As filed with the Securities and Exchange Commission on June 28, 2000
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F/A
Amendment No. 1
Registration Statement Pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934
Commission file number: 1-15032
ENODIS PLC
(FORMERLY KNOWN AS BERISFORD PLC)
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(Exact Name of Registrant as Specified in Its Charter)
ENGLAND AND WALES
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(Jurisdiction of Incorporation or Organization)
Washington House, 40-41 Conduit Street
LONDON W1R 9FB, UNITED KINGDOM
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(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title Of Each Class: Name Of Each Exchange On Which Registered:
------------------- -----------------------------------------
American Depositary Shares each representing New York Stock Exchange
four ordinary shares of nominal value 50p each
Securities registered or to be registered pursuant to Section 12(g)
of the Act: None.
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act: None.
The total number of outstanding shares of the issuer's common stock as
of April 1, 2000 was 249,694,873 ordinary shares.
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 No X
--- ---
Indicate by check mark which financial statement item the registrant has
elected to follow. Item 17. Item 18. X
---- ----
TABLE OF CONTENTS
ITEM PAGE
Introduction....................................................................................1
Summary of Our Business.........................................................................1
Disclosure Regarding Forward-Looking Statements.................................................2
PART I ................................................................................................2
Item 1. Identity of Directors, Senior Management and Advisers..................................2
Item 2. Offer Statistics and Expected Timetable................................................3
Item 3. Key Information........................................................................3
Item 4. Information on the Company............................................................10
Item 5. Operating and Financial Review and Prospects..........................................21
Item 6. Directors, Senior Management and Employees............................................31
Item 7. Major Shareholders and Related Party Transactions.....................................38
Item 8. Financial Information.................................................................38
Item 9. The Offer and Listing.................................................................41
Item 10. Additional Information................................................................42
Item 11. Quantitative and Qualitative Disclosures About Market Risk............................52
Item 12. Description of Securities Other than Equity Securities................................53
PART II ...............................................................................................60
Item 13. Defaults, Dividend Arrearages and Delinquencies.......................................60
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds..........60
Item 15. [Reserved]............................................................................60
Item 16. [Reserved]............................................................................60
PART III ...............................................................................................61
Item 17. Financial Statements..................................................................61
Item 18. Financial Statements..................................................................61
Item 19. Exhibits..............................................................................62
i
INTRODUCTION
As used in this registration statement, "we," "us," "our" and
"Enodis" mean Enodis plc, a public limited company incorporated and
registered under the laws of England and Wales, and its subsidiaries, unless
the context indicates a different meaning. Enodis changed its name from
Berisford plc with effect from June 26, 2000. The term "ordinary shares"
means our ordinary shares, nominal value 50p each. "CULS" means units of our
5% convertible unsecured loan stock due 2015. Our financial statements
included in this registration statement have been prepared in accordance with
accounting principles generally accepted in the United States ("U.S. GAAP"),
which differ in some respects from accounting principles generally accepted
in the United Kingdom ("U.K. GAAP"), as applied by us in preparing our
statutory financial statements and annual report and accounts. The financial
information contained in this registration statement, except as otherwise
noted, is in accordance with U.S. GAAP. Our fiscal year consists of the 52 or
53 weeks ending on the Saturday nearest to September 30. Fiscal 1999 had 53
weeks. Fiscal 1998 and 1997 each had 52 weeks.
The purpose of this registration statement is to register our American
Depositary Shares ("ADSs"), each representing four ordinary shares, under the
U.S. Securities Exchange Act of 1934. Our ordinary shares currently trade on the
London Stock Exchange. We have applied to list the ADSs on the New York Stock
Exchange under the ticker symbol "ENO". We believe that we can increase
liquidity and convenience for our U.S.-based shareholders by registering the
ADSs and listing them for trading in the U.S. In addition, we expect that our
listing could, in the future, provide us with convenient access to a source of
equity capital in the U.S., where a substantial portion of our operations are
located.
Some information contained in this registration statement has been
presented in U.S. dollar amounts which have been translated from pounds
sterling. For a discussion of the translation rate used in calculating these
amounts, see "Item 3. Key Information -- Currency Conventions and Exchange Rate
Information."
SUMMARY OF OUR BUSINESS
Our business consists primarily of two segments, an international
commercial food equipment business and a U.K. building and consumer products
business.
The commercial food equipment industry consists of all types of
equipment used in the cooking, warming, storage, preparation, service and
delivery of food. The products are generally categorized as foodservice
equipment, which is used by restaurants, fast food chains, hospitals and other
institutions, and retail food equipment, which is used to store and display food
in retail food outlets such as supermarkets and specialty stores. The commercial
food equipment industry worldwide represents approximately $24 billion in annual
sales. We believe that we are the leading commercial food equipment manufacturer
in the world with sales in over 65 countries. Our food equipment products
include cooking and warming products, refrigerated display cases and systems,
ice machines, food storage and preparation products, beverage systems, serving
products and ventilation equipment.
Our building and consumer products consist of residential kitchen and
bedroom furniture, and joinery and related building products, which we
manufacture, and bathroom furniture and fixtures which we purchase from third
parties. We sell these products to consumers and the trade through our 225
outlets in the U.K.
1
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS REGISTRATION STATEMENT CONTAINS "FORWARD-LOOKING STATEMENTS" THAT
ARE SUBJECT TO RISKS AND UNCERTAINTIES. THESE STATEMENTS REPRESENT OUR
EXPECTATIONS OR BELIEFS REGARDING FUTURE EVENTS, BASED ON CURRENTLY AVAILABLE
INFORMATION AND INCLUDE STATEMENTS CONCERNING ANTICIPATED SALES OF OUR PRODUCTS
AND ACQUISITION PLANS. THESE STATEMENTS TYPICALLY ARE IDENTIFIED BY THE USE OF
WORDS SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "BELIEVE," "ESTIMATE" AND
SIMILAR WORDS, ALTHOUGH SOME FORWARD-LOOKING STATEMENTS ARE EXPRESSED
DIFFERENTLY. WE DO NOT INTEND TO UPDATE THE FORWARD-LOOKING STATEMENTS INCLUDED
IN THIS REGISTRATION STATEMENT. THESE STATEMENTS BY THEIR NATURE INVOLVE
SUBSTANTIAL RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND OUR CONTROL. THEY
ARE NOT GUARANTEES OF FUTURE PERFORMANCE. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS DUE TO A
VARIETY OF IMPORTANT FACTORS. FACTORS THAT COULD CAUSE OUR RESULTS TO DIFFER
MATERIALLY FROM OUR EXPECTATIONS ARE DESCRIBED UNDER "ITEM 3. KEY INFORMATION --
RISK FACTORS" AND ELSEWHERE IN THIS REGISTRATION STATEMENT.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
The members of our Board of Directors are identified below. Except as
noted, each director has a business address at our principal office. For more
information about our directors, their compensation and ownership of our
securities see "Item 6. Directors, Senior Management and Employees."
PETER M. BROOKS, Chairman (non-executive) and Chairman of the Nominations
Committee.+*+
PENNY L. HUGHES, Non-executive Director and Chairman of the Remuneration
Committee.+*
G. ERYL MORRIS, Non-executive and Senior Independent Director and Chairman of
the Audit Committee.+*
WALDEMAR SCHMIDT, Non-executive Director.+
DAVID W. WILLIAMS, Chief Executive.+
ANDREW F. ROAKE, Chief Operating Officer. Mr. Roake's business address is at our
office at 2227 Welbilt Boulevard, New Port Richey, Florida.
JONATHAN P. FINDLER, Finance Director.
- ----------------------------
+ Member of the Remuneration Committee
* Member of the Audit Committee
+ Member of the Nominations Committee
2
OUR ADVISERS AND AUDITORS FOR THE LISTING OF ADRS
THE BANK OF NEW YORK (ADR depositary)
Corporate Trust Office 101 Barclay Street
New York, NY 10286, U.S.A.
SHACK & SIEGEL, P.C. (U.S. corporate and securities counsel)
530 Fifth Avenue, 16th Floor
New York, NY 10036, U.S.A.
CLIFFORD CHANCE (U.K. counsel)
200 Aldersgate Street
London EC1A 4JJ, U.K.
DELOITTE & TOUCHE
Chartered Accountants and Registered Auditors
Hill House, 1 Little New Street
London EC4A 3TR, U.K.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3. KEY INFORMATION
CURRENCY CONVENTIONS AND EXCHANGE RATE INFORMATION
We publish our financial statements in pounds sterling. In this
registration statement, where U.S. dollar amounts are presented, they have been
translated from pounds at the rate of $1.5953 per pound, the noon buying rate of
the U.S. Federal Reserve Bank on March 31, 2000. The translations have been made
for your convenience. You should be aware that fluctuations in the exchange rate
between the pound and the dollar will affect the actual values of amounts
expressed in dollars in this registration statement. These fluctuations will
also affect the dollar amounts, if any, received as a distribution by holders of
any of our securities, such as the ADSs, that trade in dollars.
The following table sets forth, for the periods and dates indicated,
the buying rates for pounds expressed in dollars per pound.
MONTHLY EXCHANGE RATES YEARLY EXCHANGE RATES*
MONTH HIGH LOW FISCAL YEAR ENDED Average
- ---------------- --------- --------- ---------------------------- -----------
December 1999 1.63 1.60 September 30, 1995 1.59
January 2000 1.65 1.62 September 28, 1996 1.54
February 2000 1.62 1.58 September 27, 1997 1.64
March 2000 1.59 1.57 September 26, 1998 1.66
April 2000 1.60 1.56 October 2, 1999 1.63
May 2000 1.57 1.47 April 1, 2000 (six months) 1.60
- ---------------
* Based on the average of the exchange rates on the last day of each month
during the year.
3
SELECTED FINANCIAL DATA
The U.S. GAAP selected statement of income data set forth below for the
26 weeks ended April 1, 2000 and March 27, 1999, and the balance sheet data at
April 1, 2000 are derived from the unaudited consolidated financial statements
which are included elsewhere in this registration statement. The U.S. GAAP
selected statement of income data set forth below for fiscal 1999, 1998 and
1997, and the balance sheet data at October 2, 1999 and September 26, 1998 are
derived from the audited consolidated financial statements which are included
elsewhere in this registration statement. The U.K. GAAP selected statement of
income data for fiscal 1997, 1996 and 1995, and the balance sheet data at
September 26, 1998, September 27, 1997, September 28, 1996 and September 30,
1995, are derived from the audited consolidated financial statements in our
annual report and accounts for fiscal 1998, 1997, 1996 and 1995. This
information should be read in conjunction with our consolidated financial
statements, including the notes to them, included in this registration
statement. See "Item 18. Financial Statements."
U.S. GAAP
(IN MILLIONS, EXCEPT SHARE DATA) 26 WEEKS ENDED FISCAL YEAR ENDED (1)
STATEMENT OF INCOME DATA APRIL 1, APRIL 1, MARCH 27, OCT. 2, OCT. 2, SEPT. 26, SEPT. 27,
2000 2000 1999 1999 1999 1998 1997
-------- -------- -------- ------- ------- --------- ---------
$ L L $ L L L
Net sales 906.1 568.0 321.5 1,206.5 756.3 586.4 533.8
Operating profit 78.5 49.2 25.5 108.3 67.9 51.0 38.1
Income before extraordinary gain 24.1 15.1 11.1 43.6 27.3 16.3 12.6
Extraordinary gain -- -- -- -- -- -- 24.9
------- ------ ------ ------- ------- ------ ------
Net income 24.1 15.1 11.1 43.6 27.3 16.3 37.5
Basic earnings per ordinary share
(pence):
Income before extraordinary gain 0.11 6.9p 7.3p 0.28 17.4p 10.8p 8.3p
Extraordinary gain -- -- -- -- -- -- 16.4p
------- ------ ------ ------- ------- ------ ------
Net income 0.11 6.9p 7.3p 0.28 17.4p 10.8p 24.7p
Diluted earnings per ordinary share (pence):
Income before extraordinary gain 0.10 6.1p 6.9p 0.23 14.3p 10.6p 8.2p
Extraordinary gain -- -- -- -- -- -- 16.2p
------- ------ ------ ------- ------- ------ ------
Net income 0.10 6.1p 6.9p 0.23 14.3p 10.6p 24.4p
Dividends per ordinary share (pence): 0.07 4.4p 4.0p 0.20 12.5p 9.5p 6.5p
- ------------------------
U.K. GAAP
FISCAL YEAR ENDED (1)
SEPT. 27, SEPT. 28, SEPT. 30,
1997 1996 1995
--------- --------- ---------
L L L
Net sales 533.8 497.5 381.2
Operating profit 43.8 35.8 33.1
Income before extraordinary gain 31.9 19.5 23.7
Extraordinary gain 24.9 -- --
------ ------- -------
Net income 56.8 19.5 23.7
Basic earnings per ordinary share
(pence):
Income before extraordinary gain 20.9p 12.8p 15.7p
Extraordinary gain 16.3p -- --
------ ------- -------
Net income 37.2p 12.8p 15.7p
Diluted earnings per ordinary share (pence):
Income before extraordinary gain 17.4p 12.1p 14.0p
Extraordinary gain 9.9p -- --
------ ------- -------
Net income 27.3p 12.1p 14.0p
Dividends per ordinary share (pence): 6.5p 4.5p 3.0p
- ------------------------
(1) For a description of our fiscal year, see "Introduction" on page 1.
U.S. GAAP U.K. GAAP
(IN MILLIONS) AS AT APRIL 1, AS AT FISCAL YEAR END AS AT FISCAL YEAR END
---------------- ----------------------- ----------------------------------
BALANCE SHEET DATA 2000 2000 1999 1999 1998 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
$ L $ L L L L L L
Total assets 2,060.2 1,291.4 2,102.0 1,317.6 762.6 337.6 341.3 414.9 411.0
Net assets 909.8 570.3 769.0 482.0 328.4 (88.8) (66.1) (97.9) (110.1)
Capital stock 199.1 124.8 168.8 105.8 76.6 76.6 76.3 76.3 75.8
Number of ordinary shares (1) 249.7 249.7 211.6 211.6 153.2 153.2 152.6 152.6 151.6
Long term debt 576.4 361.3 711.2 445.8 238.9 238.9 245.0 346.6 347.6
- -------------------------------
(1) In millions of shares
4
UNAUDITED PRO FORMA STATEMENT OF INCOME
The following unaudited PRO FORMA consolidated statement of income for
the 53 weeks ended October 2, 1999 is derived from the audited consolidated
statement of income of Berisford plc (now known as Enodis plc) and subsidiaries
for that period and the unaudited statement of income of Scotsman Industries,
Inc. from September 27, 1998 to August 12, 1999, the date that we acquired
Scotsman, after giving effect to the unaudited PRO FORMA adjustments described
in the notes set forth below. These adjustments have been determined as if the
acquisition of Scotsman and financing of the acquisition had taken place on
September 27, 1998. The notes to the unaudited PRO FORMA consolidated statement
of income are an integral part of the unaudited PRO FORMA statement.
53 WEEKS ENDED PRO FORMA
OCTOBER 2, 1999 ENODIS SCOTSMAN(1) ADJUSTMENTS TOTAL TOTAL
------ ---------- ----------- ----- -----
(MILLIONS, EXCEPT PER SHARE DATA) L L L L $
Net sales 756.3 357.0 -- 1,113.3 1,776.0
Cost of sales (481.6) (270.6) -- (752.2) (1,199.9)
------- ------- ----- -------- ---------
Gross profit 274.7 86.4 -- 361.1 576.1
Selling, general and administrative expenses (171.1) (48.8) -- (219.9) (350.8)
Goodwill amortization (2) (35.7) (4.5) (11.6) (51.8) (82.6)
-------- --------- ------ --------- --------
Income from operations 67.9 33.1 (11.6) 89.4 142.7
Other income 1.9 (2.5) -- (0.6) (1.0)
Interest expense, net (3) (13.3) (14.3) (22.3) (49.9) (79.6)
-------- -------- ------ --------- -------
Income before income taxes 56.5 16.3 (33.9) 38.9 62.1
Income taxes (4) (29.2) (7.7) 7.8 (29.1) (46.4)
-------- --------- ------- --------- -------
Net income 27.3 8.6 (26.1) 9.8 15.7
======== ========= ======= ========== =======
Weighted average number of shares 157.1 157.1
Net income per share (pence) 6.2p 0.10
- ---------------------------
(1) The exchange rate used to translate the results of Scotsman was 1.6327
dollars per pound. This rate represents the average exchange rate for the period
September 27, 1998 to August 12, 1999.
(2) Goodwill amortization: L (MILLIONS)
Incremental Enodis amortization (16.1)
Reversal of Scotsman amortization 4.5
------
(11.6)
======
Goodwill arising on the acquisition of Scotsman amounted to L368.5
million. The L16.1 million adjustment represents the amortization of this
goodwill from September 27, 1998 to the date of acquisition, assuming a life of
20 years. The L4.5 million adjustment is in respect of the goodwill amortization
recognized by Scotsman relating to preexisting goodwill and is therefore
reversed.
(3) Interest expense, net: L (MILLIONS)
Incremental Enodis interest expense (34.0)
Reversal of Scotsman interest expense 11.7
-----
(22.3)
=======
In August 1999, we entered into a term loan and revolving multicurrency
loan facility to finance the Scotsman acquisition and repay most of the
outstanding borrowings of Scotsman. Interest adjustments have been recorded to
report a net interest adjustment as if these transactions had taken place on
September 27, 1998.
(4) Income taxes. Tax adjustments represent the application of a tax rate
of 35% to the net interest adjustment.
5
CAPITALIZATION AND INDEBTEDNESS
The following table sets forth our capitalization at the dates
indicated:
OCT. 2, 1999 JUNE 3, 2000
(IN MILLIONS)
Cash and cash equivalents L 26.7 L 35.4
======== ========
Long-term debt
Guaranteed debt L 405.5 L 463.8
Secured debt excluding guaranteed debt 14.3 15.7
Unsecured debt 98.6 2.2
------- ------
518.4 481.7
------------ ------------
Shareholders' equity:
Ordinary shares (344,200,000 ordinary shares authorized;
211,553,127 and 249,756,862 shares issued at 10/2/99 and 6/3/00) 105.8 124.8
Additional paid-in capital 165.9 238.6
Retained earnings 224.6 225.6
Accumulated other comprehensive loss (14.3) (12.3)
------------ ------------
Total shareholders' equity 482.0 576.7
------------ ------------
Total capitalization L 1,000.4 L 1,058.4
============ ============
Guaranteed debt consists of the outstanding balance of our term loan
and revolving multi- currency loan facility at these dates, all of which is
secured debt. Secured debt excluding guaranteed debt, consists primarily of the
outstanding balance of our industrial revenue bonds at these dates. Unsecured
debt consisted primarily of the outstanding balance at October 2, 1999 of our
CULS. On February 14, 2000, L93,348,044 of the CULS, representing 98.9% of the
CULS then outstanding, were converted into 38,100,937 ordinary shares. The
conversion resulted in an increase in shareholders' equity of L93,348,044. The
L1,066,335 balance of the CULS were redeemed for cash at their nominal value on
February 26, 2000.
For more information about our indebtedness, see "Item 5. Operating and
Financial Review and Prospects -- Liquidity and Capital Resources," Note 8 to
our audited consolidated financial statements and Note 3 to our unaudited
consolidated financial statements.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND THE OTHER
INFORMATION IN THIS REGISTRATION STATEMENT BEFORE DECIDING TO INVEST IN OUR
ADSS.
OUR LOAN DOCUMENTS CONTAIN RESTRICTIONS THAT LIMIT OUR ABILITY TO INCUR
INDEBTEDNESS AND TO MAKE ACQUISITIONS AND OTHER INVESTMENTS
Our Credit and Guaranty Agreement contains restrictive covenants,
including covenants limiting our ability to:
- incur additional indebtedness;
- make guaranties;
- create liens on our properties;
6
- make acquisitions in cash exceeding L31.3 million in any
fiscal year and L87.6 million during the term of the agreement
or in equity securities exceeding L87.6 million in any fiscal
year and L188.1 million during the term;
- make other investments;
- make loans;
- reorganize, merge, sell or purchase assets or subsidiaries;
- enter into transactions with affiliates; and
- conduct new lines of business.
These covenants limit our ability to finance future operations, capital
needs and acquisitions and to engage in other business activities that may be in
our interest. In addition, our Credit and Guaranty Agreement requires the
maintenance of specified financial ratios and net worth. See "Item 5. Operating
and Financial Review and Prospects--Liquidity and Capital Resources--Material
financial requirements." A breach of any of these covenants or our failure to
maintain the financial ratios and net worth required by this agreement would
entitle the lenders to accelerate the maturity of the loans.
WE MAY NOT BE ABLE TO CONTINUE TO MAKE ADVANTAGEOUS ACQUISITIONS AND
SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES
Our business strategy includes making acquisitions that will expand our
international presence and our range of products and services in our food
equipment business. See "Item 4. Information on the Company--Food Equipment." As
noted above, however, our Credit and Guaranty Agreement limits the amount that
we can invest in acquisitions. In making acquisitions, further, we may not be
able to:
- identify suitable acquisition candidates;
- obtain financing for acquisitions on satisfactory terms;
- advance our strategic objectives as a result of any such
acquisition; or
- integrate successfully any business or assets that we acquire.
We have experienced rapid growth in recent years, primarily as a result
of acquisitions. Continued rapid growth could place a significant strain on our
management, operations, employees and other resources.
SALES AND PROFITS OF OUR BUILDING AND CONSUMER PRODUCTS BUSINESS MAY BE AFFECTED
BY DOWNTURNS IN THE U.K. HOUSING MARKET
Our performance in the building and consumer products market is subject
to fluctuations in economic conditions of the U.K. housing market. The strength
or weakness of this market, both for new home sales and sales of existing homes,
affects the demand for our products within the home construction and renovation
sectors. In the event of an economic downturn in either of these sectors, home
sales may slow, and our sales and profits could be adversely affected.
OUR FOOD EQUIPMENT CUSTOMERS MAY BE RESPONSIBLE FOR SIGNIFICANT FLUCTUATIONS IN
OUR REVENUES
Large scale purchasers of food equipment with multiple locations, such
as international fast food and quick serve restaurant chains, seek continued
improvement in and enhancement of food processing techniques. Changes and
upgrades in their menu items and in automated or energy efficient food equipment
often require the addition or replacement of food equipment in a large number of
outlets over a short period of time. This could result in a significant increase
in our revenues over that initial period.
7
Thereafter, the demand for the equipment will be only for new installations or
replacements. In addition, we may devote substantial resources to developing new
equipment in conjunction with a major customer in anticipation of that
customer's use of our product in multiple outlets. Our ability to realize upon
our investment of those resources will be affected by any decision of the
customer to modify, delay or terminate the project. These purchasing patterns
are beyond our control and could result in substantial fluctuations in our
operating results.
COMPETITION IN THE FOOD EQUIPMENT BUSINESS FROM GLOBAL AND LOCAL MANUFACTURERS
COULD PREVENT US FROM SUCCESSFULLY MARKETING A FULL LINE OF PRODUCTS ON A GLOBAL
BASIS
In the food equipment industry, competition is primarily based on
product features, reliability, durability, technology, energy efficiency and
price. We have a number of competitors in each product line that we offer. Our
largest competitors in this industry include Illinois Tool Works Inc.'s Premark
subsidiary, Ingersoll-Rand Company's subsidiary, Hussmann International, IMI
Cornelius, Electrolux, Dover Industries, Hoshizaki, Manitowoc, Speciality
Equipment and Carrier Corporation. See "Item 4. Information on the Company--Food
Equipment--Competition." Some of our competitors have greater financial and
marketing resources than we possess. In addition, some competitors can focus on
particular product lines or geographical regions to prevent our entry locally or
in a particular product category. These competitors could disrupt our marketing
strategy to offer a full line of food equipment on a global basis. Furthermore,
we believe that competition among the larger companies in the industry is
intensifying as growing foodservice and supermarket chains consolidate their
supplier base and increase their purchasing power. This may result in increased
pressure on pricing and decrease the number of potential customers.
OUR COMPETITORS IN THE SALE OF JOINERY PRODUCTS IN THE U.K. MAY ERODE OUR MARKET
SHARE
In the U.K. joinery and related building products sector, we compete in
price-sensitive product lines. See "Item 4. Information on the Company--Building
and Consumer Products--Competition." Our competitors have been able to sell some
products in competition with ours at lower prices. As a result, we have recently
lost some market share in the joinery sector. We may lose further market share
if we are perceived to be overpriced.
PRICE INCREASES IN SOME MATERIALS AND SOURCES OF SUPPLY COULD AFFECT OUR SALES
AND PROFITABILITY
We use large amounts of stainless steel, aluminum, timber and
electronic controls in the manufacture of our products. Recently, the prices of
some of these materials have increased significantly. For example, the base
price of stainless steel has increased on three occasions since July 1999. There
have also been several changes in the surcharge base levels of nickel and
chrome. These changes have the effect of increasing our overall price for
stainless steel. See "Item 4. Information on the Company--Food
Equipment--Sources and Availability of Raw Materials." If we are not able to
absorb future price increases or to pass them on to our customers, our margins
could be adversely affected.
OUR TECHNOLOGICAL INNOVATIONS AND PROPRIETARY RIGHTS MAY NOT PROTECT US
EFFECTIVELY FROM INNOVATIONS BY COMPETITORS
Our ability to respond to our large customers' needs in the food
equipment industry depends in part on our ability to provide product features
and technological innovations superior to those offered by our competitors. It
also depends on our ability to be the first among our competitors to offer those
8
features and innovations. Some of our success in the past has been due to our
ability to license technology and to obtain and maintain patent protection of
our proprietary technology, designs and other innovations. See "Item 4.
Information on the Company--Proprietary Rights." We may not be able to
develop new features or technological innovations sufficient to effectively
compete. Also, it is possible that our patented technology could be
successfully challenged or circumvented by competitors. We could be at a
competitive disadvantage if another company develops a significant
technological improvement to an important line of products.
We also have trade secrets and proprietary know-how. We generally enter
into confidentiality agreements with our employees regarding our trade secrets
and proprietary information, but these employees could breach their obligation
to maintain the confidentiality of our trade secrets or proprietary information.
Our trade secrets and proprietary know-how could become known to, or
independently developed by, competitors.
CURRENCY FLUCTUATIONS, REPATRIATION RISK AND OTHER RISKS WITH RESPECT TO OUR
FOREIGN OPERATIONS COULD AFFECT OUR PROFITABILITY AND GROWTH
We sell products in over 65 countries and have manufacturing operations
in ten countries. Therefore, we face transactional currency exposure when our
operating subsidiaries enter into transactions denominated in currencies other
than their local currency. We also face currency translation exposure arising
from translating the results of our global operations to pounds. See "Item 11.
Quantitative Disclosures About Market Risk." We anticipate that international
sales and operations will continue to grow, increasing this exposure.
Some international jurisdictions may restrict repatriation of our
non-U.K. earnings. Various foreign jurisdictions also have laws limiting the
right and ability of entities to pay dividends and remit earnings to affiliated
companies unless specified conditions are met. International operations
generally are subject to various political risks that are not present in U.S.
operations, including the risk of war or civil unrest, expropriation and
nationalization. In addition, unfavorable changes in international monetary and
tax policies and other changes in the international regulatory climate could
affect our profitability or growth plans.
THE ADOPTION OF THE EURO MAY RESULT IN LOWER PROFITS
On January 1, 1999, 11 member countries of the European Union adopted
the euro, fixing translation rates between those countries' existing national
currencies and the euro. Until January 1, 2002, either the euro or a
participating country's national currency will be accepted as legal currency.
Beginning on January 1, 2002, only euro-denominated bills and coins will be
issued, and national currencies will be withdrawn from circulation. The use of a
common currency throughout Europe might permit the prices of our products to be
more readily compared. This may lead to uniform pricing of our products in
countries in the European Union. Uniform pricing may adversely affect our
profits. To date, the adoption of the euro has not been a factor in any of our
pricing practices and has not adversely affected our profits.
9
ITEM 4. INFORMATION ON THE COMPANY
OUR HISTORY AND DEVELOPMENT
Our origins date back to the mid-nineteenth century, when our
business was founded as a small food merchant based in the north of England.
We incorporated in 1910 under the name S. & W. Berisford (1910) Limited and
re-registered in 1982 as a public limited company. In 1995, we changed our
name to Berisford plc., and with effect from June 26, 2000, we changed our
name to Enodis plc. We are subject to the Companies Act of 1985 and are
registered with The Registrar of Companies for England and Wales.
RECENT ACQUISITIONS
In 1995, we entered the commercial food equipment business by acquiring
Welbilt Corporation, a publicly-traded U.S. company, and its subsidiaries.
Welbilt was a leading U.S.-based manufacturer of commercial cooking and warming
equipment sold primarily for use in restaurants, fast food chains, hospitals and
other institutions. After that acquisition, our business primarily consisted of
Welbilt and Magnet Limited. Magnet was a U.K. manufacturer and retailer of
kitchen furniture and joinery and building products that we acquired in 1994.
From fiscal 1996 through fiscal 1998, we completed several additional
acquisitions, extending our product range and geographical reach, principally in
the food equipment business. Fiscal 1997 acquisitions included Guyon Productions
in France, Vent Master in the U.K. and Sammic SA, in Spain. The total cost of
fiscal 1997 acquisitions was L23.3 million. Fiscal 1998 acquisitions included
the U.S.- based Aladdin Temp-Rite group, Viscount Catering Limited in the U.K.,
C.P. Hart & Sons Limited in the U.K. and our investment in New Ton in Thailand.
The total cost of fiscal 1998 acquisitions was L69.5 million. We received L9.6
million in fiscal 1997 and L4.2 million in fiscal 1998 from the sale of non-core
businesses.
In August 1999, we acquired Scotsman Industries, Inc., a
publicly-traded U.S. company, at a cost, including assumed debt, of L478.1
million, which we believe established us as the leading manufacturer of
commercial food equipment in the world. This acquisition included the 47% of
Austral Refrigeration Pty. Ltd. in Australia that was not then owned by
Scotsman. In fiscal 1999, we also acquired a majority interest in Convotherm
Elektrogerate GmbH, a German company. We also invested in our joint venture,
Welbilt Manufacturing (Thailand) Limited. The cost of the Convotherm acquisition
and the investment were L13.3 million and L2.3 million, respectively.
We have continued our acquisition strategy in fiscal 2000 with the
acquisition of Merrychef Holdings Ltd in the U.K., a portion of the business of
Seco-Registered Trademark- Products in the U.S. and our purchase of the balance
of the shares of Total Cellar Systems in the U.K. that we did not previously
own. The total cost for these acquisitions was L19.0 million, of which L16.7
million was attributable to the acquisition of Merrychef.
CAPITAL EXPENDITURES
During the past three fiscal years we have also made capital
expenditures for equipment and construction of new facilities in the aggregate
amount of L32.5 million, L14.4 million and L14.2 million in fiscal 1999, 1998
and 1997, respectively. These included the construction of a new 135,000 square
foot manufacturing facility in Shreveport, Louisiana for our Frymaster
subsidiary and a 25,000 square foot facility in New Port Richey, Florida to
house our Welbilt Technology Center. The Frymaster
10
facility was completed in November 1999, and the Technology Center was completed
in March 1999. In June 2000, we completed a 17,000 square foot addition to the
Technology Center which, among other things, is our new principal office in the
U.S.
The total cost of acquiring, building and equipping the Frymaster
facility was L9.7 million, of which L4.8 million, L0.9 million and L1.8
million were incurred in fiscal 1999, 1998 and 1997, respectively, and L2.2
million is attributed to fiscal 2000. The cost of the initial acquisition,
building and equipping of the Technology Center was L2.2 million, of which
L0.8 million was incurred in fiscal 1998, and L1.4 million was incurred in
fiscal 1999. The cost of the addition to the Technology Center was L0.9
million, substantially all of which was incurred in fiscal 2000. In addition,
our board has approved the construction of a new factory for our Convotherm
subsidiary in Germany, which we expect will cost about L3.0 million, and a
new factory for our Viscount Catering subsidiary in the U.K. See "Property,
Plant and Equipment."
PRINCIPAL OFFICES
Our principal office is located at Washington House, 40-41 Conduit
Street, London W1R 9FB, U.K., telephone number: 020 7312 2500. Our principal
U.S. office is located at 2227 Welbilt Boulevard, New Port Richey, Florida
33655, telephone number: (727) 376-8600. We maintain an Internet web site at
www.enodis.com.
BUSINESS OVERVIEW
Our business is focused on two segments, an international commercial
food equipment business, and a U.K. building and consumer products business. Our
net sales were L756.3 million in fiscal 1999, or L1,113.3 million on an
unaudited PRO FORMA basis, adjusted as if the acquisition of Scotsman had
occurred on September 27, 1998. For a summary of net sales by segment and
geographic market for each of the last three fiscal years, see Note 14 to our
audited consolidated financial statements. See also Note 5 to our unaudited
consolidated financial statements.
Our principal operating units include:
- Welbilt Group, which manufactures commercial cooking and
warming products, such as fryers and frying systems, steamers,
kettles, skillets, ovens, griddles, ranges, combi- ovens,
conveyor ovens, cook-chill equipment, broilers, grills, donut
making equipment and kitchenware. We manufacture these
products primarily in the U.S., Canada, France, Spain, Germany
and the U.K.
- Scotsman Ice Group, which manufactures ice machines and
refrigerated storage equipment for restaurants, bars, hotels,
supermarkets and institutions. We manufacture these products
primarily in the U.S., Italy and China.
- Kysor Panel Systems and Kysor/Warren, which manufacture
walk-in refrigerated enclosures, refrigerated display cases
and frozen food display cases. We manufacture these products
primarily in the U.S. and Australia.
- Scotsman Beverage Systems, which manufactures beverage
dispensing systems for bars, restaurants, hotels,
institutions, soft-drink companies and brewers. We manufacture
these products in the U.S., U.K. and Germany.
11
- Magnet, which sells, through our 225 U.K. stores, residential
kitchen and bedroom furniture and bathroom furniture and
fixtures, as well as joinery and building products. Magnet
also manufactures kitchen and bedroom furniture, joinery and
related building products in the U.K.
FOOD EQUIPMENT
Three years ago we operated, through our Welbilt group of companies, a
North American food equipment business with a small number of distribution
businesses in Europe. Over the last three years, we have expanded our
manufacturing and service capacity and product lines to increase our share of
the $24 billion global food equipment market. Through our dual strategy of
internal development and acquisitions, we believe that our food equipment
business now offers the following:
- the broadest product line available from a single supplier;
- technological flexibility;
- manufacturing capabilities in ten countries located on four
continents; and
- an extensive distribution and service network covering over 65
countries throughout the world.
Our August 1999 acquisition of Scotsman doubled our size in the
segment. According to a report to us by our consultant OC&C Strategy
Consultants, dated September 22, 1999 (the "OC&C Report"), and an analyst's
report issued by Dresdner Kleinwort Benson, this acquisition also added to our
business the world's leading manufacturer of ice making machines and, according
to the OC&C Report, analysts' reports and publicly-available information, one of
the world's five leading manufacturers of commercial refrigeration products.
Scotsman's range of "cold side" products combines with Welbilt's "warm side"
products to create the broadest product line of food equipment in the world. Our
combined unaudited PRO FORMA 1999 fiscal year net sales of food equipment,
determined as if the acquisition had occurred on September 27, 1998, were
approximately L875 million ($1.4 billion). Warm and cold side products together
can represent up to 75% of the total investment in a commercial kitchen, moving
us closer to the goal of becoming a "one stop" provider. In addition, Scotsman
and our other recent acquisitions in France, Germany, Spain, Thailand and the
U.K. have broadened our product line, expanded geographically our manufacturing
capabilities and increased our service, distribution and sales networks.
We believe that we are the leading manufacturer of food equipment in
the world. We sell our food equipment products to customers in the restaurant,
supermarket, home meal replacement and institutional catering markets. According
to the OC&C Report, we are now the most comprehensive provider of food
equipment, with recognized brands and the ability to serve customers who operate
multiple locations internationally. Our varied product lines increasingly
present opportunities to bundle product groups to meet specialized needs of
large purchasers. The fragmented food equipment industry is consolidating, and
we continue to seek advantageous acquisitions in order to maintain and extend
our leading position in the industry. See "Item 3. Key Information--Risk
Factors--Our loan documents contain restrictions that limit our ability to incur
indebtedness and to make acquisitions and other investments." We also intend to
continue to grow through the design of innovative, customized products and
solutions for our customers' food and beverage equipment requirements, by
providing superior product service and support and by establishing close working
relationships with our customers. We do not have long-term contracts with our
customers. Therefore, it is important that we maintain good relations with our
customers.
12
Our objective is to become the preferred provider of food equipment to
large scale foodservice, food retail and beverage dispensing equipment
purchasers throughout the world. More and more often, these purchasers are
operating their businesses internationally and sourcing globally. Therefore,
they seek to achieve efficiencies by aligning themselves with vendors that can
provide complete solutions for their needs and offer:
- broad, high-quality product lines;
- customization capabilities;
- a strong aftermarket service organization to support multiple
international locations; and
- a scale of activities large enough to support their purchasing
needs.
We intend to position our business by progressing from leading manufacturer to
become the provider of complete solutions which meet these needs of large-scale
purchasers.
Additionally, the business of local and regional purchasers remains
important to us, and our objective is also to continue to satisfy their
particular requirements.
COOKING AND WARMING PRODUCTS
We design, manufacture and sell commercial fryers and frying systems,
steamers, kettles, skillets, ovens, griddles, ranges, combi-ovens, conveyor
ovens, cook-chill, broilers, grills, donut making equipment and cookware. These
products are sold for use in restaurants, including quick serve restaurant
chains, hotels, institutions, supermarkets and other home food replacement
outlets worldwide. According to the OC&C Report, we are the market leader in the
cooking and warming products segment in North America, with a wide range of
products and brands, and extensive service coverage. We sell cooking and warming
products in several geographic markets under a variety of brand names including
Frymaster-Registered Trademark-, Garland-Registered Trademark-, Cleveland-TM-,
Convotherm-Registered Trademark-, Lincoln-Registered Trademark-,
Belshaw-Registered Trademark-, Moorwood Vulcan-Registered Trademark-,
Electroway-Registered Trademark-, Nuttall-Registered Trademark-,
Technyform-Registered Trademark-, Dean-Registered Trademark-, US Range-TM-,
Merco-Registered Trademark-, Savory-Registered Trademark-, Merrychef-Registered
Trademark- and Wear-Ever-Registered Trademark-.
ICE MACHINES
We design, manufacture and sell ice making and ice dispensing equipment
for use by restaurants, hotels, supermarkets and institutional food preparation
customers. Our range of products produce ice cubes, flakes and nuggets.
According to the OC&C Report, we are now an international leader in this product
line. We sell ice machines under a variety of brand names including
Scotsman-Registered Trademark-, Ice-O-Matic-Registered Trademark-,
Icematic-Registered Trademark-, Bar-Line-Registered Trademark-, SIMAG-Registered
Trademark- and New Ton.
