<PAGE>   1

                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended January 3, 1999.

                                                or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission file number 1-10182

                            SCOTSMAN INDUSTRIES, INC.

             (Exact name of registrant as specified in its charter)


<TABLE>
<S>                                                                 <C>
Delaware                                                                                      36-3635892
(State of incorporation)                                            (I.R.S. Employer Identification No.)
820 Forest Edge Drive, Vernon Hills, Illinois                                                     60061
(Address of principal executive offices)                                                      (Zip Code)
Registrant's telephone number, including area code: (847) 215-4500
</TABLE>

Securities registered pursuant to Section 12(b) of the Act


<TABLE>
<S>                                                                 <C>
                                                                    NAME OF EACH EXCHANGE
TITLE OF EACH CLASS                                                   ON WHICH REGISTERED
Common stock, $0.10 par value                                     New York Stock Exchange
Common stock purchase rights, no par value                        New York Stock Exchange
</TABLE>

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes   x No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [   ]

At March 5, 1999, there were 10,602,748 shares of registrant's common stock
outstanding, and the aggregate market value of the voting stock held by
nonaffiliates of the registrant as of such date was approximately $202.9
million.

                       DOCUMENTS INCORPORATED BY REFERENCE

Registrant's definitive Proxy Statement for its 1999 Annual Meeting of
Shareholders to be held on May 13, 1999 (the "1999 Proxy Statement"): Part III.


<PAGE>   2
PART I

ITEM 1. BUSINESS

Scotsman Industries, Inc. (together with its subsidiaries, "Scotsman" or the
"Company") is a leading international manufacturer and marketer of a
diversified line of commercial refrigeration products. The Company markets and
sells its products to customers in the foodservice and food retail industries.
Customers in the foodservice industry include restaurants, hotels, motels,
soft-drink bottlers and brewers, and customers in the food retail industry
include supermarkets and convenience stores.

Scotsman was incorporated as a Delaware corporation in 1989 in connection with
Household International, Inc.'s ("Household") spin-off of its commercial
foodservice equipment operations. Effective April 14, 1989, Scotsman became
publicly traded on the New York Stock Exchange and its operations ceased to be
owned by Household.

The Company conducts its business through the Scotsman Ice Systems division of
its wholly-owned subsidiary, Scotsman Group Inc. ("SGI"), and through
wholly-owned subsidiaries of SGI. SGI's wholly-owned domestic subsidiaries
include Kysor Industrial Corporation ("Kysor"), The Delfield Company
("Delfield"), and Booth, Inc. Kysor was acquired by the Company in March 1997
(see "1997 Acquisitions"), and Delfield was acquired in April 1994.

SGI's wholly-owned foreign subsidiaries include Frimont S.p.A. ("Frimont") and
Castel MAC S.p.A. ("Castel MAC"), both located in Italy; Whitlenge Drink
Equipment Limited ("Whitlenge") and Homark Holdings Ltd. ("Homark"), both
located in the United Kingdom; Hartek Beverage Handling GmbH, located in
Germany ("Hartek"); Hartek Awagem Vertriebsges m.b.H., a Hartek distributor
located in Austria (together with Hartek, the "Hartek entities"); and Scotsman
Ice Systems Shenyang Company Limited ("Scotsman Ice Systems China"), located in
China. The Company acquired Homark in December 1997 (see "1997 Acquisitions"),
Hartek in December 1995 and Whitlenge in April 1994.

Scotsman Ice Systems China was formed in June 1995 as a joint-venture company
between SGI and a Chinese company, Shenyang Xinle Precision Machinery Company.
The Company increased its ownership interest in the joint-venture company from
60 percent to 100 percent in 1997. The Company also acquired a controlling
interest in Austral Refrigeration Pty. Ltd., an Australian company ("Austral"),
in 1998 (see "1998 Acquisitions").

FOODSERVICE EQUIPMENT BUSINESS

The Company manufactures and sells a diversified line of commercial
refrigeration products used in the foodservice industry. In the United States,
those products include (1) ice machines manufactured and sold by both Scotsman
Ice Systems and Booth (under its Crystal Tips brand), (2) food preparation and
storage equipment, including food preparation workstations, refrigerators and
freezers, and air ventilating equipment, manufactured and sold by Delfield, (3)
beverage systems manufactured and sold by Booth, and (4) walk-in coolers and
freezers manufactured and sold by the Kysor Panel Systems division of Kysor.
Outside the United States those products include (1) ice machines manufactured
and sold by Frimont, Castel MAC and the Company's Chinese subsidiary, (2)
beverage systems manufactured and sold by Whitlenge, Hartek and Homark, and (3)
a limited line of refrigerated cabinets, dough retarders and blast freezers
manufactured and sold by Castel MAC.

FOOD RETAIL EQUIPMENT BUSINESS

The Company also manufactures and sells a diversified line of commercial
refrigeration products used in the food retail industry. In the United States,
those products consist primarily of refrigerated display cases manufactured and
sold by the Kysor//Warren division of Kysor and walk-in coolers and freezers
manufactured and sold by the Kysor Panel Systems division of Kysor. The Company
also sells commercial ice machines to domestic food retail customers (primarily
supermarkets) through Scotsman Ice Systems and Booth (under its Crystal Tips
brand). Outside the United States, the Company manufactures and sells
refrigerated display cases and installs and services food retail equipment in
the Australian and New Zealand markets through Austral. The Company also sells
commercial ice machines to food retail customers (primarily in Europe) through
Frimont.

1998 ACQUISITIONS

In March 1997, the Company acquired, as a result of its acquisition of Kysor,
indirect ownership of 24 percent of the outstanding shares of Austral, the
parent company of Kysor//Warren Australia, Pty. Ltd., a licensee and
manufacturer of Kysor refrigerated display cases primarily in Australia
("Kysor//Warren Australia"). Kysor//Warren Australia is a leading supplier of
refrigerated display

                                     page 1


<PAGE>   3

cases to food retail customers in the Australian market. As the result of
Austral's 1998 repurchase of some of its shares, the Company's ownership
interest in Austral increased to 30 percent. In November 1998, the Company
acquired, through Kysor, an additional 23 percent of the outstanding stock of
Austral, thereby increasing its ownership interest in Austral to a 53 percent
controlling interest. Austral reported sales of $91 million in its fiscal year
ended June 30, 1998.

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.

In December 1998, Scotsman Drink Ltd., an intermediate holding company of the
Company's United Kingdom subsidiaries, purchased a one-third stake in Total
Cellar Systems, an installer and servicer of beer dispensing equipment in the
United Kingdom for an amount less than $1.0 million.

1997 ACQUISITIONS

In March 1997, Scotsman acquired Kysor (the "Kysor Acquisition"), which at the
time was comprised of the Commercial Products Group, through which Kysor's
refrigerated display case and walk-in cooler and freezer businesses were
conducted, and the Transportation Products Group, through which Kysor sold a
line of products to the transportation industry. The Company paid approximately
$311 million in cash and assumed $35.0 million in debt, net of cash, for both
the Commercial Products Group and the Transportation Products Group. Concurrent
with the Kysor Acquisition, Scotsman sold substantially all of the assets of
the Transportation Products Group for $86 million (approximately $71 million
net of taxes) to a subsidiary of Kuhlman Corporation. Including estimated
transaction and severance costs of $22.5 million, the net purchase price for
the Commercial Products Group was approximately $298 million. The subsidiary of
Kuhlman Corporation assumed substantially all liabilities related to the
Transportation Products Group, including environmental and product liabilities.

In December 1997, the Company acquired 100 percent of the outstanding shares of
Homark Holdings Limited, a U.K.-based beverage equipment company ("Homark").
Homark is a leading manufacturer of counter dispense fonts, counter-mount
dispensers, and line and shelf coolers sold primarily to the U.K. beer
industry. Homark's annual revenues are approximately $10 million. The Company
purchased Homark for approximately $5.6 million.

PRODUCTS

The principal commercial products of Scotsman are refrigerated display cases
and mechanical refrigeration systems, ice machines, food preparation and
storage equipment, walk-in coolers and freezers, and beverage systems. Scotsman
also manufactures self-leveling tray and plate dispensers, and ventilation
systems. In addition to commercial refrigeration products, Scotsman
manufactures compact consumer ice machines and refrigerators for the luxury
segment of the consumer appliance market.

Refrigerated Display Cases

Through its Kysor//Warren operating unit, Scotsman designs and manufactures
display cases and mechanical refrigeration systems sold primarily to
supermarkets. Refrigerated display cases are used by supermarkets and
convenience stores to display perishable food items such as frozen foods,
vegetables, deli items, dairy products and prepared meals. Remote mechanical
refrigeration systems are located away from a store's customer area and provide
power, air filtration and circulation and temperature controls to the
refrigerated display cases located within the store. These products are sold
under the Kysor//Warren trademark. Kysor//Warren Australia, a subsidiary of
Austral, is a leading supplier of refrigerated display cases in the Australian
and New Zealand markets.

Sales of refrigerated display cases accounted for approximately 30 percent and
27 percent of the Company's sales in fiscal years 1998 and 1997, respectively.

                                     page 2


<PAGE>   4
Ice Machines

The Company manufactures and markets commercial ice-making machines under the
Scotsman and Crystal Tips trademarks worldwide, under the Icematic and Simag
trademarks in Europe, the Middle East, Africa and Asia, and under various
brands through other dealer networks. The Company sells a diversified line of
commercial ice machines that produce four forms of ice: cubes (consisting of
contour, lenticular, gourmet and dice), flake, nugget and scale. Each type of
ice is designed and marketed for specific applications and capacity ranges from
50 to 5,000 pounds of ice per day. The Company's ice machines are either
self-contained units, which make, store, and in some cases, dispense ice, or
modular units, which make, but do not store ice. Scotsman also manufactures and
sells ice storage bins to accompany modular units.

The Company manufactures and markets commercial ice machines and related
components through its Italian subsidiaries, Castel MAC and Frimont, under the
Icematic, Scotsman and Simag trademarks, for sale in Italy and for export
primarily to Eastern and Western Europe, the Middle East, Africa and Asia.
Scotsman manufactures ice machines for the Chinese market through Scotsman Ice
Systems China. In China, the Company markets its ice machines under the
Scotsman name. The Company also markets the Crystal Tips line internationally
through three export marketing firms based in the United States and Canada.

A significant percentage of the sales of the Company's commercial ice machines
are to the full-service and fast-food restaurant industry. Other major end-user
customers include hotels and motels, health care facilities, convenience
stores, schools, supermarkets, and government and military facilities. In
addition to commercial ice machines, Scotsman also manufactures compact
consumer ice machines and refrigerators for the luxury segment of the consumer
appliance markets.

Scotsman's commercial ice machine business accounted for 27 percent, 29
percent, and 49 percent of the Company's sales in fiscal years 1998, 1997 and
1996, respectively.

Food Preparation and Storage Equipment

Scotsman manufactures and markets a wide range of commercial food preparation
and storage equipment through its wholly-owned subsidiary Delfield. Delfield's
principal products are customized and standard food preparation workstations,
commercial up-right and under-the-counter refrigerators and freezers, mobile
cafeteria systems and self-leveling tray and plate dispensers, all of which are
constructed primarily from stainless steel, as well as wood and other
decorative materials. Delfield's customized products are designed to address
customer requests regarding size, space, features and performance. Delfield's
standard refrigeration products frequently are incorporated into customers'
systems or can be sold separately. Products are sold under the Delfield,
Shelleyglas and Shelleymatic trademarks.

Within the Company's food preparation and storage equipment unit, the Company
also manufactures and markets several related products. In Europe, Castel MAC
manufactures and markets a line of refrigerated cabinets under the Icematic
brand name and a line of dough retarders and blast freezers under the Tecnomac
brand name, and Frimont markets a line of refrigerators manufactured by Castel
MAC under the Scotsman brand name.

The Company also manufactures and markets niche products primarily through
Delfield, including air ventilating equipment under the Air Tech trademark. In
addition, the Company manufactures and markets a limited line of water coolers
through its Italian subsidiaries, Frimont and Castel MAC, and small industrial
applications through Whitlenge.

Sales of food preparation and storage equipment accounted for approximately 16
percent, 21 percent and 32 percent of Scotsman's sales in fiscal years 1998,
1997 and 1996, respectively.

Walk-in Coolers and Freezers

Scotsman designs, manufactures, markets and sells walk-in coolers and freezers
and environmental control systems through its Kysor Panel Systems operating
unit. Kysor Panel Systems' refrigeration panels used in the construction of
walk-in coolers and freezers are made from all three primary panel types: wood
rail, urethane rail and soft nose. The Company can manufacture any of the three
panel types to meet customer preferences. The Company's environmental control
systems are used in industrial applications to test products under a range of
temperatures.

Sales of walk-in coolers and freezers accounted for approximately 14 percent
and 11 percent of the Company's sales in fiscal years 1998 and 1997,
respectively.

Beverage Systems

In the United States, Scotsman manufactures soft-drink dispensing equipment
through its wholly-owned subsidiary, Booth. Booth manufactures and markets a
complete line of non-coin operated soft-drink dispensing products and
accessories. Booth offers both pre-mix and post-mix dispensers,

                                     page 3


<PAGE>   5
which can either be ice-cooled or electrically-cooled, as well as ice and drink
dispensers, hand-operated valves and other related accessory products used in
the fountain market. Booth manufactures and markets the three major product
categories of beverage systems (mechanically refrigerated, ice cooled and
ice/drink) to major soft-drink companies.

In Europe, Scotsman manufactures and markets soft-drink and draught beer
dispensing equipment, and related products, under the Whitlenge, Homark and
Hartek brand names through its Scotsman Drink Ltd. and Hartek Beverage Handling
GmbH subsidiaries. Both Whitlenge and Hartek manufacture and market a wide
range of beer and soft-drink coolers and related equipment. Homark manufactures
counter dispense fonts, counter-mount dispensers, and line and shelf coolers,
which are marketed through Whitlenge.

The Company is a 50 percent partner in SAW Technologies, a joint venture formed
in August 1996 to develop technologically advanced electronic beverage
dispensing valves. The joint venture's product presently being sold to a major
soft-drink bottler in the United Kingdom, uses technology which will be
incorporated in products for other customers and markets. The product
differentiates between and monitors different types of soft-drink syrups,
continuously regulates the flow and mix of syrups and carbonated water, and can
dispense other beverages such as fruit juices, where pulp presents difficulties
for most of the current generation of mechanical valves.

Sales of beverage systems accounted for approximately 13 percent, 12 percent
and 19 percent of Scotsman's sales in fiscal years 1998, 1997 and 1996,
respectively.

MARKETING AND DISTRIBUTION

Scotsman's sales and distribution network, which extends through over 100
countries, uses a combination of direct sales to national accounts, exclusive
and non-exclusive distributors and independent dealers, wholesalers and sales
representatives. Scotsman has approximately 330 sales and marketing employees,
relationships with over 300 exclusive distributors in over 50 countries, and
approximately 3,300 independent dealers, distributors, wholesalers and sales
representatives in over 100 countries. While each business unit has its own
marketing organization which is responsible for the marketing and distribution
of its products, certain salespeople and distributors may handle more than one
of the Company's product lines.

Refrigerated Display Cases

Kysor//Warren primarily sells refrigerated display cases directly to large
supermarket and convenience store chains through its direct sales force. A
smaller portion of Kysor//Warren sales are made through independent commercial
refrigeration distributors that market to independent and small chain
supermarkets and convenience stores.

Ice Machines

In the United States, both of the Company's Scotsman and Crystal Tips brands
maintain their own independent distribution networks. Scotsman Ice Systems has
approximately 85 distributors and Crystal Tips has approximately 68
distributors in the United States. Scotsman also owns and operates one of its
largest distributors in Southern California, which it purchased upon the
retirement of the former owners. Outside the United States, Crystal Tips has
over 29 distributors. Outside the United States, Castel MAC and Frimont
combined have approximately 1,200 dealers and 150 distributors in Eastern and
Western Europe, Africa, the Middle East and Asia. In the majority of countries
served, Castel MAC and Frimont each sell through separate distribution
channels. Frimont's Simag brand is sold through a separate distribution network
of 25 distributors and 200 dealers in Eastern and Western Europe, Africa, the
Middle East and Asia. The Company's Chinese subsidiary sells commercial ice
machines in China through its own distribution network.

Distributors generally do not carry competing brands of ice machines.
Distributors and dealers of each brand maintain inventories of replacement
parts and are trained to install and service the equipment. Independent service
dealers also install and service the equipment. The servicing functions
performed by distributors and dealers are particularly important because ice
machines typically require more service, due to variable water conditions, than
other major appliances such as refrigerators. The Company also maintains
inventories of replacement parts to support its ice machine product line.

Scotsman sells commercial ice machines directly to national customers such as
large restaurant chains, hotels, motels, soft-drink bottlers, and to state and
federal governments. The Company sells consumer ice machines and refrigerators
primarily through luxury consumer appliance distributors who sell to dealers.

                                     page 4


<PAGE>   6
Food Preparation and Storage Equipment

Delfield sells its products directly to national accounts such as large
restaurant chains. Delfield also sells equipment through a network of
approximately 1,400 non-exclusive dealers and approximately 28 independent
sales representative firms. Such non-exclusive dealers generally carry
competing lines of equipment. In Europe, Castel MAC sells to the European
commercial bakery industry through dealers and agents specializing in that
industry.

Walk-in Coolers and Freezers

Kysor Panel Systems sells its walk-in coolers and freezers directly to large
supermarket chains primarily through its marketing and direct sales force.
Kysor Panel Systems also sells to smaller independent supermarkets and
convenience stores through a network of approximately 600 distributors, dealers
and wholesalers.

Beverage Systems

Booth sells its beverage systems directly to soft-drink bottlers franchised or
owned by large soft-drink companies. The systems are often labeled with the
customer's name or trademark and the names of the beverages that will be
dispensed. Whitlenge sells directly to soft-drink bottlers and brewers in the
United Kingdom, while Hartek sells directly to soft-drink bottlers in Germany.
Whitlenge and Hartek jointly export directly to bottlers and brewers through a
direct sales force and distributors and local agents in various markets
throughout Greater Europe and Africa. Products carrying the Homark brand name
are primarily sold to the U.K. brewery market through the Whitlenge
distribution network.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS

For financial information pertaining to the Company's foreign and domestic
operations refer to Note 15, "Business Segment Information," in Financial
Statements and Supplementary Data in Item 8 of this report.

ENVIRONMENTAL AND OTHER REGULATORY MATTERS

The operations and properties of the Company are subject to various federal,
state, local and foreign environmental regulations and standards. Because the
requirements imposed by those authorities frequently are revised and
supplemented, expenditures for compliance responsibilities are difficult to
estimate and may exceed anticipated costs. The Company believes that compliance
with existing and publicly proposed environmental regulations will not have a
material adverse effect on the business, financial condition or results of
operations of the Company.

The Company or its subsidiaries have been identified as a potentially
responsible party ("PRP") under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or similar state statutes in
connection with a number of hazardous waste sites, including a number of sites
associated with the former Transportation Products Group of Kysor (see "1997
Acquisitions"). Under existing environmental laws, PRPs are jointly and
severally responsible for the cost of clean-up and other remedial action at
these sites, and each PRP is therefore potentially responsible for the full
cost of remediation. As a practical matter, however, costs are generally shared
with other PRPs, based on each PRP's relative contribution to the problem.
Moreover, the purchaser of the Transportation Products Group has assumed all
environmental liabilities associated with that business. Notwithstanding the
assumption of liabilities by the purchaser, under applicable environmental laws
the Company could incur liabilities related to these and other unknown
environmental matters. Based on the foregoing factors, the relative size of the
Company's contribution to the sites for which it has been named as a PRP
(including those sites associated with Kysor's former Transportation Products
Group), currently available information about the cost of remediation at such
sites and the probability that other PRPs, many of which are large, solvent
public companies, will pay the costs apportioned to them, the Company does not
believe that any liability imposed in connection with such environmental
proceedings, either individually or in the aggregate, will have a material
adverse effect upon the Company's financial condition or its results of
operations.

COMPETITION

The primary markets for Scotsman's products are highly competitive. The most
significant competitive factors are product reliability and performance,
service and price, with the relative importance of such factors varying among
product lines. The Company has a number of competitors in each product line
that it offers. Many of the Company's competitors are small, privately-owned
companies. Some of the Company's competitors, however, are divisions of larger
companies, and some have greater financial resources than the Company. Some of
the Company's largest competitors include IMI Cornelius, plc, with whom the
Company competes in beverage systems in the U.S. and Europe; Hussmann
International Inc., with whom the Company competes in refrigerated display
cases

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<PAGE>   7


and related equipment in the U.S. and Australia; the Tyler division of United
Technologies Corporation, with whom the Company competes in refrigerated display
cases and related equipment in the U.S.; the Hill Phoenix division of Dover
Corporation, with whom the Company competes in refrigerated display cases and
related equipment in the U.S.; and The Manitowoc Company, Inc., with whom the
Company competes in ice machines, food storage equipment, beverage systems and
walk-in coolers and freezers in the U.S. Furthermore, the Company believes that
the foodservice equipment industry and the food retail industry recently have
begun to undergo significant consolidation as foodservice chains and
supermarkets reduce their supplier base. Such consolidation could have an effect
on the Company's future competitive position.

RESEARCH AND DEVELOPMENT

Scotsman conducts extensive research and development programs in each of its
product lines. These programs seek to develop product improvements and achieve
cost reductions, as well as develop new products. Approximately 76 employees of
the Company are engaged in research and development. Scotsman's total research
and development expenditures for fiscal years 1998, 1997 and 1996 were
approximately $7.0 million, $6.2 million and $5.6 million, respectively.

RAW MATERIALS

The principal materials used in the manufacture of Scotsman's products are
refrigeration components, including compressors, condensers, motors and
controls, and raw materials, including stainless steel, galvanized steel,
aluminum, copper, plastics, glass, foam insulation, brass and wood. These
materials are readily available from several sources, and Scotsman has not
experienced difficulties with respect to their availability.

GENERAL

Customers

Although no single customer accounted for 10 percent or more of Scotsman's 1998
net sales on a historical basis, some of the Company's operating units are
dependent upon a limited number of major customers, most of which do not have
long-term purchase contracts with the Company. The Company's five largest
customers represented approximately 20 percent of the Company's net sales in
1998. Sales of certain products, including, in particular, refrigerated display
cases and food preparation and storage equipment, are largely dependent upon
the expansion and renovation programs of the Company's large chain customers.

Backlog of Orders

The backlog of unshipped orders at the end of fiscal years 1998 and 1997 was
$126.2 million and $119.9 million, respectively. The backlog is concentrated in
the Company's Kysor//Warren and Kysor Panel Systems food retail businesses. The
Company expects that all of the orders in the backlog at the end of fiscal year
1998 will be shipped during 1999.

Seasonality

The volume of sales of Scotsman's ice machines, food preparation and storage
equipment and beverage systems is somewhat higher in the second and third
fiscal quarters, than in the first and fourth fiscal quarters. Sales of
Scotsman's refrigerated display cases and walk-in coolers and freezers are also
subject to seasonal fluctuations. The Company expects that the second and third
fiscal quarters generally will account for a greater portion of the annual net
sales than the first and fourth fiscal quarters.

Patents and Trademarks

Scotsman holds or is licensed under many United States and foreign patents
covering various design features used in its products, and also holds a number
of other patents and patent applications, licenses, trademarks and trade names
including the trademarks and trade names mentioned herein. Scotsman does not
believe that any of the foregoing, considered individually, is material to its
business, with the exception of the Scotsman, Delfield and Kysor trademarks.
Scotsman believes it possesses adequate protection with respect to these
trademarks.

Associates

As of January 3, 1999, Scotsman employed approximately 4,500 associates,
including the associates of Austral, in which the Company has a 53 percent
controlling interest. Approximately 1,700 of the Company's associates were
covered by collective bargaining agreements at that time. The Company believes
its relationships with associates are generally good. A new four-year
collective bargaining agreement at the Company's Delfield unit in Mt. Pleasant,
Michigan, became effective in April 1998.

                                     page 6


<PAGE>   8

ITEM 2. PROPERTIES

The following chart lists the domestic and international active manufacturing,
distribution and office facilities owned or leased by Scotsman and the primary
facilities of joint ventures in which Scotsman has an interest:


<TABLE>
<CAPTION>
DOMESTIC FACILITIES
LOCATION                           DESCRIPTION                       PRINCIPAL PRODUCT                     OWNED/LEASED
-------------------------          ----------------------------      -----------------------------         ------------
<S>                                <C>                               <C>                                   <C>
Goodyear, Arizona                  Plant and Office;                 Walk-in Coolers and Freezers          Leased
                                   50,000 sq. ft.
LaVerne, California                Distribution Facility;            Ice Machines                          Leased
                                   3,000 sq. ft.
Columbus, Georgia                  Plant and Office;                 Refrigerated Display Cases            Owned
                                   297,000 sq. ft.
Columbus, Georgia                  Plant and Office;                 Refrigeration Systems                 Owned
                                   154,000 sq. ft.
Columbus, Georgia                  Warehouse;                        Refrigerated Display Cases            Leased
                                   23,000 sq. ft.
Conyers, Georgia                   Plant and Office;                 Refrigerated Display Cases            Owned
                                   480,000 sq. ft.
Conyers, Georgia                   Warehouse;                        Refrigerated Display Cases            Leased
                                   81,000 sq. ft.
Vernon Hills, Illinois             Office;                           Ice Machines                          Leased
                                   36,000 sq. ft.
Vernon Hills, Illinois             Office;                           Corporate Headquarters                Leased
                                   9,000 sq. ft.
South Bend, Indiana                Plant and Office;                 Refrigerated Display Cases            Owned
                                   102,000 sq. ft.
Des Moines, Iowa                   Plant, Warehouse and Office;      Refrigerated Display Cases            Leased
                                   57,000 sq. ft.
Mt. Pleasant, Michigan             Plant and Office;                 Food Preparation and                  Owned
                                   347,000 sq. ft.                   Storage Equipment
Portland, Oregon                   Plant and Office;                 Walk-in Coolers and Freezers          Owned
                                   88,000 sq. ft.
Fairfax, South Carolina            Plant and Warehouse;              Ice Machines                          Owned
                                   327,000 sq. ft.
Covington, Tennessee               Plant and Office;                 Food Preparation and                  Leased
                                   188,000 sq. ft.                   Storage Equipment
Johnson City, Tennessee            Plant and Office;                 Walk-in Coolers and Freezers          Leased
                                   110,000 sq. ft.
Dallas, Texas                      Plant and Office;                 Ice Machines and                      Leased
                                   170,000 sq. ft.                   Beverage Systems
Fort Worth, Texas                  Plant and Office;                 Walk-in Coolers and Freezers          Owned
                                   118,000 sq. ft.
Fort Worth, Texas                  Office;                           Walk-in Coolers and Freezers          Leased
                                   17,000 sq. ft.
</TABLE>

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<TABLE>
<CAPTION>
INTERNATIONAL FACILITIES
LOCATION                               DESCRIPTION                 PRINCIPAL PRODUCT                    OWNED/LEASED
-------------------------------        -------------------------   ---------------------------          -------------
<S>                                    <C>                         <C>                                  <C>
Glendenning, New South Wales,          Plant and Office;           Refrigerated Display Cases           *
Australia                              154,000 sq. ft.
Lonsdale, South Australia              Plant and Office;           Refrigerated Display Cases           *
                                       25,000 sq. ft.
Padstow, New South Wales,              Plant and Office;           Refrigerated Display Cases           *
Australia                              12,000 sq. ft.
Vienna, Austria                        Office and Warehouse;       Beverage Systems                     Leased
                                       11,000 sq. ft.
Shanghai, China                        Office;                     Ice Machines                         Leased
                                       5,000 sq. ft.
Radevormwald, Germany                  Plant and Office;           Beverage Systems                     Owned
                                       35,000 sq. ft.
Castelfranco, Italy                    Plant and Office;           Ice Machines                         Owned
                                       242,000 sq. ft.
Milan, Italy                           Plant and Office;           Ice Machines                         Leased
                                       152,000 sq. ft.
Halesowen, United Kingdom              Plant and Office;           Beverage Systems                     Leased
                                       84,000 sq. ft.
Irthlingborough,                       Plant and Office;           Beverage Systems                     *
United Kingdom                         3,900 sq. ft.
Poole, United Kingdom                  Plant and Office;           Beverage Systems                     Owned
                                       18,000 sq. ft.
Poole, United Kingdom                  Plant and Office;           Beverage Systems                     Leased
                                       12,500 sq. ft.
Wareham, United Kingdom                Plant and Office;           Beverage Systems                     Leased
                                       6,900 sq. ft.
</TABLE>

* Facility owned or leased by Austral, which is 53 percent owned by the
  Company, or a separate joint venture in which Scotsman has an interest

Scotsman considers the condition of its plants and other properties to be
generally good and believes the capacity of its plants is adequate for the
current needs of its business. Except for a registered first mortgage on the
assets of Austral, and liens on a section of its Mt. Pleasant, Michigan, and
Covington, Tennessee, facilities, both securing industrial revenue bonds, none
of the principal properties owned by Scotsman are subject to encumbrances
material to the operations of Scotsman.

