The Middleby Corporation
The Middleby Corporation is a global leader in the foodservice equipment industry. The company develops,
manufactures, markets and services a broad line of equipment used for cooking and food preparation in commercial
restaurants, institutional kitchens and food processing operations throughout the world.
2010
Mini WOW! Oven
TurboChef Sota
CookTek Induction
Cooking Technology
New Product Pipeline
2009 Introductions
Product
i-Series Ovens
Brand
TurboChef
2010 Introductions
Product
Brand
Drywell Induction Cooking Technology
CookTek
WOW! Countertop Oven
Middleby Marshall
Spin Fryer
Ultimate 400 Range
Turbo-Max Speed Oven
Temperature Controlled Griddle
Hydrovection Oven
Energy Saving French Hot Top
Southbend
Sota Speed Oven
Holman
Lang
Blodgett
Jade
2/3 Size Gas Combi Oven
Woodburning Oven
Half sized Hydrovection Oven
RP-1000 Packaging Technology
LaXser Bone Detection
MP Equipment
Energy Efficient Griddle
Alkar Pure Link
Doorless Holding Cabinet
Visual Cooking Gas Ovens
Ventless Hood
Alkar
Carter-Hoffmann
Hounö
Wells
Dough Roller
Incognito Induction
Drywell Steam Table
Energy Star Products
Pitco/Anets
TurboChef
Hounö
Jade
Blodgett
RapidPak
Star/Magikitch’n
Middleby Marshall
CookTek
Carter-Hoffmann
All Brands
Food p roCessing e quipment
CommerCial FoodserviCe e quipment
Net sales
Gross profit
Income from operations
Net earnings
EPS on net earnings
Weighted average shares
Working capital
Total assets
Total debt
Stockholders’ equity
2009 Financial Highlights
(dollars in thousands)
2009
2008
2007
2006
2005
$646,629
$651,888
$500,472
$403,131
$316,668
250,628
111,441
61,156
248,142
119,618
63,901
192,365
156,877
121,653
92,933
52,614
76,901
42,377
57,972
32,178
$ 3.29
$ 3.75
$ 3.11
$ 2.57
$ 1.99
18,575,000
17,030,000
16,938,000
16,518,000
16,186,000
$ 70,670
$ 68,198
$ 61,573
$ 11,512
$ 7,590
816,346
275,641
342,655
654,498
234,700
227,960
413,647
96,197
182,912
288,323
82,802
100,573
267,219
121,595
48,500
Net Sales
(dollars in millions)
Net Earnings
(dollars in millions)
EPS on Net Earnings
$700
600
500
400
300
200
100
0
$70
60
50
40
30
20
10
0
$4
3
2
1
0
’05
’06
’07
’08
’09
’05
’06
’07
’08
’09
’05
’06
’07
’08
’09
$500.5
$403.1
10%
$316.7
Food Processing Equipment
$271.1
The Food Processing Equipment Group provides a broad array of innovative
$242.2
products for the food processing industry. These products include food
preparation equipment, such as breading, battering, mixing, slicing,
and forming equipment under the MP Equipment brand; cooking
equipment including batch ovens, belt ovens and conveyorized cooking
systems under the Alkar brand; and food packaging and food safety
equipment under the RapidPak brand.
$52.6
$42.4
$32.2
$23.6
$18.7
82%
Domestic
Sales
18%
International
Sales
Company Breakdown
$3.11
90%
$2.57
Commercial Foodservice Equipment
$1.99
The Commercial Foodservice Equipment Group serves all commercial
Sales by Region
kitchens. These include dine-in and carry-out restaurants of all types,
$1.00
$1.19
institutions such as schools, hospitals, nursing homes and the military.
Middleby brands can also be found in convenience stores and
supermarkets. Cooking equipment developed by the Middleby brands
includes fryers, conveyor ovens, ranges, countertop equipment,
baking ovens, food warmers, steamers, induction cooking systems,
and pasta cookers.
Dear Shareholders,
In fiscal 2009 we are pleased with our financial performance in a chal-
lenging global economic environment. Total sales were $646.6 million
compared to $651.9 million in 2008. We generated a record $100.8 mil-
lion of cash flow from operations, which we utilized to fund acquisi-
tions and reduce debt.
Acquisitions
We strengthened the company as a whole by adding respected global
brands and top technologies to our portfolio in 2009. Domestically in
the foodservice equipment group, we finalized the acquisition of
TurboChef and also added the brands CookTek, Anets and Doyon.
In our food processing division we are leading the way with Pure Link
by Alkar and the RapidPak RP-1000. These machines are unique to the
marketplace and provide significant reductions in operators’ costs
through labor reduction, materials and smaller space requirements.
2010 and Beyond
Working in our favor is the fact that eating outside the home will con-
tinue regardless of the economy. Emerging markets are in infancy in
terms of restaurant openings, and Middleby is well-positioned with
our international sales structure. We have a unique business model
that is extremely difficult to imitate.
While the environment remains challenging, we have made it a prior-
ity to stay close to our customers and maintain our culture of product
innovation. To further penetrate the market, we expanded both our
domestic and international sales teams. During a time when compa-
nies are cutting, we are also investing in R&D and have maintained a
robust pipeline of new products. These investments will pay dividends
in the future.
When we look back on 2009, we are proud of what we achieved. We
posted strong financial results, including significant operating cash
flow, in an unprecedented year for the industry. We did this while tak-
ing actions to make Middleby stronger.
As we look forward, we are very excited about future opportunities
and are committed to growing our business.
Thank you for your ongoing support.
Selim A. Bassoul
Chairman and Chief Executive Officer
TurboChef quickly became accretive to our earnings after we executed
a cost reduction strategy in the first half of 2009. Not only did we real-
ize operating efficiencies, but in the process TurboChef delivered sev-
eral patented new technologies to the speed-cooking market,
including the i-series of ovens that accommodate metal foodservice
pans and the Sota oven, the leading energy efficient fast cook oven in
the world. These and other TurboChef products command high
margins.
CookTek is a leader in countertop induction/speed cooking and has
some of the most energy efficient products in our entire portfolio of
brands. We have been able to introduce this patented technology to
our largest customers, who are excited about the possibilities for this
technology in their kitchens.
Both Anets and Doyon bring new products and technology to the
Middleby portfolio. Anets adds a dough roller and fryer technology
while Doyon has specialty bakery equipment. Doyon has a strong
presence in Canada, and we plan to target Doyon’s existing relation-
ships in this market with other Middleby brand products.
New Products
Middleby continues to be the innovation leader in all segments the
company serves. Nearly one quarter of sales continue to come from
new products, delivering higher value to our customers and allowing
them to reduce their kitchen operating costs. With energy efficiency,
being “green” and speed of cooking being top-of-mind, Middleby has
developed equipment to meet these needs. For example, the Blodgett
Hydrovection oven was rolled out with a major chain in 2009 and is
now available on the general market. Other products include the
Hounö Visual Cooking oven, a combi oven that was proven by inde-
pendent tests to lead the way in energy efficiency in the combi-oven
category. The Middleby Marshall Mini (640) Wow! Oven and the
Southbend Ultimate Range were recipients of the National Restaurant
Association’s 2010 Kitchen Innovations Award.
One of our top initiatives is the continued development of Energy Star
products across all of our brands. Many of our products have received
Energy Star ratings, and we are a leader in the industry in this respect.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
_X_ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
_ _ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the Fiscal Year Ended January 2, 2010
or
Commission File No. 1-9973
THE MIDDLEBY CORPORATION
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
Delaware
36-3352497
(IRS Employer Identification Number)
1400 Toastmaster Drive, Elgin, Illinois
(Address of principal executive offices)
60120
(Zip Code)
Registrant’s telephone number, including area code: 847-741-3300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common stock, par value $0.01 per share
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:58)
No (cid:134)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act.
Yes (cid:134)
No (cid:58)
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-K during the preceding
12 months.
Yes (cid:134)
No (cid:134)
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. (cid:133)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:58)
Smaller reporting company (cid:134)
Non-accelerated filer (cid:134)
Accelerated filer (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes (cid:134)
No (cid:58)
The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of June 30, 2009 was
approximately $765,694,347.
The number of shares outstanding of the Registrant’s class of common stock, as of February 26, 2010, was
18,552,737shares.
Documents Incorporated by Reference
Part III of Form 10-K incorporates by reference the Registrant’s definitive proxy statement to be filed pursuant to Regulation
14A in connection with the 2010 annual meeting of stockholders.
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
JANUARY 2, 2010
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
Business.................................................................................................
Risk Factors ...........................................................................................
Unresolved Staff Comments ..................................................................
Properties...............................................................................................
Legal Proceedings .................................................................................
Reserved................................................................................................
PART II
Market for Registrant’s Common Equity,
Related Stockholder Matters and
Issuer Purchases of Equity Securities.............................................
Selected Financial Data .........................................................................
1
11
18
19
20
20
21
23
Management’s Discussion and Analysis of Financial
Condition and Results of Operations ..............................................
24
Quantitative and Qualitative Disclosure about
Market Risk......................................................................................
Financial Statements and Supplementary Data ....................................
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ..............................................
33
36
80
80
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Controls and Procedures .......................................................................
Item 9B.
Other Information ................................................................................... 82
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors and Executive Officers of the Registrant................................
Executive Compensation .......................................................................
Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.......................
Certain Relationships and Related Transactions ..................................
Principal Accountant Fees and Services ...............................................
83
83
83
83
83
Item 15.
Exhibits and Financial Statement Schedule ..........................................
84
PART IV
PART I
Item 1. Business
General
The Middleby Corporation (“Middleby” or the “company”), through its operating subsidiary Middleby
Marshall Inc. (“Middleby Marshall”) and its subsidiaries, is a leader in the design, manufacture, marketing,
distribution, and service of a broad line of (i) cooking and warming equipment used in all types of commercial
restaurants and institutional kitchens and (ii) food preparation, cooking and packaging equipment for food
processing operations.
Founded in 1888 as a manufacturer of baking ovens, Middleby Marshall Oven Company was acquired in
1983 by TMC Industries Ltd., a publicly traded company that changed its name in 1985 to The Middleby
Corporation. The company has established itself as a leading provider of (i) commercial restaurant equipment and
(ii) food processing equipment as a result of its acquisition of industry leading brands and through the introduction
of innovative products within both of these segments.
Over the past three years the company has completed eleven acquisitions in the commercial
foodservice equipment and food processing equipment industries. These acquisitions have added fourteen
brands to the Middleby portfolio and positioned the company as a leading supplier of equipment in both
industries.
In April 2007, the company acquired the assets of Jade Products Company (“Jade”) for $7.8 million in
cash. Jade is a leading manufacturer of premium commercial and residential ranges and ovens used by many
of the top chefs and upscale restaurant chains. Jade is also known for its ability to provide unique customized
cooking suites designed to suit the needs of the most demanding restaurant operators. This acquisition
allowed Middleby to expand its product offerings in the commercial foodservice segment with a leading industry
brand.
In June 2007, the company acquired the assets of Carter-Hoffmann for $16.4 million in cash. Carter-
Hoffmann is a leading brand and supplier of heated cabinets and food holding equipment for the commercial
restaurant industry. This acquisition was complementary to Middleby’s existing cooking products and allowed
the company to provide a more complete offering on the “hot-side” of the kitchen.
In July 2007, the company acquired the assets of MP Equipment (“MP Equipment”) for $15.3 million in
cash and $3.0 million in deferred payments made to the sellers. MP Equipment further strengthened
Middleby’s position in the food processing equipment industry by adding a portfolio of complementary products
to the Alkar and Rapidpak brands. The products of MP Equipment include breading machines, battering
machines, mixers, forming equipment, and slicing machines. These products are used by numerous suppliers
of food product to the major restaurant chains.
In August 2007, the company acquired the assets of Wells Bloomfield for $29.2 million in cash. Wells is
a leading brand of cooking and warming equipment for the commercial restaurant industry, complimenting
Middleby’s other products in this category. Wells also offers a unique ventless hood system, which is
increasing in demand as more and more food operations are opening in unconventional locations where it is
difficult to install ventilation systems, such as shopping malls, airports and stadiums. Bloomfield is a leading
provider of coffee brewers, tea brewers and beverage dispensing equipment. The addition of Bloomfield to
Middleby’s portfolio of brands allows Middleby to benefit in the fast growing beverage segment as the
company’s restaurant chain customers increase their offerings of coffee and specialty drinks.
In December 2007, subsequent to the company’s fiscal 2007 year end, the company acquired New
Star International Holdings, Inc. (“Star”) for $189.5 million in cash. This acquisition added three leading brands
to Middleby’s portfolio of brands in the commercial restaurant industry, including Star, a leader in light duty
cooking and concession equipment, Holman, a leader in conveyor and pop-up toasters, and Lang, a leading
oven and range line. The transaction positions Middleby as a leading supplier to convenience chains and fast
casual restaurant chains.
1
In April 2008, the company acquired the net assets and related business operations of Frifri aro SA
(“Frifri”) for $3.5 million in cash. Frifri is a leading European supplier of advanced frying systems.
In April 2008, the company acquired the assets of Giga Grandi Cucine S.r.l. (“Giga”) for $9.9 million in
cash and assumed debt. Giga is a leading European manufacturer of ranges, ovens and steam cooking
equipment.
In January 2009, subsequent to the company’s fiscal 2008 year end, the company acquired TurboChef
Technologies, Inc. (“TurboChef”) for cash and shares of Middleby common stock. The total aggregate
purchase price of the transaction amounted to $160.3 million including $116.3 million in cash and 1,539,668
shares of Middleby common stock valued at $44.0 million. TurboChef is a leader in speed-cook technology,
one of the fastest growing segments of the commercial foodservice equipment market. TurboChef’s user-
friendly speed cook ovens employ proprietary combinations of heating technologies to cook a variety of food
products at speeds up to 12 times faster than that of conventional heating methods.
In April 2009, the company acquired the assets of CookTek LLC (“CookTek”) for $8 million in cash and
$1.0 million in a deferred payment due the seller. CookTek is a leader in the manufacture of induction cooking
and warming systems for the commercial foodservice industry. CookTek’s line of induction cooking equipment
utilizes magnetic waves to heat product in a highly energy efficient manner at speeds fast than conventional
cooking equipment.
In April 2009, the company acquired substantially all of the assets of Anetsberger Brothers, Inc.
(“Anets”), a leading manufacturer of griddles, fryers, and dough rollers for the commercial foodservice industry
for $3.4 million in cash and $0.5 million in deferred payments. The acquisition of Anets allows Middleby to
continue to expand its portfolio of leading brands in cooking and warming and increase its leading position in
the griddle and fryer segment.
In December 2009, the company acquired all of the shares of Doyon Equipment Inc. (“Doyon”), a
leading manufacturer of baking ovens for the commercial foodservice industry for approximately $5.8 million.
The acquisition of Doyon enhances Middleby’s position as a leader in the baking segment and better positions
the company to address the growing needs of the retail and supermarket foodservice segment
The company's annual reports on Form 10-K, including this Form 10-K, as well as the company's quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to such reports are available, free of charge,
on the company's internet website, www.middleby.com. These reports are available as soon as reasonably
practicable after they are electronically filed with or furnished to the Securities and Exchange Commission.
Business Divisions and Products
The company conducts its business through three principal business divisions: the Commercial
Foodservice Equipment Group; the Food Processing Equipment Group; and the International Distribution Division.
See Note 11 to the Consolidated Financial Statements for further information on the company's business
segments.
Commercial Foodservice Equipment Group
The Commercial Foodservice Equipment Group has a broad portfolio of leading brands of cooking and
warming equipment, which enable it to serve virtually any cooking or warming application within a commercial
restaurant or institutional kitchen. This cooking and warming equipment is used across all types of foodservice
operations, including quick-service restaurants, full-service restaurants, convenience stores, retail outlets, hotels
and other institutions. The company offers a broad line of cooking equipment marketed under a portfolio of twenty
brands, including, Anets®, Blodgett®, Blodgett Combi®, Blodgett Range®, Bloomfield®, CTX®, Carter-
Hoffmann®, CookTek®, Doyon®, Frifri®, Giga®, Holman®, Houno®, Jade®, Lang®, MagiKitch'n®, Middleby
Marshall®, NuVu®, Pitco®, Southbend®, Star®, Toastmaster®, TurboChef® and Wells®. These products are
manufactured at the company's U.S. facilities in California, Illinois, Michigan, New Hampshire, North Carolina,
Tennessee, Texas and Vermont. The company also has international manufacturing facilities located in Canada,
China, Denmark, Italy and the Philippines.
2
The products offered by this group include ranges, convection ovens, conveyor ovens, baking ovens,
proofers, broilers, fryers, combi-ovens, charbroilers, steam equipment, pop-up and conveyor toasters, steam
cooking equipment, food warming equipment, induction cooking systems, griddles, ventless cooking systems,
coffee brewers, tea brewers and beverage dispensing equipment.
This group is represented by the following product brands:
• For over 80 years, Anets® has been an innovator in the commercial foodservice industry with a full
range of fryers, griddles, dough rollers, pasta cookers and bakery products.
• Blodgett®, known for its durability and craftsmanship, is the leading brand of convection and combi-
ovens. In demand since the late 1800's, the Blodgett oven has stood the test of time and set the
industry standard.
• Bloomfield® is one of the leading brands providing coffee brewers, tea brewers, and beverage
dispensing equipment. Bloomfield has a reputation of durability and dependability.
• Carter-Hoffmann® has been a leading provider of heated cabinets, rethermalizing equipment and food
serving equipment for over 60 years. Carter-Hoffmann is known for providing innovative and energy
saving equipment that allow a foodservice operation to save on food costs by holding food in its heated
cabinets and holding stations for an extended period of time, while maintaining the quality of the
product.
• CookTek® is the leading innovator, developer and manufacturer of induction powered equipment for
the foodservice industry, with a focus on cooking, buffet holding and hot food delivery. Designed to be
simple to operate, rugged and durable, all products are supremely energy efficient - “green by nature.”
• Doyon® has been a manufacturer of bakery ovens for more than 50 years. Doyon is recognized for its
quality and service. Doyon’s products include bakery ovens, proofers and mixers.
• Frifri is a leading manufacturer of fryers and frying systems in Europe. They lead the market due to their
innovation, including advanced controls and filtration functions. Since 1947 they have been known for
their quality products and durability.
• Founded in 1967, GIGA Grandi Cucine S.r.l. is a leading manufacturer well known in Italy as a
manufacturer of a broad line of professional cooking equipment and catering equipment. Giga’s
products include ranges, steam cooking equipment and ovens.
• For over 50 years, Holman® is a leading brand in toasting equipment including high speed,
conveyorized and pop-up. Holman equipment can be found in many convenience stores, restaurant
chains, and hotels. With the recent trend of toasted sandwiches, Holman toasters can be found in
several of the leading sandwich chains.
• For more than 30 years, Houno® has manufactured quality combi-ovens and baking ovens. Houno
ovens are recognized for their superior design, energy and water saving features and reliability.
•
Jade® designs and manufactures premium and customized cooking suites which can be found in the
restaurants of many leading chefs. Jade is renowned for its offering of specialty cooking equipment
and its ability to customize products to meet the specialized requests of a restaurant operator.
• For more than a century, Lang® has been a world-class supplier of cooking equipment, offering a
complete line of high-performing, innovative gas and electric cooking solutions for commercial and
marine applications.
• For more than 60 years, MagiKitch’n® has focused on manufacturing charbroiling products that deliver
quality construction, high performance and flexible operation.
3
• Conveyor oven equipment products are marketed under the Middleby Marshall®, Blodgett® and CTX®
brands. Conveyor oven equipment allows for simplification of the food preparation process, which in
turn provides for labor savings opportunities and a greater consistency of the final product. Conveyor
oven customers include many of the leading pizza restaurant chains and sandwich chains.
• Nu-Vu®, the leader in on-premise baking, manufacturers a wide variety of commercial baking
equipment for use in restaurants and institutions. Nu-Vu ovens and proofers are used by many of the
leading sandwich chains for daily baking of fresh bread.
• Pitco Frialator® offers a broad line of gas and electric equipment combining reliability with efficiency in
simple-to-operate professional frying equipment. Since 1918, Pitco fryers have captured a major
market share by offering simple, reliable equipment for cooking menu items such as french fries, onion
rings, chicken, donuts and seafood.
• For over 100 years, Southbend® has produced a broad array of heavy-duty, gas-fired equipment,
including ranges, convection ovens, broilers, and steam cooking equipment. Southbend has dedicated
significant resources to developing and introducing innovative product features resulting in a premier
cooking line.
• Star® has been making durable, reliable, quality products since 1921. Star products are used in a
broad range of applications that include fast food, leisure, concessions and traditional restaurant
operations.
• Toastmaster® manufactures light and medium-duty electric equipment, including pop-up and conveyor
toasters, hot food servers, foodwarmers and griddles to commercial restaurants and institutional kitchens.
• Since its inception in 1991, TurboChef ® has pioneered the world of rapid cooking. The result of top-grade
engineering and testing, TurboChef ovens feature proprietary technology, which combines superior air
impingement with other rapid-cook methods to create high heat transfer rates and outstanding food
quality.
• Wells® is a leader in countertop and drop in warmers. It is also one of only a few companies to offer
ventless cooking systems. Its patented technology allows a food service operator to utilize cooking
equipment in locations where external ventilation may not be possible, such as shopping malls, airports
and sports arenas.
Food Processing Equipment Group
The Food Processing Equipment Group provides a broad array of innovative products designed for the
food processing industry. These products include:
• Cooking equipment, including batch ovens, belt ovens and conveyorized cooking systems
marketed under the Alkar® brand.
• Food preparation equipment, such as breading, battering, mixing, forming and slicing machines,
marketed under the MP Equipment® brand.
• Packaging and food safety equipment marketed under the Rapidpak® brand.
Customers include large international food processing companies throughout the world. The company is
recognized as a market leader in the manufacturing of equipment for producing pre-cooked meat products, such
as hot dogs, dinner sausages, poultry and lunchmeats. Through its broad line of products, the company is able to
deliver a wide array of cooking solutions to service a variety of food processing requirements demanded by its
customers. The Food Processing Equipment Group has manufacturing facilities in Wisconsin.
4
International Distribution Division
The company has identified the international markets as an area of growth. Middleby’s International
Distribution Division provides integrated export management and distribution services, enabling the company to
offer equipment to be delivered and supported virtually anywhere in the world. The company believes that its
global network provides it with a competitive advantage that positions the company as a preferred foodservice
equipment supplier to major restaurant chains expanding globally. The company offers customers a complete
package of kitchen equipment, delivered and installed in over 100 countries. For a local country distributor or
dealer, the division provides centralized sourcing of a broad line of equipment with complete export management
services, including export documentation, freight forwarding, equipment warehousing and consolidation,
installation, warranty service and parts support. The International Distribution Division has regional export
management companies in Asia, Europe and Latin America complemented by sales and distribution offices
located in Australia, Belgium, China, France, India, Italy, Germany, Lebanon, Mexico, the Philippines, Russia,
Saudi Arabia, Singapore, South Korea, Spain, Sweden, Taiwan, United Arab Emirates and the United Kingdom.
The Customers and Market
Commercial Foodservice Equipment Industry
The company's end-user customers include: (i) fast food or quick-service restaurants, (ii) full-service
restaurants, including casual-theme restaurants, (iii) retail outlets, such as convenience stores, supermarkets and
department stores and (iv) public and private institutions, such as hotels, resorts, schools, hospitals, long-term
care facilities, correctional facilities, stadiums, airports, corporate cafeterias, military facilities and government
agencies. The company's domestic sales are primarily through independent dealers and distributors and are
marketed by the company's sales personnel and network of independent manufacturers' representatives. Many of
the dealers in the U.S. belong to buying groups that negotiate sales terms with the company. Certain large multi-
national restaurant and hotel chain customers have purchasing organizations that manage product procurement
for their systems. Included in these customers are several large restaurant chains, which account for a meaningful
portion of the company's business. The company’s international sales are through a combined network of
independent and company-owned distributors. The company maintains sales and distribution offices in Australia,
Belgium, China, France, India, Italy, Germany, Lebanon, Mexico, the Philippines, Russia, Saudi Arabia, Singapore,
South Korea, Spain, Sweden, Taiwan, United Arab Emirates and the United Kingdom.
Over the past several decades, the foodservice equipment industry has enjoyed steady growth in the
United States due to the development of new quick-service and casual-theme restaurant chain concepts, the
expansion into nontraditional locations by quick-service restaurants and store equipment modernization. In the
international markets, foodservice equipment manufacturers have been experiencing stronger growth than the
U.S. market due to rapidly expanding international economies and increased opportunity for expansion by U.S.
chains into developing regions.
