2010 Annual Report
www.middleby.com | www.greenstainless.com
2010
2009
2008
2007
2006
$719,121
$646,629
$651,888
$500,472
$403,131
286,677
122,788
72,867
250,628
111,441
61,156
248,142
119,618
63,901
192,365
156,877
92,933
52,614
76,901
42,377
$ 3.97
$ 3.29
$ 3.75
$ 3.11
$ 2.57
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.
For the Fiscal Year Ended January 1, 2011
or
18,337,000
18,575,000
17,030,000
16,938,000
16,518,000
_ _ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
2010 Financial Highlights
(dollars in thousands)
Net sales
Gross profit
Income from operations
Net earnings
EPS on net earnings
Weighted average shares
Working capital
Total assets
Total debt
Stockholders’ equity
$ 79,807
$ 70,670
$ 68,198
$ 61,573
$ 11,512
873,172
214,017
424,913
816,346
275,641
342,655
654,498
234,700
227,960
413,647
96,197
182,912
288,323
82,802
100,573
Net Sales
(dollars in millions)
Net Earnings
(dollars in millions)
EPS on Net Earnings
$800
700
600
500
400
300
200
100
0
$80
70
60
50
40
30
20
10
0
$4
3
2
1
0
’06
’07
’08
’09
’10
’06
’07
’08
’09
’10
’06
’07
’08
’09
’10
80
800
Commercial Foodservice Equipment
70
60
50
40
30
20
10
0
$42.4
$32.2
$23.6
$18.7
$52.6
I N C .
BAKING EQUIPMENT SPECIALISTS
$3.11
$2.57
$1.99
$1.19
$1.00
700
600
500
400
300
200
100
0
$500.5
$403.1
$316.7
$271.1
$242.2
Food Processing Equipment
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)
(IRS Employer Identification Number)
Delaware
36-3352497
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.
No (cid:58)
Yes (cid:134)
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act
from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes (cid:58) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
Yes (cid:58)
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, 2010 was approximately $920,543,185.
The number of shares outstanding of the Registrant’s class of common stock, as of February 25, 2011, was 18,458,011 shares.
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 2011 annual meeting of stockholders.
Documents Incorporated by Reference
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
JANUARY 1, 2011
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
Item 1. Business
General
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business ............................................................................................................
Risk Factors.......................................................................................................
Unresolved Staff Comments..............................................................................
Properties ..........................................................................................................
Legal Proceedings .............................................................................................
Reserved ...........................................................................................................
Item 5.
Market for Registrant’s Common Equity,
PART II
Related Stockholder Matters and
Issuer Purchases of Equity Securities ........................................................
Selected Financial Data.....................................................................................
1
9
15
16
17
17
18
19
Management’s Discussion and Analysis of Financial
Condition and Results of Operations ..........................................................
20
Item 6.
Item 7.
Item 7A.
Quantitative and Qualitative Disclosure about
Market Risk ................................................................................................
Item 8.
Item 9.
Financial Statements and Supplementary Data.................................................
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..........................................................
Item 9A.
Controls and Procedures ...................................................................................
28
30
66
66
Item 9B.
Other Information............................................................................................... 68
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 ...........................................................
69
69
69
69
69
Item 15.
Exhibits and Financial Statement Schedule.......................................................
70
PART IV
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 nine acquisitions in the commercial foodservice equipment
and food processing equipment industries. These acquisitions have added eleven brands to the Middleby portfolio and
positioned the company as a leading supplier of equipment in both industries.
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. This transaction
positions Middleby as a leading supplier to convenience chains and fast casual restaurant chains.
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 $8.0 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 $6.4 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
In July 2010, the company acquired substantially all of the assets and operations of PerfectFry Company
(“PerfectFry”), a leading manufacturer of ventless countertop frying units for a purchase price of approximately $4.9 million.
This acquisition further strengthens Middleby’s leadership position in ventless cooking solutions for the commercial
foodservice industry.