ITEM 3. LEGAL PROCEEDINGS

LITIGATION RELATING TO INDIANAPOLIS ATHLETIC CLUB FIRE Delfield, which was
acquired by the Company on April 29, 1994, was originally named as a defendant
in Indianapolis Athletic Club, Inc. v. The Delfield Company, et al, a case filed
in Marion County Superior Court, Indianapolis, Indiana. The case arose out of a
fire at the Indianapolis Athletic Club (the "IAC") on February 5, 1992. The IAC
alleges, in its action, that the fire was caused by a refrigerator manufactured
by Delfield, and it seeks to recover property damages of between $10 to $12
million. Delfield was dismissed as a defendant in the case, following an
investigation of its claim that the refrigerator in the IAC was manufactured,
not by Delfield, but by the Delfield Division of Alco Standard Corporation
("Alco") prior to the acquisition of the Delfield Division by DFC Holding
Corporation ("DFC") which was, in turn, acquired by Scotsman. Such dismissal
was, however, without prejudice to the IAC's right to reinstate its claim
against Delfield. The IAC continued to pursue its claim against the Delfield
Division of Alco, and the Company has continued to monitor the action.

                                     page 8


<PAGE>   10


Alco and the Delfield Division have denied that the refrigerator caused the
fire. The case was tried in early 1997, and on February 17, 1997, a jury
verdict was returned, and judgment was entered, in favor of Alco and the
Delfield Division. On March 17, 1997, the IAC filed an appeal of the decision
with the Indiana Court of Appeals. Although the plaintiffs and defendants have
filed briefs with the court, no date has been set for oral argument and no
decision has been rendered by the Indiana Court of Appeals.

Pursuant to the agreement by which DFC acquired the Delfield Division, Alco is
obligated to indemnify Delfield for all losses to Delfield resulting from
product liability claims relating to products manufactured by the Delfield
Division prior to its acquisition by DFC. Alco has agreed that its indemnity
applies to the IAC's action, and Delfield believes that its insurance should
cover any claims that are not covered by Alco's indemnity. Moreover, under the
terms of the agreements pursuant to which the Company acquired Delfield and
Whitlenge, the former shareholders of DFC and Whitlenge Acquisition Limited
("WAL"), an affiliate of DFC, are also required to indemnify the Company for up
to $30 million in losses and expenses arising out of, among other things,
suits, claims or proceedings arising out of the IAC fire. While no assurances
can be given, the Company does not believe that the IAC action is likely to
have a material adverse effect upon the financial condition of the Company or
its results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the last fiscal
quarter of 1998.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the names, ages and positions of all executive
officers of Scotsman, the period that each has held his position with the
Company and a brief account of each such officer's business experience during
the past five years. Executive officers are appointed annually at a meeting of
the Board of Directors of the Company held as soon as practicable after each
annual meeting of the Company's shareholders. Officers of the Company are
appointed to serve until the next annual election of officers and until their
respective successors are chosen.


<TABLE>
<CAPTION>
NAME AND AGE               OFFICE AND EXPERIENCE
----------------------     -------------------------------------------------------------------------------
<S>                        <C>
Richard C. Osborne, 55     Mr. Osborne is Chairman of the Board and has held that position since
                           May 1991. He is also President, Chief Executive Officer and a Director of
                           Scotsman and President and Director of Scotsman Group and has held those
                           positions since April 1989.

Robert C. Eimers, 51       Mr. Eimers is Vice President-Human Resources of the Company and Assistant
                           Secretary of Scotsman Group, and has held those positions since November
                           1998. From November 1997 to November 1998, he was a partner at the human
                           resource consulting firm of Medina & Thompson. From February 1995 to
                           September 1997, Mr. Eimers served as Senior Vice President-Human
                           Resources at Service Merchandise. He served as Vice President-Human
                           Resources at Sonoco Products Company from June 1988 to February 1995.

David M. Frase, 51         Mr. Frase is a Vice President of the Company and has held that position
                           since May 1997. He is also President and General Manager of Kysor Panel
                           Systems, and has held those positions since 1987.

Donald D. Holmes, 61       Mr. Holmes is Vice President-Finance and Secretary of Scotsman and Vice
                           President-Finance, Secretary and Director of Scotsman Group and has held
                           those positions since April 1989.

Christopher D. Hughes, 52  Mr. Hughes is a Vice President of the Company and has held that position
                           since June 1994. He is also President of Booth and has held that position
                           since May 1994. From 1993 to May 1994, he was Vice President/General Manager
                           of the Central and Western Transit Operations of Morrison Knudsen
                           Corporation, a division engaged in the business of assembling new and
                           overhauling used passenger rail cars.
</TABLE>

                                     page 9


<PAGE>   11

<TABLE>
<S>                      <C>
Emanuele Lanzani, 64     Mr. Lanzani is an Executive Vice President of the Company and has held that
                         position since April 1989. He is also Managing Director, Frimont and
                         Castel MAC. Mr. Lanzani has been Managing Director of Castel MAC since its
                         acquisition by Household in October 1985 and he has been Managing
                         Director of Frimont since 1968.

Randall C. Rossi, 48     Mr. Rossi is a Vice President of the Company and has held that position
                         since January 1995. He is also President of Scotsman Ice Systems and has
                         held that position since January 1995. From January 1994 to January 1995, he
                         was Executive Vice President of Scotsman Ice Systems. From 1989 to January
                         1994, he was Vice President-Sales and Marketing of Scotsman Ice Systems.

Michael de St. Paer, 53  Mr. de St. Paer is a Vice President of the Company and has held that position 
                         since April 1994. He is also Managing Director of Scotsman Beverage
                         Systems and has held that position since September 1998. From June 1997 to
                         September 1998 he was Managing Director of Scotsman Beverage Group - Europe.
                         From April 1993 to June 1997, Mr. de St. Paer was Managing Director of
                         Whitlenge.

Graham E. Tillotson, 47  Mr. Tillotson is a Vice President of the Company and President of Delfield.
                         He has held those positions since June 1997. From January 1997 to June
                         1997, he served as Interim President of Delfield. From 1984 to December
                         1996, he was Vice President, Sales & Marketing of Delfield.

Logan F. Wernz, 55       Mr. Wernz is a Vice President of the Company and has held that position
                         since May 1997. He is also President and General Manager of Kysor//Warren
                         and has held those positions since 1988.
</TABLE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS

Scotsman Industries, Inc. common stock is listed on the New York Stock
Exchange. The common stock ticker symbol is SCT. The high, low and last sales
price per share for Scotsman's Common Stock, and dividends declared, by
calendar quarter for 1997 and 1998 were as follows:

<TABLE>
<CAPTION>
                                                                                             DIVIDENDS
1997                                                  HIGH          LOW         LAST          DECLARED
----                                               -------      -------      -------        ----------
<S>                                                <C>          <C>          <C>            <C>
1st Quarter                                        $29.375      $23.000      $27.750        $    0.025
2nd Quarter                                         28.250       24.500       27.750        $    0.025
3rd Quarter                                         28.688       25.250       28.000        $    0.025
4th Quarter                                         27.563       23.500       24.438        $    0.025
                                                                                            ----------
Total dividends declared in 1997                                                            $    0.100
                                                                                            ----------
Shares outstanding at December 28, 1997                                                     10,568,597
                                                                                            ----------
Shareholders of record at December 28, 1997                                                      4,234

1998
----
1st Quarter                                        $30.750      $23.250      $28.000        $    0.025
2nd Quarter                                         30.250       25.750       28.250        $    0.025
3rd Quarter                                         29.063       20.563       22.000        $    0.025
4th Quarter                                         21.938       14.750       20.563        $    0.025
                                                                                            ----------
Total dividends declared in 1998                                                            $    0.100
                                                                                            ----------
Shares outstanding at January 3, 1999                                                       10,596,880
                                                                                            ----------
Shareholders of record at January 3, 1999                                                        3,809
                                                                                            ----------
</TABLE>

The information contained in Note 7 of the "Notes to Consolidated Financial
Statements" included under Item 8 is incorporated herein by reference.

                                     page 10


<PAGE>   12

ITEM 6. SELECTED FINANCIAL DATA

The following historical financial data has been derived from the Company's
consolidated financial statements and should be read in conjunction with the
audited Consolidated Financial Statements and the Notes thereto contained in
Item 8 of this report and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of this report.

Scotsman Industries, Inc. Five-Year
Summary (Amounts in thousands, except per-share data)

<TABLE>
<CAPTION>
                                                   JAN. 3,        DEC. 28,        DEC. 29,       DEC. 31,          JAN. 1,
FOR THE FISCAL YEARS ENDED                         1999(a)         1997(b)         1996(c)        1995(d)          1995(e)
--------------------------                        --------        --------        --------       --------         --------
<S>                                               <C>             <C>             <C>            <C>              <C>
Net sales                                         $633,044        $571,588        $356,373       $324,291         $266,632
Income before income taxes                          37,600          37,561          35,017         28,128           22,798
Income before extraordinary loss                    18,928          18,919          18,568         15,408           12,785
Net income                                          18,928          18,286          18,568         15,408           12,785
Income per share before extraordinary
loss, diluted (f)                                     1.76            1.75            1.73           1.45             1.35
Net income per share, diluted (f)                     1.76            1.69            1.73           1.45             1.35
Total assets                                       707,650         660,124         283,264        275,943          244,791
Long-term debt and capitalized lease
obligations, excluding current portion             330,531         321,132          60,289         74,719           85,161
Cash dividends declared per common share          $   0.10        $   0.10        $   0.10       $   0.10         $   0.10
                                                  --------        --------        --------       --------         --------
</TABLE>

(a) The information for the fiscal year ended January 3, 1999, includes the
    balance sheet information of Austral.

(b) The information for the fiscal year ended December 28, 1997, includes the
    results of Kysor subsequent to its acquisition in March 1997.

(c) The information for the fiscal year ended December 29, 1996, includes the
    results of Hartek which was acquired on December 31, 1995.

(d) The information for the fiscal year ended December 31, 1995, includes
    balance sheet information for Hartek which was acquired on December 31,
    1995.

(e) The information for the fiscal year ended January 1, 1995, includes the
    results of Delfield and Whitlenge as of the date of their acquisitions on 
    April 29, 1994.

(f) The calculation of diluted net income per share for the fiscal years 1998,
    1997, 1996, 1995 and 1994 was based on 10,763,089, 10,803,261, 10,708,879,
    10,644,697 and 9,474,715 weighted average shares of common stock,
    respectively. The calculation of diluted net income per share for the fiscal
    years ended December 31, 1995, December 29, 1996, and December 28,1997, is
    based on net income before preferred stock dividends. The number of shares
    assumes conversion of convertible preferred stock from the date of issue and
    also includes the dilutive impact, as if issuance had occurred on the
    acquisition date, of contingent shares which were subsequently distributed
    to the sellers of Delfield and Whitlenge based on those businesses having
    achieved a specified combined level of earnings during fiscal year 1994, and
    also includes the dilutive impact of common stock options outstanding.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

Year ended January 3, 1999 ("1998"), compared with year ended December 28, 1997
("1997")

The Company's net sales increased by $61.5 million, or approximately 11
percent, to a record $633.0 million in 1998 from $571.6 million in 1997.
Results for 1998 include sales of $274.5 million from the Commercial Products
Group of Kysor, which was acquired by the Company in March 1997. Results for
1997 included sales from March 10 through December 28 of $215.5 million from
Kysor.

Sales to the foodservice industry, consisting primarily of sales to
restaurants, hotels, motels, soft-drink bottlers, brewers and the Company's
distribution network, increased $4.0 million, or 1 percent, to $352.1 million
in 1998 from $348.1 million in 1997. Foodservice sales represented 56 percent
of the Company's sales in 1998. Products sold to the foodservice industry
include ice machines, food preparation and storage equipment, beverage systems,
and walk-in coolers and freezers. Sales of all product lines to foodservice
customers increased in 1998 with the exception of food preparation and storage
equipment, which decreased 13 percent to $101.8 million in 1998 from $117.5
million in 1997. The decrease was primarily the result of substantially lower
sales to Boston Market in 1998 than in 1997 at the Company's Delfield business
unit.

Worldwide ice machine sales to the foodservice industry were $157.0 million in
1998, an increase of 3 percent over 1997 sales of $152.2 million. Ice machine
sales benefited from growth in the U.S. and Western European ice machine
markets during 1998, partially offset by market weakness and lower sales in the
Far East and Eastern Europe.

                                     page 11


<PAGE>   13


Sales of beverage systems to the foodservice industry increased 19 percent to
$83.7 million in 1998 from $70.2 million in 1997. Sales gains at the Company's
domestic beverage dispensing business and the addition of Homark, a
manufacturer of equipment serving the U.K. beer industry, which was acquired by
the Company in December 1997, led to the increase in sales.

Sales to the food retail industry, consisting primarily of sales to
supermarkets and convenience stores, increased $57.5 million to $281.0 million
in 1998 from $223.5 million in 1997. Food retail sales represented 44 percent
of the Company's sales in 1997. Products sold to the food retail industry
include refrigerated display cases and mechanical refrigeration systems,
walk-in coolers and freezers, and commercial ice machines. Sales of
refrigerated display cases and refrigeration systems increased 24 percent to
$188.4 million in 1998 from 1997 sales of $152.2 million. Sales of walk-in
coolers and freezers increased 39 percent to $76.6 million in 1998 from 1997
sales of $55.2 million. The increase in sales of both display cases and walk-in
coolers and freezers is largely attributable to the inclusion of Kysor's
results for the full 12-month period in 1998. Sales of display cases and
refrigeration systems were also impacted by delivery constraints in 1998
associated with the new refrigeration systems plant at Kysor//Warren. The
backlog of orders from supermarkets at year-end was above year-end 1997 levels.

The Company's gross profit increased by $16.4 million, or approximately 12
percent, to $158.4 million in 1998 from $142.0 million in 1997. The increase in
gross profit is partially attributable to the Kysor Acquisition. Kysor's
results of operations where included for the full year in 1998, whereas the
Company's 1997 results included Kysor beginning in mid-March. Gross profit
margins increased to 25.0 percent in 1998 from 24.8 percent in 1997. The
Company's gross profit margins on foodservice sales increased as a result of
higher sales of beverage systems and ice machines, and cost reductions,
particularly in food preparation and storage equipment. The increase in
foodservice gross profit margins more than offset reductions in food retail
margins. Reductions in food retail margins were attributable to the inclusion,
for the full 12-month period, of the results of Kysor, which has historically
reported lower gross profit margins. Costs and inefficiencies associated with
the new refrigeration systems plant at Kysor//Warren also contributed to the
decrease in margins in 1998.

