<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 December 28, 1997.


[ ]  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)


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

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


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 4, 1998 there were 10,576,597 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 $307.6
million.


                      DOCUMENTS INCORPORATED BY REFERENCE
Registrant's definitive Proxy Statement for its 1998 Annual Meeting of
Shareholders to be held on May 14, 1998 (the "1998 Proxy Statement"):  Part III.



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PART I
--------------------------------------------------------------------------------

ITEM 1. BUSINESS
The registrant, Scotsman Industries, Inc. (hereinafter referred to, together
with its subsidiaries, as "Scotsman" or the "Company"), is a leading
international manufacturer and marketer of a diversified line of commercial
refrigeration products, food preparation equipment and beverage systems that is
sold primarily to customers in the restaurant, supermarket, lodging, healthcare
and convenience store industries. The Company has a leading market position in
each of its five product lines, which consist of refrigerated display cases,
ice machines, food preparation and storage equipment, walk-in coolers and
freezers, and beverage systems.

Scotsman was organized under the laws of the state of Delaware on January 26,
1989. Effective April 14, 1989, Scotsman was spun-off from Household
International, Inc. ("Household") through the issuance of one share of Scotsman
common stock for every five shares of Household common stock then outstanding
to Household shareholders. As of such date, Scotsman became a publicly traded
company listed on the New York Stock Exchange, and its operations ceased to be
owned by Household.

Scotsman conducts its domestic ice machine business through the Scotsman Ice
Systems division ("Scotsman Ice Systems") of its wholly-owned subsidiary,
Scotsman Group Inc. ("SGI"), and through the Crystal Tips product line of its
wholly-owned subsidiary, Booth, Inc. ("Booth"). Scotsman conducts its European
ice machine business through two Italian subsidiaries, Frimont S.p.A.
("Frimont") and Castel MAC S.p.A. ("Castel MAC"). In June of 1995, Scotsman
also entered into a joint venture with Shenyang Xinle Precision Machinery
Company in Shenyang, China to produce ice machines for the Chinese market.
During 1997, Scotsman increased its ownership interest in the joint venture
company from 60 to 100 percent.

Scotsman manufactures and markets food preparation and storage equipment,
including food preparation workstations, refrigerators and freezers, air
ventilating equipment, and other equipment, through its wholly-owned
subsidiary, The Delfield Company ("Delfield"), which was acquired on April 29,
1994. Scotsman also manufactures and markets, through Castel MAC, a limited
line of refrigerated cabinets, dough retarders and blast freezers in Europe.

Scotsman manufactures and markets beverage systems in the United States through
Booth and in Europe through Whitlenge Drink Equipment Limited ("Whitlenge") and
through Hartek Beverage Handling GmbH and its Austrian distributor, Hartek
Awagem Vertriebsges m.b.H. (collectively, "Hartek" or the "Hartek entities").
Whitlenge and Hartek were acquired by Scotsman on April 29, 1994 and December
31, 1995, respectively.


ACQUISITION OF KYSOR INDUSTRIAL CORPORATION
In March 1997, Scotsman acquired Kysor Industrial Corporation ("Kysor") and
("Kysor Acquisition"), which at the time was comprised of the Commercial
Products Group, through which Kysor's refrigerated display cases and walk-in
coolers and freezers 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.

Kysor's Commercial Products Group operates through its Kysor//Warren and Kysor
Panel Systems divisions. Kysor//Warren is the second largest U.S. manufacturer
of





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refrigerated display cases, and Kysor Panel Systems is the leading manufacturer
of walk-in coolers and freezers in the United States. In 1997, more than 80
percent of Kysor's sales were to supermarket chains, with the remaining portion
sold primarily to restaurants and convenience stores. On a pro forma basis,
sales of refrigerated display cases and walk-in coolers and freezers in 1997
were $254.3 million, which was an increase of $9.2 million, or 4 percent, over
1996 sales of $245.1 million.

In addition, as a result of the Kysor Acquisition, the Company now owns 23.8
percent of the outstanding shares of Austral Refrigeration Pty. Ltd., 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 cases in the Australian market.

ACQUISITION OF HOMARK
In December of 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 $12 million. The Company
purchased Homark for approximately $5.6 million.

PRODUCTS
Scotsman manufactures refrigeration products that are marketed primarily to the
foodservice industry (restaurants, cafeterias, convenience stores and bars),
large supermarket chains, the lodging industry, food processors and beverage
companies. 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 refrigerated 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.

Sales of refrigerated display cases accounted for approximately 27 percent of
the Company's sales in fiscal year 1997.

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 square), 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






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and Western Europe, the Middle East, Africa and the Far East. Scotsman
manufactures ice machines for the Chinese market through Scotsman Ice Systems
Shenyang Company Ltd., its wholly-owned Chinese subsidiary, and markets 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.

Since November 1992, Scotsman has also distributed, in both foreign and
domestic markets, industrial flakers manufactured by Howe Corporation. Howe has
informed Scotsman that it wishes to terminate the distribution arrangement, and
it is unclear at present whether or not the distribution arrangement will
continue.

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 supermarkets, hotels and motels, health care facilities,
convenience stores, schools, 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 29 percent, 49
percent, and 52 percent of the Company's sales in fiscal years 1997, 1996 and
1995, respectively.

FOOD PREPARATION & 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 21
percent, 32 percent and 36 percent of Scotsman's sales in fiscal years 1997,
1996 and 1995, 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 11 percent of
the Company's sales in fiscal year 1997.






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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, 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 both Coca-Cola and Pepsi.

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 Whitlenge and Hartek subsidiaries. Whitlenge
specializes in larger remote beverage cooling installations, typically for
large foodservice applications. 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 Aztec valve, 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 Aztec valve
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 12 percent, 19 percent
and 12 percent of Scotsman's sales in fiscal years 1997, 1996 and 1995,
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 200 sales and marketing employees
and 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 and Asia. In the majority of countries served, Castel
MAC and Frimont each sell through separate distribution channels. The Company's
Chinese subsidiary sells commercial ice machines through its own distribution
network.








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Distributors generally do not carry competing brands of ice machines.
Independent service dealers also install and service the equipment. The
servicing functions performed by dealers are particularly important because ice
machines typically require more service, due to variable water conditions, than
other major appliances such as refrigerators. Scotsman 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 hotel chains, fast-food franchisers, and convenience stores, and to state
and federal governments, for use in employee dining, health care and military
facilities. The Company sells consumer ice machines and refrigerators primarily
through luxury consumer appliance distributors who sell to dealers.

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 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 by large customers such as Coca-Cola, Pepsi, and the
U.S.-based businesses of Cadbury Schweppes. 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 Western and Central Europe and the Middle East. 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, "Geographic 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
"Acquisition of Kysor Industrial Corporation." 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







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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 lines
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. The
Company's largest competitors include IMI Cornelius, plc, with whom the Company
competes in beverage systems in Europe; Hussmann International Inc., with whom
the Company competes in refrigerated display cases and related equipment in the
United States, and The Manitowoc Company, Inc., with whom the Company competes
in ice machines, food storage equipment, and walk-in coolers and freezers.
Furthermore, the Company believes that the commercial foodservice equipment
industry recently has 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 68 employees of
the Company are engaged in research and development. Scotsman's total research
and development expenditures for fiscal years 1997, 1996 and 1995 were
approximately $6.2 million, $5.6 million and $4.8 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 1997 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 22 percent of the Company's
net sales in 1997. 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
1997 and 1996 was $120.0 million and $24.8 million, respectively. The large
increase in unshipped orders at the end of 1997 was due to the inclusion of the
backlog of the Commercial Products Group of Kysor, which was acquired by
Scotsman in March 1997. The Company expects that all of the orders in the
backlog at the end of fiscal year 1997 will be shipped during 1998.





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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.

EMPLOYEES. As of December 28, 1997, Scotsman employed approximately 3,750
employees, approximately 1,450 of whom were covered by collective bargaining
agreements. The Company believes its relationships with employees are generally
good. A collective bargaining agreement at the Company's Delfield unit in Mt.
Pleasant, Michigan expires in April 1998. Negotiations to renew the contract
are in progress.


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:

DOMESTIC FACILITIES

<TABLE>
<CAPTION>

LOCATION       DESCRIPTION             PRINCIPAL PRODUCT       OWNED/LEASED
----------------------------------------------------------------------------
<S>            <C>                     <C>                     <C>
Goodyear,      Plant and Office;       Walk-in Coolers &          Leased
Arizona        50,000 square feet      Freezers                         
                                                                        
Los Angeles,   Distribution Facility;  Ice Machines               Leased
California     13,000 square feet                                       
                                                                        
Columbus,      Plant and Office;       Refrigerated                Owned
Georgia        295,826 square feet     Display Cases                    
                                                                        
Columbus,      Plant and Office;       Refrigeration Systems       Owned
Georgia        155,000 square feet                                      
                                                                        
Conyers,       Plant and Office;       Refrigerated                Owned
Georgia        480,000 square feet     Display Cases                    
                                                                        
Vernon Hills,  Office;                 Ice Machines               Leased
Illinois       36,000 square feet                                       
                                                                        
Vernon Hills,  Office;                 Corporate headquarters     Leased
Illinois       8,800 square feet                                        
                                                                        
South Bend,    Plant and Office;       Refrigerated                Owned
Indiana        90,000 square feet      Display Cases                    
                                                                        
Des Moines,    Plant, Warehouse        Refrigerated               Leased
Iowa           and Office;93,000       Display Cases                    
               square feet                                              
                                                                        
Mt. Pleasant,  Plant and Office;       Food Preparation            Owned
Michigan       327,000 square feet     and Storage Equipment            
                                                                        
Portland,      Plant and Office;       Walk-in Coolers             Owned
Oregon         84,000 square feet      and Freezers

</TABLE>




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<PAGE>   9


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

Fairfax,             Plant and Warehouse;   Ice Machines               Owned
South Carolina       327,000 square feet                          
                                                                  
Covington,           Plant and Office;      Food Preparation          Leased
Tennessee            188,000 square feet    and Storage Equipment 
                                                                  
Johnson City,        Plant and Office;      Walk-in Coolers           Leased
Tennessee            60,000 square feet     and Freezers          
                                                                  
Dallas, Texas        Plant and Office;      Ice Machines and          Leased
                     170,000 square feet    Beverage Systems      
                                                                  
Fort Worth, Texas    Plant and Office;      Walk-in Coolers            Owned
                     118,162 square feet    and Freezers          
</TABLE>

INTERNATIONAL FACILITIES

<TABLE>
<CAPTION>

LOCATION             DESCRIPTION            PRINCIPAL PRODUCT   OWNED/LEASED
----------------------------------------------------------------------------
<S>                  <C>                    <C>                    <C>
Sydney,              Plant and Office;      Refrigerated                   *
Australia            163,000 square feet    Display Cases       
                                                                
Vienna,              Office and Warehouse;  Beverage Systems          Leased
Austria              11,000 square feet                         
                                                                
Shenyang,            Plant and Office;      Ice Machines              Leased
China                17,000 square feet                         
                                                                
Radevormwald,        Plant and Office;      Beverage Systems           Owned
Germany              35,000 square feet                         
                                                                
Jakarta,             Plant and Office;      Refrigerated                   *
Indonesia            5,000 square feet      Display Cases       
                                                                
Castelfranco,        Plant and Office;      Ice Machines               Owned
Italy                230,000 square feet                        
                                                                
Milan, Italy         Plant and Office;      Ice Machines              Leased
                     152,000 square feet                        
                                                                
Halesowen,           Plant and Office;      Beverage Systems          Leased
United Kingdom       76,000 square feet                         
                                                                
Irthlingsborough,    Plant and Office;      Beverage Systems               *
United Kingdom       3,900 square feet                          
                                                                
Poole,               Plant and Office;      Beverage Systems           Owned
United Kingdom       18,000 square feet                         
                                                                
Poole,               Plant and Office;      Beverage Systems          Leased
United Kingdom       12,500 square feet                         
                                                                
Croydon,             Plant and Office;      Beverage Systems          Leased
United Kingdom       14,000 square feet                         
                                                                
Wareham,             Plant and Office;      Beverage Systems          Leased
United Kingdom       6,880 square feet                          
</TABLE>

* Facility owned or leased by a 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 lien on a section of its Mt.
Pleasant, Michigan facility and on its Covington, Tennessee facility, both
securing industrial revenue bonds, none of the principal properties owned by
Scotsman are subject to encumbrances material to the operations of Scotsman.


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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.

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 notice of an appeal of the
decision with the Indiana court of appeals. The trial court record has not yet
been transferred to the court of appeals, and the appeal is still pending.

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 1997.

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, 54  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.
</TABLE>





                                     page 9




<PAGE>   11



<TABLE>
<S>                        <C>
David M. Frase, 50         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.

Richard M. Holden, 47      Mr. Holden is Vice President - Human Resources of    
                           the Company and Assistant Secretary of Scotsman
                           Group, and has held those positions since January
                           1990.

Donald D. Holmes, 60       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, 51  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.

Ludwig H. Klein, 55        Mr. Klein is a Vice President of the Company and has
                           held that position since February 1996. He is also
                           Managing Director of Hartek and has held that posi-
                           tion since February 1995. Effective April 1998,
                           Mr. Klein will become a consultant to the Company.
                           From June 1994 until February 1995, he worked as an
                           independent consultant and provided, during that
                           period, consulting services to Hartek and in the
                           capital goods industry. From July 1986 until June
                           1994, Mr. Klein held the position of General Manager
                           of Haacon Hebetechnil GmbH, a manufacturer of
                           industrial lifting equipment.

Emanuele Lanzani, 63       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 a wholly-owned
                           subsidiary of Household in October 1985 and he has
                           been Managing Director of Frimont since 1968.

Gerardo Palmieri, 58       Mr. Palmieri is Director - Sales and Marketing,
                           Frimont, and has held that position since 1980.

Randall C. Rossi, 47       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.

William J. Rotenberry, 43  Mr. Rotenberry is Vice President - Business
                           Development. He has been employed by the Company
                           since January 1996 and became a Vice President of
                           the Company in February 1996. From 1990 until
                           January 1996, he was a Director of Corporate
                           Development for Joslyn Corporation, a diversified
                           manufacturer.
</TABLE>





                                    page 10




<PAGE>   12


<TABLE>
<S>                        <C>
Michael de St. Paer, 52    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 Group -
                           Europe and has held that position since June 1997.
                           From April 1993 to June 1997, Mr. de St. Paer was
                           Managing Director of Whitlenge, and from June 1992
                           to April 1993 he was Assistant Managing Director of
                           Whitlenge.

Graham E. Tillotson, 46    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 and
                           Marketing of Delfield.

Logan F. Wernz, 53         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 1996 and 1997 were as follows: 

<TABLE>
<CAPTION>
                                                                         DIVIDENDS
1996                                            HIGH      LOW     LAST    DECLARED
----------------------------------------------------------------------------------
<S>                                          <C>      <C>      <C>      <C>
1st Quarter                                  $18.000  $17.000  $17.875      $0.025
2nd Quarter                                   21.000   17.875   20.125      $0.025
3rd Quarter                                   24.000   19.500   22.875      $0.025
4th Quarter                                   24.875   22.750   23.750      $0.025
----------------------------------------------------------------------------------
Total dividends declared in 1996                                            $0.100
----------------------------------------------------------------------------------
Shares outstanding at December 29, 1996                                 10,542,464
----------------------------------------------------------------------------------
Shareholders of record at December 29, 1996                                  4,559
----------------------------------------------------------------------------------

1997
----------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------
</TABLE>

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











                                    page 11




<PAGE>   13


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 "Managements 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>

FOR THE FISCAL YEARS ENDED         DEC. 28,  DEC. 29,  DEC. 31,   JAN. 1,   JAN. 2,
                                    1997(a)   1996(b)   1995(c)   1995(d)      1994
-----------------------------------------------------------------------------------
<S>                                <C>       <C>       <C>       <C>       <C>
Net sales                          $571,588  $356,373  $324,291  $266,632  $163,952
Income before income taxes           37,561    35,017    28,128    22,798    13,371
Income before extraordinary loss     18,919    18,568    15,408    12,785     7,411
Net income                           18,286    18,568    15,408    12,785     7,411
Income per share before
 extraordinary loss, diluted (e)       1.75      1.73      1.45      1.35      1.05
Net income per share, diluted (e)      1.69      1.73      1.45      1.35      1.05
Total assets                        660,124   283,264   275,943   244,791   103,173
Long-term debt and capitalized
 lease obligations, excluding
 current portion                    321,132    60,289    74,719    85,161    29,469
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 December 28, 1997, includes
    the balance sheet information and the results of Kysor subsequent to its
    acquisition in March, 1997.
(b) The information for the fiscal year ended December 29, 1996, includes
    the balance sheet information and the results of Hartek which was acquired
    on December 31, 1995.
(c) The information for the fiscal year ended December 31, 1995, includes
    balance sheet informtion for Hartek which was acquired on December 31, 1995.
(d) The results for the fiscal year ended January 1, 1995, include the
    results from Delfield and Whitlenge as of the date of their acquisitions on
    April 29, 1994.
(e) The calculation of diluted net income per share for the fiscal years
    1997, 1996, 1995, 1994 and 1993 was based on 10,803,261, 10,708,879,
    10,644,697, 9,474,715 and 7,060,256 weighted average shares of common stock,
    respectively. The calculation of diluted net income per share for the fiscal
    years ended January 1, 1995, December 31, 1995, and December 29, 1996, 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 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.

Sales of refrigerated display cases and walk-in coolers and freezers by Kysor
were $215.5 million in 1997, which represented approximately 38 percent of the
Company's sales for the year. On a pro forma basis, sales of refrigerated
display cases and walk-in coolers and freezers increased $9.2 million, or 4
percent, to $254.3 million



                                    page 12




<PAGE>   14


in 1997 from $245.1 million in 1996. Kysor's backlog of orders from 
supermarkets remains at record levels, although the delivery schedules of
certain customers were deferred from the fourth quarter of 1997 to future
periods.

Scotsman's worldwide ice machine sales, which represented 29 percent of total
sales of the Company in 1997, declined $4.4 million, or 3 percent, to $166.2
million in 1997 from $170.6 million in 1996, using constant foreign exchange
rates. Sales stated at actual foreign exchange rates decreased 6 percent in
1997. The decline in ice machine sales 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.

Food preparation and storage equipment sales, which represented 21 percent of
total sales of the Company in 1997, increased by $6.9 million, or approximately
6 percent, to $119.7 million in 1997 from $112.8 million in 1996. Increased
sales in the first half of 1997 were driven by sales to Boston Market, a
customer of the Company's Delfield business unit. Although Boston Market has
significantly reduced its expansion plans, Delfield has made  progress
replacing revenue recorded in late 1996 and the first half of 1997 from sales
to that customer.

Beverage systems sales, which represented 12 percent of the Company's sales in
1997, increased by $2.6 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
business in Germany and in the United States. The recently completed
acquisition of Homark is expected to contribute to sales growth of this product
line in 1998.

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 is 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 the decline in
worldwide ice machine sales in 1997.

Selling and administrative expenses increased by $25.0 million, or 
approximately 43 percent, to $83.1 million in 1997 from $58.1 million in 1996.
The increase in selling and administrative expenses is 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
reported in 1996. The percentage decrease is 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 is 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.





                                    page 13




<PAGE>   15


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 is primarily attributable to the impact of
non-deductible amortization of intangibles resulting from the Kysor
Acquisition.

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
one-time 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.

The Company has been evaluating its computer software programs and operating
systems for the Year 2000 compliance. Based on this assessment, the Company
determined that it is required to modify portions of its software during 1998
and 1999 so that its computer systems will properly utilize dates beyond
December 31, 1999. Based on present information the Company believes that it
will be able to achieve Year 2000 compliance, and that the cost associated with
achieving such compliance will not have a material effect on its financial
condition or results of operations. However, if such upgrades, modifications
and conversions are not made, or are not made in a timely manner, the Year 2000
issue could have a material impact on the Company's operations.

The Company is currently communicating with its suppliers and customers
regarding Year 2000 compliance within their organizations. In the event that
any of the Company's significant suppliers or customers does not successfully
and timely achieve Year 2000 compliance, the Company's business or operations
could be adversely affected.

RESULTS OF OPERATIONS
Year ended December 29, 1996 ("1996"), compared with year ended December 31,
1995 ("1995")

The Company experienced strong operating results in 1996 compared with 1995.
Sales increased in many of the Company's businesses and operating income as a
percentage of sales increased as well. These positive operating results were
largely attributable to the inclusion of a full year's operation of Hartek,
which was purchased by the Company on December 31, 1995, strong growth at
Whitlenge, solid sales gains from the Company's European ice machine businesses
and a continued emphasis on cost containment.

The Company's total sales increased by $32.1 million, or 10 percent, to a
record $356.4 million in 1996 from $324.3 million in 1995.

Ice machine sales, which represented 49 percent of total sales of the Company
in 1996, increased by $6.5 million, or 4 percent, to $176.0 million in 1996
from $169.5 million in 1995 primarily due to 15 percent growth in sales from
European operations while domestic sales of ice machines remained relatively
constant.

Food preparation and storage equipment sales, excluding niche product sales,
represented 29 percent of total sales of the Company in 1996, and remained
constant compared to 1995, reflecting a decline in European bakery equipment
sales and a modest increase in sales of food preparation equipment by Delfield.








                                    page 14



<PAGE>   16


Beverage systems sales, which represented 19 percent of total sales of the
Company in 1996, increased by $27.6 million, or 69 percent, to $67.6 million in
1996 from $40.0 million in 1995, driven primarily by the inclusion of the
operating results of Hartek and growth of 24 percent at Whitlenge due to
increasing their export sales and a strong domestic beer market in the United
Kingdom.

Niche products sales, which represented 3 percent of total company sales in
1996, decreased by $2.3 million, or 21 percent, to $9.2 million in 1996 from
$11.5 million in 1995, driven primarily by a lower volume of certain contract
products and ventilation equipment.

The Company's gross profit increased by $10.5 million, or 12 percent, to $98.4
million in 1996 from $87.9 million in 1995. The Company's gross profit margin
increased to 27.6 percent of total sales in 1996 from 27.1 percent of total
sales in 1995 due to selling price increases in certain products, moderating
material costs and the impact of higher sales in relation to a base of certain
fixed production costs. These gains were partially offset by higher production
costs at Delfield due to inefficiencies incurred while implementing process
improvements and organizational changes in anticipation of future growth
requirements.

Selling and administrative expenses increased $4.7 million, or 9 percent, to
$58.1 million in 1996 from $53.4 million in 1995. Although selling and
administrative expenses increased due to the inclusion of Hartek, selling and
administrative expenses as a percentage of total sales of the Company declined
to 16.3 percent in 1996 from 16.5 percent in 1995, primarily due to higher
overall sales and lower advertising costs.

Income from operations increased by $5.8 million, or 17 percent, to $40.3
million in 1996 from $34.5 million in 1995 primarily due to increased sales
with higher associated gross margins and the continued benefit of cost
containment plans initiated during 1996 and in prior years.

Net interest expense decreased by $1.0 million, or 17 percent, to $5.3 million
in 1996 from $6.3 million in 1995 primarily due to the Company's lower average
debt levels and a favorable interest rate environment.

Income taxes increased by $3.7 million to $16.4 million in 1996 from $12.7
million in 1995 due to higher income from operations and a higher effective tax
rate. The Company's tax rate increased to 47.0 percent in 1996 from 45.2
percent in 1995 primarily due to the higher percentages of sales generated from
foreign operations with higher relative tax rates.

Overall, net income increased by $3.2 million, or 21 percent, to $18.6 million
in 1996 from $15.4 million in 1995. On a diluted basis, earnings per share
increased by $0.28, or 19 percent, to $1.73 in 1996 from $1.45 in 1995.  The
effects of fluctuations in currency exchange rates on the Company's results of
operations were immaterial.

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 capital expenditures. 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 $31.9 million in 1997
compared with cash flow from operations of $23.5 million in 1996. Net income
plus depreciation and amortization increased by $7.4 million, or 27 percent, to
$34.8 million in 1997 from $27.4 million in 1996.





                                    page 15





<PAGE>   17

The changes in the balance sheet categories discussed below from December 29,
1996, to December 28, 1997, exclude the opening balances from the Kysor
Acquisition in March of 1997 and the impact of changes in foreign exchange
rates on those categories. Accounts receivable increased by $11.5 million
compared with year-end 1996 primarily as a result of increased sales in the
fourth quarter of 1997 compared with the fourth quarter of 1996. Inventories
declined by $7.1 million, which reflects a reduction in inventory at many of
the Company's businesses and an improvement in the Company's inventory turnover
ratio. Trade accounts payable and other liabilities decreased by $4.9 million,
primarily related to severance and retirement benefits paid to former
executives of Kysor.

Capital expenditures, including those funded through capital leases, increased
$5.6 million, or 90 percent, to $11.8 million in 1997 from $6.2 million in
1996. Capital expenditures in 1997 were made primarily for equipment to realize
productivity improvements, new product tooling, and replacement items, and to
fund construction of a new Kysor facility in Columbus, Georgia.

In March 1997, the Company acquired Kysor, which at the time was comprised of
the Commercial Products Group and the Transportation Products Group. 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. Concurrently with the Kysor Acquisition,
Scotsman sold substantially all of the assets of the Transportation Products
Group for $86.0 million (approximately $71 million net of taxes) to a
subsidiary of Kuhlman Corporation. Including estimated transaction and
severance costs of $22.5 million, which have not yet been fully paid out, the
net purchase price for the Commercial Products Group was approximately $298
million. All asset and liability accounts as of December 28, 1997, were
significantly impacted by the Kysor Acquisition. Goodwill increased from
December 29, 1996, due to the Kysor Acquisition, which added approximately $192
million. In December 1997, the Company also acquired 100 percent of the
outstanding shares of Homark, a U.K.-based beverage equipment company for
approximately $5.6 million. The Company converted its China joint venture to a
wholly-owned subsidiary by increasing its ownership from 60 percent to 100
percent during 1997, at a cost of approximately $1.4 million.

Cash and cash equivalents of $24.1 million as of December 28, 1997, increased
by $7.6 million from December 29, 1996, reflecting the increase in cash
balances at the Company's foreign subsidiaries.

Shareholders' equity increased $10.9 million from December 29, 1996, which
reflects net income of $18.3 million for 1997, which was partially offset by a
reduction in shareholders' equity caused by changes in accumulated foreign
currency translation adjustments of $6.6 million and the impact of dividends.

Note 7 to the Consolidated Financial Statements included in Item 8 and herein
incorporated by reference contains a summary of the changes in the Company's
debt structure as a result of the Kysor Acquisition. Long-term debt increased
by approximately $275.5 million as of December 28, 1997, primarily due to
funding of the Kysor Acquisition. Short-term debt decreased $3.1 million from
December 29, 1996, primarily due to short-term domestic borrowings being
replaced with longer-term borrowings. As of December 28, 1997, the Company was
subject to various covenants as part of 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 these covenants related to its long-term debt as of
December 28, 1997.

Total debt, including capital leases, was $350.7 million as of December 28,
1997, compared with $76.6 million as of December 29, 1996, due to increased
domestic borrowings incurred by the Company to fund the Kysor Acquisition. The
debt to capital ratio was approximately 71 percent at December 28, 1997,
compared with approximately 37 percent at December 29, 1996.





                                    page 16




<PAGE>   18

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.

The foregoing discussions and analysis of the Company's financial condition and
results of operations contains forward looking statements that involve risks
and uncertainties. The Company's results could differ significantly from those
anticipated as a result of unforeseen factors. Factors that could cause actual
results to differ from those anticipated include (I) the strength or weakness
of the various economies in which the Company markets its products, (II)
weather conditions, (III) the utilization rates of the Company's facilities,
(IV) labor difficulties, (V) increased prices of raw materials and purchased
components, (VI) scheduling and transportation dislocations, (VII) delays in
development of new products or construction of new facilities, (VIII) product
liability or other lawsuits, warranty claims or return of goods, (IX) foreign
currency fluctuations, (X) changes in buying patterns of certain large
customers as a result of internal cost-control measures adopted by those
customers, (XI) changes in environmental, health, safety or refrigerant
regulations or standards, (XII) the level of the Company's leverage, (XIII) the
Company's ability or inability to manage growth, (XIV) the Company's loss of
key personnel and (XV) 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 17




<PAGE>   19

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SCOTSMAN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per-share data)

<TABLE>
<CAPTION>                                       

FOR THE FISCAL YEARS ENDED                        DEC. 28,  DEC. 29,  DEC. 31, 
                                                    1997      1996     1995
------------------------------------------------------------------------------
<S>                                               <C>       <C>       <C>
Net sales                                         $571,588  $356,373  $324,291
Cost of sales                                      429,598   257,942   236,402
------------------------------------------------------------------------------
Gross profit                                       141,990    98,431    87,889
Selling and administrative expenses                 83,071    58,135    53,435
------------------------------------------------------------------------------
Income from operations                              58,919    40,296    34,454
Interest expense, net                               21,358     5,279     6,326
------------------------------------------------------------------------------
Income before income taxes                          37,561    35,017    28,128
Income taxes                                        18,642    16,449    12,720
------------------------------------------------------------------------------
Income before extraordinary loss                    18,919    18,568    15,408
Extraordinary loss (net of income taxes of $422)      (633)       --        --
------------------------------------------------------------------------------
Net income                                        $ 18,286  $ 18,568  $ 15,408
Preferred stock dividends                               --       813     1,240
------------------------------------------------------------------------------
Net income available to common shareholders       $ 18,286  $ 17,755  $ 14,168
------------------------------------------------------------------------------
Basic earnings per share:
 Income before extraordinary loss                 $   1.79  $   1.89  $   1.61
 Extraordinary loss                                  (0.06)       --        --
------------------------------------------------------------------------------
 Net income per common share                      $   1.73  $   1.89  $   1.61
------------------------------------------------------------------------------
Diluted earnings per share:
 Income before extraordinary loss                 $   1.75  $   1.73  $   1.45
 Extraordinary loss                                  (0.06)       --        --
------------------------------------------------------------------------------
 Net income per common share                      $   1.69  $   1.73  $   1.45
------------------------------------------------------------------------------
</TABLE>

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






                                   page 18

<PAGE>   20

SCOTSMAN INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET

(Amounts in thousands)

<TABLE>
<CAPTION>

                                                      DEC. 28,     DEC. 29,
                                                          1997         1996
---------------------------------------------------------------------------
<S>                                                   <C>          <C>
Assets                                                
Current Assets:                                       
 Cash and temporary cash investments                  $ 24,085     $ 16,501
 Trade accounts and notes receivable,                 
   net of allowances                                  
   of $5,371 in 1997 and $2,778                       
   in 1996                                             102,880       58,734
 Inventories                                            75,350       52,530
 Deferred income taxes                                  12,515        4,708
 Other current assets                                   12,266        5,101
---------------------------------------------------------------------------
     Total current assets                              227,096      137,574
Properties and equipment, net                           86,762       46,659
Goodwill, net                                          281,855       94,975
Other noncurrent assets                                 64,411        4,056
---------------------------------------------------------------------------
     TOTAL ASSETS                                     $660,124     $283,264
===========================================================================
Liabilities and Shareholders' Equity                  
Current Liabilities:                                  
 Short-term debt and current maturities               
   of capitalized lease obligations                   
   and long-term debt                                 $ 29,519     $ 16,317
 Trade accounts payable                                 44,889       22,344
 Accrued income taxes                                    4,002        6,302
 Accrued expenses                                       69,537       33,290
---------------------------------------------------------------------------
     Total current liabilities                         147,947       78,253
Long-term debt and capitalized                        
  lease obligations                                    321,132       60,289
Deferred income taxes                                    2,305        3,710
Other noncurrent liabilities                            46,086        9,300
---------------------------------------------------------------------------
     TOTAL LIABILITIES                                 517,470      151,552
===========================================================================
Shareholders' Equity:                                 
 Common stock, $.10 par value,                        
   authorized 50,000,000 shares;                      
   issued 10,760,490 shares and                       
   10,729,513 shares, respectively                       1,076        1,073
 Preferred stock, $1.00 par value,                    
   authorized 10,000,000 shares;                      
   issued 0 shares                                          --           --
 Additional paid in capital                             73,639       73,053
 Retained earnings                                      79,266       62,036
 Deferred compensation and unrecognized               
   pension cost                                           (165)        (117)
 Foreign currency translation adjustments               (9,450)      (2,877)
 Less: Common stock held in treasury;                 
       191,893 and 187,049 shares, respectively         (1,712)      (1,456)
---------------------------------------------------------------------------
     TOTAL SHAREHOLDERS' EQUITY                        142,654      131,712
---------------------------------------------------------------------------
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       $660,124     $283,264
============================================================================
</TABLE>


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















                                    page 19




<PAGE>   21

SCOTSMAN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS


<TABLE>
<CAPTION>

(Amounts in thousands)
FOR THE FISCAL YEARS ENDED                           DEC. 28,   DEC. 29,     DEC. 31,
                                                         1997       1996         1995
-------------------------------------------------------------------------------------
<S>                                                <C>         <C>          <C>
Cash flows from operating activities:              
 Net income                                        $   18,286   $ 18,568    $  15,408
 Adjustments to reconcile net income to net                      
   cash provided by operating activities:                        
     Depreciation and amortization                     16,549      8,870        7,594
     Loss (gain) on property dispositions                 169        (82)         (39)
 Change in assets and liabilities:                               
   Trade accounts receivable                          (11,537)    (3,310)      (2,607)
   Inventories                                          7,121        237        2,006
   Trade accounts payable and other liabilities        (4,892)    (1,877)      (2,074)
   Other, net                                           6,231      1,101        3,162
-------------------------------------------------------------------------------------
     Net cash provided by operating activities         31,927     23,507       23,450
Cash flows from investing activities:                            
 Investment in properties and equipment               (11,788)    (6,195)      (6,513)
 Proceeds from dispositions of properties                        
   and equipment                                          154        230          215
 Acquisition of Kysor                                (264,788)        --           --
 Other investments in subsidiaries and                           
   joint ventures                                      (6,992)    (2,423)        (665)
 Investment in Hartek                                    (634)      (991)      (1,491)
-------------------------------------------------------------------------------------
     Net cash used in investing activities           (284,048)    (9,379)      (8,454)
Cash flows from financing and capital activities:                
 Short-term debt, net                                  (3,060)    (6,524)       3,616
 Issuance of long-term debt                           464,790     16,074       17,806
 Principal payments under long-term debt and                     
   capitalized leases                                (189,243)   (21,128)     (28,071)
 Financing costs of Kysor and subordinated debt                  
   and debt discount                                   (8,517)        --           --
 Dividends paid to shareholders                        (1,055)    (2,035)      (2,118)
-------------------------------------------------------------------------------------
     Net cash provided by (used in) financing and                
       capital activities                             262,915    (13,613)      (8,767)
Effect of exchange rate changes on cash and                      
  temporary cash investments                           (3,210)       178         (191)
-------------------------------------------------------------------------------------
Net increase in cash and temporary cash                          
  investments                                           7,584        693        6,038
Cash and temporary cash investments at                           
  beginning of year                                    16,501     15,808        9,770
-------------------------------------------------------------------------------------
Cash and temporary cash investments                              
  at end of year                                   $   24,085   $ 16,501    $  15,808
-------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:                
 Cash paid during the year for:                                  
   Interest                                        $   19,159   $  6,812    $   7,431
-------------------------------------------------------------------------------------
   Income taxes                                    $   23,092   $ 14,957    $  10,992
-------------------------------------------------------------------------------------
Supplemental schedule of noncash investing and                   
 financing activities:                                           
   Investment in properties and equipment through                
     issuance of capitalized lease obligations     $     (440)  $    (42)   $     (96)
   Issuance of stock for acquisition of Delfield                 
     and Whitlenge                                 $       --   $     --    $ (12,089)
-------------------------------------------------------------------------------------
</TABLE>