The company believes that the worldwide commercial foodservice equipment market has sales in excess
of $20 billion. The cooking and warming equipment segment of this market is estimated by management to
exceed $1.5 billion in North America and $3.0 billion worldwide. The company believes that continuing growth in
demand for foodservice equipment will result from the development of new restaurant concepts in the U.S. and the
expansion of U.S. and foreign chains into international markets, the replacement and upgrade of existing
equipment and new equipment requirements resulting from menu changes.
5
Food Processing Equipment Industry
The company's customers include a diversified base of leading food processors. A large portion of the
company's revenues have been generated from producers of pre-cooked meat products such as hot dogs, dinner
sausages, poultry, and lunchmeats; however, the company believes that it can leverage its expertise and product
development capabilities in thermal processing to organically grow into new end markets.
Food processing has quickly become a highly competitive landscape dominated by a few large
conglomerates that possess a variety of food brands. The consolidation of food processing plants associated with
industry consolidation drives a need for more flexible and efficient equipment that is capable of processing large
volumes in quicker cycle times. In recent years, food processors have had to conform to the demands of “big-box”
retailers, including, most importantly, greater product consistency and exact package weights. Food processors
are beginning to realize that their old equipment is no longer capable of efficiently producing adequate uniformity in
the large product volumes required, and they are turning to equipment manufacturers that offer product
consistency, innovative packaging designs and other solutions. To protect their own brands and reputations, big-
box retailers are also dictating food safety standards that are actually stricter than government regulations.
A number of factors, including rising raw material prices, labor and health care costs, are driving food
processors to focus on ways to improve their generally thin profitability margins. In order to increase the
profitability and efficiency in processing plants, food processors pay increasingly more attention to the performance
of their machinery and the flexibility in the functionality of the equipment. Meat processors are continuously
looking for ways to make their plants safer and reduce labor-intensive activities. Food processors have begun to
recognize the value of new technology as an important vehicle to drive productivity and profitability in their plants.
Due to pressure from big-box retailers, food processors are expected to continue to demand new and innovative
equipment that addresses food safety, food quality, automation and flexibility.
Improving living standards in developing countries is spurring increased worldwide demand for pre-cooked
and convenience food products. As industrializing countries create more jobs, consumers in these countries will
have the means to buy pre-cooked food products. In industrialized regions, such as Western Europe and the U.S.,
consumers are demanding more pre-cooked and convenience food products, such as deli tray variety packs,
frozen food products and ready-to-eat varieties of ethnic foods.
The global food processing equipment industry is highly fragmented, large and growing. The company
estimates demand for food equipment is approximately $3 billion in the U.S and $20 billion worldwide. The
company’s product offerings are estimated to compete in a subsegment of total industry, and the relevant market
size for its products are estimated by management to exceed $0.5 billion in the U.S. and $1.5 billion worldwide.
Backlog
The company's backlog of orders was $51.7 million at January 2, 2010, all of which is expected to be
filled during 2010. The acquired TurboChef, CookTek, Anets and Doyon businesses accounted for $4.5 million
of the backlog. The company's backlog was $47.3 million at January 3, 2009. The backlog is not necessarily
indicative of the level of business expected for the year, as there is generally a short time between order receipt
and shipment for the majority of the company’s products.
6
Marketing and Distribution
Commercial Foodservice Equipment Group
Middleby's products and services are marketed in the U.S. and in over 100 countries through a
combination of the company's sales personnel and international marketing divisions and subsidiaries, together with
an extensive network of independent dealers, distributors, consultants, sales representatives and agents. The
company's relationships with major restaurant chains are primarily handled through an integrated effort of top-level
executive and sales management at the corporate and business division levels to best serve each customer's
needs.
In the United States, the company distributes its products to independent end-users primarily through a
network of non-exclusive dealers nationwide, who are supported by manufacturers' marketing representatives.
Sales are made direct to certain large restaurant chains that have established their own procurement and
distribution organization for their franchise system.
International sales are primarily made through the International Distribution Division network to
independent local country stocking and servicing distributors and dealers and, at times, directly to major chains,
hotels and other large end-users.
Food Processing Equipment Group
The company maintains a direct sales force to market the Alkar, Rapidpak and MP Equipment brands
and maintains direct relationships with each of its customers. The company also involves division management
in the relationships with large global accounts. In North America, the company employs regional sales
managers, each with responsibility for a group of customers and a particular region. Internationally, the
company maintains global sales managers supported by a network of independent sales representatives.
The company’s sale process is highly consultative due to the highly technical nature of the equipment.
During a typical sales process, a salesperson makes several visits to the customer’s facility to conceptually
discuss the production requirements, footprint and configuration of the proposed equipment. The company
employs a technically proficient sales force, many of whom have previous technical experience with the
company as well as education backgrounds in food science.
Services and Product Warranty
The company is an industry leader in equipment installation programs and after-sales support and service.
The company provides a warranty on its products typically for a one year period and in certain instances greater
periods. The emphasis on global service increases the likelihood of repeat business and enhances Middleby's
image as a partner and provider of quality products and services.
Commercial Foodservice Equipment Group
The company's domestic service network consists of over 100 authorized service parts distributors and
3,000 independent certified technicians who have been formally trained and certified by the company through its
factory training school and on-site installation training programs. Technicians work through service parts
distributors, which are required to provide around-the-clock service via a toll-free paging number. The company
provides substantial technical support to the technicians in the field through factory-based technical service
engineers. The company has stringent parts stocking requirements for these agencies, leading to a high first-call
completion rate for service and warranty repairs.
It is critical to major foodservice chains that equipment providers be capable of supporting equipment on a
worldwide basis. The company's international service network covers over 100 countries with more than 1,000
service technicians trained in the installation and service of the company's products and supported by
internationally-based service managers along with the factory-based technical service engineers. As with its
domestic service network, the company maintains stringent parts stocking requirements for its international
distributors.
7
Food Processing Equipment Group
The company maintains a technical service group of employees that oversees and performs installation
and startup of equipment and completes warranty and repair work. This technical service group provides
services for customers both domestically and internationally. Service technicians are trained regularly on new
equipment to ensure the customer receives a high level of customer service. From time to time the company
utilizes trained third party technicians supervised by company employees to supplement company employees
on large projects.
Competition
The commercial foodservice and food processing equipment industries are highly competitive and
fragmented. Within a given product line the company may compete with a variety of companies, including
companies that manufacture a broad line of products and those that specialize in a particular product category.
Competition is based upon many factors, including brand recognition, product features, reliability, quality, price,
delivery lead times, serviceability and after-sale service. The company believes that its ability to compete
depends on strong brand equity, exceptional product performance, short lead-times and timely delivery,
competitive pricing and superior customer service support. In the international markets, the company competes
with U.S. manufacturers and numerous global and local competitors.
The company believes that it is one of the largest multiple-line manufacturers of food production
equipment in the U.S. and worldwide although some of its competitors are units of operations that are larger than
the company and possess greater financial and personnel resources. Among the company's major competitors to
the Commercial Foodservice Equipment Group are: Manitowoc Company, Inc.; Vulcan-Hart and Hobart
Corporation, subsidiaries of Illinois Tool Works Inc.; Electrolux AB; Groen, a subsidiary of Dover Corporation;
Rational AG; and the Ali Group. Major competitors to the Food Processing Equipment Group include
Convenience Food Systems, FMC Technologies, Multivac, Marel, Formax, and Heat and Control.
Manufacturing and Quality Control
The company manufactures product in eleven domestic and five international production facilities. In
Brea, California, the company manufactures cooking ranges. In Chicago, Illinois, the company manufacturers
induction cooking and warming systems. In Elgin, Illinois, the company manufactures conveyor ovens. In
Mundelein, Illinois, the company manufactures warming equipment and heated food cabinets. In Menominee,
Michigan, the company manufactures baking ovens and proofers. In Bow, New Hampshire, the company
manufactures fryers, charbroilers and catering equipment products. In Fuquay-Varina, North Carolina, the
company manufactures ranges, steamers, combi-ovens, convection ovens and broiling equipment. In Smithville,
Tennessee, the company manufacturers counterline cooking equipment and warming systems, fryers,
convection ovens, counterline cooking equipment and ventless cooking systems. In Dallas, Texas, the
company manufacturers high-speed cooking ovens. In Burlington, Vermont, the company manufactures combi-
ovens, convection ovens and deck oven product lines. In Lodi, Wisconsin, the company manufactures cooking
systems, breading, battering, mixing, forming, and slicing equipment and packaging equipment that serves
customers in the food processing industry. In Randers, Denmark, the company manufactures combi-ovens and
baking ovens. In Scandicci, Italy, the company manufacturers a wide array of food service equipment including
ranges, fryers and ovens. In Quebec City, Quebec, Canada, the company manufacturers baking ovens,
proofers, pizza ovens and mixers. In Shanghai, China, the company manufactures frying systems.
In Laguna, the Philippines, the company manufactures fryers, counterline equipment and component parts for the
U.S. manufacturing facilities.
Metal fabrication, finishing, sub-assembly and assembly operations are conducted at each manufacturing
facility. Equipment installed at individual manufacturing facilities includes numerically controlled turret presses and
machine centers, shears, press brakes, welding equipment, polishing equipment, CAD/CAM systems and product
testing and quality assurance measurement devices. The company's CAD/CAM systems enable virtual electronic
prototypes to be created, reviewed and refined before the first physical prototype is built.
8
Detailed manufacturing drawings are quickly and accurately derived from the model and passed
electronically to manufacturing for programming and optimal parts nesting on various numerically controlled
punching cells. The company believes that this integrated product development and manufacturing process is
critical to assuring product performance, customer service and competitive pricing.
The company has established comprehensive programs to ensure the quality of products, to analyze
potential product failures and to certify vendors for continuous improvement. Products manufactured by the
company are tested prior to shipment to ensure compliance with company standards.
Sources of Supply
The company purchases its raw materials and component parts from a number of suppliers. The
majority of the company’s material purchases are standard commodity-type materials, such as stainless steel,
electrical components and hardware. These materials and parts generally are available in adequate quantities
from numerous suppliers. Some component parts are obtained from sole sources of supply. In such instances,
management believes it can substitute other suppliers as required. The majority of fabrication is done internally
through the use of automated equipment. Certain equipment and accessories are manufactured by other
suppliers for sale by the company. The company believes it enjoys good relationships with its suppliers and
considers the present sources of supply to be adequate for its present and anticipated future requirements.
Research and Development
The company believes its future success will depend in part on its ability to develop new products and
to improve existing products. Much of the company's research and development efforts are directed to the
development and improvement of products designed to reduce cooking time, increase cooking capacity or
throughput, reduce energy consumption, minimize labor costs, improve product yield and improve safety while
maintaining consistency and quality of cooking production and food preparation. The company has identified
these issues as key concerns for most of its customers. The company often identifies product improvement
opportunities by working closely with customers on specific applications. Most research and development
activities are performed by the company's technical service and engineering staff located at each
manufacturing location. On occasion, the company will contract outside engineering firms to assist with the
development of certain technical concepts and applications. See Note 4(n) to the Consolidated Financial
Statements for further information on the company's research and development activities.
Licenses, Patents, and Trademarks
The company owns numerous trademarks and trade names; among them, Alkar, Anets®, Blodgett,
Blodgett Combi, Blodgett Range, Bloomfield, CTX, Carter-Hoffmann, CookTek, Doyon, Frifri,
Giga, Holman, Houno, Jade, Lang, MP Equipment, MagiKitch’n, Middleby Marshall, Nu-Vu, Pitco
Frialator, RapidPak, Southbend, Star, Toastmaster TurboChef and Wells are registered with the U.S.
Patent and Trademark Office and in various foreign countries.
The company holds a broad portfolio of patents covering technology and applications related to various
products, equipment and systems. Management believes the expiration of any one of these patents would not
have a material adverse effect on the overall operations or profitability of the company.
9
Employees
As of January 2, 2010, the company employed 1,902 persons. Of this amount, 865 were management,
administrative, sales, engineering and supervisory personnel; 835 were hourly production non-union workers;
and 202 were hourly production union members. Included in these totals were 464 individuals employed
outside of the United States, of which 286 were management, sales, administrative and engineering personnel,
104 were hourly production non-union workers and 74 were hourly production workers, who participate in an
employee cooperative. At its Lodi, Wisconsin facility, the company has a contract with the International
Association of Bridge, Structural, Ornamental and Reinforcing Ironworkers that expires on December 31, 2010.
At its Elgin, Illinois facility, the company has a union contract with the International Brotherhood of Teamsters
that expires on April 30, 2012. The company also has a union workforce at its manufacturing facility in the
Philippines, under a contract that extends through June 2011. Management believes that the relationships
between employees, union and management are good.
Seasonality
The company’s revenues historically have been stronger in the second and third quarters due to
increased purchases from customers involved with the catering business and institutional customers,
particularly schools, during the summer months.
10
Item 1A. Risk Factors
The company’s business, results of operations, cash flows and financial condition are subject to various
risks, including, but not limited to those set forth below. If any of the following risks actually occurs, the
company's business, results of operations, cash flows and financial condition could be materially adversely
affected These risk factors should be carefully considered together with the other information in this Annual
Report on Form 10-K, including the risks and uncertainties described under the heading "Special Note
Regarding Forward-Looking Statements."
Economic conditions may cause a decline in business and consumer spending which could adversely
affect the company’s business and financial performance.
The company’s operating results are impacted by the health of the North American, European, Asian
and Latin American economies. The company’s business and financial performance, including collection of its
accounts receivable, may be adversely affected by the current and future economic conditions that caused a
decline in business and consumer spending, a reduction in the availability of credit and decreased growth by
our existing customers, resulting in customers electing to delay the replacement of aging equipment. Higher
energy costs, rising interest rates, financial market volatility, recession and acts of terrorism may also adversely
affect the company’s business and financial performance. Additionally, the company may experience difficulties
in scaling its operations due to economic pressures in the U.S. and International markets.
The company's level of indebtedness could adversely affect its business, results of operations and
growth strategy.
The company now has and may continue to have a significant amount of indebtedness. At January 2,
2010, the company had $275.6 million of borrowings and $7.8 million in letters of credit outstanding. As of
January 2, 2010, the company could incur an additional $214.4 million under its credit agreement. To the
extent the company requires additional capital resources, there can be no assurance that such funds will be
available on favorable terms, or at all. The unavailability of funds could have a material adverse effect on the
company's financial condition, results of operations and ability to expand the company's operations.
The company's level of indebtedness could adversely affect it in a number of ways, including the
following:
•
•
•
•
•
the company may be unable to obtain additional financing for working capital, capital expenditures,
acquisitions and other general corporate purposes;
a significant portion of the company's cash flow from operations must be dedicated to debt service,
which reduces the amount of cash the company has available for other purposes;
the company may be more vulnerable in the event of a downturn in the company’s business or
general economic and industry conditions;
the company may be disadvantaged competitively by its potential inability to adjust to changing
market conditions, as a result of its significant level of indebtedness; and
the company may be restricted in its ability to make strategic acquisitions and to pursue new
business opportunities.
11
The company has a significant amount of goodwill and could suffer losses due to asset impairment
charges.
The company’s balance sheet includes a significant amount of goodwill, which represents
approximately 44% of its total assets as of January 2, 2010. The excess of the purchase price over the fair
value of assets acquired and liabilities assumed in conjunction with acquisitions is recorded as other identifiable
intangible assets and goodwill. In accordance with Accounting Standards Code (“ASC”) 350 “Intangibles-
Goodwill and Other”, the company’s long-lived assets (including goodwill and other intangibles) are reviewed
for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. In assessing the recoverability of long-lived assets, the company considers
changes in economic conditions and makes assumptions regarding estimated future cash flows and other
factors. A significant decline in stock prices, such as occurred during 2008, could indicate that an impairment
has occurred. Estimates of future cash flows are judgments based on the company’s experience and
knowledge of operations. These estimates can be significantly impacted by many factors, including changes in
global and local business and economic conditions, operating costs, inflation, competition, and consumer and
demographic trends. If the company’s estimates or the underlying assumptions change in the future, the
company may be required to record impairment charges. Any such charge could have a material adverse effect
on the company’s reported net earnings.
The company's current credit agreement limits its ability to conduct business, which could negatively
affect the company's ability to finance future capital needs and engage in other business activities.
The covenants in the company's existing credit agreement contain a number of significant limitations on
its ability to, among other things:
• pay dividends;
•
•
incur additional indebtedness;
create liens on the company's assets;
• engage in new lines of business;
• make investments;
• make capital expenditures and enter into leases; and
• acquire or dispose of assets.
These restrictive covenants, among others, could negatively affect the company's ability to finance its
future capital needs, engage in other business activities or withstand a future downturn in the company's
business or the economy.
Under the company's current credit agreement, the company is required to maintain certain specified
financial ratios and meet financial tests, including certain ratios of leverage and fixed charge coverage. The
company's ability to comply with these requirements may be affected by matters beyond its control, and, as a
result, there can be no assurance that the company will be able to meet these ratios and tests. A breach of
any of these covenants would prevent the company from being able to draw under the company revolver and
would result in a default under the company's credit agreement. In the event of a default under the company's
current credit agreement, the lenders could terminate their commitments and declare all amounts borrowed,
together with accrued interest and other fees, to be due and payable. Borrowings under other debt instruments
that contain cross-acceleration or cross-default provisions may also be accelerated and become due and
payable. The company may be unable to pay these debts in these circumstances.
12
Competition in the foodservice equipment industry is intense and could impact the company’s results
of operations and cash flows.
The company operates in a highly competitive industry. In the company's business, competition is
based on product features and design, brand recognition, reliability, durability, technology, energy efficiency,
breadth of product offerings, price, customer relationships, delivery lead times, serviceability and after-sale
service. The company has a number of competitors in each product line that it offers. Many of the company's
competitors are substantially larger and enjoy substantially greater financial, marketing, technological and
personnel resources. These factors may enable them to develop similar or superior products, to provide lower
cost products and to carry out their business strategies more quickly and efficiently than the company can. In
addition, some competitors focus on particular product lines or geographic regions or emphasize their local
manufacturing presence or local market knowledge. Some competitors have different pricing structures and
may be able to deliver their products at lower prices. Although the company believes that the performance and
price characteristics of its products will provide competitive solutions for its customers' needs, there can be no
assurance that the company's customers will continue to choose the company’s products over products offered
by its competitors.
Further, the market for the company's products is characterized by changing technology and evolving
industry standards. The company's ability to compete in the past has depended in part on the company's ability
to develop innovative new products and bring them to market more quickly than the company's competitors.
The company's ability to compete successfully will depend, in large part, on its ability to enhance and improve
its existing products, to continue to bring innovative products to market in a timely fashion, to adapt the
company's products to the needs and standards of its current and potential customers and to continue to
improve operating efficiencies and lower manufacturing costs. Moreover, competitors may develop
technologies or products that render the company's products obsolete or less marketable. If the company's
products, markets and services are not competitive, the company's business, financial condition and operating
results will be materially harmed.
The company is subject to risks associated with developing products and technologies, which could
delay product introductions and result in significant expenditures.
The company continually seeks to refine and improve upon the performance, utility and physical
attributes of its existing products and to develop new products. As a result, the company's business is subject
to risks associated with new product and technological development, including unanticipated technical or other
problems. The occurrence of any of these risks could cause a substantial change in the design, delay in the
development, or abandonment of new technologies and products. Consequently, there can be no assurance
that the company will develop new technologies superior to the company's current technologies or successfully
bring new products to market.
Additionally, there can be no assurance that new technologies or products, if developed, will meet the
company's current price or performance objectives, be developed on a timely basis or prove to be as effective
as products based on other technologies. The inability to successfully complete the development of a product,
or a determination by the company, for financial, technical or other reasons, not to complete development of a
product, particularly in instances in which the company has made significant expenditures, could have a
material adverse effect on the company's financial condition and operating results.
The company's revenues and profits will be adversely affected if it is unable to expand its product
offerings, retain its current customers, or attract new customers.
The success of the company's business depends, in part, on its ability to maintain and expand the
company's product offerings and the company's customer base. The company's success also depends on its
ability to offer competitive prices and services in a price sensitive business. Many of the company's larger
restaurant chain customers have multiple sources of supply for their equipment purchases and periodically
approve new competitive equipment as an alternative to the company's products for use within their
restaurants. There can be no assurance that the company will be able to continue to expand its product lines
or that it will be able to retain its current customers or attract new customers. The company also cannot assure
you that it will not lose customers to low-cost competitors with comparable or superior products and services. If
the company fails to expand its product offerings, or loses a substantial number of the company's current
customers or substantial business from current customers, or is unable to attract new customers, the
company's business, financial condition and results of operations will be adversely affected.
13
The company has depended, and will continue to depend, on key customers for a material portion of its
revenues. As a result, changes in the purchasing patterns of such key customers could adversely
impact the company's operating results.
Many of the company's key customers are large restaurant chains. The number of new store openings
by these chains can vary from quarter to quarter depending on internal growth plans, construction, seasonality
and other factors. If these chains were to conclude that the market for their type of restaurant has become
saturated, they could open fewer restaurants. In addition, during an economic downturn, key customers could
both open fewer restaurants and defer purchases of new equipment for existing restaurants. Either of these
conditions could have a material adverse effect on the company's financial condition and results of operations.
Price changes in some materials and sources of supply could affect the company's profitability.
The company uses large amounts of stainless steel, aluminized steel and other commodities in the
manufacture of its products. The price of steel has increased significantly over the past several years. The
significant increase in the price of steel or any other commodity that the company is not able to pass on to its
customers would adversely affect the company's operating results. In addition, an interruption in or the
cessation of an important supply by any third party and the company's inability to make alternative
arrangements in a timely manner, or at all, could have a material adverse effect on the company's business,
financial condition and operating results.
The company's acquisition, investment and alliance strategy involves risks. If the company is unable to
effectively manage these risks, its business will be materially harmed.
To achieve the company's strategic objectives, the company has pursued and may continue to pursue
strategic acquisitions and investments or invest in other companies, businesses or technologies. Acquisitions
entail numerous risks, including the following:
•
•
•
•
•
difficulties in the assimilation of acquired businesses or technologies;
diversion of management's attention from other business concerns;
potential assumption of unknown material liabilities;
failure to achieve financial or operating objectives; and
loss of customers or key employees.
The company may not be able to successfully integrate any operations, personnel, services or products
that it has acquired or may acquire in the future.
The company may seek to expand or enhance some of its operations by forming joint ventures or
alliances with various strategic partners throughout the world. Entering into joint ventures and alliances also
entails risks, including difficulties in developing and expanding the businesses of newly formed joint ventures,
exercising influence over the activities of joint ventures in which the company does not have a controlling
interest and potential conflicts with the company's joint venture or alliance partners.
Expansion of the company's operations internationally involves special challenges that it may not be
able to meet. The company's failure to meet these challenges could adversely affect its business,
financial condition and operating results.
The company plans to continue to expand its operations internationally. The company faces certain
risks inherent in doing business in international markets. These risks include:
•
•
•
•
extensive regulations and oversight, tariffs and other trade barriers;
reduced protection for intellectual property rights;
difficulties in staffing and managing foreign operations; and
potentially adverse tax consequences.
14
In addition, the company is and will be required to comply with the laws and regulations of foreign
governmental and regulatory authorities of each country in which the company conducts business.
There can be no assurance that the company will be able to succeed in marketing its products and
services in international markets. The company may also experience difficulty in managing its international
operations because of, among other things, competitive conditions overseas, management of foreign exchange
risk, established domestic markets, language and cultural differences and economic or political instability. Any
of these factors could have a material adverse effect on the success of the company's international operations
and, consequently, on the company's business, financial condition and operating results.
The company may not be able to adequately protect its intellectual property rights, and this inability
may materially harm its business.
The company relies primarily on trade secret, copyright, service mark, trademark and patent law and
contractual protections to protect the company’s proprietary technology and other proprietary rights. The
company has filed numerous patent applications covering the company’s technology. Notwithstanding the
precautions the company takes to protect its intellectual property rights, it is possible that third parties may copy
or otherwise obtain and use the company's proprietary technology without authorization or may otherwise
infringe on the company's rights. In some cases, including a number of the company's most important
products, there may be no effective legal recourse against duplication by competitors. In the future, the
company may have to rely on litigation to enforce its intellectual property rights, protect its trade secrets,
determine the validity and scope of the proprietary rights of others or defend against claims of infringement or
invalidity. Any such litigation, whether successful or unsuccessful, could result in substantial costs to the
company and diversions of the company's resources, either of which could adversely affect the company's
business.
Any infringement by the company on patent rights of others could result in litigation and adversely
affect its ability to continue to provide, or could increase the cost of providing, the company's products
and services.