REFRIGERATED DISPLAY CASES AND SYSTEMS
We design, manufacture and sell refrigerated self-serve cases, service
deli cases and refrigeration systems. Our customers for these products include
supermarkets and convenience stores. We are among the top three U.S.
manufacturers with national sales and technical support capabilities, according
to the OC&C Report. We are also the market leader in Australia, according to a
report commissioned by us and issued by The Kalchas Group in June 1999. We
believe that consolidation in the global supermarket industry, coupled with
increasing hygiene standards for food storage, will fuel increasing worldwide
demand in this category for both standard and customized products. We sell these
products under the brand names Kysor//Warren-Registered Trademark- and Austral.
13
FOOD STORAGE AND PREPARATION PRODUCTS
We make walk-in refrigerated enclosures, environmental rooms and
freezers and modular insulated panels and doors used in the construction of
these products. We also make commercial refrigerators and freezers, dough
retarders and blast chillers. We manufacture a wide range of food preparation
equipment such as mixers, peelers, dicers, slicers, preparation tables and
integrated workstations. We believe that we have significant sales growth
opportunities in this sector due to our relationships with major quick serve and
full-dine restaurants. We sell these products under the brand names
Kysor-Registered Trademark- Panel Systems, Delfield-Registered Trademark-,
Sammic-Registered Trademark-, Tecnomac-Registered Trademark-,
Varimixer-Registered Trademark- and Redco-Registered Trademark-.
BEVERAGE SYSTEMS
We design, manufacture and sell a full range of soft-drink and beverage
dispensing equipment, for pre-mix and post-mix, undercounter and remote
applications, combination ice and soft-drink dispensing units, custom beer
cooling and related accessories to global and national soft-drink companies and
brewers. Additionally, our ice manufacturing products provide us with an
opportunity to capitalize on ice/drink product developments. We sell beverage
systems under the brand names Scotsman-Registered Trademark- Beverage Systems,
Whitlenge-Registered Trademark-, Hartek-Registered Trademark-, Booth-Registered
Trademark- and Homark-Registered Trademark-.
SERVING PRODUCTS
Our food delivery systems and serving products, include insulated
trays, trolleys, carts, cook-chill systems and disposables, which enable
hospitals and institutions to provide meals in quantity, at the required
temperature, hygienically and efficiently. We have a strong presence in the
serving products business in both the U.S. and Germany. We sell serving products
under the brand names Aladdin Temp- Rite-Registered Trademark-, Seco-Registered
Trademark-, Guyon-Registered Trademark-, Shelleyglas-Registered Trademark- and
Delfield-Registered Trademark-.
VENTILATION AND SANITATION EQUIPMENT
We manufacture air purification systems, ventilation hoods, dishwashers
and vacuum-packing equipment. The growth of ventilation products is being driven
by increasingly stringent requirements for odor control, tightening
environmental regulations and the need to retrofit existing buildings with
ventilation systems. Our brands for these products include Vent
Master-Registered Trademark-, Airtech-Registered Trademark-, Ecoloair-Registered
Trademark- and Sammic-Registered Trademark-.
PRODUCT DEVELOPMENT AND CUSTOMIZED SOLUTIONS
Our Welbilt Technology Center in Florida designs and develops
customized solutions for customers in conjunction with the assistance of our
on-site marketing and customer service teams. The engineering and marketing
teams at the Technology Center work directly with customers to provide
innovative design and technology solutions for their requirements, together with
a high level of service, particularly for large-scale customers with complex
needs. The Technology Center works together with our operating subsidiaries so
that our products can incorporate technology that provides enhanced reliability,
labor savings, energy efficiencies and the menu flexibility to meet our
customers' needs. We believe that our design capabilities position us to be able
to keep pace with technological innovations, such as the recent development of
products that cook, chill and re-thermalize food. The Technology Center helps us
to build partnerships between our operating groups and our customers to exploit
these opportunities.
14
SALES AND MARKETING
Our products are marketed largely through an extensive network of our
own sales personnel, independent sales representative organizations,
distributors and dealers to a broad and diversified range of customers. Our
sales representatives draw on the expertise of our marketing and engineering
staff around the world to offer as complete a line of food equipment to each
customer as it needs.
In fiscal 1999, 68.1% of our sales in the food equipment segment were
in North America, 21.9% in Europe and 10.0% in the rest of the world.
We participate in a variety of trade shows and exhibitions throughout
the year, including the annual National Restaurant Association show in the
United States, the biennial National Association of Food Equipment
Manufacturers' show in the United States, the biennial Hotelympia show in London
and the biennial Expo Tour show in Milan, where we present extensive displays of
our product lines.
We also maintain an Internet web site at www.enodis.com. This site
provides information about our food equipment products and service and links to
the websites of many of our subsidiaries.
CUSTOMER SERVICE AND MANUFACTURING
Our products are generally serviced by authorized dealers and service
providers. We also have and continue to develop teams of service support
engineers and customer service teams based on four continents to provide access
to product service and customer support for particular customer groups and
geographic regions. Different customer groups have different food equipment
needs, and the teams are trained to serve these specific needs.
Enodis now has over 30 manufacturing facilities located in ten
countries on four continents, and we can provide service in over 65 countries.
See "Property, Plant and Equipment."
SEASONALITY
Generally, our sales of food equipment are strongest in the second half
of our fiscal year. This is because new construction and installations by
customers upgrading or replacing food equipment occur mostly in the warm weather
months. In addition, schools usually renovate and replace food equipment during
the summer, when classes are not in session.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The principal materials used in the manufacture of our products are
stainless steel and aluminum, as well as electronic components such as computer
controls, compressors and motors. These materials are generally available from
several sources. The price of stainless steel that we use to manufacture our
products has increased by an aggregate of more than 15% over the past year. With
the acquisition of Scotsman and our internal growth, we believe that we are in a
position to reduce the impact of price increases through more efficient group
purchasing. If we are unable to achieve these savings or to pass on cost
increases to our customers, our margins may be adversely affected.
15
COMPETITION
The global food equipment market is still highly fragmented, although
it has begun to experience consolidation. According to an analyst's report
issued by Deutsche Bank, dated May 19, 2000, and the OC&C Report, the leading
sellers in this market are currently Enodis and Premark, each with about 6% of
sales in the segment, Hussmann International, with about 5%, United Technology
Corp.'s Carrier division and Linde, each with between 3% and 4%, IMI Cornelius,
with over 2%, Dover Industries and Electrolux, each with about 2%, and Maytag,
the Manitowoc Company and a few others, each with between 1% and 2%. The top ten
competitors in the industry comprise about one-third of all industry sales, and
hundreds of smaller companies compete regionally or locally in some product
segments for the remaining two thirds. Premark is an international competitor in
most of our markets. IMI competes in the beverage systems sector. Hussmann,
Carrier, Linde and Hill-Phoenix (a subsidiary of Dover Industries) manufacture
refrigerated display cases and other cooling equipment. Manitowoc competes with
us in the manufacture of walk-in coolers, freezers, ice machines and beverage
dispensing equipment. Hoshizaki competes with us in the manufacture of ice
machines. Specialty Equipment competes with us in several cooking and warming
equipment product lines. Maytag competes in ovens, fryers and ranges, while
Groen (another subsidiary of Dover Industries) competes in steam and cook-chill
products. Outside of North America, Electrolux and the Ali Group compete with us
in most sectors of the food service equipment industry.
BUILDING AND CONSUMER PRODUCTS
Through Magnet, we manufacture and sell a broad range of kitchen and
bedroom furniture and a range of timber and related joinery products to both
retail and trade customers principally in the U.K. Magnet also sells bathroom
furniture and fixtures and kitchen furniture through its subsidiary, C.P. Hart.
We have increased average order sizes and margins on kitchen products over the
past three years primarily through the introduction of new products that add
value to our product lines through improved design and enhanced service. We
believe that there is a growing demand in the U.K. by affluent customers for
high-quality products and that customers are willing to pay for high-quality
products in this segment. One article describing this trend was seen in the
January 28, 2000 issue of RETAIL WEEK, at page 16. New products successfully
launched last year included the Ferndown, Mackintosh, Carrington, New England
and Studio kitchens, all of which continue our move towards the higher price
sector.
KITCHEN AND BEDROOM PRODUCTS
We manufacture, sell and install kitchen furniture and worktops and
bedroom furniture. We also sell and install sinks, faucets and appliances
through our 225 retail outlets. We have upgraded our showrooms and offer an
increasingly broad and high-quality line of products to appeal to the affluent
homeowner. We believe that these upgrades and our products have provided us with
a high level of brand awareness within our target market sector.
JOINERY PRODUCTS
We are a vertically integrated manufacturer and retailer of interior
and exterior doors, windows, stairs and various wood and PVCu building products
mainly to trade customers.
16
BATHROOM PRODUCTS
Since 1998, we have designed and sold a wide range of showers,
bathtubs, faucets, toilets, bathroom furniture and tiles for retail customers
through our three C.P. Hart outlets. These products are manufactured for us by
third party manufacturers. We are expanding this comparatively small sector of
our business by offering new bathroom product lines in many of our Magnet
outlets.
SALES AND MARKETING
We currently maintain 225 retail and trade outlets and showrooms in the
building and consumer products segment. During fiscal 2000 to date, we have
opened eight new stores, including a new location in Dublin, and we are
negotiating to open four more stores. We intend to open additional locations in
the U.K. These openings are financed through working capital. At our stores, in
addition to knowledgeable sales staff, we also generally have an on-site
designer who advises customers with respect to custom design ideas for kitchens,
bathrooms and bedrooms.
We market directly to consumers using newspaper, magazine and
television advertising, and we advertise to the building trade in specialist
trade journals.
We maintain an Internet web site at www.magnet.co.uk. containing
information about Magnet, including descriptions of our products and a store
locator.
SEASONALITY
Sales of our building and consumer products have historically been
strongest in our second and third fiscal quarters, following the Christmas
holiday, when we typically increase advertising and because customers make home
improvements with the return of warm weather. Sales have historically been
slowest in our first fiscal quarter.
CUSTOMER SERVICE AND MANUFACTURING
Our customer service is handled by our Customer Care Center based in
Keighley, U.K. Customer service issues are normally related to our installed
products, and we respond to these using subcontracted installation teams.
Kitchen appliances are serviced by the product supplier.
We manufacture kitchen, bedroom, joinery and building products at our
four manufacturing plants in the U.K. See "Property, Plant and Equipment."
SOURCES AND AVAILABILITY OF RAW MATERIALS
In the building and consumer products segment, we manufacture
approximately 56% of our products in our four factories, and we purchase
approximately 44% of our products from others. We purchase timber and particle
board from among several suppliers. We currently purchase approximately 70% of
the appliances that we resell from two suppliers, but we believe that other
vendors would be able to supply us with comparable appliances, if necessary,
without any material interruption to our business.
17
COMPETITION
We face competition from market leaders in each of our product
lines. The leading sellers in this market are currently MFI and B&Q in
bathroom and kitchen products and JELD-WEN UK Ltd., in the joinery sector.
Most companies in our industry compete in price-sensitive product lines,
which is a highly competitive market. We are attempting to focus our business
on mature, affluent customers, particularly in our kitchen and bathroom
product lines. In the joinery sector, we target jobbers and small house
builders and attempt to offer a full range of wood and PVCu joinery products,
as well as delivery to the site and factory finishing, which saves the
customer time. We also seek to cross-sell our different product lines to
builders and customers remodeling their homes.
PROPRIETARY RIGHTS
In both segments of our business, we use a combination of trade secret,
copyright and trademark laws and other contractual and technical measures to
protect our proprietary rights. Our food equipment business also has filed and
been granted patents in the U.S. and in other countries. A few of our products,
such as the Lincoln-Registered Trademark- air impingement conveyor ovens, use
patents, know-how and other intellectual properties licensed from third parties.
Our patents in the food equipment business generally relate to operating
features of our products that may be functionally duplicated by competitors.
Although we believe that our patents have a cumulative advantage, no material
portion of our business depends on any one patent. Consequently, we do not
believe that our food equipment business would be adversely affected by the
expiration or invalidity of any one of our patents.
We have registered trademarks to protect our brand names in the U.S.,
U.K. and many other countries where the branded products are sold. We list many
of the brand names associated with our products above under "Business Overview."
While we regard our brand names, in the aggregate, as important, we do not
consider any of these names, individually, to be material to our business as a
whole. We believe that our trademarks adequately protect these brand names.
SUBSIDIARIES
We currently have over 140 subsidiaries, all but a few of which are
wholly-owned, directly or indirectly. Our largest subsidiaries are Magnet
Limited and Welbilt Corporation.
Scotsman is a subsidiary of Welbilt. Scotsman owns The Delfield
Company, Kysor Industrial Corp. and Garland Commercial Ranges, Ltd., among
others. Welbilt also owns Aladdin Temp-Rite LLC, Lincoln Foodservice Products,
Inc., Cleveland Range, Inc., Frymaster L.L.C., Garland Commercial Industries,
Inc., Mile High Equipment Co. and Belshaw Bros., Inc., among others. C.P. Hart
is a subsidiary of Magnet.
All of our significant subsidiaries are listed in Exhibit 8.1 to this
registration statement, which shows their jurisdiction of formation and our
ownership interest in them.
PROPERTY, PLANT AND EQUIPMENT
Our principal office is located at Washington House, 40-41 Conduit
Street, London, U.K. The following table contains information describing the
general character of our principal real properties.
18
- --------------------------- -------------------------------- ----------- ----------------------------- ------------
APPROXIMATE
LOCATION PRINCIPAL USE SQUARE FEET PRODUCTS PRODUCED OWNED/LEASED
- --------------------------- -------------------------------- ----------- ----------------------------- ------------
Washington House, Executive office 4,750 N/A Leased
40-41 Conduit Street
London, U.K.
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
2227 Welbilt Boulevard Technology Center and office 42,000 N/A Owned
New Port Richey, FL, U.S .
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Goodyear, AZ, U.S. Manufacturing plant and office 50,000 Walk-in coolers and freezers Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Keighley, U.K. Manufacturing plant and office 944,400 Doors, windows (PVCu and Owned
wood) and staircases
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Darlington, U.K. Manufacturing plant and office 770,000 Kitchen cabinets Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Penrith, U.K. Manufacturing plant and office 124,000 Doors Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Flint, U.K. Manufacturing plant and office 68,000 Doors and windows (PVCu) Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Gardena, CA, U.S. Manufacturing plant and office 100,000 Fryers Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Denver, CO, U.S. Manufacturing plant, engineering 160,000 Ice machines Owned(1)
facilities and office
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Columbus, GA, U.S. Warehouse 23,000 Refrigerated display cases Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Columbus, GA, U.S. Manufacturing plant and office 297,000 Refrigerated display cases Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Columbus, GA, U.S. Manufacturing plant and office 154,000 Refrigeration systems Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Conyers, GA, U.S. Manufacturing plant and office 411,000 Refrigerated display cases Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Conyers, GA, U.S. Warehouse 81,000 Refrigerated display cases Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Fort Wayne, IN, U.S. Manufacturing plant and office 358,000 Conveyer ovens, rotisseries Leased
and kitchenware
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Shreveport, LA, U.S. Manufacturing plant, engineering 249,000 Fryers Owned(2)
facilities and office 91,000 Mixers Owned
135,054 Non-fryer products Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Mt. Pleasant, MI, U.S. Manufacturing plant and office 312,000 Food preparation and Owned(3)
storage equipment
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Cleveland, OH, U.S. Manufacturing plant and office 97,600 Steam cooking equipment Owned(4)
and cookchill
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Freeland, PA, U.S. Manufacturing plant and office 225,000 Ovens and ranges Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Fairfax, SC, U.S. Manufacturing plant and warehouse 327,000 Ice machines Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Johnson City, TN, U.S. Manufacturing plant and office 110,000 Walk-in coolers and freezers Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Covington, TN, U.S. Manufacturing plant and office 188,000 Food preparation and Leased(5)
storage equipment
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Nashville, TN, U.S. Manufacturing plant and office 90,000 Meal delivery systems Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Fort Worth, TX, U.S. Manufacturing plant and office 118,000 Walk-in coolers and freezers Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Dallas, TX, U.S. Manufacturing plant and office 170,000 Beverage systems Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Seattle, WA, U.S. Manufacturing plant and office 90,000 Donut making equipment Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Glendenning N.S.W., Manufacturing plant and office 154,000 Refrigerated display cases Owned(6)
Australia
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Concord, Ontario, Canada Manufacturing plant and office 116,000 Steam cookers and cookchill Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Mississauga and Vaughan, Manufacturing plant and office 155,000 Ovens, ranges and Leased
ventilation equipment
Ontario, Canada Manufacturing plant and office 35,000 Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Moneteau, France Manufacturing plant and office 100,000 Tables, sinks and counters Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Bremen, Germany Office and warehouse 34,000 Meal delivery systems Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Eglfing, Germany Office, warehouse and plant 130,000 Combi-ovens Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Radevormwald, Germany Manufacturing plant and office 35,000 Beverage systems Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Castelfranco, Italy Manufacturing plant and office 242,000 Ice machines Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Milan, Italy Manufacturing plant and office 152,000 Ice machines Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
19
- --------------------------- -------------------------------- ----------- ----------------------------- ------------
APPROXIMATE
LOCATION PRINCIPAL USE SQUARE FEET PRODUCTS PRODUCED OWNED/LEASED
- --------------------------- -------------------------------- ----------- ----------------------------- ------------
Azpeitia, Spain Manufacturing plant and office 77,000 Sanitation products Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Poole, U.K. Manufacturing plant and office 18,000 Beverage systems Owned
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Poole, U.K. Manufacturing plant and office 12,500 Beverage systems Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Halesowen, U.K. Manufacturing plant and office 84,000 Beverage systems Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Aldershot, U.K. Manufacturing plant and office 20,000 Microwave ovens Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Rochester, U.K. Manufacturing plant and office 16,000 Ventilation systems Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Sheffield, U.K. Manufacturing plant and office 129,000 Ovens, ranges and Leased
refrigeration products
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
Bangkok, Thailand Manufacturing plant and office 45,000 Ice machines Leased
- --------------------------- -------------------------------- ----------- ----------------------------- -----------
- ----------------------
(1) Subject to industrial revenue bond financing in the aggregate principal
amount of L2.8 million ($4.5 million) due in 2007.
(2) Subject to variable rate demand industrial revenue bond financing in
the aggregate principal amount of L4.1 million ($6.6 million) due in
2003.
(3) Subject to a security interest in a building section granted pursuant
to a Loan Agreement, dated as of August 1, 1983 between The Delfield
Company and The Economic Development Corporation of the County of
Isabella.
(4) Subject to a mortgage on a portion of the land and building in the
aggregate principal amount of L313,421 ($500,000) to secure our
obligations under our Loan Agreement with the City of Cleveland.
(5) Leased from the Industrial Development Board of the Town of Covington
subject to financing provided by First Tennessee Bank, N.A. The lease
provides for the option to purchase the property during and at the end
of the lease.
(6) Subject to First Registered Mortgage and First Registered Mortgage
Debentures over the whole of the assets and uncalled capital and called
but unpaid capital of Austral Refrigeration Pty Limited, Kysor Warren
Australia Pty Limited, Austral PCR Management Services, Techni Doors
Pty Limited, Lawrence Refrigeration Pty Limited, Q.A.L. National
Refrigeration Pty Limited and Austral International Pty Limited, to
secure outstanding indebtedness payable to National Australia Bank Ltd.
In November 1999, we completed construction of a 135,000 square foot
manufacturing facility in Shreveport, Louisiana. This facility provides
Frymaster with manufacturing capacity for its non-fryer products. It also will
provide room for the future growth of Frymaster's product lines. The total cost
of acquiring, building and equipping this facility was approximately L9.7
million.
Our board has approved the construction of a new factory in Germany for
our subsidiary, Convotherm, which produces combi-ovens. The factory, with 58,000
square feet of space, will permit us to consolidate our Convotherm operations in
a more convenient and efficient facility by replacing two smaller facilities. We
expect that the construction will cost about L3.0 million and will be financed
with available cash. We expect to begin construction by the end of calendar
2000, and we plan to complete the construction in fiscal 2001.
Our board has also approved the purchase of land and construction of
a new factory, office and distribution building in Sheffield, Yorkshire, U.K.
The new building, with 100,000 square feet of space, will be used by our
subsidiary, Viscount Catering Limited, and will replace the 129,000 square
foot facility now occupied by Viscount under a lease expiring in August 2001.
We are exploring available financing alternatives for the acquisition of the
land and construction of the facility. We expect to be in a position to begin
construction by the end of fiscal 2000 and to complete the construction in
fiscal 2001.
Metal fabrication, finishing, sub-assembly and assembly operations are
conducted at our food equipment manufacturing facilities. Among major categories
of equipment installed at individual
20
locations are numerically controlled turret presses, robotic and conventional
welding equipment, numerically controlled machining centers, computer assisted
design systems and product testing and quality assurance measurement devices.
Magnet's production facilities support the manufacture of high volumes
of kitchen cabinets, joinery and PVCu products. Magnet's manufacturing strategy
is focused on reducing lead times and finished inventory levels, while at the
same time achieving higher materials usage. The manufacturing process is
enhanced by numerically controlled machines that provide flexible batch size
alternatives, allowing product customization when required.
Our outlet stores are generally leased free-standing buildings
averaging about 10,000 square feet each. The stores generally have a retail
showroom and a separate section that caters to tradesmen.
Our facilities and equipment are suitable for the purposes for which
they are employed and are adequately maintained. We review the capacity and
utilization of our facilities on an ongoing basis and make adjustments where
appropriate so as to absorb excess capacity in underutilized facilities and
expand facilities where needed. With the integration of Scotsman into our
business, we have closed four redundant manufacturing facilities. We believe
that our facilities are generally adequate for our current requirements and
growth.
For information concerning our rental expenses and commitments under
operating leases, see Note 9 to our audited consolidated financial statements.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR
CONSOLIDATED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES.
OVERVIEW
Our business consists primarily of two segments, a global commercial
food equipment business and a U.K. building and consumer products business. We
have experienced rapid growth in recent years attributable in large part to the
acquisitions of Scotsman in 1999, Aladdin in 1998 and Welbilt in 1995. Through
these and other smaller acquisitions, we have positioned ourselves as the
leading manufacturer of food equipment sold to customers in the restaurant,
supermarket, home meal replacement and institutional catering markets.
Our building and consumer products segment is led by Magnet, which
manufactures and sells residential kitchen and bedroom furniture and wood and
PVCu joinery to both retail and trade customers in the U.K. Magnet also sells
bathroom furniture and fixtures, principally through C.P. Hart, which we
acquired in 1998. This segment currently operates 225 stores throughout the U.K.
UNAUDITED PRO FORMA INFORMATION
The unaudited PRO FORMA amounts in this paragraph include the results
of operations of Scotsman and Aladdin as if those acquisitions had occurred on
September 28, 1997, which is the first day of our fiscal year ended September
26, 1998. Unaudited PRO FORMA net sales for the fiscal year ended October 2,
1999 increased L102.2 million, or 10%, from unaudited PRO FORMA net sales of
L1.0 billion ($1.6 billion) in the fiscal year ended September 26, 1998 to L1.1
billion ($1.8 billion) for the fiscal year
21
ended October 2, 1999. Net income for the 1999 fiscal year increased, on an
unaudited PRO FORMA basis, by L13.8 million, from a net loss of L4.0 million
($6.4 million) for the fiscal year ended September 26, 1998 to net income of
L9.8 million ($15.7 million) for the fiscal year ended October 2, 1999.
NET SALES COMPONENTS
Components of our consolidated income statements, as presented in our
consolidated historical financial statements, as a percentage of net sales are
as follows:
26 WEEKS ENDED Fiscal Year Ended
APRIL 1, March 27, Oct. 2, Sept. 26, Sept. 27
2000 1999 1999 1998 1997
NET SALES:
Food equipment 73.2% 59.9% 64.7% 56.8% 56.4%
Building and consumer products 24.4% 40.1% 35.1% 42.7% 43.3%
Other activities 2.4% - 0.2% 0.5% 0.3%
------ ------ ------ ------ ------
TOTAL 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
OPERATING EXPENSES:
Cost of goods sold 67.3% 63.7% 63.7% 64.4% 66.2%
Selling, general and administrative expenses 19.0% 23.8% 22.6% 22.5% 22.2%
Depreciation and amortization 5.0% 4.6% 4.7% 4.5% 4.5%
------ ------ ------ ------ ------
TOTAL 91.3% 92.1% 91.0% 91.4% 92.9%
------ ------ ------ ------ ------
OPERATING PROFIT 8.7% 7.9% 9.0% 8.6% 7.1%
OTHER INCOME, NET 0.6% 0.5% 0.3% 0.3% 0.2%
INTEREST EXPENSE, NET 3.1% 1.9% 1.8% 1.6% 1.8%
------ ------ ------ ------ ------
INCOME BEFORE INCOME TAXES AND 6.2% 6.5% 7.5% 7.4% 5.6%
EXTRAORDINARY GAIN
INCOME TAXES 3.5% 3.0% 3.9% 4.6% 3.2%
------ ------ ------ ------ ------
INCOME BEFORE EXTRAORDINARY GAIN 2.7% 3.5% 3.6% 2.8% 2.4%
EXTRAORDINARY GAIN -- -- -- -- 4.7%
------ ------ ------ ------ ------
NET INCOME 2.7% 3.5% 3.6% 2.8% 7.1%
====== ====== ====== ====== ======
RESULTS OF OPERATIONS
26 WEEKS ENDED APRIL 1, 2000 COMPARED TO THE 26 WEEKS ENDED MARCH 27, 1999
IN THIS SECTION, "HALF YEAR 2000" REFERS TO THE 26 WEEKS ENDED APRIL 1,
2000 AND "HALF YEAR 1999" REFERS TO THE 26 WEEKS ENDED MARCH 27, 1999.
NET SALES FROM OPERATIONS
Total net sales increased by approximately L246.5 million, or 76.7%,
from L321.5 million in half year 1999, to L568.0 million in half year 2000.
FOOD EQUIPMENT. Net sales from food equipment activities increased by
approximately L222.9 million, or 115.7%, from L192.7 million in half year 1999,
to L415.6 million in half year 2000. Of the increase, approximately L204.4
million was attributable to the Scotsman acquisition in the fourth quarter of
fiscal 1999, approximately L5.5 million was attributable to the impact in half
year 2000 of companies acquired in half year 1999 and approximately L13.0
million was attributable to increased sales in our existing operations. The
increase in sales in our existing operations relates primarily to increased
sales of our U.S.-based businesses as a result of improved demand for pizza
ovens and steamers.
22
BUILDING AND CONSUMER PRODUCTS. Net sales from building and consumer
products activities increased by approximately L9.9 million, or 7.7%, from
L128.8 million in half year 1999, to L138.7 million in half year 2000. The
increase was predominantly due to improved sales of products for residential
kitchens.
OTHER SALES.
During first half 2000, we sold U.K. real estate for L13.7 million.
During first half 1999, no real estate was sold.
OPERATING EXPENSES
Operating expenses consist of cost of goods sold, selling, general and
administrative expenses and depreciation and amortization. Total operating
expenses increased by approximately L222.8 million, or 75.3%, from L296.0
million, or 92.1%, of net sales in half year 1999, to L518.8 million, or 91.3%,
of net sales in half year 2000.
COSTS OF GOODS SOLD. Cost of goods sold increased by approximately
L177.6 million, or 86.7%, from L204.8 million in half year 1999, to L382.4
million in half year 2000. As a percentage of sales, cost of goods sold
increased from 63.7% of net sales in half year 1999 to 67.3% of net sales in
half year 2000. Cost of goods sold from food equipment activities increased by
approximately L164.2 million. Of this amount, approximately L155.6 million was
attributable to the Scotsman acquisition in fiscal 1999, approximately L2.8
million was attributable to the impact in half year 2000 of companies acquired
in half year 1999 and approximately L5.8 million was attributable to our
existing operations. The increase in cost of goods sold in our existing
operations relates primarily to increased sales of our U.S.-based businesses.
Cost of goods sold from building and consumer products activities increased by
approximately L6.9 million, which was primarily due to our increase in net
sales. The overall increase in our cost of goods sold as a percentage of net
sales was due to the higher cost of goods sold attributable to Scotsman
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately L31.4 million, or 41.0%, from
L76.6 million in half year 1999, to L108.0 million in half year 2000. As a
percentage of sales, selling, general and administrative expenses decreased from
23.8% of net sales in half year 1999 to 19.0% of net sales in half year 2000.
Selling, general and administrative expenses from food equipment activities
increased by approximately L30.0 million. This amount was comprised of an
increase of approximately L26.8 million attributable to the Scotsman acquisition
in fiscal 1999, approximately L1.2 million attributable to the impact in half
year 2000 of companies acquired in half year 1999 and an increase of L2.0
million from our existing operations. Selling, general and administrative
expenses from building and consumer products activities increased by
approximately L1.7 million.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
by approximately L13.8 million, or 94.5%, from L14.6 million, or 4.6%, of net
sales in half year 1999 to L28.4 million, or 5.0%, of net sales in half year
2000. The increase was primarily due to the acquisition of Scotsman in fiscal
1999.
23
OPERATING PROFIT
Operating profit increased by approximately L23.7 million, or 92.9%,
from L25.5 million, or 7.9%, of net sales in half year 1999 to L49.2 million, or
8.7%, of net sales in half year 2000. Operating profit is equal to net sales
less operating expenses.
INTEREST EXPENSE, NET
Interest expense, net increased by approximately L11.4 million, or
190.0%, from L6.0 million in half year 1999 to L17.4 million in half year 2000.
This increase was attributable to an increase in outstanding indebtedness which
related primarily to the acquisition of Scotsman, offset by a decrease of L5.8
million due to the redemption of the CULS.
INCOME TAXES
Provision for income taxes increased by approximately L10.2 million, or
103.0%, from L9.9 million in half year 1999 to L20.1 million in half year 2000.
The increase resulted primarily from higher income during half year 2000 and a
greater proportion of income being earned in tax jurisdictions where we did not
have the benefit of prior year losses. Accordingly, our effective tax rate
increased by approximately 10.0%.
NET INCOME
Net income increased by approximately L4.0 million, or 36.0%, from
L11.1 million in half year 1999 to L15.1 million in half year 2000. Net income
consists of operating profit plus other income, less interest expense, net and
our provision for income taxes.
YEAR ENDED OCTOBER 2, 1999 COMPARED TO THE YEAR ENDED SEPTEMBER 26, 1998
NET SALES FROM OPERATIONS
Total net sales increased by approximately L169.9 million, or 29.0%,
from L586.4 million in fiscal 1998 to L756.3 million in fiscal 1999.
FOOD EQUIPMENT. Net sales from food equipment activities increased by
approximately L156.8 million, or 47.1%, from L332.9 million in fiscal 1998 to
L489.7 million in fiscal 1999. Of the increase, approximately L75.9 million was
attributable to acquisitions in fiscal 1999, of which approximately L61.1
million relates to Scotsman, approximately L60.1 million was attributable to the
full year impact in fiscal 1999 of companies acquired in the fourth quarter of
fiscal 1998, and approximately L20.8 million was attributable to our existing
operations. The increase of L60.1 million attributable to companies acquired
during the fourth quarter of fiscal 1998 includes L47.2 million related to
Aladdin and L12.9 million, which represents the aggregate effect of other small
acquisitions primarily located in Europe. The increase in our existing
operations of L20.8 million relates primarily to our businesses in the U.S. and
Asia. In the U.S., our revenues increased as a result of growth in the overall
food equipment sector and as a result of an increase in market share related to
products of the Welbilt Group. In Asia, revenue increased as a result of modest
improvement in the Asian markets following the significant economic downturn in
that region during fiscal 1998.
BUILDING AND CONSUMER PRODUCTS. Net sales from building and consumer
products activities increased by approximately L15.1 million, or 6.0%, from
L250.5 million in fiscal 1998 to L265.6 million
24
in fiscal 1999. Of the increase, L13.6 million was due to the full year impact
in fiscal 1999 of C.P. Hart, which was acquired in the fourth quarter of fiscal
1998, and an increase of L1.5 million from our existing operations.
OPERATING EXPENSES
Operating expenses consist of cost of goods sold, selling, general and
administrative expenses and depreciation and amortization. Total operating
expenses increased by approximately L153.0 million, or 28.6%, from L535.4
million, or 91.4% of net sales, in fiscal 1998 to L688.4 million, or 91.0% of
net sales in fiscal 1999.
COST OF GOODS SOLD. Cost of goods sold increased by approximately
L104.2 million, or 27.6%, from L377.4 million, or 64.4% of net sales, in fiscal
1998 to L481.6 million, or 63.7% of net sales, in fiscal 1999. Cost of goods
sold from food equipment activities increased by approximately L101.6 million.
Of this amount, approximately L52.0 million was attributable to acquisitions in
fiscal 1999, of which approximately L43.0 million relates to Scotsman,
approximately L38.1 million was attributable to the full year impact in fiscal
1999 of companies acquired in the fourth quarter of fiscal 1998, and
approximately L11.5 million was due to our existing operations. The increase of
L38.1 million attributable to companies acquired during the fourth quarter of
fiscal 1998 includes L28.3 million related to Aladdin and L9.8 million
representing the aggregate effect of other small acquisitions primarily located
in Europe. The increase in our existing operations of L11.5 million relates
primarily to an increase in our sales in the U.S., partially offset by benefits
realized from manufacturing efficiencies, and an increase in our sales in Asia.
The decrease in cost of goods sold as a percentage of the related incremental
revenue is consistent with management's expectations, given manufacturing
efficiencies and product and geographical composition. Cost of goods sold from
building and consumer products activities increased by approximately L4.0
million. This amount was comprised of an increase of L9.2 million, which was
attributable to the full year impact of C.P. Hart, which was acquired in the
fourth quarter of fiscal 1998, offset by a decrease of L5.2 million from our
existing operations. The decrease of L5.2 million primarily relates to the
benefits realized from manufacturing efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately L39.2 million, or 29.7%, from
L131.9 million, or 22.5% of net sales, in fiscal 1998 to L171.1 million, or
22.6% of net sales, in fiscal 1999. Selling, general and administrative expenses
from food equipment activities increased by approximately L35.3 million. This
amount was comprised of an increase of approximately L12.5 million attributable
to acquisitions in fiscal 1999, of which approximately L8.8 million relates to
Scotsman, and approximately L16.0 million was attributable to the full year
impact in fiscal 1999 of companies acquired in the fourth quarter of fiscal 1998
and an increase of L6.8 million from our existing operations. The increase of
L16.0 million attributable to companies acquired during the fourth quarter of
fiscal 1998 includes L13.9 million related to Aladdin, with the balance relating
to the aggregate effect of other small acquisitions primarily located in Europe.
Selling, general and administrative expenses from building and consumer products
activities increased by approximately L4.3 million. Of this amount, L1.9 million
was attributable to the full year impact in fiscal 1999 of C.P. Hart, which was
acquired in the fourth quarter of fiscal 1998 and an increase of L2.4 million
from our existing operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
by approximately L9.6 million, or 36.8%, from L26.1 million, or 4.5% of net
sales, in fiscal 1998 to L35.7 million, or 4.7% of net sales, in fiscal 1999.
The increase was primarily due to the acquisition of Scotsman in fiscal 1999 and
the full year impact on depreciation and amortization relating to the
acquisitions of Aladdin and C.P. Hart in fiscal 1998.
25
OPERATING PROFIT
Operating profit increased by approximately L16.9 million, or 33.1%,
from L51.0 million, or 8.6% of net sales, in fiscal 1998 to L67.9 million, or
9.0% of net sales, in fiscal 1999. Operating profit is equal to net sales less
operating expenses.
INTEREST EXPENSE, NET
Interest expense, net increased by approximately L3.7 million, or
38.5%, from L9.6 million in fiscal 1998 to L13.3 million in fiscal 1999. This
increase was attributable to an increase in outstanding indebtedness which
related primarily to our acquisitions during the fourth quarters of fiscal 1998
and 1999.
INCOME TAXES
Provision for income taxes increased by approximately L2.3 million, or
8.6%, from L26.9 million in fiscal 1998 to L29.2 million in fiscal 1999. The
increase was attributable to our fiscal 1999 current tax provision which
resulted primarily from higher income during fiscal 1999 in tax jurisdictions
where we did not have the benefit of prior year losses. Although our tax
provision increased during fiscal 1999, our effective tax rate decreased by
approximately 10.6%. This reduction in our effective tax rate related primarily
to a decrease in the amount of losses for which no benefit may be taken.
NET INCOME
Net income increased by approximately L11.0 million, or 67.5%, from
L16.3 million in fiscal 1998 to L27.3 million in fiscal 1999. Net income
consists of operating income plus other income, less interest expense, net and
our provision for income taxes.
YEAR ENDED SEPTEMBER 26, 1998 COMPARED TO THE YEAR ENDED SEPTEMBER 27, 1997
NET SALES FROM OPERATIONS
Total net sales increased by approximately L52.6 million, or 9.9%, from
L533.8 million in fiscal 1997 to L586.4 million in fiscal 1998.
FOOD EQUIPMENT. Net sales from food equipment activities increased by
approximately L31.8 million, or 10.6%, from L301.1 million in fiscal 1997 to
L332.9 million in fiscal 1998. Of the increase, approximately L4.2 million is
attributable to the acquisition of Aladdin during the fourth quarter of fiscal
1998, L12.7 million is attributable to the full year impact in fiscal 1998, of
Sammic, which was acquired during fiscal 1997, and an increase of L14.9 million
from our existing operations. The increase of L14.9 million relates primarily to
increases in our sales in the U.S. and Europe, partially offset by a decrease in
our sales in Asia. In the U.S., our revenues increased as a result of growth in
the overall food equipment sector and new product rollouts. In Europe, our
revenues increased as a result of improved market share and new product
introductions. In Asia, revenue decreased as a result of the significant
economic downturn in that region during fiscal 1998.
BUILDING AND CONSUMER PRODUCTS. Net sales from building and consumer
products activities increased by approximately L19.4 million, or 8.4%, from
L231.1 million in fiscal 1997 to L250.5 million in fiscal 1998. Of the increase,
L4.0 million was due to the acquisition of C.P. Hart in fiscal 1998, and L15.4
million was from our existing operations. The increase of L15.4 million relates
primarily to an
26
increase in our sales of kitchen and joinery products, offset by a decrease in
our sales of PVCu products. The increases in the sales of kitchen and joinery
products resulted primarily from an increase in the overall joinery market and
new kitchen product introductions.
OPERATING EXPENSES
Operating expenses consist of cost of goods sold, selling, general and
administrative expenses and depreciation and amortization. Total operating
expenses increased by approximately L39.7 million, or 8.0%, from L495.7 million,
or 92.9% of net sales, in fiscal 1997 to L535.4 million, or 91.4% of net sales,
in fiscal 1998.