In September 2010, the company acquired the food processing equipment business of Cozzini Inc. (“Cozzini”), a
leading manufacturer of equipment solutions for the food processing industry for an aggregate purchase price of
approximately $19.2 million in cash, and 34,263 shares of Middleby common stock valued at $1.8 million. The acquisition of
Cozzini complements Middleby’s existing food processing equipment brands Alkar, RapidPak and MP Equipment.
1
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 (“SEC”).
Business Divisions and Products
The company conducts its business through two principal business divisions: the Commercial Foodservice Equipment
Group and the Food Processing Equipment Group. See Note 10 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 -five brands, including, Anets®, Blodgett®, Blodgett Combi®,
Blodgett Range®, Bloomfield®, CTX®, Carter-Hoffmann®, CookTek®, Doyon®, Frifri®, Giga®, Holman®, Houno®, Jade®,
Lang®, MagiKitch'n®, Middleby Marshall®, MPC®, NuVu®, Pitco®, PerfectFry® 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 China, Denmark, Italy and the Philippines. The company also has sales and service offices located in Australia, Brazil,
Belgium, China, France, Germany, Hong Kong, India, Italy, Mexico, the Philippines, Russia, Saudi Arabia, Singapore, South
Korea, Spain, Switzerland, United Arab Emirates and the United Kingdom.
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.
• 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.
• PerfectFry® is the benchmark in ventless deep frying. PerfectFry products feature low start-up and operating costs
along with a focus on safety, ease of operations and virtually odorless cooking.
• 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.
2
3
Food Processing Equipment Group
Food Processing Equipment Industry
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 including grinding, slicing, emulsification, mixing and blending equipment
marketed under the Cozzini® 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 Illinois, Iowa, Wisconsin and Mexico.
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 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 international sales are through a combined network of independent and company-owned distribution
offices. The company maintains sales and service offices in Australia, Brazil, Belgium, China, France, Hong Kong, India, Italy,
Germany, Mexico, the Philippines, Russia, Saudi Arabia, Singapore, South Korea, Spain, Switzerland, 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.
The company's customers include a diversified base of leading food processors. 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. 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 often more strict 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
The global food processing equipment industry is highly fragmented, large and growing. The company estimates
demand for food processing 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.
ethnic foods.
Backlog
The company's backlog of orders was $63.5 million at January 1, 2011, all of which is expected to be filled during
2011. The acquired PerfectFry and Cozzini businesses accounted for $7.7 million of the backlog. The company's backlog
was $51.7 million at January 2, 2010. 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.
4
5
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 a network of 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, Cozzini, MP Equipment and Rapidpak brands and
Manufacturing and Quality Control
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 sales and distribution
offices in Brazil, Italy and Mexico along with 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.
Food Processing Equipment Group
Sources of Supply
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.
The company manufactures products in thirteen domestic and five international production facilities. In Brea,
California, the company manufactures cooking ranges. In Chicago, Illinois, the company manufactures 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 Algona, Iowa the company manufacturers grinding, slicing,
emulsification, mixing and blending equipment for customers in the food processing industry. 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, convection ovens 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 ovens 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 Shanghai, China, the company manufactures
frying systems. In Guadalupe, Mexico, the company manufacturers grinding, slicing, emulsification, mixing and blending
equipment for customers in the food processing industry. 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.
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.
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.
6
7
Research and Development
Item 1A. Risk Factors
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 3(o) 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, Cozzini, Doyon, Frifri, Giga, Holman,
Houno, Jade, Lang, MP Equipment, MagiKitch’n, Middleby Marshall, Nu-Vu, PerfectFry, 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.
Employees
As of January 1, 2011, the company employed 2,060 persons. Of this amount, 935 were management,
administrative, sales, engineering and supervisory personnel; 849 were hourly production non-union workers; and 276 were
hourly production union members. Included in these totals were 547 individuals employed outside of the United States, of
which 326 were management, sales, administrative and engineering personnel, 74 were hourly production non-union
workers and 147 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, 2011. At its Elgin, Illinois facility, the company has a union contract with the International
Brotherhood of Teamsters that expires on April 30, 2012. At its Algona, Iowa facility, the company has a union contract
within the United Food and Commercial Workers that expires on December 31, 2014. 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.