Selling and administrative expenses increased by $10.9 million, or
approximately 13 percent, to $93.9 million in 1998 from $83.1 million in 1997.
The increase in selling and administrative expenses is largely attributable to
the inclusion of Kysor's results for the full 12-month period in 1998,
including amortization of intangibles of $4.9 million during that period
related to the acquisition of Kysor. As a percentage of net sales, selling and
administrative expenses increased to 14.8 percent in 1998 from 14.5 percent in
1997. One-time costs and increased sales and marketing expenses in several
divisions in 1998 were the drivers of the increase in the percentage of net
sales.

Income from operations increased by $5.5 million, or approximately 9 percent,
to $64.4 million in 1998 from $58.9 million in 1997. Operating income from
sales to foodservice customers increased to $37.9 million in 1998 from $35.5
million in 1997, due to increased sales of beverage systems and ice machines.
Operating income from sales to food retail customers increased to $35.5 million
in 1998 from $31.8 million in 1997, which is largely attributable to the
inclusion of Kysor results for the full 12-month period in 1998. Amortization
of intangibles related to the Kysor acquisition increased $1.0 million, which
is also attributable to the inclusion of Kysor for the full year in 1998. As a
percentage of net sales, 1998 income from operations decreased to 10.2 percent
from 10.3 percent in 1997.

Net interest expense increased by $5.5 million to $26.8 million in 1998 from
$21.4 million in the prior year as a result of a full year of increased
domestic borrowings incurred by the Company to fund the Kysor Acquisition.

Income tax expense of $18.7 million in 1998 was little changed from $18.6
million in 1997, as the amount of taxable income of the Company remained the
same in 1998 as in 1997. The Company's overall income tax rate was 49.7 percent
in 1998 compared to 49.6 percent in 1997. The income tax rate includes the
impact of non-deductible amortization of intangibles resulting from the Kysor
Acquisition.

Net income increased $0.6 million, or 3.5 percent, to $18.9 million in 1998
from $18.3 million in 1997. 1998 net income included amortization and interest
expense related to the 1997 acquisition of Kysor which was incurred for the
full 12-month period in 1998, as compared with the period from mid-March
through December in 1997. On a diluted basis, earnings per share increased by
$0.07, or approximately 4 percent, to $1.76 in 1998 from $1.69 in 1997. Net
income for 1997 included an extraordinary charge of $0.6 million, or $0.06 per
share, incurred for the early retirement of debt. 1998 diluted earnings per
share increased by $0.01, or approximately 1 percent, when compared to 1997
diluted earnings per share of $1.75, before the one-time charge.

                                     page 12


<PAGE>   14
YEAR 2000 COMPLIANCE

The Company uses software and other related technologies throughout its
business that will be affected by the date change in Year 2000. The three areas
where Year 2000 issues may affect the Company include (1) information
technology (IT) systems, including computer hardware and software, (2) non-IT
systems such as manufacturing or office equipment and other infrastructure
which rely on imbedded computer chips to operate, and (3) the state of the Year
2000 readiness of third parties with significant relationships with the
Company, such as suppliers, customers and service providers.

The Company has substantially completed an assessment of its computer (IT)
systems and is in the process of executing plans to resolve issues identified
in these systems. The resolution of issues involves converting or modifying
systems, replacing systems, and testing systems used in various applications
throughout the Company to ensure that information can be accurately processed
in the Year 2000. The Company is approximately 60 percent complete in modifying
or replacing IT systems and expects completion by mid-1999.

The Company is still in the process of assessing non-IT systems and equipment,
consisting primarily of factory production equipment. Based on information
currently available, testing and remediation of issues identified in non-IT
systems is estimated to be completed by mid-1999.

It is currently estimated that the aggregate cost of the Company's Year 2000
efforts will be approximately $3.5 million, of which approximately $2.3 million
has been incurred to-date. All of the costs are being funded through operating
cash flow.

The Company is also taking steps to assess the Year 2000 readiness of
significant third parties. These steps include contacting suppliers, customers
and service providers that are believed to be critical to the Company's
business operations after January 1, 2000, to determine their stage of Year
2000 compliance through questionnaires, interviews, on-site visits and testing.
These activities are currently in process.

While the Company's Year 2000 readiness plans are underway, the consequences of
non-compliance by the Company, or its significant suppliers, customers or
service providers could have a material adverse impact on the Company's
operations. Although the Company does not anticipate any major non-compliance
issues, it currently believes that the greatest risk of disruption in its
business exists in the event of non-compliance by third parties that are
significant to it.

Some of the possible consequences of non-compliance by the Company or
significant third parties include, among other things, temporary plant
closings, delays in the receipt and delivery of raw materials and products,
invoice and collection errors, and obsolescence of inventory. Given this risk,
the Company intends to develop contingency plans to mitigate possible
disruption in business operations that may result from Year 2000 related
interruptions. Contingency plans may include increasing safety stocks of raw
materials, securing alternative suppliers or other appropriate measures.

The Company's Year 2000 activities are an ongoing process and the estimates of
costs and completion dates for various activities described above are subject
to change.

EURO CURRENCY CONVERSION

The Company has prepared for the conversion to the Euro currency and has begun
handling transactions in the Euro as of the beginning of 1999. The Company's
business systems are multi-currency functional and the Company's European
operations transact business today in various European currencies, including
the Euro. The Company does not believe the costs related to handling Euro-based
transactions will have a material effect on the Company's financial condition
or results of operations.

RESULTS OF OPERATIONS

Year ended December 28, 1997 ("1997 "), compared with year ended December 29,
1996 ("1996")

The Company's net sales increased by $215.2 million, or approximately 60
percent, to a record $571.6 million in 1997 from $356.4 million in 1996.
Results for 1997 included sales from March 10 through December 28 of $215.5
million from the Commercial Products Group of Kysor, which was acquired by the
Company in March 1997. On a pro forma basis, Kysor's sales of refrigerated
display cases and walk-in coolers and freezers increased $9.2 million, or 4
percent, to $254.3 million in 1997 from $245.1 million in 1996.

                                     page 13


<PAGE>   15


Sales to the food retail industry, consisting primarily of sales to
supermarkets and convenience stores, represented 39 percent of the Company's
sales in 1997. Food retail sales increased $207.1 million to $223.5 million in
1997 from $16.4 million in 1996, which was attributable to the acquisition of
Kysor. Kysor's sales of refrigerated display cases to food retail customers
were $152.2 million in 1997. Sales of walk-in coolers and freezers to food
retail customers were $55.2 million in 1997. At December 28, 1997, the
Company's backlog of orders from supermarkets was at a record level, although
the delivery schedules of certain customers were deferred from the fourth
quarter of 1997 to future periods.

Sales to the foodservice industry, consisting primarily of sales to
restaurants, hotels, motels, bottlers and brewers, represented 61 percent of
the Company's sales in 1997. Foodservice sales increased $8.2 million, or 2
percent, to $348.1 million in 1997 from $339.9 million in 1996. Sales of all
product lines to foodservice customers increased in 1997, with the largest
increase occurring in food preparation and storage equipment. Food preparation
and storage equipment sales to foodservice customers increased by $6.6 million,
or approximately 6 percent, to $117.5 million in 1997 from $110.9 million in
1996. Increased sales were driven by sales to Boston Market, a customer of the
Company's Delfield business unit. Boston Market had significantly reduced its
expansion plans in the second half of 1997.

Worldwide ice machine sales to foodservice customers declined $9.3 million, or
6 percent, to $152.2 million in 1997 from $161.5 million in 1996. Approximately
half the decline was due to changes in foreign exchange rates. However, the
decline in ice machine sales also resulted from lower sales in Europe and the
United States due to soft market conditions in both regions, some slowdown in
restaurant chain activity in the United States and higher distributor
inventories in Europe at the beginning of the year. Conditions in the United
States improved in the fourth quarter of 1997 as did demand in Europe, as
distributor inventories in that region returned to normal levels.

Sales of beverage systems to foodservice customers increased by $2.7 million,
or approximately 4 percent, to $70.2 million in 1997 from $67.6 million in
1996. Increased export sales and market penetration throughout Europe by the
Company's U.K.-based beverage dispensing unit more than offset soft market
conditions for the Company's dispensing businesses in Germany and in the United
States.

The Company's gross profit increased by $43.6 million, or approximately 44
percent, to $142.0 million in 1997 from $98.4 million in 1996, due to the
inclusion of Kysor's results of operations subsequent to its acquisition by the
Company in March 1997. However, the Company's gross profit margin decreased as
a percentage of sales to 24.8 percent in 1997 from 27.6 percent in 1996. The
reduction in gross profit margins was partially attributable to the inclusion
of the results of Kysor, which historically has reported lower gross profit
margins. Also contributing to the decline in gross profit margins were higher
production costs of food preparation and storage equipment, and a 6 percent
decline in worldwide ice machine sales in 1997.

Selling and administrative expenses increased by $24.9 million, or
approximately 43 percent, to $83.1 million in 1997 from $58.1 million in 1996.
The increase in selling and administrative expenses was attributable to the
inclusion of Kysor's results subsequent to its acquisition by the Company in
March 1997, including amortization of intangibles of $3.8 million related to
the purchase of Kysor during the year. As a percentage of sales, selling and
administrative expenses decreased to 14.5 percent in 1997 from 16.3 percent in
1996. The percentage decrease was primarily attributable to Kysor's business
units which, although they have historically reported lower gross profit
margins, also have lower selling and administrative expenses as a percentage of
sales as compared with the balance of the Company's businesses.

Income from operations increased by $18.6 million, or approximately 46 percent,
to $58.9 million in 1997 from $40.3 million in 1996, which primarily reflects
Kysor's contribution to the Company's profits. As a percentage of sales, income
from operations decreased to 10.3 percent in 1997 from 11.3 percent in 1996.
The decline was the result of the lower gross profit margins and an additional
$3.8 million of amortization of intangibles resulting from the Kysor
Acquisition.

Net interest expense increased by $16.1 million to $21.4 million in 1997 from
$5.3 million in the prior year as a result of the increased domestic borrowings
incurred by the Company to fund the Kysor Acquisition.

Income taxes increased by $2.2 million to $18.6 million in 1997 from $16.4
million in 1996 due to higher taxable income and an increase in the Company's
overall income tax rate to 49.6 percent in 1997 from 47.0 percent in 1996. The
higher income tax rate was primarily attributable to the impact of
non-deductible amortization of intangibles resulting from the Kysor
Acquisition.

                                     page 14


<PAGE>   16

Net income, before a one-time after-tax charge of $633,000 incurred for the
early retirement of $20 million of 11.43 percent private placement debt,
increased by $0.3 million, or approximately 2 percent, to $18.9 million in 1997
from $18.6 million in 1996. On a diluted basis, earnings per share, before the
onetime charge, increased by $0.02, or approximately 1 percent, to $1.75 in 1997
from $1.73 in 1996. Excluding the effects of foreign currency translation, 1997
net income before the one-time charge would have increased 4 percent. Net
income, including the one-time charge, declined by $0.3 million, or
approximately 2 percent, to $18.3 million in 1997 from $18.6 million in 1996. On
a diluted basis, earnings per share, including the one-time charge, declined by
$0.04, or approximately 2 percent, to $1.69 in 1997 from $1.73 in 1996.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company's liquidity requirements have arisen primarily from
the need to fund its working capital, capital expenditures, acquisitions and
interest expense, including fixed obligations associated with debt or lease
obligations. The Company has met these liquidity requirements through the use
of funds generated from operations, along with financing from various sources.
The Company expects to continue to generate significant cash flow from
operations, which in combination with available borrowing capacity will be used
to run the Company's businesses and fund further growth. Refer to Note 7 of the
Notes To Consolidated Financial Statements in Item 8 for a discussion of the
Company's loan facilities.

The Company generated cash flow from operations of $35.6 million in 1998
compared with cash flow from operations of $31.9 million in 1997. Net income
plus depreciation and amortization increased by $3.5 million, or 10 percent, to
$38.3 million in 1997 from $34.8 million in 1996.

The changes in the balance sheet categories discussed below from December 28,
1997, to January 3, 1999, exclude the impact of the acquisition of a
controlling interest in Austral, and of changes in foreign exchange rates on
those categories. Beginning in December 1998, the balance sheet of Austral is
consolidated with that of the Company and the appropriate minority interest is
reflected on the Company's Consolidated Balance Sheet. Absent the Austral
acquisition, working capital increased $8.1 million primarily due to a decrease
in liabilities  related to severance and retirement benefits paid to former
executives of Kysor.

Capital expenditures, including those funded through capital leases, decreased
$1.8 million, or 15 percent, to $10.0 million in 1998 from $11.8 million in
1997. Capital expenditures in 1998 were made primarily for equipment to realize
productivity improvements, new product tooling, and replacement and maintenance
items. Capital expenditures in 1997 included funds to complete construction of
a new refrigeration systems facility in Columbus, Georgia.

In November 1998, the Company, through its Kysor Industrial Corporation
subsidiary, acquired 24 percent of the outstanding stock of Austral, thereby
increasing its ownership of Austral to a 53 percent controlling interest, for a
cost of approximately $13.7 million. In December 1998, the Company's subsidiary
Scotsman Drink Ltd. acquired a one-third stake in Total Cellar Systems, an
installer and servicer of beer dispensing equipment in the United Kingdom, at a
cost of less than $1 million (see "1998 Acquisitions" in Item 1 of this
report).

Cash and cash equivalents of $22.4 million as of January 3, 1999, decreased by
$1.7 million from December 28, 1997, reflecting the decrease in cash balances
at the Company's foreign subsidiaries. In January 1998, Scotsman Group Inc.
received net dividends of $13.7 million from foreign operations which were then
used by Scotsman Group Inc. to reduce borrowings under its credit facility with
the First National Bank of Chicago.

Note 7 to the Company's financial statements included in Item 8 and herein
incorporated by reference, contains a summary of the changes in the Company's
debt structure during 1998. Short-term debt increased $3.0 million from
December 28, 1997, and principally related to amounts owed under lines of
credit. Total debt, including capital leases, was $355.3 million as of January
3, 1999, compared with $350.7 million as of December 28, 1997. Total debt at
January 3, 1999, includes $13.8 million of debt of Austral, which is now
included in the Company's Consolidated Balance Sheet. The debt-to-capital ratio
was 69 percent at January 3, 1999, compared with 71 percent at December 28,
1997. As of January 3, 1999, the Company was subject to various covenants under
the agreements governing its outstanding indebtedness, including a covenant
which had the effect of restricting the amount of the Company's dividends to
its shareholders. Refer to Note 7 to the Company's financial statements for a
further description of this particular covenant. The Company was in compliance
with its covenants as of January 3, 1999.