COST OF GOODS SOLD. Cost of goods sold increased by approximately L24.2
million, or 6.9%, from L353.2 million, or 66.2% of net sales, in fiscal 1997 to
L377.4 million, or 64.4% of net sales, in fiscal 1998. Cost of goods sold from
food equipment activities increased by approximately L19.0 million. Of this
amount, L2.7 million was attributable to the acquisition of Aladdin in fiscal
1998, L6.4 million was attributable to the full year impact in fiscal 1998 of
Sammic, which was acquired during fiscal 1997, and L9.9 million was attributable
to existing operations. The increase of L9.9 million relates primarily to: (a)
an increase in our sales in the U.S., partially offset by benefits realized from
manufacturing efficiencies; (b) an increase in our sales in Europe; and (c) an
offsetting decrease in our sales in Asia. The decrease in cost of goods sold, as
a percentage of the related incremental revenue, is consistent with management's
expectations, given manufacturing efficiencies and product and geographical
composition. Cost of goods sold from building and consumer products activities
increased by approximately L4.6 million. Of this amount, L2.7 million was due to
the acquisition of C.P. Hart in fiscal 1998, and L1.9 million was from our
existing operations. The increase of L1.9 million relates primarily to increased
sales, partially offset by benefits realized from manufacturing efficiencies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by approximately L13.2 million, or 11.1%, from
L118.7 million, or 22.2% of net sales, in fiscal 1997 to L131.9 million, or
22.5% of net sales, in fiscal 1998. Selling, general and administrative expenses
for food equipment activities increased by approximately L4.7 million. This
increase was comprised of a L1.2 million increase from the acquisition of
Aladdin in fiscal 1998 and a L2.6 million increase from the full year impact in
fiscal 1998 of Sammic, which was acquired during fiscal 1997, and a L0.9 million
increase from our existing operations. Selling, general and administrative
expenses from building and consumer products activities increased by
approximately L8.0 million. Of this amount, L0.7 million was due to the
acquisition of C.P. Hart in fiscal 1998, and L7.3 million was from our existing
operations. The increase of L7.3 million primarily relates to increased selling
expenses in connection with new product introductions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
by approximately L2.3 million, or 9.7%, from L23.8 million, or 4.5% of net
sales, in fiscal 1997 to L26.1 million, or 4.5% of net sales, in fiscal 1998.
The increase was primarily due to the acquisitions of Aladdin and C.P. Hart in
fiscal 1998 and the full year impact in fiscal 1998 on depreciation and
amortization relating to Sammic, which was acquired in fiscal 1997.
OPERATING PROFIT
Operating profit increased by approximately L12.9 million, or 33.9%,
from L38.1 million, or 7.1% of net sales, in fiscal 1997 to L51.0 million, or
8.6% of net sales, in fiscal 1998. Operating profit is equal to net sales less
operating expenses.
27
INTEREST EXPENSE, NET
Interest expense, net remained constant at L9.6 million in fiscal 1997
and fiscal 1998, as our outstanding indebtedness also remained relatively
constant. The acquisitions of businesses during fiscal 1997 and 1998 were
accomplished primarily through the use of cash provided from previous
operations.
INCOME TAXES
Provision for income taxes increased by approximately L9.7 million, or
56.4%, from L17.2 million in fiscal 1997 to L26.9 million in fiscal 1998. The
increase was attributable to our deferred tax provision, which resulted
primarily from an increased utilization of our deferred tax assets during fiscal
1998 as compared to fiscal 1997. In addition, our effective tax rate also
increased by approximately 4.6% in fiscal 1998 as compared to fiscal 1997. This
increase was comprised of two components: an increase related to the amount of
losses for which no benefit may be taken, partially offset by a decrease
resulting from a lesser proportionate offset of non-deductible goodwill.
NET INCOME
Net income decreased by L21.2 million, or 56.5%, from L37.5 million in
fiscal 1997 to L16.3 million in fiscal 1998. Net income consists of operating
income plus other income, less interest expense, net and our provision for
income taxes, plus an extraordinary gain. The decrease in net income from fiscal
1997 to fiscal 1998 was attributable to an extraordinary gain of L24.9 million
recorded in fiscal 1997 relating to the early extinguishment of some of our
CULS. Income before extraordinary gain increased by L3.7 million, or 29.4%, from
L12.6 million in fiscal 1997 to L16.3 million in fiscal 1998. Income before
extraordinary gain consists of operating income plus other income, less interest
expense, net and our provision for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
The Company had cash and cash equivalents of L16.7 million at April 1,
2000, which decreased L10.0 million from cash and cash equivalents of L26.7
million at October 2, 1999. At April 1, 2000, the undrawn amounts available to
us under our revolving credit facility and short term lines of credit were
L150.3 million and L11.8 million, respectively. Our working capital balance of
L75.7 million at April 1, 2000 increased L0.6 million from the working capital
balance of L75.1 million at October 2, 1999. The overall increase in our working
capital was comprised of the following:
- Current assets decreased by L32.2 million, which was primarily
due to collection of trade receivables of L7.2 million and a
reduction in deferred income taxes of L17.1 million due to
utilization of tax loss carryforwards.
- Current liabilities decreased by L32.8 million. This decrease
was primarily attributable to a decrease in the current
portion of long term debt of L12.6 million and a reduction in
accrued expenses and other current liabilities of L32.8
million. The impact of these decreases was partially offset by
increases of L9.9 million in trade accounts payable and L2.9
million in income taxes payable.
We believe that our working capital is sufficient for our present
requirements.
28
CASH FLOWS
OPERATING ACTIVITIES. Net cash provided by operating activities
increased by approximately L34.9 million to approximately L67.8 million for half
year 2000 compared to L32.9 million for half year 1999. The increase was
primarily attributable to an increase of approximately L22.8 million in net
income, after adjustment for certain non cash items, including depreciation and
amortization of L28.4 million and deferred income taxes of L15.0 million. The
balance of the improvement in cash provided by operating activities is a result
of movements in our working capital. See "Working capital" above.
INVESTING ACTIVITIES. Cash used in investing activities increased by
approximately L27.5 million to approximately L40.7 million for half year 2000
compared to approximately L13.2 million for half year 1999. Components of this
increase were as follows:
- Approximately L18.5 million of the increase related to
acquisition-related spending. During half year 2000, we paid
approximately L27.6 million in relation to the acquisition of
Scotsman, which was accrued in fiscal 1999. A further L2.3
million was spent on other acquisitions. Since the end of half
year 2000, we have spent L16.7 million on acquisitions.
- Approximately L8.0 million of the increase was attributable to
increased capital expenditures. During half year 2000, we had
approximately L17.3 million of capital expenditures made in
the normal course of business as compared to L9.3 million
during half year 1999.
- Approximately L1.0 million of the increase resulted from a
decrease in proceeds from the sale of fixed assets during half
year 2000 as compared to half year 1999.
FINANCING ACTIVITIES. Cash used in financing activities for half year
2000 was approximately L33.4 million as compared to cash used in financing
activities of approximately L21.5 million for half year 1999, resulting in an
increase of approximately L11.9 million. The cash used in financing activities
primarily related to net repayments of debt and increased payment of dividends,
as follows:
- In half year 2000, we had net repayments of long term debt of
approximately L14.1 million as compared to net repayments of
long term debt in half year 1999 of approximately L11.4
million. This resulted in an increase in cash used in
financing activities of approximately L2.7 million in half
year 2000 as compared to half year 1999.
- In half year 2000, we paid dividends to shareholders of L18.1
million as compared to L9.6 million in half year 1999. This
resulted in an increase in cash used in financing activities
of approximately L8.5 million in half year 2000 as compared to
half year 1999.
MATERIAL FINANCIAL REQUIREMENTS
In connection with the Scotsman acquisition, we entered into a Credit
and Guaranty Agreement dated as of August 13, 1999, as amended. Under the
agreement, secured term loans in the aggregate principal amount of L376.1
million ($600.0 million) and a revolving multi-currency loan facility for up to
L188.1 million ($300.0 million) were extended to us. We used the proceeds of the
loans to acquire Scotsman, repay Scotsman debt and for general corporate
purposes. The loans are secured by liens on the capital stock of each of our
U.S. subsidiaries. Enodis and specified subsidiaries have also guaranteed
repayment of these loans. These loans bear interest at rates between 1.25% and
2.25% above Barclays Bank Plc's base rate as adjusted from time to time based on
agreed-upon financial ratios. The weighted
29
average interest rate for the term loan and revolving multi-currency loan
facility for the applicable period during fiscal 1999 was 7.44% and for half
year 2000 was 7.46%.
Minimum repayment of L31.3 million ($50.0 million) is due under the
Credit and Guaranty Agreement during fiscal 2000, and L78.4 million ($125.0
million) is due during each of the following three fiscal years. The loans will
mature in August 2004. At October 2, 1999 and June 22, 2000, the term loan was
fully drawn, and an aggregate amount of L43.1 million and L82.1 million,
respectively, was drawn under the revolving multi-currency facility. The
agreement contains restrictive covenants that limit our ability to incur
additional indebtedness, give guaranties, create liens on our properties, make
investments or loans, reorganize, merge, sell or purchase assets or
subsidiaries, enter into transactions with affiliates and the conduct of new
lines of business. It also requires the maintenance of specified financial
covenants including, but not limited to, a maximum leverage ratio, minimum
interest cover ratio and net worth. In addition, we are required to make
prepayments of these loans in the amount of 50% of our cash flow above specified
leverage ratios and 100% of any net asset sale proceeds, as defined in the
agreement, in excess of L31.3 million ($50.0 million). We were in compliance
with those covenants as of October 2, 1999 and continue to be in compliance
through the date of this registration statement.
We issued 5.0% convertible unsecured loan stock due 2015 under the CULS
Deed Poll dated January 23, 1995. At October 2, 1999 L94.4 million of CULS were
outstanding. Subsequently, L93.3 million of the CULS were converted at the rate
of 40.816 ordinary shares for every 100 pounds of CULS into 38,100,937 ordinary
shares. In addition, the remaining outstanding CULS were redeemed on February
26, 2000 at a cost of L1.1 million. As a result, since February 26, 2000, no
CULS have been outstanding.
We have also borrowed funds under industrial revenue bonds, which bear
interest at rates that are adjusted based on market movements and were between
3.0% and 6.3% during half year 2000 compared to 3.5% and 6.1% during fiscal
1999. At April 1, 2000 and October 2, 1999, respectively, an aggregate of L14.9
million and L14.3 million was outstanding under the industrial revenue bonds.
FOREIGN CURRENCY AND INTEREST RATE INFORMATION
Approximately 99.5% and 78.0% of our long term indebtedness at April 1,
2000 and October 2, 1999 accrued interest at rates that fluctuate with
prevailing interest rates and, accordingly, increases in these rates may
increase our interest payment obligations. From time to time, we enter into
hedging transactions with financial institutions in order to manage our floating
interest rate exposure. Our interest rate hedging contracts are described in
"Item 11. Quantitative and Qualitative Disclosures About Market Risk."
Substantial portions of our revenues and expenses are denominated in
currencies other than pounds, especially the U.S. dollar. Fluctuations in the
values of these currencies compared to the pound may affect our financial
condition and results of operations. In order to mitigate the impact of
fluctuations in foreign currencies we may enter into forward exchange contracts.
At April 1, 2000 and October 2, 1999, we had foreign currency forward contracts
maturing at various dates to sell L17.0 million and L12.7 million, respectively,
in various foreign currencies. The fair value of the forward contracts is the
amount that we would receive or pay to terminate the contracts. The loss to us
to terminate these agreements at April 1, 2000 and October 2, 1999 would have
been approximately L0.0 million and L0.2 million, respectively.
30
COMMITMENTS
At October 2, 1999, we had outstanding contracts to purchase fixed assets
of approximately L8.0 million. At April 1, 2000, our outstanding commitments had
not changed materially. We expect to fund these commitments using working
capital.
RESEARCH AND DEVELOPMENT
We expense research and development costs as they are incurred. Research
and development expenditures for fiscal years 1999, 1998 and 1997 were L8.9
million, L7.0 million and L7.8 million, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
Our adoption of recent accounting pronouncements is described in Note 1 to
our audited consolidated financial statements.
CURRENT FINANCIAL AND TREND INFORMATION
As a consolidated group, we expect the second half of fiscal 2000 to yield
improved net sales and operating profits as compared to the second half of
fiscal 1999, primarily due to the effect of the Scotsman acquisition.
We expect that our food equipment business will benefit from growth in the
U.S. market, with slight increases in activity in Europe and a continued rebound
in Asia. Our pursuit of operating efficiencies should improve operating margins,
particularly of recently acquired businesses that were operating at lower levels
of profitability prior to acquisition. We expect to benefit from efficiencies of
scale from the integration of Scotsman, including from closing Scotsman's
headquarters and four factories. In addition, the combination of Scotsman and
Welbilt volumes for commonly purchased components have resulted in cost
reductions, the benefits of which will begin to be evident in the second half of
fiscal 2000. However, refrigerated display case product sales continue at
subdued levels following the sharp reduction in sales volumes just prior to the
acquisition of this product line as part of the Scotsman acquisition.
Our building and consumer products segment is benefitting from a mixture of
factors. Sales of our kitchen and bathroom products continue to improve in an
expanding market. Average order sizes are increasing as our customers continue
to purchase our higher quality, higher featured products. The joinery segment is
facing tough competition in the face of oversupply in both the manufacturing and
merchant channels. We believe that maintaining our approach of addressing the
broader needs of the small local builder rather than pursuing low margin
commodity sales will yield the best results in this challenging environment.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
BOARD OF DIRECTORS
The members of our Board of Directors, their ages, business backgrounds and
positions and term of service with us are described below.
31
PETER M. BROOKS, 53, is our Chairman, a non-executive position, and
Chairman of our Nominations Committee. He also serves on our Audit and
Remuneration Committees. Mr. Brooks joined our Board as a non-executive director
in May 1998 and became our Chairman in January 2000. He is also a consultant to
Clifford Chance, LLP, where he has acted as Chairman of European Corporate
Coverage since June 1999. From 1992 to 1996, he was Head of Corporate Practice
at Clifford Chance. In January 1997, he became General Counsel of Deutsche
Morgan Grenfell. From January 1998 to February 4, 1999, Mr. Brooks was General
Counsel to the Board of the Global Corporate and Institutions Division at
Deutsche Bank Group. Mr. Brooks is currently a director of NCL Holding ASA. Mr.
Brooks' current term of service on our Board of Directors expires in January
2002.
PENNY L. HUGHES, 40, is a non-executive Director and the Chairman of our
Remuneration Committee. She also serves on our Audit Committee. Ms. Hughes
joined our Board as a non-executive director in March 1996. Since June 1995, she
has been a director of Hughes Business Consulting. From 1992 to 1994, Ms. Hughes
was President, The Coca-Cola Company Great Britain and Ireland. She is Chairman
of Web-angel plc and is a non-executive director of Trinity Mirror plc, The Body
Shop International plc, Vodafone Airtouch plc, Scandinaviska Enskilda Banken AB
and University of Sheffield Careers Advisory Board. She is also a Trustee of St.
George's Hall Charitable Trust (Liverpool). Ms. Hughes' current term of service
on our Board of Directors expires in January 2003.
G. ERYL MORRIS, 56, is a non-executive and Senior Independent Director and
the Chairman of our Audit Committee. He also serves on our Remuneration
Committee. Mr. Morris joined our Board as a non-executive director in July 1998.
He is Chairman of Safetynet Group Limited and Airinmar Limited, Deputy Chairman
of Blagden plc and a non-executive director of Anglian Water plc. From 1970 to
1998, Mr. Morris was employed by Courtaulds plc, becoming a director in 1981 and
Deputy Chief Executive in 1996. Mr. Morris' current term of service on our Board
of Directors expires in January 2002.
WALDEMAR SCHMIDT, 60, was appointed a non-executive Director of our Board
and a member of our Nominations Committee in April 2000. He has been Chief
Executive of ISS Group since October 1995 and has been employed by ISS since
1973. Mr. Schmidt is also a member of IMD's Foundation Board, Chairman of
Superfos A/S and Chairman of Tholstrup Cheese Holding A/S. Mr. Schmidt's current
term of service expires on our Board of Directors in January 2004, assuming that
his appointment is approved by shareholders at our January 2001 annual general
meeting.
DAVID W. WILLIAMS, 42, was appointed to our Board in September 1997 and was
appointed Chief Executive in May 1999. He is a member of our Nominations
Committee. He joined us as Managing Director of Magnet Limited in July 1996.
From 1994 to 1996, he was Managing Director of the Potterton Myson division of
Blue Circle Industries plc, having previously been Business Development Director
for Blue Circle's European Home Products Business since 1990. Mr. Williams was
elected by the shareholders for a term of service that expires in January 2003,
although under his employment agreement, he may be terminated upon 12 months'
notice.
ANDREW F. ROAKE, 48, was appointed to our Board in September 1997 joining
us as Chief Executive of Welbilt Corporation in the U.S. He became our Chief
Operating Officer in January 2000. From 1993 to 1995, he was Vice-President of
the Electrical Products Division of Raychem Corporation in California, and from
1995 to 1997 he was Vice-President Corporate Development of Raychem. Previously,
he served various Raychem affiliates in executive capacities since 1982 in
Canada and Germany. Mr. Roake was elected by the shareholders for a term of
service that expires in January 2001, although under his employment agreement,
he may be terminated upon 12 months' notice.
32
JONATHAN P. FINDLER, 47, was appointed to our Board as Finance Director in
July 1996. From 1994 to 1996, he was Finance Director of the John Crane Division
of TI Group plc and prior to that held a number of senior international
financial positions with Raychem Corporation in Belgium, the U.K. and the U.S.
Mr. Findler was elected by the shareholders for a term of service that expires
in January 2002, although under his employment agreement, he may be terminated
upon 12 months' notice.
OPERATING PRESIDENTS AND SENIOR CORPORATE OFFICERS
NAME POSITION
LOU AGATHOS President, Food Retail Division North America
ANDREW AIREY Director, Food Equipment Europe
KEN BRAY Deputy Managing Director, Magnet Limited
PATRICK CLARK Chief Financial Officer, Food Equipment North America
PETER SPENCER Managing Director, Scotsman Beverage Systems
GARY FAVELL Managing Director, Magnet Limited
DAVID HOOPER Company Secretary
JANE KINGSTON Group Head of HR and Change Management
CHUCK LABANICS Executive Vice President, Manufacturing Group
EMANUELE LANZANI Managing Director, Frimont S.p.A. and Castel MAC S.p.A. - Italy and
Scotsman Ice Systems - China and Singapore
PAUL LEE Director, Corporate Control
DAVID MCCULLOCH President, Welbilt Specification Group (NA)
NEILD MCINTOSH Managing Director, Austral Refrigeration Group - Australia
DAVID MOSTELLER President, Welbilt Chains Group (NA)
ROBERT TONER Director, Corporate Planning
MARK WHITELING Chief Financial Officer, Food Equipment Europe & International
DAVID WRENCH Executive Vice President, Manufacturing Group
DIRECTOR COMPENSATION
COMPENSATION TABLE
The compensation of each of our directors in fiscal 1999 (excluding pension
costs), including the highest paid director, is shown below. Stock option plan
benefits are not shown in this table. They are shown in the tables below under
"Director Stock Options."
33
NAME SALARY FEES BONUSES(1) BENEFITS(2) TOTAL
L L L L L
Alan J. Bowkett(3) 206,839 -- 105,000 11,078 322,917
Peter M. Brooks -- 25,000 -- -- 25,000
Jonathan P. Findler(4) 208,000 -- 195,600 14,818 418,418
Penny L. Hughes -- 25,000 -- -- 25,000
G. Eryl Morris -- 25,000 -- -- 25,000
Denis J. Mulhall(5) 223,600 -- 206,520 11,834 441,954
Andrew F. Roake(4) 255,214 -- 228,650 7,362 491,226
John R. Sclater(6) -- 65,000 -- 10,890 75,890
David W. Williams(4) 202,320 -- 191,624 8,710 402,654
- --------------------
1. Bonuses paid by reference to achievement of budgeted financial
targets, as approved by the Remuneration Committee. Bonuses are not
included in pensionable salary. During fiscal 1999, a special bonus of
L50,000 was paid to each executive director in office in recognition
of their efforts in achieving the acquisition of Scotsman.
2. Benefits are not included in pensionable salary. Benefits shown
include automobile expenses, health insurance and use of mobile
phones. All pension benefit information is excluded and described
below. Further, no benefit has been included in the table for options
granted under the various Executive Schemes discussed below.
3. Mr. Bowkett resigned from the Board on May 13, 1999. In addition, Mr.
Bowkett was paid L88,669 during his three month period of employment
with us subsequent to his resignation as a director.
4. Compensation is paid under an employment agreement terminable by us
upon 12 months' notice.
5. Mr. Mulhall resigned from the Board on December 31, 1999.
6. Mr. Sclater resigned from the Board on January 19, 2000.
Each of our executive officers is employed under a service contract. The
terms of the service contracts are described under "Item 10. Additional
Information -- Material Contracts."
COMPENSATION PLANS
We have two Executive Share Option Schemes under which options to purchase
ordinary shares may be granted to executives: the Berisford 1995 Executive Share
Option Scheme, which uses new shares, and the Berisford 1993 Executive Share
Option Scheme, which uses shares purchased by an employee share trust. For more
information about the employee share trust, see "Item 10. Additional Information
- -- Share Capital." Both of the current schemes have a part approved by the U.K.
Inland Revenue and an unapproved part. Options under both of the current schemes
must be granted at not less than the market price of an ordinary share on the
date of grant. Options may not normally be exercised until the third anniversary
of the date of grant and are subject to performance conditions. Gross gains on
exercise of Inland Revenue approved options are normally subject to U.K. capital
gains tax on disposal of the shares acquired. Gross gains on exercise of
unapproved options are subject to U.K. income tax. Additionally, options are
outstanding under the 1984 Executive Share Option Scheme under which no further
options can be granted. All of these options are exercisable and were granted at
not less than the market price of an ordinary share on the date of grant. No
more than a total of 10% of our outstanding shares can be granted under our
option schemes at the date of any grant.
The performance condition set by the Remuneration Committee for the options
granted between March 1995 and the end of fiscal 1999 was that in normal
circumstances options will be exercisable only if the increase in our adjusted
earnings per share has exceeded the growth in the Retail Price Index by an
average of at least 2% per annum over a three year period. Following the
publication in 1999 of revised institutional recommendations, grants in fiscal
2000 and later will impose more challenging performance conditions, which take
into account these recommendations. Performance conditions are designed to
34
make new options exercisable only if there has been a significant and sustained
improvement in our financial performance.
Executive directors are provided with a company car, medical insurance,
disability insurance and mobile phones. In addition, all U.K. employees,
including executive directors residing in the U.K., are eligible to participate
in our 1992 savings-related share option scheme.
Executive directors residing in the U.K. are also eligible to join a
tax-approved defined-benefits plan that is part of the Berisford (1948) Pension
Scheme. The plan is non-contributory and provides for a pension of up to
two-thirds of final salary up to the Inland Revenue earnings cap at normal
retirement age of 60 after 20 years' service. Funded Unapproved Retirement
Benefits Schemes provide additional retirement and death benefits for the U.K.
executive directors. These are money-purchase arrangements. For U.K. executive
directors, we contribute 30% of pensionable salary in excess of the Inland
Revenue earnings cap and pay additional life assurance premiums and all expenses
incurred in administering the arrangements.
SHARE OPTIONS OF MANAGEMENT
The following tables describe the options to purchase ordinary shares
granted to and exercised by directors during fiscal 1999 and held by them at
October 2, 1999, as well as the exercise price, date of vesting and expiration
date of these options. In the two tables below, the exercise prices have been
rounded to the nearest 0.1p. The 1995, 1993 and 1984 Executive Share Option
schemes, shown in the first table are open to other employees at the discretion
of the Board. The 1992 savings related scheme, shown in the second table is open
to all U.K. employees.
AT 10/2/99
NUMBER OF OPTIONS (OR EARLIER EARLIEST DATE EXPIRATION
DIRECTOR GRANTED EXERCISED RESIGNATION) EXERCISE PRICE EXERCISABLE DATE
Alan J. Bowkett (resigned 0 0 1,614,337 61.9p 01/28/95 01/28/02
May 13, 1999) 0 0 86,956(2) 230.0p 08/12/99 08/12/00
Jonathan P. Findler 0 0 198,924 186.0p 07/22/99 07/22/06
0 0 256,944(2) 144.0p 07/01/00 07/01/07
0 0 26,086(2) 230.0p 06/26/01 06/26/08
Denis J. Mulhall 0 104,040(1) 0 223.0p n/a n/a
(resigned December 31, 0 225,944(1) 0 207.1p n/a n/a
1999) 0 0 69,444(2) 144.0p 01/01/00 12/31/00
0 0 26,086(2) 230.0p 01/01/00 12/31/00
Andrew F. Roake 0 0 254,802 187.5p 11/28/00 11/28/07
137,935 0 137,935 180.0p 11/17/01 11/17/08
David W. Williams 0 0 123,655 186.0p 07/22/99 07/22/06
0 0 159,722(2) 144.0p 07/01/00 07/01/07
0 0 52,173(2) 230.0p 06/26/01 06/26/08
83,333(2) 0 83,333(2) 301.5p 09/03/02 09/03/09
- --------------------
(1) The market price at the date of exercise of these options was 296p.
(2) Options granted by the Trustees of our Executive Share Option Scheme over
our ordinary shares acquired by the Trustees for the purpose.
35
AT 10/2/99
NUMBER OF OPTIONS (OR EARLIER EARLIEST DATE EXPIRATION
DIRECTOR GRANTED EXERCISED RESIGNATION) EXERCISE PRICE EXERCISABLE DATE
Alan J. Bowkett (resigned 0 0 11,431 150.9p 09/01/99 03/01/00
May 13, 1999)
Denis J. Mulhall (resigned 0 0 6,517 158.8p 09/01/01 03/01/02
December 31, 1999) 0 0 6,160 112.0p 09/01/02 03/01/03
David W. Williams 0 0 8,510 202.7p 09/01/03 03/01/04
DIRECTORS' PENSION INFORMATION
The following table relates to the defined benefit arrangements for the
executive directors residing in the U.K. as of October 2, 1999.
INCREASE IN ACCRUED ACCUMULATED TOTAL
YEARS PENSION DURING TRANSFER VALUE PENSION AT
NAME OF SERVICE FISCAL 1999 (L) OF INCREASE (L) OCTOBER 2, 1999 (L)
---- ---------- --------------- --------------- -------------------
Alan J. Bowkett 7 11,400 142,000 75,400
(resigned May 13, 1999)
Jonathan P. Findler 3 3,200 35,700 9,700
Denis J. Mulhall 6 3,400 39,400 18,800
(resigned December 31, 1999)
David W. Williams 3 3,000 27,000 9,300
The transfer values disclosed above do not represent a sum paid or payable
to the individual director. Instead, they represent a potential liability of the
pension scheme. In addition, we paid sums of L35,670, L42,600, L26,737 and
L21,660 in fiscal 1999 to unapproved money purchase arrangements for the benefit
of Messrs. Findler, Mulhall, Roake and Williams respectively. See Note 10 to our
audited consolidated financial statements.
BOARD PRACTICES
TERMS OF OFFICE
Non-executive directors are appointed by the Board for an initial term of
five years, but the directors' appointments are subject to approval by
shareholders at the first opportunity after their appointment, and to
re-election thereafter by our shareholders at least every three years in
accordance with our Articles of Association. The period during which each
director has served and the date of expiration of his term are shown above under
the heading "Board of Directors."
COMMITTEES OF THE BOARD
The Nominations Committee undertakes the search process and recommends
candidates to the Board as necessary. The Committee's Chairman is Peter Brooks,
who serves together with David Williams and Waldemar Schmidt.
The Audit Committee monitors accounting policies and financial reporting
and reviews the half- yearly and annual accounts before they are presented to
the Board. It also maintains a liaison with external auditors and keeps under
review the scope and results of the audit and its cost effectiveness and
36
the independence and objectivity of the auditors, taking into account where
necessary any non-audit services provided to Enodis by its auditors. The
Committee's Chairman is Eryl Morris, who serves together with Peter Brooks and
Penny Hughes. The Audit Committee must be comprised solely of non- executive
Directors and consist of not less than three members. Generally, the Audit
Committee meets not less than three times each year. Other Directors and
executives may attend Audit Committee meetings by invitation.
The Remuneration Committee reviews and advises upon the remuneration and
benefits packages of the executive Directors, and it reports to the full Board.
The fees of the non-executive Directors are determined by the full Board. The
Committee is advised and assisted as required by external consultants. The
Committee's Chairman is Penny Hughes, who serves together with Peter Brooks and
Eryl Morris.
The Committee's remuneration policy is designed to attract, retain and
motivate our senior executives. It provides for a compensation package which is
both locally, and, where relevant, internationally competitive and which
reflects market value, sustained individual performance, job responsibility and
our financial performance measured against financial objectives. The
remuneration package consists of short term rewards (base salary, benefits and
annual bonus) together with a significant proportion of longer-term benefits
provided by share options and pension arrangements. We report our policy to our
shareholders annually.
EMPLOYEES
At the end of fiscal 1999 and 1998, we had the following employees:
OCTOBER 2, SEPTEMBER 26,
SEGMENT 1999 1998
- ------- ------ -----
Food Equipment:
North America 6,448 3,045
Rest of World 2,416 734
Building and Consumer Products 2,387 2,495
------- -------
TOTAL 11,251 6,274
====== ======
As a result of the acquisition of Scotsman, our workforce almost doubled.
About 2,400 of our employees in North America are covered by collective
bargaining agreements.
SHARE OWNERSHIP OF MANAGEMENT
As of June 22, 2000 (or earlier resignation), the persons described in the
Compensation Table above owned ordinary shares as shown below. The options to
purchase ordinary shares held by these persons are described in the option
tables above and are not included in the figures shown in the table below.
NAME SHARES PERCENT OF CLASS
- ---- ------ ----------------
Alan J. Bowkett(1) 2,000,000 *
Peter M. Brooks 10,000 *
Jonathan P. Findler 37,244 *
Penny L. Hughes 2,000 *
G. Eryl Morris 10,000 *
Denis J. Mulhall(1) 67,776 *
Andrew F. Roake 100,000 *
37
John R. Sclater(1) 10,848 *
David W. Williams 3,841 *
- --------------------
* Less than 1%.
(1) Messrs. Bowkett, Mulhall and Sclater resigned from the Board as of May 13,
1999, December 31, 1999 and January 19, 2000, respectively.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
MAJOR SHAREHOLDERS
The number of our ordinary shares outstanding at June 22, 2000 was
249,756,862, held by 6,706 holders of record. 245,894,401 of the ordinary
shares, or 98.5%, are held by residents of the U.K., and 18 holders of record,
holding 3,576,531 ordinary shares, reside in the U.S. We also believe, based on
our own inquiries, that, as of May 31, 2000, the following persons have holdings
of 3% or more of our outstanding ordinary share capital:
NAME SHARES PERCENT OF CLASS
Schroder Investment Management Ltd 20,151,485 8.07%
M & G Investment Management Ltd 17,384,932 6.96%
Standard Life Investments Limited 12,219,220 4.89%
Scottish Widows Investment Partnership Ltd 12,026,920 4.82%
Marathon Asset Management Ltd 11,321,977 4.53%
Phillips & Drew Fund Management Ltd 10,339,477 4.14%
Fidelity Investment Management Ltd 8,904,537 3.57%
All of these holders have increased their ownership of our ordinary shares
during the past three years, except that the ownership of Phillips & Drew and
Fidelity have decreased. In addition, several entities that had held more than
3% (but none held more than 6%) of our outstanding ordinary shares in fiscal
1998 or 1997 now hold less than 3% of our outstanding ordinary shares. None of
the holders with 3% or more of our ordinary shares has different voting rights
from other holders of ordinary shares. To our knowledge, we are not controlled,
directly or indirectly, by any corporation, foreign government or any other
natural or legal person or group of persons.
ITEM 8. FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The financial statements required by this Item 8 are found immediately
following Item 19. After April 1, 2000, we acquired Merrychef. See Note 9 to our
unaudited consolidated financial statements.
LEGAL PROCEEDINGS
MATERIAL LAWSUITS
In 1996 Bomar Resources Holdings Inc. ("BRHI"), among others, brought an
action against us in the U.S. Federal District Court for the Southern District
of New York for indemnification against various third party claims. We granted
the indemnity in connection with the 1988 sale of our former subsidiary,
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Bomar Resources Inc. ("Bomar"), to BRHI's predecessors. In September 1999, the
jury found us liable to indemnify BRHI for L1.1 million ($1.8 million) plus
interest, and for 50% of BRHI's future costs and damages which may result from a
separate action in New York federal court against Bomar brought by International
Mineral and Resources, S.A. (the "IMR action"), concerning Bomar's interference
with IMR's contract to purchase a shipping vessel in 1987. We moved to set aside
the verdict against us and for judgment in our favor. On May 26, 2000, the court
heard oral argument on the motion and received supplemental briefs on June 6
and June 9, 2000.
Separately, in October 1999, judgment was entered against Bomar and other
defendants in the IMR action, holding Bomar liable to IMR for L26.6 million
($42.5 million). This amount was subsequently reduced to approximately L23.7
million ($37.7 million). We have been advised that Bomar has appealed the amount
of this judgment.
In January 2000, IMR and a related entity commenced proceedings
against us, BRHI and others in New York State court. In the state court
action, plaintiffs assert claims against us arising from the indemnity under
which we were held liable for BRHI's damages in the District Court action.
Despite the finding of only 50% liability in that case, plaintiffs seek to
recover from us the entire judgment rendered against Bomar in the IMR action.
In addition, plaintiffs assert causes of action against us for fraudulent
conveyance based on New York's Debtor and Creditor Law. As to these claims,
plaintiffs allege that while Bomar was defendant in the IMR action, it
conveyed L18.8 million ($30.0 million) to us without fair consideration.
Plaintiffs seek to recover the sum of the alleged fraudulent conveyance from
us to partially satisfy the judgment against Bomar in the IMR action. We have
moved the court to dismiss the state court action. On June 23, 2000 the court
heard oral argument on the motion. To the extent that Bomar succeeds, on its
appeal in the IMR action, in reducing the amount of the L23.7 million ($37.7
million) judgment against it, the amount being sought by IMR from us in the
state court action would be reduced accordingly.
In January 1999, William L. Hall commenced proceedings against Welbilt and
Welbilt Holding Company in the U.S. District Court for the Northern District of
Indiana claiming common law fraud, violation of the federal and Indiana
securities laws, constructive fraud and breach of contract arising from the sale
of the stock of Consolidated Industries Corp. ("Consolidated") by Welbilt
Holding to Mr. Hall in January 1998 under a stock purchase agreement dated
January 6, 1998. Welbilt asserted counterclaims for breach of contract and
declaratory relief that Welbilt is relieved of any future obligations it may
have under the stock purchase agreement. Mr. Hall claimed an unspecified amount
of actual damages but asserted that his damages include the purchase price for
Consolidated of L4.4 million ($7.0 million). On March 1, 2000, Welbilt moved for
summary judgment dismissing all of Hall's claims. The court granted summary
judgment in favor of Welbilt on May 8, 2000. Hall has filed an appeal.
In May 1999, Consolidated, then a debtor in bankruptcy, commenced
proceedings against Welbilt in the U.S. Bankruptcy Court for the Northern
District of Indiana alleging that fraudulent transfers had occurred from
Consolidated to Welbilt, that Welbilt had acted in breach of its fiduciary duty
to Consolidated and that Welbilt was the "alter ego" of Consolidated and is
therefore liable for all of Consolidated's debts. Consolidated is a defendant in
a putative class action commenced in December 1997 in Indiana state court
seeking damages against Consolidated on behalf of the class for manufacturing
and selling allegedly defective furnaces. By operation of bankruptcy law and
procedure, the Indiana case was removed from the state court to the bankruptcy
court. An attempt by the plaintiffs in that action to assert a claim against
Welbilt on the alter ego theory was denied without prejudice by the bankruptcy
court on procedural grounds. Consolidated is also a defendant in a certified
class action in California, which claims that furnaces manufactured by it were
defective.
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The Trane Company, a division of American Standard Inc., had threatened to
commence an action against Welbilt seeking to hold it liable for Consolidated's
obligations to Trane on the same alter ego theory posited by Consolidated. In
March 2000, Welbilt filed an action against Trane in Delaware Chancery Court for
a declaratory judgment and injunctive relief concerning the alter ego theory. On
February 29, 2000, Trane commenced an action in Texas state court involving the
same issues. Welbilt has filed a special appearance in the Texas court objecting
to the court's jurisdiction and asserting that the claims should be heard in
Delaware, where Welbilt, Welbilt Holding and American Standard are incorporated.
We are vigorously contesting or pursuing, as applicable, the
above-described lawsuits and claims. We record, on our financial statements,
losses that we consider to be probable and reasonably estimable. Based upon our
current assessments of these lawsuits and claims and the capital resources
available to us, we believe that the ultimate resolution of these lawsuits and
claims would not exceed, by a material amount, the aggregate of the amounts
accrued in respect of these lawsuits. Therefore, the resolution of these
lawsuits should not have a material effect on our financial condition, liquidity
or results of operations. However, due to the uncertainties involved in
litigation, there are cases, including certain of the claims described above, in
which either the outcome is not reasonably predictable or losses, if any, are
not reasonably estimable. If the above-described lawsuits and claims were
ultimately determined in a manner adverse to us, and in amounts in excess of our
accruals, it is reasonably possible that those determinations could have a
material effect on our net income in a given reporting period. The term
"reasonably possible" as used in the preceding sentence means that the chance of
a future transaction or event occurring is more than remote but less than
likely.
OTHER
We are routinely a defendant in litigations involving product liability
claims. These litigations are generally covered by insurance. From time to time,
one of our subsidiaries may be named as a potentially responsible party under
the U.S. Comprehensive Environmental Response, Compensation and Liability Act or
similar state statutes in connection with hazardous waste sites. We do not
believe that any liability which might be imposed on us in connection with these
environmental proceedings, either individually or in the aggregate, will have a
material adverse effect upon our business or financial condition.
DIVIDEND POLICY
For fiscal 1999, we paid dividends of an aggregate of 12.5 pence per share,
as compared with dividends of 9.5 pence per share for 1998. In fiscal 2000, we
paid an interim dividend of 4.4 pence per share, as compared with an interim
dividend in fiscal 1999 of 4.0 pence per share.
Our policy is to distribute a portion of our after-tax profits to
shareholders by way of payments of dividends. Payments are usually made twice
each fiscal year. We make an interim payment each year following the publication
of our financial results for the half year ended on March 31. We make a final
dividend payment following the approval by our shareholders of the Board's
recommendation of the final dividend amount at our annual general meeting.
In deciding upon the amount of the interim payment and in formulating its
final dividend recommendation to shareholders, the Board considers, among other
things, the ongoing level of profits anticipated from our business, our cash
needs, shareholder expectations and prospects for further investment in growth
initiatives.
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ITEM 9. THE OFFER AND LISTING
We are registering our American Depository Shares ("ADSs") in the U.S. in
this registration statement, and each ADS will represent four ordinary shares.
We have also applied to list the ADSs on the NYSE under the ticker symbol "ENO".