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.
strategy.
The company's level of indebtedness could adversely affect its business, results of operations and growth
The company now has and may continue to have a significant amount of indebtedness. At January 1, 2011, the
company had $214.0 million of borrowings and $6.8 million in letters of credit outstanding. As of January 1, 2011, the
company could incur an additional $277.0 million of indebtedness 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.
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 43% of its
total assets as of January 1, 2011. The excess of the purchase price over the fair value of assets acquired, including
identifiable intangible assets, and liabilities assumed in conjunction with acquisitions is recorded as 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.
8
9
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 company is subject to risks associated with developing products and technologies, which could delay product
introductions and result in significant expenditures.
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.
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.
10
11
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.
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 and major food processing companies. The
demand for the company’s equipment can vary from quarter to quarter depending on the company’s customers’ internal
growth plans, construction, seasonality and other factors. In addition, during an economic downturn, key customers could
both open fewer facilities and defer purchases of new equipment for existing operations. 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.
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.
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;
the cost of a recall.
reduced protection for intellectual property rights;
difficulties in staffing and managing foreign operations; and
potentially adverse tax consequences.
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.
performance.
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.
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.
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
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
The company is subject to currency fluctuations and other risks from its operations outside the United States.
The company has manufacturing and distribution operations located 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.
12
13
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;
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,
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.
•
•
•
•
•
•
•
Not applicable.
The company is subject to potential liability under environmental laws.
The impact of future transactions on the company's common stock is uncertain.
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.
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;
changes in expectations as to the company's future financial performance, including financial estimates by
•
•
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
acquisitions, joint ventures or capital commitments;
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.
Item 1B. Unresolved Staff Comments
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 13% of the company's workforce as of January 1, 2011. The
company has union contracts with employees at its facilities in Algona, Iowa, Elgin, Illinois and Lodi, Wisconsin that extend
through December 2014, April 2012 and December 2011, 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 the company 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.
14
15
Item 2. Properties
Item 3. Legal Proceedings
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 China, Denmark, Italy, Mexico and the Phillipines.
The principal properties of the company utilized to conduct business operations are listed below:
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
Location
Brea, CA
Buford, GA
Chicago, IL
Chicago, IL
Elgin, IL
Mundelein, IL
Algona, IA
Menominee, MI
St. Louis, MO
Bow, NH
Fuquay-Varina, NC
Smithville, TN
Carrollton, TX
Burlington, VT
Lodi, WI
Sao Paulo, Brazil
Principal Function
Manufacturing, Warehousing
and Offices
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
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
Warehousing and Offices
Square
Footage
Owned/
Leased
72,000
Leased
17,350
30,000
45,100
Leased
Leased
Leased
30,800
Leased
207,000
Owned
55,000
33,000
50,700
Owned
Owned
Leased
Lease
Expiration
June 2015
February 2013/
December 2014
December 2011
March 2011/
November 2012
N/A
N/A
N/A
December 2011
46,000
Owned
N/A
47,250
Leased
102,000
34,000
131,000
Owned
Leased
Owned
August 2011
N/A
March 2011
N/A
190,000
Owned
N/A
110,100
Leased
140,000
Owned
September 2012/
November 2012
N/A
112,000
Owned
N/A
4,800
Leased
December 2011
Quebec City, Canada
Warehousing and Offices
36,000
Owned
N/A
Shanghai, China
Randers, Denmark
Scandicco, Italy
Guadalupe, Mexico
Laguna, the Philippines
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Manufacturing, Warehousing
and Offices
Manufacturing ,Warehousing
and Offices
Manufacturing, Warehousing
and Offices
37,500
Leased
July 2012
50,100
Owned
N/A
106,350
Leased
March 2014
117,600
Leased
December 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 Brazil, China, Italy, Mexico, