. Diggs, Jr. and Robert G.
Rettig.
The amendment to the Scotsman Industries Long-Term
Executive Compensation Plan was approved. The results
of the vote were as follows:
Shares voted "FOR" 9,746,282
Shares voted "AGAINST" 103,557
Abstentions 54,137
Broker Non-Votes 0
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS
ON FORM 8-K
(a) Exhibits
Exhibit 27 Article 5 Financial Data Schedule
for the Period Ended June 29, 1997.
(b) The Registrant filed no reports on Form 8-K
during the quarterly period ended June 29, 1997.
<PAGE> 22
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 August 11, 1997 By: /s/ Donald D. Holmes
------------------------- --------------------------
Donald D. Holmes
Vice President-Finance and
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from Scotsman
Industries, Inc. Condensed Balance Sheet
(Unaudited) as of June 29, 1997 and
Scotsman Industries, Inc. Condensed
Statement of Income (Unaudited) for the
Six Months Ended June 29, 1997 and is
qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> JUN-29-1997
<PERIOD-TYPE> 6-MOS
<CASH> 20,760
<SECURITIES> 0
<RECEIVABLES> 120,768
<ALLOWANCES> 4,862
<INVENTORY> 80,507
<CURRENT-ASSETS> 243,821
<PP&E> 87,496
<DEPRECIATION> 74,133
<TOTAL-ASSETS> 682,878
<CURRENT-LIABILITIES> 148,334
<BONDS> 343,534
<COMMON> 1,074
0
0
<OTHER-SE> 136,453
<TOTAL-LIABILITY-AND-EQUITY> 682,878
<SALES> 271,854
<TOTAL-REVENUES> 271,854
<CGS> 200,757
<TOTAL-COSTS> 200,757
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,781
<INCOME-PRETAX> 21,213
<INCOME-TAX> 10,262
<INCOME-CONTINUING> 10,951
<DISCONTINUED> 0
<EXTRAORDINARY> (633)
<CHANGES> 0
<NET-INCOME> 10,318
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.95
</TABLE>