There will be no offering of new ADSs, and we will not receive any proceeds from
registering and listing the ADSs. We will bear the expenses and fees of the
depositary and the NYSE in connection with sponsoring the listing. Our ordinary
shares are listed on the Official List of the London Stock Exchange, and
currently no U.S. trading market for the ordinary shares exists. A description
of rights and restrictions relating to the ordinary shares is set forth under
"Item 10. Additional Information -- Share Capital."
The ADSs have never been listed or traded on any market, and we cannot
promise that, even if an active trading market does develop, the price of the
ADSs will be proportional to the price of the ordinary shares on the London
Stock Exchange. For your information, however, the following table sets forth,
for the periods indicated, the high and low closing middle-market prices of our
ordinary shares, in pence, derived from the Daily Official List of the London
Stock Exchange.
MARKET PRICES (IN PENCE)
FISCAL YEAR ENDED HIGH LOW
- ----------------- ---- ---
September 30, 1995 275.0 164.0
September 28, 1996 222.0 103.5
September 27, 1997 172.5 103.0
September 26, 1998 260.0 161.5
October 2, 1999 (53 weeks) 327.0 155.0
FISCAL YEAR ENDED SEPTEMBER 26, 1998
First Quarter 201.5 162.0
Second Quarter 230.5 181.5
Third Quarter 260.0 211.5
Fourth Quarter 237.5 161.5
FISCAL YEAR ENDED OCTOBER 2, 1999
First Quarter 192.5 155.0
Second Quarter 220.5 167.0
Third Quarter 260.5 218.5
Fourth Quarter 327.0 238.5
FISCAL YEAR ENDING SEPTEMBER 30, 2000
First Quarter 338.5 276.5
Second Quarter 356.5 262.0
Third Quarter (through June 22, 2000) 333.5 301.5
CALENDAR MONTH
December 1999 338.5 317.0
January 2000 356.5 293.5
February 2000 297.5 267.5
March 2000 305.5 262.0
April 2000 320.0 301.5
May 2000 333.5 307.5
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On June 22, 2000, the closing middle-market price of our ordinary shares,
as derived from the Daily Official List of the London Stock Exchange was 322.0
pence per share.
The ADSs will be in registered form. The Bank of New York has agreed to act
as depositary and registrar for the American Depositary Receipts ("ADRs") that
will evidence the ADSs. We have applied to list 67,555,347 ADSs on the NYSE.
Each ADS will represent four ordinary shares. We cannot promise that the NYSE
will approve our application or list any of our ADSs, but we hope to obtain
approval for the listing during June 2000. If the NYSE does not approve our
application, we would consider listing the ADSs on another U.S. trading market.
After the registration of the ADSs is approved by the SEC and upon listing, we
will issue a press release in the U.S. to announce the commencement of trading.
Once the ADSs are registered and listed, holders of ordinary shares will be
able to deposit their shares and receive ADSs through the depositary, and
investors will be able to purchase ADSs, at prevailing prices, through brokers
authorized to transact business on the NYSE. A complete description of the
arrangements for transfer, the restrictions on free transferability and other
rights and restrictions of our ADSs is set forth under "Item 12. Description of
Securities Other than Equity Securities."
ITEM 10. ADDITIONAL INFORMATION
SHARE CAPITAL
Our authorized share capital is L172,100,000, divided into 344,200,000
ordinary shares, nominal value 50 pence each. Of these, 249,694,873 and
249,756,862 were issued and outstanding on April 1, 2000 and June 22, 2000,
respectively. All of the issued and outstanding ordinary shares are duly
authorized, validly issued and fully paid.
1,477,341 ordinary shares are held in an independently managed Executive
Share Option Plan (the "EXSOP trust"). The EXSOP trust was established in 1994
to purchase shares to meet some of the future obligations under our 1993
employee option scheme. Shares are distributed to employees upon exercise of
options held by them and payment by them of the exercise price. We finance the
EXSOP trust by way of an interest free loan of L3.1 million. The EXSOP trust has
waived the right to receive dividends on all shares held. See Note 13 to our
audited consolidated financial statements.
RECONCILIATION OF CHANGE IN ORDINARY SHARES AND CULS ORDINARY SHARES CULS
DURING FISCAL 1999:
At September 26, 1998 153,186,805 230,423,515
Exercise of share options under the Sharesave Scheme (1992) 417,553 --
Exercise of share options under the Executive Scheme (1984) 2,259,894 --
Exercise of share options under the Executive Scheme (1995) 175,387 --
Conversion of CULS into ordinary shares 55,513,488 (136,009,136)
AT OCTOBER 2, 1999 211,553,127 94,414,379
The proceeds of the exercise of options in fiscal 1999 amounted to L2.7m.
During fiscal 2000, CULS with a nominal value of L93,348,044 were converted into
38,100,937 ordinary shares. On February 26, 2000, all remaining CULS were
redeemed at a cost of L1,066,335. In addition, during
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fiscal 2000, through June 22, 2000, an additional 102,798 options to purchase
ordinary shares were exercised, yielding exercise proceeds of L129,000.
In addition to the issuances of ordinary shares described above, during
fiscal 1998, we issued 400,554 ordinary shares upon the exercise of options and
94,300 ordinary shares upon the conversion of L231,040 of CULS. During fiscal
1997, we issued 114,947 ordinary shares upon the exercise of options and 15,475
ordinary shares upon the conversion of L37,917 of CULS. The proceeds of the
exercise of options in fiscal 1998 amounted to L387,000.
Except for the issuances upon the exercise of stock options and conversion
of CULS, as described above, we have not issued any share capital for the last
three years.
More than 10% of outstanding shares have been issued in the past five years
upon conversion of CULS into ordinary shares. We do not hold any shares in
treasury. All of our issued ordinary share capital is in registered form and is
freely transferable. At June 22, 2000, 4,511,162 ordinary shares were issuable
under outstanding employee or director stock options. See "Item 6. Directors,
Senior Management and Employees -- Director Compensation."
On June 12, 2000, a committee of our Board passed a resolution approving
the issuance of ADSs, the listing of 67,555,347 of our ADSs on the New York
Stock Exchange, the execution of a deposit agreement and other arrangements with
the Bank of New York and other matters in connection with our ADR program.
MEMORANDUM AND ARTICLES OF ASSOCIATION
Enodis is registered as Company No. 109849 with The Registrar of Companies
for England and Wales. Our objects and purposes are to carry on, directly or
indirectly, any trade or business whatsoever, whether manufacturing or
otherwise, which may seem, in the opinion of the Board of Directors, to be
capable of being conveniently or advantageously carried on by the Company. Our
objects and purposes can be found, and are more particularly described, in
clauses 4(A) through 4(D) of our Memorandum of Association, which has been filed
as an exhibit to this registration statement.
A director generally may not vote upon any proposal, arrangement or
contract before the Board in which he or she has a material interest. A director
is not counted towards the quorum with respect to a Board resolution on which he
or she may not vote. Executive directors are not permitted to receive fees for
serving as a director. The Board determines director fees for the non-executive
directors, which fees shall not exceed L300,000 per year in the aggregate or a
larger amount that the shareholders may approve by ordinary resolution. Our
Board exercises our borrowing powers, except that the shareholders, by ordinary
resolution, must approve all borrowings in excess of three times the aggregate
of the amount, calculated as of the date of our latest audited consolidated
balance sheet, as adjusted:
- paid on our issued share capital;
- standing to the credit of our consolidated capital and revenue
reserves; and
- standing to the credit of our consolidated profit and loss account.
Under our Articles of Association and Section 293 of the Companies Act 1985, the
mandatory retirement age for our directors is 70. Our shareholders, however, may
approve the election or re-election of directors who are 70 years old or older.
Directors are not required to be shareholders.
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There are no restrictions under our Memorandum and Articles of Association
or under English law that limit the rights of persons not resident in the U.K.
to hold or to vote ordinary shares.
ADDITIONAL RIGHTS, PREFERENCES AND RESTRICTIONS ATTACHING TO ORDINARY
SHARES
The following description is based upon provisions of our Memorandum and
Articles of Association and English law. A copy of our Memorandum and Articles
of Association has been filed as an exhibit to this registration statement. We
urge you to read it thoroughly and to consult your own legal adviser as to other
provisions of law applicable to the ordinary shares, the ADSs or holders of
them.
DIVIDENDS. The ordinary shares confer upon their holders the right to
receive dividends when declared. Dividends on ordinary shares are recommended by
the Board and declared by the shareholders by way of ordinary resolution. In
addition, the Board may declare and pay interim dividends. No larger dividend
may be declared than is recommended by the Board, but the shareholders may
declare a smaller dividend. The Board may fix a date as the record date by
reference to which a shareholder will be entitled to receive a dividend on the
ordinary shares and a payment date by reference to which the dividend will be
paid. Any dividend on the ordinary shares unclaimed for a period of 12 years
from its date of payment shall be forfeited and shall revert to us. Dividends on
our ordinary shares do not bear interest.
RIGHTS IN LIQUIDATION. Subject to the rights attached to any shares issued
on special terms and conditions, upon our liquidation or winding up, after all
of our debts and liabilities and the expenses of the liquidation have been
discharged, any surplus assets will be divided among the holders of ordinary
shares in proportion to their holdings of share capital.
VOTING RIGHTS AND SHAREHOLDERS MEETINGS. Under English law, there are two
types of general meetings of shareholders, annual general meetings and
extraordinary general meetings. The annual general meeting must be held, each
calendar year, not more than 15 months from the previous annual general meeting.
At the annual general meeting, matters such as the retirement and election of
directors, re-appointment of auditors and the fixing of their compensation,
approval of the annual accounts and the directors' report and declaration of
dividends are dealt with. Any other general meeting is known as an extraordinary
general meeting. All of our shareholders are entitled to attend all of our
general meetings.
The directors may convene an extraordinary general meeting, and they must
convene one if demanded by holders of not less than 10% of the paid-up voting
share capital. An annual general meeting, and an extraordinary general meeting
called to pass a special resolution, must be called upon at least 21 days'
notice. Any other extraordinary general meeting must be called upon at least 14
days' notice. Where a special or extraordinary resolution is to be considered,
the notice must specify the intention to propose the special or extraordinary
resolution, as the case may be, and must quote the proposed resolution in full.
No business may be transacted at any general meeting unless a quorum of two
persons entitled to vote on the business to be transacted is present in person
or by proxy.
At a general meeting, a simple majority of the votes cast is sufficient to
pass an ordinary resolution. The approval of a special resolution or an
extraordinary resolution requires a majority of not less than 75% of the votes
cast.
Subject to the restrictions referred to in the following paragraph, at a
meeting of shareholders every holder of shares present in person shall have one
vote on a show of hands, and on a poll, every
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holder present in person or by proxy shall have one vote for every ordinary
share held. A poll with respect to any resolution can be demanded by:
- the Chairman of the meeting;
- not less than three shareholders present in person or by proxy and
having the right to vote on the resolution;
- a holder or holders present in person or proxy representing not less
than 10% of the total voting rights with respect to the resolution; or
- a holder or holders present in person or by proxy holding shares,
conferring the right to vote on the resolution, on which an aggregate
sum has been paid up equal to not less than one-tenth of the total sum
paid up on all such shares.
All or any of the special rights or privileges attached to our shares,
subject to provisions of the Companies Act 1985, may only be varied either with
the consent in writing of the holders of not less than 75% in nominal value of
the issued shares of the affected class or with the sanction of an extraordinary
resolution passed at a separate meeting of the holders of shares of that class.
NOTIFICATION OF INTEREST IN SHARES. Section 198 of the Companies Act 1985
generally obliges a person who acquires an interest of 3% or more in our
ordinary shares to notify us of that interest within two days following the day
on which the obligation to notify arises. ADS holders are subject to Section
198. After the 3% level is reached, further notice must be given each time that
the interest increases or decreases through a whole percentage figure, rounded
down to the next whole number. For the purposes of the notification obligation,
the interest of a person in the shares means direct and indirect interests,
including shares held by the person's spouse or child, a corporate body that the
person can direct or where the person controls one third or more of the voting
power, or another party where the person and that other party acquire shares
under a "concert party" agreement. A "concert party" agreement provides for one
or more parties to acquire shares and imposes obligations or restrictions on any
one or more of the parties as to the use, retention or disposal of those shares.
In addition, under Section 212 of the Companies Act 1985, by notice in
writing, we may require a person who we know or believe to be, or to have been
at any time during the three years immediately preceding the notice date,
interested in shares or ADSs to confirm whether or not that is the case and to
give further information relating to any interest. In addition to the
restrictions on the rights attaching to shares imposed by the Companies Act 1985
for non-compliance with a Section 212 notice, our Articles of Association apply
additional restrictions. The restrictions can include loss of voting rights,
entitlement to dividends and other payments and restrictions on alienability.
RELATED PARTY TRANSACTIONS. The London Stock Exchange rules generally
require that before we engage in a substantial transaction with any person
holding, or who has within the last 12 months held, 10% or more of our voting
share capital, or who is, or within the last 12 months was, one of our
directors, we must obtain shareholder approval of the transaction. The 10%
shareholder or director may not vote on the resolution.
ISSUANCE OF ADDITIONAL SHARES. Subject to the provisions of the Companies
Act 1985, our Articles of Association and any relevant shareholders' resolution,
the Board may issue, grant options over or otherwise deal with or dispose of
authorized but unissued shares to any persons and on any terms as they deem
appropriate. By virtue of Section 80 of that act, however, the Board may not,
subject to
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limited exceptions in respect of employee share schemes, exercise any power to
issue shares or derivative securities unless they have been authorized to do so
by an ordinary resolution. Any such authority must state the maximum amount of
shares which may be issued under it and the date on which it will expire, which
must not be more than five years from the date the resolution is passed. On
January 19, 2000, our shareholders passed an ordinary resolution authorizing our
directors, under Section 80, to issue shares up to a nominal amount of
L54,526,900, not including shares underlying options granted under our option
plans, for a period of five years.
Our share capital may be increased, consolidated and divided into shares of
larger amounts than the ordinary shares, sub-divided into shares of smaller
amount than the ordinary shares, and unissued ordinary shares may be canceled,
in each case, by an ordinary resolution of shareholders in a general meeting.
Our issued share capital may be reduced by special resolution of shareholders in
a general meeting and confirmation by the English courts. We may, with the prior
approval of a special resolution of shareholders at a general meeting, purchase
our own shares. Consistent with our past practice, at our annual general meeting
held on January 19, 2000, our shareholders passed a special resolution
authorizing the repurchase of up to 21.15 million of our ordinary shares.
PRE-EMPTIVE RIGHTS. If shares are to be issued for cash, Section 89 of the
Companies Act 1985 requires, subject to limited exceptions in respect of
employee share schemes, that the shares first be offered to existing holders in
proportion to their holdings. However, Section 95 of the Companies Act of 1985
provides that the shareholders of a company may by special resolution give power
to its board to issue shares, in respect of which there is existing Section 80
authority, as if Section 89 did not apply. Consistent with our past practice, on
January 19, 2000, our shareholders approved a special resolution authorizing the
issue of shares, without first offering them to existing holders, up to an
aggregate nominal amount of L5,250,000, which authority will expire at the
conclusion of the next annual general meeting or if earlier, 15 months from the
approval of the resolution.
AMENDMENT OF ARTICLES OF ASSOCIATION. The Articles may be amended at any
time by a special resolution of shareholders.
INDEMNIFICATION OF DIRECTORS AND COMPANY OFFICERS
Our directors and Secretary are entitled to indemnification from us against
costs, losses and liabilities incurred by them in the proper exercise of their
duties.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the ordinary shares is Computershare
Services PLC, P.O. Box 82, The Pavilions, Bridgwater Road, Bristol BS99 7NH,
U.K.
MATERIAL CONTRACTS
We are party to a Credit and Guaranty Agreement dated as of August 13,
1999, as amended, with several lenders, including Barclays Bank PLC and National
Westminster Bank Plc. The material terms of this agreement are described in
"Item 5. Operating and Financial Review and Prospects -- Liquidity and Capital
Resources."
We acquired Scotsman in August 1999, at a cost, including assumed debt, of
approximately L496.1 million ($791.5 million). The acquisition was made under
the terms of an agreement and plan of merger dated as of July 1, 1999 among
Welbilt, Berisford Acquisition Corporation and Scotsman
46
Industries. Under the agreement, Berisford Acquisition purchased all of the
outstanding shares of Scotsman for a price of L20.69 ($33.00) per share. On July
1, 1999, the last full trading day before the public announcement of the
proposed acquisition, the market price of Scotsman's shares was L13.67 ($21.81)
per share.
Four of our subsidiaries are parties to an asset purchase agreement dated
August 21, 1998 with Aladdin Industries, Inc. Under the purchase agreement, we
acquired substantially all of Aladdin's institutional foodservice systems and
components business. We paid L44.0 million ($70.2 million) and assumed certain
liabilities of Aladdin relating to the purchased business. Aladdin's liability
for a breach of the agreement was limited to L18.8 million ($30.0 million).
Welbilt guaranteed the obligations of the four subsidiaries that are parties to
the agreement.
We are party to a Deposit Agreement dated as of ____________, 2000 with The
Bank of New York, as depositary, and all owners and holders from time to time of
ADRs issued thereunder, including the form of ADR. The material terms of this
agreement are described in "Item 12. Description of Securities Other than Equity
Securities -- Share Dividends and Other Distributions."
We have an employment agreement with David W. Williams dated October 9,
1996, as amended. Mr. Williams is entitled to a base salary at the rate of
L300,000 per annum. In addition, Mr. Williams participates in:
- our discretionary bonus scheme;
- a defined contribution pension plan to which we pay a contribution
each year of 30% of that part of salary that exceeds an earnings cap
(defined under the U.K. Finance Act 1989, which is currently L91,800)
and provides a cash sum at retirement of the accumulation of
contributions, investment income and capital gains;
- a defined benefit pension plan which provides for, among other things,
a lifetime pension of up to 2/3 of Mr. Williams' salary up to the same
earnings cap, which vests at the rate of 1/30th of his salary per year
over the first 20 years of service, and a widow's pension of one-third
of Mr. Williams' salary, up to the earnings cap, should Mr. Williams
die during the term of his employment;
- life insurance coverage which provides for a death benefit of four
times Mr. Williams' salary; and
- our share option schemes.
Under the agreement, Mr. Williams is also provided with a car. In the event of
illness or disability, Mr. Williams is entitled to receive his base salary for
26 weeks and will be retained on our payroll for the purpose of receiving any
prolonged disability benefits which may be payable and for the purposes of the
pension plans. We may terminate Mr. Williams' employment upon 12 months notice,
and he may terminate his employment upon three months notice to us. The
agreement also provides for one year post-employment restrictive covenants.
We have an employment agreement with Jonathan P. Findler dated November 11,
1996, as amended. Mr. Findler is entitled to a base salary at the rate of
L220,000 per annum. In addition, Mr. Findler participates in:
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- our discretionary bonus scheme;
- a defined contribution pension plan to which we pay a contribution
each year of 30% of that part of salary that exceeds an earnings cap
(defined under the U.K. Finance Act 1989, which is currently L91,800)
and provides a cash sum at retirement of the accumulation of
contributions, investment income and capital gains;
- a defined benefit pension plan which provides for, among other things,
a lifetime pension of up to 2/3 of Mr. Findler's salary up to the same
earnings cap, which vests at the rate of 1/30th of his salary per year
over the first 20 years of service, and a widow's pension of one-third
of Mr. Findler's salary, up to the earnings cap, should Mr. Findler
die during the term of his employment;
- life insurance coverage which provides for a death benefit of four
times Mr. Findler's salary; and
- our share option schemes.
Under the agreement, Mr. Findler is also provided with a car. In the event of
illness or disability, Mr. Findler will receive his base salary for at least one
year. We may terminate Mr. Findler's employment upon 12 months notice, and he
may terminate his employment upon three months notice to us. The agreement also
provides for one year post-employment restrictive covenants.
Welbilt has an employment agreement with Andrew F. Roake dated December 9,
1997, as amended. Mr. Roake is entitled to a base salary at the rate of L322,823
($515,000) per annum. In addition, Mr. Roake participates in:
- our discretionary bonus scheme;
- our share option schemes; and
- benefit plans generally provided to our other senior executives.
Under the agreement, Mr. Roake is also provided with a car. We may terminate Mr.
Roake's employment with or without cause. If the termination is for cause, Mr.
Roake is entitled to any earned but unpaid base salary and any expenses he
incurred that have not yet been reimbursed. If the termination is without cause,
Mr. Roake is entitled to the continuation of his base salary for one year from
the date of termination. Mr. Roake may terminate his employment upon two months
notice to us. Cause is defined in the agreement as dishonesty, willful
misconduct or gross negligence, the failure to discharge proper directions
faithfully or the commission of a felony. The agreement also provides for one
year post-employment restrictive covenants.
EXCHANGE CONTROLS
There are currently no U.K. foreign exchange control restrictions affecting
(1) the import or export of capital, including the availability of cash and cash
equivalents for use by us or (2) the payment of dividends, interest or other
distributions to non-resident holders of our securities.
TAXATION
The following section is a general summary of the principal U.S. federal
and U.K. tax consequences of the purchase, ownership and disposition of ADSs
and, except as provided explicitly
48
below, ordinary shares, to U.S. Holders. For these purposes, "U.S. Holders" are
beneficial owners of ADSs or, where relevant, ordinary shares, who are any of
the following:
- citizens or residents of the U.S. for U.S. federal income tax purposes
who are not also resident or, in the case of individuals, ordinarily
resident, in the U.K. for U.K. tax purposes;
- corporations or partnerships created or organized under the laws of
the U.S. or any State thereof;
- estates the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust, if a court within the U.S. is able to exercise primary
supervision over the administration and control of the trust and one
or more of the U.S. fiduciaries have the authority to control all
substantial decisions of the trust.
This summary is based on the current laws in force and regulations of the
relevant taxation authorities and are subject to any changes in U.S. or U.K.
law, or in the interpretation thereof by the relevant legislative, judicial or
taxation authorities or in the double taxation conventions between the U.S. and
the U.K. relating to (a) income and capital gains taxes (the "Income Tax
Convention") and (b) estate and gift taxes (the "Estate Tax Convention"). This
summary is also based, in part, on representations of the depositary and assumes
that each obligation in the Deposit Agreement will be performed in accordance
with its terms.
This summary is of a general nature and does not discuss all aspects of
U.S. and U.K. taxation that may be relevant to a particular investor. It deals
only with ADSs held as capital assets and does not address special classes of
purchasers, such as dealers in securities, U.S. Holders whose functional
currency is not the U.S. dollar and certain U.S. Holders (including, but not
limited to, insurance companies, tax exempt organizations, financial
institutions and persons subject to the alternative minimum tax) who may be
subject to special rules not discussed below. In particular, the following
summary does address the tax treatment of U.S. Holders who own, directly or by
attribution, 10% or more of our outstanding voting share capital.
PROSPECTIVE PURCHASERS OF OUR ADSS ARE ADVISED TO CONSULT WITH THEIR OWN
TAX ADVISORS WITH RESPECT TO U.S. FEDERAL, STATE AND LOCAL TAX CONSEQUENCES, AS
WELL AS WITH RESPECT TO THE U.K. AND OTHER FOREIGN TAX CONSEQUENCES, OF THE
OWNERSHIP OF OUR ADSS APPLICABLE IN THEIR PARTICULAR TAX SITUATIONS.
For purposes of the conventions and the U.S. Internal Revenue Code of 1986,
U.S. Holders will be treated as the owners of the ordinary shares represented by
ADSs.
TAXATION OF DIVIDENDS
No U.K. withholding tax is payable in respect of dividends on our ordinary
shares or ADSs, except by way of a deduction in calculating the tax credit under
applicable double taxation treaties. See below with respect to the Income Tax
Treaty. For dividends paid up to April 5, 1999, we were required, when paying a
dividend, to account to the U.K. Inland Revenue for an advance payment of
corporation tax. This requirement was eliminated for dividends paid after April
6, 1999.
An individual who is the beneficial owner of our ADSs and who resides in
the U.K. is treated, for U.K. income tax purposes, as having taxable income
equal to the amount of a dividend paid to him,
49
plus a U.K. tax credit. The U.K. tax credit is an amount equal to one-ninth of
the dividend received. The U.K. tax credit is not available to be refunded to
him if it exceeds his overall income tax liability.
Under the Income Tax Treaty, subject to limited exceptions, a U.S. holder
who is a resident of the U.S. for purposes of the Income Tax Treaty is entitled
to receive, in addition to any dividend paid by Enodis, the U.K. tax credit in
respect of that dividend, but reduced by a U.K. withholding tax equal to 15% of
the sum of the dividend paid and the U.K. tax credit. However, in respect of
dividends paid after April 5, 1999, as a result of a reduction in the tax credit
rate, the U.K. tax credit to persons entitled to this credit will not exceed the
applicable withholding tax. Therefore U.S. Holders will not be entitled to
receive a payment of any U.K. tax credit.
For U.S. federal income tax purposes, the gross amount of a dividend (a)
will be included in gross income by a U.S. holder (at the dollar value of the
dividend payment, on the date of the receipt by the depositary, regardless of
whether the dividend is translated into dollars) and (b) will be treated as
foreign source dividend income to the extent paid out of our current accumulated
earnings and profits as determined for U.S. federal income tax purposes. Any
difference between the dollar amount included in income and the dollar amount
actually received may constitute ordinary foreign currency gain or loss.
TAXATION OF CAPITAL GAINS
A U.S. holder who is not resident or ordinarily resident in the U.K. for
U.K. tax purposes will not be liable for U.K. tax on capital gains or eligible
for relief for losses realized or accrued on the disposal of ADSs unless, at the
time of disposal, the U.S. holder is carrying on a trade, profession or vocation
in the U.K. through a branch or agency which constitutes a permanent
establishment, and the ADSs are or have been before the time of disposal used,
held or acquired for the purposes of the trade, profession or vocation of the
branch or agency.
Upon the sale or other disposition of an ADS, a U.S. holder will generally
recognize gain or loss for U.S. federal income tax purposes in an amount equal
to the difference between the amount realized on the sale or disposition and the
U.S. holder's adjusted tax basis in the ADS. This gain or loss will be capital
gain or loss if the U.S. holder held the ADS as a capital asset.
A U.S. Holder that is liable for both U.K. and U.S. tax on a gain on the
disposal of an ADS will generally be entitled, subject to limitations under the
Income Tax Convention, to credit the amount of U.K. capital gains or corporation
tax, as the case may be, paid in respect of the gain against such U.S. holder's
U.S. federal income tax liability in respect of the gain. U.S. Holders should
seek professional tax advice to determine their entitlement to credit U.K. tax
against their U.S. federal income tax liability.
ESTATE AND GIFT TAXES
An ADS held by an individual U.S. holder whose domicile is determined to be
in the U.S. for purposes of the Estate Tax Convention and who is not a national
of the U.K. for those purposes will not be subject to U.K. inheritance tax on
the individual's death or on a lifetime transfer of our ADSs, except where the
ADSs (a) are part of the business property of a U.K. permanent establishment of
an enterprise of the U.S. or (b) pertain to a U.K. fixed base used for the
performance of independent personal services. The Estate Tax Convention
generally provides a credit against U.S. federal estate or gift tax liability
for the amount of any tax paid in the U.K. in a case where the ADSs are subject
to both U.K. inheritance tax and to U.S. federal estate or gift tax. An
individual U.S. holder will be subject to U.S. estate and gift taxes with
respect to our ADSs in the same manner and to the same extent as with respect to
other types of personal property.
50
U.K. STAMP DUTY ("SD") AND STAMP DUTY RESERVE TAX ("SDRT")
SDRT at the then-applicable rate arises upon the deposit with the
depositary or its nominee of ordinary shares in exchange for ADRs. The current
rate of SDRT on the deposit of ordinary shares is 1.5%. In some cases, U.K. SD
could also arise on the deposit, and the current rate is 1.5%. The amount of
SDRT payable will be reduced by any SD paid in connection with the same
transaction. SDRT will be payable by the depositary in the first instance. In
accordance with the terms of the Deposit Agreement, the depositary will require
holders to pay the amount in respect of this tax to the depositary before
issuing the ADRs.
If the instrument of transfer is not executed in the U.K. and remains at
all subsequent times outside the U.K., no SD will be payable on the acquisition
or transfer of ADSs. An agreement to transfer ADSs will not give rise to a
liability for SDRT.
A transfer of ordinary shares by the depositary or its nominee to the
relative ADR holder when the ADR holder is not transferring beneficial ownership
will give rise to SD at the rate of L5.00 per transfer.
Transfer of ordinary shares, as opposed to ADSs, will normally give rise to
a charge to SD at the rate of 0.5% of the price payable for the ordinary shares
at the time of the transfer or agreement to transfer. SD and SDRT arising upon
the sale of ordinary shares are usually payable by the purchaser. Where these
ordinary shares are later transferred to the depositary, further SDRT will
normally be payable upon the deposit at the rate of 1.5% of the value of the
ordinary shares at the time of transfer. In certain cases, SD could also arise
in the transfer at the rate of 1.5%, subject to the amount of any SDRT being
reduced by the SD on the same transaction.
DIVIDENDS AND PAYING AGENTS
For information about dividends and our agent for the distribution of
dividends on the ADSs in the U.S., see "Item 12. Description of Securities Other
than Equity Securities -- Share Dividends and Other Distributions" and
"Additional Rights, Preferences and Restrictions Attaching to Ordinary Shares"
above. Our dividend policy is described under "Item 8. Financial Information --
Dividend Policy."
DOCUMENTS ON DISPLAY
We have filed a registration statement on Form 20-F with the Securities and
Exchange Commission and this Amendment No. 1 to that registration. You may read
and copy the registration statement and amendment and any other documents we
have filed at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, DC 20549. You may also call the SEC at 1-800-SEC-0330 for further
information about the Public Reference Room. After our ADSs are listed in the
U.S., we plan to file annual, semi-annual and current reports, and any other
required information, with the SEC.
Whenever a reference is made in this registration statement to any contract
or other document to which we are a party, the reference may not be complete.
You should refer to the exhibits that are a part of this registration statement
for a complete copy of the contract or document. You may request copies of these
exhibits, and we will provide them at no cost, by writing or telephoning us at
Washington House, 40-41 Conduit Street, London W1R 9FB, U.K., attention Mr.
David Hooper, Company Secretary (Telephone: +44-20-7312-2500) or at the Welbilt
Technology Center, 2227 Welbilt Blvd., New Port Richey, Florida 33655, U.S.A.,
attention Ms. Michele Nova (Telephone: 727-375-7010).
51
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from changes in foreign currency exchange
rates and interest rates. We monitor and manage these risks as an integral part
of our overall risk management program, which recognizes the unpredictability of
financial markets and seeks to reduce the potentially adverse effects on its
results. As a result, we do not anticipate any material losses in these areas.
We operate a central treasury function that controls all decisions and
commitments about cash management, arrangement of borrowing facilities, banking
relationships and foreign currency commitments. Our treasury operations are
conducted within a framework of policies and guidelines which have been
authorized by the board of directors to regulate the activities of the central
treasury function in terms of the approval levels and the scope of decision
making. The central treasury function, in turn, has implemented policies and
guidelines to control the activities of our subsidiaries.
To reduce our currency translation and interest rate risks, we selectively
use a number of financial instruments. We do not use financial instruments for
trading purposes.
INTEREST RATE RISK
We are exposed to interest rate risk primarily due to our borrowing
activities, the majority of which are denominated in U.S. dollars. Interest rate
risk exists on our long-term floating rate borrowings, which at October 2, 1999
amounted to L417.4 million and at April 1, 2000 amounted to L397.6 million. To
reduce the impact of changes in interest rates on these borrowings, a formal
policy has been approved by our board to hedge approximately 65% of our
long-term floating rate borrowings for a period of up to three years.
Accordingly, subsequent to October 2, 1999, we have contracted with major
financial institutions as follows:
- forward interest rate agreement--we have a pre-set interest rate for a
specified future period;
- interest rate cap/floor agreement--we are entitled to receive from
counterparties the amount, if any, by which the selected market
interest rate exceeds the cap strike rate stated in the contract, or
to pay to counterparties the amount, if any, by which the selected
market interest rate falls below the floor strike rate, applied to the
notional amount; and
- interest rate swap agreements--we have agreed to exchange the
difference between a fixed rate applied to the notional amount.
At April 1, 2000, after adjusting for the effect of the above agreements,
we had long-term fixed and floating rate borrowings of L267.7 million and L146.9
million, respectively. A hypothetical 100-basis point increase in the interest
rate, as of April 1, 2000, would reduce net income by approximately L1.5
million.
CURRENCY RISK
A substantial part of our activities is conducted outside the U.K., and the
majority of that activity is denominated in U.S. dollars. This gives rise to
several elements of risk in respect of foreign exchange rate movements.
Foreign currency requirements for sales transactions between our
subsidiaries and our obligations to or from third parties are hedged through
forward currency agreements with terms generally of less than one year. No
speculative positions are taken. We monitor our foreign currency exposures to
ensure the effectiveness of our foreign currency hedge positions. The principal
currencies hedged include the euro and Canadian dollars. At October 2, 1999 and
April 1, 2000, we had forward contracts maturing at various dates
52
to sell L12.7 million and L17.0 million, respectively, in foreign currency. The
approximate loss to us to terminate these agreements at October 2, 1999 and
April 1, 2000, would have been approximately L0.2 million and L0.0 million,
respectively.
We also face exposure arising from the impact of translating our global
foreign currency assets into pounds at balance sheet dates. Wherever possible,
we seek to minimize this exposure through the matching of local currency
borrowings and assets. We continually review this exposure and, in the event
that a natural hedging position cannot be achieved, we consider the use of
appropriate financial instruments. The translation impact on the balance sheet
for fiscal 1999 was a gain of L1.1 million. This adjustment is included in our
statement of shareholders' equity under the heading, "Accumulated Other
Comprehensive Loss."
A hypothetical 10% strengthening of the pound against all currencies in
which our international net earnings and net assets are denominated would:
- reduce our net income at April 1, 2000 by L1.8 million and at October
2, 1999 by L5.0 million, mainly due to U.S. dollar exposure.
- reduce our net assets April 1, 2000 by L7.6 million and at October 2,
1999 by L6.9 million, mainly due to U.S. dollar and euro exposure.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS AND THE DEPOSIT AGREEMENT
The Bank of New York will act as depositary and will issue our ADRs. The
ADRs evidence our ADSs. Each of our ADSs represents four deposited ordinary
shares. Each ADR may also represent other securities, cash or other property
deposited with The Bank of New York but not distributed to ADR holders. The Bank
of New York's corporate trust office is located at 101 Barclay Street, New York,
NY 10286. Its principal executive office is located at One Wall Street, New
York, NY 10286.
You may hold ADRs either directly or indirectly through your broker or
other financial institution. If you hold ADRs directly, you are an ADR holder.
This description assumes that you hold your ADRs directly. If you hold the ADRs
indirectly, you must rely on the procedures of your broker or other financial
institution to assert the rights of ADR holders described in this section. You
should consult with your broker or financial institution to find out what those
procedures are.
Because The Bank of New York will actually hold the ordinary shares
represented by your ADSs, you must rely on it to exercise all rights associated
with the shares underlying your ADSs. The obligations of The Bank of New York
are set out in an agreement among Enodis, The Bank of New York and you, as an
ADS holder. The agreement and the ADRs are generally governed by New York law.
The following is a summary of the material terms of the agreement. You
should read the entire agreement and the ADR. Directions on how to obtain copies
of these are provided in "Item 10. Additional Information -- Documents on
Display." You should also read the description of our ordinary shares in "Item
10. Additional Information -- Additional Rights, Preferences and Restrictions
Attaching to Ordinary Shares," because your ADSs represent an interest in the
ordinary shares.
53
SHARE DIVIDENDS AND OTHER DISTRIBUTIONS
The Bank of New York has agreed to pay to you the cash dividends or other
distributions it or the custodian receives on shares or other deposited
securities after deducting its fees and expenses. You will receive these
distributions in proportion to the number of shares your ADRs represent.
CASH. The Bank of New York will translate any cash dividend or other cash
distribution that we pay on the shares into U.S. dollars, if it can do so on a
reasonable basis and can transfer the U.S. dollars to the U.S. If that is not
possible or if any approval from the U.K. government is needed and cannot be
obtained, the agreement allows The Bank of New York to distribute the cash in
pounds only to those ADR holders to whom it is possible to do so. It will hold
the pounds it cannot translate for the account of the ADR holders who have not
been paid. It will not invest the pounds, and it will not be liable for any
interest.
The Bank of New York will distribute only whole U.S. dollars and cents and
will round fractional cents to the nearest whole cent. IF THE EXCHANGE RATES
FLUCTUATE DURING A TIME WHEN THE BANK OF NEW YORK CANNOT TRANSLATE THE POUNDS,
YOU MAY LOSE SOME OR ALL OF THE VALUE OF THE DISTRIBUTION.
SHARES. The Bank of New York may distribute new ADRs representing any
shares that Enodis may distribute as a dividend or free distribution, if we
furnish The Bank of New York promptly with satisfactory evidence that it is
legal to do so. The Bank of New York will only distribute whole ADSs. It will
sell shares which would require it to use a fractional ADS and distribute the
net proceeds in the same way as it distributes cash. If The Bank of New York
does not distribute additional ADRs, each ADR will also represent the new
shares.
RIGHTS TO RECEIVE ADDITIONAL SHARES. If we offer holders of our ordinary
shares any rights to subscribe for additional shares or any other rights, The
Bank of New York may make these rights available to you. We must first instruct
The Bank of New York to do so and furnish it with satisfactory evidence that it
is legal to do so. If we do not furnish this evidence and/or give these
instructions, and The Bank of New York decides that it is practical to sell the
rights, The Bank of New York will sell the rights and distribute the proceeds in
the same way as it distributes cash. The Bank of New York may allow rights that
are not distributed or sold to lapse. In that case, you will receive no value
for them.
If The Bank of New York makes rights available to you, upon instruction
from you, it will exercise the rights and purchase the shares on your behalf.
The Bank of New York will then deposit the shares and issue ADRs to you. It will
only exercise rights if you pay it the exercise price and any other charges the
rights require you to pay.
U.S. securities laws may restrict the sale, deposit, cancellation and
transfer of the ADRs issued after exercise of rights. For example, you may not
be able to trade the ADRs freely in the United States. In this case, The Bank of
New York may issue the ADRs under a separate restricted deposit agreement which
will contain the same provisions as the agreement, except for the changes needed
to put the restrictions in place.
OTHER DISTRIBUTIONS. The Bank of New York will send to you anything else
that Enodis distributes on deposited securities by any means it thinks is legal,
fair and practical. If it cannot make the distribution in that way, The Bank of
New York has a choice. It may decide to sell what we distributed and to
distribute the net proceeds in the same way as it distributes cash or it may
decide to hold what we distributed, in which case the ADRs will also represent
the newly distributed property.
The Bank of New York is not responsible if it decides that it is unlawful
or impractical to make a distribution available to any ADR holders. We have no
obligation to register ADRs, shares, rights or other
54
securities under the Securities Act. We also have no obligation to take any
other action to permit the distribution of ADRs, shares, rights or anything else
to ADR holders. This means that you may not receive distributions that we make
on our shares or any value for them if it is illegal or impractical for us to
make them available to you.
DEPOSIT, WITHDRAWAL AND CANCELLATION
The Bank of New York will issue ADRs if you or your broker deposit ordinary
shares or evidence of rights to receive ordinary shares with the London office
of The Bank of New York, at One Canada Square, London, E14 5AL. This office acts
as the custodian. Upon payment of its fees and expenses and of any taxes or
charges, such as stamp taxes or stock transfer taxes or fees, The Bank of New
York will register the appropriate number of ADSs in the names you request and
will deliver the ADRs at its corporate trust office to the persons you request.
You may also turn in your ADRs at The Bank of New York's corporate trust
office. Upon payment of its fees and expenses and of any taxes or charges, such
as stamp taxes or stock transfer taxes or fees, The Bank of New York will
deliver (1) the underlying shares to an account designated by you and (2) any
other deposited securities underlying the ADR at the office of the custodian.
Or, at your request, risk and expense, The Bank of New York will deliver the
deposited securities at its office.
VOTING RIGHTS
You may instruct The Bank of New York to vote the shares underlying your
ADRs. Otherwise, you will not be able to exercise your right to vote unless you
withdraw the shares. However, you may not know about the meeting long enough in
advance to withdraw the shares.
As soon as practicable after we notify The Bank of New York of a meeting of
holders, The Bank of New York will notify you of the upcoming vote and arrange
to deliver our proxy soliciting materials to you. The materials will (1)
describe the matters to be voted on and (2) explain how you, on or before a date
specified in the notice, may instruct The Bank of New York to vote the shares or
other deposited securities underlying your ADRs as you direct. For instructions
to be valid, The Bank of New York must receive them on or before the date
specified. The Bank of New York will try, as far as practical, subject to U.K.
law and the provisions of our Articles of Association, to vote or to have its
agents vote the shares or other deposited securities as you instruct. However,
if The Bank of New York does not receive your voting instructions, you will be
deemed to have instructed The Bank of New York to give a discretionary proxy to
a person that we designate, and The Bank of New York will do so.
We cannot promise that you will receive the voting materials in time to
ensure that you can instruct The Bank of New York to vote the shares represented
by your ADSs. In addition, The Bank of New York and its agents are not
responsible for failing to carry out voting instructions or for the manner of
carrying out voting instructions. This means that you may not be able to
exercise your right to vote, and there may be nothing you can do if the shares
represented by your ADSs are not voted as you requested.
FEES AND EXPENSES
Below is a table showing the fees and expenses that you will need to pay to
The Bank of New York for services relating to your ADRs.
55
- ------------------------------------------------- ---------------------------------------------------
ADR HOLDERS MUST PAY: FOR:
- ------------------------------------------------- ---------------------------------------------------
$5.00 (OR LESS) PER 100 ADSS EACH ISSUANCE OF AN ADS, INCLUDING AS A RESULT OF
A DISTRIBUTION OF SHARES OR RIGHTS OR OTHER
PROPERTY
EACH CANCELLATION OF AN ADS, INCLUDING IF THE
AGREEMENT TERMINATES
- ------------------------------------------------- ---------------------------------------------------
$.02 (OR LESS) PER ADS ANY CASH PAYMENT, EXCEPT FOR DISTRIBUTIONS OF
CASH DIVIDENDS
- ------------------------------------------------- ---------------------------------------------------
REGISTRATION OR TRANSFER FEES TRANSFER AND REGISTRATION OF SHARES ON THE SHARE
REGISTER OF OUR U.K. REGISTRAR FROM YOUR NAME TO
THE NAME OF THE BANK OF NEW YORK OR ITS AGENT
WHEN YOU DEPOSIT OR WITHDRAW SHARES
- ------------------------------------------------- ---------------------------------------------------
EXPENSES OF THE BANK OF NEW YORK TRANSLATION OF POUNDS TO U.S. DOLLARS
CABLE, TELEX AND FACSIMILE TRANSMISSION EXPENSES
- ------------------------------------------------- ---------------------------------------------------
TAXES AND OTHER GOVERNMENTAL CHARGES THAT THE AS NECESSARY
BANK OF NEW YORK OR THE CUSTODIAN HAVE TO PAY ON
ANY ADR OR SHARE UNDERLYING AN ADR, FOR
EXAMPLE, STOCK TRANSFER TAXES OR STAMP DUTY
- ---------------------------------------------------- ------------------------------------------------
PAYMENT OF TAXES
You will be responsible for any taxes or other governmental charges payable
on your ADRs or on the deposited securities underlying your ADRs. The Bank of
New York may refuse to transfer your ADRs or allow you to withdraw the deposited
securities underlying your ADRs until the taxes or other charges are paid. It
may apply payments owed to you or sell deposited securities underlying your ADRs
to pay any taxes owed, and you will remain liable for any deficiency. If it
sells deposited securities, it will, if appropriate, reduce the number of ADRs
to reflect the sale and pay to you any proceeds, or send to you any property,
remaining after it has paid the taxes.
RECLASSIFICATIONS, RECAPITALIZATIONS AND MERGERS
- ------------------------------------------------- ---------------------------------------------------
IF ENODIS: THEN:
- ------------------------------------------------- ---------------------------------------------------
CHANGES THE NOMINAL OR PAR VALUE OF ITS THE CASH, SHARES OR OTHER SECURITIES
RECEIVED BY THE SHARES; OR BANK OF
NEW YORK WILL BECOME DEPOSITED SECURITIES.
EACH ADR WILL AUTOMATICALLY REPRESENT ITS EQUAL SHARE
RECLASSIFIES, SPLITS UP OR CONSOLIDATES ANY OF THE NEW DEPOSITED SECURITIES, UNLESS ADDITIONAL
OF THE DEPOSITED SECURITIES; OR ADRS ARE DELIVERED; OR
DISTRIBUTES SECURITIES ON THE SHARES THAT ARE THE BANK OF NEW YORK MAY ISSUE NEW ADRS OR ASK
NOT DISTRIBUTED TO YOU; OR YOU TO SURRENDER YOUR OUTSTANDING ADRS IN EXCHANGE
FOR NEW ADRS IDENTIFYING THE NEW DEPOSITED SECURITIES.
THE BANK OF NEW YORK MAY, AND WILL IF WE ASK IT TO DO SO,
RECAPITALIZES, REORGANIZES, MERGES, LIQUIDATES, DISTRIBUTE SOME OR ALL OF TEH CASH, SHARES OR OTHER
SELLS ALL OR SUBSTANTIALLY ALL OF ITS ASSETS SECURITIES IT RECEIVED.
OR TAKES ANY SIMILAR ACTION
- ------------------------------------------------- ---------------------------------------------------
56
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
We may agree with The Bank of New York to amend the agreement and the ADRs
without your consent for any reason. If the amendment adds or increases fees or
charges, except for taxes and other governmental charges or registration fees,
cable, telex or facsimile transmission costs, delivery costs or other similar
expenses, or prejudices an important right of ADR holders, it will only become
effective 30 days after The Bank of New York notifies you of the amendment. At
the time an amendment becomes effective, you are considered, by continuing to
hold your ADR, to agree to the amendment and to be bound by the ADRs and the
agreement as amended.
The Bank of New York will terminate the agreement if we ask it to do so.
The Bank of New York may also terminate the agreement if The Bank of New York
has told us that it would like to resign, and we have not appointed a new
depositary bank within 90 days. In both cases, The Bank of New York must notify
you at least 90 days before termination.
After termination, The Bank of New York and its agents will be required
only to continue to collect dividends and distributions on the deposited
securities and deliver shares and other deposited securities and property upon
cancellation of ADRs. After termination, The Bank of New York may sell any
remaining deposited securities by public or private sale. After that, The Bank
of New York will hold the proceeds of the sale, as well as any other cash it is
holding under the agreement for the pro rata benefit of the ADR holders that
have not surrendered their ADRs. It will not invest the money and will have no
liability for interest. The Bank of New York's only obligations will be to
account for the proceeds of the sale and other cash. After termination, our only
obligations will be with respect to indemnification and to pay certain amounts
to The Bank of New York.
LIMITATIONS ON OBLIGATIONS AND LIABILITY TO ADR HOLDERS
The agreement expressly limits our obligations and the obligations of The
Bank of New York, and it limits our liability and the liability of The Bank of
New York. Enodis and The Bank of New York:
- are only obligated to take the actions specifically set forth in the
agreement without negligence or bad faith;
- are not liable if either is prevented or delayed by law or
circumstances beyond their control from performing their obligations
under the agreement;
- are not liable if either exercises discretion permitted under the
agreement;
- have no obligation to become involved in a lawsuit or other proceeding
related to the ADRs or the agreement on your behalf or on behalf of
any other party; and
- may rely upon any documents they believe in good faith to be genuine
and to have been signed or presented by the proper party.
In the agreement, The Bank of New York agrees to indemnify Enodis for
damages and expenses arising from the Bank's negligence or bad faith. Enodis
generally agrees to indemnify the Bank for its damages or expenses arising from
the agreement, except those arising from the Bank's negligence or bad faith.
57
REQUIREMENTS FOR DEPOSITARY ACTIONS
Before The Bank of New York will issue or register transfer of an ADR, make
a distribution on an ADR, or process a withdrawal of shares, The Bank of New
York may require:
- payment of stock transfer or other taxes or other governmental charges
and transfer or registration fees charged by third parties for the
transfer of any shares or other deposited securities;
- production of satisfactory proof of the identity and genuineness of
any signature or other information it deems necessary; and
- compliance with regulations it may establish, from time to time,
consistent with the agreement, including presentation of transfer
documents.
The Bank of New York may refuse to deliver, transfer, or register transfers
of ADRs generally when our books or those of The Bank of New York are closed, or
at any time if The Bank of New York or we think it advisable to do so.
You have the right to cancel your ADRs and withdraw the underlying shares
at any time except:
- when temporary delays arise because: (1) The Bank of New York or
Enodis has closed its transfer books; (2) the shares are deposited in
connection with voting at a shareholders' meeting; or (3) we are
paying a dividend on the shares;
- when you or other ADR holders seeking to withdraw shares owe money to
pay fees, taxes and similar charges; or
- when it is necessary to prohibit withdrawals in order to comply with
any laws or governmental regulations that apply to ADRs or to the
withdrawal of shares or other deposited securities.
This right of withdrawal may not be limited by any other provision of the
agreement.
PRE-RELEASE OF ADRS
Subject to the provisions of the deposit agreement, The Bank of New York
may issue ADSs before deposit of the underlying shares. This is called a
pre-release of ADSs. The Bank of New York may also deliver shares prior to the
receipt and cancellation of pre-released ADSs even if the ADSs are cancelled
before the pre-release transaction has been closed out. A pre-release is closed
out as soon as the underlying shares are delivered to The Bank of New York. The
Bank of New York may receive ADSs instead of shares to close out a pre-release.
The Bank of New York may pre-release ADSs only under the following conditions:
(1) before or at the time of the pre-release, the person to whom the
pre-release is being made must represent to The Bank of New York in
writing that it or its customer, as the case may be,
(a) owns the shares or ADSs to be remitted;
(b) assigns all right, title and interest in the ADSs or shares to
The Bank of New York in its capacity as the depositary and for
the benefit of the holders of the ADSs; and
58
(c) will not take any action with respect to the ADSs or shares that
is inconsistent with the assignment of ownership, including,
without the consent of The Bank of New York, depositing of the
ADSs or shares, other than in satisfaction of the pre-release;
(2) the pre-release must be fully collateralized with cash or other
collateral that The Bank of New York determines will provide similar
liquidity and security; and
(3) The Bank of New York must be able to close out the pre-release on not
more than five business days' notice.
The pre-release will be subject to any indemnities and credit regulations
that The Bank of New York considers appropriate. In addition, The Bank of New
York will normally limit the number of ADSs that may be outstanding at any time
as a result of pre-release to ADSs representing 30% of the deposited ordinary
shares. However, The Bank of New York may disregard the limit from time to time,
if it decides that it is reasonably appropriate to do so.
REPORTS
We send annual and semi-annual reports to holders of our ordinary shares.
You may inspect these at The Bank of New York's corporate trust office. Upon
request, The Bank of New York will send to you a copy of our annual and
semi-annual reports and any other notices and shareholder communications.
59
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not Applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not Applicable.
ITEM 15. [RESERVED]
ITEM 16. [RESERVED]
60
PART III
ITEM 17. FINANCIAL STATEMENTS
Not Applicable.
ITEM 18. FINANCIAL STATEMENTS
The financial statements described below included in this registration
statement immediately following Item 19.
DESCRIPTION PAGE NO.
Berisford plc Consolidated Financial Statements as of October 2, 1999 and
September 26, 1998 and for the three years in the period ended October 2, 1999:
Report of Deloitte & Touche, Independent Auditors.............................................................F-1
Consolidated Balance Sheets...................................................................................F-2
Consolidated Statements of Income.............................................................................F-3
Consolidated Statements of Cash Flows.........................................................................F-4
Consolidated Statements of Shareholders' Equity...............................................................F-5
Notes to Consolidated Financial Statements.............................................................F-6 - F-26
Enodis plc Unaudited Consolidated Financial Statements as of April 1, 2000 and
for the 26 weeks ended April 1, 2000 and March 27, 1999:
Unaudited Consolidated Balance Sheet.........................................................................F-27
Unaudited Consolidated Statements of Income..................................................................F-28
Unaudited Consolidated Statements of Cash Flows..............................................................F-29
Unaudited Consolidated Statements of Shareholders' Equity....................................................F-30
Notes to Unaudited Consolidated Financial Statements......................................................F-31-35
Scotsman Industries, Inc. Consolidated Financial Statements as of
January 3, 1999 and for the three years in the period ended January 3, 1999:
Consolidated Statement of Income.............................................................................F-36
Consolidated Balance Sheet...................................................................................F-37
Consolidated Statement of Cash Flows.........................................................................F-38
Consolidated Statement of Shareholders' Equity...............................................................F-39
Notes to Consolidated Financial Statements..............................................................F-40-F-64
Report of Arthur Andersen, LLP, Independent Auditors.........................................................F-65
Schedule II -- Valuation and Qualifying Accounts.............................................................F-66
Scotsman Industries, Inc. Unaudited Condensed Financial Statements as of July 4,
1999 and for the six months in the periods ended July 4, 1999 and July 5, 1998:
Unaudited Condensed Consolidated Statements of Income.....................................................F-67-68
Unaudited Condensed Consolidated Balance Sheet...............................................................F-69
Unaudited Condensed Consolidated Statements of Cash Flows....................................................F-70
Notes to Unaudited Condensed Consolidated Financial Statements..........................................F-71-F-76
61
ITEM 19. EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
1.1 Certificate of Incorporation, as amended, and Memorandum of Association of the
Registrant, as amended.
1.2 Articles of Association of the Registrant, as amended.
2.1 Deposit Agreement dated as of ____________, 2000 among the Registrant, The Bank of
New York, as Depositary, and all owners and holders from time to time of ADRs issued
thereunder, including the form of ADR.*
4.1 The Registrant's Executive Share Option Scheme (1984).*
4.2 The Registrant's Executive Share Option Scheme (1993).*
4.3 The Registrant's Executive Share Option Scheme (1995).*
4.4 Service Contract between the Registrant and David W. Williams dated October 9, 1996.*
4.5 Service Contract between the Registrant and Jonathan P. Findler dated November 11,
1996.*
4.6 Service Contract between Welbilt and Andrew F. Roake dated December 9, 1997.*
4.7 Purchase Agreement dated August 21, 1998 among Berisford Nederland B.V., Aladdin
Industries, Incorporated and others.*
4.8 Agreement and Plan of Merger dated as of July 1, 1999 among Welbilt, Berisford
Acquisition Corporation and Scotsman Industries, Inc., incorporated by reference to
Schedule 14D-1, Exhibit 99(c)(1) filed by Scotsman Industries, Inc. on July 9, 1999 (File
No. 005-40352).
4.9 Credit and Guaranty Agreement dated as of August 13, 1999
among the registrant, Barclays Bank PLC, National
Westminster Bank Plc and others.*
8.1 Significant Subsidiaries.
10.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
- ---------------------
* Previously filed.
62
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Berisford plc:
We have audited the accompanying consolidated balance sheets of Berisford plc
and subsidiaries (collectively, the "Company") as of October 2, 1999 and
September 26, 1998, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended October 2, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
October 2, 1999 and September 26, 1998, and the results of its operations and
its cash flows for the three years in the period ended October 2, 1999, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche
Deloitte & Touche
March 17, 2000
London, England
F-1
BERISFORD plc
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS EXCEPT SHARE DATA)
- ----------------------------------------------------------------------------------------------------------------------------------
OCTOBER 2,
1999 OCTOBER 2, SEPTEMBER 26,
(NOTE 1) 1999 1998
(CONVENIENCE
TRANSLATION)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 42.6 L 26.7 L 39.0
Trade accounts receivable, less allowance for doubtful
accounts of L4.4 and L4.6, respectively 279.5 175.2 91.8
Inventories 233.4 146.3 93.6
Prepaid expenses and other current assets 50.6 31.7 14.4
Deferred income taxes 52.5 32.9 21.5
------- ------- ------
Total current assets 658.6 412.8 260.3
PROPERTY, PLANT AND EQUIPMENT, net 212.3 133.1 62.2
GOODWILL, net 1,015.7 636.7 292.2
DEFERRED INCOME TAXES 136.1 85.3 106.9
OTHER ASSETS 79.3 49.7 41.0
------- ------- ------
TOTAL ASSETS $ 2,102.0 L 1,317.6 L 762.6
======= ======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 133.5 L 83.7 L 42.4
Accrued expenses and other current liabilities 263.9 165.4 103.3
Short-term debt 8.1 5.1 18.9
Current portion of long-term debt 118.8 74.5 1.0
Income taxes payable 14.4 9.0 3.8
------- ----- -----
Total current liabilities 538.7 337.7 169.4
LONG-TERM DEBT 711.2 445.8 238.9
OTHER LIABILITIES 81.5 51.1 25.8
MINORITY INTEREST 1.6 1.0 0.1
------- ----- -----
Total liabilities 1,333.0 835.6 434.2
------- ----- -----
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Ordinary shares, 50p par value, 344,200,000 shares authorized, 168.8 105.8 76.6
211,553,127 and 153,186,805 shares issued and outstanding,
respectively
Additional paid-in capital 264.7 165.9 59.2
Retained earnings 358.3 224.6 213.0
Accumulated other comprehensive loss (22.8) (14.3) (20.4)
--------- ------- ------
Total shareholders' equity 769.0 482.0 328.4
--------- ------- ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,102.0 L 1,317.6 L 762.6
========= ======= =======
See notes to consolidated financial statements.
F-2
BERISFORD plc
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------------------------------------------------------
53 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED
OCTOBER 2, OCTOBER 2, SEPTEMBER 26, SEPTEMBER 27,
1999 1999 1998 1997
(NOTE 1)
(CONVENIENCE
TRANSLATION)
NET SALES $ 1,206.5 L 756.3 L 586.4 L 533.8
COSTS OF GOODS SOLD 768.3 481.6 377.4 353.2
----------- ------ ------ ------
Gross profit 438.2 274.7 209.0 180.6
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 272.9 171.1 131.9 118.7
DEPRECIATION AND AMORTIZATION 57.0 35.7 26.1 23.8
----------- ------ ------ ------
Operating profit 108.3 67.9 51.0 38.1
OTHER INCOME, NET 3.1 1.9 1.8 1.3
INTEREST EXPENSE, NET INCLUDING
AMORTIZATION OF DEBT
ISSUANCE COSTS (21.2) (13.3) (9.6) (9.6)
----------- ------ ------ ------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY GAIN 90.2 56.5 43.2 29.8
PROVISION FOR INCOME TAXES 46.6 29.2 26.9 17.2
----------- ------ ------ ------
INCOME BEFORE EXTRAORDINARY GAIN 43.6 27.3 16.3 12.6
EXTRAORDINARY GAIN - - - 24.9
----------- ------ ------ ------
NET INCOME $ 43.6 L 27.3 L 16.3 L 37.5
=========== ====== ====== ======
BASIC EARNINGS PER ORDINARY
SHARE (PENCE):
Income before extraordinary gain $ 0.28 17.4 p 10.8 p 8.3 p
Extraordinary gain - - - 16.4 p
----------- ------ ------ ------
Net income $ 0.28 17.4 p 10.8 p 24.7 p
=========== ====== ====== ======
DILUTED EARNINGS PER ORDINARY
SHARE (PENCE):
Income before extraordinary gain $ 0.23 14.3 p 10.6 p 8.2 p
Extraordinary gain - - - 16.2 p
----------- ------ ------ ------
Net income $ 0.23 14.3 p 10.6 p 24.4 p
=========== ====== ====== ======
See notes to consolidated financial statements.
F-3
BERISFORD plc
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
- -----------------------------------------------------------------------------------------------------------------------------------
53 WEEKS
ENDED
OCTOBER 2, 53 WEEKS 52 WEEKS 52 WEEKS
1999 ENDED ENDED ENDED
(NOTE 1) OCTOBER 2, SEPTEMBER 26, SEPTEMBER 27
(CONVENIENCE 1999 1998 1997
TRANSLATION)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 43.6 L 27.3 L 16.3 L 37.5
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 57.0 35.7 26.1 23.8
Gain on sale of fixed assets (0.5) (0.3) (1.3) (0.8)
Deferred income taxes 37.2 23.3 23.4 13.6
Extraordinary gain - - - (24.9)
Change in operating assets and liabilities:
Increase in accounts receivable (4.5) (2.8) (12.8) (2.4)
Decrease in inventories 1.8 1.1 1.8 4.4
Increase in prepaid expenses and other current assets (1.0) (0.6) (4.3) (4.0)
(Decrease) increase in trade accounts payable (20.1) (12.6) 7.1 4.7
Decrease in accrued expenses and other current liabilities (0.8) (0.5) (2.2) (5.3)
Other, net (6.4) (4.0) (4.6) (5.4)
------- ------- ------ ------
Net cash provided by operations 106.3 66.6 49.5 41.2
------- ------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (51.8) (32.5) (14.4) (14.2)
Proceeds from the sale of fixed assets 25.8 16.2 15.1 17.3
Acquisitions, net of cash acquired (371.7) (233.0) (69.1) (21.4)
------- ------- ------ ------
Net cash used in investing activities (397.7) (249.3) (68.4) (18.3)
------- ------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 586.0 367.3 - -
Repayments of long-term debt (321.8) (201.7) (4.8) -
Repayments of capital lease obligations (1.1) (0.7) (1.0) (0.6)
Net proceeds from short-term borrowings 25.2 15.8 18.1 -
Dividends paid to shareholders (25.1) (15.7) (11.6) (7.7)
Proceeds from issuance of shares 4.3 2.7 0.4 -
Repurchase of shares (1.0) (0.6) (0.7) (1.3)
Repurchase of convertible debt - - - (72.9)
------- ------- ------ ------
Net cash provided by (used in) financing activities 266.5 167.1 0.4 (82.5)
------- ------- ------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 5.3 3.3 (0.3) (2.7)
------- ------- ------ ------
NET DECREASE IN CASH AND CASH EQUIVALENTS (19.6) (12.3) (18.8) (62.3)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 62.2 39.0 57.8 120.1
------- ------- ------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42.6 L 26.7 L 39.0 L 57.8
======= ======= ====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 23.1 L 14.5 L 13.0 L 14.9
======= ======= ====== ======
Income taxes paid $ 13.2 L 8.3 L 6.6 L 5.5
======= ======= ====== ======
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Fair value of assets acquired $ 961.6 L 602.8 L 79.4 L 29.1
Cash paid (371.7) (233.0) (69.1) (21.4)
------- ------- ------ ------
Liabilities assumed $ 589.9 L 369.8 L 10.3 L 7.7
======= ======= ====== ======
See notes to consolidated financial statements.
F-4
BERISFORD plc
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS)
- -------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
OTHER
ORDINARY SHARES ADDITIONAL COMPREHENSIVE
PAR PAID-IN RETAINED INCOME
NUMBER VALUE CAPITAL EARNINGS (LOSS) TOTAL
BALANCE, SEPTEMBER 29, 1996 152.6 L 76.3 L 58.8 L 178.5 L 1.4 L 315.0
------
Comprehensive income:
Net income 37.5 37.5
Foreign currency translation
adjustments (2.9) (2.9)
------
Total comprehensive income: 34.6
------
Dividends on ordinary shares (7.7) (7.7)
----- ---- ---- ----- --- ------
BALANCE, SEPTEMBER 27, 1997 152.6 76.3 58.8 208.3 (1.5) 341.9
------
Comprehensive income:
Net income 16.3 16.3
Foreign currency translation
adjustments (3.2) (3.2)
Minimum pension liability
adjustment, net of tax (15.7) (15.7)
------
(2.6)
------
Total comprehensive loss:
Dividends on ordinary shares (11.6) (11.6)
Conversion of Convertible Unsecured
Loan Stock 0.1 0.1 0.2 0.3
Shares issued 0.5 0.2 0.2 0.4
--- --- --- ---- ------ -----
BALANCE, SEPTEMBER 26, 1998 153.2 76.6 59.2 213.0 (20.4) 328.4
-----
Comprehensive income:
Net income 27.3 27.3
Foreign currency translation
adjustments 1.1 1.1
Minimum pension liability
adjustment, net of tax 5.0 5.0
------
Total comprehensive income: 33.4
------
Dividends on ordinary shares (15.7) (15.7)
Conversion of Convertible Unsecured
Loan Stock 55.5 27.8 105.4 133.2
Shares issued 2.9 1.4 1.3 2.7
----- ----- ----- ---- ------ ---
BALANCE, OCTOBER 2, 1999 211.6 L 105.8 L 165.9 L 224.6 L (14.3) L 482.0
===== ======= ======= ======= ========= =======
BALANCE, OCTOBER 2, 1999 211.6 $ 168.8 $ 264.7 $ 358.3 $ (22.8) $ 769.0
===== ======= ======= ======= ========= =======
(Note 1 Convenience Translation)
See notes to consolidated financial statements.
F-5
BERISFORD plc
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - The principal activities of Berisford plc ("Berisford") and its
subsidiaries (collectively, the "Company") consist of the manufacture and
sale of commercial food equipment and building and consumer products.
STATUTORY RECORDS - The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("US GAAP"), which differs in certain respects
from generally accepted accounting principles in the United Kingdom ("UK
GAAP"), as applied by the Company in the preparation of its statutory
financial statements and for other purposes.
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of Berisford and its consolidated subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation. Such consolidated financial statements include, as
appropriate, the financial position and the results of operations of
acquired businesses since the dates of such respective acquisitions.
Unconsolidated companies that are 20% to 50% owned are accounted for by the
equity method.
FISCAL YEAR - The Company reports on a 52-53 week fiscal year ending on the
Saturday nearest to September 30. Fiscal year 1999 had 53 weeks. Fiscal
years 1998 and 1997 had 52 weeks.
CONVENIENCE TRANSLATION - The consolidated financial statements are
presented in millions of Great Britain pounds ("L" or "GBP"). In
addition, the consolidated financial statements as of and for the 53
weeks ended October 2, 1999 are also presented in U.S. dollars ("$" or
"USD"). These USD amounts are unaudited and are presented solely for the
convenience of the reader at the rate of L1.00 = USD 1.5953, the
noon buying rate of the United States (U.S.) Federal Reserve Bank as of
March 31, 2000. No representation is made that the GBP amounts shown
could have been, or could be converted into USD at that or any other
rate.
FOREIGN CURRENCY TRANSLATION - Berisford has subsidiaries located in
Europe, Asia, Australia and North America. Foreign subsidiary income and
expenses are translated into GBP at the average rates of exchange
prevailing during the year. The assets and liabilities are translated into
GBP at the rates of exchange on the balance sheet date and the related
translation adjustments are included in accumulated other comprehensive
income. As the Company intends to maintain its investments in these
subsidiaries indefinitely, ultimate realization of these translation
adjustments is highly uncertain. As such, no income taxes are provided on
the translation adjustments. Foreign currency transaction gains and losses
are recognized as they occur. Such amounts are included in selling, general
and administrative expenses and were insignificant in all years presented.
USE OF ESTIMATES - The preparation of financial statements in conformity
with US GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION - Revenue is recognized when finished goods are shipped
to a customer.
F-6
MARKETING COSTS - Marketing costs are reported in selling, general and
administrative expenses and include costs of advertising and other
marketing activities. Such costs are expensed as incurred and were
L15.3 million, L12.7 million and L9.8 million in fiscal years 1999, 1998
and 1997, respectively.
RESEARCH AND DEVELOPMENT - Research and development is written off as
incurred. Research and development expenditures for fiscal years 1999,
1998 and 1997 were L8.9 million, L7.0 million and L7.8 million,
respectively.
INTEREST EXPENSE, NET - Interest expense, net for fiscal years 1999,
1998 and 1997 includes interest income of L1.2 million, L3.5
million and L3.6 million, respectively.
INCOME TAXES - Deferred income taxes result from temporary differences
between the financial reporting basis and tax basis of assets and
liabilities. Deferred taxes are recorded at enacted statutory rates and are
adjusted as enacted rates change. Classification of deferred tax assets and
liabilities corresponds with the classification of the underlying assets
and liabilities giving rise to the temporary differences or the period of
expected reversal, as applicable. A valuation allowance is established,
when necessary, to reduce deferred tax assets to the amount that is more
likely than not to be realized based on available evidence.
EARNINGS PER SHARE - Basic earnings per share excludes dilution and is
computed by dividing net income available to common shareholders by the
weighted-average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur
if securities or other contracts to issue common shares were exercised or
converted into common shares or resulted in the issuance of common shares
that then shared in the earnings of the entity.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market value
and include the appropriate portion of manufacturing overheads. Cost is
determined using the first-in, first-out method for all inventories. In
addition, included in inventory is land held for development and sale. This
land is stated at cost unless an impairment has occurred in which case the
land is stated at its fair market value.
PROPERTY, PLANT AND EQUIPMENT, NET - Property, plant and equipment, net is
stated at cost less accumulated deprecation and amortization. The cost of
renewals and betterments is capitalized and depreciated; expenditures for
normal maintenance and repairs are expensed as incurred.
Depreciation and amortization are computed using the straight-line method
over the following estimated useful lives:
DESCRIPTION USEFUL LIVES
Buildings 50-60 years
Machinery, fixtures and equipment 3-10 years
Property and equipment under capital Lesser of lease term
leases and leasehold improvements or economic life
GOODWILL, NET - The excess cost of a purchased business over the fair
value of net assets acquired ("goodwill") is amortized using the
straight-line method over 20 years. Accumulated amortization was
L71.3 million and L51.3 million at October 2, 1999 and
September 26, 1998, respectively.
F-7
RECOVERABILITY OF LONG-LIVED ASSETS - The Company evaluates the carrying
amounts and periods over which long-lived tangible and intangible assets
are depreciated or amortized to determine if events have occurred which
would require modification to the carrying value or useful lives. In
evaluating useful lives and carrying values of long-lived assets, the
Company reviews certain indicators of potential impairment, such as
undiscounted projected cash flows, market share and business plans for each
line of business and acquisition. In the event that an impairment has
occurred, the fair value of the related assets is determined, and the
Company would record a charge to operations calculated by comparing the
asset's carrying value to the estimated fair value. The Company estimates
fair value based on the best information available, making whatever
estimates, judgments and projections are considered necessary.
DEBT ISSUANCE COSTS - Debt issuance costs are classified as other assets
and are amortized using the effective interest method over the respective
lives of the related debt.
FINANCIAL INSTRUMENTS - The Company operates internationally, giving rise
to potential exposure to market risks from changes in foreign exchange
rates. Derivative financial instruments are utilized by the Company to
reduce those potential risks. The Company does not hold or issue financial
instruments for trading purposes. The Company enters into forward exchange
contracts to hedge certain firm purchase commitments and existing assets or
liabilities. Gains and losses related to qualifying hedges of firm
commitments are deferred, and are recognized in income or as adjustments of
carrying amounts when the hedged transaction occurs.
ENVIRONMENTAL LIABILITIES - The Company's operations and products are
subject to United States federal, state and local as well as international
regulatory requirements relating to environmental protection. It is the
Company's policy to comply fully with all such applicable requirements. The
Company may be subject to potential liabilities for the costs of
environmental remediation at currently or previously owned or operated
sites or sites to which it, or predecessor owners, transported materials.
It is the Company's policy to accrue for the estimated cost of
environmental matters, on a nondiscounted basis, when it is probable that a
liability has been incurred and the amount of the liability can be
reasonably estimated. Such provisions and accruals exclude claims for
recoveries from insurance carriers or other third parties. Such claims are
recognized as receivables only if realization is probable.
SHARE BASED COMPENSATION - As permitted by Statement of Financial
Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, the Company continues to account for its stock-based
compensation using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,
and its related interpretations. SFAS No. 123 requires the disclosure of
the effect on operating results had the Company adopted the fair value
method (see Note 13).
NEW ACCOUNTING PRONOUNCEMENTS - The Company has adopted SFAS No. 130,
REPORTING COMPREHENSIVE INCOME, which established standards for reporting
comprehensive income in financial statements. SFAS No. 130 requires
reporting certain transactions that result in a change in equity, such as
currency translation, unrealized gains and losses, deferred compensation
and minimum pension liability adjustments, as components of comprehensive
income. Prior period comparatives have been disclosed to conform to this
Statement.
The Company adopted SFAS No. 132, EMPLOYERS' DISCLOSURE ABOUT PENSIONS AND
OTHER POSTRETIREMENT BENEFITS, which is effective for fiscal year 1999.
SFAS 132 revises employers' disclosures about pension and other
post-retirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements for
pensions and other post-retirement benefits to the extent practicable.
F-8
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS 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 the fiscal year 2001. The Company is currently evaluating
the extent to which its financial statements will be affected by this
Statement.
2. ACQUISITIONS
1999 ACQUISITIONS
In August 1999, the Company acquired Scotsman Industries, Inc.
("Scotsman"), a major manufacturer of ice making machines and commercial
refrigeration products for L478.1 million, attributable to L225.0 million
in cash, deferred consideration of L17.1 million, L224.5 million of assumed
debt and L11.5 million in related costs.
Consideration for Scotsman included amounts payable in respect of shares
still outstanding and the consideration for the acquisition of the minority
interest in Austral Refrigeration Pty Ltd, which was acquired as a result
of the minority shareholders exercising a change in control option to sell
their shares. Deferred consideration is expected to be paid within one year
and is not based on any performance criteria.
In December 1998, the Company acquired Convotherm Elektrogerate, GmbH
and subsidiaries for L13.3 million, attributable to L8.4
million in cash, deferred consideration of L0.8 million, L3.7
million of assumed debt and L0.4 million in related costs. The
deferred consideration is expected to be paid in 2004 and is not subject
to any performance criteria.
The results of operations of both acquisitions are included in the
consolidated financial statements from the date of acquisition. The
acquisitions were accounted for under the purchase method. The purchase
prices have been allocated based on the estimated fair value of the
assets acquired and liabilities assumed. The excess purchase prices over
the fair value of the net assets acquired of approximately L375.7
million for the acquisitions was allocated to goodwill and are amortized
on a straight-line basis over 20 years.
1998 ACQUISITIONS
In August 1998, the Company acquired the assets and liabilities of the
Aladdin Temp-Rite business operations in the United States, as well as
Aladdin Temp-Rite's Canadian and European subsidiaries (collectively
"Aladdin") for L42.4 million, attributable to L40.9 million in cash, L0.1
million in deferred consideration, L1.0 million of assumed debt and L0.4
million in related costs. The deferred consideration was paid in 1999.
In July 1998, C.P. Hart & Sons Limited was acquired by Magnet Limited, a
subsidiary of the Company for L13.2 million, attributable to L12.6 million
in cash, L0.1 million in related costs and L0.5 million in deferred
consideration. The deferred consideration is subject to certain performance
criteria and is payable within two years.
F-9
Acquisitions, including those described above for 1998, aggregated
L69.5 million in cash, deferred consideration, assumed debt and
related costs. The results of operations of all acquisitions are
included in the consolidated financial statements from their respective
dates of acquisition. The acquisitions were accounted for under the
purchase method. The purchase prices have been allocated based on the
estimated fair value of the assets acquired and liabilities assumed. The
excess purchase prices over the fair value of the net assets acquired of
approximately L52.5 million was allocated to goodwill and are
amortized on a straight line basis over 20 years.
The following table presents the unaudited pro forma combined results of
the Company, Scotsman and Aladdin as if the acquisitions had occurred at
the beginning of fiscal year 1998. The aggregate impact of the other
acquisitions in these periods were not material to net sales, net income or
basic earnings per share.
UNAUDITED
FISCAL YEARS ENDED
-----------------------------------
OCTOBER 2, SEPTEMBER 26,
(IN MILLIONS EXCEPT SHARE DATA) 1999 1998
Net sales L 1,113.3 L 1,011.1
Net income (loss) L 9.8 L (4.0)
Net income (loss) per share, basic 6.2p (2.6)p
These pro forma amounts reflect the inclusion of the results of Scotsman
for 1998 and the first eleven months of 1999 prior to the acquisition date,
and the results of Aladdin for the first eleven months of 1998 prior to the
acquisition date, as well as the results that are included in the
historical financial statements from the dates of these acquisition. In
addition, the pro forma amounts include the amortization of the goodwill
arising from the allocation of the purchase price, interest expense on the
debt issued to finance the purchase, a reduction in interest expense for
pre-existing Scotsman debt which was repaid as part of the acquisition, the
reversal of acquired goodwill and the related tax effects on these items.
The pro forma information does not necessarily present what the combined
results would have been for these periods and is not intended to be
indicative of future results.
1997 ACQUISITIONS
During July 1997, the Company acquired a number of subsidiaries for
L23.3 million in cash, deferred consideration and related costs.
Deferred consideration amounting to L1.9 million was paid in 1998.
The excess of purchase price over the estimated fair value of the net
assets acquired amounted to L12.2 million which is being amortized
on a straight line basis over 20 years.
3. EXTRAORDINARY GAIN
During fiscal 1997, a wholly-owned subsidiary of Berisford purchased in
the open market 100,313,102 units of its Convertible Unsecured Loan
Stock ("CULS") at a price of 72p per L1 unit. As a result, the
Company recorded an extraordinary gain of L24.9 million, net of
related costs, in fiscal year 1997. Under UK tax rules, this gain was
not subject to income taxes.