Patents of third parties may have an important bearing on the company's ability to offer some of its
products and services. The company's competitors, as well as other companies and individuals, may obtain,
and may be expected to obtain in the future, patents related to the types of products and services the company
offers or plans to offer. There can be no assurance that the company is or will be aware of all patents
containing claims that may pose a risk of infringement by its products and services. In addition, some patent
applications in the United States are confidential until a patent is issued and, therefore, the company cannot
evaluate the extent to which its products and services may be covered or asserted to be covered by claims
contained in pending patent applications. In general, if one or more of the company's products or services were
to infringe patents held by others, the company may be required to stop developing or marketing the products
or services, to obtain licenses from the holders of the patents to develop and market the services, or to
redesign the products or services in such a way as to avoid infringing on the patent claims. The company
cannot assess the extent to which it may be required in the future to obtain licenses with respect to patents held
by others, whether such licenses would be available or, if available, whether it would be able to obtain such
licenses on commercially reasonable terms. If the company were unable to obtain such licenses, it also may not
be able to redesign the company's products or services to avoid infringement, which could materially adversely
affect the company's business, financial condition and operating results.
15
The company may be the subject of product liability claims or product recalls, and it may be unable to
obtain or maintain insurance adequate to cover potential liabilities.
Product liability is a significant commercial risk to the company. The company's business exposes it to
potential liability risks that arise from the manufacture, marketing and sale of the company's products. In
addition to direct expenditures for damages, settlement and defense costs, there is a possibility of adverse
publicity as a result of product liability claims. Some plaintiffs in some jurisdictions have received substantial
damage awards against companies based upon claims for injuries allegedly caused by the use of their
products. In addition, it may be necessary for the company to recall products that do not meet approved
specifications, which could result in adverse publicity as well as costs connected to the recall and loss of
revenue.
The company cannot be certain that a product liability claim or series of claims brought against it would
not have an adverse effect on the company's business, financial condition or results of operations. If any claim
is brought against the company, regardless of the success or failure of the claim, the company cannot assure
you that it will be able to obtain or maintain product liability insurance in the future on acceptable terms or with
adequate coverage against potential liabilities or the cost of a recall.
An increase in warranty expenses could adversely affect the company's financial performance.
The company offers purchasers of its products warranties covering workmanship and materials
typically for one year and, in certain circumstances, for periods of up to ten years, during which period the
company or an authorized service representative will make repairs and replace parts that have become
defective in the course of normal use. The company estimates and records its future warranty costs based
upon past experience. These warranty expenses may increase in the future and may exceed the company's
warranty reserves, which, in turn, could adversely affect the company's financial performance.
The company is subject to currency fluctuations and other risks from its operations outside the United
States.
The company has manufacturing operations located in Asia and Europe and distribution operations in
Asia, Europe and Latin America. The company's operations are subject to the impact of economic downturns,
political instability and foreign trade restrictions, which may adversely affect the company's business, financial
condition and operating results. The company anticipates that international sales will continue to account for a
significant portion of consolidated net sales in the foreseeable future. Some sales by the company's foreign
operations are in local currency, and an increase in the relative value of the U.S. dollar against such currencies
would lead to a reduction in consolidated sales and earnings. Additionally, foreign currency exposures are not
fully hedged, and there can be no assurances that the company's future results of operations will not be
adversely affected by currency fluctuations.
The company is subject to potential liability under environmental laws.
The company's operations are regulated under a number of federal, state and local environmental laws
and regulations that govern, among other things, the discharge of hazardous materials into the air and water as
well as the handling, storage and disposal of these materials. Compliance with these environmental laws and
regulations is a significant consideration for the company because it uses hazardous materials in its
manufacturing processes. In addition, because the company is a generator of hazardous wastes, even if it fully
complies with applicable environmental laws, it may be subject to financial exposure for costs associated with
an investigation and remediation of sites at which it has arranged for the disposal of hazardous wastes if these
sites become contaminated. In the event of a violation of environmental laws, the company could be held liable
for damages and for the costs of remedial actions. Environmental laws could also become more stringent over
time, imposing greater compliance costs and increasing risks and penalties associated with any violation, which
could negatively affect the company's operating results.
16
The company's financial performance is subject to significant fluctuations.
The company's financial performance is subject to quarterly and annual fluctuations due to a number of
factors, including:
•
•
•
•
general economic conditions;
the lengthy, unpredictable sales cycle for commercial foodservice equipment and food processing
equipment;
the gain or loss of significant customers;
unexpected delays in new product introductions;
•
the level of market acceptance of new or enhanced versions of the company's products;
•
•
unexpected changes in the levels of the company's operating expenses; and
competitive product offerings and pricing actions.
Each of these factors could result in a material and adverse change in the company's business,
financial condition and results of operations.
The company may be unable to manage its growth.
The company has recently experienced rapid growth in business. Continued growth could place a
strain on the company's management, operations and financial resources. There also will be additional
demands on the company's sales, marketing and information systems and on the company's administrative
infrastructure as it develops and offers additional products and enters new markets. The company cannot be
certain that the company's operating and financial control systems, administrative infrastructure, outsourced
and internal production capacity, facilities and personnel will be adequate to support the company's future
operations or to effectively adapt to future growth. If the company cannot manage the company's growth
effectively, the company's business may be harmed.
The company's business could suffer in the event of a work stoppage by its unionized labor force.
Because the company has a significant number of workers whose employment is subject to collective
bargaining agreements and labor union representation, the company is vulnerable to possible organized work
stoppages and similar actions. Unionized employees accounted for approximately 11% of the company's
workforce as of January 2, 2010 The company has union contracts with employees at its facilities in Lodi,
Wisconsin and Elgin, Illinois that extend through December 2011 and April 2012, respectively. The company
also has a union workforce at its manufacturing facility in the Philippines under a contract that extends through
June 2011. Any future strikes, employee slowdowns or similar actions by one or more unions, in connection
with labor contract negotiations or otherwise, could have a material adverse effect on the company's ability to
operate the company's business.
The company depends significantly on its key personnel.
The company depends significantly on certain of the company's executive officers and certain other key
personnel, many of whom could be difficult to replace. While the company has employment agreements with
certain key executives, the company cannot be certain that it will succeed in retaining this personnel or their
services under existing agreements. The incapacity, inability or unwillingness of certain of these people to
perform their services may have a material adverse effect on the company. There is intense competition for
qualified personnel within the company's industry, and there can be no assurance that it will be able to continue
to attract, motivate and retain personnel with the skills and experience needed to successfully manage the
company business and operations.
17
The impact of future transactions on the company's common stock is uncertain.
The company periodically reviews potential transactions related to products or product rights and
businesses complementary to the company's business. Such transactions could include mergers, acquisitions,
joint ventures, alliances or licensing agreements. In the future, the company may choose to enter into such
transactions at any time. The impact of transactions on the market price of a company's stock is often
uncertain, but it may cause substantial fluctuations to the market price. Consequently, any announcement of
any such transaction could have a material adverse effect upon the market price of the company's common
stock. Moreover, depending upon the nature of any transaction, the company may experience a charge to
earnings, which could be material and could possibly have an adverse impact upon the market price of the
company's common stock.
Future sales or issuances of equity or convertible securities could depress the market price of the
company's common stock and be dilutive and affect the company's ability to raise funds through equity
issuances.
If the company's stockholders sell substantial amounts of the company's common stock or the
company issues substantial additional amounts of the company's equity securities, or there is a belief that such
sales or issuances could occur, the market price of the company's common stock could fall. These factors
could also make it more difficult for the company to raise funds through future offerings of equity securities.
The market price of the company's common stock may be subject to significant volatility.
The market price of the company's common stock may be highly volatile because of a number of
factors, including the following:
•
•
•
•
•
•
•
actual or anticipated fluctuations in the company's operating results;
changes in expectations as to the company's future financial performance, including financial
estimates by securities analysts and investors;
the operating performance and stock price of other companies in the company's industry;
announcements by the company or the company's competitors of new products or significant
contracts, acquisitions, joint ventures or capital commitments;
changes in interest rates;
additions or departures of key personnel; and
future sales or issuances of the company's common stock.
In addition, the stock markets from time to time experience price and volume fluctuations that may be
unrelated or disproportionate to the operating performance of particular companies. These broad fluctuations
may adversely affect the trading price of the company's common stock, regardless of the company's operating
performance.
Item 1B. Unresolved Staff Comments
Not applicable.
18
Item 2. Properties
The company's principal executive offices are located in Elgin, Illinois. The company operates thirteen
manufacturing facilities in the U.S and manufacturing facilities in Canada, China, Denmark, Italy and the
Phillipines.
The principal properties of the company utilized to conduct business operations are listed below:
Location
Brea, CA
Buford, GA
Chicago, IL
Elgin, IL
Mundelein, IL
Menominee, MI
St. Louis, MO
Bow, NH
Fuquay-Varina, NC
Smithville, TN
Carrollton, TX
Burlington, VT
Lodi, WI
Quebec City, Canada
Shanghai, China
Randers, Denmark
Scandicco, Italy
Laguna, the
Philippines
Principal
Function
Square
Footage
Owned/
Leased
Lease
Expiration
Manufacturing, Warehousing
and Offices
Warehousing and Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
72,000
Leased
June 2015
17,350
30,000
Leased
Leased
30,800
Leased
207,000
Owned
55,000
33,000
Owned
Owned
46,000
Owned
47,250
102,000
34,000
131,000
Leased
Owned
Leased
Owned
190,000
Owned
110,100
Leased
140,000
Owned
112,000
Owned
36,000
Owned
February 2013/
December 2014
March 2010/
November 2012
N/A
N/A
N/A
N/A
August 2010
N/A
March 2010
N/A
N/A
September 2012/
November 2012
N/A
N/A
N/A
37,500
Leased
July 2012
50,100
Owned
N/A
106,350
Leased
March 2014
54,000
Owned
N/A
At various other locations the company leases small amounts of office space for administrative and sales
functions, and in certain instances limited short-term inventory storage. These locations are in China, Mexico,
Spain, Sweden, Taiwan and the United Kingdom.
Management believes that these facilities are adequate for the operation of the company's business as
presently conducted.
The company also has a leased manufacturing facility in Quakertown, Pennsylvania, which was exited
as part of the company's manufacturing consolidation efforts. This lease extends through June 2015.
Additionally, the company has a leased manufacturing facility in Verdi, Nevada, which was exited as part of the
company’s consolidation efforts. This lease extends through June 2012.
19
Item 3. Legal Proceedings
The company is routinely involved in litigation incidental to its business, including product liability
claims, which are partially covered by insurance or in certain cases by indemnification provisions under
purchase agreements for recently acquired companies. Such routine claims are vigorously contested and
management does not believe that the outcome of any such pending litigation will have a material adverse
effect upon the financial condition, results of operations or cash flows of the company.
Item 4. Reserved
20
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
PART II
Equity Securities
Principal Market
The company's Common Stock trades on the Nasdaq Global Market under the symbol "MIDD". The
following table sets forth, for the periods indicated, the high and low closing sale prices per share of Common
Stock, as reported by the Nasdaq Global Market.
Fiscal 2009
First quarter ........................................................................................
Second quarter...................................................................................
Third quarter .......................................................................................
Fourth quarter.....................................................................................
Fiscal 2008
First quarter ........................................................................................
Second quarter...................................................................................
Third quarter .......................................................................................
Fourth quarter.....................................................................................
Closing Share Price
Low
High
35.65
49.76
56.51
53.00
76.62
67.23
63.96
54.31
20.76
33.75
39.34
43.67
53.76
44.52
39.90
24.80
Shareholders
The company estimates there were approximately 34,005 record holders of the company's common
stock as of February 26, 2010.
Dividends
The company does not currently pay cash dividends on its common stock. Any future payment of cash
dividends on the company’s common stock will be at the discretion of the company’s Board of Directors and will
depend upon the company’s results of operations, earnings, capital requirements, contractual restrictions and
other factors deemed relevant by the Board of Directors. The company’s Board of Directors currently intends to
retain any future earnings to support its operations and to finance the growth and development of the
company’s business and does not intend to declare or pay cash dividends on its common stock for the
foreseeable future. In addition, the company’s revolving credit facility limits its ability to declare or pay
dividends on its common stock.
21
Issuer Purchases of Equity Securities
October 4, 2009 to October 31, 2009
November 1, 2009 to November 28, 2009
November 29, 2009 to January 2, 2010
Quarter ended January 2, 2010
Total
Number of
Shares
Purchased
--
--
--
--
Average
Price Paid
per Share
--
--
--
--
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plan or
Program
--
--
--
--
Maximum
Number of
Shares that May
Yet be
Purchased
Under the Plan
or Program
627,332
627,332
627,332
627,332
In July 1998, the company's Board of Directors adopted a stock repurchase program and subsequently
authorized the purchase of up to 1,800,000 common shares in open market purchases. As of January 2, 2010,
1,172,668 shares had been purchased under the 1998 stock repurchase program.
In May 2007, the company’s Board of Directors approved a two-for-one stock split of the company’s
common stock in the form of a stock dividend. The stock split was paid to shareholders of record as of June 1,
2007. The company’s stock began trading on a stock-adjusted basis on June 18, 2007. The stock split
effectively doubled the number of shares outstanding at June 15, 2007.
At January 2, 2010, the company had a total of 4,069,913 shares in treasury amounting to $102.0
million.
22
Item 6. Selected Financial Data
(amounts in thousands, except per share data)
Fiscal Year Ended(1)(2)
Income Statement Data:
Net sales .....................................................
Cost of sales ...............................................
$646,629
396,001
$651,888
403,746
$500,472
308,107
$403,131
246,254
$316,668
195,015
2009
2008
2007
2006
2005
Gross profit..................................................
Selling and distribution expenses...............
General and administrative expenses........
250,628
64,239
74,948
248,142
63,593
64,931
192,365
50,769
48,663
156,877
40,371
39,605
121,653
33,772
29,909
Income from operations.........................
111,441
119,618
92,933
76,901
57,972
Interest expense and deferred financing
amortization, net ....................................
Debt extinguishment expenses ..................
Loss (gain) on financing derivatives...........
Other expense (income), net......................
11,594
--
--
121
Earnings before income taxes...............
Provision for income taxes .........................
Net earnings ..........................................
99,726
38,570
$ 61,156
Net earnings per share:
12,982
--
--
2,414
104,222
40,321
$ 63,901
5,855
481
314
(1,696)
6,932
--
--
161
6,437
--
--
137
87,979
35,365
$ 52,614
69,808
27,431
$ 42,377
51,398
19,220
$ 32,178
Basic .................................................
Diluted...............................................
$ 3.47
$ 3.29
$ 4.00
$ 3.75
$ 3.35
$ 3.11
$ 2.77
$ 2.57
$ 2.14
$ 1.99
Weighted average number of shares
outstanding:
Basic .................................................
Diluted...............................................
17,605
18,575
15,978
17,030
15,694
16,938
15,286
16,518
15,028
16,186
Balance Sheet Data:
Working capital ...........................................
Total assets.................................................
Total debt ....................................................
Stockholders' equity....................................
$ 70,670
816,346
275,641
342,655
$ 68,198
654,498
234,700
227,960
$ 61,573
413,647
96,197
182,912
$ 11,512
288,323
82,802
100,573
$ 7,590
267,219
121,595
48,500
(1)
(2)
The company's fiscal year ends on the Saturday nearest to December 31.
The prior years’ net earnings per share, the number of shares and cash dividends declared have been
adjusted to reflect the company’s stock split that occurred on June 15, 2007.
23
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
This report contains "forward-looking statements" subject to the Private Securities Litigation Reform Act of
1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which
could cause the company's actual results, performance or outcomes to differ materially from those expressed or
implied in the forward-looking statements. The following are some of the important factors that could cause the
company's actual results, performance or outcomes to differ materially from those discussed in the forward-looking
statements:
•
•
changing market conditions;
volatility in earnings resulting from goodwill impairment losses, which may occur irregularly and in
varying amounts;
•
variability in financing costs;
• quarterly variations in operating results;
• dependence on key customers;
•
•
•
•
•
risks associated with the company's foreign operations, including market acceptance and demand for
the company's products and the company's ability to manage the risk associated with the exposure to
foreign currency exchange rate fluctuations;
the company's ability to protect its trademarks, copyrights and other intellectual property;
the impact of competitive products and pricing;
the timely development and market acceptance of the company's products; and
the availability and cost of raw materials.
The company cautions readers to carefully consider the statements set forth in the section entitled
"Item 1A Risk Factors" of this filing and discussion of risks included in the company's Securities and Exchange
Commission filings.
24
NET SALES SUMMARY
(dollars in thousands)
Fiscal Year Ended(1)
2009
2008
2007
Sales
Percent
Sales
Percent
Sales
Percent
Business Divisions:
Commercial Foodservice...............
$558,677
86.4 %
$547,351
84.0 %
$403,735
80.7 %
Food Processing ...........................
65,925
10.2
78,510
12.0
70,467
14.1
International Distribution
Division (2) ...................................
52,772
8.2
62,427
9.6
62,476
12.5
Intercompany sales (3) ....................
Total............................................
(30,745)
$646,629
(4.8)
100.0 %
(36,400)
$651,888
(5.6)
100.0 %
(36,206)
$500,472
(7.3)
100.0 %
(1)
(2)
(3)
The company's fiscal year ends on the Saturday nearest to December 31.
Consists of sales of products manufactured by Middleby and products manufactured by third parties.
Represents the elimination of sales from the Commercial Foodservice Equipment Group to the International Distribution Division.
Results of Operations
The following table sets forth certain items in the consolidated statements of earnings as a percentage of
net sales for the periods presented:
Net sales ..................................................................................
Cost of sales ............................................................................
Gross profit ..........................................................................
Selling, general and administrative expenses ........................
Income from operations ......................................................
Interest expense and deferred financing amortization, net ..
Debt extinguishment expenses...............................................
Loss on financing derivatives ..................................................
Other expense (income), net...................................................
Earnings before income taxes ..............................................
Provision for income taxes ......................................................
Net earnings ........................................................................
(1)
The company's fiscal year ends on the Saturday nearest to December 31.
Fiscal Year Ended(1)
2009
2008
2007
100.0%
61.2
38.8
21.6
17.2
100.0%
61.9
38.1
19.8
18.3
100.0%
61.6
38.4
19.8
18.6
1.8
--
--
--
15.4
5.9
9.5%
2.0
--
--
0.4
15.9
6.1
9.8%
1.2
0.1
--
(0.3)
17.6
7.1
10.5%
25
Fiscal Year Ended January 2, 2010 as Compared to January 3, 2009
Net sales. Net sales in fiscal 2009 decreased by $5.3 million or 0.8% to $646.6 million as compared to
$651.9 million in fiscal 2008. The decline in net sales was net of an increase of $89.7 million or 13.8%
attributable to acquisition growth, resulting from the fiscal 2008 acquisitions of Giga and Frifri and the fiscal
2009 acquisitions of TurboChef, CookTek, Anets and Doyon. Excluding acquisitions, net sales decreased
$95.0 million or 14.6% from the prior year. Sales of both the Commercial Foodservice Equipment Group and
the Food Processing Equipment Group were affected by the economic slowdown which has affected the
commercial foodservice and food processing equipment customer purchases.
Net sales of the Commercial Foodservice Equipment Group increased by $11.3 million or 2.1% to
$558.7 million in 2009 as compared to $547.4 million in fiscal 2008. Net sales from the acquisitions of Giga,
Frifri, TurboChef, CookTek, Anets and Doyon which were acquired on April 22, 2008, April 23, 2008, April 27,
2009, April 30, 2009 and December 14, 2009 respectively, accounted for an increase of $89.8 million during the
fiscal year 2009. Excluding the impact of acquisitions, net sales of commercial foodservice equipment
decreased $95.0 million or 14.6% as compared to the prior year, primarily as a result of economic slowdown.
Net sales for the Food Processing Equipment Group were $65.9 million as compared to $78.5 million in
fiscal 2008. Food processing equipment purchases are generally cyclical and are impacted by global economic
conditions. Food processors reduced capital expenditures and deferred purchasing decisions in 2009, due in
large part to global economic conditions.
Net sales for the International Distribution Division decreased by $9.6 million to $52.8 million, as
compared to $62.4 million in the prior year. International sales declined as a result of the global recession.
Difficult economic conditions in Europe resulted in lower equipment purchases from foodservice operators.
New restaurant growth in emerging markets such as China, India and Latin America were affected as the global
restaurant chains reduced store openings in the short-term in response to the economic conditions.
The company records an elimination of its sales from the Commercial Foodservice Group to the
International Distribution Division. This sales elimination decreased by $5.7 million to $30.7 million reflecting
the decrease in purchases of equipment by the International Distribution Division from the Commercial
Foodservice Equipment Group.
Gross profit. Gross profit increased by $2.5 million to $250.6 million in fiscal 2009 from $248.1 million
in 2008. The gross margin rate increased from 38.1% in 2008 to 38.8% in 2009. The net increase in the gross
margin rate reflects:
•
Improved margins at certain of the newly acquired operating companies which have improved due
to acquisition integration initiatives including costs savings from plant consolidations
• Reduced material costs associated with steel prices and other supply chain initiatives
• The adverse impact of lower sales volumes
Selling, general and administrative expenses. Combined selling, general, and administrative
expenses increased by $10.7 million to $139.2 million in 2009 from $128.5 million in 2008. As a percentage of
net sales, operating expenses amounted to 21.6% in 2009 as compared to 19.8% in 2008.
Selling expenses increased $0.6 million to $64.2 million from $63.6 million, reflecting an increase of
$8.6 million associated with the newly acquired Giga, Frifri, TurboChef, CookTek, Anets and Doyon operations
offset by $6.8 million in reduced commissions resulting from the slowdown in sales.
General and administrative expenses increased $10.0 million to $74.9 million from $64.9 million,
reflecting an increase of $10.4 million associated with the newly acquired Giga, Frifri, TurboChef, CookTek,
Anets and Doyon operations offset by reduced incentive compensation expense. General and administrative
expenses also included non-recurring expense of $5.1 million associated with the closure and consolidation of
a production facility in Verdi, Nevada which had produced products under the Wells and Bloomfield brands.
26
Income from operations. Income from operations decreased $3.6 million to $111.4 million in fiscal
2009 from $119.6 million in fiscal 2008. The decrease in operating income resulted from the higher operating
expenses related to the newly acquired companies and non-recurring charges associated with the facility
consolidation. Operating income as a percentage of net sales declined from 18.3% in 2008 to 17.2% in 2009.
Non-operating expenses. Non-operating expenses decreased $3.7 million to $11.7 million in 2009
from $15.4 million in 2008. Net interest expense decreased $1.4 million from $13.0 million in 2008 to $11.6
million in 2009 as a result of lower borrowing costs resulting from the decline in interest rates in 2009. Other
expense decreased $2.3 million from $2.4 million in 2008 to $0.1 million in 2009 and consisted primarily of
foreign exchange gains and losses.
Income taxes. A tax provision of $38.6 million, at an effective rate of 38.7%, was recorded for 2009 as
compared to $40.3 million at a 38.7% effective rate in 2008.
Fiscal Year Ended January 3, 2009 as Compared to December 29, 2007
Net sales. Net sales in fiscal 2008 increased by $151.4 million or 30.3% to $651.9 million as
compared to $500.5 million in fiscal 2007. The net sales increase included $174.4 million or 21.8% attributable
to acquisition growth, resulting from the fiscal 2007 acquisitions of Jade, Carter-Hoffmann, MP Equipment and
Wells Bloomfield, the fiscal 2008 acquisitions of Star, Giga and Frifri. Excluding acquisitions, net sales
decreased $23.0 million or 4.6% from the prior year, as a result of the economic slowdown that occurred late in
the third quarter of 2008. Sales of both the Commercial Foodservice Equipment Group and the Food
Processing Equipment Group were affected by the economic slowdown which began in early 2008 and
worsened in the third quarter of 2008. The difficult economic conditions are expected to continue in 2009 as
food processors and restaurant operators have reduced spending on capital equipment.
Net sales of the Commercial Foodservice Equipment Group increased by $143.6 million or 35.6% to
$547.4 million in 2008 as compared to $403.7 million in fiscal 2007. Net sales from the acquisitions of Jade,
Carter-Hoffmann, Wells Bloomfield, Star, Giga and Frifri which were acquired on April 1, 2007, June 28, 2007,
August 3, 2007, December 31, 2007, April 22, 2008 and April 23, 2008, respectively, accounted for an increase
of $154.5 million during the fiscal year 2008. Excluding the impact of acquisitions, net sales of commercial
foodservice equipment decreased $10.0 million or 1.8% as compared to the prior year, primarily as a result of
the economic slowdown.
Net sales for the Food Processing Equipment Group were $78.5 million as compared to $70.5 million in
fiscal 2007. Net sales of MP Equipment, which was acquired on July 2, 2007, accounted for an increase of
$19.9 million. Excluding the impact of acquisitions, net sales of food processing equipment decreased $11.9
million or 16.9% as compared to the prior year, due to a slowdown in purchase orders from food processing
customers who reduced their capital expenditures during the year. Food processing equipment purchases are
generally cyclical and are impacted by global economic conditions.
