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
July 5, 1998
[ ] 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.
-----------------------------------------------------------
(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
-----------------------------------------------------------------
(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 August 15, 1998 there were 10,595,915 shares of registrant's
common stock outstanding.<PAGE>
SCOTSMAN INDUSTRIES, INC.
------------------------
FORM 10-Q
---------
July 5, 1998
------------
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
-2-<PAGE>
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
-----------------------------
Jul. 5, Jun. 29,
1998 1997
----------- -----------
Net sales $176,555 $173,777
Cost of sales 131,116 128,311
-------- --------
Gross profit $ 45,439 $ 45,466
Selling and administrative expenses 22,442 23,159
Amortization expense 1,886 1,820
------- --------
Income from operations $ 21,111 $ 20,487
Interest expense, net 6,713 6,574
-------- --------
Income before income taxes $ 14,398 $ 13,913
Income taxes 6,489 6,827
-------- --------
Net income $ 7,909 $ 7,086
======== ========
Basic EPS (i):
Net income per common share $ 0.75 $ 0.67
======== ========
Diluted EPS (ii):
Net income per common share $ 0.73 $ 0.66
======== ========
-3-<PAGE>
PART I--FINANCIAL INFORMATION
-----------------------------
ITEM 1. Financial Statements
-----------------------------
CONDENSED STATEMENT OF INCOME - continued
-----------------------------
(i) BASIC: 'Basic' earnings per common share are computed
by dividing net income available to common shareholders
by the weighted average number of common shares
outstanding: 10,593,470 and 10,550,977 for the three
months ended July 5, 1998, and June 29, 1997,
respectively. This replaces 'primary' earnings per
share, which included common stock equivalents in the
calculation. The prior year per share amounts are
restated to reflect the current presentation.
(ii) DILUTED: 'Diluted' net income per share includes
options, warrants and convertible securities in the
calculation. The total number of shares used in the
fully-diluted calculation for the three months ended
July 5, 1998, and June 29, 1997, were 10,849,779 and
10,803,127, respectively.
See notes to unaudited condensed financial statements.
-4-<PAGE>
PART I--FINANCIAL INFORMATION
-----------------------------
ITEM 1. Financial Statements
-----------------------------
SCOTSMAN INDUSTRIES, INC.
CONDENSED STATEMENT OF INCOME
-----------------------------
(Unaudited)
--------------
(In thousands, except per-share amounts)
For the Six
Months Ended
------------------------
Jul. 5, Jun. 29,
1998 1997
------- ---------
Net sales $328,770 $271,854
Cost of sales 246,210 200,757
-------- --------
Gross profit $ 82,560 $ 71,097
Selling and administrative expenses 44,834 38,285
Amortization expense 3,727 2,818
-------- --------
Income from operations $ 33,999 $ 29,994
Interest expense, net 13,919 8,781
-------- --------
Income before income taxes $ 20,080 $ 21,213
Income taxes 9,831 10,262
-------- --------
Income before extraordinary loss $ 10,249 $ 10,951
Extraordinary loss (net of
income taxes of $422) - (633)
-------- --------
Net income $ 10,249 $ 10,318
======== ========
Basic EPS (i):
Income before extraordinary loss $ 0.97 $ 1.04
Extraordinary loss - (0.06)
-------- ---------
Net income per common share $ 0.97 $ 0.98
======== =========
Diluted EPS (ii):
Income before extraordinary loss $ 0.95 $ 1.01
Extraordinary loss - (0.06)
-------- ---------
Net income per common share $ 0.95 $ 0.96
======== =========
-5-<PAGE>
PART I--FINANCIAL INFORMATION
-----------------------------
ITEM 1. Financial Statements
-----------------------------
CONDENSED STATEMENT OF INCOME - continued
-----------------------------
(i) BASIC: 'Basic' earnings per common share are computed
by dividing net income available to common shareholders
by the weighted average number of common shares
outstanding: 10,584,371 and 10,547,534 for the six
months ended July 5, 1998, and June 29, 1997,
respectively. This replaces 'primary' earnings per
share, which included common stock equivalents in the
calculation. The prior year per share amounts are
restated to reflect the current presentation.
(ii) DILUTED: 'Diluted' net income per share includes
options, warrants and convertible securities in the
calculation. The total number of shares used in the
fully-diluted calculation for the six months ended July
5, 1998, and June 29, 1997, were 10,840,842 and
10,799,284, respectively.
See notes to unaudited condensed financial statements.
-6-<PAGE>
<TABLE>
<CAPTION>
SCOTSMAN INDUSTRIES, INC.
-------------------------
CONDENSED BALANCE SHEET
-----------------------
(In thousands)
--------------
<S> <C> <C>
Jul. 5, Dec. 28,
A S S E T S 1998 1997
----------- -------- --------
(unaudited)
CURRENT ASSETS:
Cash and temporary cash investments $ 15,376 $ 24,085
Trade accounts receivable, net of
reserves of $5,409 and $5,371 129,835 102,880
Inventories 73,385 75,350
Deferred income taxes 12,516 12,515
Other current assets 4,902 12,266
--------- --------
Total current assets $236,014 $227,096
PROPERTIES AND EQUIPMENT, net of
accumulated depreciation of $57,117
and $50,866 85,884 86,762
GOODWILL, net 286,912 281,855
DEFERRED INCOME TAXES 11,912 11,653
OTHER NONCURRENT ASSETS 46,633 52,758
-------- --------
$667,355 $660,124
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Short-term debt and current maturities
of long-term debt and capitalized
lease obligations $ 19,812 $ 29,519
Trade accounts payable 51,808 44,889
Accrued income taxes 17,160 4,002
Accrued expenses 62,271 69,537
-------- --------
Total current liabilities $151,051 $147,947
LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS 322,155 321,132
DEFERRED INCOME TAXES 2,036 2,305
OTHER NONCURRENT LIABILITIES 42,493 46,086
-7-<PAGE>
-------- --------
Total liabilities $517,735 $517,470
======== ========
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value $ 1,078 $ 1,076
Additional paid in capital 74,181 73,639
Retained earnings 88,985 79,266
Accumulated other comprehensive income (12,913) (9,615)
Less: Common stock held in treasury (1,711) (1,712)
---------- ----------
Total Shareholders' Equity $149,620 $142,654
---------- ----------
$667,355 $660,124
========== ==========
See notes to unaudited condensed financial statements.
</TABLE>
-8-<PAGE>
<TABLE>
<CAPTION>
SCOTSMAN INDUSTRIES, INC.
-------------------------
CONDENSED STATEMENT OF CASH FLOWS
---------------------------------
(Unaudited)
-----------
(In Thousands)
--------------
<S> <C> <C>
For the Six
Months Ended
------------------------
Jul. 5, Jun. 29,
1998 1997
------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 10,249 $ 10,318
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 9,912 7,399
Change in assets and liabilities-
Trade accounts receivable (26,318) (29,147)
Inventories 2,609 1,251
Trade accounts payable and other
liabilities 1,991 2,647
Other, net 9,408 77
Net cash provided by (used in) operating -------- ---------
activities $ 7,851 $ (7,455)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in properties and equipment $ (4,305) $ (7,433)
Proceeds from disposal of property,
plant and equipment 84 72
Investment in subsidiaries (984) -
Acquisition of Kysor Industrial Corp. - (264,768)
--------- ----------
Net cash used in investing activities $( 5,205) $(272,129)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term debt
and capitalized lease obligations $(37,924) $ (59,290)
Issuance of long-term debt 28,728 349,607
Dividends paid to shareholders (530) (528)
Short-term debt, net 500 (4,852)
Net cash (used in) provided by --------- -----------
financing activities $ (9,226) $ 284,937
--------- -----------
Effect of exchange rate changes on cash
and temporary cash investments (2,129) (1,094)
NET (DECREASE) INCREASE IN CASH AND TEMPORARY
CASH INVESTMENTS $ (8,709) $ 4,259
-9-<PAGE>
CASH AND TEMPORARY CASH INVESTMENTS, beginning
of period 24,085 16,501
CASH AND TEMPORARY CASH INVESTMENTS, ---------- -----------
end of period $ 15,376 $ 20,760
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 16,098 $ 9,418
========= ===========
Income taxes $ 1,592 $ 6,043
========= ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Investment in properties and equipment through
issuance of capitalized lease obligations $ (171) $ (419)
See notes to unaudited condensed financial statements. ========== ===========
</TABLE>
-10-<PAGE>
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 28, 1997, appearing in the Company's 1997 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):
Jul. 5, Dec. 28,
1998 1997
------- --------
Finished goods $25,513 $28,564
Work-in-process 15,341 13,891
Raw materials 32,531 32,895
------- -------
Total inventories $73,385 $75,350
======= =======
-11-<PAGE>
(3) ACQUISITION OF KYSOR:
-------------------------
In March of 1997, the Company acquired Kysor Industrial Corporation
("Kysor"), a major manufacturer and marketer of refrigerated display
cases, commercial refrigeration systems and insulated panels primarily
serving the supermarket industry. The Company purchased Kysor's
common and preferred stock for an aggregate purchase price of $311
million. Concurrent with the purchase, the Company sold Kysor's
Transportation Products Group to a third party for an aggregate
purchase price of $86 million plus assumption of certain liabilities.
The Company retained possession of Kysor's Commercial Products Group.
Goodwill relating to the acquisition of Kysor was $196.8 million,
which is being amortized for book purposes over 40 years using the
straight-line method. In addition, there was a goodwill amount of
$12.6 million related to an investment which was recorded in other
noncurrent assets in the balance sheet.
The purchase price was allocated principally to goodwill of $196.8
million, working capital of $44.8 million, property, plant and
equipment of $36.4 million, severance and other Kysor employee related
liabilities of $43.7 million, and deferred tax impacts of $17.5
million.
Kysor reported total sales in 1996 of $381 million, of which $245
million related to commercial refrigeration products.
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 the period
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. 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.
-12-<PAGE>
(Amounts in thousands, except per-share data)
PRO FORMA (Unaudited)
Six Months Ended Jul. 5, Jun. 29,
1998 1997
--------- ---------
Net sales $328,770 $310,688
Net income before
extraordinary loss $ 10,249 $ 8,925
Net income per common share before
extraordinary loss $ 0.95 $ 0.83
Average number of common shares
outstanding - diluted 10,841 10,799
(4) SUMMARY FINANCIAL INFORMATION:
---------------------------------
The following is summarized financial information of Scotsman Group
Inc., the Company's direct wholly-owned subsidiary, which issued $100
million aggregate principal amount of Senior Subordinated Notes due
2007 (the "Senior Subordinated Notes"). The Company has fully and
unconditionally guaranteed the Senior Subordinated Notes.
Summarized Financial Information (in thousands):
Jul. 5, Dec. 28,
1998 1997
-------- ---------
Current Assets $236,014 $227,096
Noncurrent Assets 431,341 433,028
-------- --------
Total Assets $667,355 $660,124
Current Liabilities $153,270 $149,690
Noncurrent Liabilities 366,684 369,523
-------- --------
Total Liabilities $519,954 $519,213
For the Six Months Ended Jul. 5, Jun. 29,
1998 1997
-------- ---------
Net Sales $328,770 $271,854
Gross Profit 82,560 71,097
Income Before Extraordinary Loss 10,303 11,009
Net Income $ 10,303 $ 10,376
The Company has not presented separate financial statements and other
disclosure concerning Scotsman Group Inc. because the Company's
management has determined that such information is not material to the
holders of the Senior Subordinated Notes.
-13-<PAGE>
(5) LONG-TERM DEBT COVENANTS AND RESTRICTIONS ON DIVIDENDS
-----------------------------------------------------------
In March of 1997, the Company financed the acquisition of Kysor, after
giving effect to the divestiture of Kysor's Transportation Products
Group and other acquisition related transactions, through a $415
million loan facility established between the Company, Scotsman Group
Inc. and certain other subsidiaries and The First National Bank of
Chicago as agent for the lenders (the "FNBC Facility"). The agreement
governing the FNBC Facility and other debt agreements include various
financial covenants. The Company was in compliance with these
covenants as of July 5, 1998. One of the covenants in the FNBC
Facility 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 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. At July 5, 1998, consolidated
stockholders' equity of the Company was $149.6 million. Under this
covenant the amount of retained earnings that was restricted as of
July 5, 1998 was $62.3 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. Also, under a covenant in
the indenture under which the Senior Subordinated Notes were issued,
$74.0 million of retained earnings of the Company and its wholly-owned
subsidiary Scotsman Group Inc. were restricted as of July 5, 1998.
(6) COMPREHENSIVE INCOME (LOSS)
-------------------------------
As of January 1, 1998, the Company adopted Financial Accounting
Standards Board (the FASB) Statement No. 130, "Reporting Comprehensive
Income." Statement No. 130 requires reporting certain transactions
that result in a change in equity, such as currency translation,
unrealized gains and losses and minimum pension liability adjustments,
as components of comprehensive income. The adoption of this Statement
had no impact on the Company's net income or shareholder's equity.
During the first six months of 1998 and 1997, total comprehensive
income amounted to $7.0 million and $6.1 million, respectively. Total
comprehensive income for the Company includes net income, foreign
currency translation adjustments and deferred compensation
adjustments.
-14-<PAGE>
(7) CURRENT AND PENDING ACCOUNTING CHANGES
------------------------------------------
In July, 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This Statement
expands certain reporting and disclosure requirements for segments
from current standards. In February, 1998, the FASB issued Statement
No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." This Statement revised employer's
disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. The
Company is not required to adopt these Statements until December, 1998
and does not expect the adoption of these standards to result in
material changes to previously reported amounts.
In January, 1998, Statement of Position (SOP) No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use," was issued. This SOP provides guidance on the accounting for
computer software costs. In April, 1998, SOP No. 98-5, "Reporting on
the Costs of Start-Up Activities," was issued. This SOP provides
guidance on accounting for the cost of start-up activities. The
Company is not required to adopt these Statements until January, 1999
and does not expect the adoption of these standards to result in
material changes to previously reported amounts or disclosures.
In June, 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement
requires that all derivative instruments, including certain derivative
instruments embedded in other contracts, be recorded on the balance
sheet as either an asset or liability measured at its fair value.
This Statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. The Company is not required to adopt this Statement
until January, 2000. The Company is currently evaluating the extent
to which its financial statements will be affected by this Statement.
-15-<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Forward-Looking Information
---------------------------
The following discussion and analysis of the Company's financial
condition and results of operations contains forward looking
statements that involve risks and uncertainties. Such statements
include references to the Company's expectations, beliefs, goals, or
anticipated results. 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 rates 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, (xi)
changes in environmental, health, safety or refrigerant regulations or
standards, (xii) the level of the Company's leverage, (xiii) the
Company's ability or inability to manage growth, (xiv) the Company's
loss of key personnel, and (xv) the failure of the Company or its
suppliers to achieve Year 2000 compliance in a timely manner. 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.
Results of Operations
---------------------
Net sales for the second quarter of 1998 were a record $176.6 million,
up $2.8 million or 2 percent from sales for the second quarter of
1997. The Company also reported record sales for the six months ended
July 5, 1998 of $328.8 million, up $56.9 million or 21 percent from
sales for the first six months of 1997. Six month 1998 results
included sales of $138.9 million from the Commercial Products Group of
Kysor, which was acquired by the Company in March, 1997. Six month
1997 results included sales from March 10 through June 29 of $87.7
million from Kysor.
Sales to the food retail industry, consisting of sales to primarily
supermarkets and convenience stores, represented 42 percent of the
Company's sales in the second quarter and 44 percent of sales in the
first six months of 1998. Products sold to the food retail industry
include refrigerated display cases, mechanical refrigeration systems,
walk-in coolers and freezers, and commercial ice machines. Food
retail sales decreased $(0.3) million to $74.4 million in the second
quarter of 1998, compared to the second quarter of 1997. Sales to the
food retail industry for the first six months of 1998 were $143.3
million, an increase of $13.5 million, or 10 percent, over pro forma
-16-<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Results of Operations - continued
---------------------
first half 1997 sales of $129.8 million. Food retail sales during the
second quarter of 1998 were down from the unusually strong sales in
the second quarter of 1997. The Company's backlog of orders from
supermarkets remains at record levels.
Sales to the commercial foodservice industry, consisting of sales to
primarily restaurants, hotels, motels, bottlers, brewers and the Company's
distribution network represented 58 percent of the Company's sales for the
second quarter of 1998 and 56 percent of sales for the first six months
of 1998. Products sold to the commercial foodservice industry include
commercial ice machines, food preparation and storage equipment, and
beverage systems products. Sales to foodservice customers were $102.2
million in the second quarter of 1998, an increase of 3 percent over the
prior year period. Sales to foodservice customers in the first six months
of 1998 were $185.5 million, an increase of 3 percent compared to the same
period in 1997.
Worldwide ice machine sales to the foodservice industry were $49.7
million in the second quarter of 1998, an increase of 8 percent over
the same period of 1997, using constant foreign exchange rates. Sales
stated at actual exchange rates increased 6 percent over 1997 second
quarter sales. Ice machine sales in the first six months of 1998
increased 7 percent, using constant foreign exchange rates, and 5
percent at actual exchange rates over the same six-month period of
1997. The increase in ice machine sales was primarily driven by
strong growth in the overall domestic ice machine market during the
first half of 1998, combined with an improvement in market conditions
in Europe over the first half of 1997. Assuming market conditions
remain favorable, the recent sales gains made in ice machines should
continue for the balance of 1998.
Sales of food preparation and storage equipment decreased 18 percent
to $26.3 million in the second quarter of 1998, compared to the second
quarter of 1997. Sales of food preparation and storage equipment
decreased 16 percent in the first six months of 1998, compared to the
same period of the prior year. Sales were lower as a result of
substantially lower activity with Boston Market in the first half of
1998 than in the same period of 1997 at the Company's Delfield
business unit.
Sales of beverage systems increased 30 percent to $26.2 million in the
second quarter of 1998, compared to the second quarter of 1997. June
year-to-date sales increased 28%, compared to the same period in 1997.
Continued sales gains by the Company's U.K.-based beverage dispensing
business, increased sales to soft drink syrup companies, and the
addition of Homark, a manufacturer of equipment serving the U.K. beer
industry
-17-<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Results of Operations - continued
which was acquired by the Company in December, 1997, led to the sales
gains.
The Company's gross profit was $45.4 million in the second quarter of
1998, which is approximately even with the second quarter of 1998.
Gross profit for the six months ended July 5, 1998 increased 16
percent to $82.6 million. The Company's gross profit margin decreased
as a percentage of net sales to 25.1 percent in the first six months
of 1998 from 26.2 percent in the first six months of 1997. The
reduction in margins in the first six of 1998 is attributable to the
inclusion, for the full six-month period, of the results of Kysor,
which historically has reported lower gross profit margins. The
Company's gross profit margins in foodservice increased in the second
quarter of 1998 from the same period in 1997 principally due to
increased sales of beverage systems and ice machines in 1998. Gross
profit margins in food retail declined in the second quarter of 1998
from the same period of the prior year, due to costs and
inefficiencies associated with ramp-up of production levels at a new
refrigeration systems plant in Columbus, Ga. which opened in July,
1997.