F-10
4. INVENTORIES
Inventories consisted of the following (in millions):
OCTOBER 2, SEPTEMBER 26,
1999 1998
Finished goods L 82.7 L 50.9
Work-in-process 16.6 8.9
Raw materials 35.9 25.9
Land 11.1 7.9
------- -------
L 146.3 L 93.6
======= =======
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consisted of assets owned and leased
under capital lease arrangements as follows (in millions):
OCTOBER 2, SEPTEMBER 26,
1999 1998
OWNED:
Land, buildings and leasehold improvements L 63.4 L 28.3
Machinery, fixtures and equipment 155.5 115.3
Construction-in-progress 15.8 6.6
Accumulated depreciation and amortization (102.9) (89.3)
------- -------
Owned, net 131.8 60.9
------- -------
LEASED:
Machinery, fixtures and equipment 2.9 2.2
Accumulated depreciation and amortization (1.6) (0.9)
------- -------
Leased, net 1.3 1.3
------- -------
Total property, plant and equipment, net L 133.1 L 62.2
======= =======
F-11
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities are comprised of the
following (in millions):
OCTOBER 2, SEPTEMBER 26,
1999 1998
Payroll and related costs L 31.3 L 14.2
Deferred consideration relating to acquisitions 17.9 0.6
Customer incentives 10.7 9.0
Other taxes 5.2 5.2
Acquistion fees payable 5.4 -
Other current liabilities 94.9 74.3
------- ------
L 165.4 L 103.3
======= ======
7. SHORT-TERM DEBT
Short-term debt at October 2, 1999 and September 26, 1998 is comprised of
the following (in millions):
OCTOBER 2, SEPTEMBER 26,
1999 1998
Bank loans and overdrafts L 4.6 L 18.2
Other 0.5 0.7
------- ------
L 5.1 L 18.9
======= ======
The weighted-average interest rate based on short-term debt outstanding
for the fiscal years ended October 2, 1999 and September 26, 1998 was
5.73% and 7.24%, respectively. The undrawn amounts available to the
Company under short-term lines of credit were L3.2 million and
L31.5 million at October 2, 1999 and September 26, 1998,
respectively. The Company's short-term debt and lines of credit are
unsecured.
8. LONG-TERM DEBT
Long-term debt consists of the following (in millions):
OCTOBER 2, SEPTEMBER 26,
1999 1998
Term loan L 362.4 L -
Revolving multi-currency loan facility 43.1 -
CULS 94.4 230.4
Other loans 18.5 7.6
Obligations under capital leases 1.9 1.9
------- ------
520.3 239.9
Less: current portion (74.5) (1.0)
------- ------
L 445.8 L 238.9
======= ======
F-12
The term loan and revolving multi-currency loan facility are syndicated
bank loans of $600.0 million (L376.1 million) and $300.0 million
(L188.1 million), respectively, each with a five-year term which
commenced in August 1999. The term loan, which was fully drawn down at
the balance sheet date, and the revolving multi-currency loan facility
which was partly drawn down, bear interest at between 1.25% and 2.25%
above the bank's base rate as periodically determined by reference to
certain agreed financial ratios. The weighted average interest rate for
the term loan and revolving multi-currency loan facility for the
applicable period during 1999 was 7.44%. The loans are guaranteed by
Berisford and its material subsidiaries and secured by the shares of
each of its U.S. subsidiaries. The term loan is subject to principal
repayment of $50.0 million (L31.3 million) in the year to September
30, 2000 and $125.0 million (L78.4 million) in each of the three
subsequent years, with the balance due before maturity in August 2004.
The undrawn amount available to the Company under the revolving
multi-currency loan facility was L138.1 million at October 2, 1999.
The CULS bear interest at 5% per annum, payable in equal half-yearly
installments (net of the deduction of income tax at the basic rate) on
March 31 and September 30. The CULS may be converted to ordinary shares
at the rate of 40.816 ordinary shares for every L100 of CULS, at
the option of the CULS holder. The option may be exercised on February
28 and August 31 of each year up to 2014. Accrued interest will not be
paid on CULS converted, but holders of the ordinary shares issued will
be entitled to receive, in full, dividends declared after conversion.
Berisford has the option to redeem the CULS at any time, subject to six
weeks notice. During fiscal 1999, 136,009,136 units of CULS were
converted to 55,513,488 ordinary shares of Berisford. The balance of the
CULS were either converted on February 14, 2000 or redeemed on February
26, 2000 (see Note 16).
Other loans consist primarily of L1.3 million of Senior Notes 1999
(1998: L1.3 million) and L14.3 million of Industrial Revenue Bonds (1998:
L6.3 million). The Industrial Revenue Bonds are at favorable rates of
interest, set periodically by reference to market movements. These bonds
incurred rates of interest between 3.5% and 6.1% during the year. The
Industrial Revenue Bonds are secured by certain properties of the
Company.
The following is a summary of the aggregate maturities of long-term debt at
October 2, 1999 (in millions):
2000 L 73.3
2001 83.0
2002 76.1
2003 80.2
2004 106.3
Thereafter 99.5
-------
Total L 518.4
=======
The agreement governing the term loan and revolving multi-currency loan
facility contains restrictive financial covenants including, but not
limited to, a maximum leverage ratio, minimum interest cover ratio and net
worth. The Company was in compliance with those covenants as of October 2,
1999.
In addition, the Company is required to make prepayments on the loans of
50% of the cash flow above specified leverage ratios and 100% of any net
asset sale proceeds, as defined in the Credit and Guaranty Agreement, in
excess of $50.0 million (L31.3 million).
F-13
The following is a schedule of future minimum lease payments under capital
leases together with the present value of the minimum lease payments at
October 2, 1999 (in millions):
2000 L 1.3
2001 0.5
2002 0.1
2003 0.1
2004 0.1
-------
Minimum lease payments 2.1
Less: amount of finance charges (0.2)
-------
Present value of minimum lease payments L 1.9
=======
9. COMMITMENTS AND CONTINGENCIES
COMMITMENTS - The Company leases certain of its offices, buildings,
plant and equipment in some instances for periods in excess of 20 years
with various renewal options. Rental expense under operating leases was
L21.5 million in fiscal year 1999, L17.3 million in fiscal year 1998 and
L16.8 million in fiscal year 1997.
Future minimum lease commitments under noncancelable operating leases with
initial lease terms greater than one year at October 2, 1999 were as
follows (in millions):
2000 L 26.5
2001 24.7
2002 22.2
2003 19.9
2004 18.5
Thereafter 171.6
-------
Total L 283.4
=======
Outstanding contracts to purchase fixed assets were approximately L8.0
million and L1.4 million in fiscal years 1999 and 1998, respectively.
LITIGATION - Various lawsuits and claims arising in the ordinary course of
business are pending against the Company. The Company is vigorously
contesting or pursuing, as applicable, several lawsuits and claims where it
believes that its positions are sustainable. The Company has recorded
accruals for losses it considers to be probable and reasonably estimable.
However, due to the uncertainties involved in litigation, there are cases,
including the significant matters noted below, in which the outcome is not
reasonably predictable, and the losses, if any, are not reasonably
estimable. If such lawsuits and claims were to be determined in a manner
adverse to the Company, and in amounts in excess of the Company's accruals,
it is reasonably possible that such determinations could have a material
effect on the Company's net income in a given reporting period. The term
"reasonably possible" is used herein to mean that the chance of a future
transaction or event occurring is more than remote but less than likely.
However, based upon management's current assessments of these lawsuits and
claims and that provided by counsel in such matters, and the capital
resources available to the Company, management of the Company believes that
the ultimate resolution of these lawsuits and claims would not exceed, by a
material amount, the aggregate of the amounts accrued in respect of such
lawsuits and, therefore, should not have a material effect on the Company's
liquidity, financial condition or results of operations.
F-14
BOMAR RELATED CASES - In 1996 Bomar Resources Holdings Inc. ("BRHI"),
among others, brought an action against Berisford in the U.S. Federal
District Court for the Southern District of New York for indemnification
against various third party claims. Berisford granted the indemnity in
connection with the 1988 sale of a former subsidiary, Bomar Resources
Inc. ("Bomar"), to BRHI's predecessors. In September 1999, the jury
found Berisford liable to indemnify BRHI for L1.1 million ($1.8
million) plus interest, and for 50% of BRHI's future costs and damages
which may result from a separate action in New York federal court
against Bomar brought by International Mineral and Resources, S.A. ("the
IMR action"), concerning Bomar's interference with IMR's contract to
purchase a shipping vessel in 1987. Berisford has moved to set aside the
verdict against it, and for judgment in its favor. At this time,
Berisford cannot determine the likelihood of prevailing on this motion.
Berisford intends to continue to defend this action vigorously.
Separately, in October 1999, judgment was entered against Bomar and
other defendants in the IMR action, holding Bomar liable to IMR for
L26.6 million ($42.5 million). This amount was subsequently reduced
to approximately L23.4 million ($37.4 million). Management has been
informed that Bomar will appeal the amounts of this judgment.
In January 2000, IMR and a related entity commenced proceedings against
Berisford, BRHI, and others in New York State court ("the state court
action"). In the state court action, plaintiffs assert claims against
Berisford arising from the indemnity under which it was held liable for
BRHI's damages in the District Court action. Despite the finding of 50%
liability in that case, plaintiffs seek to recover from Berisford the
entire judgment rendered against Bomar in the IMR action. In addition,
plaintiffs assert causes of action against Berisford for fraudulent
conveyance based on New York's Debtor and Creditor Law. As to these
claims, plaintiffs allege that while Bomar was defendant in the IMR
action, it conveyed L18.8 million ($30.0 million) to Berisford without
fair consideration. Plaintiffs seek to recover the sum of the alleged
fraudulent conveyance from Berisford to partially satisfy the judgment
against Bomar in the IMR action. Berisford has moved the court to
dismiss the state court action and otherwise intends to vigorously
defend itself against these claims. To the extent that Bomar appeals in
the IMR action and succeeds in reducing the amount of the L23.4 million
($37.4 million) judgment against it, the amount being sought by IMR from
Berisford in the state court action would be reduced accordingly.
CONSOLIDATED RELATED CASES - In January 1999, William L. Hall commenced
proceedings against Welbilt Corporation ("Welbilt") and Welbilt Holding
Company in the U.S. Federal District Court for the Northern District of
Indiana claiming common law fraud, violation of the federal and Indiana
securities laws, constructive fraud and breach of contract arising from
the sale of the stock of Consolidated Industries Corp. ("Consolidated")
by Welbilt Holding Company to Mr. Hall in January 1998 under a stock
purchase agreement dated January 6, 1998. Welbilt asserted counterclaims
for breach of contract and declaratory relief that Welbilt is relieved
of any future obligations it may have under the stock purchase agreement.
Mr. Hall claimed an unspecified amount of actual damages, but asserted
that his damages include the purchase price for Consolidated of L4.4
million ($7.0 million). On March 1, 2000, Welbilt moved for summary
judgment dismissing all of Mr. Hall's claims.
In May 1999, Consolidated, then a debtor in bankruptcy, commenced
proceedings against Welbilt in the U.S. Bankruptcy Court for the Northern
District of Indiana alleging that fraudulent transfers had occurred from
Consolidated to Welbilt, that Welbilt had acted in breach of its fiduciary
duty to Consolidated and that Welbilt was the "alter ego" of Consolidated
and is therefore liable for all of Consolidated's debts. Consolidated is a
defendant in a punitive class action which commenced in December 1997 in
Indiana state court seeking damages against Consolidated on behalf of the
class for manufacturing and selling allegedly defective furnaces. By
operation of bankruptcy law and procedure, the Indiana case was moved from
the state court to the bankruptcy court. An attempt by the plaintiffs in
that action to assert a claim against Welbilt on the alter ego theory was
denied without prejudice by the
F-15
bankruptcy court on procedural grounds. Consolidated is also a defendant in
a certified class action in California, which claims that furnaces
manufactured by it were defective.
The Trane Company ("Trane"), a division of American Standard Inc., had
threatened to commence an action against Welbilt seeking to hold it liable
for Consolidated's obligations to Trane on the same alter ego theory
posited by Consolidated. In March 2000, Welbilt filed an action against
Trane in Delaware Chancery Court for a declaratory judgment and injunctive
relief concerning the alter ego theory. On February 9, 2000, Trane
commenced an action in Texas state court involving the same issues. Welbilt
has filed a special appearance in the Texas court objecting to the court's
jurisdiction and asserting that the claims should be heard in Delaware,
where Welbilt, Welbilt Holding Company and American Standard Inc. are
incorporated.
10. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS - The Company sponsors defined benefit pension plans
for certain employees. Generally, benefits are based on a formula
recognizing length of service and final average earnings.
The majority of the Company's full time United Kingdom employees as at
October 2, 1999 are members of defined benefit arrangements with assets
held in separate trustee administered funds. The pension plans relating to
Welbilt were terminated in fiscal year 1999 with the approval of the
appropriate regulatory authorities and all of the liabilities to
participants and beneficiaries have been settled.
The pension assets in the United States acquired as part of the Scotsman
acquisition are invested in institutional mutual funds which contain both
equities and fixed investments. The Company complies with funding
requirements under the Employee Retirement Income Security Act of 1974.
Also, several of the other non-U.S. subsidiaries acquired as part of the
Scotsman acquisition sponsor defined benefit plans. These plans are funded
in compliance with local requirements, if any.
F-16
Information for the Company's major defined benefit plans and
post-retirement medical plans is as follows (in millions):
PENSION PLANS POST-RETIREMENT
------------------------------------------------ MEDICAL PLANS
1999 1998 1999
----------------------- ----------------------- ------------
U.S. NON-U.S. U.S. NON-U.S. U.S.
Change in benefit obligation:
Benefit obligation, beginning of year L 7.8 L 154.6 L 7.7 L 124.7 L --
Service cost 0.2 3.1 -- 2.5 0.1
Interest cost 0.3 8.9 0.6 9.2 --
Newly acquired group 35.3 3.9 -- -- --
Plan participants' contributions -- 0.4 -- 0.3 4.3
Net actuarial loss (gain) -- 0.6 -- 24.8 (0.3)
Benefits paid (9.1) (7.9) (0.5) (6.9) (0.1)
------ ------- ------ ------- ------
Benefit obligation, end of year L 34.5 L 163.6 L 7.8 L 154.6 L 4.0
------ ------- ------ ------- ------
Change in plan assets:
Fair value of plan assets,
beginning of year L 10.0 L 159.7 L 9.6 L 159.5 L --
Actual return on plan assets (0.5) 27.1 0.9 4.2 --
Newly acquired group 31.8 -- -- -- --
Employer contributions 1.2 2.3 -- 2.6 0.1
Plan participants' contributions -- 0.4 -- 0.3 --
Benefits paid (9.1) (7.9) (0.5) (6.9) (0.1)
------ ------- ------ ------- ------
Fair value of plan assets, end of year L 33.4 L 181.6 L 10.0 L 159.7 L --
------ ------- ------ ------- ------
Funded status L (1.1) L 18.0 L 2.2 L 5.1 L (4.0)
Unrecognized prior year service -- -- -- -- --
Unrecognized transition asset -- (7.3) -- (8.8) --
Unrecognized net actuarial loss (gain) 1.3 18.7 (0.8) 34.1 (0.3)
------ ------- ------ ------- ------
Prepaid (accrued) pension cost L 0.2 L 29.4 L 1.4 L 30.4 L (4.3)
====== ======= ====== ======= ======
Amounts recognized in the statement
of financial position consist of:
Prepaid (accrued) benefit cost L 4.7 L 21.3 L 1.4 L 18.0 L (4.3)
Accrued benefit liability (4.5) (7.4) -- (10.4) --
Intangible asset -- -- -- -- --
Accumulated other comprehensive
income -- 15.5 -- 22.8 --
------ ------- ------ ------- ------
Net amount recognized L 0.2 L 29.4 L 1.4 L 30.4 L (4.3)
====== ======= ====== ======= ======
F-17
PENSION BENEFITS
1999 1998 1997
--------------------- ---------------------- ---------------------
U.S. NON-U.S. U.S. NON-U.S. U.S. NON-U.S.
Components of net periodic benefit cost:
Service cost L 0.2 L 3.1 L -- L 2.5 L -- L 2.3
Interest cost 0.3 8.9 0.6 9.2 0.5 9.4
Expected return on plan assets (0.4) (12.4) (0.9) (14.3) (0.7) (14.2)
Net amortization and deferral -- (1.5) -- (1.5) -- (1.5)
Recognized net actuarial loss -- 1.1 -- -- -- --
Settlement credit (0.6) -- -- -- -- --
------ ------- -------- ------- ------- -------
Net periodic pension cost L (0.5) L (0.8) L (0.3) L (4.1) L (0.2) L (4.0)
====== ======= ======== ======= ======= =======
Weighted average assumptions
Discount rate 6.8% 5.9% 7.5% 7.6% 8.0% 9.1%
Expected return on assets 8.0% 7.9% 9.0% 9.6% 9.0% 11.1%
Rate of compensation increase 4.0% 4.0% n/a 4.7% n/a 5.7%
POST-RETIREMENT
MEDICAL PLAN
---------------
1999
---------------
U.S.
Components of net periodic benefit cost:
Service cost L 0.1
Interest cost --
Expected return on plan assets --
-------
Net periodic pension cost L 0.1
=======
Weighted average assumptions
Discount rate 7.5%
Expected return on assets n/a
Rate of compensation n/a
There were no post-retirement medical plans prior to the Scotsman
acquisition in 1999.
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plans with accumulated benefit
obligations in excess of plan assets were (in millions) L115.2,
L112.5 and L99.9, respectively, as of October 2, 1999 and
L91.4, L91.2 and L80.8, respectively, as of September 26,
1998.
DEFINED CONTRIBUTION PLAN - The Company also sponsors defined contribution
pension plans. Participation in one of these plans is available to
substantially all U.S. employees. Company contributions to these plans are
based on either a percentage of employee contributions or a specified
amount depending on the provisions of the plan. Total costs incurred under
the plans were (in millions), L5.4, L3.8, and L3.2 for fiscal years 1999,
1998 and 1997, respectively.
OTHER POSTRETIREMENT BENEFITS - The Company maintains plans that provide
certain healthcare benefits to certain employees retiring from the Company
on or after attaining a certain age and who have
F-18
rendered at least 10 years of service to the Company. These plans are
unfunded. The Company reserves the right to change or terminate the
benefits at any time.
For measurement purposes, a 7.2% and 6.3% gross health care trend rate was
used at year-end 1999 pre-65 and post-65, respectively. Trend rates were
assumed to decrease gradually to 5.0% in 2005 and remain at this level
beyond.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the post-retirement medical plans. A one percentage
point change in assumed health care cost trend rates would have the
following effects on fiscal year 1999 expense and year-end liabilities (in
millions):
ONE- ONE-
PERCENT PERCENT
INCREASE DECREASE
Effect on total of service and interest cost components L -- L --
Effect on post-retirement benefit obligation L 0.1 L (0.1)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
market value of each class of financial instrument for which it is
practicable to estimate that value:
CASH AND CASH EQUIVALENTS - Cash equivalents consist principally of
investments in short-term, interest-bearing instruments. The carrying
amount approximates fair market value.
TRADE ACCOUNTS RECEIVABLE AND PAYABLE - The carrying amount of the
Company's trade accounts receivable and payable approximate market value.
LONG-TERM DEBT - The carrying amount of most of the Company's long-term
debt and the Company's short-term debt approximates market value since
rates on those debt agreements are variable and are set periodically based
on current rates during the year. The fair market value of the Company's
long-term debt with fixed interest rates is estimated based on quoted
market prices for the same or similar issues or on current rates offered
to the Company for debt of the same remaining maturities.
FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES - The fair value of the
CULS as of October 2, 1999 is L116.8 million (September 26, 1998:
L172.2 million) determined using market values.
At October 2, 1999 and September 26, 1998, the Company had foreign
currency forward contracts maturing at various dates to sell L12.7
million and L17.2 million in foreign currency, respectively. The fair
value of the forward contracts is the amount that the Company would
receive or pay to terminate the contracts. In order to terminate these
agreements, the Company would have incurred a loss of L0.2 million
and a gain of L0.2 million at October 2, 1999 and September 26, 1998,
respectively.
F-19
12. INCOME TAXES
The components of the consolidated net deferred tax assets and liabilities
as of October 2, 1999 and September 26, 1998 were as follows (in
millions):
OCTOBER 2, SEPTEMBER 26,
1999 1998
Gross deferred tax assets:
Warranty L 5.8 L 2.1
Severance 0.1 --
Receivable allowances 1.0 0.8
Inventory reserves 1.1 0.4
Amortization 0.2 --
Net operating loss carryforwards 121.9 140.2
Other 30.8 18.5
-------- -------
Total gross deferred tax assets 160.9 162.0
Valuation allowance (29.6) (27.8)
-------- -------
Total gross deferred tax assets L 131.3 L 134.2
======== =======
Gross deferred tax liabilities:
Property, plant and equipment
depreciation L 6.1 L 2.5
Pension accrual 4.9 3.0
Other 2.1 0.3
-------- -------
Total gross deferred tax liabilities L 13.1 L 5.8
======== =======
The above deferred tax components are reflected in the consolidated
balance sheets as follows (in millions):
OCTOBER 2, SEPTEMBER 26,
1999 1998
Current portion of net deferred tax asset L 32.9 L 21.5
Noncurrent portion of net deferred tax asset L 85.3 L 106.9
The Company does not expect to generate sufficient income to realize the
benefit of the following losses and, therefore, a full valuation allowance
has been made against them (in millions).
German losses DM 10
Dutch losses NLG 6
UK losses L 45
In addition, the benefit of the Company's surplus of advance corporation
tax ("ACT") of L12.6 million is not expected to be realized.
F-20
The provision for income taxes consisted of the following (in millions):
FISCAL YEARS ENDED
------------------------------------------
OCTOBER 2, SEPTEMBER 26, SEPTEMBER 27,
1999 1998 1997
Current:
United Kingdom L -- L -- L 0.8
Foreign 5.9 3.5 2.8
------ ------- -------
Total current 5.9 3.5 3.6
Deferred:
United Kingdom 6.3 7.0 2.8
Foreign 17.0 16.4 10.8
------ ------- -------
Total deferred 23.3 23.4 13.6
====== ======= =======
Provision for income
taxes L 29.2 L 26.9 L 17.2
====== ======= =======
The differences between the Company's effective tax rates and the
statutory income tax rates were as follows:
FISCAL YEARS ENDED
------------------------------------------
OCTOBER 2, SEPTEMBER 26, SEPTEMBER 27,
1999 1998 1997
Statutory income tax rate 30.0 % 31.0 % 31.0 %
Increase in rate resulting from:
Non deductible goodwill amortization 11.8 % 12.8 % 17.4 %
Losses not recognized in deferred tax asset 3.2 % 13.2 % 2.6 %
Foreign tax effect 3.4 % 3.8 % 4.0 %
Irrecoverable ACT written off - - 2.7 %
Other, net 3.3 % 1.5 % - %
------ ------- -------
Effective tax rate 51.7 % 62.3 % 57.7 %
====== ======= =======
The Company has approximately L349.0 million (1998: L400.0
million) of losses available for offset against future profits, comprising
L121.0 million (1998: L132.0 million) in the United Kingdom and
L228.0 million (1998: L268.0 million) in the U.S. In addition,
the Company has a surplus ACT carried forward of L12.6 million (1998:
L12.6 million).
13. SHARE-BASED COMPENSATION PLANS
The Company has long-term incentive programs which provide for granting
employees options to purchase Berisford's ordinary shares. Under the
programs, options are exercisable at a rate set by the Board of Directors
of Berisford. An option may not be exercisable after more than 10 years
and one day from the date of the grant.
The individual schemes which comprise the Company's long-term incentive
programs are as follows: the Sharesave Scheme (1984), Sharesave Scheme
(1992), the Executive Scheme (1984) and the Executive Scheme (1995).
Options granted under the Company's Executive Scheme (1995) are subject to
certain performance criteria. Performance conditions are designed to make
options exercisable only if there has been a significant and sustained
improvement in the financial performance of the Company. The current
performance criteria as described in the Executive Scheme (1995) provides
that options are
F-21
not exercisable until the third anniversary from the date of grant and
unless the earnings per share of the Company has exceeded the Retail Price
Index by percentages stipulated within the Executive Scheme (1995). The
Company applies the intrinsic value method of accounting for its share
options, as permitted under SFAS No. 123. As a result, no compensation cost
has been recognized with respect to the Company's share compensation plans
except for the Executive Scheme (1995). The compensation expense in
connection with this long-term incentive program was not material in any
period presented. No further options can be granted under the Sharesave
Scheme (1984) and the Executive Scheme (1984). Had compensation cost for
these plans been determined consistent with SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma
amounts detailed below.
These amounts have been calculated using the Black-Scholes option pricing
model and the following assumptions:
FISCAL YEARS ENDED
---------------------------------------------------
OCTOBER 2, SEPTEMBER 26, SEPTEMBER 27,
1999 1998 1997
Dividend yield 2.1 % 1.4 % 0.9 %
Volatility 40.0 % 39.0 % 38.0 %
Risk-free interest rate 6.7 % 6.3 % 7.1 %
Expected life in years 4.6 4.5 4.5
Net income (L in millions)
As reported 27.3 16.3 37.5
Pro forma 27.1 16.1 37.8
Basic earnings per ordinary share:
As reported:
Income before extraordinary gain 17.4p 10.8p 8.3p
Extraordinary gain - - 16.4P
----- ------ ------
Net income 17.4p 10.8p 24.7p
===== ====== ======
Pro forma:
Income before extraordinary gain 17.3p 10.6p 8.5p
Extraordinary gain - - 16.4P
----- ----- -------
Net income 17.3p 10.6p 24.9p
===== ====== ======
Diluted earnings per ordinary share:
As reported:
Income before extraordinary gain 14.3p 10.6p 8.2p
Extraordinary gain - - 16.2P
----- ------ -----
Net income 14.3p 10.6p 24.4p
===== ====== ======
Pro forma:
Income before extraordinary gain 10.9p 10.4p 8.4p
Extraordinary gain - - 16.2P
----- ----- -----
Net income 10.9p 10.4p 24.6p
===== ===== =====
F-22
A summary of the status of the Company's four share option plans at October 2,
1999, September 26, 1998 and September 27, 1997 and changes during the fiscal
years then ended is presented in the following table:
SHARESAVE SCHEME SHARESAVE SCHEME EXECUTIVE SCHEME EXECUTIVE SCHEME
(1984) (1992) (1984) (1995)
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
PRICE PRICE PRICE PRICE
Outstanding at September 29, 1996 105,189 L 0.57 1,630,652 L 1.56 2,971,155 L 0.92 1,345,849 L 2.13
Granted -- -- 1,087,577 1.12 -- -- 930,000 1.44
Exercised (37,460) 0.57 -- -- (77,487) 0.61 -- --
Forfeited (10,645) 0.57 (709,649) 1.54 (134,636) 2.81 (56,399) 2.31
---------- ------- --------- ------- --------- ------- --------- --------
Outstanding at September 27, 1997 57,084 0.57 2,008,580 1.33 2,759,032 0.84 2,219,450 1.84
Granted -- -- 486,146 2.03 -- -- -- --
Exercised (57,084) 0.57 (8,191) 1.50 (320,279) 1.00 (15,000) 1.44
Forfeited -- -- (265,936) 1.31 -- -- (140,000) 1.44
---------- ------- --------- ------- --------- ------- --------- --------
Outstanding at September 26, 1998 -- -- 2,220,599 1.48 2,438,753 0.82 2,064,450 1.87
Granted -- -- 611,729 1.93 -- -- 1,362,737 2.40
Exercised -- -- (417,553) 1.51 (2,259,894) 0.78 (175,387) 1.98
Forfeited -- -- (263,217) 1.67 -- -- (829,404) 2.13
---------- ------- --------- ------- --------- ------- --------- --------
Outstanding at October 2, 1999 -- L -- 2,151,558 L 1.58 178,859 L 1.34 2,422,396 L 2.05
========== ======= ========= ======= ========= ======= ========= ========
Excisable at end of period -- L -- 25,626 L 1.52 178,859 L 1.34 409,659 L 1.88
F-23
The following table summarizes information about stock options outstanding
at October 2, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- ------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE OUTSTANDING EXERCISE
PRICES AT 10/2/99 LIFE (YEARS) PRICE AT 10/2/99 PRICE
L0.95 - L2.63 4,752,813 6.2 L1.81 614,144 L1.71
The maximum aggregate number of shares over which options may currently be
granted under the three schemes cannot exceed 10% of the issued share
capital of the Company on the date of the grant.
1,659,827 ordinary shares of Berisford (1998: 1,611,792) are held in an
independently managed Executive Share Option Plan ("EXSOP trust"). The
EXSOP trust was established in 1994 when Mourant & Co. were appointed as
trustees to purchase shares in Berisford to meet some of the future
obligations under employee option schemes. Shares are distributed to
employees upon exercise of options held by them and payment by them of the
exercise price. The Company finances the EXSOP trust by way of an
interest-free loan of L3.1 million. (1998: L2.7 million). The
EXSOP trust has waived the right to receive dividends on all shares held.
Costs are borne by the sponsoring company and written off in the period in
which they are incurred. At October 1, 1999 the cost of the shares was less
than the market value. However, options to purchase the shares, at cost to
the EXSOP trust, have been granted to certain Directors and employees. The
market value of the shares held by the EXSOP trust at October 1, 1999 was
L5.2 million.
14. BUSINESS SEGMENT INFORMATION
Effective for the fiscal year ended October 2, 1999, the Company adopted
SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, which establishes standards for reporting information about
operating segments in annual financial statements and requires disclosures
of selected information about segments to shareholders. The statement also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Under SFAS No. 131, operating
segments are determined consistent with the way that management organizes
and evaluates financial information internally for making operating
decisions and assessing performance.
The Company's principal business is the manufacture and sale of commercial
food equipment through Welbilt and Scotsman and of building and consumer
products through Magnet Limited and C.P. Hart & Sons Limited.
F-24
The Company's primary measure of segment profit or loss is operating
earnings, which is defined by the Company as earnings before interest and
taxes. The segment disclosures are generally on a basis consistent with
the accounting policies described in Note 1. Intersegment transfers of
inventory are recorded at variable cost, plus a markup. Information on the
three segments as well as the geographical analysis is as follows (in
millions):
FISCAL YEARS ENDED
--------------------------------------
OCTOBER 2, SEPTEMBER 26, SEPTEMBER 27,
1999 1998 1997
Net Sales:
Food equipment L 489.7 L 332.9 L 301.1
Building and consumer products 265.6 250.5 231.1
Other 1.0 3.0 1.6
--------- -------- --------
Total L 756.3 L 586.4 L 533.8
========= ======== ========
Depreciation and Amortization:
Food equipment L 32.0 L 23.0 L 20.8
Building and consumer products 3.7 3.1 3.0
--------- -------- --------
Total L 35.7 L 26.1 L 23.8
========= ======== ========
Operating Profit:
Food equipment L 41.2 L 30.3 L 22.8
Building and consumer products 26.5 20.3 15.2
Other 0.2 0.4 0.1
--------- -------- --------
Total L 67.9 L 51.0 L 38.1
========= ======== ========
OCTOBER 2, SEPTEMBER 26,
1999 1998
Segment Assets:
Food equipment L 1,100.7 L 516.8
Building and consumer products 144.7 147.3
Other 72.2 98.5
--------- ---------
Total L 1,317.6 L 762.6
========= =========
Expenditure for Additions to Fixed
Assets:
Food equipment L 18.9 L 7.8
Building and consumer products 11.7 6.4
Other 1.9 0.2
--------- ---------
Total L 32.5 L 14.4
========= =========
F-25
NET SALES TO EXTERNAL CUSTOMERS FIXED ASSETS
------------------------------------------ -------------------------
FISCAL YEARS ENDED
GEOGRAPHIC OCTOBER 2, SEPTEMBER 26, SEPTEMBER 27, OCTOBER 2, SEPTEMBER 26,
INFORMATION 1999 1998 1997 1999 1998
North America L 333.3 L 245.5 L 231.8 L 87.2 L 37.1
United Kingdom 302.7 263.3 242.3 25.8 20.3
Rest of Europe 71.2 49.7 28.3 11.0 4.6
Rest of world 49.1 27.9 31.4 9.1 0.2
-------- -------- ------- ------- -------
Total L 756.3 L 586.4 L 533.8 L 133.1 L 62.2
======== ======== ======= ======= =======
Net sales are attributed to a country according to the location of the
customer. The Company currently has no single external customer which
accounts for 10 percent or more of its revenue. Fixed assets exclude
intangibles.
15. EARNINGS PER SHARE DISCLOSURE
The following table reconciles the components of basic and diluted
earnings per ordinary share (in millions):
FISCAL YEARS ENDED
---------------------------------------------------------------------------------
OCTOBER 2, SEPTEMBER 26, SEPTEMBER 27,
1999 1998 1997
L SHARES L SHARES L SHARES
Basic earnings attributable to
ordinary shares 27.3 157.1 16.3 151.5 12.6 152.0
Effect of diluted securities -
Employee share options -- 2.1 -- 2.2 -- 1.3
Sharesave options -- 0.8 -- 0.7 -- 0.3
CULS 8.4 89.4 -- (*) -- (*)
------- ------ ------ ------- ------ -------
Diluted earnings attributable to
ordinary shares 35.7 249.4 16.3 154.4 12.6 153.6
======= ====== ====== ======= ====== =======
(*) antidilutive
16. SUBSEQUENT EVENTS
On January 14, 2000, Berisford issued a notice to redeem at par value all
Convertible Unsecured Loan Stock due 2015 ("CULS") in issue on February
14, 2000. Between January 14, 2000 and February 14, 2000, holders of CULS
with a nominal value of L93,348,044, converted their securities into
38,100,937 ordinary shares in Berisford. This conversion increased the
number of ordinary shares of Berisford in issue to 249,683,391. The
remaining CULS in issue, with a nominal value of L1,066,335, were
redeemed for cash at par value on February 26, 2000 together with accrued
interest of L21,753 gross.
CULS holders who converted their CULS to ordinary shares are eligible for
any dividend declared, made or paid by reference to a record date after
February 14, 2000.
******
F-26
ENODIS PLC (FORMERLY KNOWN AS BERISFORD PLC)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF APRIL 1, 2000
AND FOR THE 26 WEEKS ENDED APRIL1, 2000 AND MARCH 27, 1999
ENODIS PLC
CONSOLIDATED BALANCE SHEET
(IN MILLIONS EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
APRIL 1, APRIL 1, OCTOBER 2,
2000 2000 1999
-------- -------- --------
(NOTE 1) (UNAUDITED)
(CONVENIENCE
TRANSLATION)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 26.6 L 16.7 L 26.7
Trade accounts receivable, less allowance
for doubtful accounts of L8.7 and L4.4, respectively 268.0 168.0 175.2
Inventories 230.4 144.4 146.3
Prepaid expenses and other current assets 57.0 35.7 31.7
Deferred income taxes 25.2 15.8 32.9
-------- -------- --------
Total current assets 607.2 380.6 412.8
PROPERTY, PLANT AND EQUIPMENT, net 223.2 139.9 133.1
GOODWILL, net 1,010.3 633.3 636.7
DEFERRED INCOME TAXES 141.0 88.4 85.3
OTHER ASSETS 78.5 49.2 49.7
-------- -------- --------
TOTAL ASSETS $2,060.2 L1,291.4 L1,317.6
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 149.3 L 93.6 L 83.7
Accrued expenses and other current liabilities 211.5 132.6 165.4
Short-term debt 7.8 4.9 5.1
Current portion of long-term debt 98.8 61.9 74.5
Income taxes payable 19.0 11.9 9.0
-------- -------- --------
Total current liabilities 486.4 304.9 337.7
LONG-TERM DEBT 576.4 361.3 445.8
OTHER LIABILITIES 85.7 53.7 51.1
MINORITY INTEREST 1.9 1.2 1.0
-------- -------- --------
Total liabilities 1,150.4 721.1 835.6
-------- -------- --------
SHAREHOLDERS' EQUITY:
Ordinary shares, 50p par value, 344,200,000 shares 199.1 124.8 105.8
authorized; 211,553,127 and 249,694,873 shares
issued and outstanding, respectively
Additional paid-in capital 380.7 238.6 165.9
Retained earnings 353.5 221.6 224.6
Accumulated other comprehensive loss (23.5) (14.7) (14.3)
-------- -------- --------
Total shareholders' equity 909.8 570.3 482.0
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,060.2 L1,291.4 L1,317.6
======== ======== ========
See notes to consolidated financial statements.
F-27
ENODIS PLC
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS EXCEPT SHARE DATA, UNAUDITED)
- --------------------------------------------------------------------------------
26 WEEKS ENDED
APRIL 1, APRIL 1, MARCH 27,
2000 2000 1999
------- ------- -------
(NOTE 1)
(CONVENIENCE
TRANSLATION)
NET SALES $ 906.1 L 568.0 L 321.5
COSTS OF GOODS SOLD 610.0 382.4 204.8
------- ------- -------
Gross profit 296.1 185.6 116.7
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 172.3 108.0 76.6
DEPRECIATION AND AMORTIZATION 45.3 28.4 14.6
------- ------- -------
Operating profit 78.5 49.2 25.5
OTHER INCOME, NET 5.4 3.4 1.5
INTEREST EXPENSE, NET INCLUDING AMORTIZATION
OF DEBT ISSUANCE COSTS (27.7) (17.4) (6.0)
------- ------- -------
INCOME BEFORE INCOME TAXES 56.2 35.2 21.0
PROVISION FOR INCOME TAXES (32.1) (20.1) (9.9)
------- ------- -------
NET INCOME $ 24.1 L 15.1 L 11.1
======= ======= =======
BASIC EARNINGS PER ORDINARY SHARE (PENCE):
Net income $ 0.11 6.9p 7.3p
======= ======= =======
DILUTED EARNINGS PER ORDINARY SHARE (PENCE):
Net income $ 0.10 6.1p 6.9p
======= ======= =======
See notes to consolidated financial statements
F-28
ENODIS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS, UNAUDITED)
- --------------------------------------------------------------------------------
26 WEEKS ENDED
APRIL 1, APRIL 1, MARCH 27,
2000 2000 1999
------ ------ ------
(NOTE 1)
(CONVENIENCE
TRANSLATION)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24.1 L 15.1 L 11.1
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization 45.3 28.4 14.6
Gain on sale of fixed assets (5.4) (3.4) (1.5)
Deferred income taxes 23.9 15.0 8.1
Change in operating assets and liabilities:
Decrease in accounts receivable 15.0 9.4 3.3
Decrease/(increase) in inventories 3.8 2.4 (1.5)
Decrease/(increase) in prepaid expenses and other current assets 3.0 1.9 (1.0)
Increase in trade accounts payable 13.2 8.3 8.2
Decrease in accrued expenses and other current liabilities (19.4) (12.2) (6.6)
Other, net 4.6 2.9 (1.8)
------ ------ ------
Net cash provided by operations 108.1 67.8 32.9
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (27.6) (17.3) (9.3)
Proceeds from the sale of fixed assets 10.4 6.5 7.5
Acquisitions, net of cash acquired (47.7) (29.9) (11.4)
------ ------ ------
Net cash used in investing activities (64.9) (40.7) (13.2)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 2.9 1.8 --
Repayments of long-term debt (25.4) (15.9) (11.4)
Repayments of capital lease obligations (0.5) (0.2) (0.5)
Dividends paid to shareholders (28.7) (18.1) (9.6)
Proceeds from issuance of shares 0.2 0.1 --
Repurchase of convertible debt (1.8) (1.1) --
------ ------ ------
Net cash used in financing activities (53.3) (33.4) (21.5)
------ ------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (5.9) (3.7) 4.5
------ ------ ------
NET (DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS (16.0) (10.0) 2.7
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 42.6 26.7 39.0
------ ------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26.6 L 16.7 L 41.7
====== ====== ======
See notes to consolidated financial statements.
F-29
ENODIS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN MILLIONS, UNAUDITED)
ORDINARY SHARES ACCUMULATED
------------------- ADDITIONAL OTHER
PAR PAID-IN RETAINED COMPREHENSIVE
NUMBER VALUE CAPITAL EARNINGS (LOSS) TOTAL
-------- -------- -------- -------- -------- --------
BALANCE, OCTOBER 2, 1999 211.6 L 105.8 L 165.9 L 224.6 L (14.3) L 482.0
--------
Comprehensive income:
Net income 15.1 15.1
Foreign currency translation adjustments (0.4) (0.4)
--------
Total comprehensive income: 14.7
--------
Dividends on ordinary shares (18.1) (18.1)
Conversion of Convertible Unsecured Loan
Stock 38.1 19.0 72.7 91.7
-------- -------- -------- -------- -------- --------
BALANCE, APRIL 1, 2000 249.7 L 124.8 L 238.6 L 221.6 L (14.7) L 570.3
======== ======== ======== ======== ======== ========
BALANCE, APRIL 1, 2000 249.7 $ 199.1 $ 380.7 $ 353.5 $ (23.5) $ 909.8
======== ======== ======== ======== ======== ========
(Note 1 Convenience Translation)
See notes to consolidated financial statements
F-30
ENODIS PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
BASIS OF PRESENTATION - The Consolidated Balance Sheet at April 1, 2000
and the Consolidated Statements of Income, Cash Flows and Shareholders' Equity
for the 26 weeks ended April 1, 2000 and March 27, 1999 have been prepared in
conformity with the accounting principles applied in our audited consolidated
financial statements for the fiscal year ended October 2, 1999. In the opinion
of management, this information includes all material adjustments, which are of
a normal and recurring nature, necessary for a fair presentation.
These statements should be read in conjunction with our audited
consolidated financial statements and related notes for the fiscal year ended
October 2, 1999. The results for the 26 weeks are not necessarily indicative of
the results expected for the fiscal year.
For purposes of these notes, "Enodis" refers to Enodis plc, and "the
Company" refers to Enodis plc and its subsidiaries. Enodis PLC changed its name
from Berisford PLC on June 26, 2000.
CONVENIENCE TRANSLATION - The consolidated financial statements are
presented in millions of Great Britain pounds ("L" or "GBP"). In addition, the
consolidated financial statements as of and for the 26 weeks ended April 1, 2000
are also presented in U.S. dollars ("$" or "USD"). These USD amounts are
unaudited and are presented solely for the convenience of the reader at the rate
of L1.00 = USD 1.5953, the noon buying rate of the United States (U.S.) Federal
Reserve Bank as of March 31, 2000. No representation is made that the GBP
amounts shown could have been, or could be converted into USD at that or any
other rate.
2. INVENTORIES
Inventories consist of the following (in millions):
APRIL 1, 2000
(UNAUDITED) OCTOBER 2, 1999
----------- ---------------
Finished goods L 79.5 L 82.7
Work-in-process 15.5 16.6
Raw materials 43.6 35.9
Land 5.8 11.1
------ ------
L144.4 L146.3
====== ======
3. LONG-TERM DEBT
Long-term debt consists of the following (in millions):
APRIL 1, 2000
(UNAUDITED) OCTOBER 2, 1999
Term loan L360.4 L362.4
Revolving multi-currency loan facility 37.2 43.1
CULS -- 94.4
Other loans 23.9 18.5
Obligations under capital lease 1.7 1.9
------ ------
423.2 520.3
Less: current portion (61.9) (74.5)
------ ------
L361.3 L445.8
====== ======
F-31
The term loan and revolving multi-currency loan facility are
syndicated bank loans of $600.0 million (L376.1 million) and $300.0 million
(L188.1 million), respectively, each with a five-year term, which commenced in
August 1999. The term loan, which was fully drawn down at the balance sheet
date, and the revolving multi-currency loan facility which was partly drawn
down, bear interest at between 1.25% and 2.25% above the bank's base rate as
periodically determined by reference to certain agreed financial ratios. The
weighted average interest rate for the term loan and revolving multi-currency
loan facility for the period ended April 1, 2000 was 7.46%. The loans are
guaranteed by Enodis and its material subsidiaries and secured by the shares of
each of its U.S. subsidiaries. The term loan is subject to principal repayment
of $50.0 million (L31.3 million) in the year to September 30, 2000 and $125.0
million (L78.4 million) in each of the three subsequent years, with the balance
due before maturity in August 2004. $25.0 million (L15.7 million) was repaid
during the period ended April 1, 2000. The undrawn amount available to us under
the revolving multi-currency loan facility was L150.3 million at April 1, 2000.
Other loans consist primarily of L6.0 million ($9.6 million) of
additional short-term bank borrowings and L14.9 million ($23.8 million) of
Industrial Revenue Bonds. The Industrial Revenue Bonds are at favorable rates of
interest, set periodically by reference to market movements. These bonds
incurred rates of interest between 3.0% and 6.3% during the period. The
Industrial Revenue Bonds are secured by certain properties of Enodis.
The following is a summary of the aggregate of long-term debt at
April 1, 2000 (in millions):
(UNAUDITED)
-----------
2001 L 61.9
2002 80.7
2003 80.3
2004 100.6
2005 94.6
Thereafter 3.4
-------
Total L 421.5
=======
The agreement governing the term loan and revolving multi-currency
loan facility contains restrictive financial covenants including, but not
limited to, a maximum leverage ratio, minimum interest cover ratio and net
worth. We were in compliance with those covenants as of April 1, 2000.
In addition we are required to make prepayments on the loans of 50%
of cash flow above specified leverage ratios and 100% of any net asset sale
proceeds, as defined in the credit and Guaranty Agreement, in excess of $50.0
million (L31.3 million).
4. LITIGATION
There have been no significant changes in the status of the cases
described in our audited consolidated financial statements, with the exception
of the Consolidated Industries-related cases, in which two of our subsidiaries
were named as defendants. On May 8, 2000, the court granted summary judgement in
favor of our subsidiaries dismissing the plaintiff's claim. The plaintiff has
filed an appeal.
F-32
5. BUSINESS SEGMENT INFORMATION
Under SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION, operating segments are determined consistent with the way
the management organizes and evaluates financial information for making
operating decisions and assessing performance. Our principal business is the
manufacture and sale of commercial food equipment through Welbilt Corporation
and Scotsman Industries, Inc. ("Scotsman") and of building and consumer products
through Magnet Limited and C.P. Hart & Sons Limited.
Our primary measure of segment profit or loss is operating profit,
which we define as profit before interest and taxes. Information on the three
segments is as follows (in millions):
26 WEEKS ENDED
APRIL 1, 2000 MARCH 27, 1999
(UNAUDITED) (UNAUDITED)
-------- --------
Net sales:
Food equipment L 415.6 L 192.7
Building and consumer products 138.7 128.8
Other 13.7 --
-------- --------
Total L 568.0 L 321.5
======== ========
Depreciation and amortization:
Food equipment L 26.5 L 12.8
Building and consumer products 1.9 1.8
-------- --------
Total L 28.4 L 14.6
======== ========
Operating profit:
Food equipment L 31.2 L 16.4
Building and consumer products 10.8 9.5
Other 7.2 (0.4)
-------- --------
Total L 49.2 L 25.5
======== ========
APRIL 1, 2000 OCTOBER 2, 1999
-------- --------
(UNAUDITED)
Segment assets:
Food equipment L1,103.3 L1,100.7
Building and consumer products 127.6 144.7
Other 60.5 72.2
-------- --------
Total L1,291.4 L1,317.6
======== ========
F-33
6. EARNINGS PER SHARE DISCLOSURE
The following table reconciles the components of basic and diluted
earnings per ordinary share (in millions):
26 WEEKS ENDED
APRIL 1, 2000 MARCH 27, 1999
(UNAUDITED) (UNAUDITED)
-------------- --------------
L Shares L SHARES
Basic earnings attributable to ordinary shares 15.1 219.8 11.1 151.6
Effect of diluted securities -
Employee share options -- 1.4 -- 1.7
Sharesave options -- 1.0 -- 0.5
CULS 0.1 28.6 5.9 94.0
----- ----- ----- -----
Diluted earnings attributable to ordinary
shares 15.2 250.8 17.0 247.8
===== ===== ===== =====
7. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest and income taxes is as follows (in millions):
26 WEEKS ENDED
APRIL 1, 2000 MARCH 27, 1999
(UNAUDITED) (UNAUDITED)
------------- --------------
Interest paid L 17.4 L 6.6
Income taxes paid L 5.1 L 2.3
The following is a schedule of non-cash investing and financing
activities (in millions):
26 WEEKS ENDED
APRIL 1, 2000 MARCH 27, 1999
(UNAUDITED) (UNAUDITED)
------------- --------------
Fair value of assets acquired L 4.1 L 17.1
Cash paid (2.3) (11.4)
---------- ---------
Liabilities assumed L 1.8 L 5.7
========== =========
Acquisitions, net of cash acquired, for the period ended April 1, 2000
includes the cash payment relating to deferred consideration and costs of L27.6
million, which was accrued during the fiscal year ended October 2, 1999 in
respect of the Scotsman acquisition.
8. FINANCIAL INSTRUMENTS
INTEREST RATE SWAP AGREEMENTS
The Company has entered into two interest rate swap agreements with a
combined notional amount of $100 million. These agreements swap floating
interest rates for fixed interest rates and are used to mitigate the impact of
fluctuations in interest rates on the Company's variable rate long-term
borrowings. The interest rate swap agreements mature on November 29, 2002. The
approximate gain to the Company to terminate the agreements at April 1, 2000
would have been $1.8 million.
F-34
INTEREST RATE CAP/FLOOR AGREEMENT
The Company has entered into an interest rate cap/floor agreement with a
notional amount of $100 million. The agreement matures on November 29, 2001.
This agreement is used to mitigate the impact of fluctuations in [^] interest
rates on the Company's variable rate long-term borrowings. The approximate gain
to the Company to terminate the agreement at April 1, 2000 would have been $0.4
million.
FOREIGN CURRENCY FORWARD CONTRACTS
At April 1, 2000 and October 2, 1999, the Company had foreign currency
forward contracts maturing at various dates to sell L17.0 million and L12.7
million in foreign currency, respectively. The fair value of the forward
contracts is the amount that the Company would receive or pay to terminate the
contracts. In order to terminate those agreements, the Company would have
incurred a loss of L0.0 million and L0.2 million at April 1, 2000 and October 2,
1999, respectively.
9. SUBSEQUENT EVENTS
Subsequent to the balance sheet date, on June 14, 2000, the Company
completed the acquisition of Merrychef Holdings Ltd in the U.K., for a total
purchase price of L16.7 million, including the repayment of debt of L12.9
million.
F-35
SCOTSMAN INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS AS OF JANUARY 3, 1999 AND FOR THE THREE YEARS
IN THE PERIOD ENDED JANUARY 3, 1999
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per-share data)
FOR THE FISCAL YEARS ENDED JAN. 3, 1999 DEC. 28, 1997 DEC. 29, 1996
- -------------------------- ------------ ------------- -------------
Net sales $633,044 $571,588 $356,373
Cost of sales 474,679 429,598 257,942
-------- -------- --------
Gross profit 158,365 141,990 98,431
Selling and administrative expenses 93,945 83,071 58,135
-------- -------- --------
Income from operations 64,420 58,919 40,296
Interest expense, net 26,820 21,358 5,279
-------- -------- --------
Income before income taxes 37,600 37,561 35,017
Income taxes 18,672 18,642 16,449
-------- -------- --------
Income before extraordinary loss 18,928 18,919 18,568
Extraordinary loss (net of income taxes of $422) -- (633) --
-------- -------- --------
Net income $ 18,928 $ 18,286 $ 18,568
Preferred stock dividends -- -- 813
-------- -------- --------
Net income available to common shareholders $ 18,928 $ 18,286 $ 17,755
-------- -------- --------
Basic earnings per share:
Income before extraordinary loss $ 1.79 $ 1.79 $ 1.89
Extraordinary loss -- (0.06) --
-------- -------- --------
Earnings per common share $ 1.79 $ 1.73 $ 1.89
-------- -------- --------
Diluted earnings per share:
Income before extraordinary loss $ 1.76 $ 1.75 $ 1.73
Extraordinary loss -- (0.06) --
-------- -------- --------
Earnings per common share $ 1.76 $ 1.69 $ 1.73
-------- -------- --------
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-36
CONSOLIDATED BALANCE SHEET
(Amounts in thousands, except number of shares)
JAN. 3, 1999 DEC. 28, 1997
------------ -------------
Assets
- --------------------------------------------------------------------------------------------------
Current Assets:
Cash and temporary cash investments $ 22,429 $ 24,085
Trade accounts and notes receivable, net of allowances
of $5,214 in 1998 and $5,371 in 1997 119,210 102,880
Inventories 90,908 75,350
Deferred income taxes 14,981 12,515
Other current assets 10,799 12,266
-------- --------
Total current assets 258,327 227,096
Properties and equipment, net 99,463 86,762
Goodwill, net 309,743 281,855
Other noncurrent assets 40,117 64,411
-------- --------
TOTAL ASSETS $707,650 $660,124
-------- --------
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term debt and current maturities of capitalized
lease obligations and long-term debt $ 24,801 $ 29,519
Trade accounts payable 54,985 44,889
Accrued income taxes 17,052 4,002
Accrued expenses 68,184 69,537
-------- --------
Total current liabilities 165,022 147,947
-------- --------
Long-term debt and capitalized lease obligations 330,531 321,132
Deferred income taxes 2,368 2,305
Other noncurrent liabilities 41,858 46,086
-------- --------
TOTAL LIABILITIES 539,779 517,470
-------- --------
Minority Interest 7,338 --
-------- --------
Shareholders' Equity:
Common stock, $.10 par value, authorized 50,000,000 shares;
issued 10,783,090 shares and 10,760,490 shares, respectively 1,078 1,076
Preferred stock, $1.00 par value, authorized 10,000,000 shares;
issued 0 shares -- --
Additional paid in capital 74,200 73,639
Retained earnings 97,134 79,266
Accumulated other comprehensive income (10,167) (9,615)
Less: Common stock held in treasury; 186,210 and
191,893 shares, respectively (1,712) (1,712)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 160,533 142,654
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $707,650 $660,124
-------- --------
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-37
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
FOR THE FISCAL YEARS ENDED JAN. 3, 1999 DEC. 28, 1997 DEC. 29, 1996
- -------------------------- ------------ ------------- -------------
Cash flows from operating activities:
Net income $ 18,928 $ 18,286 $ 18,568
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,412 16,549 8,870
(Gain) loss on property dispositions (102) 169 (82)
Change in assets and liabilities:
Trade accounts receivable 1,431 (11,537) (3,310)
Inventories (1,018) 7,121 237
Trade accounts payable and other liabilities (8,549) (4,892) (1,877)
Other, net 5,481 6,231 1,101
-------- -------- -------
Net cash provided by operating activities 35,583 31,927 23,507
Cash flows from investing activities:
Investment in properties and equipment (9,964) (11,788) (6,195)
Proceeds from dispositions of properties and equipment 292 154 230
Acquisition of Kysor -- (264,788) --
Acquisition of Austral (13,721) -- --
Other investments in subsidiaries and joint ventures (1,694) (7,626) (3,414)
-------- -------- -------
Net cash used in investing activities (25,087) (284,048) (9,379)
Cash flows from financing and capital activities:
Short-term debt, net 2,941 (3,060) (6,524)
Issuance of long-term debt 46,556 464,790 16,074
Principal payments under long-term debt and
capitalized leases (59,459) (189,243) (21,128)
Financing costs of Kysor and subordinated debt
and debt discount -- (8,517) --
Dividends paid to shareholders (1,059) (1,055) (2,035)
-------- -------- -------
Net cash (used in) provided by financing and
capital activities (11,021) 262,915 (13,613)
Effect of exchange rate changes on cash and
temporary cash investments (1,131) (3,210) 178
-------- -------- -------
Net (decrease) increase in cash and temporary
cash investments (1,656) 7,584 693
Cash and temporary cash investments at
beginning of year 24,085 16,501 15,808
-------- -------- -------
Cash and temporary cash investments at end of year $ 22,429 $ 24,085 $ 16,501
-------- -------- -------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 28,879 $ 19,159 $ 6,812
-------- -------- -------
Income taxes $ 13,191 $ 23,092 $ 14,957
-------- -------- -------
Supplemental schedule of noncash investing and
financing activities:
Investment in properties and equipment through
issuance of capitalized lease obligations $ (503) $ (440) $ (42)
-------- -------- -------
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-38
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Accumulated
Common Preferred Additional Other
(Amounts in thousands, Stock Stock Paid in Retained Comprehensive Treasury Comprehensive
except number of shares) Par Value Par Value Capital Earnings Income Stock Income Total
--------- --------- ---------- -------- ------------- -------- ------------- ---------
BALANCE AT DECEMBER 31, 1995 $ 915 $ 2,000 $70,514 $45,232 $ (4,999) $(1,343) $112,319
Comprehensive income:
Net income -- -- -- 18,568 -- -- $18,568 18,568
Foreign currency translation
adjustments -- -- -- -- 2,034 -- 2,034 2,034
Issuance of deferred compensation -- -- 119 -- (119) -- (119) --
Amortization of deferred
compensation -- -- -- -- 120 -- 120 120
Unrecognized pension cost -- -- -- -- (30) -- (30) (30)
Total comprehensive income -- -- -- -- -- -- $20,573 --
Dividends declared to
common shareholders -- -- -- (951) -- -- (951)
Dividends declared to
preferred shareholders -- -- -- (813) -- -- (813)
Conversion of preferred stock
into common stock 153 (2,000) 1,847 -- -- -- --
Stock options exercised 5 -- 573 -- -- (113) 465
------ ------- ------- ------- -------- ------- -------- --------
BALANCE AT DECEMBER 29, 1996 $1,073 $ -- $73,053 $62,036 $ (2,994) $(1,456) $131,712
Comprehensive income:
Net income -- -- -- 18,286 -- -- $18,286 18,286
Foreign currency translation
adjustments -- -- -- -- (6,573) -- (6,573) (6,573)
Issuance of deferred
compensation -- -- 119 -- (120) 1 (120) --
Amortization of deferred
compensation -- -- -- -- 120 -- 120 120
Unrecognized pension cost -- -- -- -- (48) -- (48) (48)
Total comprehensive income -- -- -- -- -- -- $11,665 --
Dividends declared to
common shareholders -- -- -- (1,056) -- -- (1,056)
Stock options exercised 3 -- 467 -- -- (257) 213
------ ------- ------- ------- -------- ------- -------- --------
BALANCE AT DECEMBER 28, 1997 $1,076 $ -- $73,639 $79,266 $ (9,615) $(1,712) $142,654
Comprehensive income:
Net income -- -- -- 18,928 -- -- $18,928 18,928
Foreign currency translation
adjustments -- -- -- -- (478) -- (478) (478)
Issuance of deferred
compensation -- -- 151 -- (132) -- (132) 19
Amortization of deferred
compensation -- -- -- -- 128 -- 128 128
Unrecognized pension cost -- -- -- -- (70) -- (70) (70)
Total comprehensive income -- -- -- -- -- -- $18,376 --
Dividends declared to
common shareholders -- -- -- (1,060) -- -- (1,060)
Stock options exercised 2 -- 410 -- -- -- 412
------ ------- ------- ------- -------- ------- -------- --------
BALANCE AT JANUARY 3, 1999 $1,078 $ -- $74,200 $97,134 $(10,167) $(1,712) $160,533
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of Scotsman
Industries, Inc. ("Scotsman" or "the Company") and its consolidated
subsidiaries. All significant intercompany transactions have been eliminated in
consolidation.
Certain amounts in the consolidated financial statements for previous years have
been reclassified to conform to the presentation used for fiscal year 1998.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Fiscal Year
The Company reports on a 52-53 week fiscal year ending on the Sunday nearest to
December 31. Fiscal year 1998 had 53 weeks. Fiscal years 1997 and 1996 had 52
weeks.
Cash Management
The Company considers all highly liquid investments with original maturities of
three months or less to be temporary cash investments.
Temporary cash investments, primarily Eurodollar deposits or repurchase
agreements with maturities of 90 days or less, are carried at cost, which
approximates market value. Interest income (in thousands) included in interest
expense, net was $854, $1,411, and $791 for fiscal years 1998, 1997 and 1996,
respectively.
Trade Accounts and Notes Receivable
Trade accounts and notes receivable at January 3, 1999, and December 28, 1997,
included notes of $6.0 million and $6.4 million, respectively.
Inventories
Inventories are stated at the lower of cost or market and include the
appropriate elements of material, labor and manufacturing overhead expenses.
Cost is determined using the last-in, first-out ("LIFO") method for 13 percent
of domestic inventories and the first-in, first-out ("FIFO") method for the
balance of domestic and all foreign inventories.
F-40
Properties and Equipment
Properties and equipment, including capitalized leases, are recorded at cost to
the Company at date of acquisition and depreciated over either their estimated
useful lives, ranging from 3 to 40 years, or lease terms, whichever is shorter,
using principally the straight-line method for financial reporting purposes and
accelerated methods for tax reporting purposes.
Goodwill
Cost of investments in excess of net assets of businesses acquired is being
amortized using the straight-line method over 40 years. The related amortization
expense was $7.6 million, $6.3 million, and $2.5 million for the fiscal years
1998, 1997 and 1996, respectively. At January 3, 1999, and December 28, 1997,
accumulated amortization was $21.9 million and $14.5 million, respectively.
After an acquisition, the Company reviews whether subsequent events and
circumstances have occurred that indicate that the remaining estimated useful
life of goodwill may warrant revision or that the remaining balance of goodwill
may not be recoverable. The Company uses projections to assess whether future
operating income of the business on a non-discounted basis is likely to exceed
the goodwill amortization over the remaining life of the goodwill, to determine
whether a writedown of goodwill to recoverable value (as determined by the same
projections) is appropriate.
Financial Instruments
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. The Company's participation in
derivatives is limited primarily to interest rate hedging agreements and forward
exchange contracts. The Company enters into interest rate hedging agreements
(swaps and caps) to reduce the impact of changes in interest rates on its
floating-rate long-term debt. With interest rate swap agreements, the difference
between the fixed and floating rates, which is to be paid or received, is
accrued as interest rates change and is recognized over the life of the hedging
agreements. Interest rate cap agreements entitle the Company to receive from the
counterparties the amounts, if any, by which the selected market interest rates
exceed the strike rates stated in the agreement. The cost of the interest rate
cap agreement is amortized over the shorter of the original term of the
agreement or the life of the financial instrument to which it is matched. The
cash impacts of these instruments are included with the cash flows of the
items to which they relate in the Consolidated Statement of Cash Flows.
The Company uses foreign currency forward contracts to hedge some of its
currency exposure on non-permanent intercompany loans. Using hedge accounting,
these contracts are valued at the current spot rate on a monthly basis, and the
change in value is recognized currently and included, along with any
amortization of forward points over the life of the contract, in selling and
administrative expenses. Any foreign exchange gain or loss on the underlying
intercompany loan is also included in selling and administrative expenses.
The Company also uses foreign currency forward contracts to reduce some of its
exposure to exchange risks associated with transactions in the regular course of
the Company's international operations. The Company utilizes forward contracts
which are short-term in duration and receives or pays the difference between the
contracted forward rate and the exchange rate at the settlement date. The
carrying amount and fair value of these contracts are not significant.
If, subsequent to entering into a hedge transaction with forward contracts, the
underlying transaction is no longer likely to occur, the hedge position is
removed and any gain or loss is included in selling and administrative expenses.
F-41
Revenue Recognition
Revenue is recognized when goods are shipped to a customer.
Research and Development Costs
Research and development costs related to both present and future products are
expensed currently. Research and development expenditures for fiscal years 1998,
1997, and 1996 were $7.0 million, $6.2 million, and $5.6 million, respectively.
Environmental Liabilities
The Company's operations and products are subject to federal, state, local and
foreign regulatory requirements relating to environmental protection. It is the
Company's policy to comply fully with all such applicable requirements. The
Company may be subject to potential liabilities for the costs of environmental
remediation at currently or previously owned or operated sites or sites to which
it, or predecessor owners, transported materials.
It is the Company's policy to accrue for the estimated cost of environmental
matters, on a non-discounted basis, when it is probable that a liability has
been incurred and the amount of the liability can be reasonably estimated. Such
provisions and accruals exclude claims for recoveries from insurance carriers or
other third parties. Such claims are recognized as receivables only if
realization is probable.
Foreign Currency Translation
The Company has foreign subsidiaries located in Italy, Germany, Austria, China,
the United Kingdom, Australia and New Zealand. Foreign subsidiary income and
expenses are translated into United States dollars at the average rates of
exchange prevailing during the year. The assets and liabilities are translated
into U.S. dollars at the rates of exchange on the balance sheet date and the
related translation adjustments are accumulated as a separate component of
shareholders' equity. As the Company intends to maintain its investments in
these subsidiaries indefinitely, ultimate realization of these translation
adjustments is highly uncertain. Foreign currency transaction gains and losses
are recorded in income as they occur.
Taxes
Federal and state income taxes are not provided on undistributed earnings of
foreign subsidiaries that have been or are intended to be reinvested
indefinitely.
Earnings Per Share
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
Comprehensive Income
In July 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," ("SFAS 130"), which established standards
for reporting comprehensive income in financial statements. SFAS 130 requires
reporting certain transactions that result in a change in equity, such as
currency translation, unrealized gains and losses, deferred compensation and
minimum pension liability adjustments, as components of comprehensive income.
As of January 1, 1998, the Company adopted SFAS 130. The adoption of this
Statement had no impact on the Company's net income or shareholders' equity.
F-42
New Accounting Standards
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 the 1999
fiscal year. The Company is currently evaluating the extent to which its
financial statements will be affected by these statements. The Company is unsure
at this time what the impact will be on its financial statements.
In June 1998, 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 the 2000 fiscal year. The Company is currently evaluating the
extent to which its financial statements will be affected by this Statement. The
Company is unsure at this time what the impact will be on its financial
statements.
2. INVENTORIES
Inventories consisted of the following (in thousands):
JAN. 3, 1999 DEC. 28, 1997
------------ -------------
Finished goods $36,154 $28,564
Work-in-process 20,375 13,891
Raw materials 34,379 32,895
------- -------
TOTAL INVENTORIES $90,908 $75,350
------- -------
F-43
Approximately $7.6 million and $7.0 million of total Company inventories were
valued on the LIFO method in fiscal 1998 and 1997, respectively. If inventories
valued on the LIFO method had been valued using the FIFO method, they would have
been $4.0 million and $4.1 million higher at January 3, 1999, and December 28,
1997, respectively.
3. PROPERTIES AND EQUIPMENT
Properties and equipment consisted of assets owned and leased under capital
lease arrangements as follows (in thousands):
JAN. 3, 1999 DEC. 28, 1997
------------ -------------
Owned:
Land $ 10,260 $ 4,439
Buildings and leasehold improvements 54,633 50,132
Machinery, fixtures and equipment 90,384 76,556
Accumulated depreciation and amortization (60,700) (49,044)
-------- --------
Owned, net 94,577 82,083
-------- --------
Leased:
Buildings and leasehold improvements 5,351 5,270
Machinery, fixtures and equipment 1,766 1,231
Accumulated depreciation and amortization (2,231) (1,822)
-------- --------
Leased, net 4,886 4,679
-------- --------
PROPERTIES AND EQUIPMENT, NET $ 99,463 $ 86,762
-------- --------
4. SHORT-TERM DEBT
Short-term debt (in thousands) at January 3, 1999, and December 28, 1997, was
$6,263 and $3,305, respectively, and principally related to amounts owed under
lines of credit. The weighted average interest rate based on short-term debt
outstanding as of January 3, 1999, and December 28, 1997, was 7.0 percent and
7.2 percent, respectively. Average borrowings (in thousands) and the related
weighted average interest rates were as follows:
1998 1997
------ ------
Bank and other borrowings $3,970 $4,524
------ ------
Weighted-average interest rate 6.4% 6.7%
------ ------
The maximum aggregate short-term debt outstanding (in thousands) at the end of
any month during fiscal years 1998 and 1997 was $8,791 and $12,333,
respectively.
5. LINES OF CREDIT
The Company maintains various credit agreements which are used primarily to fund
the Company's working capital needs. At January 3, 1999, these agreements (in
thousands) included foreign and domestic lines of credit of $17,916 and $7,500,
respectively. Lines of credit are reviewed annually, with amounts borrowed under
lines of credit included in short-term debt.
At January 3, 1999, foreign and domestic lines of credit not in use were (in
thousands) $17,243 and $1,910, respectively. Borrowings under these agreements
are available at the prime rate or other prevailing market rates. All domestic
and the majority of foreign lines of credit have no fees or compensating balance
arrangements. Fees incurred for one small portion of the foreign line of credit
were not significant and were expensed when incurred.
F-44
6. ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
JAN. 3, 1999 DEC. 28, 1997
------------ -------------
Payroll and employee benefits $16,884 $19,494
Current portion of product warranties 10,417 9,583
Reserve for customer allowances 4,766 4,740
Other current liabilities 36,117 35,720
------------ -------------
TOTAL ACCRUED EXPENSES $68,184 $69,537
------------ -------------
7. LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS
Long-term debt and capitalized lease obligations consisted of the following (in
thousands):
JAN. 3, 1999 DEC. 28, 1997
------------ -------------
FNBC Facility with floating interest rates; due 1998 - 2004 $216,787 $230,591
8.625% Senior Subordinated debt; due 2007, net of discount 99,759 99,733
Foreign borrowings with various interest rates;
due 1998 - 2011 17,425 2,435
Various industrial revenue bonds with floating interest rates;
due 1998 - 2006 12,750 12,800
Capitalized lease obligations with various interest rates;
due 1998 - 2003 1,669 367
Other domestic borrowings with various interest rates;
due 1998 - 2012 679 1,420
------------ -------------
Total $349,069 $347,346
Current portion 18,538 26,214
------------ -------------
LONG-TERM PORTION $330,531 $321,132
------------ -------------
F-45
In March 1997, the Company financed the acquisition of Kysor Industrial
Corporation, after giving effect to the divestiture of the 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 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. As of January 3, 1999, $55 million of the
term loan portion of the FNBC Facility had been repaid by the Company. The
revolving portion of the FNBC Facility reduces (or has reduced) on December 31
in the respective years as follows: $10 million in 1998, $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. For information on the
interest-rate swaps outstanding which were established in 1997 to comply with
the requirement imposed by the FNBC Facility, see Note 10.
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 (as described below), including debt outstanding
under a former $90 million reducing revolving credit agreement and a $20 million
private placement agreement. This early repayment resulted in an after-tax loss
of $633,000 which is presented in the accompanying income statement for the
fiscal year ended December 28, 1997, as an extraordinary loss.
As of January 3, 1999, interest rates under the FNBC Facility ranged from
approximately 6.69 percent to 8.13 percent for Eurocurrency loans. Commitment
fees on the FNBC Facility vary from 0.175 percent to 0.35 percent per annum on
the unused portion.
In December 1997, the Company's wholly-owned subsidiary, Scotsman Group Inc.,
issued $100 million of 8 5/8% Senior Subordinated Notes which will mature on
December 15, 2007. Net proceeds of the subordinated notes were used to repay $30
million of the term loan under the FNBC Facility as discussed above and also to
repay amounts owed under the revolving credit portion of the FNBC Facility. The
Company has issued a guaranty of the Notes under which the Company, as primary
obligor and not merely as a surety, has fully and unconditionally guaranteed on
a senior subordinated basis the payment of the Notes when due and the due
performance by Scotsman Group Inc. of its other obligations under the Indenture.
See Note 16 regarding summary financial information of Scotsman Group Inc.
The Company's foreign subsidiaries have various loans outstanding, which are
primarily loan agreements with banks. Of the $17.4 million of foreign long-term
debt outstanding as of January 3, 1999, $12.8 million related to long-term debt
of Austral Refrigeration Pty. Limited ("Austral"). A controlling interest in
Austral was acquired by the Company in November 1998 (see Note 14). The debt of
Austral is secured by an interlocking Guarantee and Indemnity from Austral and
its wholly-owned subsidiaries, along with a registered first mortgage over the
whole of assets of Austral and its wholly-owned subsidiaries and a registered
first mortgage on its Glendenning properties.
F-46
The Company has various industrial revenue bonds outstanding. One of the
industrial revenue bonds is secured by a bank letter of credit for $9.6 million.
The current cost of the commitment fee on the letter of credit ranges from 0.50
percent to 1.50 percent on outstanding principal and interest depending on the
Company's leverage ratio as defined in the FNBC Facility as described above. The
two other industrial revenue bonds are secured by properties. One is secured by
a building with a net book value of $4.2 million as of January 3, 1999, and the
other is secured by a building section with a net book value of $0.6 million as
of January 3, 1999. Interest rates on the Company's industrial revenue bonds are
variable.
The Company also has various capital lease obligations which are collateralized
by properties and equipment with a net book value of approximately $0.7 million.
The weighted average effective interest rate was 7.6 percent and 7.7 percent at
January 3, 1999, and December 28, 1997, respectively. Future required maturities
of long-term debt and capital leases, assuming letters of credit are outstanding
at the same level as January 3, 1999, were as follows (in
thousands):
- ----------------------------------------------------------------------
1999 $ 18,538
2000 28,602
2001 24,137
2002 27,831
2003 23,696
Thereafter 226,265
--------
TOTAL $349,069
--------
The agreement governing the FNBC Facility includes various financial covenants.
The Company was in compliance with those covenants as of January 3, 1999. 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 January 3,
1999, consolidated stockholders' equity of the Company was $160.5 million. Under
this covenant, the amount of retained earnings that were restricted as of
January 3, 1999, was $70.7 million. The Company is also precluded from paying
dividends to its shareholders (other than dividends payable in its own capital
stock) if a default or an unmatured default under the agreement has occurred and
is continuing or would occur after giving effect to the payment of such
dividends. Also, under a covenant included in the senior subordinated debt
indenture, $79.2 million of retained earnings of the Company and its
wholly-owned subsidiary, Scotsman Group Inc., were restricted as of January 3,
1999.
F-47
8. OPERATING LEASES
The Company leases certain of its offices, buildings, and machinery and
equipment for periods up to 15 years with various renewal options. Rental
expense under operating leases was $5.1 million in 1998, $4.1 million in 1997,
and $2.5 million in 1996.
Future minimum lease commitments under non-cancelable operating leases with
initial lease terms greater than one year at January 3, 1999, were as follows
(in thousands):
- --------------------------------------------------------------------
1999 $ 3,562
2000 3,106
2001 2,537
2002 2,043
2003 1,502
Thereafter 5,824
-------
TOTAL MINIMUM LEASE COMMITMENTS $18,574
-------
9. EMPLOYEE BENEFIT PLANS
The Company sponsors defined benefit pension plans for certain salaried and
hourly employees. Plans covering salaried employees provide benefits that are
based on years of service and compensation. Plans covering hourly employees
provide benefits of stated amounts for each year of service. The pension assets
are invested in institutional mutual funds which contain both equities and fixed
investments. The Company complies with funding requirements under the Employee
Retirement Income Security Act.
The Company maintains plans that provide certain health care benefits to certain
employees retiring from the Company on or after attaining a certain age and who
have rendered at least 10 years of service to the Company. These plans are
unfunded. The Company reserves the right to change or terminate the benefits at
any time.
F-48
Information for the Company's major defined benefit plans and post-retirement
medical plans is as follows (in thousands):
Post-retirement
Pension Benefits Medical Plans
--------------------------- -------------------
1998 1997 1998 1997
--------- --------- -------- --------
Change in benefit obligation:
Benefit obligation at beginning of year $52,984 $ 52,897 $ 6,478 $ 5,399
Service cost 2,986 2,331 383 350
Interest cost 3,606 2,790 392 375
Plan participants' contributions -- -- 45 40
Amendments 320 -- -- --
Net actuarial loss (gain) 1,932 5,500 (470) 513
Settlement gain -- (134) -- --
Benefits paid (1,987) (10,292) (369) (199)
Expenses paid (240) (108) -- --
--------- --------- -------- --------
BENEFIT OBLIGATION AT END OF YEAR $59,601 $ 52,984 $ 6,459 $ 6,478
--------- --------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year $50,399 $ 43,314 -- --
Actual return on plan assets 8,206 6,788 -- --
Employer contributions 1,338 1,323 323 159
Plan participants' contributions 78 70 46 40
Benefits paid (1,624) (1,109) (369) (199)
Expenses paid (334) 13 -- --
--------- --------- -------- --------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $58,063 $ 50,399 $ -- $ --
--------- --------- -------- --------
Funded status $(1,538) $ (2,585) $(6,459) $(6,478)
Unrecognized prior-service cost 1,354 1,183 -- --
Unrecognized transition asset (4) (6) -- --
Unrecognized net actuarial (gain) loss (2,778) (758) 23 470
--------- --------- -------- --------
ACCRUED BENEFIT COST $(2,966) $ (2,166) $(6,436) $(6,008)
--------- --------- -------- --------
Amounts recognized in the statement of
financial position consist of:
Prepaid (accrued) benefit cost $ 4,567 $ (17) $ -- $ --
Accrued benefit liability (8,354) (2,542) (6,436) (6,008)
Intangible asset 625 267 -- --
Accumulated other comprehensive income 196 126 -- --
--------- --------- -------- --------
NET AMOUNT RECOGNIZED $(2,966) $ (2,166) $(6,436) $(6,008)
--------- --------- -------- --------
Weighted-average assumptions as of December 31:
Discount rate 6.75%-7.0% 7.0% 6.75% 7.0%
Expected return on assets 8.0%-8.5% 8.0%-8.5% -- --
Rate of compensation increase 4.0%-6.0% 4.0%-6.0% -- --
--------- --------- -------- --------
F-49
Pension Benefits Post-retirement Medical Plans
---------------------------------- ------------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------ ----- ----- -----
Components of net periodic benefit cost:
Service cost $ 2,908 $ 2,313 $1,141 $ 383 $ 350 $ 146
Interest cost 3,606 2,536 790 392 375 148
Expected return on plan assets (4,216) (2,739) (643) -- -- --
Amortization of prior service cost 149 117 122 -- -- --
Amortization of transition asset (2) (2) (2) -- -- --
Recognized net actuarial loss (gain) 59 17 (8) (24) -- --
------- ------- ------ ----- ----- -----
NET PERIODIC BENEFIT COST $ 2,504 $ 2,242 $1,400 $ 751 $ 725 $ 294
------- ------- ------ ----- ----- -----
For measurement purposes, a 7.50 percent gross health care trend rate was used
for post-retirement medical plan benefits for 1999. Trend rates were assumed to
decrease gradually to 5.0 percent in 2005 and remain at this level beyond.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the post-retirement medical plans. A one percentage point change in
assumed health care cost trend rates would have the following effects on 1998
expense and year-end liabilities (in thousands):
ONE-PERCENT ONE-PERCENT
INCREASE DECREASE
----------- -----------
Effect on total of service and interest cost components $117 $ (95)
Effect on post-retirement benefit obligation $862 $(704)
----------- -----------
The Company has pension plans covering employees in its Italian subsidiaries.