Net sales for the International Distribution Division decreased slightly by $0.1 million to $62.4 million, as
compared to $62.5 million in the prior year. The net sales decrease reflects a $3.9 million decrease in Europe
offset by a $1.2 million increase in Asia and a $2.5 million increase in Latin America resulting from expansion of
the U.S. chains and increased business with local restaurant chains in the region.
The company records an elimination of its sales from the Commercial Foodservice Group to the
International Distribution Division. This sales elimination increased by $0.2 million to $36.4 million reflecting the
increase in purchases of equipment by the International Distribution Division from the Commercial Foodservice
Equipment Group due to increased products distributed from recently acquired companies.
27
Gross profit. Gross profit increased by $55.8 million to $248.1 million in fiscal 2008 from $192.4
million in 2007, reflecting the impact of higher sales volumes. The gross margin rate decreased from 38.4% in
2007 to 38.1% in 2008. The net decrease in the gross margin rate reflects:
• The adverse impact of steel costs which have risen significantly from the prior year.
•
Improved margins at certain of the newly acquired operating companies which have improved due
to acquisition integration initiatives.
• Higher margins associated with new product sales.
Selling, general and administrative expenses. Combined selling, general, and administrative
expenses increased by $29.1 million to $128.5 million in 2008 from $99.4 million in 2007. As a percentage of
net sales, operating expenses amounted to 19.8% in both 2008 and 2007.
Selling expenses increased $12.8 million to $63.6 million from $50.8 million, reflecting an increase of
$16.4 million associated with the newly acquired Jade, Carter-Hoffmann, MP Equipment, Wells Bloomfield,
Star, Giga and Frifri operations offset by $2.5 million in reduced commissions resulting from the slowdown in
sales.
General and administrative expenses increased $16.2 million to $64.9 million from $48.7 million,
reflecting an increase of $13.1 million associated with the newly acquired Jade, Carter-Hoffmann, MP
Equipment, Wells Bloomfield, Star, Giga and Frifri operations. General and administrative expenses also
includes $3.6 million in increased expense associated with non-cash share-based compensation.
Income from operations. Income from operations increased $26.7 million to $119.6 million in fiscal
2008 from $92.9 million in fiscal 2007. The increase in operating income resulted from the increase in net sales
and gross profit resulting from the acquisitions. Operating income as a percentage of net sales declined from
18.6% in 2007 to 18.3% in 2008. The reduction in operating income percentage reflects lower gross margins,
which were impacted by higher steel costs.
Non-operating expenses. Non-operating expenses increased $10.4 million to $15.4 million in 2008
from $5.0 million in 2007. Net interest expense increased $6.6 million from $6.4 million in 2007 to $13.0 million
in 2008 as a result of increased borrowings to finance acquisitions. The company recorded $2.4 million of other
expense in 2008, which included foreign exchange losses of $1.9 million that resulted from the strengthening of
the U.S. Dollar against currencies at most of the company’s foreign operations.
Income taxes. A tax provision of $40.3 million, at an effective rate of 38.7%, was recorded for 2008 as
compared to $35.4 million at a 40.2% effective rate in 2007. The reduced effective rate reflects lower state
income taxes at certain of the newly acquired companies due to their location in a more favorable tax
jurisdiction. The company also received increased U.S. federal tax deductions related to domestic
manufacturing activities.
Financial Condition and Liquidity
Total cash and cash equivalents increased by $2.2 million to $8.4 million at January 2, 2010 from $6.2
million at January 3, 2009. Net borrowings increased to $275.6 million at January 2, 2010 from $234.7 million
at January 3, 2009.
Operating activities. Net cash provided by operating activities after changes in assets and liabilities
amounted to $100.8 million as compared to $85.3 million in the prior year.
Adjustments to reconcile 2009 net earnings to operating cash flows included $6.3 million of
depreciation and $9.6 million of amortization, $10.7 million of non-cash stock compensation expense and $11.1
million of deferred tax provision.
28
The changes in working capital included: a $23.1 million decrease in accounts receivable as a result of
reduced sales volumes; a $17.3 million decrease in inventories, resulting from lower sales volumes, reductions
in inventory resulting from plant consolidations and the depletion of inventory associated with a large order for a
major chain customer in the first quarter of 2009; and a $4.6 million decrease in accounts payable as a result of
reduced purchasing volumes. Prepaid and other assets increased $8.7 million. Accrued expenses and other
liabilities increased by $25.2 million as a result of increased liabilities associated with plant consolidation
initiatives and deferred payments relating to acquisitions completed in 2009.
Investing activities. During 2009, net cash used for investing activities amounted to $139.0 million.
This included $133.3 million of acquisition related investments, which included $116.1 million paid in connection
with the acquisition of TurboChef, $8.0 million paid in connection with the acquisition of CookTek, $3.4 million
paid in connection with the acquisition of Anets, $5.8 million paid in connection with the acquisition of Doyon.
Additional investing activities included $5.7 million of additions and upgrades of production equipment,
manufacturing facilities and training equipment.
Financing activities. Net cash flows from financing activities amounted to $39.2 million in 2009. The
company’s borrowing activities under debt agreements included $39.6 million of borrowings under its senior
secured revolving credit facility and $0.3 million in repayments of foreign loans. The net borrowings, along with
cash generated from operating activities, were utilized to fund acquisition activities and capital expenditures.
The company’s financing activities are primarily funded from borrowings under its senior secured
revolving credit facility that matures in December 2012. This facility was amended in August 2008 to provide
for the acquisition of TurboChef Technologies, Inc. and increase the total amount of borrowing availability to
$497.5 million. Total outstanding borrowings under this facility amounted to $265.9 million at January 2, 2010.
The company also has borrowing facilities in Denmark and Italy to fund local operating activities. Borrowings
under these foreign facilities are denominated in local currency and amounted to $9.7 million at January 2,
2010.
At January 2, 2010, the company was in compliance with all covenants pursuant to its borrowing
agreements. Management believes that future cash flows from operating activities and borrowing availability
under the revolving credit facility will provide the company with sufficient financial resources to meet its
anticipated requirements for working capital, capital expenditures and debt amortization for the foreseeable
future.
Contractual Obligations
The company's contractual cash payment obligations are set forth below (dollars in thousands):
Amounts
Due Sellers
From
Acquisition
Long-term
Debt
Operating
Leases
Total
Idle
Facility
Lease
Less than 1 year
1-3 years
4-5 years
After 5 years
$ 3,278
3,955
1,751
--
$ 7,517
266,560
1,564
--
$ 4,068
6,788
2,477
266
$ 746
1,341
768
244
Contractual
Cash
Obligations
$ 15,609
278,644
6,560
510
$ 8,984
$275,641
$ 13,599
$ 3,099
$301,323
Idle facility lease consists of obligations for two manufacturing locations that were exited in conjunction
with the company's manufacturing consolidation efforts. These lease obligations continues through June 2015.
These obligations presented above do not reflect anticipated sublease income from the facilities.
29
As indicated in Note 11 to the consolidated financial statements, the company’s projected benefit
obligation under its defined benefit plans exceeded the plans’ assets by $10.4 million at the end of 2009 as
compared to $9.5 million at the end of 2008. The unfunded benefit obligations were comprised of a $3.3 million
underfunding of the company’s Smithville plan, which was acquired as part of the Star acquisition, $1.0 million
underfunding of the company's union plan and $6.1 million underfunding of the company's director plans. The
company does not expect to contribute to the director plans in 2010. The company made minimum
contributions required by the Employee Retirement Income Security Act of 1974 (“ERISA”) of $0.3 million in
2009 and 2008 to the company’s Smithville plan and $0.1 million in 2008 and 2007 to the company's union
plan. The company expects to continue to make minimum contributions to the Smithville plan as required by
ERISA, which are expected to be $0.3 million in 2010.
The company places purchase orders with its suppliers in the ordinary course of business. These
purchase orders are generally to fulfill short-term manufacturing requirements of less than 90 days and most
are cancelable with a restocking penalty. The company has no long-term purchase contracts or minimum
purchase obligations with any supplier.
The company has contractual obligations under its various debt agreements to make interest
payments. These amounts are subject to the level of borrowings in future periods and the interest rate for the
applicable periods, and therefore the amounts of these payments are not determinable.
The company has no activities, obligations or exposures associated with off-balance sheet
arrangements.
Related Party Transactions
From January 4, 2009 through the date hereof, there were no transactions between the company, its
directors and executive officers that are required to be disclosed pursuant to Item 404 of Regulation S-K,
promulgated under the Securities and Exchange Act of 1934, as amended.
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of operations are based upon
the company's consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these financial statements requires the
company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses as well as related disclosures. On an ongoing basis, the company evaluates its estimates and
judgments based on historical experience and various other factors that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition. The company recognizes revenue on the sale of its products when risk of loss
has passed to the customer, which occurs at the time of shipment, and collectibility is reasonably assured. The
sale prices of the products sold are fixed and determinable at the time of shipment. Sales are reported net of
sales returns, sales incentives and cash discounts based on prior experience and other quantitative and
qualitative factors.
At the Food Processing Equipment Group, the company enters into long-term sales contracts for
certain products. Revenue under these long-term sales contracts is recognized using the percentage of
completion method prescribed by American Institute of Certified Public Accountants Statement of Position No.
81-1 due to the length of time to fully manufacture and assemble the equipment. The company measures
revenue recognized based on the ratio of actual labor hours incurred in relation to the total estimated labor
hours to be incurred related to the contract. Because estimated labor hours to complete a project are based
upon forecasts using the best available information, the actual hours may differ from original estimates. The
percentage of completion method of accounting for these contracts most accurately reflects the status of these
uncompleted contracts in the company's financial statements and most accurately measures the matching of
revenues with expenses. At the time a loss on a contract becomes known, the amount of the estimated loss is
recognized in the consolidated financial statements.
30
Property and equipment. Property and equipment are depreciated or amortized on a straight-line
basis over their useful lives based on management's estimates of the period over which the assets will be
utilized to benefit the operations of the company. The useful lives are estimated based on historical experience
with similar assets, taking into account anticipated technological or other changes. The company periodically
reviews these lives relative to physical factors, economic factors and industry trends. If there are changes in the
planned use of property and equipment or if technological changes were to occur more rapidly than anticipated,
the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased
depreciation and amortization expense in future periods.
Long-lived assets. Long-lived assets (including goodwill and other intangibles) are reviewed for
impairment annually and whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. In assessing the recoverability of the company's long-lived assets, the company
considers changes in economic conditions and makes assumptions regarding estimated future cash flows and
other factors. Estimates of future cash flows are judgments based on the company's experience and
knowledge of operations. These estimates can be significantly impacted by many factors including changes in
global and local business and economic conditions, operating costs, inflation, competition, and consumer and
demographic trends. If the company's estimates or the underlying assumptions change in the future, the
company may be required to record impairment charges.
Warranty. In the normal course of business the company issues product warranties for specific
product lines and provides for the estimated future warranty cost in the period in which the sale is recorded.
The estimate of warranty cost is based on contract terms and historical warranty loss experience that is
periodically adjusted for recent actual experience. Because warranty estimates are forecasts that are based on
the best available information, claims costs may differ from amounts provided. Adjustments to initial obligations
for warranties are made as changes in the obligations become reasonably estimable.
Litigation. From time to time, the company is subject to proceedings, lawsuits and other claims related
to products, suppliers, employees, customers and competitors. The company maintains insurance to partially
cover product liability, workers compensation, property and casualty, and general liability matters. The
company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as
potential ranges of probable losses. A determination of the amount of accrual required, if any, for these
contingencies is made after assessment of each matter and the related insurance coverage. The reserve
requirements may change in the future due to new developments or changes in approach such as a change in
settlement strategy in dealing with these matters. The company does not believe that any pending litigation will
have a material adverse effect on its financial condition or results of operations.
Income taxes. The company operates in numerous foreign and domestic taxing jurisdictions where it
is subject to various types of tax, including sales tax and income tax. The company's tax filings are subject to
audits and adjustments. Because of the nature of the company’s operations, the nature of the audit items can
be complex and the objectives of the government auditors can result in a tax on the same transaction or income
in more than one state or country. As part of the company's calculation of the provision for taxes, the company
establishes reserves for the amount that it expects to incur as a result of audits. The reserves may change in
the future due to new developments related to the various tax matters.
31
New Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued ASC 805, “Business
Combinations”. This statement provides companies with principles and requirements on how an acquirer
recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and
any noncontrolling interest in the acquiree as well as the recognition and measurement of goodwill acquired in a
business combination. This statement also requires certain disclosures to enable users of the financial
statements to evaluate the nature and financial effects of the business combination. Acquisition costs
associated with the business combination will generally be expensed as incurred. This statement is effective for
business combinations occurring in fiscal years beginning after December 15, 2008. Early adoption of ASC
805 was not permitted. The company adopted this statement on January 5, 2009, including the acquisition of
TurboChef. Accordingly, the company has applied the principles of ASC 805 in valuing this acquisition.
Middleby shares of common stock which were issued in conjunction with this transaction were valued using the
share price at the time of closing to determine the value of the purchase price. Additionally, the company
incurred approximately $4.6 million in transaction related expenses which were recorded as a deferred
acquisition cost reported as an asset on the balance sheet on January 3, 2009. Upon adoption of the new
standard guidance, the company recorded a charge to retained earnings of $4.6 million.
In December 2007, the FASB issued ASC 810-10, “Consolidation”. This statement establishes
accounting and reporting standards for the noncontrolling interest (minority interest) in a subsidiary and for the
deconsolidation of a subsidiary. Upon its adoption, effective as of the beginning of the company’s 2009 fiscal
year, noncontrolling interests will be classified as equity in the company’s financial statements and income and
comprehensive income attributed to the noncontrolling interest will be included in the company’s income and
comprehensive income. The provisions of this standard must be applied retrospectively upon adoption. The
adoption of ASC 810-10 “Consolidation” did not have a material impact on the company’s financial position,
results of operations or cash flows.
In December 2008, the FASB issued ASC 715-20 “Compensation-Retirement Benefits.” This statement
requires disclosures about assets held in an employer’s defined benefit pension or other postretirement plan.
This statement requires the disclosure of the percentage of the fair value of total plan assets for each major
category of plan assets, such as equity securities, debt securities, real estate and all other assets, with the fair
value of each major asset category as of each annual reporting date for which a financial statement is
presented. It also requires disclosure of the level within the fair value hierarchy in which each major category of
plan assets falls, using the guidance in ASC 820, “Fair Value Measurements and Disclosures.” This statement
is applicable to employers that are subject to the disclosure requirements and is generally effective for fiscal
years ending after December 15, 2009. The adoption of ASC 715-20 “Compensation-Retirement Benefits” did
not have a material impact on the company’s financial position, results of operations or cash flows.
Certain Risk Factors That May Affect Future Results
An investment in shares of the company's common stock involves risks. The company believes the
risks and uncertainties described in "Item 1A Risk Factors" and in "Special Note Regarding Forward-Looking
Statements" are the material risks it faces. Additional risks and uncertainties not currently known to the
company or that it currently deems immaterial may impair its business operations. If any of the risks identified
in "Item 1A. Risk Factors" actually occurs, the company's business, results of operations and financial condition
could be materially adversely affected, and the trading price of the company's common stock could decline.
32
Item 7A.
Quantitative and Qualitative Disclosure about Market Risk
Interest Rate Risk
The company is exposed to market risk related to changes in interest rates. The following table
summarizes the maturity of the company's debt obligations:
Fixed Rate Debt
Variable Rate Debt
(dollars in thousands)
2010
2011
2012
2013
2014 and thereafter
$ --
--
--
--
--
$ --
$ 7,517
355
266,205
290
1,274
$275,641
Terms of the company’s senior credit agreement provide for $497.8 million of availability under a
revolving credit line. As of January 2, 2010, the company had $265.9 million of borrowings outstanding under
this facility. The company also has $7.8 million in outstanding letters of credit, which reduces the borrowing
availability under the revolving credit line. Remaining borrowing availability under this facility, which is also
reduced by the company’s foreign borrowings, was $214.4 million at January 2, 2010.
At January 2, 2010, borrowings under the senior secured credit facility were assessed at an interest
rate at 1.25% above LIBOR for long-term borrowings or at the higher of the Prime rate and the Federal Funds
Rate. At January 2, 2010 the average interest rate on the senior debt amounted to 1.56%. The interest rates
on borrowings under the senior bank facility may be adjusted quarterly based on the company’s defined
indebtedness ratio on a rolling four-quarter basis. Additionally, a commitment fee, based upon the
indebtedness ratio is charged on the unused portion of the revolving credit line. This variable commitment fee
amounted to 0.20% as of January 2, 2010.
In August 2006, the company completed its acquisition of Houno A/S in Denmark. This acquisition was
funded in part with locally established debt facilities with borrowings in Danish Krone. On January 2, 2010
these facilities amounted to $3.2 million in U.S. dollars, including $1.2 million outstanding under a revolving
credit facility and $2.0 million of a term loan. The interest rate on the revolving credit facility is assessed at
1.25% above Euro LIBOR, which amounted to 4.15% on January 2, 2010. The term loan matures in 2013 and
the interest rate is assessed at 5.46%.
In April 2008, the company completed its acquisition of Giga Grandi Cucine S.r.l. in Italy. This
acquisition was funded in part with locally established debt facilities with borrowings denominated in Euro. On
January 2, 2010, these facilities amounted to $5.1 million in U.S. dollars. The interest rate on the credit
facilities is tied to six-month Euro LIBOR. The facilities mature in April of 2015.
In December 2009, the company completed its acquisition of Doyon in Canada. This acquisition was
funded in part with locally established debt facilities with borrowings denominated in Canadian Dollars. On
January 2, 2010 these facilities amounted to $1.4 million in U.S. dollars. The borrowings under these facilities
are collateralized by the assets of the company. The interest rate on these credit facilities is assessed at
0.75% above the prime rate. At January 2, 2010, the average interest rate on these facilities amounted to 3.0%
and 3.7%. These facilities mature in 2010.
33
The company has historically entered into interest rate swap agreements to effectively fix the interest
rate on its outstanding debt. The agreements swap one-month LIBOR for fixed rates. As of January 2, 2010,
the company had the following interest rate swaps in effect.
Notional
Amount
15,000,000
20,000,000
25,000,000
10,000,000
10,000,000
15,000,000
10,000,000
10,000,000
10,000,000
20,000,000
25,000,000
Fixed
Interest
Rate
1.220%
1.800%
3.670%
2.920%
3.460%
3.130%
3.032%
2.785%
3.590%
3.350%
3.350%
Effective
Date
Maturity
Date
11/23/09
11/23/09
09/26/08
02/01/08
09/08/08
09/08/08
02/06/08
02/06/08
06/10/08
06/10/08
01/14/08
11/23/11
11/23/12
09/23/11
02/01/10
09/06/11
09/06/10
02/06/11
02/06/10
06/10/11
06/10/10
01/14/10
The terms of the senior secured credit facility limit the paying of dividends, capital expenditures and
leases and require, among other things, certain ratios of indebtedness of 3.5 debt to earnings before interest,
taxes, depreciation and amortization (“EBITDA”) and fixed charge coverage of 1.25 EBITDA to fixed charges.
The credit agreement also provides that if a material adverse change in the company’s business operations or
conditions occurs, the lender could declare an event of default. Under terms of the agreement a material
adverse effect is defined as (a) a material adverse change in, or a material adverse effect upon, the operations,
business properties, condition (financial and otherwise) or prospects of the company and its subsidiaries taken
as a whole; (b) a material impairment of the ability of the company to perform under the loan agreements and to
avoid any event of default; or (c) a material adverse effect upon the legality, validity, binding effect or
enforceability against the company of any loan document. A material adverse effect is determined on a
subjective basis by the company's creditors. The credit facility is secured by the capital stock of the company’s
domestic subsidiaries, 65% of the capital stock of the company’s foreign subsidiaries and substantially all other
assets of the company. At January 2, 2010, the company was in compliance with all covenants pursuant to its
borrowing agreements.
34
Financing Derivative Instruments
The company has entered into interest rate swaps to fix the interest rate applicable to certain of its
variable-rate debt. The agreements swap one-month LIBOR for fixed rates. The company has designated
these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated
other comprehensive income. As of January 2, 2010, the fair value of these instruments was a loss of $3.0
million. The change in fair value of these swap agreements in fiscal 2009 was a loss of $1.8 million, net of
taxes.
A summary of the company’s interest rate swaps is as follows:
Fixed
Interest
Rate
1.220%
1.800%
3.670%
2.920%
3.460%
3.130%
3.032%
2.785%
3.590%
3.350%
3.350%
Notional
Amount
$ 15,000,000
20,000,000
25,000,000
10,000,000
10,000,000
15,000,000
10,000,000
10,000,000
10,000,000
20,000,000
25,000,000
$170,000,000
Effective
Date
Maturity
Date
Fair Value
Jan 2, 2010
11/23/09
11/23/09
09/26/08
02/01/08
09/08/08
09/08/08
02/06/08
02/06/08
06/10/08
06/10/08
01/14/08
11/23/11
11/23/12
09/23/11
02/01/10
09/06/11
09/06/10
02/06/11
02/06/10
06/10/11
06/10/10
01/14/10
$ 4,000
50,000
(1,124,000)
(46,000)
(423,000)
(313,000)
(282,000)
(45,000)
(410,000)
(310,000)
(67,000)
Changes
In Fair Value
(net of taxes)
$ 3,000
30,000
(675,000)
(28,000)
(254,000)
(188,000)
(169,000)
(27,000)
(246,000)
(186,000)
(40,000)
$(2,966,000)
$(1,780,000)
Foreign Exchange Derivative Financial Instruments
The company uses derivative financial instruments, principally foreign currency forward purchase and
sale contracts with terms of less than one year, to hedge its exposure to changes in foreign currency exchange
rates. The company’s primary hedging activities are to mitigate its exposure to changes in exchange rates on
intercompany and third party trade receivables and payables. The company does not currently enter into
derivative financial instruments for speculative purposes. In managing its foreign currency exposures, the
company identifies and aggregates naturally occurring offsetting positions and then hedges residual balance
sheet exposures.
The company accounts for its derivative financial instruments in accordance with ASC 815, "Derivative
and Hedging." In accordance with ASC 815, as amended, these instruments are recognized on the balance
sheet as either an asset or a liability measured at fair value. Changes in the market value and the related
foreign exchange gains and losses are recorded in the statement of earnings.
35
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Registered Public Accounting Firm.............................................. 37
Consolidated Balance Sheets........................................................................................... 39
Consolidated Statements of Earnings .............................................................................. 40
Consolidated Statements of Changes in Stockholders’ Equity ........................................ 41
Consolidated Statements of Cash Flows.......................................................................... 42
Notes to Consolidated Financial Statements.................................................................... 43
The following consolidated financial statement schedule is included in response to Item 15
Schedule II - Valuation and Qualifying Accounts and Reserves ...................................... 79
All other schedules for which provision is made to applicable regulation of the Securities and Exchange
Commission are not required under the related instruction or are inapplicable and, therefore, have been
omitted.
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
The Middleby Corporation:
We have audited the accompanying consolidated balance sheets of The Middleby Corporation and subsidiaries
(the "Company") as of January 2, 2010 and January 3, 2009, and the related consolidated statements of
earnings, changes in stockholders' equity, and cash flows for each of the three years in the period ended
January 2, 2010. Our audits also included the financial statement schedule listed in the Index at Item 8. We
also have audited the Company's internal control over financial reporting as of January 2, 2010, based on
criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is responsible for these financial
statements and financial statement schedule, for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on these financial statements and financial statement schedule and an opinion on the
Company's internal control over financial reporting based on our audits.
As described in Management’s Report on Internal Control Over Financial Reporting, management excluded
from its assessment the internal control over financial reporting at TurboChef Technologies, Inc., CookTek
Induction Systems LLC, Anetsberger LLC, and Doyon Equipment Inc., which were acquired on Janaury 5,
2009, April 27, 2009, April 30, 2009 and December 14, 2009, respectively. These acquisitions constitute 24.6%
of total assets, 25.9% of net assets,13.2% of net sales, and 15.9% of net income of the consolidated financial
statements of the Company as of, and for the year ended, January 2, 2010. Accordingly, our audit did not
include the internal control over financial reporting at TurboChef Technologies Inc., CookTek Induction Systems
LLC, Anetsberger LLC and Doyon Equipment Inc.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control
over financial reporting was maintained in all material respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audits provide a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the
company's principal executive and principal financial officers, or persons performing similar functions, and
effected by the company's board of directors, management, and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not
be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the
internal control over financial reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
37
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of The Middleby Corporation and subsidiaries as of January 2, 2010 and January 3, 2009, and
the results of their operations and their cash flows for each of the three years in the period ended January 2,
2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also, in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of January 2, 2010, based on the criteria established in Internal Control — Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
As discussed in Note 3, on January 4, 2009, the Company adopted ASC 805 Business Combinations.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 3, 2010
38
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 2, 2010 AND JANUARY 3, 2009
(amounts in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents.............................................................................................
Accounts receivable, net.................................................................................................
Inventories, net................................................................................................................
Prepaid expenses and other...........................................................................................
Prepaid taxes ..................................................................................................................
Current deferred taxes ....................................................................................................
Total current assets.....................................................................................................
Property, plant and equipment, net.....................................................................................
Goodwill ...............................................................................................................................
Other intangibles .................................................................................................................
Other assets ........................................................................................................................
Total assets ...............................................................................................................
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...............................................................................
Accounts payable............................................................................................................
Accrued expenses...........................................................................................................
Total current liabilities .................................................................................................
Long-term debt ....................................................................................................................
Long-term deferred tax liability............................................................................................
Other non-current liabilities .................................................................................................
Stockholders' equity:
Preferred stock, $0.01 par value; none issued ..............................................................
Common stock, $0.01 par value, 22,622,650 and 21,068,556
shares issued in 2009 and 2008, respectively ............................................................
Paid-in capital ....................................................................................................................
Treasury stock at cost; 4,069,913
shares in 2009 and 2008, respectively.......................................................................
Retained earnings ..........................................................................................................
Accumulated other comprehensive (loss) income ........................................................
Total stockholders' equity ...........................................................................................
2009
2008
$ 8,363
78,897
90,640
9,914
5,873
23,339
217,026
47,340
358,506
189,572
3,902
$ 816,346
$ 7,517
38,580
100,259
146,356
268,124
14,187
45,024
$ 6,144
85,969
91,551
7,646
--
18,387
209,697
44,757
266,663
125,501
7,880
$ 654,498
$ 6,377
32,543
102,579
141,499
228,323
33,687
23,029
--
--
136
162,001
(102,000)
287,387
(4,869)
342,655
120
107,305
(102,000)
230,797
(8,262)
227,960
Total liabilities and stockholders' equity .....................................................................
$ 816,346
$ 654,498
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
39
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE FISCAL YEARS ENDED JANUARY 2, 2010, JANUARY 3, 2009
AND DECEMBER 29, 2007
(amounts in thousands, except per share data)
2009
2008
2007
Net sales .....................................................................................................
Cost of sales ...............................................................................................
Gross profit .........................................................................................
$ 646,629
396,001
250,628
Selling and distribution expenses...............................................................
General and administrative expenses........................................................
Income from operations......................................................................
Interest expense and deferred financing amortization, net .......................
Write-off of unamortized deferred financing costs .....................................
Loss on financing derivatives .....................................................................
Other expense (income), net......................................................................
Earnings before income taxes ...........................................................
Provision for income taxes .........................................................................
Net earnings ...................................................................................
Net earnings per share:
Basic ...................................................................................................
Diluted .................................................................................................
64,239
74,948
111,441
11,594
--
--
121
99,726
38,570
$ 61,156
$ 3.47
$ 3.29
Weighted average number of shares
Basic ..................................................................................................
Dilutive common stock equivalents ..................................................
Diluted................................................................................................
17,605
970
18,575
$ 651,888
403,746
248,142
63,593
64,931
119,618
12,982
--
--
2,414
104,222
40,321
$ 63,901
$ 4.00
$ 3.75
15,978
1,052
17,030
$ 500,472
308,107
192,365
50,769
48,663
92,933
5,855
481
314
(1,696)
87,979
35,365
$ 52,614
$ 3.35
$ 3.11
15,694
1,244
16,938
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
40
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JANUARY 2, 2010 JANUARY 3, 2009
AND DECEMBER 29, 2007
(amounts in thousands)
Accumulated
Other
Total
Common
Paid-in
Treasury
Retained Comprehensive
Stockholders'
Stock
Capital
Stock
Earnings
Income
Equity
$ 117
$ 73,743
$ (89,641)
$ 115,917
$ 437
$ 100,573
-
-
-
-
-
3
-
-
-
-
-
-
-
-
4,545
7,787
18,707
-
-
-
-
-
-
-
-
-
-
52,614
-
-
-
52,614
-
-
-
(1,635)
-
822
108
(612)
318
-
-
-
-
52,614
822
108
(612)
52,932
4,548
7,787
18,707
(1,635)
$ 120
$ 104,782
$ (89,641)
$ 166,896
$ 755
$ 182,912
-
-
-
-
-
-
-
-
-
-
-
-
-
-
270
-
-
-
-
-
-
-
(12,359)
11,411
(9,158)
-
-
63,901
-
-
-
63,901
-
-
-
-
-
(4,227)
63,901
(4,227)
(1,606)
(1,606)
(3,184)
(9,017)
-
-
-
-
(3,184)
54,884
270
(12,359)
11,411
(9,158)
$ 120
$ 107,305 $ (102,000)
$ 230,797
$ (8,262)
$ 227,960
-
-
-
-
-
-
-
-
-
-
-
391
16
44,032
-
-
-
10,721
(448)
-
-
-
-
-
-
-
-
-
-
-
61,156
-
-
-
61,156
-
-
-
-
(4,566)
-
1,480
61,156
1,480
257
257
1,656
3,393
-
-
-
-
-
1,656
64,549
391
44,048
10,721
(448)
(4,566)
Balance, January 1, 2007
Comprehensive income:
Net earnings
Currency translation adjustments
Change in unrecognized pension benefit
costs, net of tax of $72
Unrealized loss on interest rate
swap, net of tax of $(408)
Comprehensive income
Exercise of stock options
Stock compensation
Tax benefit on stock compensation
Cumulative effect related to the adoption of FIN 48
Balance, December 29, 2007
Comprehensive income:
Net earnings
Currency translation adjustments
Change in unrecognized pension benefit
costs, net of tax of $(1,071)
Unrealized loss on interest rate
swap, net of tax of $(2,123)
Comprehensive income
Exercise of stock options
Repurchase of treasury stock
Stock compensation
Tax benefit on stock compensation
Balance, January 3, 2009
Comprehensive income:
Net earnings
Currency translation adjustments
Change in unrecognized pension benefit
costs, net of tax of $(201)
Unrealized loss on interest rate
swap, net of tax of $(1,104)
Comprehensive income
Exercise of stock options
Stock issuance
Stock compensation
Tax benefit on stock compensation
Cumulative effect of adopting new accounting standard
Balance, January 2, 2010
$ 136
$ 162,001 $ (102,000)
$ 287,387
$ (4,869)
$ 342,655
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
41
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JANUARY 2, 2010, JANUARY 3, 2009
AND DECEMBER 29, 2007
(amounts in thousands)
Cash flows from operating activities--
Net earnings ...............................................................................................................
Adjustments to reconcile net earnings to net cash provided by operating
activities--
Depreciation and amortization..........................................................................
Non-cash share-based compensation .............................................................
Deferred taxes ..................................................................................................
Write-off of umamortized deferred financing costs...........................................
Unrealized loss on derivative financial instruments
Changes in assets and liabilities, net of acquisitions
Accounts receivable, net ..................................................................................
Inventories, net.................................................................................................
Prepaid expenses and other assets.................................................................
Accounts payable.............................................................................................
Accrued expenses and other liabilities.............................................................
Net cash provided by operating activities...................................................................
Cash flows from investing activities--
Additions to property and equipment .........................................................................
Acquisition of Houno, net of cash acquired................................................................
Acquisition of Jade .....................................................................................................
Acquisition of Carter-Hoffmann ..................................................................................
Acquisition of MP Equipment .....................................................................................
Acquisition of Wells Bloomfield, net of cash acquired................................................
Acquisition of Star, net of cash acquired ....................................................................
Acquisition of Giga, net of cash acquired ...................................................................
Acquisition of Frifri, net of cash acquired....................................................................
Acquisition of TurboChef, net of cash acquired..........................................................
Acquisition of CookTek ...............................................................................................
Acquisition of Anets ....................................................................................................
Acquisition of Doyon ...................................................................................................
Net cash (used in) investing activities ........................................................................
Cash flows from financing activities--
Net (repayments) proceeds under previous revolving credit facilities .......................
Net (repayments) under previous senior secured bank notes ...................................
Net proceeds under current revolving credit facilities ................................................
Net (repayments) proceeds under foreign bank loan.................................................
Repayments under note agreement ..........................................................................
Debt issuance costs ...................................................................................................
Issuance of treasury stock..........................................................................................
Repurchase of treasury stock .....................................................................................
Excess tax benefit related to share-based compensation .........................................
Net proceeds from stock issuances ...........................................................................
Net cash provided by financing activities ...................................................................
2009
2008
2007
$ 61,156
$ 63,901
$ 52,614
15,888
10,721
11,123
--
--
23,145
17,257
(8,731)
(4,564)
(25,221)
100,774
(5,731)
--
--
--
--
--
--
--
--
(116,129)
(8,000)
(3,358)
(5,819)
(139,037)
--
--
39,550
(252)
--
--
--
--
(448)
391
39,241
12,390
11,411
(1,542)
--
180
5,222
(7,105)
18,548
(3,951)
(13,705)
85,349
(4,337)
--
--
(167)
(3,000)
(321)
(189,476)
(9,928)
(2,865)
--
--
--
--
(210,094)
--
--
135,000
(803)
--
(1,007)
--
(12,359)
2,976
270
124,077
6,360
7,787
4,582
481
--
(9,004)
(1,150)
(15,581)
1,193
12,211
59,493
(3,311)
(179)
(7,779)
(16,242)
(15,269)
(28,904)
--
--
--
--
--
--
--
(71,684)
(30,100)
(47,500)
91,351
(970)
--
(1,333)
--
--
--
4,548
15,996
Effect of exchange rates on cash and cash equivalents.....................................
1,241
(651)
124
Changes in cash and cash equivalents--
Net increase (decrease) in cash and cash equivalents.........................................
Cash and cash equivalents at beginning of year...................................................
2,219
6,144
(1,319)
7,463
3,929
3,534
Cash and cash equivalents at end of year.................................................................
$ 8,363
$ 6,144
$ 7,463
Non-cash investing and financing activities:
Stock issuance related to the acquisition of TurboChef.............................................
$ 44,032
$ --
$ --
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
42
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JANUARY 2, 2010, JANUARY 3, 2009
AND DECEMBER 29, 2007
(1)
NATURE OF OPERATIONS
The Middleby Corporation (the "company") is engaged in the design, manufacture and sale of commercial
foodservice and food processing equipment. The company manufactures and assembles this equipment at
eleven factories in the United States, and manufacturing facilities in Canada, China, Denmark, Italy and the
Philippines. The company operates in three business segments: 1) the Commercial Foodservice Equipment
Group, 2) the Food Processing Equipment Group and 3) the International Distribution Division.
The Commercial Foodservice Equipment Group manufactures a broad line of cooking, heating and
warming equipment including ranges, convection ovens, conveyor ovens, baking ovens, proofers, broilers,
fryers, combi-ovens, charbroilers, steam equipment, induction cooking systems, pop-up and conveyor toasters,
hot food servers, food warming equipment, griddles, ventless cooking systems, coffee brewers, tea brewers
and beverage dispensing equipment. End-user customers include: (i) fast food or quick-service restaurants;
(ii) full-service restaurants, including casual-theme restaurants, (iii) retail outlets, such as convenience stores,
supermarkets and department stores and (iv) public and private institutions, such as hotels, resorts, schools,
hospitals, long-term care facilities, correctional facilities, stadiums, airports, corporate cafeterias, military facilities
and government agencies. Included in these customers are several large multi-national restaurant chains, which
account for a meaningful portion of the company's business, although no single customer accounts for more than
10% of net sales. The company's domestic sales are primarily through independent dealers and distributors and
are marketed by the company's sales personnel and a network of independent manufacturers' representatives.
The Food Processing Equipment Group manufactures food preparation, cooking, packaging and food
safety equipment. Customers include food processing companies. Included in these companies are several large
international food processing companies, which account for a significant portion of the revenues of this business
segment, although none of which is greater than 10% of net sales. The sales of the business are made through its
direct sales force.
The International Distribution Division provides product sales, distribution services and technical
service for the commercial foodservice industry. This division sells and supports the products manufactured by
the company's commercial foodservice equipment business. This business operates through a combined
network of independent and company-owned distributors. The company maintains regional sales offices in Asia,
Europe and Latin America complemented by sales and distribution offices in Australia, Belgium, China, France,
India, Italy, Germany, Lebanon, Mexico, the Philippines, Russia, Saudi Arabia, Singapore, South Korea, Spain,
Sweden, Taiwan, United Arab Emirates and the United Kingdom.
The company purchases raw materials and component parts, the majority of which are standard
commodity type materials, from a number of suppliers. Although certain component parts are procured from a
sole source, the company can purchase such parts from alternate vendors.
The company has numerous licenses and patents to manufacture, use and sell its products and
equipment. Management believes the loss of any one of these licenses or patents would not have a material
adverse effect on the financial and operating results of the company.
43
(2)
ACQUISITIONS AND PURCHASE ACCOUNTING
The company operates in a highly fragmented industry and has completed numerous acquisitions over
the past several years as a component of its growth strategy. The company has acquired industry leading
brands and technologies to position itself as a leader in the commercial foodservice equipment and food
processing equipment industries.
The company has accounted for all business combinations using the purchase method to record a new
cost basis for the assets acquired and liabilities assumed. The difference between the purchase price and the
fair value of the assets acquired and liabilities assumed has been recorded as goodwill in the financial
statements. The results of operations are reflected in the consolidated financial statements of the company
from the date of acquisition.
Star
On December 31, 2007, the company acquired the stock of New Star International Holdings, Inc. and
subsidiaries (“Star”), a leading manufacturer of commercial cooking equipment for an aggregate purchase price of
$188.4 million in cash plus transaction costs.
The final allocation of cash paid for the Star acquisition is summarized as follows (in thousands):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Other assets
Current liabilities
Deferred tax liabilities
Other non-current liabilities
Dec 31, 2007
$ 376
28,959
8,225
118,772
75,150
71
(12,041)
(25,863)
(3,797)
Total cash paid
$189,852
The goodwill and $47.0 million of other intangibles associated with the trade name are subject to the
non-amortization provisions of ASC 350 “Intangibles-Goodwill and Other”. Other intangibles also includes $0.4
million allocated to backlog, $3.8 million allocated to developed technology and $24.0 million allocated to
customer relationships which are to be amortized over periods of 1 month, 7 years and 7 years, respectively.
Goodwill and other intangibles of Star are allocated to the Commercial Foodservice Equipment Group for
segment reporting purposes. These assets generally are not expected to be deductible for tax purposes.
Pro forma Financial Information
The following unaudited pro forma results of operations for the year ended December 29, 2007
assumes the Star acquisition was completed on December 31, 2006. The pro forma results include
adjustments to reflect additional interest expense to fund the acquisition, amortization of intangibles associated
with the acquisition, and the effects of adjustments made to the carrying value of certain assets.
December 29, 2007
Net sales ..........................................
Net earnings.....................................
$592,513
$ 51,769
Net earnings per share:
Basic..........................................
Diluted .......................................
$ 3.30
$ 3.06
44
The pro forma financial information presented above is not necessarily indicative of either the results of
operations that would have occurred had the acquisition of Star, been effective on December 31, 2006 or of
future operations of the company. Also, the pro forma financial information does not reflect the costs which the
company incurred to integrate Star.
Giga
On April 22, 2008, the company acquired the stock of Giga Grandi Cucine S.r.l. (“Giga”), a leading
European manufacturer of ranges, ovens and steam cooking equipment for a purchase price of $9.7 million in
cash plus transaction costs. The company also assumed $5.1 million of debt included as part of the net assets
of Giga. An additional deferred payment of $7.3 million is also due to the seller ratably over a three year period.
The final allocation of cash paid for the Giga acquisition is summarized as follows (in thousands):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Other assets
Current maturities of long-term debt
Current liabilities
Other non-current liabilities
Total cash paid
Apr 22, 2008
$ 217
12,442
628
10,474
5,242
473
(5,105)
(6,874)
(7,347)
$ 10,150
The goodwill and $3.7 million of other intangibles associated with the trade name are subject to the
non-amortization provisions of ASC 350. Other intangibles also includes $0.2 million allocated to backlog and
$1.3 million allocated to customer relationships, which are to be amortized over periods of 3 months and 4 to
10 years, respectively. Goodwill and other intangibles of Giga are allocated to the Commercial Foodservice
Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax
purposes.
Frifri
On April 23, 2008, the company acquired the assets of Frifri aro SA (“Frifri”), a leading European supplier
of frying systems for an aggregate purchase price of $3.4 million plus transaction costs.
The final allocation of cash paid for the Frifri acquisition is summarized as follows (in thousands):
Apr 23, 2008
Cash
Current assets
Property, plant and equipment
Goodwill
Current liabilities
Total cash paid
$ 663
5,076
398
3,573
(6,182)
$ 3,528
The goodwill is subject to the non-amortization provisions of ASC 350. Goodwill of Frifri is allocated to
the Commercial Foodservice Equipment Group for segment reporting purposes. These assets are not expected
to be deductible for tax purposes.
45
TurboChef
On January 5, 2009, the company acquired the stock of TurboChef Technologies, Inc. (“TurboChef”), a
leading manufacturer of speed-cook ovens for an aggregate purchase price of $160.1 million including $116.1
million in cash and 1,539,668 shares of Middleby common stock valued at $44.0 million.
The final allocation of consideration for the TurboChef acquisition is summarized as follows (in
thousands):
Jan 5, 2009
(as initially reported)
Cash
Current assets
Current deferred tax asset
Property, plant and equipment
Goodwill
Other intangibles
Deferred tax asset
Current liabilities
Other non-current liabilities
$ 10,146
23,979
11,449
4,155
66,821
72,516
18,588
(36,615)
(768)
Measurement Period
Adjustments
$ --
(796)
797
(2,835)
12,664
(9,466)
433
(745)
--
Jan 5, 2009
(as adjusted)
$ 10,146
23,183
12,246
1,320
79,485
63,050
19,021
(37,360)
(768)
Total consideration
$170,271
$ 52
$170,323
The current and long term deferred tax assets amounted to $12.2 million and $19.0 million,
respectively. These net assets are comprised of $41.8 million related to federal and state net operating loss
carry forwards, $6.5 million of assets arising from the difference between the book and tax basis of tangible
asset and liability accounts, net of $17.1 million of deferred tax liabilities related to the difference between the
book and tax basis of identifiable intangible assets. Federal and state net operating loss carry forwards are
subject to carry forward limitations for income tax purposes.
The goodwill and $49.8 million of other intangibles associated with the trade name are subject to the
non-amortization provisions of ASC 350. Other intangibles also includes $0.4 million allocated to backlog, $3.9
million allocated to developed technology and $8.9 million allocated to customer relationships which are to be
amortized over periods of 3 months, 5 years and 5 years, respectively. Goodwill and other intangibles of
TurboChef are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes.
These assets generally are not expected to be deductible for tax purposes.
During the first quarter, the company recorded a preliminary estimate of the intangible assets acquired
in conjunction with the TurboChef acquisition. The company also recorded intangible amortization expense
related to those assets in its results of operations for the first quarter. The final valuation of intangible assets
acquired was completed during the second quarter. Therefore, the company adjusted the intangible
amortization expense in its second quarter results of operations on a year to date basis. During the fourth
quarter the company made a final assessment of its deferred tax assets and liabilities, including an assessment
of the realizability of net operating losses subject IRS limitations. This adjustment resulted in a reclassification
of amounts between goodwill and deferred tax assets and liabilities. These adjustments did not have a material
impact on the company’s results of operations.
46
Results of Operations
The following unaudited results of operations for the twelve months ended January 2, 2010, reflect the
operations of TurboChef on a stand-alone basis (in thousands):
Net sales..........................................
Income from operations...................
Jan 2, 2010
$ 75,176
$ 12,823
47
CookTek
On April 26, 2009, the company completed its acquisition of substantially all of the assets and operations
of CookTek LLC (“CookTek”), the leading manufacturer of induction cooking and warming systems for a
purchase price of $8.0 million in cash. An additional deferred payment of $1.0 million is also due to the seller
on the first anniversary of the acquisition. Additional contingent payments are also payable over the course of
four years upon the achievement of certain sales targets.
The following estimated fair values of assets acquired and liabilities assumed are provisional and are
based on the information that was available as of the acquisition date to estimate the fair value of assets
acquired and liabilities assumed. Measurement period adjustments reflect new information obtained about facts
and circumstances that existed as of the acquisition date (in thousands):
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
Other non-current liabilities
Total cash paid
Deferred cash payment
Contingent consideration
Apr 26, 2009 Measurement Period Apr 26, 2009
(as adjusted)
Adjustments
(as initially reported)
$ 2,595
152
11,544
3,622
(3,428)
(6,485)
$ 8,000
1,000
7,360
$ (12)
--
(5,649)
3,000
165
2,496
$ 2,583
152
5,895
6,622
(3,263)
(3,989)
$ --
$ 8,000
--
(2,660)
1,000
4,700
Net assets acquired and liabilities assumed $ 16,360
$ (2,660)
$ 13,700
The CookTek purchase agreement included an earnout provision providing for contingent payments
due to the sellers to the extent certain financial targets are exceeded. The earnout amounts are payable in the
four consecutive years subsequent to the acquisition date if CookTek is to exceed certain sales targets for each
of those years. The earnout payment will amount to 10% of the sales in excess of the target for each of the
respective years. There is no cap on the potential earnout payment, however, the company’s estimated
probable range of the contingent consideration is between $0 and $10 million. The contractual obligation
associated with the contingent earnout provision recognized on the acquisition date is $4.7 million. This
amount was determined based on an income approach.
The goodwill and $3.5 million of other intangibles associated with the trade name are subject to the
non-amortization provisions of ASC 350. Other intangibles also includes less than $0.1 million allocated to
backlog, $0.7 million allocated to developed technology and $2.4 million allocated to customer relationships
which are to be amortized over periods of 3 months, 6 years and 5 years, respectively. Goodwill and other
intangibles of CookTek are allocated to the Commercial Foodservice Equipment Group for segment reporting
purposes. These assets are expected to be deductible for tax purposes.
During the second quarter ended July 4, 2009, the company recorded a preliminary estimate of the
intangible assets acquired in conjunction with the CookTek acquisition. The company also recorded intangible
amortization expense related to those assets in its results of operations for the quarters ended July 4, 2009 and
October 3, 2009. The final valuation of intangible assets acquired was completed during the fourth quarter
ended January 2, 2010. Therefore, the company adjusted the intangible amortization expense in its fourth
quarter results of operations on a year to date basis. This adjustment did not have a material impact on the
company’s results of operations.
48
The company believes that information gathered to date provides a reasonable basis for estimating the
fair values of assets acquired and liabilities assumed, but the company is waiting for additional information
necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above are
subject to change. Such changes are not expected to be significant. The company expects to finalize the
valuation of intangible assets and complete the purchase price allocation as soon as practicable but no later
than one year from the acquisition date.
Anets
On April 30, 2009, the company completed its acquisition of substantially all of the assets and operations
of Anetsberger Brothers, Inc. (“Anets”),a leading manufacturer of griddles, fryers and dough rollers, for a
purchase price of $3.4 million in cash. An additional deferred payment of $0.5 million is due to the seller upon
the achievement of certain transition objectives.
The following estimated fair values of assets acquired and liabilities assumed are provisional and are
based on the information that was available as of the acquisition date to estimate the fair value of assets
acquired and liabilities assumed. Measurement period adjustments reflect new information obtained about facts
and circumstances that existed as of the acquisition date (in thousands):
Apr 30, 2009 Measurement Period
(as initially reported)
Adjustments
Apr 30, 2009
(as adjusted)
Current assets
Goodwill
Other intangibles
Current liabilities
Other non-current liabilities
Total cash paid
Deferred cash payment
$ 2,210
3,320
1,085
(3,107)
(150)
$ 3,358
500
$ -
5
-
(5)
-
-
-
Net assets acquired and liabilities assumed $ 3,858
$ -
$ 2,210
3,325
1,085
(3,112)
$ (150)
$3,358
500
$ 3,858
The goodwill and $0.9 million of other intangibles associated with the trade name are subject to the
non-amortization provisions of ASC 350. Other intangibles also includes less than $0.1 million allocated to
developed technology and $0.2 million allocated to customer relationships which are to be amortized over
periods of 3 years and 3 years, respectively. Goodwill and other intangibles of Anets are allocated to the
Commercial Foodservice Equipment Group for segment reporting purposes. These assets are expected to be
deductible for tax purposes.