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








                                    page 20



<PAGE>   22

SCOTSMAN INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                         Foreign
                                   Common  Preferred  Additional                         Currency
                                    Stock      Stock     Paid in  Retained            Translation  Treasury
(Amounts in thousands)          Par Value  Par Value     Capital  Earnings  Other(a)  Adjustments     Stock     Total
---------------------------------------------------------------------------------------------------------------------
<S>                                <C>       <C>         <C>       <C>        <C>         <C>       <C>      <C>
Balance at January 1, 1995         $  846    $ 2,000     $58,085   $31,959    $  (53)     $(5,031)  $(1,343) $ 86,463
---------------------------------------------------------------------------------------------------------------------
 Net income                            --         --          --    15,408        --           --        --    15,408
 Foreign currency
   translation adjustments             --         --          --        --        --          120        --       120
 Issuance of deferred
   compensation                        --         --         120        --      (120)          --        --        --
 Amortization of deferred
   compensation                        --         --          --        --       129           --        --       129
 Dividends declared to
   common shareholders                 --         --          --      (895)       --           --        --      (895)
 Dividends declared to
   preferred shareholders              --         --          --    (1,240)       --           --        --    (1,240)
 Issuance of common stock
   relating to acquisition
   of Delfield and Whitlenge           67         --      12,022        --        --           --        --    12,089
 Stock options exercised                2         --         287        --        --           --        --       289
 Unrecognized pension cost             --         --          --        --       (44)          --        --       (44)
Balance at December 31, 1995       $  915    $ 2,000     $70,514   $45,232    $  (88)     $(4,911)  $(1,343) $112,319
---------------------------------------------------------------------------------------------------------------------
 Net income                            --         --          --    18,568        --           --        --    18,568
 Foreign currency translation
   adjustments                         --         --          --        --        --        2,034        --     2,034
 Issuance of deferred
   compensation                        --         --         119        --      (119)          --        --        --
 Amortization of deferred
   compensation                        --         --          --        --       120           --        --       120
 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
 Unrecognized pension cost             --         --          --        --       (30)          --        --       (30)
Balance at December 29, 1996       $1,073    $    --     $73,053   $62,036    $ (117)     $(2,877)  $(1,456) $131,712
---------------------------------------------------------------------------------------------------------------------
 Net income                            --         --          --    18,286        --           --        --    18,286
 Foreign currency
   translation adjustments             --         --          --        --        --       (6,573)       --    (6,573)
 Issuance of deferred
   compensation                        --         --         119        --      (120)          --         1       --
 Amortization of deferred
   compensation                        --         --          --        --       120           --        --       120
 Dividends declared to
   common shareholders                 --         --          --    (1,056)       --           --        --    (1,056)
 Stock options exercised                3         --         467        --        --           --      (257)      213
 Unrecognized pension cost             --         --          --        --       (48)          --        --       (48)
Balance at December 28, 1997       $1,076    $    --     $73,639   $79,266    $ (165)     $(9,450)  $(1,712) $142,654
---------------------------------------------------------------------------------------------------------------------
</TABLE>


(a) Other shareholders' equity includes deferred compensation and unrecognized
    pension cost.

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





                                    page 21



<PAGE>   23


DESCRIPTION OF BUSINESS
The Company operates in one segment, foodservice and food retail equipment, in
which it engages in the manufacture and marketing of a diversified line of
commercial refrigeration products, food preparation equipment and beverage
systems that are sold primarily to customers in the restaurant, supermarket,
lodging, healthcare and convenience store industries. The Company's revenues
are diversified among its five product lines, which consist of refrigerated
display cases, ice machines, food preparation and storage equipment, walk-in
coolers and freezers and beverage systems.

Scotsman's ice machine business accounted for 29 percent, 49 percent, and 52
percent of sales in fiscal years 1997, 1996 and 1995, respectively. Scotsman
manufactures and markets ice machines in the United States through its Scotsman
Ice Systems division and its Crystal Tips line of its Booth, Inc. subsidiary,
in Europe through its Italian subsidiaries and in China through its subsidiary.
Scotsman ice machines are sold both through a system of distributors and
directly by Scotsman to national customers and governmental and military
buyers. Scotsman also manufactures and markets a line of consumer ice machines
primarily for the luxury home market.

Scotsman manufactures and markets a line of food preparation and storage
equipment through its Delfield subsidiary which was acquired in April 1994.
Delfield's products are sold primarily to U.S. commercial foodservice
establishments. Scotsman also manufactures and markets a line of bakery
equipment and commercial refrigerators and freezers through its Italian
businesses. Food preparation and storage equipment accounted for 21 percent, 32
percent and 36 percent of Scotsman's business in fiscal years 1997, 1996 and
1995, respectively.

Scotsman manufactures and markets beverage systems in Europe through its United
Kingdom subsidiaries, Whitlenge and Homark, and its German and Austrian
subsidiaries, Hartek. Whitlenge and Hartek were acquired in April 1994 and
December 1995, respectively. Homark was acquired in December 1997. Whitlenge's
and Hartek's products are sold to soft drink bottlers and breweries.
Domestically, Scotsman also manufactures, through its Booth, Inc. subsidiary,
soft drink dispensing equipment which is sold primarily in the United States to
soft drink bottlers. Beverage systems accounted for 12 percent, 19 percent and
12 percent of sales in fiscal years 1997, 1996 and 1995, respectively.

In March of 1997, the Company acquired Kysor Industrial Corporation ("Kysor").
Through Kysor, the Company manufactures and markets refrigerated display cases,
commercial refrigeration systems and insulated panels which are sold to the
supermarket and convenience store industries. See Note 13 for additional
disclosure relating to the Kysor acquisition. Sales of Kysor display cases and
walk-in coolers represented 27 percent and 11 percent, respectively, of the
Company's sales in the fiscal year 1997.

Geographic information for Scotsman can be found in Note 15.








                                    page 22




<PAGE>   24

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
1997.

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 years 1997, 1996 and 1995 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. Interest income (in thousands) included in interest
expense, net was $1,411, $791 and $633 for fiscal years 1997, 1996 and 1995,
respectively.

TRADE ACCOUNTS AND NOTES RECEIVABLE. Trade accounts and notes receivable at
December 28, 1997, and December 29, 1996, included notes of $6.4 million and
$7.5 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
after October 1970 is being amortized using the straight-line method over 40
years. The related amortization expense was $6.3 million, $2.5 million and $2.4
million for the fiscal years 1997, 1996 and 1995, respectively.  At December
28, 1997, and December 29, 1996, accumulated amortization was $14.5 million and
$8.0 million, respectively. After an acquisition, the Company continually
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. If events and
circumstances indicate that goodwill related to a particular business should be
reviewed for possible impairment, 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.









                                    page 23





<PAGE>   25

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 swap
agreements and forward exchange contracts. The Company enters into
interest-rate swap agreements to reduce the impact of changes in interest rates
on its floating-rate long-term debt. 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 swap agreements. 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.

REVENUE RECOGNITION. Revenue is recognized when goods are shipped to a
customer.

INTEREST EXPENSE. Interest expense included in the Consolidated Statement of
Income is related to debt covered under credit agreements, a former private
placement of debt, senior subordinated debt, industrial development revenue
bonds, capitalized lease obligations, and borrowings on domestic lines of
credit and foreign lines of credit.

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 1997, 1996 and 1995 were $6.2 million, $5.6
million and $4.8 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 and the United Kingdom. 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 minimal and 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. In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
("SFAS 128"). SFAS 128 established standards for computing and presenting
earnings per share ("EPS") and is effective for periods ending after December
15, 1997. SFAS 128 required restatement of all prior-period earnings per share
data presented. Accordingly, earnings per share data for all periods are
presented in accordance with SFAS 128.

Under SFAS 128, 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.



                                    page 24



<PAGE>   26

NEW ACCOUNTING STANDARDS. In July 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.130, "Reporting
Comprehensive Income," ("SFAS 130") and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," ("SFAS 131"). SFAS 130 establishes standards for reporting
comprehensive income in financial statements and SFAS 131 expands certain
reporting and disclosure requirements for segments from current standards. The
Company is not required to adopt these Statements until 1998 and is currently
reviewing the impact of these new Standards.

2. INVENTORIES
Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>

                                                   DEC. 28, 1997  DEC. 29, 1996
-------------------------------------------------------------------------------
<S>                                                      <C>            <C>
Finished goods                                           $28,564        $23,207
Work-in-process                                           13,891          9,052
Raw materials                                             32,895         20,271
-------------------------------------------------------------------------------
TOTAL INVENTORIES                                        $75,350        $52,530
-------------------------------------------------------------------------------
</TABLE>


Approximately $7.0 million of total Company inventories were valued on the LIFO
method in fiscal 1997 and 1996. If inventories valued on the LIFO method had
been valued using the FIFO method, they would have been $4.1 million and $3.9
million higher at December 28, 1997, and December 29, 1996, respectively.

3. PROPERTIES AND EQUIPMENT
Properties and equipment consisted of assets owned and leased under capital
lease arrangements as follows (in thousands):

<TABLE>
<CAPTION>

                                                   DEC. 28, 1997  DEC. 29, 1996
-------------------------------------------------------------------------------
<S>                                                     <C>            <C>
Owned:
 Land                                                   $  4,439       $  1,966
 Buildings and leasehold improvements                     50,132         28,521
 Machinery, fixtures and equipment                        76,556         54,564
 Accumulated depreciation and amortization               (49,044)       (43,000)
-------------------------------------------------------------------------------
 Owned, net                                               82,083         42,051
-------------------------------------------------------------------------------
Leased:
 Buildings and leasehold improvements                      5,270          5,141
 Machinery, fixtures and equipment                         1,231          1,121
 Accumulated depreciation and amortization                (1,822)        (1,654)
-------------------------------------------------------------------------------
 Leased, net                                               4,679          4,608
-------------------------------------------------------------------------------
PROPERTIES AND EQUIPMENT, NET                           $ 86,762       $ 46,659
-------------------------------------------------------------------------------
</TABLE>


4. SHORT-TERM DEBT
Short-term debt (in thousands) at December 28, 1997, and December 29, 1996, was
$3,305 and $6,115, respectively, and principally related to amounts owed under
lines of credit. The weighted average interest rate based on short-term debt
outstanding as of December 28, 1997, and December 29, 1996, was 7.2 percent and
6.1 percent, respectively. Average borrowings (in thousands) and the related
weighted average interest rates were as follows:

<TABLE>
<CAPTION>

                                                            1997           1996
-------------------------------------------------------------------------------
<S>                                                     <C>            <C>
Bank and other borrowings                               $  4,524       $  4,888
Weighted average interest rate                               6.7%           6.4%
-------------------------------------------------------------------------------
</TABLE>


The maximum aggregate short-term debt outstanding (in thousands) at the end of
any month during fiscal years 1997 and 1996 was $12,333 and $11,109,
respectively.







                                    page 25



<PAGE>   27


5. LINES OF CREDIT
The Company maintains various credit agreements which are used primarily to
fund the Company's working capital needs. At December 28, 1997, these
agreements (in thousands) included foreign and domestic lines of credit of
$15,965 and $7,500, respectively. Lines of credit are reviewed annually, with
amounts borrowed under lines of credit included in short-term debt.

At December 28, 1997, foreign and domestic lines of credit not in use were (in
thousands) $15,606 and $4,554, respectively. Borrowings under these agreements
are available at the prime rate or other prevailing market rates. There are no
fees or compensating balance requirements on the lines of credit.

6. ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):

<TABLE>
<CAPTION>

                                                   DEC. 28, 1997  DEC. 29, 1996
-------------------------------------------------------------------------------
<S>                                                      <C>            <C>
Payroll and employee benefits                            $19,494        $ 7,818
Current portion of product warranties                      9,583          6,673
Reserve for customer allowances                            4,740          4,264
Other current liabilities                                 35,720         14,535
-------------------------------------------------------------------------------
TOTAL ACCRUED EXPENSES                                   $69,537        $33,290
-------------------------------------------------------------------------------
</TABLE>

7. LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS
Long-term debt and capitalized lease obligations consisted of the following
(in thousands):

<TABLE>
<CAPTION>

                                                   DEC. 28, 1997  DEC. 29, 1996
-------------------------------------------------------------------------------
<S>                                                      <C>            <C>
FNBC Facility with floating interest rates; 
  due 1998-2004                                         $230,591        $    --
Credit Agreement with floating interest rates;
  repaid prior to maturity in 1997                            --         35,473
11.43% private placement agreement; due 1997-1998,            
  repaid prior to maturity in 1997                            --         20,000
8.625% Senior Subordinated debt; due 2007, 
  net of discount                                         99,733             --
Allendale County Industrial Revenue Bonds with
  floating interest rate; due 2001                         9,250          9,250
Town of Covington Industrial Revenue Bonds with
  floating interest rate; due 2002 - 2006                  3,150          3,150
Isabella County Industrial Revenue Bonds with
  floating interest rate; due 1997 - 2003                    400            450
Foreign borrowings with various interest rates;
  due 1997 - 2011                                          2,435          2,047
Other domestic borrowings with various interest rates;
  due 1998 - 2012                                          1,420             --
Capital lease obligations with various interest rates;
  due 1997 - 2002                                            367            121
-------------------------------------------------------------------------------
    TOTAL                                               $347,346        $70,491
    Current portion                                       26,214         10,202
-------------------------------------------------------------------------------
    LONG-TERM PORTION                                   $321,132        $60,289
-------------------------------------------------------------------------------
</TABLE>


In March of 1997, the Company financed the acquisition of Kysor, 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 and certain other subsidiaries
and The First National Bank of Chicago as agent for the lenders (the "FNBC
Facility"). The FNBC Facility originally consisted of a $150 million seven-year
term loan and a $265 million seven-year reducing revolving loan facility, both
with an initial interest rate of 1.375 percent above Eurocurrency rates. The
interest rates on both facilities adjust based on a leverage ratio as defined
in the FNBC Facility and vary between 0.5 percent to 1.50 percent above
Eurocurrency rates. The revolving portion of the FNBC Facility reduces on
December 31 in the respective years as follows: $10 million in 1998, and $15
million in each of 1999, 2000, 2001, 2002 and 2003, with the remaining amount
outstanding payable on the loan termination date in March 2004. The FNBC
Facility is guaranteed by Scotsman and certain of its subsidiaries and secured
by a pledge of stock of certain subsidiaries of Scotsman, including, but not
limited to, Scotsman Group Inc., The Delfield Company and Kysor Industrial
Corporation.


                                    page 26




<PAGE>   28


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 $90.0 million reducing revolving credit agreement and the $20.0
million private placement agreement. This early repayment resulted in an
after-tax loss of $633,000 which is presented in the accompanying income
statement as an extraordinary loss.

In December 1997, the Company's wholly-owned subsidiary, Scotsman Group Inc.
(the "Issuer"), issued $100 million of 8 5/8% Senior Subordinated Notes (the
"Notes") which will mature on December 15, 2007. Net proceeds of the senior
subordinated notes were used to repay $30 million of the term loan under the
FNBC Facility as discussed above and also 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
the Issuer of its other obligations under the Indenture. See Note 16 regarding
summary financial information of Scotsman Group Inc.

In April 1994, a $90 million reducing revolving credit agreement ("Credit
Agreement") was established primarily to provide the financing for the cash
consideration paid in connection with the acquisitions of Delfield and
Whitlenge. Borrowings under this Credit Agreement were repaid in March of 1997
upon the issuance of the FNBC Facility which replaced the Credit Agreement.

As of December 28, 1997, interest rates under the FNBC Facility ranged from
approximately 6.94 to 8.95 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.

The Allendale County Industrial Revenue Bonds are 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. The interest rate applicable to the Allendale County Industrial
Revenue Bonds was 4.25 percent and 4.21 percent at December 28, 1997, and
December 29, 1996, respectively.

Delfield had two industrial revenue bonds outstanding which the Company assumed
as of the acquisition in April 1994. One series was issued by the town of
Covington, Tennessee and the other was issued by Isabella County, Michigan. The
Town of Covington Industrial Revenue Bonds are secured by a building with a net
book value of $4.4 million as of December 28, 1997. The Isabella County
Industrial Revenue Bonds are secured by a building section with a net book
value of $0.9 million as of December 28, 1997. The interest rates for these two
industrial revenue bonds as of December 28, 1997, were 5.31 percent and 6.12
percent, respectively. The interest rates for these two industrial revenue
bonds as of December 29, 1996, were 5.16 percent and 5.94 percent,
respectively.

The Company also has various capital lease obligations which are collateralized
by properties and equipment with a net book value of approximately $0.3
million.










                                   page 27



<PAGE>   29


The weighted average effective interest rate on the Company's total long-term
debt was 7.7 percent and 7.5 percent at December 28, 1997, and December 29,
1996, respectively. Future required maturities of long-term debt and capital
leases assuming letters of credit are outstanding at the same level as December
28, 1997, were as follows (in thousands):


<TABLE>
-------------------------------------------------------------------------------
<S>                                                                    <C>     
1998                                                                   $ 26,214
1999                                                                     15,764
2000                                                                     25,667
2001                                                                     21,917
2002                                                                     27,579
Thereafter                                                              230,205
-------------------------------------------------------------------------------
TOTAL                                                                  $347,346
-------------------------------------------------------------------------------
</TABLE>


The agreement governing the FNBC Facility and other debt agreements include
various financial covenants. The Company was in compliance with these covenants
as of December 28, 1997. 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 December 28, 1997, consolidated stockholders' equity of
the Company was $142.7 million. Under this covenant the amount of retained
earnings that was restricted as of December 28, 1997 was $60.0 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, $69.3 million of retained earnings
of the Company and its wholly-owned subsidiary Scotsman Group Inc. were
restricted as of December 28, 1997.

8. OPERATING LEASES
The Company leases certain of its offices, buildings, and machinery and
equipment for periods up to 10 years with various renewal options. Rental
expense under operating leases was $4.1 million in 1997, $2.5 million in 1996
and $2.4 million in 1995.

Future minimum lease commitments under noncancelable operating leases with
initial lease terms greater than one year at December 28, 1997, were as follows
(in thousands):

<TABLE>
-------------------------------------------------------------------------------
<S>                                                                    <C>     
1998                                                                   $  1,863
1999                                                                      1,618
2000                                                                      1,652
2001                                                                      1,592
2002                                                                      1,490
Thereafter                                                                4,347
-------------------------------------------------------------------------------
TOTAL MINIMUM LEASE COMMITMENTS                                        $ 12,562
-------------------------------------------------------------------------------
</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.

For the fiscal year ended December 28, 1997, net periodic pension cost and the
funded status of the Company's pension plans presented below includes
information for the Kysor pension plans.


                                   page 28



<PAGE>   30
Net periodic pension cost included in the Consolidated Statement of Income was
as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED     DEC. 28, 1997    DEC. 29, 1996    DEC. 31, 1995
------------------------------------------------------------------------------
<S>                                 <C>              <C>                <C>
Service cost                        $  2,313         $  1,141           $  919
Interest cost                          2,536              790              667
Actual return on plan assets          (5,548)          (1,050)            (797)
Net amortization and deferral          2,941              519              365
------------------------------------------------------------------------------
NET PERIODIC PENSION COST           $  2,242         $  1,400           $1,154
------------------------------------------------------------------------------
</TABLE>                                                          

The funded status of the Company's pension plans (in thousands), excluding the 
Italian and German pension plans, was as follows:
<TABLE>
<CAPTION>


                                                                         DEC. 28, 1997                        DEC. 29, 1996   
                                                                ------------------------------        -----------------------------
                                                                Plan Assets        Accumulated        Plan Assets       Accumulated
                                                                     Exceed           Benefits             Exceed          Benefits
                                                                Accumulated             Exceed        Accumulated            Exceed
                                                                   Benefits        Plan Assets           Benefits       Plan Assets
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                <C>                 <C>               <C>
Actuarial present value of:                                                                                                        
Vested benefits obligation                                        $ (23,343)         $ (17,688)          $ (4,425)         $ (4,435)
Non-vested benefits obligation                                       (2,031)            (1,344)              (419)             (586)
------------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation                                      (25,374)           (19,032)            (4,844)           (5,021)
Effects of anticipated future                                                                                                      
 compensation levels                                                 (5,335)            (3,242)            (1,838)             (612)
------------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation                                        (30,709)           (22,274)            (6,682)           (5,633)
Plan assets at fair value                                            38,646             11,753              5,115             3,771
------------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation                                                                                                       
 (in excess of) or less than plan assets                              7,937            (10,521)            (1,567)           (1,862)
Unrecognized net asset                                                   --                 (7)                --                (9)
Unrecognized prior service cost                                          --              1,183                464               835
Unrecognized net (gain) or loss                                      (1,030)               272               (396)               74
Adjustment required to recognize                                                                                                   
 minimum liability                                                       --               (393)                --              (344)
------------------------------------------------------------------------------------------------------------------------------------
 (ACCRUED) PREPAID PENSION COST                                   $   6,907          $  (9,466)          $ (1,499)         $ (1,306)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                                
Assumptions used in the actuarial computations were:
<TABLE>
<CAPTION>

                                                            Dec. 28, 1997               Dec. 29, 1996               Dec. 31, 1995  
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                        <C>                         <C>
Discount rate                                                  7.0 - 7.5%                 7.5 -  9.0%                 7.5 -  9.0%  
Rate of increase in compensation levels                        4.0 - 5.0%                 4.0 -  7.0%                 4.0 -  7.0%  
Expected long-term rate of return on assets                    8.0 - 8.5%                 8.5 - 10.0%                 8.5 - 10.0%  
------------------------------------------------------------------------------------------------------------------------------------
</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 $793, $895 and $888 in fiscal years
1997, 1996 and 1995, respectively. The unfunded liability for these plans
included in the Consolidated Balance Sheet at December 28, 1997, and December
29, 1996, (in thousands) was $4,208 and $4,578, 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) $661, $742 and
$568 for fiscal years 1997, 1996 and 1995, respectively.

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.




                                    page 29



<PAGE>   31

For the year ended December 28, 1997, net periodic post-retirement benefit cost
and the status of the plans includes information for the Kysor post-retirement
benefit plans.

Net periodic post-retirement benefit cost for the fiscal years ended December
28, 1997, December 29, 1996, and December 31, 1995, included the following
components (in thousands):

<TABLE>
<CAPTION>
                                             DEC. 28, 1997  DEC. 29, 1996  DEC. 31, 1995
-----------------------------------------------------------------------------------------
<S>                                                  <C>            <C>            <C>
Service cost on benefits earned                      $ 350          $ 146          $ 132
Interest cost on accumulated post-retirement
  benefit obligation                                   375            148            139
-----------------------------------------------------------------------------------------
NET PERIODIC POST-RETIREMENT BENEFIT COST            $ 725          $ 294          $ 271
-----------------------------------------------------------------------------------------
</TABLE>


The following table sets forth the status of the plan, reconciled to the accrued
post-retirement benefit cost recognized in the Company's balance sheet
(in thousands):

<TABLE>
<CAPTION>
                                                                        
                     
                                                   DEC. 28, 1997  DEC. 29, 1996
-------------------------------------------------------------------------------           
ACCUMULATED POST-RETIREMENT BENEFIT OBLIGATION:                                           
 <S>                                                   <C>            <C>                 
 Retirees                                              $   2,424      $     755           
 Fully-eligible active plan participants                   1,216            171           
 Other active plan participants                            2,838          1,110           
-------------------------------------------------------------------------------           
Total                                                  $   6,478      $   2,036           
Unrecognized net (loss) gain                                (470)            64           
-------------------------------------------------------------------------------           
ACCRUED POST-RETIREMENT BENEFIT COST                   $   6,008      $   2,100           
-------------------------------------------------------------------------------           

Assumptions used in the actuarial computations were:
                                                            1997           1996
-------------------------------------------------------------------------------          
Discount rate                                               7.0%           7.5%          
Projected health care cost trend rates:                                                  
 Pre-65 benefits                                            8.0%           8.5%          
 Post-65 benefits                                    6.85 - 8.0%           8.5%          
Ultimate health care cost trend rates:                                                   
 Pre-65 benefits                                            5.0%           5.0%          
 Post-65 benefits                                           5.0%           5.0%          
-------------------------------------------------------------------------------          
</TABLE>


Increasing the assumed health care cost trend rate by one percentage point in
each year would increase the accumulated post-retirement benefit obligation by
approximately (in thousands) $843 for 1997 and $360 for 1996, and the aggregate
of the service and interest cost components of net periodic post-retirement
benefit cost by approximately (in thousands) $114 for 1997, $64 for 1996 and
$57 for 1995.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS
During 1994, the Company adopted Statement of Financial Accounting Standards
No. 107, "Disclosures About Fair Value of Financial Instruments," ("SFAS 107")
and Statement of Financial Accounting Standards No. 119, "Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments"
("SFAS 119"). These statements require certain disclosures about the fair value
of financial instruments, including derivative financial instruments, for which
it is practicable to estimate fair value.

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.








                                    page 30




<PAGE>   32


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. An exception was the former private placement agreement which
had a fixed interest rate of 11.43 percent. The fair value of the private
placement agreement was estimated based on the current rates quoted to the
Company for debt with the same maturities. Another exception would be the
senior subordinated debt which was issued during December 1997. The fair value
of the senior subordinated debt was its quoted market value to the Company.

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 $11.7 million
of letters of credit outstanding as of December 28, 1997. 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.

SWAP AGREEMENTS 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 6.4565 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 the three-month London Interbank
Offered Rate. These agreements will expire in March 2000, but the $50 million
interest-rate swap agreement is extendable for an additional two years at the
option of the bank. These two swap agreements are accounted for as hedges. No
material loss is anticipated due to nonperformance by counterparties to these
agreements.

As of December 29, 1996, the Company had two interest-rate swap agreements
outstanding that the Company entered into in 1994. These agreements matured or
were repaid prior to maturity and were no longer outstanding as of December 28,
1997. Both of the interest-rate swap agreements had a notional principal amount
of $10 million and interest payable was at a fixed rate of 5.64 percent and 6.33
percent, respectively. In return for both of these agreements, the Company
received floating rate interest payments based on three-month London Interbank
Offered Rate. These two swap agreements were accounted for as hedges.

The Company had a forward exchange contract outstanding as of December 29, 1996,
to hedge exposure relating to an intercompany transaction.

The fair value of interest rate swaps and forward exchange contracts 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 December 28, 1997, (in thousands) was as follows:


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










                                    page 31




<PAGE>   33


The estimated fair value of the Company's financial instruments which differ
from their carrying amount at December 29, 1996, (in thousands) was as follows:

<TABLE>
                                          CARRYING AMOUNT  FAIR VALUE
---------------------------------------------------------------------
Assets:          
<S>                                             <C>         <C>
 Forward exchange contract                      $      --   $     229
Liabilities:          
 Long-term debt                                    70,370      71,535
 Interest-rate swap agreements                         --          44
---------------------------------------------------------------------
</TABLE>          


11. INCOME TAXES
The components of the consolidated net deferred tax assets and liabilities as
of December 28, 1997, and December 29, 1996, were as follows (in thousands):


<TABLE>
<CAPTION>
                                                   DEC. 28, 1997  DEC. 29, 1996
--------------------------------------------------------------------------------
DEFERRED TAX ASSETS:                               
<S>                                                     <C>            <C>
Warranty accruals                                       $  4,046       $  3,110
Severance accruals                                         4,685             --
Pensions                                                   4,937             --
Excise tax                                                 2,239             --
Receivable allowances                                      1,529            812
Inventory reserves                                         1,924            720
Accrual for post-retirement medical costs                  2,308            823
German net operating loss carryforwards                    2,210          3,562
Other                                                     16,261          4,784
--------------------------------------------------------------------------------
Deferred tax assets                                     $ 40,139       $ 13,811
Valuation allowance                                       (2,210)        (3,681)
--------------------------------------------------------------------------------
Deferred tax assets, net                                $ 37,929       $ 10,130
--------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:                          
Properties and equipment                                $ (7,935)      $ (6,102)
Goodwill amortization                                     (1,751)        (1,611)
Pensions                                                  (3,179)            --
Other                                                     (3,201)        (1,419)
--------------------------------------------------------------------------------
Total                                                   $(16,066)      $ (9,132)
--------------------------------------------------------------------------------

</TABLE>
The above deferred tax components are reflected in the accompanying balance 
sheets as follows (in thousands):
<TABLE>
<CAPTION>

                                                   DEC. 28, 1997  DEC. 29, 1996
--------------------------------------------------------------------------------
<S>                                                     <C>            <C>
Current portion of deferred tax asset                   $ 12,515       $  4,708
Noncurrent portion of deferred tax asset               
 (included in other noncurrent assets)                    11,653             --
Noncurrent portion of deferred tax liability              (2,305)        (3,710)
--------------------------------------------------------------------------------
</TABLE>                                               


The valuation allowance as of December 28, 1997, includes $2.2 million to
entirely offset the tax asset established for Hartek pre-acquisition net
operating loss carry forwards which might not be realized due to the terms of
the purchase agreement of Hartek (see Note 14) which requires substantial
repayment to the seller if utilized and due to an unfavorable decision of the
Supreme Tax Court in Germany which may result in such carry forwards being not
utilizable by the Company. 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.













                                    page 32



<PAGE>   34


<TABLE>
<CAPTION>
The provision (benefit) for income taxes consisted of the following 
(in thousands):

FOR THE FISCAL YEARS ENDED          DEC. 28, 1997  DEC. 29, 1996  DEC. 31, 1995
-------------------------------------------------------------------------------
<S>                                         <C>          <C>            <C>
State:                              
 Current                                 $  2,365       $    801       $  1,152
 Deferred                                    (971)            89            128
-------------------------------------------------------------------------------
                                            1,394            890          1,280
-------------------------------------------------------------------------------
Federal:                            
 Current                                 $  3,541       $  6,717       $  6,279
 Deferred                                   6,324            748            727
-------------------------------------------------------------------------------
                                            9,865          7,465          7,006
-------------------------------------------------------------------------------
Foreign:                            
 Current                                 $  6,096       $  7,407       $  3,605
 Deferred                                   1,287            687            829
-------------------------------------------------------------------------------
                                            7,383          8,094          4,434
-------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES               $ 18,642       $ 16,449       $ 12,720
-------------------------------------------------------------------------------

</TABLE>


Income before income taxes from foreign operations was $14.7 million in 1997,
$15.7 million in 1996 and $8.9 million in 1995. 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          DEC. 28, 1997  DEC. 29, 1996  DEC. 31, 1995
-------------------------------------------------------------------------------
<S>                                          <C>            <C>            <C>
Statutory federal income tax rate            35.0%          35.0%          35.0%
Increase in rate resulting from:      
 State and local income taxes, net     
  of federal tax benefit                      2.5            1.7            2.9
 Foreign tax effect                           5.9            7.6            4.9
 Non-deductible goodwill                      5.3            2.0            2.3
 Other                                        0.9            0.7            0.1
-------------------------------------------------------------------------------
                                             49.6%          47.0%          45.2%
-------------------------------------------------------------------------------
</TABLE>                           


In accordance with the Company's accounting policy, provision for U.S. income
taxes has not been made on $24.7 million of undistributed earnings of foreign
subsidiaries at December 28, 1997. The Company has provided income taxes on
$14.2 million of earnings which were distributed to the Company in January
1998.

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
plan provides for (a) an automatic award of options to purchase shares of the
Company's common stock to non-employee directors as of the effective date of
the plan, (b) automatic awards to non-employee directors who are elected or
appointed to the Board of Directors after the effective date and (c) automatic
annual awards thereafter. The options will 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 33



<PAGE>   35


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 ("SFAS 123"), the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:

<TABLE>
<CAPTION>
                                                  1997     1996     1995 
------------------------------------------------------------------------
<S>                                            <C>      <C>      <C>     
Net income:                                                              
 As reported                                   $18,286  $18,568  $15,408 
 Pro forma                                     $17,845  $18,306  $15,281 
Basic net income per share:                                              
 As reported                                     $1.73    $1.89    $1.61 
 Pro forma                                       $1.69    $1.86    $1.59 
Diluted net income per share:                                            
 As reported                                     $1.69    $1.73    $1.45 
 Pro forma                                       $1.65    $1.71    $1.44 
------------------------------------------------------------------------
</TABLE>

A summary of the status of the Company's two stock option plans at December 28,
1997, December 29, 1996, and December 31, 1995, and changes during the years
then ended is presented in the following table:

<TABLE>
<CAPTION>                          
                                             1997                   1996                    1995
                                      ------------------     ------------------      ------------------
                                                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>        <C>   <C>   <C>
Outstanding at beginning of year         560         $13        525         $12         473         $10    
Granted                                   98          27         92          18          79          18    
Exercised                                (31)         11        (51)         10         (24)          9    
Forfeited                                (13)         19         (6)         17          (3)         16    
-------------------------------------------------------------------------------------------------------
Outstanding at end of year               614          15        560          13         525          12    
-------------------------------------------------------------------------------------------------------
Exercisable at end of year               418          11        377          10         357          10    
-------------------------------------------------------------------------------------------------------
Weighted average fair value of                                                                             
  options granted during the year             $15.30                  $9.74                  $10.73    
-------------------------------------------------------------------------------------------------------
</TABLE>

The following table summarizes information about stock options outstanding at 
December 28, 1997:

<TABLE>
<CAPTION>
                                        OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                           --------------------------------------------        ------------------------
                                             Weighted
                             Number           Average          Weighted          Number        Weighted
                           Outstanding       Remaining          Average        Exercisable      Average
Range of                   at 12/28/97      Contractual        Exercise        at 12/28/97     Exercise
Exercise Prices               (000)         Life (years)         Price            (000)          Price
-------------------------------------------------------------------------------------------------------
<S>                            <C>             <C>               <C>              <C>             <C>
$ 7  to  $ 9                   203              2.8               $ 8              203             $ 8
$11  to  $15                   118              2.4               $12              118             $12
$16  to  $20                   198              7.2               $18               97             $18
$21  to  $27                    95              9.1               $27                -             $ -
-------------------------------------------------------------------------------------------------------
$ 7  to  $27                   614              3.9               $15              418             $11
-------------------------------------------------------------------------------------------------------
</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 1997 and 1996, respectively:

<TABLE>
<CAPTION>

EXECUTIVE PLAN                                        1997          1996
------------------------------------------------------------------------
<S>                                                 <C>           <C>
Risk-free interest rate                              6.49%         5.93%
Expected volatility                                 35.85%        36.60%
Expected dividend yield                              0.40%         0.60%
Expected life, in years                             10.01         10.01
------------------------------------------------------------------------
</TABLE>

<TABLE>                                                                        
<CAPTION>

NON-EMPLOYEE DIRECTORS PLAN                           1997          1996
------------------------------------------------------------------------
<S>                                                 <C>           <C>
Risk-free interest rate                              6.47%         6.86%
Expected volatility                                 35.59%        36.60%
Expected dividend yield                              0.40%         0.50%
Expected life, in years                             10.01         10.01
------------------------------------------------------------------------
</TABLE>





                                    page 34




<PAGE>   36

The Company issued from treasury 4,874, 5,965 and 6,219 shares of common stock
in fiscal years 1997, 1996 and 1995, respectively, as annual Board of Directors
fees. Costs relating to these fees (in thousands) of $120, $120 and $129 were
recorded in fiscal years 1997, 1996 and 1995, respectively.

13. ACQUISITION OF KYSOR
In March of 1997, the Company acquired Kysor Industrial Corporation ("Kysor"),
a major manufacturer and marketer of refrigerated display cases, commercial
refrigeration systems and insulated panels primarily serving the supermarket
industry. The Company purchased Kysor's common and preferred stock for an
aggregate purchase price of $311 million. Concurrent with the purchase, the
Company sold Kysor's Transportation Products Group to a third party for an
aggregate purchase price of $86 million plus assumption of certain liabilities.
The Company retained possession of Kysor's Commercial Products Group. Goodwill
relating to the acquisition of Kysor will be finalized by the end of the first
quarter of 1998 and will be amortized for book purposes over 40 years using the
straight-line method. The preliminary amount of goodwill recorded as of
December 28, 1997 was $191.8 million. Also there was a goodwill amount of $12.6
million related to an investment which was recorded in other noncurrent assets
in the balance sheet.

The purchase price was allocated principally to goodwill of $191.8 million,
working capital of $44.8 million, property, plant and equipment of $38.7
million, severance and other Kysor employee related liabilities of $40.5
million, and deferred tax impacts of $17.5 million.

Kysor, headquartered in Cadillac, Michigan, 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 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          DEC. 29, 1996
-----------------------------------------------------------------------------------
<S>                                               <C>                     <C>
Net sales                                           $610,422               $601,435
Net income before extraordinary loss                  16,893                 19,318
Net income                                            16,260                 19,318
Net income per share, diluted                       $   1.51               $   1.80
-----------------------------------------------------------------------------------
</TABLE>

14. ACQUISITION OF HARTEK AND OTHER INVESTMENTS
The Company's Scotsman Group Inc. subsidiary acquired on December 31, 1995, the
stock of Hartek Beverage Handling GmbH and the stock of Hartek Awagem
Vertriebsges. m.b.H., a beverage dispensing manufacturer and a small
distributor of Hartek and other products located in Radevormwald, Germany and
Vienna, Austria, respectively (collectively, "Hartek"). Hartek had 1995 annual
sales of approximately $24 million. The method of accounting used for the
combination was the purchase method. The results of the Hartek businesses have
been included in the income statements for the Company beginning on the date of
acquisition, December 31, 1995. Hartek was acquired for an initial cost of $5.8
million, including acquisition costs. No shares of stock were or will be issued
as a result of these acquisitions. The cash outlay was partially offset by cash
on the books of Hartek at closing of $3.3 million. An initial amount of
goodwill of $1.9 million was recorded as of December 29, 1996. The Company
recorded an additional amount of goodwill of $0.6 million during 1997 related
to additional payments made to the seller of Hartek for pre-purchase tax net
operating losses utilized in the 1996 tax year. The amount of goodwill from
this acquisition will be amortized for book purposes over 40 years using the
straight-line method.


                                    page 35




<PAGE>   37

Under the terms of the agreement governing the purchase of the Hartek
businesses, the Company is required to pay to the seller 75 percent of the
actual amount of any tax saving realized by Hartek in respect of each of its
financial years 1996 through 1998 through the use of the amount of any tax loss
carry forward available to Hartek as of December 31, 1995, in reduction of
taxable profits for those financial years 1996 through 1998. Per the purchase
agreement, this additional consideration was not to exceed an amount of 2.2
million deutsche marks. During 1997, the Company paid 1.1 million deutsche
marks ($0.6 million) to the former owner of Hartek related to the utilization
of loss carry forwards utilized in the reduction of taxable profits for the
1996 financial year. Therefore only 1.1 million deutsche marks (or
approximately $0.6 million) of potential additional consideration is remaining
as of December 28, 1997. In addition, at the date of acquisition, Scotsman also
assumed Hartek debt of approximately $6.4 million.

Pro forma unaudited 1995 net sales of the Company, as if Hartek were acquired
on the first day of the fiscal year 1995, would have been $349 million. Pro
forma information relating to net income and earnings per share has not been
presented as the pro forma impact of those numbers on the Company's results was
not material. 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.

In December of 1997, the Company's subsidiary, Scotsman Group Inc. acquired the
remaining 40 percent interest in a former joint venture in China for a cash
outlay of approximately $1.4 million. The results of operations of the China
subsidiary are not material and therefore pro forma information has not been
presented.

On December 16, 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 has annual sales
of approximately $12 million. Pro forma information relating to sales, net
income and earnings per share has not been presented as the pro forma impact of
those numbers on the Company's results was not material.

15. GEOGRAPHIC INFORMATION
The Company's geographic data, based on the locations of operations are as
follows (in thousands):

<TABLE>
<CAPTION>

FOR THE FISCAL YEARS ENDED                   DEC. 28, 1997     DEC. 29, 1996     DEC. 31, 1995     
---------------------------------------------------------------------------------------------- 
<S>                                              <C>               <C>               <C>                    
Sales to unaffiliated customers:                                                                   
  United States                                   $454,690          $235,302          $239,110     
  Foreign                                          116,898           121,071            85,181     
---------------------------------------------------------------------------------------------- 
  TOTAL                                           $571,588          $356,373          $324,291     
---------------------------------------------------------------------------------------------- 
Operating profit:                                                                                  
  United States                                   $ 44,362          $ 24,248          $ 25,309     
  Foreign                                           14,557            16,048             9,145     
---------------------------------------------------------------------------------------------- 
  TOTAL                                           $ 58,919          $ 40,296          $ 34,454     
---------------------------------------------------------------------------------------------- 
Identifiable assets:                                                                               
  United States                                   $551,895          $181,259          $181,994     
  Foreign                                          108,229           102,005            93,949     
---------------------------------------------------------------------------------------------- 
  TOTAL                                           $660,124          $283,264          $275,943     
---------------------------------------------------------------------------------------------- 
</TABLE>
                                                                         
Export sales from the United States were less than 10 percent of consolidated 
net sales for all years presented.                        
                                                                         










                                    page 36




<PAGE>   38


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 (the "Senior
Subordinated Notes"). The Company has fully and unconditionally guaranteed the
Senior Subordinated Notes.
Summarized Financial Information (in thousands):


<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED          DEC. 28, 1997  DEC. 29, 1996  DEC. 31, 1995
-------------------------------------------------------------------------------
<S>                                 <C>            <C>            <C>
Current assets                        $   227,096    $   137,574    $   131,342
Noncurrent assets                         433,028        145,690        144,601
-------------------------------------------------------------------------------
Total assets                          $   660,124    $   283,264    $   275,943
-------------------------------------------------------------------------------
Current liabilities                   $   149,690    $    79,664    $    77,340
Noncurrent liabilities                    369,523         73,298         87,110
-------------------------------------------------------------------------------
Total liabilities                     $   519,213    $   152,962    $   164,450
-------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED          DEC. 28, 1997  DEC. 29, 1996  DEC. 31, 1995
-------------------------------------------------------------------------------
<S>                                   <C>            <C>            <C>
Net sales                             $   571,588    $   356,373    $   324,291
Gross profit                              141,990         98,431         87,889
Income before extraordinary loss           19,041         18,679         15,525
Net income                            $    18,408    $    18,679    $    15,525
-------------------------------------------------------------------------------
</TABLE>                           

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 YEAR ENDED: DEC. 28, 1997        INCOME
                                          IN THOUSANDS         SHARES  PER-SHARE
                                           (NUMERATOR)  (DENOMINATOR)     AMOUNT
--------------------------------------------------------------------------------
<S>                                            <C>         <C>             <C>
Income before extraordinary loss               $18,919
Less: preferred stock dividends                     --
Basic EPS
Income available to common stockholders        $18,919     10,554,984      $1.79
--------------------------------------------------------------------------------
Effect of Dilutive Securities:
 Common stock options                               --        248,277
 Convertible preferred stock                        --             --
 Contingent common stock                            --             --
--------------------------------------------------------------------------------
Diluted EPS
Income available to common stockholders
 and assumed conversions                       $18,919     10,803,261      $1.75
--------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED: DEC. 29, 1996        INCOME
                                          IN THOUSANDS         SHARES  PER-SHARE
                                           (NUMERATOR)  (DENOMINATOR)     AMOUNT
--------------------------------------------------------------------------------
<S>                                            <C>         <C>             <C>
Income before extraordinary loss               $18,568
Less: preferred stock dividends                   (813)
Basic EPS
Income available to common stockholders        $17,755      9,398,016      $1.89
--------------------------------------------------------------------------------
Effect of Dilutive Securities:
 Common stock options                               --        203,406
 Convertible preferred stock                       813      1,107,457
 Contingent common stock                            --             --
--------------------------------------------------------------------------------
Diluted EPS
Income available to common stockholders
 and assumed conversions                       $18,568     10,708,879      $1.73
--------------------------------------------------------------------------------
</TABLE>







                                    page 37




<PAGE>   39


<TABLE>
<CAPTION>

FOR THE FISCAL YEAR ENDED: DEC. 31, 1995       INCOME
                                         IN THOUSANDS         SHARES  PER-SHARE
                                          (NUMERATOR)  (DENOMINATOR)     AMOUNT
-------------------------------------------------------------------------------
<S>                                           <C>         <C>             <C>
Income before extraordinary loss              $15,408
Less: preferred stock dividends                (1,240)
Basic EPS
Income available to common stockholders       $14,168      8,814,924      $1.61
-------------------------------------------------------------------------------
Effect of Dilutive Securities:
 Common stock options                              --        168,785
 Convertible preferred stock                    1,240      1,525,393
 Contingent common stock                           --        135,595
-------------------------------------------------------------------------------
Diluted EPS
Income available to common stockholders
 and assumed conversions                      $15,408     10,644,697      $1.45
-------------------------------------------------------------------------------
</TABLE>


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 January 1, 1995                                       8,267,938        1,999,992         194,259
------------------------------------------------------------------------------------------------------------
 Issuance of deferred compensation                                   6,219               --          (6,219)
 Issuance of common stock relating to
   acquisition of Delfield and Whitlenge                           666,982               --              --
 Stock options exercised                                            23,835               --              --
------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------
</TABLE>





























                                    page 38




<PAGE>   40


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 December 28,
1997, and December 29, 1996, and the related consolidated statements of income, 
shareholders' equity and cash flows for each of the three years in the period
ended December 28, 1997. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule 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 December 28, 1997, and December 29, 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 28, 1997, in conformity with generally accepted accounting
principles.

Our audit was 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
audit 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 LLP



Arthur Andersen LLP
Chicago, Illinois
February 3, 1998





















                                    page 39




<PAGE>   41


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
                       


                  
Richard C. Osborne
Chairman of the Board,
President and Chief Executive Officer



/s/ Donald D. Holmes



Donald D. Holmes
Vice President - Finance and Secretary


















                                    page 40




<PAGE>   42


SELECTED QUARTERLY FINANCIAL DATA

(Unaudited)
(Amounts in thousands, except per-share data)



<TABLE>
<CAPTION>
                                                            FISCAL YEAR 1997 
                                               --------------------------------------------
FOR THE THREE MONTHS ENDED                     DEC. 28,   SEPT. 28,    JUNE 29,    MAR. 30,
                                                   1997        1997        1997        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              19,622      22,346      24,979      16,124
-------------------------------------------------------------------------------------------
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)
-------------------------------------------------------------------------------------------
 Net income 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)
-------------------------------------------------------------------------------------------
 Net income 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.





























                                    page 41



<PAGE>   43


SELECTED QUARTERLY FINANCIAL DATA (continued)

(Unaudited)
(Amounts in thousands, except per-share data)



<TABLE>
<CAPTION>
                                                             Fiscal year 1996
                                               --------------------------------------------
For The Three Months Ended                     Dec. 29,   Sept. 29,    June 30,    Mar. 31,
                                                   1996        1996        1996        1996
-------------------------------------------------------------------------------------------
<S>                                             <C>         <C>         <C>         <C>
Net sales                                       $73,653     $92,764    $104,423     $85,533
Cost of sales                                    55,692      66,558      73,562      62,130
-------------------------------------------------------------------------------------------
Gross profit                                     17,961      26,206      30,861      23,403
Selling and administrative expenses              13,063      14,195      15,854      15,023
-------------------------------------------------------------------------------------------
Income from operations                            4,898      12,011      15,007       8,380
Interest expense, net                             1,120       1,322       1,422       1,415
-------------------------------------------------------------------------------------------
Income before income taxes                        3,778      10,689      13,585       6,965
Income taxes                                      1,677       4,906       6,520       3,346
-------------------------------------------------------------------------------------------
Income before extraordinary loss                $ 2,101     $ 5,783     $ 7,065     $ 3,619
Extraordinary loss                                   --          --          --          --
-------------------------------------------------------------------------------------------
Net income                                      $ 2,101     $ 5,783     $ 7,065     $ 3,619
-------------------------------------------------------------------------------------------
Basic earnings per share (a):                                                        
 Income before extraordinary loss               $  0.20     $  0.60     $  0.75     $  0.37
 Extraordinary loss                                  --          --          --          --
-------------------------------------------------------------------------------------------
 Net income per common share                    $  0.20     $  0.60     $  0.75     $  0.37
-------------------------------------------------------------------------------------------
Diluted earnings per share (b):                                                      
 Income before extraordinary loss               $  0.20     $  0.54     $  0.66     $  0.34
 Extraordinary loss                                  --          --          --          --
-------------------------------------------------------------------------------------------
 Net income per common share                    $  0.20     $  0.54     $  0.66     $  0.34
-------------------------------------------------------------------------------------------
Weighted average common shares                                          
 outstanding:                                   
   Basic                                     10,253,885   9,259,504   9,113,489   8,965,187
   Diluted                                   10,760,208  10,713,995  10,695,790  10,665,543
-------------------------------------------------------------------------------------------
</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 1997.




















                                    page 42




<PAGE>   44
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 1998 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 1998 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 1998
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 1998 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.

Consolidated Statement of Income for each of the three years ended December 28,
1997, December 29, 1996, and December 31, 1995.

Consolidated Balance Sheet as of December 28, 1997, and December 29, 1996.

Consolidated Statement of Cash Flows for each of the three years ended December
28, 1997, December 29, 1996, and December 31, 1995.

Consolidated Statement of Shareholders' Equity for each of the three years
ended December 28, 1997, December 29, 1996, and December 31, 1995.

Notes to Consolidated Financial Statements.

Report of Independent Public Accountants.

Selected Quarterly Financial Data (Unaudited).















                                    page 43





<PAGE>   45


(a)(2) LIST OF FINANCIAL STATEMENT SCHEDULE
Scotsman Industries, Inc.
Schedule II - Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>

                                                                 Additions
                                                             ---------------------------
                                                 Balance at                      Charged                Balance
                                                  Beginning      Charged to     to Other              at End of
                                                  of Period  Costs/Expenses  Accounts(a)  Deductions     Period
---------------------------------------------------------------------------------------------------------------
<S>                                                  <C>             <C>          <C>         <C>
1995 - Accounts Receivable Reserves                  $2,296          $  645       $  572      $(553)     $2,960
1996 - Accounts Receivable Reserves                  $2,960          $  435       $ (128)     $(489)     $2,778
1997 - Accounts Receivable Reserves                  $2,778          $1,126       $1,972      $(505)     $5,371
---------------------------------------------------------------------------------------------------------------
</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.

(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).

</TABLE>





                                    page 44





<PAGE>   46


<TABLE>
<S>           <C>
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 10, 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).

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
              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, the
              second amendment thereto dated June 30, 1997, and the third
              amendment thereto dated December 15, 1997.

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). 


</TABLE>




                                    page 45





<PAGE>   47


<TABLE>
<S>             <C>
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    Stock Pledge Agreements, dated as of December 15, 1997, between
                each of Scotsman Industries, Inc., Scotsman Group Inc., DFC
                Holding Corporation and Kysor Industrial Corporation, and The
                First National Bank of Chicago, as agent under the Credit
                Agreement.

Exhibit 10.9    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.

Exhibit 10.10   Promissory Note in the principal amount of $15,000,000, made 
                as of March 12, 1997, by Scotsman Group Inc. to Comerica Bank
                (incorporated by reference to the Company's 10-K for the fiscal
                year ended December 29, 1996), 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 10.11   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 and 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.

Exhibit 10.12   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), 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).

Exhibit 10.13*  Long-Term Executive Incentive Compensation Plan of Scotsman
                Industries, Inc., as amended February 10, 1998.

Exhibit 10.14*  Scotsman Industries, Inc. Executive Incentive Compensation 
                Program, Plans AA, A-1 and A-2.

Exhibit 10.15*  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).
</TABLE>




                                    page 46



<PAGE>   48



<TABLE>
<S>             <C>
Exhibit 10.16*  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 10.17*  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 10.18*  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 10.19*  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 10.20*  Employment Agreement dated October 17, 1996, between Scotsman 
                Group Inc. and Michael de St. Paer (incorporated herein by 
                reference to the Company's 10-K for the fiscal year ended 
                December 29, 1996).

Exhibit 10.21*  Service Agreement dated February 1, 1995, as amended by the 
                Service  Agreement Addendum, dated January 31, 1997, between 
                Hartek Beverage Handling GmbH and Ludwig H. Klein (incorporated 
                herein by reference to the Company's 10-K for the fiscal year
                ended December 29, 1996), and further amended by the letter
                agreement dated October 20, 1997, from Richard C. Osborne to
                Ludwig H. Klein.

Exhibit 10.22*  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 10.23*  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 10.24*  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).

Exhibit 10.25*  Retirement Program for Emanuele Lanzani of Frimont, S.p.A.,
                Subsidiary of King-Seeley Thermos Co. dated July 25, 1984
                (incorpo rated herein by reference to the Company's 10-K for
                the fiscal year ended December 31, 1989).

Exhibit 10.26   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 10.27   Industrial Building Lease Agreement dated September 21, 1988, 
                by and between American National Bank and Trust Company of
                Chicago, as Trustee under Trust Agreement No. 64661 dated June
                17, 1985, and Household Manufacturing, Inc. (incorporated
                herein by reference to the Company's 10-K for the fiscal year
                ended December 31, 1989). 
</TABLE>
        


                                    page 47




<PAGE>   49


<TABLE>
<S>            <C>
Exhibit 10.28  Lease Agreement, dated as of April 16, 1993, by and between the 
               Western and Southern Life Insurance Company and  Booth, Inc.
               together with the related Guaranty by Scotsman Group Inc. dated 
               as of April 8, 1993 (incorporated herein by reference to  the
               Company's 10-Q for the quarter ended October 2, 1993), as
               amended by First Amendment to the Lease Agreement, dated October
               27, 1993, (incorporated herein by reference to the Company's     
               10-K for the fiscal year ended January 1, 1995) and Second
               Amendment to the Lease Agreement, dated December 3, 1993,
               (incorporated herein by reference to the Company's 10-K for the
               fiscal year ended January 1, 1995).

Exhibit 21     List of Subsidiaries.

Exhibit 23     Consent of Arthur Andersen LLP.

Exhibit 27     Article 5 Financial Data Schedule for the Fiscal Year Ended
               December 28, 1997.

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
During the quarter ended December 28, 1997, Scotsman filed reports on Form 8-K,
dated September 29, 1997, October 22, 1997, November 25, 1997, and December 17,
1997, reporting under Items 5 and 7, Items 5 and 7, Item 7, and Items 5 and 7,
respectively. No financial statements were filed with any of these reports.

(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 48



<PAGE>   50
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 17, 1998         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.


 Signature                       Title                          Date
--------------------------------------------------------------------------------
 /s/ R. C. Osborne        ,                                                   
 -------------------------   Chairman of the Board, President,  March 17, 1998
     (R.C. Osborne)          Chief Executive Officer and
                             Director(Principal Executive
                             Officer)

 /s/ D. C. Clark          ,                                                   
 -------------------------   Director                           March 17, 1998
     (D.C. Clark)                                                             
                                                                              
 /s/ F. W. Considine      ,                                                   
 -------------------------   Director                           March 17, 1998
     (F. W. Considine)                                                        
                                                                              
 /s/ G. D. Kennedy        ,                                                   
 -------------------------   Director                           March 17, 1998
     (G. D. Kennedy)                                                          
                                                                              
 /s/ R. G. Rettig         ,                                                   
 -------------------------   Director                           March 17, 1998
     (R. G. Rettig)                                                           
                                                                              
 /s/  R. L. Thomas        ,                                                   
 -------------------------   Director                           March 17, 1998
     (R. L. Thomas)                                                           
                                                                              
 /s/  D. D. Holmes        ,                                                   
 -------------------------   Vice President - Finance           March 17, 1998
     (D.D. Holmes)           and Secretary(Principal Financial
                             and Accounting Officer)





                                    page 49




<PAGE>   51
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>


     Exhibit                                                                    Page Number
     Number                       Description(1)                                of Exhibit
     ------                       -----------                                    ----------
     <S>          <C>                                                           <C>     
       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).

       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).


</TABLE>

<PAGE>   52

<TABLE>
<CAPTION>

     Exhibit                                                                    Page Number
     Number                       Description(1)                                of Exhibit
     ------                       -----------                                    ----------
     <S>          <C>                                                           <C>     
       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, the second amendment thereto
                  dated June 30, 1997, and the third amendment thereto dated
                  December 15, 1997.

      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).

</TABLE>


<PAGE>   53

<TABLE>
<CAPTION>

     Exhibit                                                                    Page Number
     Number                       Description(1)                                of Exhibit
     ------                       -----------                                    ----------
     <S>          <C>                                                           <C>     

      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        Stock Pledge Agreements, dated as of December 15, 1997,
                  between each of Scotsman Industries, Inc., Scotsman Group
                  Inc., DFC Holding Corporation and Kysor Industrial
                  Corporation, and the First National Bank of Chicago,
                  as agent under the Credit Agreement.

      10.9        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.

      10.10       Promissory Note in the principal amount of $15,000,000, made
                  as of March 12, 1997 by Scotsman Group Inc. to Comerica Bank
                  (incorporated by reference to the Company's 10-K for the
                  fiscal year ended December 29, 1996), 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).

      10.11       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.

</TABLE>


<PAGE>   54

<TABLE>
<CAPTION>

     Exhibit                                                                    Page Number
     Number                       Description(1)                                of Exhibit
     ------                       -----------                                    ----------
     <S>          <C>                                                           <C>     
      10.12       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), 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).

      10.13       Long-Term Executive Incentive Compensation Plan of Scotsman
                  Industries, Inc., as amended February 10, 1998.

      10.14       Scotsman Industries, Inc. Executive Incentive Compensation
                  Program, Plans AA, A-1 and A-2.

      10.15       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).

      10.16       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).

      10.17       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).

      10.18       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).

      10.19       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).

      10.20       Employment Agreement dated October 17, 1996 between Scotsman
                  Group Inc. and Michael de St. Paer (incorporated herein by
                  reference to the Company's 10-K for the fiscal year ended
                  December 29, 1996).

      10.21       Service Agreement dated February 1, 1995, as amended by the
                  Service Agreement Addendum, dated January 31, 1997, between
                  Hartek Beverage Handling GmbH and Ludwig H. Klein
                  (incorporated herein by reference to the Company's 10-K for
                  the fiscal year ended December 29, 1996), and further amended
                  by the letter agreement dated October 20, 1997, from Richard
                  C. Osborne to Ludwig H. Klein.

      10.22       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).

</TABLE>


<PAGE>   55

<TABLE>
<CAPTION>

     Exhibit                                                                    Page Number
     Number                       Description(1)                                of Exhibit
     ------                       -----------                                    ----------
     <S>          <C>                                                           <C>     

      10.23       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).

      10.24       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).

      10.25       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).

      10.26       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).

      10.27       Industrial Building Lease Agreement dated September 21, 1988
                  by and between American National Bank and Trust Company of
                  Chicago, as Trustee under Trust Agreement No. 64661 dated June
                  17, 1985, and Household Manufacturing, Inc. (incorporated
                  herein by reference to the Company's 10-K for the fiscal year
                  ended December 31, 1989).

      10.28       Lease Agreement, dated as of April 16, 1993, by and between
                  the Western and Southern Life Insurance Company and Booth,
                  Inc. together with the related Guaranty by Scotsman Group Inc.
                  dated as of April 8, 1993 (incorporated herein by reference to
                  the Company's 10-Q for the quarter ended October 2, 1993), as
                  amended by First Amendment to the Lease Agreement, dated
                  October 27, 1993, (incorporated herein by reference to the
                  Company's 10-K for the fiscal year ended January 1, 1995) and
                  Second Amendment to the Lease Agreement, dated December 3,
                  1993, (incorporated herein by reference to the Company's 10-K
                  for the fiscal year ended January 1, 1995).

       21         List of Subsidiaries.

       23         Consent of Arthur Andersen LLP.

       27         Article 5 Financial Data Schedule for the Fiscal Year Ended
                  December 28, 1997.

       99         Cautionary Statements.
-------------------
</TABLE>


<PAGE>   56

(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.