These plans combine aspects of both government mandated and non-contributory
plans. Total pension expense under these plans included in the Consolidated
Statement of Income (in thousands) was $693, $793, and $895 in fiscal years
1998, 1997 and 1996, respectively. The unfunded liability for these plans
included in the Consolidated Balance Sheet at January 3, 1999, and December 28,
1997, (in thousands) was $4,388 and $4,208, respectively.
The Company also sponsors defined contribution pension plans. Participation in
one of these plans is available to substantially all domestic employees. Company
contributions to these plans are based on either a percentage of employee
contributions or a specified amount depending on the provisions of the plan.
Total costs incurred under the plans were (in thousands) $1,582, $661, and $742
for fiscal years 1998, 1997 and 1996, respectively.
F-50
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair market
value of each class of financial instrument for which it is practicable to
estimate that value:
Cash and Temporary Cash Investments
Temporary cash investments consist principally of investments in short-term,
interest-bearing instruments. The carrying amount approximates fair market
value.
Trade Accounts and Notes Receivable and Payable
The carrying amount of the Company's trade accounts and notes receivable and
payable approximates market value.
Long-Term Debt
The carrying amount of most of the Company's long-term debt and the Company's
short-term debt approximates market value since rates on those debt agreements
are variable and are set periodically based on current rates during the year.
The fair market value of the Company's long-term debt with fixed interest rates
is estimated based on quoted market prices for the same or similar issues or on
current rates offered to the Company for debt of the same remaining maturities.
Letters of Credit
As collateral for the Company's industrial revenue bonds and for certain of its
insurance programs, the Company had a total of $11.1 million of letters of
credit outstanding as of January 3, 1999. The Company pays letter of credit fees
to its bank group that range from 0.50 to 1.50 percent based upon the leverage
ratio as defined in the FNBC Facility. It is the Company's opinion that the
replacement costs for such letters of credit would not significantly vary from
the present fee structure.
F-51
Interest Rate Hedging and Forward Contracts
Effective March 1997, the Company entered into two interest rate swap agreements
to reduce the impact of changes in interest rates on its domestic floating-rate
long-term debt. The interest rate swap agreements had notional principal amounts
of $50 million and $100 million, respectively. Interest payable was at a fixed
rate of 6.245 percent and 6.17 percent, for the $50 million and $100 million
agreements, respectively. In return for both of these agreements, the Company
will receive floating rate interest payments based on three-month London
Interbank Offered Rate. The $50 million interest rate swap agreement has a
maturity date of March 2000, but is extendable for an additional two years at
the option of the bank. The $100 million interest rate swap agreement will
mature in March 2003. These two swap agreements are accounted for as hedges.
Also, the Company had a forward exchange contract outstanding as of January 3,
1999, to hedge exposure relating to an intercompany receivable. The difference
between the forward exchange rate in the contract and the market exchange rate
was immaterial as of January 3, 1999.
The Company also has an interest-rate cap agreement outstanding relating to a
portion of indebtedness at its Australian subsidiary. The interest-rate cap
agreement entitles the Company to receive from the counterparty the amount, if
any, by which the bank bill rate in Australia exceeds 7.0 percent on a notional
principal amount of 5.0 million Australian dollars. The fair value of the
interest-rate cap agreement was not significant as of January 3,1999.
No material loss is anticipated due to nonperformance by counterparties to these
agreements. The fair value of interest-rate swaps and caps is the estimated
amount that the Company would receive or pay to terminate the agreements as of
the balance sheet date.
The estimated fair value of the Company's financial instruments which differ
from their carrying amount at January 3, 1999, (in thousands) was as follows:
CARRYING AMOUNT FAIR VALUE
--------------- ----------
Liabilities:
Long-term debt $347,400 $347,129
Interest-rate swap agreements -- 5,793
-------- --------
The estimated fair value of the Company's financial instruments which differ
from their carrying amount at December 28, 1997, (in thousands) was as follows:
CARRYING AMOUNT FAIR VALUE
--------------- ----------
Liabilities:
Long-term debt $346,979 $347,496
Interest-rate swap agreements -- 2,111
-------- --------
F-52
11. INCOME TAXES
The components of the consolidated net deferred tax assets and liabilities as of
January 3, 1999, and December 28, 1997, were as follows (in thousands):
JAN. 3, 1999 DEC. 28, 1997
------------ -------------
GROSS DEFERRED TAX ASSETS:
Warranty accruals $ 4,613 $ 4,046
Severance accruals 3,249 4,685
Pensions 4,740 4,937
Excise tax 1,493 2,239
Receivable allowances 1,128 1,529
Inventory reserves 1,270 1,924
Reserve for post-retirement medical costs 1,369 2,308
Amortization of certain intangibles 2,134 1,009
German net operating loss carry forwards 1,171 2,210
Other 15,007 15,252
-------- --------
Total gross deferred tax assets 36,174 40,139
Valuation allowance (1,171) (2,210)
-------- --------
Total deferred tax assets $ 35,003 $ 37,929
-------- --------
GROSS DEFERRED TAX LIABILITIES:
Properties and equipment $ (7,486) $ (7,935)
Goodwill amortization (1,395) (1,751)
Pension accrual (2,006) (3,179)
Adjustments for accounting method changes (1,353) (12)
Other (2,247) (3,189)
-------- --------
Total gross deferred tax liabilities $(14,487) $(16,066)
-------- --------
The above deferred tax components are reflected in the accompanying balance
sheet as follows (in thousands):
JAN. 3, 1999 DEC. 28, 1997
------------ -------------
Current portion of deferred tax asset $14,981 $12,515
Non-current portion of deferred tax asset
(included in other non-current assets) 7,903 11,653
Non-current portion of deferred tax liability (2,368) (2,305)
------------ -------------
F-53
The valuation allowance as of January 3, 1999, includes $1.2 million to entirely
offset the tax asset established for Hartek pre-acquisition net operating loss
carry forwards. The Company is awaiting written notice from the German Tax
Office confirming that the losses, for corporate as well as Trade Tax purposes,
assessed on the basis of the tax field audit for the years through 1996 are
unchanged compared to the original assessments. The German net operating loss
carry forwards, if realized, will result in a reduction of goodwill and the
benefit of utilizing the net operating loss carry forwards will not flow through
the income statement.
The provision (benefit) for income taxes consisted of the following (in
thousands):
FOR THE FISCAL YEARS ENDED JAN. 3, 1999 DEC. 28, 1997 DEC. 29, 1996
- -------------------------- ------------ ------------- -------------
State - Current $ 1,836 $ 2,365 $ 801
Federal - Current 7,868 3,541 6,717
Foreign - Current 6,506 6,096 7,407
------- ------- -------
Total 16,210 12,002 14,925
------- ------- -------
State - Deferred 225 (971) 89
Federal - Deferred 1,418 6,324 748
Foreign - Deferred 819 1,287 687
------- ------- -------
Total 2,462 6,640 1,524
------- ------- -------
PROVISION FOR INCOME TAXES $18,672 $18,642 $16,449
------- ------- -------
F-54
Income before income taxes from foreign operations was $15.5 million in 1998,
$14.7 million in 1997 and $15.7 million in 1996. The differences between the
Company's effective tax rate and the statutory federal income tax rate were as
follows:
FOR THE FISCAL YEARS ENDED JAN. 3, 1999 DEC. 28, 1997 DEC. 29, 1996
- -------------------------- ------------ ------------- -------------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Increase (decrease) in rate resulting from:
State and local income taxes, net of federal
tax benefit 3.5 2.5 1.7
Foreign tax effect 5.0 5.9 7.6
Non-tax deductible goodwill 6.3 5.3 2.0
Other (0.1) 0.9 0.7
---- ---- ----
49.7% 49.6% 47.0%
---- ---- ----
In accordance with the Company's accounting policy, provision for U.S. income
taxes has not been made on $37.7 million of undistributed earnings of foreign
subsidiaries at January 3, 1999.
12. STOCK-BASED COMPENSATION PLANS
The Company has a long-term executive incentive program which provides for
granting key employees options to purchase the Company's common stock. Under the
program, options are exercisable at a rate set by the Compensation Committee of
the Board of Directors of the Company. To date, options have been exercisable in
cumulative annual increments of 25 percent commencing one year after the date of
grant. The option price per share is not less than the fair market value of one
share on the date of the grant. An option may not be exercisable after more than
10 years and one day from the date of the grant.
The Company also maintains the Non-Employee Directors Stock Option Plan. The
options under this plan vest 100 percent on the date preceding the first annual
meeting of shareholders following the date of the grant of the options. The
option price per share may not be less than the fair market value of one share
on the date of the grant. An option may not be exercisable after more than 10
years and one day from the date of the grant.
F-55
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined consistent with FASB Statement No. 123, the Company's net income
and earnings per share would have been reduced to the following pro forma
amounts:
1998 1997 1996
------- ------- -------
Net income (in thousands):
As reported $18,928 $18,286 $18,568
Pro forma $17,973 $17,845 $18,306
Basic net income per share:
As reported $ 1.79 $ 1.73 $ 1.89
Pro forma $ 1.70 $ 1.69 $ 1.86
Diluted net income per share:
As reported $ 1.76 $ 1.69 $ 1.73
Pro forma $ 1.67 $ 1.65 $ 1.71
------- ------- -------
A summary of the status of the Company's two stock option plans at January 3,
1999, December 28, 1997, and December 29, 1996, and changes during the years
then ended is presented in the following table:
1998 1997 1996
--------------------- ------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
(000) Price (000) Price (000) Price
------ -------- ------ -------- ------ --------
Outstanding at beginning of year 614 $15 560 $13 525 $12
Granted 161 26 98 27 92 18
Exercised (23) 16 (31) 11 (51) 10
Forfeited (29) 23 (13) 19 (6) 17
------ -------- ------ -------- ------ --------
Outstanding at end of year 723 17 614 15 560 13
------ -------- ------ -------- ------ --------
Exercisable at end of year 467 $13 418 $11 377 $10
Weighted average fair value of
options granted during the year $15.04 $15.30 $9.74
------ -------- ------ -------- ------ --------
F-56
The following table summarizes information about stock options outstanding at
January 3, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ -------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of at 1/3/99 Contractual Exercise at 1/3/99 Exercise
Exercise Prices (000) Life (years) Price (000) Price
- --------------- ----------- ------------ -------- ----------- --------
$ 7 to $10 201 1.7 $ 8 201 $ 8
$11 to $15 114 1.8 12 112 12
$16 to $20 171 6.1 17 127 17
$21 to $28 237 8.7 27 27 26
----------- ------------ -------- ----------- --------
$7 to $28 723 3.1 $17 467 $13
----------- ------------ -------- ----------- --------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997, respectively:
EXECUTIVE PLAN 1998 1997
- -------------- ------ ------
Risk-free interest rate 6.43% 6.49%
Expected volatility 34.74% 35.85%
Expected dividend yield 0.38% 0.40%
Expected life, in years 10.01 10.01
----- -----
NON-EMPLOYEE DIRECTORS PLAN 1998 1997
- --------------------------- ------ ------
Risk-free interest rate 5.68% 6.47%
Expected volatility 34.44% 35.59%
Expected dividend yield 0.36% 0.40%
Expected life, in years 10.01 10.01
------ ------
The Company issued from treasury 5,683, 4,874, and 5,965 shares of common stock
in fiscal years 1998, 1997 and 1996, respectively, as annual Board of Directors
fees. Costs relating to these fees (in thousands) of $147, $120 and $120, were
recorded in fiscal years 1998, 1997 and 1996, respectively.
F-57
13. ACQUISITION OF KYSOR
In March 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 (hereinafter
referred to as the "Acquisition") 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 and is being amortized for book purposes over 40 years using
the straight-line method.
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 December 28, 1997, include certain
adjustments made by Kysor prior to acquisition anticipating the completion of
the transaction. These adjustments related to changes in the accounting
estimates for the carrying value 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.
(Amounts in thousands, except per-share data) Pro Forma (Unaudited)
TWELVE MONTHS ENDED DEC. 28, 1997
- --------------------------------------------- ---------------------
Net sales $610,422
Net income before extraordinary loss 16,893
Net income 16,260
Net income per share, diluted $ 1.51
--------
14. ACQUISITION OF AUSTRAL AND OTHER INVESTMENTS
The Company's subsidiary, Kysor Industrial Corporation, acquired 24 percent of
the outstanding stock of Austral Refrigeration Pty. Limited ("Austral") on
November 16, 1998, and thereby increased its ownership of Austral to a 53
percent controlling interest. The Company had first acquired a 24 percent
interest in Austral as part of its 1997 acquisition of Kysor Industrial
Corporation. The Company's ownership percentage in Austral prior to the November
1998 purchase had grown to 30 percent due to the repurchase by Austral of
certain outstanding shares during 1998. Austral, a privately-held company based
in Australia, is a licensee of the Company's Kysor//Warren product line and the
largest manufacturer and installer of supermarket display cases and
refrigeration systems in Australia and New Zealand. Austral reported sales for
its fiscal year ended June 30, 1998, of approximately U.S. $91 million. With the
November 1998 purchase, the Company recorded a preliminary amount of goodwill of
$14.7 million, bringing the total amount of goodwill related to Austral to $26.6
million. Prior to the acquisition of a controlling interest in Austral, goodwill
related to the investment in Austral was recorded in other non-current assets in
the balance sheet. The goodwill amount related to Austral is preliminary and
will be finalized within 12 months of the November 1998 acquisition date. The
amount of goodwill from this acquisition will be amortized for book purposes
over 40 years using the straight-line method.
F-58
In connection with its acquisition of a controlling interest in Austral, the
Company, through Kysor, also entered into a put option agreement with the
minority shareholders of Austral under which the minority shareholders have the
right to require Kysor to acquire some or all of the remaining Austral shares at
a purchase price per share equal to a multiple of Austral's net after tax income
for the preceding one or two fiscal year period, depending on the date of
exercise, divided by the number of Austral shares outstanding on the date of
exercise. The put is exercisable between October 1 and October 31 of each year,
beginning October 1999. Kysor's obligation to purchase Austral shares in 1999
and 2000 is capped at an aggregate amount equal to Austral's net after-tax
income in its fiscal year immediately preceding the date on which the put option
is exercised and is at all times subject to Kysor's ability to complete the
purchase in compliance with all covenants governing any then outstanding SGI
debt or financing arrangements.
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 Austral 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 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)
TWELVE MONTHS ENDED JAN. 3, 1999
- --------------------------------------------- ---------------------
Net sales $727,751
Net income 19,658
Net income per share, diluted $ 1.83
--------
In December 1998, the Company's subsidiary, Scotsman Drink Limited, purchased
one-third of the issued capital of Total Cellar Systems Limited, an installer
and servicer of beer dispensing equipment in the United Kingdom, for a purchase
price of less than $1.0 million.
In December 1997, the Company's subsidiary, Scotsman Group Inc., acquired the
remaining 40 percent interest in the former joint venture in China for a cash
outlay of approximately $1.4 million.
In December 1997, the Company's subsidiary, Scotsman Drink Limited, acquired
Homark Holdings Limited ("Homark"), a beverage dispensing business located in
the United Kingdom, for a purchase price of approximately 3.3 million pounds
sterling or approximately $5.6 million. Homark had 1997 full-year sales of
approximately $10 million.
Pro forma information related to these acquisitions was not material.
15. BUSINESS SEGMENT INFORMATION
Effective January 3, 1999, the Company adopted Statement of Financial
Accounting Standards No.131, "Disclosures about Segments of an Enterprise and
Related Information."
The Company's principal business is the design, manufacture and sale of a
diversified line of commercial refrigeration products. The Company sells the
products it manufactures to customers in the foodservice industry and the food
retail industry. The foodservice industry is defined as worldwide restaurants
(including fast-food chains), hotels, motels, soft-drink bottlers, brewers and
the Company's distribution network to reach these customers. Products sold to
foodservice customers include commercial ice machines, food preparation
workstations and commercial up-right and under-the-counter refrigerators and
freezers, beverage systems, and walk-in coolers and freezers. The food retail
industry is defined as worldwide supermarkets and convenience stores, and
products manufactured and sold to these customers include refrigerated display
cases, mechanical refrigeration systems, walk-in coolers and freezers, and ice
machines.
F-59
The Company's primary measure of segment profit or loss is operating earnings,
which is defined by the Company as earnings before interest and taxes. The
segment disclosures are generally on a basis consistent with the accounting
policies described in Note 1, Summary of Significant Accounting Policies, with
several exceptions. Intersegment transfers of inventory are recorded at variable
cost, plus a markup. The costs of corporate office activities are not allocated
to the segments. Amortization of goodwill is included in the operating earnings
of the foodservice segment, however it is not included in the operating earnings
of the food retail segment. Information on the two segments is as follows (in
thousands):
Net Sales Operating Earnings Depreciation and Amortization
------------------------------------------- ---------------------------- -----------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---------- -------- -------- ------- ------- ------- ------ ------- ------
Foodservice $352,094 $348,058 $339,949 $37,875 $35,540 $39,048 $8,939 $8,399 $8,468
Food Retail 280,950 223,530 16,424 35,545 31,839 2,976 5,232 3,966 307
-------- -------- -------- ------- ------- ------- ------- ------- ------
Total $633,044 $571,588 $356,373 $73,420 $67,379 $42,024 $14,171 $12,365 $8,775
-------- -------- -------- ------- ------- ------- ------- ------- ------
Investment in
Total Assets Capital Expenditures Equity Method Investees
------------------------------------- ----------------------------------- --------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
Foodservice $263,137 $268,559 $266,249 $6,748 $5,164 $6,076 $1,842 $6,806 $1,101
Food Retail (a) 167,385 123,235 9,386 3,565 6,525 180 157 17,365 958
-------- -------- -------- ------- ------- ------ ------ ------- ------
Total $430,522 $391,794 $275,635 $10,313 $11,689 $6,256 $1,999 $24,171 $2,059
-------- -------- -------- ------- ------- ------ ------ ------- ------
(a) Beginning December 1998, the balance sheet of Austral was consolidated as
the Company acquired a controlling interest. Prior to that date, Austral was
accounted for under the equity method.
F-60
1998 1997 1996
-------- -------- --------
Total segment operating earnings $73,420 $67,379 $42,024
Costs not allocated to segments:
Goodwill and intangible amortization from
Kysor acquisition (5,335) (4,309) --
Corporate functions (3,665) (4,151) (1,728)
Interest expense (27,674) (22,769) (6,070)
Interest income 854 1,411 791
-------- -------- --------
Consolidated income before income taxes $37,600 $37,561 $35,017
-------- -------- --------
Earnings (Loss) of Nonconsolidated Affiliates 1998 1997 1996
-------- -------- --------
Foodservice $(186) $(150) $(297)
Food Retail (a) 1,880 1,376 --
-------- -------- --------
Total $1,694 $1,226 $(297)
-------- -------- --------
(a)Beginning December 1998, the balance sheet of Austral was consolidated as the
Company acquired a controlling interest. Prior to that date, Austral was
accounted for under the equity method.
1998 1997 1996
-------- -------- --------
Total segment assets $430,522 $391,794 $275,635
Corporate and unallocated assets:
Cash and temporary cash investments 10,568 8,148 1,310
Goodwill related to Kysor acquisition, net of amortization 187,918 187,774 --
Goodwill from Austral investment, net of amortization 25,723 12,324 --
Prepaid income taxes 21,151 23,957 4,479
All other, net 31,768 36,127 1,840
-------- -------- --------
Total assets $707,650 $660,124 $283,264
-------- -------- --------
Revenues From External Customers 1998 1997 1996
- -------------------------------- -------- -------- --------
Refrigerated display cases $188,384 $152,156 $ --
Ice machines 171,865 166,190 175,998
Food preparation and storage equipment 103,004 119,681 112,800
Walk-in coolers and freezers 86,115 63,325 --
Beverage systems 83,676 70,236 67,575
-------- -------- --------
Total $633,044 $571,588 $356,373
-------- -------- --------
F-61
Net Sales to External Customers Long-Lived Assets
------------------------------------- ------------------------------------
Geographic Information 1998 1997 1996 1998 1997 1996
- ---------------------- ----------- ----------- ----------- -------- ------------- --------
United States $479,031 $429,803 $226,486 $ 97,799 $107,080 $38,472
Great Britain 42,673 31,886 27,578 5,053 8,467 2,589
All other countries 111,340 109,899 102,309 25,598 24,287 9,654
-------- -------- -------- -------- -------- -------
Total $633,044 $571,588 $356,373 $128,450 $139,834 $50,715
-------- -------- -------- -------- -------- -------
Revenues are attributed to a country according to the location of the customer.
The Company has no single external customer which accounts for 10 percent or
more of its revenue. Long-lived assets exclude goodwill and other intangibles.
16. 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.
Summarized Financial Information (in thousands):
FOR THE FISCAL YEARS ENDED JAN. 3, 1999 DEC. 28, 1997 DEC. 29, 1996
- -------------------------- ------------ ------------- -------------
Current assets $258,327 $227,096 $137,574
Non-current assets 449,323 433,028 145,690
-------- -------- --------
Total assets $707,650 $660,124 $283,264
-------- -------- --------
Current liabilities $167,325 $149,690 $ 79,664
Non-current liabilities 374,757 369,523 73,298
-------- -------- --------
Total liabilities $542,082 $519,213 $152,962
-------- -------- --------
FOR THE FISCAL YEARS ENDED JAN. 3, 1999 DEC. 28, 1997 DEC. 29, 1996
- -------------------------- ------------ ------------- -------------
Net sales $633,044 $571,588 $356,373
Gross profit 158,365 141,990 98,431
Income before extraordinary loss 19,033 19,041 18,679
Net income $ 19,033 $ 18,408 $ 18,679
-------- -------- --------
F-62
The Company has fully and unconditionally guaranteed the Senior Subordinated
Notes. 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.
17. EARNINGS PER SHARE DISCLOSURE
Following is a reconciliation of the numerators and the denominators of the
basic and diluted EPS computation.
FOR THE FISCAL YEARS ENDED
JAN. 3, 1999 DEC. 28, 1997 DEC. 29, 1996
-------------------------------------- ------------------------------------- --------------------------------------
Income Income Income
in thousands Shares Per-share in thousands Shares Per-share in thousands Shares Per-share
(Numerator) (Denominator) amount (Numerator) (Denominator) amount (Numerator) (Denominator) amount
------------ ------------- --------- ------------- ------------ --------- ------------ ------------- ---------
Net income $18,928 $18,286 $18,568
Less: preferred
stock dividends -- -- (813)
Basic EPS
Income available to
common stockholders $18,928 10,590,081 $1.79 $18,286 10,554,984 $1.73 $17,755 9,398,016 $1.89
------- ---------- ------- ------- ---------- ------- ------- --------- ---------
Effect of Dilutive
Securities:
Common stock
options -- 173,008 -- 248,277 -- 203,406
Convertible
preferred stock -- -- -- -- 813 1,107,457
------- ---------- ------- ------- ---------- ------- ------- --------- ---------
Diluted EPS
Income available
to common
stockholders and
assumed
conversions $18,928 10,763,089 $1.76 $18,286 10,803,261 $1.69 $18,568 10,708,879 $1.73
------- ---------- ------- ------- ---------- ------- ------- ---------- ---------
F-63
18. STOCK ACTIVITY
Common, preferred and treasury stock activities were as follows:
COMMON STOCK
NUMBER OF SHARES (NET OF TREASURY SHARES) PREFERRED STOCK TREASURY STOCK
- ---------------- ------------------------ --------------- --------------
Balance at December 31, 1995 8,964,974 1,999,992 188,040
--------- ---------- -------
Issuance of deferred compensation 5,965 -- (5,965)
Conversion of preferred stock into common stock 1,525,386 (1,999,992) --
Stock options exercised 46,139 -- 4,974
--------- ---------- -------
Balance at December 29, 1996 10,542,464 -- 187,049
Issuance of deferred compensation 4,874 -- (4,874)
Stock options exercised 21,259 -- 9,718
--------- ---------- -------
Balance at December 28, 1997 10,568,597 -- 191,893
Issuance of deferred compensation 5,683 -- (5,683)
Stock options exercised 22,600 -- --
--------- ---------- -------
Balance at January 3, 1999 10,596,880 -- 186,210
--------- ---------- -------
F-64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Scotsman Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Scotsman
Industries, Inc. (a Delaware Corporation) and subsidiaries as of January 3,
1999, and December 28, 1997, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended January 3, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Scotsman Industries, Inc. and
subsidiaries as of January 3, 1999, and December 28, 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended January 3, 1999, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen
- -----------------------------
Arthur Andersen LLP
Chicago, Illinois
February 2, 1999
F-65
Schedule II - Valuation and Qualifying
Accounts (In Thousands)
ADDITIONS
-----------------------
Balance at Charged to Charged to Balance
Beginning Costs/ Other at End of
of Period Expenses Accounts(a) Deductions Period
---------- ---------- ----------- ---------- ---------
1996 - Accounts Receivable Reserves $2,960 $ 435 $ (128) $(489) $2,778
1997 - Accounts Receivable Reserves $2,778 $1,126 $1,972 $(505) $5,371
1998 - Accounts Receivable Reserves $5,371 $ 511 $ 292 $(960) $5,214
(a) Includes the foreign currency translation impact and also includes increases
due to inclusion of the accounts receivable reserves of the acquired
businesses as of the date of their acquisition by the Company.
F-66
SCOTSMAN INDUSTRIES, INC.
Unaudited Condensed Financial Statements as of July 4, 1999
and for the six months in the periods ended July 4, 1999 and July 5, 1998
SCOTSMAN INDUSTRIES, INC.
CONDENSED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
FOR THE SIX
MONTHS ENDED
--------------------------
Jul. 4, Jul. 5,
1999 1998
--------- ---------
Net sales $ 350,482 $ 328,770
Cost of sales 266,435 246,210
--------- ---------
Gross profit $ 84,047 $ 82,560
Selling and administrative expenses 49,358 44,834
Amortization expense 4,169 3,727
--------- ---------
Income from operations $ 30,520 $ 33,999
Interest expense, net 13,407 13,919
--------- ---------
Income before income taxes $ 17,113 $ 20,080
Income taxes 7,157 9,831
--------- ---------
Income before minority interest $ 9,956 $ 10,249
Minority interest (378) --
--------- ---------
Net income $ 9,578 $ 10,249
========= =========
Basic EPS (i):
Earnings per common share $ 0.90 $ 0.97
========= =========
Diluted EPS (ii):
Earnings per common share $ 0.89 $ 0.95
========= =========
F-67
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: 10,612,421 and 10,584,371 for
the six months ended July 4, 1999 and July 5, 1998, respectively.
(ii) DILUTED: `Diluted' earnings 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 4, 1999, and July 5, 1998, were 10,741,144 and
10,840,842, respectively.
See notes to unaudited condensed financial statements.
F-68
SCOTSMAN INDUSTRIES, INC.
CONDENSED BALANCE SHEET
(IN THOUSANDS)
Jul. 4, Jan. 3,
A S S E T S 1999 1999
--------- ---------
(unaudited)
CURRENT ASSETS:
Cash and temporary cash investments $ 27,159 $ 22,429
Trade accounts receivable, net of
reserves of $3,674 and $5,214 136,526 119,210
Inventories 84,876 90,908
Deferred income taxes 15,100 14,981
Other current assets 5,512 10,799
--------- ---------
Total current assets $ 269,173 $ 258,327
PROPERTIES AND EQUIPMENT, net of
accumulated depreciation of $66,925
and $62,932 98,535 99,463
GOODWILL, net 304,585 309,743
DEFERRED INCOME TAXES 8,128 7,903
OTHER NONCURRENT ASSETS 31,463 32,214
--------- ---------
$ 711,884 $ 707,650
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current maturities
of long-term debt and capitalized
lease obligations $ 29,003 $ 24,801
Trade accounts payable 56,865 54,985
Accrued income taxes 18,927 17,052
Accrued expenses 63,039 68,184
--------- ---------
Total current liabilities $ 167,834 $ 165,022
LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS 330,578 330,531
DEFERRED INCOME TAXES 2,260 2,368
OTHER NONCURRENT LIABILITIES 39,773 41,858
--------- ---------
Total liabilities $ 540,445 $ 539,779
========= =========
MINORITY INTEREST 7,034 7,338
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value $ 1,083 $ 1,078
Additional paid in capital 75,083 74,200
Retained earnings 106,182 97,134
Accumulated other comprehensive income (15,782) (10,167)
Less: Common stock held in treasury (2,161) (1,712)
--------- ---------
Total Shareholders' Equity $ 164,405 $ 160,533
--------- ---------
$ 711,884 $ 707,650
========= =========
See notes to unaudited condensed financial statements.
F-69
SCOTSMAN INDUSTRIES, INC.
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
FOR THE SIX
MONTHS ENDED
---------------------
Jul. 4, Jul. 5,
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,578 $ 10,249
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 10,784 9,912
Minority interest (514) --
Change in assets and liabilities-
Trade accounts receivable (20,089) (26,318)
Inventories 5,025 2,609
Trade accounts payable and other
liabilities (693) 1,991
Other, net 5,952 9,408
-------- --------
Net cash provided by operating activities $ 10,043 $ 7,851
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in properties and equipment $ (6,135) $ (4,305)
Proceeds from disposal of property,
plant and equipment 49 84
Acquisitions and investments in subsidiaries (1,718) (984)
-------- --------
Net cash used in investing activities $ (7,804) $ (5,205)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term debt
and capitalized lease obligations $(16,649) $(37,924)
Issuance of long-term debt 21,333 28,728
Dividends paid to shareholders (530) (530)
Short-term debt, net (4) 500
-------- --------
Net cash provided by (used in)
financing activities $ 4,150 $ (9,226)
-------- --------
Effect of exchange rate changes on cash
and temporary cash investments (1,659) (2,129)
NET INCREASE (DECREASE) IN CASH AND TEMPORARY
CASH INVESTMENTS $ 4,730 $ (8,709)
CASH AND TEMPORARY CASH INVESTMENTS, beginning
of period 22,429 24,085
-------- --------
CASH AND TEMPORARY CASH INVESTMENTS,
end of period $ 27,159 $ 15,376
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 13,199 $ 16,098
======== ========
Income taxes $ 2,791 $ 1,592
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Investment in properties and equipment through
issuance of capitalized lease obligations $ (193) $ (171)
======== ========
See notes to unaudited condensed financial statements.
F-70
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 January 3, 1999, appearing
in the Company's 1998 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. 4, Jan. 3,
1999 1999
------- -------
Finished goods $37,619 $36,154
Work-in-process 15,870 20,375
Raw materials 31,387 34,379
------- -------
Total inventories $84,876 $90,908
======= =======
F-71
(3) ACQUISITION OF AUSTRAL AND OTHER INVESTMENTS:
The Company's subsidiary, Kysor Industrial Corporation, acquired 24 percent of
the outstanding stock of Austral Refrigeration Pty. Limited ("Austral") on
November 16, 1998, and thereby increased its ownership of Austral to a 53
percent controlling interest. The Company had first acquired a 24 percent
interest in Austral as part of its 1997 acquisition of Kysor Industrial
Corporation. The Company's ownership percentage in Austral prior to the November
1998 purchase had grown to 30 percent due to the repurchase by Austral of
certain outstanding shares during 1998. Austral, a privately-held company based
in Australia, is a licensee of the Company's Kysor//Warren product line and the
largest manufacturer and installer of supermarket display cases and
refrigeration systems in Australia and New Zealand. Austral reported sales for
its fiscal year ended June 30, 1998, of approximately U.S. $91 million. With the
November 1998 purchase, the Company recorded a preliminary amount of goodwill of
$14.6 million, bringing the total amount of goodwill related to Austral to $26.5
million. Prior to the acquisition of a controlling interest in Austral, goodwill
related to the investment in Austral was recorded in other non-current assets in
the balance sheet, and earnings from this investment were accounted for as other
income, which was classified with selling and administrative expenses. The
goodwill amount related to Austral is preliminary and will be finalized within
12 months of the November 1998 acquisition date. The amount of goodwill from
this acquisition is being amortized for book purposes over 40 years using the
straight-line method.
In connection with its acquisition of a controlling interest in Austral, the
Company, through Kysor, also entered into a put option agreement with the
minority shareholders of Austral under which the minority shareholders have the
right to require Kysor to acquire some or all of the remaining Austral shares at
a purchase price per share equal to a multiple of Austral's net after tax income
for the preceding one or two fiscal year period, depending on the date of
exercise, divided by the number of Austral shares outstanding on the date of
exercise. The put is exercisable between October 1 and October 31 of each year,
beginning October 1999. Kysor's obligation to purchase Austral shares in 1999
and 2000 is capped at an aggregate amount equal to Austral's net after-tax
income in its fiscal year immediately preceding the date on which the put option
is exercised and is at all times subject to Kysor's ability to complete the
purchase in compliance with all covenants governing any then outstanding
Scotsman Group Inc. debt or financing arrangements.
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 Austral 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.
F-72
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)
SIX MONTHS ENDED
JULY 5, 1998
----------------
Net sales $366,984
Net income 10,546
Net income per share, diluted $ 0.97
On December 1, 1998, Austral acquired 100 percent of the assets and liabilities
of ComCool, an Australian based importer of refrigerated display cases, for
approximately $1.0 million. Also on December 1, 1998, Austral acquired 49
percent of QAL Refrigeration (SA), an installer/contractor of refrigerated
equipment, for approximately $0.5 million, bringing its ownership interest to
100 percent of the outstanding QAL shares. Austral's results are consolidated
into the Company's results on a one-month lag.
(4) COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) are as follows (in thousands):
SIX MONTHS ENDED
-----------------------
JUL. 4, JUL. 5,
1999 1998
-------- --------
Net income $ 9,578 $ 10,249
Foreign currency translation adjustments (5,533) (3,228)
Amortization of deferred compensation (82) (70)
-------- --------
Total comprehensive income (loss) $ 3,963 $ 6,951
======== ========
F-73
The components of accumulated other comprehensive income included in
shareholder's equity on the Company's Condensed Balance Sheet appearing
elsewhere herein are as follows (in thousands):
Jul. 4, Jan. 3,
1999 1999
-------- --------
Foreign currency translation adjustments $(15,461) $ (9,928)
Unrecognized pension cost (196) (196)
Deferred compensation (125) (43)
-------- --------
Accumulated other comprehensive income $(15,782) $(10,167)
======== ========
(5) BUSINESS SEGMENTS
The Company's principal business is the design, manufacture, and sale of a
diversified line of commercial refrigeration products. The Company sells the
products it manufactures to customers in the foodservice industry
("foodservice") and the food retail industry. The foodservice industry is
defined as worldwide restaurants (including fast-food chains), hotels, motels,
soft-drink bottlers, brewers and the Company's distribution network to reach
these customers. Products manufactured and sold to foodservice customers include
commercial ice machines, food preparation workstations and commercial up-right
and under-the-counter refrigerators and freezers, beverage systems, and walk-in
coolers and freezers. The food retail industry is defined as worldwide
supermarkets and convenience stores, and products manufactured and sold to these
customers include refrigerated display cases, mechanical refrigeration systems,
walk-in coolers and freezers, and commercial ice machines.
F-74
The Company's primary measure of segment profit or loss is operating earnings,
which is defined by the Company as earnings before interest and taxes. The
segment disclosures are generally on a basis consistent with the accounting
policies described in the notes to the financial statements for the year ended
January 3, 1999, appearing in the Company's 1998 Annual Report to Shareholders,
with several exceptions. Intersegment transfers of inventory are recorded at
variable cost, plus a markup. The costs of corporate office activities are not
allocated to the segments. Amortization of goodwill is included in the operating
earnings of the foodservice segment, however it is not included in the operating
earnings of the food retail segment. Information by segment for the periods
ended July 4, 1999 and July 5, 1998 is as follows (in thousands):
SIX MONTHS ENDED
----------------------------
JUL. 4, JUL. 5,
--------- ---------
1999 1998
--------- ---------
REVENUE FROM EXTERNAL
CUSTOMERS
Foodservice $ 173,896 $ 185,007
Food Retail (a) 176,586 143,763
--------- ---------
Total $ 350,482 $ 328,770
========= =========
OPERATING EARNINGS
Foodservice $ 19,596 $ 21,794
Food Retail (a) 15,950 17,215
--------- ---------
Total segment operating
earnings $ 35,546 $ 39,009
Goodwill and intangible amortization
from Kysor acquisition (2,793) (2,905)
Corporate functions (2,233) (2,105)
Interest expense (13,878) (14,346)
Interest income 471 427
--------- ---------
Consolidated income before
income taxes $ 17,113 $ 20,080
========= =========
(a) Beginning in 1999, the income statement of Austral was consolidated into the
Company's results as the Company acquired a controlling interest in November,
1998. During 1998 Austral was accounted for under the equity method.
There has not been a material change in total assets in either reportable
segment since January 3, 1999.
F-75
(6) CURRENT AND PENDING ACCOUNTING CHANGES
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's adoption of these new statements in January, 1999 did not
materially affect the Company's financial statements.
In June 1998, the Financial Accounting Standards Board 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 the 2001 fiscal year and is currently evaluating
the extent to which its financial statements will be affected by this Statement.
The Company is unsure at this time what the impact will be on its financial
statements.
F-76
SIGNATURE
The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this Amendment No. 1 to the registration statement on its
behalf.
ENODIS PLC
June 28, 2000 By: /s/ DAVID W. WILLIAMS
------------------------
David W. Williams
Chief Executive
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
- -------- -----------
1.1 Certificate of Incorporation, as amended, and Memorandum of
Association of the Registrant, as amended.
1.2 Articles of Association of the Registrant, as amended.
2.1 Deposit Agreement dated as of ____________, 2000 among the
Registrant, The Bank of New York, as Depositary, and all
owners and holders from time to time of ADRs issued
thereunder, including the form of ADR.*
4.1 The Registrant's Executive Share Option Scheme (1984).*
4.2 The Registrant's Executive Share Option Scheme (1993).*
4.3 The Registrant's Executive Share Option Scheme (1995).*
4.4 Service Contract between the Registrant and David W. Williams
dated October 9, 1996.*
4.5 Service Contract between the Registrant and Jonathan P. Findler
dated November 11, 1996.*
4.6 Service Contract between Welbilt and Andrew F. Roake dated
December 9, 1997.*
4.7 Purchase Agreement dated August 21, 1998 among Berisford
Nederland B.V., Aladdin Industries, Incorporated and others.*
4.8 Agreement and Plan of Merger dated as of July 1, 1999 among
Welbilt, Berisford Acquisition Corporation and Scotsman
Industries, Inc., incorporated by reference to Schedule
14D-1, Exhibit 99(c)(1) filed by Scotsman Industries, Inc. on
July 9, 1999 (File No. 005-40352).
4.9 Credit and Guaranty Agreement dated as of August 13, 1999
among the registrant, Barclays Bank PLC, National Westminster
Bank Plc and others.*
8.1 Significant Subsidiaries.
10.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
- -----------------
* Previously filed.