On February 10, 1998, May 14, 1998, August 13, 1998, and December 17, 1998, the
Company's Board of Directors declared a dividend of 2 1/2 cents per share
payable to common shareholders of record on March 31, 1998, June 30, 1998,
September 30, 1998, and December 31, 1998.

                                     page 15


<PAGE>   17
Since its first quarter as a publicly-held company, the Company has paid a
quarterly dividend of 2 1/2 cents per share. The continuation, amount and
timing of this dividend will be determined by the Board of Directors and may
change as conditions warrant.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

MARKET RISK

The Company is exposed to market risks from changes in interest rates, foreign
currency exchange rates and commodity prices. To reduce such risks, the Company
selectively uses financial instruments. The Company does not use financial
instruments for trading purposes.

Discussions of the Company's accounting policies and further disclosure
relating to financial instruments is included in Notes 1 and 10 of the Notes to
Consolidated Financial Statements in Item 8.

Interest Rate Risk

The Company uses interest rate swap agreements and interest rate cap agreements
to reduce the impact of changes in interest rates on its floating-rate long-term
debt. Under these agreements, the Company has contracted with major financial
institutions as follows: (i) for interest rate swap agreements, the Company has
contracted to exchange the difference between a fixed rate and a floating rate
applied to the notional amount and (ii) for interest rate cap agreements, the
Company is entitled to receive from counterparties the amount, if any, by which
the selected market interest rates exceed the strike rates stated in the
contract, applied to the notional amount. At January 3, 1999, after adjusting
for the effect of the interest rate swap agreements, the Company had fixed-rate
debt and capital leases of $268.9 million and floating-rate debt of $86.4
million. The fair value of the Company's long-term debt at January 3, 1999, and
December 28, 1997, amounted to $347.1 million and $347.5 million, respectively.
The fair value of the Company's interest-rate swap agreements at January 3,
1999, and December 28, 1997, amounted to liabilities of $5.8 million and $2.1
million, respectively. The fair value of other financial instruments was
immaterial as of January 3, 1999, and December 28, 1997. A hypothetical
100-basis point change in the interest rates would not have a material effect on
cash flows, income or market values. For a description of the interest rate swap
and interest rate cap agreements outstanding as of January 3, 1999, see Note 10
in Item 8.

Currency Risk

The Company enters into forward exchange contracts principally to hedge the
currency fluctuations in transactions denominated in foreign currencies,
thereby limiting the Company's risk that otherwise would result from changes in
exchange rates. During 1998, the principal transactions hedged were short-term
intercompany loans and intercompany purchases. The periods of the forward
contracts correspond to the periods of the hedged transactions.

Commodity Prices

The Company is exposed to the fluctuation in market prices for various
commodities including, but not limited to, steel, copper and aluminum. The
Company is subject to commodity price risk as the prices for raw material
change with movements in underlying commodity prices. The Company enters into
contracts with its vendors to lock in commodity prices at various times and for
various periods in order to limit near-term exposure to fluctuations in raw
material prices.

FORWARD-LOOKING STATEMENTS

The foregoing discussion and analysis of the Company's financial condition and
results of operations contains forward-looking statements that involve risks
and uncertainties. Such statements include references to the Company's
expectations, beliefs, goals, or anticipated results. The Company's results
could differ significantly from those anticipated as a result of unforeseen
factors. Factors that could cause actual results to differ from those
anticipated include (I) the strength or weakness of the various economies in
which the Company markets its products, (II) weather conditions, (III) the
utilization rates of the Company's facilities, (IV) labor difficulties, (V)
increased prices of raw materials and purchased components, (VI) scheduling and
transportation dislocations, (VII) delays in development of new products or
construction of new facilities, (VIII) product liability or other lawsuits,
warranty claims or return of goods, (IX) foreign currency fluctuations, (X)
changes in buying patterns of certain large customers as a result of internal
cost-control measures adopted by, or changes in the strategic plans of those
customers, (XI) changes in environmental, health, safety or refrigerant
regulations or standards, (XII) the level of the Company's leverage, (XIII) the
Company's ability or inability to manage growth, (XIV) the Company's loss of
key personnel and (XV) the failure of the Company or its suppliers to achieve
Year 2000 compliance in a timely manner. See the Cautionary Statements included
as Exhibit 99 to this report for a more detailed discussion of the foregoing
and other factors.

                                    page 16
<PAGE>   18


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per-share data)


<TABLE>
<CAPTION>

FOR THE FISCAL YEARS ENDED                             JAN. 3, 1999      DEC. 28, 1997         DEC. 29, 1996
--------------------------                             ------------      -------------         -------------
<S>                                                    <C>               <C>                   <C>
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
                                                           --------          --------               --------
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of this statement.
                                     Page 17

<PAGE>   19


CONSOLIDATED BALANCE SHEET


<TABLE>
<CAPTION>
(Amounts in thousands, except number of shares)
                                                                 JAN. 3, 1999        DEC. 28, 1997
                                                                 ------------        -------------

<S>                                                              <C>                 <C>
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
                                                                    --------             --------
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of this statement.

                                    page 18
<PAGE>   20

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
(Amounts in thousands)
FOR THE FISCAL YEARS ENDED                              JAN. 3, 1999        DEC. 28, 1997         DEC. 29, 1996
--------------------------                              ------------        -------------         -------------
<S>                                                     <C>                 <C>                   <C>
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)
                                                           --------             --------               -------
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of this statement.

                                    page 19


<PAGE>   21
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                 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
                                   ---------  ---------  ----------  --------  -------------  --------  -------------  ---------

<S>                                <C>        <C>        <C>         <C>       <C>            <C>       <C>            <C>
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
</TABLE>

The accompanying notes to consolidated financial statements are an integral
part of this statement.

                                    page 20


<PAGE>   22
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.

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

                                    Page 21

<PAGE>   23
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.

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

                                     page 22


<PAGE>   24

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.

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):


<TABLE>
<CAPTION>
                       JAN. 3, 1999      DEC. 28, 1997
                       ------------      -------------

<S>                    <C>               <C>
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
                            -------            -------
</TABLE>

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):


<TABLE>
<CAPTION>
                                               JAN. 3, 1999       DEC. 28, 1997
                                               ------------       -------------
<S>                                            <C>                <C>
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
                                                  --------            --------

</TABLE>

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:


<TABLE>
<CAPTION>
                                          1998              1997
                                        ------            ------
<S>                                     <C>               <C>
Bank and other borrowings               $3,970            $4,524
                                        ------            ------
Weighted-average interest rate             6.4%              6.7%
                                        ------            ------
</TABLE>

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.

                                     page 23


<PAGE>   25

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.

6. ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):


<TABLE>
<CAPTION>
                                            JAN. 3, 1999        DEC. 28, 1997
                                            ------------        -------------
<S>                                         <C>                 <C>
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
                                            ------------        -------------
</TABLE>

7. LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS

Long-term debt and capitalized lease obligations consisted of the following (in
thousands):


<TABLE>
<CAPTION>
                                                                      JAN. 3, 1999        DEC. 28, 1997
                                                                      ------------        -------------
<S>                                                                   <C>                 <C>
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
                                                                      ------------        -------------
</TABLE>

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.

                                     page 24


<PAGE>   26

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.

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):


<TABLE>
<S>                                                           <C>
----------------------------------------------------------------------
1999                                                          $ 18,538
2000                                                            28,602
2001                                                            24,137
2002                                                            27,831
2003                                                            23,696
Thereafter                                                     226,265
                                                              --------
TOTAL                                                         $349,069
                                                              --------
</TABLE>

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.

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.

                                     page 25


<PAGE>   27


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):


<TABLE>
<S>                                                          <C>
--------------------------------------------------------------------
1999                                                         $ 3,562
2000                                                           3,106
2001                                                           2,537
2002                                                           2,043
2003                                                           1,502
Thereafter                                                     5,824
                                                             -------
TOTAL MINIMUM LEASE COMMITMENTS                              $18,574
                                                             -------
</TABLE>

9. EMPLOYEE BENEFIT PLANS

The Company sponsors defined benefit pension plans for certain salaried and
hourly employees. Plans covering salaried employees provide benefits that are
based on years of service and compensation.  Plans covering hourly employees
provide benefits of stated amounts for each year of service. The pension assets
are invested in institutional mutual funds which contain both equities and
fixed investments. The Company complies with funding requirements under the
Employee Retirement Income Security Act.

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.

Information for the Company's major defined benefit plans and post-retirement
medical plans is as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                    Post-retirement
                                                        Pension Benefits             Medical Plans
                                                 ---------------------------      -------------------
                                                      1998              1997          1998      1997
                                                 ---------         ---------      --------   --------
<S>                                              <C>         <C>                   <C>       <C>
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%           --        --
                                                 ---------         ---------      --------   --------
</TABLE>

                                    page 26


<PAGE>   28
<TABLE>
<CAPTION>
                                                    Pension Benefits                Post-retirement Medical Plans
                                          ----------------------------------       ------------------------------
                                             1998          1997         1996        1998         1997        1996
                                          -------       -------       ------       -----        -----       -----
<S>                                       <C>           <C>           <C>          <C>           <C>         <C>
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
                                          -------       -------       ------       -----        -----       -----
</TABLE>

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):


<TABLE>
<CAPTION>
                                                                  ONE-PERCENT          ONE-PERCENT
                                                                     INCREASE             DECREASE
                                                                  -----------          -----------
<S>                                                               <C>                  <C>
Effect on total of service and interest cost components                  $117               $ (95)
Effect on post-retirement benefit obligation                             $862               $(704)
                                                                  -----------          -----------
</TABLE>

The Company has pension plans covering employees in its Italian subsidiaries.
These plans combine aspects of both government mandated and non-contributory
plans. Total pension expense under these plans included in the Consolidated
Statement of Income (in thousands) was $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.

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.

                                     page 27


<PAGE>   29
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:


<TABLE>
<CAPTION>
                                         CARRYING AMOUNT       FAIR VALUE
                                         ---------------       ----------
                                         
<S>                                            <C>              <C>
Liabilities:
Long-term debt                                 $347,400         $347,129
Interest-rate swap agreements                        --            5,793
                                               --------         --------
</TABLE>

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:

<TABLE>
<CAPTION>
                                         CARRYING AMOUNT       FAIR VALUE
                                         ---------------       ----------
<S>                                             <C>               <C>
Liabilities:
Long-term debt                                  $346,979         $347,496
Interest-rate swap agreements                         --            2,111
                                                --------         --------
</TABLE>

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):

<TABLE>
<CAPTION>
                                                      JAN. 3, 1999     DEC. 28, 1997
                                                      ------------     -------------
<S>                                                      <C>               <C>
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)
                                                         --------          --------
</TABLE>

                                    page 28


<PAGE>   30

The above deferred tax components are reflected in the accompanying balance
sheet as follows (in thousands):

<TABLE>
<CAPTION>
                                                   JAN. 3, 1999       DEC. 28, 1997
                                                   ------------       -------------
<S>                                                <C>                <C>
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)
                                                   ------------       -------------
</TABLE>

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):


<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED                       JAN. 3, 1999              DEC. 28, 1997                DEC. 29, 1996
--------------------------                       ------------              -------------                -------------
<S>                                              <C>                       <C>                          <C>
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
                                                      -------                   -------                       -------
</TABLE>

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:


<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED                                JAN. 3, 1999             DEC. 28, 1997            DEC. 29, 1996
--------------------------                                ------------             -------------            -------------
<S>                                                       <C>                      <C>                      <C>
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%
                                                                 ----                      ----                     ----
</TABLE>

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.

                                     page 29


<PAGE>   31
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:

<TABLE>
<CAPTION>
                                      1998         1997          1996
                                   -------      -------       -------
<S>                                <C>          <C>           <C>
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
                                   -------      -------       -------
</TABLE>

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:

<TABLE>
<CAPTION>
                                                   1998                    1997                     1996
                                          ---------------------     -------------------     --------------------
                                                       Weighted                Weighted                 Weighted
                                                        Average                 Average                  Average
                                           Shares      Exercise     Shares     Exercise     Shares      Exercise
                                            (000)         Price      (000)        Price      (000)         Price
                                           ------      --------     ------     --------     ------      --------
<S>                                        <C>         <C>          <C>        <C>          <C>         <C>
Outstanding at beginning of year             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
                                           ------      --------     ------     --------     ------      --------
</TABLE>

The following table summarizes information about stock options outstanding at
January 3, 1999:

<TABLE>
<CAPTION>
                                                   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
---------------                    -----------            ------------     --------             -----------      --------
<S>                                <C>                    <C>              <C>                  <C>                   <C>
$ 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
                                   -----------            ------------     --------             -----------      --------
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997, respectively:

<TABLE>
<CAPTION>
EXECUTIVE PLAN                                                1998        1997
--------------                                               ------      ------
<S>                                                           <C>         <C>
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
                                                             -----       -----
</TABLE>

<TABLE>
<CAPTION>
NON-EMPLOYEE DIRECTORS PLAN                                    1998       1997
---------------------------                                  ------      ------
<S>                                                           <C>         <C>
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
                                                             ------      ------
</TABLE>

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.

                                              page 30
<PAGE>   32
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.


<TABLE>
<CAPTION>
(Amounts in thousands, except per-share data)                              Pro Forma (Unaudited)
TWELVE MONTHS ENDED                                                                DEC. 28, 1997
---------------------------------------------                              ---------------------
<S>                                                                        <C>
Net sales                                                                               $610,422
Net income before extraordinary loss                                                      16,893
Net income                                                                                16,260
Net income per share, diluted                                                           $   1.51
                                                                                        --------
</TABLE>

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.

                                     page 31


<PAGE>   33

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.


<TABLE>
<CAPTION>
(Amounts in thousands, except per-share data)             Pro Forma (Unaudited)
TWELVE MONTHS ENDED                                                JAN. 3, 1999
---------------------------------------------             ---------------------
<S>                                                       <C>
Net sales                                                              $727,751
Net income                                                               19,658
Net income per share, diluted                                          $   1.83
                                                                       --------
</TABLE>

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.

                                     page 32


<PAGE>   34
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):

<TABLE>
<CAPTION>
                                Net Sales                           Operating Earnings              Depreciation and Amortization
                -------------------------------------------     ----------------------------     -----------------------------------
                      1998            1997             1996        1998        1997     1996        1998           1997         1996
                ----------        --------         --------     -------     -------  -------      ------        -------       ------
<S>             <C>                <C>               <C>         <C>        <C>      <C>          <C>            <C>          <C>
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
                  --------        --------         --------     -------     -------  -------     -------        -------       ------
</TABLE>

<TABLE>
<CAPTION>                                                                                                 Investment in
                             Total Assets                       Capital Expenditures                 Equity Method Investees
                -------------------------------------    -----------------------------------  --------------------------------------
                      1998          1997         1996        1998           1997        1996    1998            1997            1996
<S>             <C>             <C>          <C>         <C>            <C>         <C>       <C>             <C>             <C>
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
                  --------      --------     --------     -------        -------      ------  ------         -------          ------
</TABLE>

(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.

<TABLE>
<CAPTION>
                                                                  1998         1997          1996
                                                                --------     --------      --------
<S>                                                             <C>          <C>            <C>
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
                                                                --------     --------      --------
</TABLE>

<TABLE>
<CAPTION>
Earnings (Loss) of Nonconsolidated Affiliates                     1998        1997          1996
                                                                --------    --------      --------
<S>                                                              <C>         <C>            <C>
Foodservice                                                       $(186)       $(150)        $(297)
Food Retail (a)                                                   1,880        1,376            --
                                                                --------    --------      --------
Total                                                            $1,694       $1,226         $(297)
                                                                --------    --------      --------
</TABLE>

(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.

<TABLE>
<CAPTION>
                                                                      1998         1997        1996
                                                                  --------     --------    --------
<S>                                                               <C>          <C>         <C>
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
                                                                   --------    --------    --------
</TABLE>

<TABLE>
<CAPTION>
Revenues From External Customers                                      1998         1997        1996
--------------------------------                                  --------     --------    --------
<S>                                                               <C>          <C>         <C> 
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
                                                                  --------     --------    --------
</TABLE>
                                    page 33
<PAGE>   35
<TABLE>
<CAPTION>
                              Net Sales to External Customers            Long-Lived Assets
                        -------------------------------------  ------------------------------------
Geographic Information         1998         1997         1996      1998           1997         1996
----------------------  -----------  -----------  -----------  --------  -------------     --------
<S>                     <C>          <C>          <C>          <C>       <C>                <C>
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
                           --------     --------     --------  --------       --------      -------
</TABLE>

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):


<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED                    JAN. 3, 1999  DEC. 28, 1997  DEC. 29, 1996
--------------------------                    ------------  -------------  -------------
<S>                                              <C>           <C>            <C>
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
                                                  --------       --------       --------
</TABLE>

<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED                    JAN. 3, 1999     DEC. 28, 1997      DEC. 29, 1996
--------------------------                    ------------     -------------      -------------
<S>                                               <C>              <C>                <C>
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
                                                  --------          --------           --------
</TABLE>

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.



<TABLE>
<CAPTION>
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
               ------------  -------------  ---------  -------------  ------------ ---------  ------------  -------------  ---------
<S>              <C>            <C>            <C>        <C>            <C>          <C>         <C>          <C>         <C>   
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
                    -------     ----------    -------       -------     ----------   -------      -------      ----------  ---------
</TABLE>

                                    page 34


<PAGE>   36


18. STOCK ACTIVITY
Common, preferred and treasury stock activities were as follows:


<TABLE>
<CAPTION>
                                                  COMMON STOCK
NUMBER OF SHARES                            (NET OF TREASURY SHARES)                      PREFERRED STOCK          TREASURY STOCK
----------------                            ------------------------                     ---------------          --------------
<S>                                                   <C>                                 <C>                      <C>
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
                                                       ---------                              ----------                 -------
</TABLE>

                                    page 35


<PAGE>   37


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

                                     page 36


<PAGE>   38


MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The consolidated financial statements and related information have been
prepared by management, which is responsible for the integrity and objectivity
of that information. They have been prepared in conformity with generally
accepted accounting principles and include amounts that are based on
management's best estimates and judgments where appropriate. The financial
information contained elsewhere in this annual report is consistent with that
in the consolidated financial statements.

The Company maintains internal accounting control systems that are adequate to
provide reasonable assurance that the assets are safeguarded from loss or
unauthorized use. These systems produce records adequate for preparation of
financial information.

Our independent public accountants, Arthur Andersen LLP, have audited the
financial statements and have rendered an opinion as to the statements'
fairness in all material respects in accordance with generally accepted
accounting principles. During the audit they obtain an understanding of the
Company's internal control systems, and perform tests and other procedures to
the extent required by generally accepted auditing standards.

The Audit Committee of the Board of Directors, composed of directors who are
not officers or employees of the Company, meets periodically with management
and the independent public accountants on financial reporting matters. The
independent public accountants have free access to meet with the Audit
Committee, without the presence of management, to discuss their audit results
and opinions on the quality of financial reporting.


/s/ Richard C. Osborne                     /s/ Donald D. Holmes
-------------------------------------      ------------------------------------
Richard C. Osborne                         Donald D. Holmes
Chairman of the Board,                     Vice President-Finance and Secretary
President and Chief Executive Officer

                                     page 37


<PAGE>   39

SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
(Amounts in thousands, except per-share data)


<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FISCAL YEAR 1998        JAN. 3, 1999      OCT. 4, 1998       JULY 5, 1998       APR. 5, 1998
-------------------------------------------        ------------      ------------       ------------       ------------
<S>                                                <C>               <C>                <C>                <C>
Net sales                                            $  139,853        $  164,421         $  176,555         $  152,215
Cost of sales                                           105,612           122,857            131,116            115,094
                                                   ------------      ------------       ------------       ------------
Gross profit                                             34,241            41,564             45,439             37,121
Selling and administrative expenses                      19,851            21,673             22,442             22,392
Amortization expense                                      1,953             1,907              1,886              1,841
                                                   ------------      ------------       ------------       ------------
Income from operations                                   12,437            17,984             21,111             12,888
Interest expense, net                                     6,385             6,516              6,713              7,206
                                                   ------------      ------------       ------------       ------------
Income before income taxes                                6,052            11,468             14,398              5,682
Income taxes                                              3,405             5,436              6,489              3,342
                                                   ------------      ------------       ------------       ------------
Income before extraordinary loss                     $    2,647        $    6,032         $    7,909         $    2,340
Extraordinary loss                                           --                --                 --                 --
                                                   ------------      ------------       ------------       ------------
Net income                                           $    2,647        $    6,032         $    7,909         $    2,340
                                                   ------------      ------------       ------------       ------------
Basic earnings per share (a):
 Income before extraordinary loss                    $     0.25        $     0.57         $     0.75         $     0.22
 Extraordinary loss                                          --                --                 --                 --
                                                   ------------      ------------       ------------       ------------
 Earnings per common share                           $     0.25        $     0.57         $     0.75         $     0.22
Diluted earnings per share (b):
 Income before extraordinary loss                    $     0.25        $     0.56         $     0.73         $     0.22
 Extraordinary loss                                          --                --                 --                 --
                                                   ------------      ------------       ------------       ------------
 Earnings per common share                           $     0.25        $     0.56         $     0.73         $     0.22
Weighted-average common shares outstanding:      
 Basic                                               10,596,106        10,595,915         10,593,470         10,575,923
 Diluted                                             10,712,289        10,771,692         10,849,779         10,831,973
                                                   ------------      ------------       ------------       ------------
</TABLE>

(a) Basic earnings per common share are computed by dividing net income
    available to common shareholders by the weighted-average number of common
    shares outstanding.

(b) Diluted earnings per common share includes options, warrants and convertible
    securities in the calculation.

                                     page 38


<PAGE>   40

SELECTED QUARTERLY FINANCIAL DATA (CONTINUED)
(Unaudited)
(Amounts in thousands, except per-share data)


<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FISCAL YEAR 1997              DEC. 28, 1997     SEPT. 28, 1997      JUNE 29, 1997      MAR. 30, 1997
-------------------------------------------              -------------     --------------      -------------      -------------
<S>                                                      <C>               <C>                 <C>                <C>
Net sales                                                   $  140,059         $  159,675         $  173,777        $   98,077
Cost of sales                                                  109,314            119,527            128,311            72,446
                                                         -------------     --------------      -------------      ------------
Gross profit                                                    30,745             40,148             45,466            25,631
Selling and administrative expenses                             17,735             20,572             23,159            15,126
Amortization expense                                             1,887              1,774              1,820               998
                                                         -------------     --------------      -------------      ------------
Income from operations                                          11,123             17,802             20,487             9,507
Interest expense, net                                            6,151              6,426              6,574             2,207
                                                         -------------     --------------      -------------      ------------
Income before income taxes                                       4,972             11,376             13,913             7,300
Income taxes                                                     3,037              5,343              6,827             3,435
                                                         -------------     --------------      -------------      ------------
Income before extraordinary loss                            $    1,935         $    6,033         $    7,086        $    3,865
Extraordinary loss                                                  --                 --                 --              (633)
                                                         -------------     --------------      -------------      ------------
Net income                                                  $    1,935         $    6,033         $    7,086        $    3,232
Basic earnings per share(a):
 Income before extraordinary loss                           $     0.18         $     0.57         $     0.67        $     0.37
 Extraordinary loss                                                 --                 --                 --             (0.06)
                                                         -------------     --------------      -------------      ------------
 Earnings per common share                                  $     0.18         $     0.57         $     0.67        $     0.31
Diluted earnings per share(b):
 Income before extraordinary loss                           $     0.18         $     0.56         $     0.66        $     0.36
 Extraordinary loss                                                 --                 --                 --             (0.06)
                                                         -------------     --------------      -------------      ------------
 Earnings per common share                                  $     0.18         $     0.56         $     0.66        $     0.30
Weighted-average common shares outstanding:
 Basic                                                      10,566,637         10,558,231         10,550,977        10,544,095
 Diluted                                                    10,801,118         10,813,359         10,830,127        10,795,445
                                                         -------------     --------------      -------------      ------------
</TABLE>

(a) Basic earnings per common share are computed by dividing net income
    available to common shareholders by the weighted-average number of common
    shares outstanding.

(b) Diluted earnings per common share includes options, warrants and convertible
    securities in the calculation.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There were no changes in accountants or disagreements with accountants on
accounting and financial disclosures during 1998.

                                              page 39


<PAGE>   41

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information contained in "Information Regarding Nominees and Directors" and
"Compliance with Section 16 (a) of the Exchange Act" in the 1999 Proxy
Statement is incorporated herein by reference. See also "Executive Officers of
the Registrant," Part I, above.

ITEM 11. EXECUTIVE COMPENSATION

The information contained in the sections entitled "Executive Compensation,"
"Options and Stock Appreciation Rights," "Pension Plan," "Executive Compensation
and Severance Agreements, Including Change of Control Provisions," and
"Directors' Fees and Compensation" in the 1999 Proxy Statement is incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained in the sections entitled "Security Ownership of
Management" and "Security Ownership of Certain Beneficial Owners" in the 1999
Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained in the sections entitled "Executive Compensation,"
"Executive Compensation and Severance Agreements, Including Change of Control
Provisions" and "Other Agreements" in the 1999 Proxy Statement is incorporated
herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

(a)(1) LIST OF FINANCIAL STATEMENTS

The following Consolidated Financial Statements of Scotsman Industries, Inc.
and Subsidiaries are included in Item 8 of this report.

Report of Independent Public Accountants

Consolidated Statement of Income for each of the three years ended January 3,
1999, December 28, 1997, and December 29, 1996 

Consolidated Balance Sheet as of January 3, 1999, and December 28, 1997

Consolidated Statement of Cash Flows for each of the three years ended January
3, 1999, December 28, 1997, and December 29, 1996

Consolidated Statement of Shareholders' Equity for each of the three years ended
January 3, 1999, December 28, 1997, and December 29, 1996

Notes to Consolidated Financial Statements 

Selected Quarterly Financial Data (Unaudited)

(a)(2) LIST OF FINANCIAL STATEMENT SCHEDULE

Scotsman Industries, Inc.
Schedule II - Valuation and Qualifying
Accounts (In thousands)


<TABLE>
<CAPTION>
                                                        ADDITIONS
                                                 -----------------------
                                     Balance at  Charged to   Charged to                Balance
                                      Beginning      Costs/        Other              at End of
                                      of Period    Expenses  Accounts(a)  Deductions     Period
                                     ----------  ----------  -----------  ----------  ---------
<S>                                  <C>         <C>         <C>          <C>         <C>
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
</TABLE>

(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.

                                     page 40


<PAGE>   42

(a) (3) LIST OF EXHIBITS

The following exhibits are filed as part of this report. Each management
contract or compensatory plan or arrangement required to be filed as an exhibit
to this report has been marked with an asterisk(*). Unless otherwise indicated,
all documents incorporated by reference to prior filings have been filed under
Commission File No. 1-10182.

<TABLE>
<S>           <C>
Exhibit 2.1   Agreement and Plan of Merger, dated as of February 2, 1997, among the Company,
              K Acquisition Corp., and Kysor Industrial Corporation (incorporated herein by
              reference from Exhibit (c) (1) to the Company's Tender Offer Statement on Schedule
              14D-1, filed with the Commission on February 7, 1997), as amended by the First
              Amendment to Agreement and Plan of Merger, dated as of March 7, 1997 (incorporated
              herein by reference to the Company's 8-K, dated March 8, 1997).

Exhibit 2.2   Asset Purchase Agreement, dated as of February 2, 1997, among Kuhlman Corporation,
              Transpro Group, Inc., Kysor Industrial Corporation, and certain subsidiaries of
              Kysor Industrial Corporation (incorporated herein by reference to Exhibit (c) (2)
              of the Company's Schedule 14D-1 filed with the Commission on February 7, 1997).

Exhibit 2.3   Agreement for the Sale, Purchase and Assignment of the Entire Share Capital of
              Hartek Beverage Handling GmbH and Hartek Awagem Vertriebsges, m.b.H., dated
              December 31, 1995, among Hartek Beverage Handling B.V., Hartwall Bolagen AB,
              Scotsman Group Inc. and Scotsman Industries, Inc. (incorporated herein by reference
              to the Company's 10-K for the fiscal year ended December 31, 1995).

Exhibit 2.4   Agreement and Plan of Merger, dated as of January 11, 1994, among Scotsman
              Industries, Inc., Scotsman Acquisition Corporation, DFC Holding Corporation, The
              Delfield Company, Onex Corporation, Onex DHC LLC, Pacific Mutual Life
              Insurance Co., PM Group Life Insurance Co., EJJM, Matthew O. Diggs, Jr.,
              Timothy C. Collins, W. Joseph Manifold, Charles R. McCollom, Anita J. Moffatt
              Trust, Anita J. Moffatt, Remo Panella, Teddy F. Reed, Robert L. Schafer, Graham E.
              Tillotson, John A. Tilmann Trust, John A. Tilmann, Kevin E. McCrone,
              Michael P. McCrone, Ronald A. Anderson and Continental Bank N.A. (incorporated
              herein by reference to the Company's 8-K, dated January 13, 1994), as amended by
              the First Amendment thereto, dated as of March 17, 1994 (incorporated herein by
              reference to the Company's 10-K for the fiscal year ended January 2, 1994).

Exhibit 2.5   Share Acquisition Agreement, dated as of January 11, 1994, among Scotsman
              Industries, Inc., Whitlenge Acquisition Limited, Whitlenge Drink Equipment
              Limited, Timothy C. Collins, Graham F. Cook, Christopher R.L. Wheeler,
              Michael de St. Paer and John Rushton (incorporated herein by reference to the
              Company's 8-K, dated January 13, 1994), as amended by the First Amendment thereto,
              dated as of March 17, 1994 (incorporated herein by reference to the Company's 10-K
              for the fiscal year ended January 2, 1994).

Exhibit 3.1   Restated Certificate of Incorporation of the Company (incorporated herein by
              reference to the Company's 10-K for the fiscal year ended December 31, 1989).

Exhibit 3.2   By-Laws of the Company, as amended (incorporated herein by reference to the
              Company's 8-K, dated June 21, 1991).

Exhibit 4     Rights Agreement, dated as of April 14, 1989, between Scotsman Industries, Inc.
              and Harris Trust & Savings Bank (incorporated herein by reference to the Company's
              8-K, dated April 25, 1989), as amended by Amendment No. 1 thereto, dated as of
              January 11, 1994 (incorporated herein by reference to Scotsman Industries, Inc.
              Amendment No. 4 to General Form for Registration of Securities on Form 10/A, as
              filed with the Commission on January 27, 1994), Amendment 2 thereto, dated as of
              February 10, 1998 (incorporated herein by reference to the Company's 8-K, dated
              February 10, 1998), and Amendment 3 thereto, dated as of February 11, 1998 
              (incorporated herein by reference to the Company's 8-K, dated February 19, 1998).

Exhibit 10.1  Reorganization and Distribution Agreement, dated as of March 15, 1989, by and among
              Household International, Inc., Eljer Industries, Inc., Schwitzer, Inc. and
              Scotsman Industries, Inc. (incorporated herein by reference to the Company's 8-K,
              dated April 25, 1989).
</TABLE>

                                     page 41


<PAGE>   43


Exhibit 10.2        Tax Sharing Agreement, dated as of March 15, 1989, among
                    Household International, Inc., Eljer Industries, Inc.,
                    Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated
                    herein by reference to the Company's 8-K, dated April 25,
                    1989).

Exhibit 10.3        Benefits and Labor Agreement, dated as of March 15, 1989,
                    among Household International, Inc., Eljer Industries, Inc.,
                    Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated
                    herein by reference to the Company's 10-K for the fiscal
                    year ended December 31, 1989).

Exhibit 10.4        Credit Agreement, dated March 12, 1997, (the "Credit
                    Agreement"), among Scotsman Group Inc. and the other parties
                    named therein, as Borrowers, the Lenders named therein, and
                    The First National Bank of Chicago, as Agent (incorporated
                    herein by reference to the Company's 10-K for the fiscal
                    year ended December 29, 1996), as amended by the First
                    Amendment thereto, dated March 24, 1997 (incorporated by
                    reference to the Company's 10-K for the fiscal year ended
                    December 28, 1997), the Second Amendment thereto dated June
                    30, 1997 (incorporated by reference to the Company's 10-K
                    for the fiscal year ended December 28, 1997), and the Third
                    Amendment thereto dated December 15, 1997, (incorporated by
                    reference to the Company's 10-K for the fiscal year ended
                    December 28, 1997) and the Fourth Amendment thereto dated
                    September 30, 1998.

Exhibit 10.5        Domestic Guaranty, dated as of March 12, 1997, entered into
                    by Scotsman Industries, Inc., in favor of The First National
                    Bank of Chicago, as agent, and the lenders named in the
                    Credit Agreement (incorporated herein by reference to the
                    Company's 10-Q for the quarter ended March 30, 1997).

Exhibit 10.6        Domestic Guaranty, dated as of March 12, 1997, in the form
                    separately entered into by each of Scotsman Group Inc.,
                    Booth, Inc., DFC Holding Corporation, The Delfield Company
                    and Kysor Industrial Corporation, in favor of The First
                    National Bank of Chicago, as agent, and the lenders named in
                    the Credit Agreement (incorporated herein by reference to
                    the Company's 10-Q for the quarter ended March 30, 1997).

Exhibit 10.7        Foreign Guaranty, dated as of March 12, 1997, in the form
                    separately entered into by each of Whitlenge Drink Equipment
                    Limited, Scotsman Drink Limited, Frimont S.p.A., and Castel
                    MAC S.p.A., in favor of The First National Bank of Chicago,
                    as agent, and the lenders named in the Credit Agreement
                    (incorporated herein by reference to the Company's 10-Q for
                    the quarter ended March 30, 1997).

Exhibit 10.8        Indenture, dated as of December 17, 1997, among Scotsman
                    Industries, Inc., Scotsman Group Inc., and Harris Trust and
                    Savings Bank, together with the form of 8 5/8% Senior
                    Subordinated Notes Due 2007 issued by Scotsman Group Inc.
                    under the Indenture and the related Guaranty of Scotsman
                    Industries, Inc. (incorporated by reference to the Company's
                    10-K for the fiscal year ended December 28, 1997).

Exhibit 10.9        Promissory Note in the principal amount of $7,500,000, made
                    as of April 28,1998, by Scotsman Group Inc. to Comerica Bank
                    (incorporated by reference to the Company's 10-Q for the
                    quarter ended April 5,1998), together with the related
                    Reaffirmation of Guaranty and Consent, dated March 12, 1996,
                    by Scotsman Industries, Inc. in favor of Comerica Bank,
                    Guaranty Agreement, dated June 30, 1996, by Scotsman
                    Industries, Inc. in favor of Comerica Bank (incorporated
                    herein to the Company's 10-Q, dated June 30, 1996) and
                    Guaranty by Booth, Inc., DFC Holding Corporation, The
                    Delfield Company and Kysor Industrial Corporation, dated
                    March 12, 1997, in favor of Comerica Bank (incorporated
                    herein by reference to the Company's 10-K for the fiscal
                    year ended December 29, 1996).

Exhibit 10.10       Reimbursement Agreement, dated March 1, 1988, among
                    Household Manufacturing, Inc., King-Seeley Thermos Co. and
                    the National Westminster Bank PLC, as amended by the
                    Amendments dated as of April 14, 1989, December 12, 1989,
                    June 26, 1992, November 20, 1992, March 17, 1993, among
                    Scotsman Group Inc., Scotsman Industries, Inc. and The Bank
                    of Nova Scotia (incorporated herein by reference to the
                    Company's 10-K for the fiscal year ended January 3, 1993),
                    the Amendment dated April 29, 1994 (incorporated herein by
                    reference to the Company's 10-Q for the quarter ended April
                    3, 1994), Amendment No. 7 thereto, dated March 12, 1997
                    (incorporated by reference to the Company's 10-K for the
                    fiscal year ended December 29,1996), among Scotsman Group
                    Inc., Scotsman Industries, Inc., The Bank of Nova Scotia and
                    The First National Bank of Chicago.


                                    page 42

<PAGE>   44

<TABLE>
<S>             <C>
Exhibit 10.11   ISDA Master Agreement, dated as of March 3, 1994, including the Schedule and
                Amended Confirmation (2) thereto, between The First National Bank of Chicago and
                Scotsman Group Inc. (incorporated herein by reference to the Company's 10-K for the
                fiscal year ended January 1, 1995), as amended by an Amendment thereto dated
                December 15,1997 (incorporated by reference to the Company's 10-Q for the quarter
                ended April 5, 1998), together with the related Confirmation of Interest Rate Swap
                Transactions, dated March 17, 1997, in the notional amounts of $100 million and $50
                million, respectively (incorporated herein by reference to the Company's 10-Q for
                the quarter ended March 30, 1997), as amended by an Amended Confirmation, dated
                February 5, 1998 (incorporated by reference to the Company's 10-Q for the quarter
                ended April 5, 1998).

Exhibit 10.12*  Long-Term Executive Incentive Compensation Plan of Scotsman Industries, Inc., as
                amended May 14, 1998 (incorporated by reference to the Company's Form 10-Q for the
                quarter ended July 5, 1998).

Exhibit 10.13*  Scotsman Industries, Inc., Executive Incentive Compensation Program, Plans AA, A-1
                and A-2 (incorporated herein by reference to the Company's 10-K for the fiscal
                quarter ended December 29, 1996).

Exhibit 10.14*  Scotsman Group Inc. Supplemental Tax Reduction Investment Plan, dated as of
                April 14, 1989 (incorporated herein by reference to the Company's 10-K for the
                fiscal year ended December 30, 1990).

Exhibit 10.15*  Non-Employee Directors Stock Option Plan, effective as of August 11, 1994
                (incorporated herein by reference to the Company's Registration Statement on Form
                S-8, No. 33-59397).

Exhibit 10.16*  Employment Agreement, dated September 16, 1991, between Scotsman Group Inc. and
                Richard C. Osborne (incorporated herein by reference to the Company's 10-Q for the
                quarter ended September 29, 1991).

Exhibit 10.17*  Employment Agreement, dated September 16, 1991, between Scotsman Group Inc. and
                Emanuele Lanzani (incorporated herein by reference to the Company's 10-K for the
                fiscal year ended December 29, 1991).

Exhibit 10.18*  Employment Agreement, dated September 16, 1991, between Scotsman Group Inc. and
                Donald D. Holmes (incorporated herein by reference to the Company's 10-Q for the
                quarter ended September 29, 1991).

Exhibit 10.19*  Employment Agreement, dated December 18, 1997, between Scotsman Group Inc. and
                David M. Frase.

Exhibit 10.20*  Employment Agreement, dated October 17, 1996, between Scotsman Group Inc. and
                Christopher D. Hughes.

Exhibit 10.21*  Executive Severance Agreement, dated as of September 16, 1991, between Richard C.
                Osborne and Scotsman Group Inc. (incorporated herein by reference to the Company's
                10-Q for the quarter ended September 29, 1991), as amended by Amendment No. 1
                thereto, dated as of January 11, 1994 (incorporated herein by reference to the
                Company's 10-K for the fiscal year ended January 2, 1994).

Exhibit 10.22*  Executive Severance Agreement, dated as of September 16, 1991, between Emanuele
                Lanzani and Frimont S.p.A. (incorporated herein by reference to the Company's 10-K
                for the fiscal year ended December 29, 1991), as amended by Amendment No. 1
                thereto, dated as of January 11, 1994 (incorporated herein by reference to the
                Company's 10-K for the fiscal year ended January 2, 1994).

Exhibit 10.23*  Executive Severance Agreement, dated as of September 16, 1991, between
                Donald D. Holmes and Scotsman Group Inc. (incorporated herein by reference to the
                Company's 10-Q for the quarter ended September 29, 1991), as amended by Amendment
                No. 1 thereto, dated as of January 11, 1994, between Donald D. Holmes and Scotsman
                Group Inc. (incorporated herein by reference to the Company's 10-K for the fiscal
                year ended January 2, 1994).
</TABLE>
                                        
                                    page 43
<PAGE>   45

<TABLE>
<S>             <C>
Exhibit 10.24*  Retirement Program for Emanuele Lanzani of Frimont, S.p.A., Subsidiary of King-
                Seeley Thermos Co., dated July 25, 1984 (incorporated herein by reference to the
                Company's 10-K for the fiscal year ended December 31, 1989).

Exhibit 10.25   Agreement dated March 27, 1981, by and between Emanuele Lanzani and King-Seeley
                Thermos Co. and Frimont, S.p.A. (incorporated herein by reference to the Company's
                10-K for the fiscal year ended December 31, 1989), as amended by the Amendment
                dated March 20, 1990 (incorporated herein by reference to the Company's 10-Q for
                the quarter ended September 30, 1990).

Exhibit 21      List of Subsidiaries.

Exhibit 23      Consent of Arthur Andersen LLP.

Exhibit 27      Article 5 Financial Data Schedule for the Fiscal Year Ended January 3, 1999.

Exhibit 99      Cautionary Statements.
</TABLE>

Copies of the exhibits referred to above will be furnished to shareholders upon
written request at a cost of 15 cents per page. Requests should be made to
Scotsman Industries, Inc., 820 Forest Edge Drive, Vernon Hills, Illinois 60061,
Attention: Donald D. Holmes, Secretary.

(b) Reports on Form 8-K  

None.

(c) Exhibits

The exhibits required under this Item 14 (c) are filed as a separate section of
this report.

(d)FINANCIAL STATEMENT SCHEDULES

See item 14(a)(2), above.
                                    Page 44

<PAGE>   46

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


DATED: MARCH 19, 1999  SCOTSMAN INDUSTRIES, INC.

                       BY: /s/ R.C. Osborne
                       ------------------------------------------------------
                            R.C. Osborne, Chairman of the Board,
                            President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Scotsman and
in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
SIGNATURE                 TITLE                              DATE
---------------------------------------------------------------------------
<S>                       <C>                                <C>
/s/ R.C. Osborne    ,     Chairman of the Board, President,  March 19, 1999
----------------------
(R.C. Osborne)            Chief Executive Officer and
                          Director(Principal Executive
                          Officer)

/s/ D.C. Clark      ,     Director                           March 19, 1999
----------------------
(D.C. Clark)

/s/ F.W. Considine  ,     Director                           March 19, 1999
----------------------
(F. W. Considine)

/s/ P.B. Hamilton   ,     Director                           March 19, 1999
----------------------
(P.B. Hamilton)

/s/ G.D. Kennedy    ,     Director                           March 19, 1999
----------------------
(G.D. Kennedy)

/s/ J.J. O'Connor    ,    Director                           March 19, 1999
----------------------
(J.J. O'Connor)

/s/ R.G. Rettig     ,     Director                           March 19, 1999
----------------------
(R.G. Rettig)

/s/ R.L. Thomas     ,     Director                           March 19, 1999
----------------------
(R.L. Thomas)

/s/ D.D. Holmes     ,     Vice President - Finance and       March 19, 1999
----------------------
(D.D. Holmes)             Secretary (Principal Financial
                          and Accounting Officer)
</TABLE>

                                    page 45
<PAGE>   47
                                  EXHIBIT INDEX

     Exhibit                                                         Page Number
     Number                       Description(1)                      of Exhibit
    --------                     ---------------                     -----------

      2.1           Agreement and Plan of Merger, dated as of February 2, 1997,
                    among the Company, K Acquisition Corp., and Kysor Industrial
                    Corporation (incorporated herein by reference from Exhibit
                    (c)(1) to the Company's Tender Offer Statement on Schedule
                    14D-1, filed with the Commission on February 7, 1997), as
                    amended by the First Amendment to Agreement and Plan of
                    Merger, dated as of March 7, 1997 (incorporated herein by
                    reference to the Company's 8-K, dated March 8, 1997).

      2.2           Asset Purchase Agreement, dated as of February 2, 1997,
                    among Kuhlman Corporation, Transpro Group, Inc., Kysor
                    Industrial Corporation, and certain subsidiaries of Kysor
                    Industrial Corporation (incorporated herein by reference to
                    Exhibit (c)(2) of the Company's Schedule 14D-1 filed with
                    the Commission on February 7, 1997).

      2.3           Agreement for the Sale, Purchase and Assignment of the
                    Entire Share Capital of Hartek Beverage Handling GmbH and
                    Hartek Awagem Vertriebsges, m.b.H., dated December 31, 1995,
                    among Hartek Beverage Handling B.V., Hartwall Bolagen AB,
                    Scotsman Group Inc. and Scotsman Industries, Inc.
                    (incorporated herein by reference to the Company's 10-K for
                    the fiscal year ended December 31, 1995).

      2.4           Agreement and Plan of Merger, dated as of January 11, 1994,
                    among Scotsman Industries, Inc., Scotsman Acquisition
                    Corporation, DFC Holding Corporation, The Delfield Company,
                    Onex Corporation, Onex DHC LLC, Pacific Mutual Life
                    Insurance Co., PM Group Life Insurance Co., EJJM, Matthew O.
                    Diggs, Jr., Timothy C. Collins, W. Joseph Manifold, Charles
                    R. McCollom, Anita J. Moffatt Trust, Anita J. Moffatt, Remo
                    Panella, Teddy F. Reed, Robert L. Schafer, Graham E.
                    Tillotson, John A. Tilmann Trust, John A. Tilmann, Kevin E.
                    McCrone, Michael P. McCrone, Ronald A. Anderson and
                    Continental Bank N.A. (incorporated herein by reference to
                    the Company's 8-K, dated January 13, 1994), as amended by
                    the First Amendment thereto, dated as of March 17, 1994
                    (incorporated herein by reference to the Company's 10-K for
                    the fiscal year ended January 2, 1994).

      2.5           Share Acquisition Agreement, dated as of January 11, 1994,
                    among Scotsman Industries, Inc., Whitlenge Acquisition
                    Limited, Whitlenge Drink Equipment Limited, Timothy C.
                    Collins, Graham F. Cook, Christopher R.L. Wheeler, Michael
                    de St. Paer and John Rushton (incorporated herein by
                    reference to the Company's 8-K, dated January 13, 1994), as
                    amended by the First Amendment thereto, dated as of March
                    17, 1994 (incorporated herein by reference to the Company's
                    10-K for the fiscal year ended January 2, 1994).



<PAGE>   48

     Exhibit                                                         Page Number
     Number                       Description(1)                      of Exhibit
     -------                      --------------                     -----------
       3.1          Restated Certificate of Incorporation of the Company
                    (incorporated herein by reference to the Company's 10-K for
                    the fiscal year ended December 31, 1989).

       3.2          By-Laws of the Company, as amended (incorporated herein by
                    reference to the Company's 8-K, dated June 21, 1991).

        4           Rights Agreement, dated as of April 14, 1989, between
                    Scotsman Industries, Inc. and Harris Trust & Savings Bank
                    (incorporated herein by reference to the Company's 8-K,
                    dated April 25, 1989), as amended by Amendment No. 1
                    thereto, dated as of January 11, 1994 (incorporated herein
                    by reference to Scotsman Industries, Inc. Amendment No. 4 to
                    General Form for Registration of Securities on Form 10/A, as
                    filed with the Commission on January 27, 1994), Amendment 2
                    thereto, dated as of February 10, 1998 (incorporated herein
                    by reference to the Company's 8-K, dated February 10, 1998),
                    and Amendment 3 thereto, dated as of February 11, 1998
                    (incorporated herein by reference to the Company's 8-K,
                    dated February 10, 1998).

       10.1         Reorganization and Distribution Agreement, dated as of March
                    15, 1989, by and among Household International, Inc., Eljer
                    Industries, Inc., Schwitzer, Inc. and Scotsman Industries,
                    Inc. (incorporated herein by reference to the Company's 8-K,
                    dated April 25, 1989).

       10.2         Tax Sharing Agreement, dated as of March 15, 1989, among
                    Household International, Inc., Eljer Industries, Inc.,
                    Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated
                    herein by reference to the Company's 8-K, dated April 25,
                    1989).

       10.3         Benefits and Labor Agreement, dated as of March 15, 1989,
                    among Household International, Inc., Eljer Industries, Inc.,
                    Schwitzer, Inc. and Scotsman Industries, Inc. (incorporated
                    herein by reference to the Company's 10-K for the fiscal
                    year ended December 31, 1989).

       10.4         Credit Agreement, dated March 12, 1997 (the "Credit
                    Agreement"), among Scotsman Group Inc. and the other parties
                    named therein, as Borrowers, the Lenders named therein, and
                    The First National Bank of Chicago, as Agent (incorporated
                    herein by reference to the Company's 10-K for the fiscal
                    year ended December 29, 1996), as amended by the First
                    Amendment thereto, dated March 24, 1997 (incorporated by
                    reference to the Company's 10-K for the fiscal year ended
                    December 28, 1997), the Second Amendment thereto dated June
                    30, 1997 (incorporated by reference to the Company's 10-K
                    for the fiscal year ended December 28, 1997), and the Third
                    Amendment thereto dated December 15, 1997 (incorporated by
                    reference to the Company's 10-K for the fiscal year ended
                    December 28, 1997) and the Fourth Amendment thereto dated
                    September 30, 1998.

<PAGE>   49



     Exhibit                                                         Page Number
     Number                       Description(1)                      of Exhibit
     -------                      --------------                     -----------
      10.5          Domestic Guaranty, dated as of March 12, 1997, entered into
                    by Scotsman Industries, Inc., in favor of The First National
                    Bank of Chicago, as agent, and the lenders named in the
                    Credit Agreement (incorporated herein by reference to the
                    Company's 10-Q for the quarter ended March 30, 1997).

      10.6          Domestic Guaranty, dated as of March 12, 1997, in the form
                    separately entered into by each of Scotsman Group Inc.,
                    Booth, Inc., DFC Holding Corporation, The Delfield Company
                    and Kysor Industrial Corporation, in favor of The First
                    National Bank of Chicago, as agent, and the lenders named in
                    the Credit Agreement (incorporated herein by reference to
                    the Company's 10-Q for the quarter ended March 30, 1997).

      10.7          Foreign Guaranty, dated as of March 12, 1997, in the form
                    separately entered into by each of Whitlenge Drink Equipment
                    Limited, Scotsman Drink Limited, Frimont S.p.A. and Castel
                    MAC S.p.A., in favor of The First National Bank of Chicago,
                    as agent, and the lenders named in the Credit Agreement
                    (incorporated herein by reference to the Company's 10-Q for
                    the quarter ended March 30, 1997).

      10.8          Indenture, dated as of December 17, 1997, among Scotsman
                    Industries, Inc., Scotsman Group, Inc., and Harris Trust and
                    Savings Bank, together with the form of 8 5/8% Senior
                    Subordinated Notes Due 2007 issued by Scotsman Group Inc.
                    under the Indenture and the related Guaranty of Scotsman
                    Industries, Inc. (incorporated by reference to the Company's
                    10-K for the fiscal year ended December 28, 1997).

      10.9          Promissory Note in the principal amount of $7,500,000, made
                    as of April 28, 1998, by Scotsman Group Inc. to Comerica
                    Bank (incorporated by reference to the Company's 10-Q for
                    the quarter ended April 5, 1998), together with the related
                    Reaffirmation of Guaranty and Consent, dated March 12, 1996,
                    by Scotsman Industries, Inc. in favor of Comerica Bank,
                    Guaranty Agreement, dated June 30, 1996, by Scotsman
                    Industries, Inc. in favor of Comerica Bank (incorporated
                    herein to the Company's 10-Q, dated June 30, 1996) and
                    Guaranty by Booth, Inc., DFC Holding Corporation, The
                    Delfield Company and Kysor Industrial Corporation, dated
                    March 12, 1997, in favor of Comerica Bank (incorporated
                    herein by reference to the Company's 10-K for the fiscal
                    year ended December 29, 1996).



<PAGE>   50

     Exhibit                                                         Page Number
     Number                       Description(1)                      of Exhibit
    --------                     ---------------                      ----------
      10.10         Reimbursement Agreement, dated March 1, 1988, among
                    Household Manufacturing, Inc., King-Seeley Thermos Co. and
                    the National Westminster Bank PLC, as amended by the
                    Amendments dated as of April 14, 1989, December 12, 1989,
                    June 26, 1992, November 20, 1992, March 17, 1993, among
                    Scotsman Group Inc., Scotsman Industries, Inc. and The Bank
                    of Nova Scotia (incorporated herein by reference to the
                    Company's 10-K for the fiscal year ended January 3, 1993),
                    the Amendment dated April 29, 1994 (incorporated herein by
                    reference to the Company's 10-Q for the quarter ended April
                    3, 1994), Amendment No. 7 thereto, dated March 12, 1997
                    (incorporated by reference to the Company's 10-K for the
                    fiscal year ended December 29, 1996), among Scotsman Group
                    Inc., Scotsman Industries, Inc., The Bank of Nova Scotia and
                    The First National Bank of Chicago.

      10.11         ISDA Master Agreement, dated as of March 3, 1994, including
                    the Schedule and Amended Confirmation (2) thereto, between
                    The First National Bank of Chicago and Scotsman Group Inc.
                    (incorporated herein by reference to the Company's 10-K for
                    the fiscal year ended January 1, 1995), as amended by an
                    Amendment thereto dated December 15, 1997 (incorporated by
                    reference to the Company's 10-Q for the quarter ended April
                    5, 1998), together with the related Confirmation of Interest
                    Rate Swap Transactions, dated March 17, 1997, in the
                    notional amounts of $100 million and $50 million,
                    respectively (incorporated herein by reference to the
                    Company's 10-Q for the quarter ended March 30, 1997), as
                    amended by an Amended Confirmation, dated February 5, 1998
                    (incorporated by reference to the Company's 10-Q for the
                    quarter ended April 5, 1998).

      10.12*        Long-Term Executive Incentive Compensation Plan of Scotsman
                    Industries, Inc., as amended May 14, 1998 (incorporated by
                    reference to the Company's Form 10-Q for the quarter ended
                    July 5, 1998).

      10.13*        Scotsman Industries, Inc., Executive Incentive Compensation
                    Program, Plans AA, A-1 and A-2 (incorporated herein by
                    reference to the Company's 10-K for the fiscal quarter ended
                    December 29, 1996).

      10.14*        Scotsman Group Inc. Supplemental Tax Reduction Investment
                    Plan, dated as of April 14, 1989 (incorporated herein by
                    reference to the Company's 10-K for the fiscal year ended
                    December 30, 1990).

      10.15*        Non-Employee Directors Stock Option Plan, effective as of
                    August 11, 1994 (incorporated herein by reference to the
                    Company's Registration Statement on Form S-8, No. 33-59397).

      10.16*        Employment Agreement, dated September 16, 1991, between
                    Scotsman Group Inc. and Richard C. Osborne (incorporated
                    herein by reference to the Company's 10-Q for the quarter
                    ended September 29, 1991).



<PAGE>   51

      Exhibit                                                        Page Number
      Number                      Description(1)                      of Exhibit
      -------                     --------------                     -----------
      10.17*        Employment Agreement, dated September 16, 1991, between
                    Scotsman Group Inc. and Emanuele Lanzani (incorporated
                    herein by reference to the Company's 10-K for the fiscal
                    year ended December 29, 1991).

      10.18*        Employment Agreement, dated September 16, 1991, between
                    Scotsman Group Inc. and Donald D. Holmes (incorporated
                    herein by reference to the Company's 10-Q for the quarter
                    ended September 29, 1991).

      10.19*        Employment Agreement, dated December 18, 1997, between
                    Scotsman Group Inc. and David M. Frase.

      10.20*        Employment Agreement, dated October 17, 1996, between 
                    Scotsman Group Inc. and Christopher D. Hughes.

      10.21*        Executive Severance Agreement, dated as of September 16,
                    1991, between Richard C. Osborne and Scotsman Group Inc.
                    (incorporated herein by reference to the Company's 10-Q for
                    the quarter ended September 29, 1991), as amended by
                    Amendment No. 1 thereto, dated as of January 11, 1994
                    (incorporated herein by reference to the Company's 10-K for
                    the fiscal year ended January 2, 1994).

      10.22*        Executive Severance Agreement, dated as of September 16,
                    1991, between Emanuele Lanzani and Frimont S.p.A.
                    (incorporated herein by reference to the Company's 10-K for
                    the fiscal year ended December 29, 1991), as amended by
                    Amendment No. 1 thereto, dated as of January 11, 1994
                    (incorporated herein by reference to the Company's 10-K for
                    the fiscal year ended January 2, 1994).

      10.23*        Executive Severance Agreement, dated as of September 16,
                    1991, between Donald D. Holmes and Scotsman Group Inc.
                    (incorporated herein by reference to the Company's 10-Q for
                    the quarter ended September 29, 1991), as amended by
                    Amendment No. 1 thereto, dated as of January 11, 1994,
                    between Donald D. Holmes and Scotsman Group Inc
                    (incorporated herein by reference to the Company's 10-K for
                    the fiscal year ended January 2, 1994).

      10.24*        Retirement Program for Emanuele Lanzani of Frimont, S.p.A.,
                    Subsidiary of King-Seeley Thermos Co. dated July 25, 1984
                    (incorporated herein by reference to the Company's 10-K for
                    the fiscal year ended December 31, 1989).

      10.25         Agreement dated March 27, 1981, by and between Emanuele
                    Lanzani and King-Seeley Thermos Co. and Frimont, S.p.A.
                    (incorporated herein by reference to the Company's 10-K for
                    the fiscal year ended December 31, 1989), as amended by the
                    Amendment dated March 20, 1990 (incorporated herein by
                    reference to the Company's 10-Q for the quarter ended
                    September 30, 1990).

<PAGE>   52


      Exhibit                                                        Page Number
      Number                       Description(1)                     of Exhibit
      -------                     ---------------                    -----------
        21          List of Subsidiaries.

        23          Consent of Arthur Andersen LLP.

        27          Article 5 Financial Data Schedule for the Fiscal Year Ended
                    January 3, 1999.

        99          Cautionary Statements.

-------------------

(1)      Unless otherwise indicated, all documents incorporated herein by
         reference to prior filings have been incorporated by reference to
         filings made under Commission File No 1-10182.