The company believes that information gathered to date provides a reasonable basis for estimating the
fair values of assets acquired and liabilities assumed but the company is waiting for additional information
necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above are
subject to change. Such changes are not expected to be significant. The company expects to complete the
purchase price allocation as soon as practicable but no later than one year from the acquisition date.
49
Doyon
On December 14, 2009, the company completed its acquisition of Doyon Equipment, Inc., a leading
Canadian manufacturer of baking ovens for the commercial foodservice industry, for a purchase price of
approximately $5.8 million. The purchase price is subject to adjustment based upon a working capital
provision within the purchase agreement.
The following estimated fair values of assets acquired and liabilities assumed are provisional and are
based on the information that was available as of the acquisition date to estimate the fair value of assets
acquired and liabilities assumed(in thousands):
Current assets
Property, Plant and Equipment
Goodwill
Intangibles
Current maturities of long-term debt
Current liabilities
Long-term debt
Other non-current liabilities
Total cash paid
Dec 14, 2009
$ 5,034
1,876
191
2,355
(285)
(2,105)
(1,081)
(166)
$ 5,819
The goodwill and $1.5 million of other intangibles associated with the trade name are subject to the
non-amortization provisions of ASC 350. Other intangibles also includes $0.6 million allocated to developed
technology and $0.3 million allocated to customer relationships which are to be amortized over periods of 6
years and 5 years, respectively. Goodwill and other intangibles of Doyon are allocated to the Commercial
Foodservice Equipment Group for segment reporting purposes. These assets are not expected to be
deductible for tax purposes.
The company believes that information gathered to date provides a reasonable basis for estimating the
fair values of assets acquired and liabilities assumed but the company is waiting for additional information
necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above are
subject to change. Such changes are not expected to be significant. The company expects to complete the
purchase price allocation as soon as practicable but no later than one year from the acquisition date.
50
Pro forma financial information
In accordance with ASC 805 “Business Combinations”, the following unaudited pro forma results of
operations for the years ended January 2, 2010 and January 3, 2009, assumes the 2009 acquisitions of
TurboChef, CookTek, Anets and Doyon were completed on December 30, 2007. The pro forma results include
adjustments to reflect additional interest expense to fund the acquisition, amortization of intangibles associated
with the acquisition, and the effects of adjustments made to the carrying value of certain assets.
Jan 2, 2010
Jan 3, 2009
Net sales ................................................................
Net earnings ...........................................................
$667,469
64,604
$772,136
44,399
Net earnings per share:
Basic ................................................................
Diluted..............................................................
3.67
3.49
2.78
2.61
The supplemental pro forma financial information presented above has been prepared for comparative
purposes and is not necessarily indicative of either the results of operations that would have occurred had the
acquisitions of these companies been effective on December 30, 2007 nor are they indicative of any future
results. Also, the pro forma financial information does not reflect the costs which the company has incurred or
may incur to integrate TurboChef, CookTek, Anets and Doyon.
(3)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of Presentation
The consolidated financial statements include the accounts of the company and its wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The company's
consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires the company to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses as well
as related disclosures. Significant items that are subject to such estimates and judgments include allowances
for doubtful accounts, reserves for excess and obsolete inventories, long-lived and intangible assets, warranty
reserves, insurance reserves, income tax reserves and post-retirement obligations. On an ongoing basis, the
company evaluates its estimates and assumptions based on historical experience and various other factors that
are believed to be reasonable under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions.
The company's fiscal year ends on the Saturday nearest December 31. Fiscal years 2009, 2008 and
2007 ended on January 2, 2010, January 3, 2009 and December 29, 2007, respectively, and included 52, 53, and
52 weeks, respectively.
(b)
Cash and Cash Equivalents
The company considers all short-term investments with original maturities of three months or less when
acquired to be cash equivalents. The company’s policy is to invest its excess cash in interest-bearing deposits
with major banks that are subject to minimal credit and market risk.
51
(c)
Accounts Receivable
Accounts receivable, as shown in the consolidated balance sheets, are net of allowances for doubtful
accounts of $6,596,000 and $6,598,000 at January 2, 2010 and January 3, 2009, respectively.
(d)
Inventories
Inventories are composed of material, labor and overhead and are stated at the lower of cost or market.
Costs for inventories at two of the company's manufacturing facilities have been determined using the last-in, first-
out ("LIFO") method. These inventories under the LIFO method amounted to $15.6 million in 2009 and $22.5
million in 2008 and represented approximately 17% of the total inventory in each respective year. Costs for all
other inventory have been determined using the first-in, first-out ("FIFO") method. The company estimates
reserves for inventory obsolescence and shrinkage based on its judgment of future realization. Inventories at
January 2, 2010 and January 3, 2009 are as follows:
Raw materials and parts ...................................................
Work in process ................................................................
Finished goods..................................................................
LIFO reserve .....................................................................
(e)
Property, Plant and Equipment
Property, plant and equipment are carried at cost as follows:
2009
2008
(dollars in thousands)
$ 51,071
13,629
26,731
91,431
(791)
$ 90,640
$ 36,375
21,075
34,668
92,118
(567)
$ 91,551
Land ..............................................................................................................
Building and improvements ..........................................................................
Furniture and fixtures....................................................................................
Machinery and equipment ............................................................................
Less accumulated depreciation....................................................................
2009
2008
(dollars in thousands)
$ 6,866
37,660
10,045
37,757
92,328
(44,988)
$ 47,340
$ 6,823
34,392
9,217
34,695
85,127
(40,370)
$ 44,757
Property and equipment are depreciated or amortized on a straight-line basis over their useful lives
based on management's estimates of the period over which the assets will be utilized to benefit the operations
of the company. The useful lives are estimated based on historical experience with similar assets, taking into
account anticipated technological or other changes. The company periodically reviews these lives relative to
physical factors, economic factors and industry trends. If there are changes in the planned use of property and
equipment or if technological changes were to occur more rapidly than anticipated, the useful lives assigned to
these assets may need to be shortened, resulting in the recognition of increased depreciation and amortization
expense in future periods.
52
Following is a summary of the estimated useful lives:
Description
Building and improvements...................................................................................... 20 to 40 years
Furniture and fixtures ............................................................................................... 3 to 7 years
Machinery and equipment........................................................................................ 3 to 10 years
Life
Depreciation expense amounted to $6,287,000, $5,007,300 and $4,174,000 in fiscal 2009, 2008 and
2007, respectively.
Expenditures which significantly extend useful lives are capitalized. Maintenance and repairs are charged
to expense as incurred. Asset impairments are recorded whenever events or changes in circumstances indicate
that the recorded value of an asset is less than the sum of its expected future undiscounted cash flows.
(f)
Goodwill and Other Intangibles
In accordance with Accounting Standards Codification (“ASC”) 350 “Goodwill-Intangibles and Other”,
the company’s long-lived assets (including goodwill and other indefinite lived intangibles) are reviewed for
impairment annually at the end of the fiscal year and whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In assessing the recoverability of long-lived
assets (including goodwill and other indefinite lived intangibles), the company considers changes in economic
conditions and makes assumptions regarding estimated future cash flows and other factors. Estimates of
future cash flows are judgments based on the company’s experience and knowledge of operations. These
estimates can be significantly impacted by many factors including changes in global and local business and
economic conditions, operating costs, inflation, competition, and consumer and demographic trends. If the
company’s estimates or the underlying assumptions change in the future, the company may be required to
record impairment charges. Any such charge could have a material adverse effect on the company’s reported
net earnings.
Goodwill is allocated to the business segments as follows (in thousands):
Commercial
Foodservice
Food
Processing
International
Distribution
Total
Balance as of December 29, 2007
$ 104,472
$ 30,328
$ --
$134,800
Goodwill acquired during the year
Exchange effect
131,490
(825)
1,198
--
--
--
132,688
(825)
Balance as of January 3, 2009
$235,137
$ 31,526
$ --
$266,663
Goodwill acquired during the year
Exchange effect
91,076
767
--
--
--
--
91,076
767
Balance as of January 2, 2010
$326,980
$ 31,526
$ --
$358,506
The company has not had any goodwill impairments, therefore no accumulated impairment loss.
53
Intangible assets consist of the following (in thousands):
January 2, 2010
Estimated
Weighted Ave Gross
Amortized intangible assets:
Customer lists
Backlog
Developed technology
Life
2.9
0.1
2.7
Remaining Carrying Accumulated
Amortization
$ (13,240)
(2,131)
(3,535)
$ (18,906)
Amount
$ 40,319
2,158
14,847
$ 57,324
Unamortized intangible assets:
Trademarks and tradenames
$151,154
January 3, 2009
Estimated
Weighted Ave Gross
Remaining
Life
3.3
--
3.4
Carrying Accumulated
Amortization
Amount
$ (7,079)
$ 33,553
(1,659)
1,659
(1,038)
4,630
$ (9,776)
$ 39,842
$ 95,435
The aggregate intangible amortization expense was $9.1 million, $6.9 million and $1.9 million in 2009,
2008 and 2007, respectively. The estimated future amortization expense of intangible assets is as follows (in
thousands):
2010
2011
2012
2013
2014
Thereafter
$ 9,256
8,325
7,692
7,526
4,966
653
$38,418
(g)
Accrued Expenses
Accrued expenses consist of the following at January 2, 2010 and January 3, 2009, respectively:
Accrued payroll and related expenses ..................................
Accrued warranty ...................................................................
Advanced customer deposits.................................................
Accrued customer rebates .....................................................
Accrued product liability and workers compensation............
Accrued professional services...............................................
Other accrued expenses........................................................
2009
2008
(dollars in thousands)
$ 19,988
14,265
14,066
12,980
9,877
4,931
24,152
$ 23,294
12,595
4,448
13,960
8,577
5,283
34,422
$100,259
$102,579
54
(h)
Litigation Matters
From time to time, the company is subject to proceedings, lawsuits and other claims related to
products, suppliers, employees, customers and competitors. The company maintains insurance to partially
cover product liability, workers compensation, property and casualty, and general liability matters. The
company is required to assess the likelihood of any adverse judgments or outcomes to these matters as well as
potential ranges of probable losses. A determination of the amount of accrual required, if any, for these
contingencies is made after assessment of each matter and the related insurance coverage. The required
accrual may change in the future due to new developments or changes in approach such as a change in
settlement strategy in dealing with these matters. The company does not believe that any such matter will have
a material adverse effect on its financial condition, results of operations or cash flows of the company.
(i)
Accumulated Other Comprehensive Income
The following table summarizes the components of accumulated other comprehensive income (loss) as reported
in the consolidated balance sheets:
2009
(dollars in thousands)
2008
Unrecognized pension benefit costs, net of tax........... $ (2,283)
(1,528)
Unrealized loss on interest rate swap, net of tax.........
(1,058)
Currency translation adjustments ................................
$ (2,540)
(3,184)
(2,538)
$ (4,869)
$ (8,262)
(j)
Fair Value Measures
On December 30, 2007 (first day of fiscal year 2008), the company adopted the provisions of ASC 820
“Fair Value Measurements and Disclosures”. This statement defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands disclosure about fair value
measurements.
ASC 825 “Financial Instruments” delayed the effective date of the application of ASC 820 to fiscal years
beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a non-recurring basis. The adoption of ASC 825 did not
have a material impact on the company’s financial position, results of operations or cash flows.
ASC 820 defines fair value as the price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. ASC 820 establishes a fair value hierarchy, which
prioritizes the inputs used in measuring fair value into the following levels:
Level 1 – Quoted prices in active markets for identical assets or liabilities
Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
Level 3 – Unobservable inputs based on our own assumptions.
55
The company’s financial assets and liabilities that are measured at fair value are categorized using the
fair value hierarchy at January 2, 2010 are as follows (in thousands):
Fair Value
Level 1
Fair Value
Level 2
Fair Value
Level 3
Total
Financial Assets:
Pension Plan
$ 5,614
$ 5,100
--
$10,714
Financial Liabilities:
Interest rate swaps
Contingent consideration
--
--
$ 2,966
--
--
$ 4,134
$ 2,966
$ 4,134
The contingent consideration relates to an earnout provision recorded in conjunction with the
acquisition of CookTek.
ASC 825 “Financial Instruments” also permits entities to choose to measure many financial instruments
and certain other items at fair value. As the company did not elect the fair value option, the adoption of ASC
825 did not have a material impact on the company’s financial position, results of operations and cash flows for
the fiscal year ended January 2, 2010.
As of January 2, 2010, certain fixed assets were measured at fair value on a nonrecurring basis as the
result of a plant consolidation initiative. The fixed assets were valued using measurements classified as Level
2. The company recorded a non-cash impairment charge of $1.6 million in the third quarter of 2009 to write-
down fixed assets to their fair value.
(k)
Foreign Currency
Foreign currency transactions are accounted for in accordance with ASC 830
“Foreign Currency Translation”. The income statements of the company’s foreign operations are translated at the
monthly average rates. Assets and liabilities of the company’s foreign operations are translated at exchange rates
at the balance sheet date. These translation adjustments are not included in determining net income for the period
but are disclosed and accumulated in a separate component of stockholders’ equity. Exchange gains and losses
on foreign currency transactions are included in determining net income for the period in which they occur. These
transactions amounted to a loss of $0.2 million in fiscal 2009, a loss of $1.9 million in fiscal 2008 and a gain of $1.2
million in fiscal 2007 and are included in other expense on the statements of earnings.
(l)
Revenue Recognition
The company recognizes revenue on the sale of its products when risk of loss has passed to the
customer, which occurs at the time of shipment, and collectibility is reasonably assured. The sale prices of the
products sold are fixed and determinable at the time of shipment. Sales are reported net of sales returns, sales
incentives and cash discounts based on prior experience and other quantitative and qualitative factors.
At the Food Processing Equipment Group, the company enters into long-term sales contracts for
certain products. Revenue under these long-term sales contracts is recognized using the percentage of
completion method prescribed by the American Institute of Certified Public Accountants Statement of Position
No. 81-1 due to the length of time to fully manufacture and assemble the equipment. The company measures
revenue recognized based on the ratio of actual labor hours incurred in relation to the total estimated labor
hours to be incurred related to the contract. Because estimated labor hours to complete a project are based
upon forecasts using the best available information, the actual hours may differ from original estimates. The
percentage of completion method of accounting for these contracts most accurately reflects the status of these
uncompleted contracts in the company's financial statements and most accurately measures the matching of
revenues with expenses. At the time a loss on a contract becomes known, the amount of the estimated loss is
recognized in the consolidated financial statements.
56
(m)
Shipping and Handling Costs
Shipping and handling costs are included in cost of products sold.
(n)
Warranty Costs
In the normal course of business the company issues product warranties for specific product lines and
provides for the estimated future warranty cost in the period in which the sale is recorded. The estimate of
warranty cost is based on contract terms and historical warranty loss experience that is periodically adjusted for
recent actual experience. Because warranty estimates are forecasts that are based on the best available
information, claims costs may differ from amounts provided. Adjustments to initial obligations for warranties are
made as changes in the obligations become reasonably estimable.
A rollforward of the warranty reserve is as follows:
2009
2008
(dollars in thousands)
Beginning balance
$ 12,595
Warranty reserve related to acquisitions 2,674
23,389
Warranty expense
(24,393
Warranty claims
$ 14,265
Ending balance
$ 12,276
1,442
14,218
(15,341)
$ 12,595
(o)
Research and Development Costs
Research and development costs, included in cost of sales in the consolidated statements of earnings, are
charged to expense when incurred. These costs were $7,114,000, $6,638,000 and $5,835,000 in fiscal 2009,
2008 and 2007, respectively.
(p)
Non-Cash Share-Based Compensation
The company estimates the fair value of market based stock awards and stock options at the time of
grant and recognizes compensation costs over the vesting period of the awards and options. Non-cash share-
based compensation expense of $10.8 million, $11.4 million and $7.8 million was recognized for fiscal 2009,
2008 and 2007, respectively. This included less than $0.1 million, $0.6 million and $0.6 million, for fiscal 2009,
2008 and 2007, respectively, associated with stock options and $10.8 million, $10.8 million and $7.2 million for
fiscal 2009, 2008 and 2007, respectively, associated with stock grants. The company issued stock grants with
a fair value of $16.1 million in 2009, $11.4 million in 2008 and $23.9 million in 2007.
As of January 2, 2010, there was $23.8 million of total unrecognized compensation cost related to
nonvested share-based stock grant compensation arrangements, which will be recognized over a weighted
average life of 1.6 years. The unrecognized compensation cost includes $8.3 million resulting from the
cancelation and reissuance of certain restricted share grants to certain key employees.
57
The fair value of restricted share grant awards for which vesting is subject to market conditions have
been estimated using binomial option-pricing models, based on the average market price at the grant date and
the weighted average assumptions specific to those option and share grant awards. Share grant awards not
subject to market conditions for vesting are valued at the closing share price of the company as of the date of
the grant. Expected volatility assumptions are based on historical volatility of the company’s stock. Expected
life assumptions are based on the “simplified” method as described in SEC SAB No. 107, which is the midpoint
between the vesting date and the end of the contractual term. The risk-free interest rate was selected based
upon yields of U.S. Treasury issues with a term equal to the expected life of the option being valued. The
company issued 335,614, 266,500 and 535,000 restricted share grant awards in 2009, 2008 and 2007,
respectively. The weighted average assumptions utilized for restricted share grants during the periods
presented are as follows:
Restricted share grant award
assumptions (weighted average):
Volatility
Expected life (years)
Risk-free interest rate
Dividend yield
2009
2008
2007
N/A
N/A
N/A
N/A
37.8%
4.0
2.9%
0.0%
37.5%
3.3
4.5%
0.0%
Fair value
$47.78
$42.87
$46.38
In 2009, all restricted share grants awarded were not subject to market conditions.
In December 2009, the company’s Board of Directors approved the cancellation of the unvested portion
of certain previously awarded restricted share grants to the company’s key employees. In December, 2009, the
company’s Board of Directors also approved a new issuance of restricted share grants to certain of the
company’s key employees.
(q)
Earnings Per Share
In accordance with ASC 260, “Earnings Per Share” is calculated based upon the weighted average
number of common shares actually outstanding, and “diluted earnings per share” is calculated based upon the
weighted average number of common shares outstanding, warrants and other dilutive securities.
The company’s potentially dilutive securities consist of shares issuable on exercise of outstanding options
and vesting of restricted stock grants computed using the treasury method and amounted to 969,000, 1,052,000
and 1,244,000 for fiscal 2009, 2008 and 2007, respectively.
58
(r)
Consolidated Statements of Cash Flows
Cash paid for interest was $10.6 million, $11.2 million and $6.0 million in fiscal 2009, 2008 and 2007,
respectively. Cash payments totaling $34.6 million, $35.0 million and $35.8 million were made for income taxes
during fiscal 2009, 2008 and 2007, respectively.
(s)
New Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board (“FASB”) issued ASC 805, “Business
Combinations”. This statement provides companies with principles and requirements on how an acquirer
recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and
any noncontrolling interest in the acquiree as well as the recognition and measurement of goodwill acquired in a
business combination. This statement also requires certain disclosures to enable users of the financial
statements to evaluate the nature and financial effects of the business combination. Acquisition costs
associated with the business combination will generally be expensed as incurred. This statement is effective for
business combinations occurring in fiscal years beginning after December 15, 2008. Early adoption of ASC
805 was not permitted. The company adopted this statement on January 4, 2009, including the acquisition of
TurboChef. Accordingly, the company has applied the principles of ASC 805 in valuing this acquisition.
Middleby shares of common stock which were issued in conjunction with this transaction were valued using the
share price at the time of closing to determine the value of the purchase price. Additionally, the company
incurred approximately $4.6 million in transaction related expenses which were recorded as a deferred
acquisition cost reported as an asset on the balance sheet on January 3, 2009. Upon adoption of the new
standard guidance, the company recorded a charge to retained earnings of $4.6 million.
In December 2007, the FASB issued ASC 810-10, “Consolidation”. This statement establishes
accounting and reporting standards for the noncontrolling interest (minority interest) in a subsidiary and for the
deconsolidation of a subsidiary. Upon its adoption, effective as of the beginning of the company’s 2009 fiscal
year, noncontrolling interests will be classified as equity in the company’s financial statements and income and
comprehensive income attributed to the noncontrolling interest will be included in the company’s income and
comprehensive income. The provisions of this standard must be applied retrospectively upon adoption. The
adoption of ASC 810-10 “Consolidation” did not have a material impact on the company’s financial position,
results of operations or cash flows.
In December 2008, the FASB issued ASC 715-20 “Compensation-Retirement Benefits.” This statement
requires disclosures about assets held in an employer’s defined benefit pension or other postretirement plan.
This statement requires the disclosure of the percentage of the fair value of total plan assets for each major
category of plan assets, such as equity securities, debt securities, real estate and all other assets, with the fair
value of each major asset category as of each annual reporting date for which a financial statement is
presented. It also requires disclosure of the level within the fair value hierarchy in which each major category of
plan assets falls, using the guidance in ASC 820, “Fair Value Measurements and Disclosures.” This statement
is applicable to employers that are subject to the disclosure requirements and is generally effective for fiscal
years ending after December 15, 2009. The adoption of ASC 715-20 “Compensation-Retirement Benefits” did
not have a material impact on the company’s financial position, results of operations or cash flows.
59
(4)
FINANCING ARRANGEMENTS
The following is a summary of long-term debt at January 2, 2010 and January 3, 2009:
2009
2008
(dollars in thousands)
Senior secured revolving credit line .....................
Foreign loans .......................................................
$265,900
9,741
$226,350
8,350
Total debt
$275,641
$234,700
Less current maturities of
long-term debt ....................................
7,517
6,377
Long-term debt
$268,124
$228,323
Terms of the company’s senior credit agreement provide for $497.8 million of availability under a
revolving credit line. As of January 2, 2010, the company had $265.9 million of borrowings outstanding under
this facility. The company also has $7.8 million in outstanding letters of credit, which reduces the borrowing
availability under the revolving credit line. Remaining borrowing availability under this facility, which is also
reduced by the company’s foreign borrowings, was $214.4 million at January 2, 2010.
At January 2, 2010, borrowings under the senior secured credit facility were assessed at an interest
rate at 1.25% above LIBOR for long-term borrowings or at the higher of the Prime rate and the Federal Funds
Rate. At January 2, 2010, the average interest rate on the senior debt amounted to 1.56%. The interest rates
on borrowings under the senior bank facility may be adjusted quarterly based on the company’s defined
indebtedness ratio on a rolling four-quarter basis. Additionally, a commitment fee, based upon the
indebtedness ratio is charged on the unused portion of the revolving credit line. This variable commitment fee
amounted to 0.20% as of January 2, 2010.
In August 2006, the company completed its acquisition of Houno A/S in Denmark. This acquisition was
funded in part with locally established debt facilities with borrowings in Danish Krone. On January 2, 2010,
these facilities amounted to $3.2 million in U.S. dollars, including $1.2 million outstanding under a revolving
credit facility and $2.0 million of a term loan. The interest rate on the revolving credit facility is assessed at
1.25% above Euro LIBOR, which amounted to 4.15% on January 2, 2010. The term loan matures in 2013 and
the interest rate is assessed at 5.46%.
In April 2008, the company completed its acquisition of Giga Grandi Cucine S.r.l. in Italy. This
acquisition was funded in part with locally established debt facilities with borrowings denominated in Euro. On
January 3, 2009, these facilities amounted to $5.1 million in U.S. dollars. The interest rate on the credit
facilities is tied to six-month Euro LIBOR. The facilities mature in April of 2015. At January 2, 2010, the
average interest rate on these facilities was approximately 4.0%.
In December 2009, the company completed its acquisition of Doyon in Canada. This acquisition was
funded in part with locally established debt facilities with borrowings denominated in Canadian Dollars. On
January 2, 2010 these facilities amounted to $1.4 million in U.S. dollars. The borrowings under these facilities
are collateralized by the assets of the company. The interest rate on these credit facilities is assessed at
0.75% above the prime rate. At January 2, 2010, the average interest rate on these facilities was
approximately 3.5%. These facilities mature in 2010.
60
In April 2009, the FASB issued ASC 825 “Financial Instruments” and ASC 270 “Interim Reporting”,
which requires disclosures of fair value for any financial instruments not currently reflected at fair value on the
balance sheet for all interim periods. This statement is effective for interim financial periods ending after June
15, 2009. The company has complied with the disclosure requirements of these statements after its effective
date. As ASC 270 relates to disclosure requirements, the adoption of this statement did not have a material
impact on the company’s financial position, results of operations or cash flows.
The company’s debt is reflected on the balance sheet at cost. Based on current market conditions, the
company believes its interest rate margins on its existing debt are below the rate available in the market, which
causes the fair value of debt to fall below the carrying value. The company believes the current interest rate
margin is approximately 1.0% below current market rates. However, as the interest rate margin is based upon
numerous factors, including but not limited to the credit rating of the borrower, the duration of the loan, the
structure and restrictions under the debt agreement, current lending policies of the counterparty, and the
company’s relationships with its lenders, there is no readily available market data to ascertain the current
market rate for an equivalent debt instrument. As a result, the current interest rate margin is based upon the
company’s best estimate based upon discussions with its lenders.
The company estimated the fair value of its loans by calculating the upfront cash payment a market
participant would require to assume the company’s obligations. The upfront cash payment is the amount that a
market participant would be able to lend at January 2, 2010 to achieve sufficient cash inflows to cover the cash
outflows under the company’s senior revolving credit facility assuming the facility was outstanding in its entirety
until maturity. Since the company maintains its borrowings under a revolving credit facility and there is no
predetermined borrowing or repayment schedule, for purposes of this calculation the company calculated the
fair value of its obligations assuming the current amount of debt at the end of the period was outstanding until
the maturity of the company’s senior revolving credit facility in December 2012. Although borrowings could be
materially greater or less than the current amount of borrowings outstanding at the end of the period, it is not
practical to estimate the amounts that may be outstanding during future periods. The fair value of the
company’s senior debt obligations as estimated by the company based upon its assumptions is approximately
$267.6 million at January 2, 2010, as compared to the carrying value of $275.6 million.
The carrying value and estimated aggregate fair value, based primarily on market prices, of debt is as
follows (dollars in thousands):
Total debt
$275,641
$267,632
$234,700
Carrying Value
Fair Value
Carrying Value
Fair Value
$225,697
January 2, 2010
January 3, 2009
The company believes that its current capital resources, including cash and cash equivalents, cash
generated from operations, funds available from its revolving credit facility and access to the credit and capital
markets will be sufficient to finance its operations, debt service obligations, capital expenditures, product
development and integration expenditures for the foreseeable future.
61
The company has historically entered into interest rate swap agreements to effectively fix the interest
rate on a portion of its outstanding debt. The agreements swap one-month LIBOR for fixed rates. As of
January 2, 2010 the company had the following interest rate swaps in effect:
Notional
Amount
15,000,000
20,000,000
25,000,000
10,000,000
10,000,000
15,000,000
10,000,000
10,000,000
10,000,000
20,000,000
25,000,000
Fixed
Interest
Rate
1.220%
1.800%
3.670%
2.920%
3.460%
3.130%
3.032%
2.785%
3.590%
3.350%
3.350%
Effective
Date
Maturity
Date
11/23/09
11/23/09
09/26/08
02/01/08
09/08/08
09/08/08
02/06/08
02/06/08
06/10/08
06/10/08
01/14/08
11/23/11
11/23/12
09/23/11
02/01/10
09/06/11
09/06/10
02/06/11
02/06/10
06/10/11
06/10/10
01/14/10
The terms of the senior secured credit facility limit the paying of dividends, capital expenditures and
leases, and require, among other things, certain ratios of indebtedness of 3.5 debt to earnings before interest,
taxes, depreciation and amortization (“EBITDA”) and fixed charge coverage of 1.25 EBITDA to fixed charges.
The credit agreement also provides that if a material adverse change in the company’s business operations or
conditions occurs, the lender could declare an event of default. Under terms of the agreement a material
adverse effect is defined as (a) a material adverse change in, or a material adverse effect upon, the operations,
business properties, condition (financial and otherwise) or prospects of the company and its subsidiaries taken
as a whole; (b) a material impairment of the ability of the company to perform under the loan agreements and to
avoid any event of default; or (c) a material adverse effect upon the legality, validity, binding effect or
enforceability against the company of any loan document. A material adverse effect is determined on a
subjective basis by the company's creditors. The credit facility is secured by the capital stock of the company’s
domestic subsidiaries, 65% of the capital stock of the company’s foreign subsidiaries and substantially all other
assets of the company. At January 2, 2010, the company was in compliance with all covenants pursuant to its
borrowing agreements.
The aggregate amount of debt payable during each of the next five years is as follows:
(dollars in thousands)
2010 .................................................
2011 .................................................
2012 .................................................
2013 .................................................
2014 .................................................
2015 and thereafter..........................
$ 7,517
355
266,205
290
219
1,055
$275,641
62
(5)
COMMON AND PREFERRED STOCK
(a)
Shares Authorized and Issued
At January 2, 2010 and January 3, 2009 the company had 47,500,000, shares of common
stock and 2,000,000 shares of Non-voting Preferred Stock authorized. At January 2, 2010, there were
18,552,737 shares of common stock outstanding.
(b)
Treasury Stock
In July 1998, the company's Board of Directors adopted a stock repurchase program and
during 1998 authorized the purchase of up to 1,800,000 common shares in open market purchases.
As of January 2, 2010, 1,172,668 shares had been purchased under the 1998 stock repurchase
program and 627,332 remain authorized for repurchase.
At January 2, 2010, the company had a total of 4,069,913 shares in treasury amounting to
$102.0 million.
(c) Share-Based Awards
The company maintains a 1998 Stock Incentive Plan (the "1998 Plan"), as amended on
December 15, 2003, under which the company's Board of Directors issued stock options and made
restricted share grants to key employees. Effective February 15, 2008 and in accordance with plan
parameters, the company is no longer permitted to make grants under the 1998 Plan. Accordingly, no
shares are available for issuance under the 1998 Plan. Stock options issued under the plan provide
key employees with rights to purchase shares of common stock at specified exercise prices. Options
may be exercised upon certain vesting requirements being met, but expire to the extent unexercised
within a maximum of ten years from the date of grant. Restricted share grants issued to employees are
transferable upon certain vesting requirements being met.
The company also maintains a 2007 Stock Incentive Plan (the "2007 Plan"), as amended on
May 7, 2009, under which the company's Board of Directors issues stock options and restricted share
grants to key employees. A maximum amount of 900,000 shares can be issued under the 2007 Plan.
Stock options issued under the plan provide key employees with rights to purchase shares of common
stock at specified exercise prices. Options may be exercised upon certain vesting requirements being
met, but expire to the extent unexercised within a maximum of ten years from the date of grant.
Restricted share grants issued to employees are transferable upon certain vesting requirements being
met.
In December 2009, the company’s Board of Directors approved the cancellation of 335,614
previously awarded and unvested restricted share grants to the company’s key employees. On the
same day, the company’s Board of Directors also approved a new issuance of 335,614 restricted share
grants to certain of the company’s key employees.
As of January 2, 2010, a total of 3,363,506 share based awards have been issued under the
1998 Plan. This includes 928,186 restricted share grants, of which 174,729 remain unvested and
123,514 have been cancelled. This also includes 2,435,320 stock options, of which 1,680,932 have
been exercised and 759,388 remain outstanding.
As of January 2, 2010, a total of 729,477 share based awards have been issued under the
2007 Plan. This includes 721,614 restricted share grants, of which 504,514 remain outstanding and
unvested.
The company issues share-based awards from shares that have been authorized as new share
issuances. The company does not anticipate it will be required to repurchase any additional shares of
common stock in 2010 to satisfy obligations under its share-based award programs.
63
A summary of stock option activity under the 1998 Stock Incentive Plan is presented below:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
Aggregate
Intrinsic
Value
$ 10.04
--
$ 13.23
--
$ 9.92
4.52
3.80
3.54
$14.640
$14.092
$29.690
Shares
788,388
--
(29,000)
--
759,388
Outstanding at January 3, 2009:
Granted
Exercised
Forfeited
Outstanding at January 2, 2010:
Exercisable at January 2, 2010:
759,388
$ 9.92
3.54
$29.690
Vested or expected to vest
At January 2, 2010
759,388
$ 9.92
3.54
$29.690
A summary of stock option activity under the 2007 Stock Incentive Plan is presented below:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
Aggregate
Intrinsic
Value
Shares
Outstanding at January 3, 2009:
Granted
Exercised
Forfeited
Outstanding at January 2, 2010:
--
7,863
(300)
(3,821)
3,742
$ --
$ 70.24
$ 14.56
$115.25
$ 28.75
2.41
$ 76.00
Exercisable at January 2, 2010:
3,742
$ 28.75
2.41
$ 76.00
Vested or expected to vest
At January 2, 2010
3,742
$ 28.75
2.41
$ 76.00
64
A summary of the company’s nonvested restricted share grant activity under the 1998 and 2007
Stock Incentive Plans and related information for fiscal years ended December 29, 2007, January 3, 2009 and
January 2, 2010 is as follows:
Shares
Weighted Average
Grant-Date
Fair Value
Nonvested Shares
Nonvested shares at December 29, 2007
904,000
Granted
Vested
Forfeited
266,500
(336,457)
(4,800)
Nonvested shares at January 3, 2009
829,243
Granted
Vested
Forfeited
Cancelled
335,614
(140,000)
(10,000)
(335,614)
Nonvested shares at January 2, 2010
679,243
$30.15
$56.91
$50.85
$84.09
$72.33
$47.78
$26.42
$58.13
$60.88
$53.61
Additional information related to the share based compensation is as follows:
2009
2008
(dollars in thousands)
2007
Intrinsic value of options exercised
Cash received from exercise
Tax benefit from option exercises
$ 1,091
391
335
$ 985
270
166
$ 28,595
4,548
10,340
65
(7)
INCOME TAXES
Earnings before taxes is summarized as follows:
2009
2008
2007
(dollars in thousands)
Domestic ......................................................... $ 96,788
2,938
Foreign ............................................................
$ 99,726
Total ................................................................
$ 97,307 $ 81,371
6,915
6,608
$104,222 $ 87,979
The provision for income taxes is summarized as follows:
2009
2008
2007
(dollars in thousands)
Federal ............................................................
State and local ................................................
Foreign ............................................................
Total ................................................................
$31,359
6,100
1,111
$ 38,570
$31,936 $27,452
5,758
5,719
2,666
2,155
$ 40,321 $ 35,365
Current ............................................................
Deferred ..........................................................
Total ................................................................
$ 27,447
11,123
$ 38,570
$ 41,863 $ 30,783
(1,542)
4,582
$ 40,321 $ 35,365
Reconciliation of the differences between income taxes computed at the federal statutory rate to the
effective rate are as follows:
U.S. federal statutory tax rate ...........................
2009
35.0%
2008
35.0%
2007
35.0%
Permanent book vs. tax
differences....................................................
State taxes, net of federal
benefit...........................................................
U.S. taxes on foreign earnings and
foreign tax rate differentials..........................
Reserve adjustments and other ........................
(2.3)
(2.4)
(1.1)
4.0
3.4
4.3
(0.7)
2.7
1.3
1.4
0.9
1.1
Consolidated effective tax.................................
38.7%
38.7%
40.2%
66
At January 2, 2010 and January 3, 2009, the company had recorded the following deferred tax assets
and liabilities, which were comprised of the following:
2009
2008
(dollars in thousands)
Deferred tax assets:
Federal NOL carryforwards
Compensation related ............................................................
Accrued retirement benefits .......................................................
Warranty reserves......................................................................
Product liability and workers comp reserves .........................
Receivable related reserves ..................................................
Interest rate swap.......................................................................
Inventory reserves..................................................................
UNICAP ......................................................................................
Accrued plant closure.................................................................
State NOL carryforward
Foreign NOL carryforwards....................................................
Other ...........................................................................................
Gross deferred tax assets...................................................
Valuation allowance ...............................................................
Deferred tax assets .......................................................
Deferred tax liabilities: ...................................................................
Intangible assets ....................................................................
Foreign tax earnings repatriation ...........................................
Depreciation ...........................................................................
LIFO reserves ........................................................................
Other
$ 34,512
6,633
4,114
4,068
2,455
1,984
1,019
4,359
1,562
1,821
295
429
6,525
69,776
(429)
$ 69,347
$ (56,718)
(2,053)
(462)
(357)
(605)
Deferred tax liabilities....................................................
$ (60,195)
$ --
4,123
3,900
3,744
3,061
2,610
2,123
1,882
1,383
895
--
363
5,210
29,294
(363)
$ 28,931
$ (39,693)
(3,012)
(539)
(448)
(539)
$ (44,231)
Net deferred tax assets (liabilities)
$ 9,152
$ (15,300)
Current deferred asset (liability)
Long-term deferred asset (liability)
Net deferred tax assets (liabilities)
$23,339
(14,187)
$ 9,152
$18,387
(33,687)
$ (15,300)
The company recorded $53.8 million of deferred tax assets and $22.6 million of deferred tax liabilities in
conjunction with the acquisition of TurboChef Technologies, Inc. during fiscal 2009. This net deferred tax asset
was reflected in the opening balance sheet and in the determination of goodwill.
The company does not provide for deferred taxes on the excess of the financial reporting over the tax
basis in our investments in foreign subsidiaries that are essentially permanent in duration. That excess totaled
$4.1 million as of January 2, 2010. The determination of the additional deferred taxes that have not been
provided is not practicable.
67
As of January 2, 2010, the company has federal and state income tax net operating loss carryforwards
of approximately $99 million which are subject to annual utilization limitations pursuant to Internal Revenue
Code Section 382. If not utilized, the federal and state net operating loss carryforwards will expire between
various dates beginning 2019 through 2028. The company also has foreign net operating loss carryforwards of
$0.4 million as of January 2, 2010 which are subject to varying expiration dates.
Valuation allowances are established when it is estimated that it is more likely than not that the tax
benefit of the deferred tax asset will not be realized. The valuation allowances recorded at January 2, 2010
relate to net operating loss carryforwards at certain foreign operations of the company.
Although the company believes its tax returns are correct, the final determination of tax examinations
may be different than what was reported on the tax returns. In the opinion of management, adequate tax
provisions have been made for the years subject to examination.
On December 31, 2006, the company adopted the provisions of ASC 740 “Income Taxes”. This
interpretation prescribes a comprehensive model for how a company should recognize, measure, present and
disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a
tax return. ASC 740 states that a tax benefit from an uncertain tax position may be recognized only if it is “more
likely than not” that the position is sustainable, based on its technical merits. The tax benefit of a qualifying
position is the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement
with a taxing authority having full knowledge of all relevant information.
As of the adoption date, the total amount of liability for unrecognized tax benefits related to federal,
state and foreign taxes was approximately $5.7 million plus approximately $0.5 million of accrued interest and
$0.8 million of penalties. As of January 2, 2010, the corresponding balance of liability for unrecognized tax
benefits was approximately $20.3 million (of which $12.9 million would impact the effective tax rate if
recognized) plus approximately $2.0 million of accrued interest and $2.2 million of penalties. The company
recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense, which is
consistent with reporting in prior periods. The interest and penalties reported within the 2009 income statement
are approximately $0.7 million of interest and $0.5 million of penalties.
The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years
ended December 29, 2007, January 3, 2009 and January 2, 2010 (dollars in thousands):
Balance at December 30, 2006
Increase to current year tax positions
Expiration of the statute of limitations for
The assessment of taxes
Balance at December 29, 2007
Increases to current year tax positions
Increase to prior tear tax positions
Expiration of the statue of limitations for the
assessment of taxes
Balance at January 3, 2009
Increases to current year tax positions
Increase to prior year tax positions
Decrease to prior year tax positions
Balance at January 2, 2010
$ 5,732
3,235
(1,301)
$ 7,666
4,156
835
(2,285)
$ 10,372
3,316
7,474
(911)
$ 20,251
68
The company operates in multiple taxing jurisdictions; both within the United States and outside of the
United States, and faces audits from various tax authorities. The company remains subject to examination until
the statute of limitations expires for the respective tax jurisdiction. Within specific countries, the company and its
operating subsidiaries may be subject to audit by various tax authorities and may be subject to different statute
of limitations expiration dates.
It is reasonably possible that the amounts of unrecognized tax benefits associated with state, federal and
foreign tax positions may decrease over the next twelve months due to expiration of a statute or completion of
an audit. The company believes that it is reasonably possible that approximately $0.8 million of our currently
remaining unrecognized tax benefits, each of which are individually insignificant, may be recognized by the end
of 2010 as a result of settlements with taxing authorities or lapses of statute of limitations.
A summary of the tax years that remain subject to examination in the company’s major tax jurisdictions are:
United States – federal ........................... 2007 – 2009
United States – states............................. 2002 – 2009
China....................................................... 2002 – 2009
Denmark.................................................. 2006 – 2009
Mexico..................................................... 2005 – 2009
Philippines............................................... 2006 – 2009
South Korea ............................................ 2005 – 2009
Spain ....................................................... 2007 – 2009
Taiwan..................................................... 2007 – 2009
United Kingdom ...................................... 2007 – 2009
Italy.......................................................... 2008 – 2009
(8)
FINANCIAL INSTRUMENTS
ASC 815 “Derivatives and Hedging” requires an entity to recognize all derivatives as either assets or
liabilities and measure those instruments at fair value. Derivatives that do not qualify as a hedge must be
adjusted to fair value in earnings. If the derivative does qualify as a hedge under ASC 815, changes in the fair
value will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments
or recognized in other accumulated other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a hedge's change in fair value will be immediately recognized in earnings.
(a)
Foreign Exchange
The company periodically enters into derivative instruments, principally forward contracts to reduce
exposures pertaining to fluctuations in foreign exchange rates. The fair value of these forward contracts was
less than $0.1 million at the end of the year.
(b)
Interest Rate
The company has entered into interest rate swaps to fix the interest rate applicable to certain of its
variable-rate debt. The agreements swap one-month LIBOR for fixed rates. The company has designated
these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated
other comprehensive income. As of January 2, 2010, the fair value of these instruments was a loss of $3.0
million. The change in fair value of these swap agreements in 2009 was a gain of $ 1.5 million, net of taxes.
69
A summary of the company’s interest rate swaps is as follows:
Twelve Months Ended
Location
Jan 2, 2010
Jan 3, 2009
(amounts in thousands)
Fair value
Other liabilities
$ (2,966)
$ (5,727)
Amount of gain/(loss) recognized
in other comprehensive income
Gain/(loss) reclassified from
accumulated other comprehensive
income (effective portion)
Gain/(loss) recognized in income
(ineffective portion)
Other comprehensive income
$ (2,332)
$ (5,671)
Interest expense
$ (5,093)
$ (478)
Other expense
$ --
$ (180)
Interest rate swaps are subject to default risk to the extent the counterparty is unable to satisfy its
settlement obligations under the interest rate swap agreements. The company reviews the credit profile of the
financial institutions that are counterparties to such swap agreements and assesses their creditworthiness prior
to entering into the interest rate swap agreements and throughout the term. The interest rate swap agreements
typically contain provisions that allow the counterparty to require early settlement in the event that the company
becomes insolvent or is unable to maintain compliance with its covenants under its existing debt agreement.
(9)
LEASE COMMITMENTS
The company leases warehouse space, office facilities and equipment under operating leases, which
expire in fiscal 2010 and thereafter. The company also has lease obligations for manufacturing facilities that
was exited in conjunction with manufacturing consolidation efforts in 2001 and 2009. Future payment
obligations under these leases are as follows:
Operating
Leases
Idle
Facility
Leases
Total Lease
Commitments
(dollars in thousands)
2010 ...................................... $ 4,068
3,886
2011 ......................................
2,903
2012 ......................................
1,525
2013 ......................................
951
2014 .....................................
266
2015 and thereafter...............
$ 746
753
588
382
386
244
$ 4,814
4,639
3,491
1,907
1,337
510
$ 13,599
$ 3,099
$ 16,698
Rental expense pertaining to the operating leases was $5.6 million, $4.2 million, and $1.7 million in
fiscal 2009, 2008, and 2007, respectively.
70
The idle lease obligations relate to a manufacturing facility in Quakertown, Pennsylvania and Verdi,
Nevada that were exited in 2001 and 2009, respectively. Obligations under these leases extend through June
2015 and June 2012, respectively. The company has established reserves of $2.8 million to cover the costs of
obligations under these leases, net of anticipated sublease income. Management believes the remaining
reserve balance is adequate to cover costs associated with the lease obligation. However, the forecast of
sublease income could differ from actual amounts, which are subject to the occupancy by a subtenant and a
negotiated sublease rental rate. If the company's estimates or underlying assumptions change in the future, the
company would be required to adjust the reserve amount accordingly.
(10)
SEGMENT INFORMATION
The company operates in three reportable operating segments defined by management reporting
structure and operating activities.
The Commercial Foodservice Equipment Group manufactures cooking equipment for restaurants and
institutional kitchens. This business division has manufacturing facilities in California, Illinois, Michigan, New
Hampshire, North Carolina, Tennessee, Texas, Vermont, Canada, China, Denmark, Italy and the Philippines.
Principal product lines of this group include conveyor ovens, ranges, steamers, convection ovens, combi-ovens,
broilers and steam cooking equipment, induction cooking systems, baking and proofing ovens, griddles,
charbroilers, catering equipment, fryers, toasters, hot food servers, foodwarming equipment, griddles and
coffee and beverage dispensing equipment. These products are sold and marketed under the brand names:
Anets, Blodgett, Blodgett Combi, Blodgett Range, Bloomfield, CTX, Carter-Hoffmann, CookTek, Doyon, Frifri,
Giga, Holman, Houno, Jade, Lang, MagiKitch’n, Middleby Marshall, Nu-Vu, Pitco, Southbend, Star,
Toastmaster, TurboChef and Wells.
The Food Processing Equipment Group manufactures preparation, cooking, packaging and food safety
equipment for the food processing industry. This business division has manufacturing operations in Wisconsin.
Its principal products include batch ovens, belt ovens and conveyorized cooking systems sold under the Alkar
brand name, packaging and food safety equipment sold under the RapidPak brand name and breading,
battering, mixing, slicing and forming equipment sold under the MP Equipment brand name.
The International Distribution Division provides product sales, distribution, export management,
integrated design, and installation services through its operations in Australia, Belgium, China, France,
Germany, India, Italy, Lebanon, Mexico, the Philippines, Russia, Saudi Arabia, Singapore, South Korea, Spain,
Sweden, Taiwan, United Arab Emirates and the United Kingdom. The division sells the company’s product
lines and certain non-competing complementary product lines throughout the world. For a local country
distributor or dealer, the company is able to provide a centralized source of foodservice equipment with
complete export management and product support services.
The accounting policies of the segments are the same as those described in the summary of significant
accounting policies. The chief decision maker evaluates individual segment performance based on operating
income. Management believes that intersegment sales are made at established arms length transfer prices.
71
The following table summarizes the results of operations for the company’s business segments1
(dollars in thousands):
Commercial
Foodservice
Food
Processing
International
Distribution
Corporate
and Other(2)
Eliminations(3)
Total
2009
Net sales
$558,677
$ 65,925
$ 52,772
$ --
$ (30,745)
$646,629
Operating income
126,480
12,193
3,069
(31,309)
1,008
111,441
Depreciation and
amortization expense
Net capital expenditures
Total assets
Long-lived assets
2008
Net sales
13,958
5,055
674,535
526,802
1,350
20
69,137
43,518
176
194
24,989
448
403
461
53,183
28,552
--
--
(5,498)
--
15,888
5,730
816,346
599,320
$547,351
$ 78,510
$ 62, 427
$ --
$ (36,400)
$651,888
Operating income
134,462
13,540
4,833
(34,722)
1,505
119,618
Depreciation and
amortization expense
Net capital expenditures
Total assets
Long-lived assets
2007
Net sales
10,441
3,733
525,476
371,314
1,650
389
66,183
43,459
196
154
24,857
518
(397)
61
44,960
29,510
--
--
(6,978)
--
11,890
4,337
654,498
444,801
$403,735
$ 70,467
$ 62,476
$ --
$ (36,206)
$500,472
Operating income
95,822
15,324
4,645
(23,853)
995
92,933
Depreciation and
amortization expense
Net capital expenditures
Total assets
Long-lived assets
4,572
2,906
279,751
168,422
1,260
92
79,928
46,405
156
234
29,914
660
128
79
32,567
11,747
--
--
(8,513)
--
6,116
3,311
413,647
227,234
(1) Non-operating expenses are not allocated to the operating segments. Non-operating expenses consist of interest
expense and deferred financing amortization, foreign exchange gains and losses and other income and expense items
outside of income from operations.
(2) Includes corporate and other general company assets and operations.
(3) Includes elimination of intercompany sales, profit in inventory, and intercompany receivables. Intercompany sale
transactions are predominantly from the Commercial Foodservice Equipment Group to the International Distribution
Division.
Long-lived assets by major geographic region are as follows:
2009
2008
2007
(dollars in thousands)
United States and Canada
$571,688
$423,379
$223,292
Asia
Europe and Middle East
Latin America
Total international
1,878
25,546
208
2,061
19,133
228
1,929
2,013
--
27,632
21,422
3,942
$599,320
$444,801
$227,234
72
Net sales by each major geographic region are as follows:
2009
2008
2007
(dollars in thousands)
United States and Canada
$530,644
$529,637
$399,151
Asia
Europe and Middle East
Latin America
Total international
28,936
69,773
17,276
115,985
34,516
69,046
18,689
122,251
30,561
53,646
17,114
101,321
$646,629
$651,888
$500,472
(11)
EMPLOYEE RETIREMENT PLANS
(a)
Pension Plans
The company maintains a non-contributory defined benefit plan for its employees at Smithville,
Tennessee facility, which was acquired as part of the Star acquisition. Benefits are determined based upon
retirement age and years of service with the company. This defined benefit plan was frozen on April 1, 2008
and no further benefits accrue to the participants beyond this date. Plan participants will receive or continue to
receive payments for benefits earned on or prior to April 1, 2008 upon reaching retirement age.
The company maintains a non-contributory defined benefit plan for its union employees at the Elgin,
Illinois facility. Benefits are determined based upon retirement age and years of service with the company. This
defined benefit plan was frozen on April 30, 2002 and no further benefits accrue to the participants beyond this
date. Plan participants will receive or continue to receive payments for benefits earned on or prior to April 30,
2002 upon reaching retirement age. The employees participating in the defined benefit plan were enrolled in a
newly established 401K savings plan on July 1, 2002, further described below.
The company also maintains a retirement benefit agreement with its Chairman. The retirement benefits
are based upon a percentage of the Chairman’s final base salary. Additionally, the company maintains a
retirement plan for non-employee directors participating on the Board of Directors prior to 2004. This plan is not
available to any new non-employee directors. The plan provides for an annual benefit upon a change in control
of the company or retirement from the Board of Directors at age 70, equal to 100% of the director’s last annual
retainer, payable for a number of years equal to the director’s years of service up to a maximum of 10 years.
73
A summary of the plans’ net periodic pension cost, benefit obligations, funded status, and net balance
sheet position is as follows:
Net Periodic Pension Cost:
Service cost
Interest cost
Expected return on assets
Amortization of net (gain) loss
Pension settlement
Change in Benefit Obligation:
2009
Smithville
Plan
2009
Elgin
Plan
(dollars in thousands)
2009
Director
Plans
2008
Smithville
Plan
2008
Elgin
Plan
2008
Director
Plans
$ --
$ --
$ 1,029
$ --
$ --
$ 993
620
(483)
155
--
239
(168)
150
--
357
--
--
(120)
582
(602)
--
--
267
(230)
119
--
288
--
--
--
$ 292
$ 221
$ 1,266
$ (20)
$ 156
$ 1,281
Benefit obligation – beginning of year
$ 10,212
$ 4,288
$ 5,087
$ 10,215
$ 4,627
$ 3,975
Service cost
Interest on benefit obligations
Actuarial (gains) losses
Pension settlement
Net benefit payments
--
620
228
--
(239)
--
239
(158)
--
(273)
1,029
357
--
(120)
(200)
--
582
(391)
--
(194)
--
267
(305)
--
(301)
993
288
(169)
--
--
Benefit obligation – end of year
$ 10,821
$ 4,096
$ 6,153
$ 10,212
$ 4,288
$ 5,087
Change in Plan Assets:
Plan assets at fair value – beginning of
year
Company contributions
Investment (loss) gain
Benefit payments and plan expenses
$ 6,850
250
665
(239)
$ 3,211
--
251
(273)
$ --
200
--
(200)
$ 8,502
700
(2,158)
(194)
$ 4,013
--
(502)
(301)
$ --
--
--
--
Plan assets at fair value – end of year
$ 7,526
$ 3,189
$ --
$ 6,850
$ 3,210
$ --
Funded Status:
Unfunded benefit obligation
Amounts recognized in balance sheet
at year end:
Other Noncurrent liabilities
Pre-tax components in accumulated
other comprehensive income:
Net actuarial loss
Net prior service cost
Net transaction (asset) obligations
$ (3,295)
$ (907)
$ (6,153)
$ (3,362)
$ (1,078)
$ (5,087)
$ (3,295)
$ (907)
$ (6,153)
$ (3,362)
$ (1,078)
$ (5,087)
$ 2,260
$ 1,471
$ --
$ 2,370
$ 1,863
$ --
--
--
--
--
--
--
--
--
--
--
--
--
Total amount recognized
$ 2,260
$ 1,471
$ --
$ 2,370
$ 1,863
$ --
Accumulated Benefit Obligation
$ 10,821
$ 4,096
$ 4,065
$ 10,212
$ 4,288
$ 3,417
Salary growth rate
Assumed discount rate
Expected return on assets
n/a
6.0%
7.0%
n/a
6.0%
5.5%
10.0%
6.0%
n/a
n/a
6.0%
7.0%
n/a
6.0%
5.5%
10.0%
6.0%
n/a
74
The company has engaged a non-affiliated third party professional investment advisor to assist the
company to develop its investment policy and establish asset allocations. The company's overall investment
objective is to provide a return, that along with company contributions, is expected to meet future benefit
payments. Investment policy is established in consideration of anticipated future timing of benefit payments
under the plans. The anticipated duration of the investment and the potential for investment losses during that
period are carefully weighed against the potential for appreciation when making investment decisions. The
company routinely monitors the performance of investments made under the plans and reviews investment
policy in consideration of changes made to the plans or expected changes in the timing of future benefit
payments.
The assets of the plans were invested in the following classes of securities (none of which were
securities of the company):
Elgin Plan
Equity
Fixed income
Money market
Other (RE + Commodities)
Smithville Plan
Equity
Fixed income
Money market
Other (RE + Commodities)
Target Allocation
Percentage of Plan Assets
2008
2009
48 %
40
5
7
24%
48
23
5
100%
21%
1
78
--
100%
Target Allocation
Percentage of Plan Assets
2008
2009
48 %
40
5
7
36%
1
58
5
100%
50%
46
--
4
100%
75
In accordance with ASC 820 “Fair Value Measurements and Disclosures”. the company has measured
its defined benefit pension plans at fair value. The following tables summarize the basis used to measure the
pension plans’ assets at fair value as of January 2, 2010 (in thousands):
Elgin Plan
Asset Category
Total
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Short term investment fund (a)
Equity Securities:
Large Cap
Mid Cap
Small Cap
International
Fixed Income:
Government
Corp
High Yield
Alternative:
Global Real Estate
Commodities
Total
$ 747
$ --
$ 747
$ --
401
77
76
215
151
1,177
159
78
108
$ 3,189
401
77
75
215
151
1,177
159
78
108
$ 2,441
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
$ 747
--
--
$ --
(a) Represents collective short term investment fund, composed of high-grade money market instruments
with short maturities.
Smithville Plan
Asset Category
Total
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Short term investment fund (a)
Equity Securities:
Large Cap
Mid Cap
Small Cap
International
Fixed Income
Alternative:
Global Real Estate
Commodities
Total
$ 4,353
$ --
$ 4,353
$ --
1,484
226
270
708
104
166
215
$ 7,526
1,484
226
270
708
104
166
215
$ 3,173
--
--
--
--
--
--
--
--
--
--
--
--
$ 4,353
--
--
$ --
(a) Represents common and collective fund investments.
76
The fair value of the Level 1 assets is based on observable, quoted market prices of the identical
underlying security in an active market. The fair value of the Level 2 assets is primarily based on market
observable inputs to quoted market prices, benchmark yields and broker/dealer quotes. Level 3 inputs, as
applicable, represent unobservable inputs that reflect assumptions developed by management to measure
assets at fair value.
The expected return on assets is developed in consideration of the anticipated duration of investment
period for assets held by the plan, the allocation of assets in the plan, and the historical returns for plan assets.
Estimated future benefit payments under the plans are as follows (dollars in thousands):
2010
2011
2012
2013
2014
2015 thru 2019
Smithville
Plan
$ 330
350
410
440
480
3,130
Elgin
Plan
$ 297
298
304
290
282
1,481
Director
Plans
$ --
--
91
136
964
4,807
Contributions to the directors' plan are based upon actual retirement benefits for directors as they retire.
Contributions under the Smithville and Elgin plans are funded in accordance with provisions of The Employee
Retirement Income Security Act of 1974. Expected contributions to the Smithville plan to be made in 2010 are
$0.3 million. There are no expected contributions to the Elgin plan to be made in 2010.
(b)
401K Savings Plans
As of January 2, 2010 the company maintained two separate defined contribution 401K
savings plans covering all employees in the United States. These two plans separately cover the
union employees at the Elgin, Illinois facility and all other remaining union and non-union employees
in the United States.
In conjunction with the freeze on future benefits under the defined benefit plan for union
employees at the Elgin, Illinois facility, the company established a 401K savings plan for this group of
employees. The company makes contributions to this plan in accordance with its agreement with the
union. These contributions amounted to $35,000 for 2009, $48,000 for 2008 and $61,000 for 2007.
There were no other profit sharing contributions to the 401K savings plans for 2009, 2008 and 2007.
77
(12)
QUARTERLY DATA (UNAUDITED)
1st
4th
(dollars in thousands, except per share data)
2nd
3rd
Total Year
2009
Net sales ............................................................... $181,546
68,770
Gross profit…………………… ...............................
28,091
Income from operations ........................................
$ 14,067
Net earnings..........................................................
$158,601
61,340
26,945
$ 13,714
$153,989
62,037
28,074
$ 15,501
$152,493
58,481
28,331
$ 17,874
$646,629
250,628
111,441
$ 61,156
Basic earnings per share (1)(2).............................
Diluted earnings per share (1)(2) ..........................
$ 0.80
$ 0.77
$ 0.78
$ 0.74
$ 0.88
$ 0.83
$ 1.01
$ 0.95
$ 3.47
$ 3.29
2008
Net sales ............................................................... $160,883
58,902
Gross profit…………………… ...............................
26,016
Income from operations ........................................
$ 13,181
Net earnings..........................................................
$173,513
67,008
32,492
$ 17,117
$166,472
64,737
30,953
$ 16,290
$151,020
57,495
30,158
$ 17,313
$651,888
248,142
119,619
$ 63,901
Basic earnings per share (1)(2).............................
$ 0.82
$ 1.07
$ 1.02
$ 1.08
$ 4.00
Diluted earnings per share (1)(2)………………….
$ 0.77
$ 0.99
$ 0.96
$ 1.04
$ 3.75
(1) Sum of quarters may not equal the total for the year due to changes in the number of shares outstanding
during the year.
(2) Earnings per share have been adjusted to reflect the company’s stock split on June 15, 2007.
(13)
Restructuring
During the first quarter of 2009, the company made the decision and took action to close one of its
manufacturing facilities and transfer production to another of the company’s manufacturing facilities. This
initiative was substantially completed by the end of 2009. The company recorded expense included within
general and administrative expenses in the consolidated statement of earnings for 2009 for severance
obligations and facility closure and lease obligations associated with this initiative. These costs are summarized
as follows (in thousands):
Severance obligations.......................................................................
Facility closure and lease obligations ...............................................
Payments ..........................................................................................
Balance January 2, 2010 .................................................................
$ 3,137
2,797
(1,964)
$ 3,970
The company anticipates that all severance obligations will be satisfied by the end of the second
quarter of 2010. The lease obligation extends through June 2012. As of January 2, 2010, the company
believes the remaining lease reserve balance is adequate to cover the remaining costs identified.
78
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS ENDED JANUARY 2, 2010, JANUARY 3, 2009
AND DECEMBER 29, 2007
Additions/
Balance (Recoveries)
Charged
to Expense
Beginning
Of Period
Write-Offs
During the
the Period
Acquisition
Balance
At End
Of Period
Allowance for
doubtful accounts; deducted from
accounts receivable on the
balance sheets-
2009
2008
2007
$6,598,000 $ (556,000)
$ (562,000)
$1,116,000
$6,596,000
$5,818,000 $1,790,000
$(1,561,000)
$ 551,000
$6,598,000
$5,101,000 $1,092,000
$(2,433,000)
$2,058,000
$5,818,000
79
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The company maintains disclosure controls and procedures (as such term is defined in Rules 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end
of the period covered by this report that are designed to ensure that information required to be disclosed in the
company's Exchange Act reports is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated and communicated to the
company's management, including its Chief Executive Officer and Chief Financial Officer as appropriate, to
allow timely decisions regarding required disclosure.
As of January 2, 2010, the company carried out an evaluation, under the supervision and with the
participation of the company's management, including the company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the company's disclosure controls and
procedures. Based on the foregoing, the company's Chief Executive Officer and Chief Financial Officer
concluded that the company's disclosure controls and procedures were effective as of the end of this period.
Changes in Internal Control Over Financial Reporting
During the quarter ended January 2, 2010, there have been no changes in the company's internal
controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) that have materially affected, or are reasonably likely to materially affect, the company's internal control
over financial reporting.
80
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting a defined in Rules 13a-15(f) and 15d -15(f) under the Securities Exchange Act of 1934. Our internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. Our internal control over financial reporting includes those policies
and procedures that:
(i) pertain to the maintenance of records that in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of our
management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions or that the degree of compliance with the
policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal executive officer
and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Our assessment of the internal control
structure excluded TurboChef Technologies Inc., CookTek Induction Systems LLC, Anetsberger LLC, and
Doyon Equipment Inc., which were acquired on January 5, 2009, April 27, 2009, April 30, 2009, and December
14, 2009, respectively. These acquisitions constitute 24.6% and 25.9% of total and net assets, respectively,
13.2% of net sales, and 15.9% of net income of the consolidated financial statements of the Company as of and
for the year ended January 2, 2010. These acquisitions are included in the consolidated financial statements of
the company as of and for the year ended January 2, 2010. Under guidelines established by the Securities
Exchange Commission, companies are allowed to exclude acquisitions from their assessment of internal
control over financial reporting during the first year of an acquisition while integrating the acquired company.
Based on our evaluation under the framework in Internal Control - Integrated Framework, our management
concluded that our internal control over financial reporting was effective as of January 2, 2010.
The Middleby Corporation
March 3, 2010
81
Item 9B. Other Information
None.
82
PART III
Pursuant to General Instruction G (3), of Form 10-K, the information called for by Part III (Item 10
(Directors and Executive Officers of the Registrant), Item 11 (Executive Compensation), Item 12 (Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters), Item 13 (Certain
Relationships and Related Transactions) and Item 14 (Principal Accountant Fees and Services), is incorporated
herein by reference from the registrant’s definitive proxy statement filed with the Commission pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K.
83
Item 15. Exhibits and Financial Statement Schedules
(a)
1.
Financial statements.
PART IV
The financial statements listed on Page 48 are filed as part of this Form 10-K.
3.
Exhibits.
2.1
2.2
2.3
2.4
2.5
2.6
3.1
3.2
3.3
Stock Purchase Agreement, dated August 30, 2001, between The
Middleby Corporation and Maytag Corporation, incorporated by
reference to the company's Form 10-Q Exhibit 2.1, for the fiscal period
ended September 29, 2001, filed on November 13, 2001.
Amendment No. 1 to Stock Purchase Agreement, dated December 21,
2001, between The Middleby Corporation and Maytag Corporation,
incorporated by reference to the company's Form 8-K Exhibit 2.2
dated December 21, 2001, filed on January 7, 2002.
Amendment No. 2 to Stock Purchase Agreement, dated December 23,
2002 between The Middleby Corporation and Maytag Corporation,
incorporated by reference to the company's Form 8-K Exhibit 2.1 dated
December 23, 2002, filed on January 7, 2003.
Agreement and Plan of Merger, dated as of November 18, 2007, by
and among Middleby Marshall, Inc., New Cardinal Acquisition Sub Inc.,
New Star International Holdings, Inc. and Weston Presidio Capital IV,
L.P., incorporated by reference to the company’s Form 8-K, Exhibit
2.1, dated November, 18, 2007, filed on November 23, 2007.
Agreement and Plan of Merger, dated as of August 12, 2008, by and
among The Middleby Corporation, Chef Acquisition Corporation and
TurboChef Technologies, Inc., incorporated by reference to the
company’s Form 8-K, Exhibit 2.1, dated August 12, 2008, filed on
August 15, 2008.
Amendment to Agreement and Plan of Merger, dated as of November
21, 2008, by and among The Middleby Corporation, Chef Acquisition
Corporation and TurboChef Technologies, Inc., incorporated by
reference to the company’s Form 8-K, Exhibit 2.1, dated November 21,
2008, filed on November 21, 2008.
Restated Certificate of Incorporation of The Middleby Corporation
(effective as of May 13, 2005), incorporated by reference to the
company's Form 8-K, Exhibit 3.1, dated April 29, 2005, filed on May
17, 2005.
Second Amended and Restated Bylaws of The Middleby Corporation
(effective as of December 31, 2007), incorporated by reference to the
company's Form 8-K, Exhibit 3.1, dated December 31, 2007, filed on
January 4, 2008.
Certificate of Amendment to the Restated Certificate of Incorporation of
The Middleby Corporation (effective as of May 3, 2007), incorporated
by reference to the company’s Form 8-K, Exhibit 3.1, dated May 3,
2007, filed on May 3, 2007.
84
4.1
10.1
10.2 *
10.3 *
10.4 *
10.5 *
10.6 *
10. 7 *
10.8 *
10.9 *
10.10 *
10.11 *
Certificate of Designations dated October 30, 1987, and specimen
stock certificate relating to the company Preferred Stock, incorporated
by reference from the company’s Form 10-K, Exhibit (4), for the fiscal
year ended December 31, 1988, filed on March 15, 1989.
Fourth Amended and Restated Credit Agreement, as of December 28
2007, among The Middleby Corporation, Middleby Marshall, Inc.,
Various Financial Institutions, Wells Fargo Bank, Inc., Wells Fargo
Bank N.A., as syndication agent, Royal Bank of Canada, RBS Citizens,
N.A., as Co-Documentation Agents, Fifth Third Bank and National City
Bank as Co-Agents and Bank of America N.A., as Administrative
Agent, Issuing Lender and Swing Line Lender, incorporated by
reference to the company's Form 8-K Exhibit 10.1, dated December
28, 2007, filed on January 4, 2008.
Amended 1998 Stock Incentive Plan, dated December 15, 2003,
incorporated by reference to the company’s Form 10-K, Exhibit 10.21,
for the fiscal year ended January 3, 2004, filed on April 2, 2004.
Employment Agreement of Selim A. Bassoul dated December 23,
2004, incorporated by reference to the company's Form 8-K Exhibit
10.1, dated December 23, 2004, filed on December 28, 2004.
Amended and Restated Management Incentive Compensation Plan,
incorporated by reference to the company's Form 8-K Exhibit 10.1,
dated February 25, 2005, filed on March 3, 2005.
Employment Agreement by and between The Middleby Corporation
and Timothy J. FitzGerald, incorporated by reference to the company's
Form 8-K Exhibit 10.1, dated March 7, 2005, filed on March 8, 2005.
Form of The Middleby Corporation 1998 Stock Incentive Plan
Restricted Stock Agreement, incorporated by reference to the
company's Form 8-K Exhibit 10.2, dated March 7, 2005, filed on March
8, 2005.
Form of The Middleby Corporation 1998 Stock Incentive Plan Non-
Qualified Stock Option Agreement, incorporated by reference to the
company's Form 8-K Exhibit 10.1, dated April 29, 2005, filed on May 5,
2005.
Form of Confidentiality and Non-Competition Agreement, incorporated
by reference to the company's Form 8-K Exhibit 10.2, dated April 29,
2005, filed on May 5, 2005.
The Middleby Corporation Amended and Restated Management
Incentive Compensation Plan, effective as of January 1, 2005,
incorporated by reference to the company's Form 8-K Exhibit 10.1,
dated April 29, 2005, filed on May 17, 2005.
Amendment to The Middleby Corporation 1998 Stock Incentive Plan,
effective as of January 1, 2005, incorporated by reference to the
company's Form 8-K Exhibit 10.2, dated April 29, 2005, filed on May
17, 2005.
Revised Form of Restricted Stock Agreement for The Middleby
Corporation 1998 Stock Incentive Plan, , incorporated by reference to
the company’s Form 8-K, Exhibit 10.1, dated March 8, 2007, filed on
March 14, 2007.
85
10.12 *
10.13
10.14 *
10.15 *
10.16 *
10.17*
10.18*
Form of Restricted Stock Agreement for The Middleby Corporation
2007 Stock Incentive Plan, incorporated by reference to the company’s
Form 8-K, Exhibit 10.2, dated May 3, 2007, filed on May 7, 2007.
First Amendment to the Fourth Amended and Restated Credit
Agreement, as of August 8, 2008, among The Middleby Corporation,
Middleby Marshall Inc., Various Financial Institutions and Bank of
America, N.A. as administrative agent, incorporated by reference to
the company’s Form 8-K Exhibit 10.1, dated August 8, 2008, filed on
August 8, 2008.
Amendment to Employment Agreement by and between The Middleby
Corporation and Selim A. Bassoul, dated as of December 31, 2008.
Amendment to Employment Agreement by and between The Middleby
Corporation and Timothy J. FitzGerald, dated as of December 31,
2008.
Form of Restricted Stock Agreement for The Middleby Corporation
2007 Stock Incentive Plan, incorporated by reference to the company’s
Form 8-K, Exhibit 10.1, dated December 29, 2009, filed on January 5,
2010.
The Middleby Corporation Executive Officer Incentive Plan, as
Amended and Restated, incorporated by reference to Appendix B of
the company’s definitive proxy statement filed with the Securities and
Exchange Commission on March 28, 2008.
The Middleby Corporation 2007 Stock Incentive Plan, as amended,
incorporated by reference to the company’s Form 8-K, Exhibit 10.1,
dated May 7, 2009, filed May 13, 2009.
86
21
23.1
31.1
31.2
32.1
List of subsidiaries;
Consent of Deloitte & Touche LLP.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of the Securities Exchange Act, as amended.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of the Securities Exchange Act, as amended.
Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
*
Designates management contract or compensation plan.
(c)
See the financial statement schedule included under Item 8.
87
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, on the 3td day
of March 2010.
SIGNATURES
THE MIDDLEBY CORPORATION
BY: __/s/ Timothy J. FitzGerald_______
Timothy J. FitzGerald
Vice President,
Chief Financial 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 the Registrant and in the capacities indicated on March 3, 2010.
Signatures
Title
PRINCIPAL EXECUTIVE OFFICER
/s/ Selim A. Bassoul _________________
Selim A. Bassoul
Chairman of the Board, President,
Chief Executive Officer and Director
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER
/s/ Timothy J. FitzGerald _____________
Timothy J. FitzGerald
Vice President, Chief Financial
Officer
DIRECTORS
/s/ Robert Lamb ____________________
Robert Lamb
/s/ John R. Miller, III _________________
John R. Miller, III
/s/ Gordon O'Brien __________________
Gordon O'Brien
/s/ Philip G. Putnam _________________
Philip G. Putnam
/s/ Sabin C. Streeter_________________
Sabin C. Streeter
/s/ Ryan J. Levenson ________________
Ryan J. Levenson
Director
Director
Director
Director
Director
Director
88
Corporate Information
Board of Directors
Executive Officers
Stock Market Information
Selim A. Bassoul
Chairman of the Board
and Chief Executive Officer
Selim A. Bassoul
Chairman of the Board
and Chief Executive Officer
The Middleby Corporation is traded
on The NASDAQ Stock Market LLC
under the symbol “MIDD.”
Robert Lamb, Ph.D.1
Professor
NYU Graduate School of Business
Timothy J. FitzGerald
Vice President and
Chief Financial Officer
Investor Relations
For additional information
please contact:
Investor Relations
The Middleby Corporation
1400 Toastmaster Drive
Elgin, IL 60120
investors@middleby.com
847.741.3300
or visit www.middleby.com
Transfer Agent and Registrar
BNY Mellon Shareowner Services
200 W. Monroe St.
Suite 1590
Chicago, IL 60606
Corporate Headquarters
The Middleby Corporation
1400 Toastmaster Drive
Elgin, Illinois 60120
847.741.3300
847.741.0015 fax
Independent Accountants
Deloitte & Touche LLP
Chicago, Illinois
Ryan J. Levenson1,2
Principal
Privet Fund Management, LLC
John R. Miller III 2, 4
President
E.O.P., Inc.
Publishers
Gordon O’Brien2, 5
Managing Director
American Capital Strategies
Philip G. Putnam3
President
Highview Associates
Independent Corporate Advisors
Sabin C. Streeter1
Adjunct Professor and
Executive-in-Residence
Columbia Business School
1 Member of the Audit Committee
2 Member of the Compensation Committee
3 Chairman of the Audit Committee
4 Chairman of the Compensation Committee
5 Lead Director
Stock Price Performance
NASDAQ Non-Financial Stocks Index
NASDAQ Stock Market Index
Middleby Corporation
400
350
300
250
200
150
100
50
0
2004
2005
2006
2007
2008
2009