Selling and administrative expenses of $24.3 million decreased by $0.7
million or 3 percent in the second quarter of 1998 as compared to the
second quarter of 1997. Selling and administrative expenses for the
first six months of 1998 of $48.6 million increased $7.5 million or 18
percent compared to the same period of 1997. The increase in selling
and administrative expenses for the first six months of 1998 is
largely attributable to the inclusion of Kysor results for the full
six-month period, including amortization of intangibles of $2.8
million, during that period, related to the purchase of Kysor. As a
percentage of net sales, selling and administrative expenses decreased
in the first six months of 1998 to 14.8 percent from 15.1 percent
reported in the first half of 1997. 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 $21.1 million for the second quarter of 1998
increased by $0.6 million or 3 percent from the second quarter of
1997, which reflects increased earnings from gains in sales to
foodservice customers. As a percentage of net sales, 1998 second
quarter income from operations increased to 12.0 percent, from 11.8
percent in 1997. The increase is the result of gains in sales of
products to the foodservice industry, principally ice machines.
-18-<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Results of Operations - continued
---------------------
The Company's overall income tax rate for the second quarter of 1998
was 45.1 percent compared to 49.1 percent for the second quarter of
1997. The lower income tax rate in 1998 is primarily attributable to
a change in Italian law which lowered income tax rates for the
Company's businesses operating in Italy.
Net income for the second quarter of 1998 was $7.9 million, or $0.73
per share diluted, compared to second quarter 1997 net income of $7.1
million, or $0.66 per share. Net income for the first six months of
1998 decreased 1 percent to $10.2 million, or $0.95 per share. The
decline in first half 1998 net income principally reflects
amortization and interest expense related to the 1997 acquisition of
Kysor which was incurred for the full six-month period in 1998, as
compared to the period from mid-March through June in 1997.
The Company has been evaluating its computer software programs and
operating systems for Year 2000 compliance. Based on this assessment,
the Company determined that it is required to modify portions of its
software during 1998 and 1999 so that its computer systems will
properly utilize dates beyond December 31, 1999. Based on present
information the Company believes that it will be able to achieve Year
2000 compliance, and that the cost associated with achieving such
compliance will not have a material effect on its financial condition
or results of operations. However, if such upgrades, modifications
and conversions are not made, or are not made in a timely manner, the
Year 2000 issue could have a material impact on the Company's
operations.
The Company is currently communicating with its suppliers and
customers regarding Year 2000 compliance within their organizations.
In the event that any of the Company's significant suppliers or
customers do not successfully and timely achieve Year 2000 compliance,
the Company's business or operations could be adversely affected.
-19-<PAGE>
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.
In March of 1997, the Company financed the acquisition of Kysor, after
giving effect to the divestiture of Kysor's Transportation Products
Group and other acquisition related transactions, through a $415
million loan facility established between the Company, Scotsman Group
and certain other subsidiaries and The First National Bank of Chicago
as agent for the lenders (the "FNBC Facility"). The FNBC Facility
originally consisted of a $150 million seven-year term loan and a $265
million seven-year reducing 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 leverage ratio as
defined in the FNBC Facility and vary between 0.5 percent to 1.50
percent above Eurocurrency rates. The revolving portion of the FNBC
Facility reduces on December 31 in the respective years as follows:
$10 million in 1998, and $15 million in each of 1999, 2000, 2001,
2002, and 2003, with the remaining amount outstanding payable on the
loan termination date in March 2004. The FNBC Facility is guaranteed
by Scotsman and certain of its subsidiaries and secured by a pledge of
stock of certain subsidiaries of Scotsman, including, but not limited
to, Scotsman Group Inc., The Delfield Company and Kysor Industrial
Corporation.
The FNBC Facility required that a notional amount of $150 million be
hedged to reduce interest rate exposure for three years. Interest-
rate swaps were established in 1997 to comply with the requirement
imposed by the FNBC Facility.
-20-<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
-------------------------------------------------
Liquidity and Capital Resources - continued
-------------------------------
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 debt
outstanding under a former $90.0 million reducing revolving credit
agreement and a $20.0 million private placement agreement. This early
repayment resulted in an after-tax loss of $633,000 in the first
quarter of 1997, which is presented in the accompanying income
statement in PART I, ITEM 1 as an extraordinary loss.
In 1997, the Company's wholly-owned subsidiary Scotsman Group Inc.
issued $100 million of 8-5/8% Senior Subordinated Notes (the "Notes")
and used the net proceeds of the Notes to repay $30 million of the
term loan under the FNBC Facility and also to repay amounts
outstanding under the revolving credit portion of the FNBC Facility.
During the first fiscal quarter of 1998, the Company repaid $10
million of the term loan, as required under the FNBC Facility.
The agreement governing the FNBC Facility and other debt agreements to
which the Company and its subsidiaries are parties include various
financial covenants, including covenants which have the effect of
restricting the amount of the Company's dividends to its shareholders.
The Company was in compliance with these covenants as of July 5, 1998.
Under such covenants, $62.3 million of retained earnings of the
Company and $74.0 million of retained earnings of the Company and its
wholly-owned subsidiary, Scotsman Group Inc., were restricted as of
July 5, 1998. See Note 5 to the financial statements included in this
report for a more detailed description of the covenants restricting
payments of dividends.
The Company generated cash flow from operations of $7.9 million for
the first six months of 1998 compared to cash flow utilized by
operating activities of $7.5 million for the first six months of 1997.
The following changes occurred in the following balance sheet
categories from December 28, 1997, until July 5, 1998, excluding the
impact of changes in foreign exchange rates on those categories:
Inventory decreased by $2.6 million, which reflects improving
effectiveness in utilizing inventory at most of the Company's
businesses.
-21-<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
--------------------------------------------------
Liquidity and Capital Resources - continued
-------------------------------
Accounts receivable were $26.3 million higher, primarily as a
result of the seasonal nature of sales activity both domestically
and in the Company's foreign subsidiaries.
Trade accounts payable were $6.0 million higher which reflects
the impact of seasonal volume.
Capital expenditures, including those funded through capital leases,
decreased $3.4 million, or 43 percent, to $4.5 million for the first
six months of 1998 from $7.9 million for the first six months of 1997.
Capital expenditures were higher in the first six months of 1997 than
the first six months of 1998, due to the inclusion of expenditures
incurred in connection with the construction of a new Kysor facility
in Columbus, Georgia.
Cash and temporary cash investments of $15.4 million as of July 5,
1998, decreased by $8.7 million from December 28, 1997, reflecting the
decrease in cash balances at the Company's foreign operations. In
January, 1998, Scotsman Group Inc. received net dividends of $13.7
million from foreign operations which were then used by Scotsman Group
Inc. to reduce borrowing under the FNBC facility.
Shareholders' equity increased $7.0 million from December 28, 1997,
which is primarily attributable to net income of $10.2 million for the
first six months of 1998, offset by a reduction in shareholders'
equity caused by changes in accumulated foreign currency translation
adjustments of $3.3 million and the impact of dividends.
Short-term debt decreased $9.7 million from December 28, 1997 due to
repayment of short-term domestic borrowings. Total debt, including
capital leases, was $342.0 million as of July 5, 1998 compared to
$350.7 million as of December 28, 1997. The debt to capital ratio was
70 percent at July 5, 1998, compared to 71 percent at December 28,
1997.
On February 10, 1998, May 14, 1998, and August 13, 1998, the Company's
Board of Directors declared a dividend of 2 and one-half cents per
share payable to common shareholders of record on March 31, 1998, June
30, 1998, and September 30, 1998, respectively.
Since its first quarter as a publicly-held company, the Company has
paid a quarterly dividend of 2 and one-half 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.
-22-<PAGE>
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 $20,000, 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 14, 1998, a total of 4,718 shares of
Common Stock with an aggregate market value of approximately $132,000
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.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Shareholders of Scotsman Industries, Inc. was
held on May 14, 1998, 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
increase the number of shares that may be issued 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
-------- ---------- ------
Richard C. Osborne 9,656,666 127,194 -0-
Donald C. Clark 9,658,767 125,093 -0-
The following persons continued their terms of office as directors of
the Company following the Annual Meeting:
Frank W. Considine, George D. Kennedy, Robert G. Rettig,
Richard L. Thomas
-23-<PAGE>
In addition, James J. O'Connor was appointed as a director of the
Company, effective May 14, 1998, to fill a vacancy then existing on
the Board of Directors.
The amendment to the Scotsman Industries Long-Term Executive
Compensation Plan was approved. The results of the vote were as
follows:
Shares voted "FOR" 8,639,578
Shares voted "AGAINST" 417,979
Abstentions 34,777
Broker Non-Votes 691,526
Item 6. Exhibits and Reports
on Form 8-K
---------------------
(a) Exhibits
Exhibit 10.1 Long-Term Executive Incentive
Compensation Plan of Scotsman
Industries, Inc., as amended on May
14, 1998
Exhibit 27 Article 5 Financial Data Schedule
for the Period Ended July 5, 1998.
(b) The Registrant filed no Current Reports on Form 8-
K during the quarterly period ended July 5, 1998.
-24-<PAGE>
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 19, 1998 By: /s/ Donald D. Holmes
------------------------- -----------------------------
Donald D. Holmes
Vice President-Finance
and Secretary
-25-<PAGE>
EXHIBIT INDEX
Exhibit Page Number
Number Description of Exhibit
-------- ----------- -----------
10.1 Long-Term Executive Incentive
Compensation Plan of Scotsman
Industries, Inc., as amended
on May 14, 1998.
27 Article 5 Financial Data
Schedule for the Period Ended
July 5, 1998.
-26-<PAGE>
EXHIBIT 10.1
SCOTSMAN INDUSTRIES, INC.
LONG-TERM EXECUTIVE INCENTIVE COMPENSATION PLAN
1. Purpose
The purpose of the Long-Term Executive Incentive Compensation
Plan (the "Plan") is to further the long-term growth of Scotsman
Industries, Inc. (the "Company") and its divisions and subsidiaries by
strengthening the ability of the Company to attract and retain key
employees and to provide additional motivation and incentives for the
performance of key employees.
2. Administration
The Plan shall be administered by the Compensation Committee of
the Company's Board of Directors (the "Committee"). The Committee
shall consist of at least two such Directors as the Board may from
time to time designate. Membership on the Committee shall be limited
to members of the Board of Directors who meet the definitions of a
"non-employee director" under Rule 16b-3 under Section 16 of the
Securities Exchange Act of 1934, as amended, and an "outside director"
under Section 162(m) of the Internal Revenue Code of 1986, as amended,
and the regulations thereunder. The Committee shall have such powers
to administer the Plan as are delegated to it by the Plan or the Board
of Directors, including the power to interpret the Plan and any
agreements executed thereunder, to prescribe rules and regulations
relating to the Plan, and to make all other determinations necessary
or advisable for administering the Plan.
3. Grant of Awards; Shares Subject to Plan
(a) The Committee may grant any type of award permitted under
the terms of the Plan (all such awards in the aggregate being
hereinafter referred to as "Awards"). Only employees of the Company
and its divisions and subsidiaries may be selected by the Committee
for Awards under the Plan.
(b) The maximum number of shares of Common Stock of the Company
that may be issued under the Plan is 1,600,000, all of which shares
may be made subject to Options. The maximum number of shares of
Common Stock with respect to which Options or Stock Appreciation
Rights ("SARs"), or any combination thereof, may be granted under the
Plan to any employee within a calendar-year period may not exceed
100,000, subject to Paragraph (c) of this Section 3. The Common Stock
issued pursuant to the Plan may consist of authorized and unissued
shares of the Company's Common Stock or Common Stock held in the
Company's treasury. If any Award granted under the Plan shall
terminate or lapse for any reason, any shares of Common Stock subject
to such Award shall again be available for the grant of an Award.
(c) In the event of corporate changes affecting the Company's
Common Stock or this Plan or Awards granted thereunder (including<PAGE>
without limiting the generality of the foregoing, stock dividends,
stock splits, recapitalizations, reorganizations, mergers,
consolidations, or other relevant changes in capitalization), the
Board of Directors or the Committee shall make appropriate adjustments
in price, number and kind of shares of Common Stock or other
consideration subject to such Awards or in the terms of such Awards,
which it deems equitable to prevent dilution or enlargement of rights
under the Awards. In addition, the Board of Directors or the
Committee may from time to time equitably change the aggregate number
or remaining number or kind of shares which may be issued under the
Plan or to any employee under the Plan to reflect any such corporate
changes.
4. Options
(a) The Committee may grant any type of statutory or non-
statutory Option to purchase shares of the Company's Common Stock as
is permitted by law at the time the Option is granted. The term of
each Option shall not be more than ten years and one day from the date
of grant and may be exercised at the rate set by the Committee.
(b) The per share purchase price of the Company's Common Stock
which may be acquired pursuant to an Option shall be at least 100% of
the fair market value of one share of Common Stock of the Company on
the date on which the Option is granted. Within this limitation such
price shall be determined by the Committee.
(c) Notwithstanding sub-section (b) above, the Committee in its
discretion and for Options granted on or prior to April 20, 1989 may
grant Options with a per share purchase price less than 100% of the
fair market value of one share of the Company's Common Stock on the
date on which the Option is granted; however, the Committee may only
grant Options pursuant to this sub-section (c) to former employees of
Household Manufacturing, Inc. or its subsidiaries who have forfeited
or will be forfeiting employee stock options previously granted by
Household International, Inc. as a result of termination of
employment. The exercise price for Options granted pursuant to this
sub-section (c) at less than fair market value on the date of grant
will be determined by the Committee based on the appreciation in value
of Household International, Inc. employee stock options being
forfeited. No Option shall be granted to an employee pursuant to this
sub-section (c) unless such employee has agreed to forfeit any
remaining rights such employee may have in options granted by
Household International, Inc.
(d) Except as otherwise provided in the Plan or in any stock
option agreement, the optionee shall pay the purchase price of the
shares of Common Stock upon the exercise of any Option (i) in cash,
(ii) in cash received from a broker-dealer to whom the optionee has
submitted an exercise notice consisting of a fully endorsed Option
(however in the case of an optionee subject to Section 16 of the
Securities Exchange Act of 1934, this payment option shall only be
-2-<PAGE>
available to the extent such payment procedures comply with Regulation
T issued by the Federal Reserve Board), (iii) by delivering shares of
Common Stock having an aggregate fair market value on the date of
exercise equal to the option purchase price, (iv) by directing the
Company to withhold such number of shares of Common Stock otherwise
issuable upon exercise of such Option having an aggregate fair market
value on the date of exercise equal to the option purchase price, (v)
by such other medium of payment as the Committee, in its discretion,
shall authorize at the time of grant, or (vi) by any combination of
(i), (ii), (iii), (iv) and (v). In the case of an election pursuant
to (i) or (ii) above, cash shall mean cash or check issued by a
federally insured bank or savings and loan association, and made
payable to Scotsman Industries, Inc. In the case of payment pursuant
to (ii), (iii) or (iv) above, the optionee's election must be made on
or prior to the date of exercise and shall be irrevocable. In lieu of
a separate election governing each exercise of an Option, an optionee
may file a blanket election with the Committee which shall govern all
future exercises of Options until revoked by the optionee. The
Company shall issue, in the name of the optionee, stock certificates
representing the total number of shares of Common Stock issuable
pursuant to the exercise of any Option as soon as reasonably
practicable after such exercise, provided that any shares of Common
Stock purchased by an optionee through a broker-dealer pursuant to
clause (ii) above, shall be delivered to such broker-dealer in
accordance with 12 C.F.R. Section 220.3(e)(4), or other applicable
provision of law.
(e) Whenever the Company proposes or is required to issue or
transfer shares of Common Stock to an employee under the Plan, the
Company shall have the right to require the employee to remit to the
Company an amount sufficient to satisfy all federal, state and local
withholding tax requirements prior to the delivery of any certificate
or certificates for such shares of Common Stock. If such certificates
have been delivered prior to the time a withholding obligation arises,
the Company shall have the right to require the employee to remit to
the Company an amount sufficient to satisfy all federal, state or
local withholding tax requirements at the time such obligation arises
and to withhold from other amounts payable to the employee, as
compensation or otherwise, as necessary. Whenever payments under the
Plan are to be made to an employee in cash, such payment shall be net
of any amount sufficient to satisfy all federal, state and local
withholding tax requirements. In lieu of requiring an employee to
make a payment to the Company in an amount related to the withholding
tax requirement, the Committee may, in its discretion, provide that,
at the employee's election, the tax withholding obligation shall be
satisfied by the Company's withholding a portion of the shares of
Common Stock otherwise distributable to the employee, such shares of
Common Stock being valued at their fair market value at the date of
exercise, or by the employee's delivering to the Company shares of
Common Stock previously owned by the employee, such shares of Common
Stock being valued at their fair market value as of the date of
delivery of such shares of Common Stock by the employee to the
-3-<PAGE>
Company. For this purpose, the amount of required withholding shall
be a specified rate not less than the statutory minimum federal, state
and local (if any) withholding rate, and not greater than the maximum
federal, state and local (if any) marginal tax rate applicable to the
employee and to the particular transaction. Notwithstanding any
provision of the Plan to the contrary, an employee's election pursuant
to the preceding sentences (i) must be made on or prior to the date as
of which income is realized by the recipient in connection with the
particular exercise transaction, and (ii) must be irrevocable. In
lieu of a separate election on each effective date of each exercise
transaction, an employee may file a blanket election with the
Committee which shall govern all future exercise transactions until
revoked by the employee.
5. Stock Appreciation Rights
(a) The Committee may grant SARs in tandem with the grant of an
Option under the Plan or with respect to a previously granted Option
under the Plan. In either case the number of shares of Common Stock
in respect of which SARs are granted by the Committee shall not be
greater than the number of shares subject to the related Option. In
exchange for the surrender in whole or in part of the right to
exercise the related Option, such SAR shall entitle the employee to
payment of an amount equal to the appreciation in value of the
surrendered Options (the excess of the fair market value of such
Common Stock subject to Options at the time of surrender over their
aggregate option price). An SAR granted pursuant to this subsection
(a) shall be exercisable to the extent and only to the extent that the
related Option is exercisable, but if an SAR is granted with respect
to a previously-granted Option, the SAR will not be exercisable for a
period of twelve months from the date of grant of such SAR. No such
SAR shall be exercisable except upon surrender of the related Option,
and to the extent such Option is surrendered, the shares covered by
such Option shall again be available for purposes of the Plan to the
extent that payment of such SAR is not made in shares of Common Stock
of the Company. The exercise of any Option shall result in the
cancellation of any related SAR.
(b) The Committee may also grant units of SARs on a stand-alone
basis which are not issued in tandem with Options. The term of each
such SAR shall not be more than ten years from the date of grant and
may be exercised at the rate set by the Committee; provided, however,
that no such SAR shall be exercised less than one year from the date
of grant. The "base price" of each unit of a "stand-alone" SAR shall
be at least 100% of the fair market value of one share of Common Stock
of the Company on the date on which such SAR is granted. Within this
limitation the base price shall be determined by the Committee. Each
unit of a "stand-alone" SAR entitles the holder, upon exercise, to
payment of an amount equal to the difference between the base price of
such SAR unit and the fair market value on the date of exercise of a
share of Common Stock of the Company.
-4-<PAGE>
(c) At the discretion of the Committee, payment upon exercise of
SARs may be made in cash, in shares of Common Stock of the Company
valued at their fair market value as of the date of exercise of the
SAR, or partly in cash and partly in shares of Common Stock of the
Company.
(d) The Committee may establish a maximum appreciation value
payable under an SAR.
6. Transfer of Options and Stock Appreciation Rights; Exercise of
Options and Stock Appreciation Rights Following Termination of
Employment
(a) Except as otherwise provided in subsections (b) and (c) of
this Section 6, Options and SARs may not be transferred except by will
or the laws of descent and distribution, and during the lifetime of
the holder may be exercised only by him. If the holder of an Option
or SAR shall cease to be an employee of the Company, a division, or a
subsidiary, and unless otherwise provided by the Committee or as
provided for in Section 8, all rights under such Option or SAR shall,
subject to sub-section (b), terminate, as set forth below:
(i) in the event of termination of a holder who is
retirement-eligible under the terms of a pension plan of the
Company or a subsidiary, the Option or SAR may be exercised
within three years following the date of termination of
employment
(ii) in the event of termination of employment due to
permanent and total disability of a holder who is not
retirement-eligible under the terms of a pension plan of the
Company or a subsidiary, the Option or SAR may be exercised
within three years following the date of such termination of
employment.
(iii) in the event of death during employment, the
Option or SAR may be exercised by the executor,
administrator, or other personal representative of the
holder within three years succeeding death if such holder
was retirement-eligible under the terms of a pension plan of
the Company or a subsidiary, or twelve months if such holder
was not retirement-eligible under the terms of a pension
plan of the Company or a subsidiary.
(iv) in the event of termination of employment other than as
set forth in subsections (i), (ii) or (iii) above, the
Option or SAR may be exercised within three months following
the date of termination.
(v) in the event of death of a holder of an Option or SAR
following termination of employment, the Option or SAR may
be exercised by the executor, administrator, or other
-5-<PAGE>
personal representative of the holder, notwithstanding the
time period specified in (i), (ii), (iii) or (iv) above,
within (a) twelve months following death or (b) the
remainder of the period in which the holder was entitled to
exercise the Option or SAR, whichever period is longer.
If the Committee determines that the termination is for
cause, the Option or SAR will not under any circumstances be
exercisable following termination of employment.
(b) Notwithstanding the provisions of sub-section (a), an Option
or SAR may not be exercised pursuant to this Section after the
expiration of the term of such Option or SAR and may be exercised only
to the extent that the holder is entitled to exercise such Option or
SAR on the date of termination of employment.
(c) Notwithstanding the provisions of subsection (a) of this
Section 6, an employee who is the holder of a non-statutory Option, at
any time prior to his death, may assign all or any portion of the
Option to (i) his spouse or any lineal descendant, (ii) the trustee of
a trust for the primary benefit of his spouse or any lineal
descendant, or (iii) a tax-exempt organization as described in Section
501(c)(3) of the Internal Revenue Code of 1986, as amended. In such
event the spouse, lineal descendant, trustee or tax-exempt
organization will be entitled to all of the rights of the employee
with respect to the assigned portion of such Option, and such portion
of the Option will continue to be subject to all of the terms,
conditions and restrictions applicable to the Option as set forth
herein, and in the related stock option agreement, immediately prior
to the effective date of the assignment. Any such assignment will be
permitted only if (i) the employee does not receive any consideration
therefor, and (ii) the assignment is expressly approved by the
Committee. Any such assignment shall be evidenced by an appropriate
written document executed by the employee, and a copy thereof shall be
delivered to the Committee on or prior to the effective date of the
assignment. This subsection (c) shall apply to all non-statutory
stock options granted under the Plan at any time.
7. Restricted Stock and Restricted Stock Rights
(a) The Committee from time to time may grant shares of Common
Stock of the Company to any employee selected by the Committee,
subject to the forfeiture of such stock to the Company if such
employee fails to remain an employee of the Company or a division, or
any subsidiary for the period of time established by the Committee
("Restricted Stock"). The Committee may also grant Restricted Stock
Rights ("RSRs") to any employee selected by the Committee, which would
entitle such employee to receive a stated number of shares of Common
Stock of the Company, subject to forfeiture of such RSRs if such
employee fails to remain continuously an employee of the Company, a
division, or any subsidiary for the period of time established by the
Committee.
-6-<PAGE>
(b) Restricted Stock and RSRs shall be subject to the following
restrictions and limitations:
(i) Restricted Stock and RSRs may not be transferred except
by will or the laws of descent and distribution;
(ii) Except as otherwise provided in Paragraphs (d) and (e)
of this Section 7, or as provided in Section 8, Restricted
Stock and RSRs and the shares subject to such RSRs shall be
forfeited and all rights of a grantee of such Restricted
Stock and RSRs and shares subject to RSRs shall terminate
without any payment of consideration by the Company if the
employee fails to remain continuously as an employee of the
Company, a division, or any subsidiary for the period of
time established by the Committee (the "Restricted Period").
A grantee shall not be deemed to have terminated his period
of continuous employment with the Company, a division, or
any subsidiary if he leaves the employ of the Company or any
subsidiary for immediate reemployment with the Company, a
division, or any subsidiary.
(c) A holder of RSRs shall not be entitled to any of the rights
of a holder of the Common Stock with respect to the shares subject to
such RSRs prior to the issuance of such shares pursuant to the Plan.
At the Committee's discretion, during the Restricted Period, for each
share subject to RSRs, the Company may pay the holder an amount in
cash equal to the cash dividend declared on a share of Common Stock of
the Company during the Restricted Period on or about the date the
Company pays such dividend to its stockholders of record.
(d) The Committee in its sole discretion may accelerate the
termination of the Restricted Period with respect to any Restricted
Stock and RSRs.
(e) In the event that the employment of a holder terminates by
reason of death or permanent and total disability, (i) a holder of
Restricted Stock shall be entitled to have the risk of forfeiture
removed from the number of shares of Restricted Stock multiplied by a
fraction (x) the numerator of which shall be the number of full months
between the date of grant of such Restricted Stock and the date of
such termination of employment, and (y) the denominator of which shall
be the number of full months in the Restricted Period; and (ii) a
holder of RSRs shall be entitled to receive the number of shares
subject to such RSRs multiplied by a fraction (x) the numerator of
which shall be the number of full months between the date of such RSRs
and the date of such termination of employment, and (y) the
denominator of which shall be the number of full months in the
Restricted Period; provided, however, that any fractional share shall
not be awarded. A holder of Restricted Stock or RSRs whose employment
terminates for reasons other than those listed in this paragraph will
forfeit his rights under any outstanding shares of Restricted Stock or
-7-<PAGE>
RSRs. This automatic forfeiture may be waived in whole or in part by
the Committee in its sole discretion.
(f) When a grantee shall be entitled to receive shares of Common
Stock pursuant to RSRs, the Company shall issue the appropriate number
of shares registered in the name of the grantee.
8. Change in Control
The following provisions shall apply in the event of a "Change in
Control":
(a) In the event of a Change in Control, as defined in this
Section 8:
(i) any SARs outstanding for at least 6 months and any
Options not previously exercisable and vested shall become
fully exercisable and vested;
(ii) the restrictions applicable to any Restricted Stock
shall lapse and such Restricted Stock shall be deemed fully
vested; and
(iii) each holder of RSRs shall be entitled to receive
the number of shares subject to such RSRs.
(b) For purpose of this Section 8, "Change in Control" means:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of Sections 13(d)
(3) or 14(d) (2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), of beneficial ownership within the meaning of
Rule 13d-3 promulgated under the Exchange Act, of 20% or more of
either (i) the then outstanding shares of Common Stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting
power of the then outstanding securities of the Company entitled to
vote generally in the election of directors (the "Outstanding Company
Voting Securities"); PROVIDED, HOWEVER, that the following
acquisitions shall not constitute a Change in Control: (A) any
acquisition directly from the Company (excluding any acquisition
resulting from the exercise of a conversion or exchange privilege in
respect of outstanding convertible or exchangeable securities), (B)
any acquisition by the Company, (C) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (D) any acquisition by
any corporation pursuant to a reorganization, merger or consolidation
involving the Company, if immediately after such reorganization,
merger or consolidation, each of the conditions described in clauses
(i), (ii) and (iii) of subsection (3) of this Section 8(b) shall be
satisfied; and PROVIDED FURTHER that, for purposes of clause (B), if
any Person (other than the Company or any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
-8-<PAGE>
corporation controlled by the Company shall become the beneficial
owner of 20% or more of the Outstanding Company Common Stock or 20% or
more of the Outstanding Company Voting Securities by reason of an
acquisition by the Company and such person shall, after such
acquisition by the Company, become the beneficial owner of any
additional shares of the Outstanding Company Common Stock or any
additional Outstanding Company Voting Securities and such beneficial
ownership is publicly announced, such additional beneficial ownership
shall constitute a Change in Control;
(2) individuals who, as of October 25, 1991, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of such Board; PROVIDED, HOWEVER, that any individual
who becomes a director of the Company subsequent to the date hereof
whose election, or nomination for election by the Company's
stockholders, was approved by the vote of at least a majority of the
directors then comprising the Incumbent Board shall be deemed to have
been a member of the Incumbent Board; and PROVIDED FURTHER, that no
individual who was initially elected as a director of the Company as a
result of an actual or threatened election contest, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act, or any other actual or threatened solicitation of proxies or
consents by or on behalf of any Person other than the Board shall be
deemed to have been a member of the Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation unless, in any such case,
immediately after such reorganization, merger or consolidation, (i)
more than 60% of the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation and more than 60% of the combined voting power of the
then outstanding securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals
or entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation and in substantially the same proportions relative to
each other as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the
case may be, (ii) no Person (other than the Company, any employee
benefit plan (or related trust) sponsored or maintained by the Company
or the corporation resulting from such reorganization, merger or
consolidation (or any corporation controlled by the Company) and any
Person which beneficially owned, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20%
or more of the Outstanding Company Common Stock or the Outstanding
Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 20% or more of the then outstanding shares of
common stock of such corporation or 20% or more of the combined voting
power of the then outstanding securities of such corporation entitled
-9-<PAGE>
to vote generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were
members of the Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for such
reorganization, merger or consolidation; or
(4) approval by the stockholders of the Company of (i) a
plan of complete liquidation or dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the assets of
the Company other than to a corporation with respect to which,
immediately after such sale or other disposition, (A) more than 60% of
the then outstanding shares of common stock thereof and more than 60%
of the combined voting power of the then outstanding securities
thereof entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior
to such sale or other disposition and in substantially the same
proportions relative to each other as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities, as the
case may be, (B) no Person (other than the Company, any employee
benefit plan (or related trust) sponsored or maintained by the Company
or such corporation (or any corporation controlled by the Company) and
any Person which beneficially owned) immediately prior to such sale or
other disposition, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be, beneficially owns, directly or
indirectly, 20% or more of the then outstanding shares of common stock
thereof or 20% or more of the combined voting power of the then
outstanding securities thereof entitled to vote generally in the
election of directors and (C) at least a majority of the members of
the board of directors thereof were members of the Incumbent Board at
the time of the execution of the initial agreement or action of the
Board providing for such sale or other disposition.
9. Amendment and Termination of the Plan
The Board of Directors or the Committee may amend the Plan or any
Award granted thereunder at any time, except that the Board of
Directors or the Committee may not, except as permitted by Section
3(c), (i) without stockholder approval, increase the number of shares
of Common Stock of the Company which may be issued pursuant to the
Plan, change the purchase price of an Option or base price of a
"stand-alone" SAR, or make any other amendment to the Plan which is
required by law to be approved by the stockholders of the Company;
(ii) amend an Award granted thereunder in a manner materially and
adversely affecting the rights of the holder thereof without such
holder's consent. The Board of Directors may terminate the Plan at
-10-<PAGE>
any time, but such termination shall not affect Awards previously
granted under the Plan.
-11-<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from Scotsman
Industries, Inc. Condensed Balance Sheet
(Unaudited) as of July 5, 1998 and
Scotsman Industries, Inc. Condensed
Statement of Income (Unaudited) for the
Six Months Ended July 5, 1998 and is
qualified in its entirety by reference
to such financial statements.
<MULTIPLIER> 1000
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> JUL-05-1998
<PERIOD-TYPE> 6-MOS
<CASH> 15,376
<SECURITIES> 0
<RECEIVABLES> 129,835
<ALLOWANCES> 5,316
<INVENTORY> 73,385
<CURRENT-ASSETS> 236,014
<PP&E> 85,884
<DEPRECIATION> 57,117
<TOTAL-ASSETS> 667,355
<CURRENT-LIABILITIES> 151,051
<BONDS> 322,155
<COMMON> 1,078
0
0
<OTHER-SE> 148,542
<TOTAL-LIABILITY-AND-EQUITY> 667,355
<SALES> 328,770
<TOTAL-REVENUES> 328,770
<CGS> 246,210
<TOTAL-COSTS> 246,210
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,919
<INCOME-PRETAX> 20,080
<INCOME-TAX> 9,831
<INCOME-CONTINUING> 10,249
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,249
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.95
</TABLE>
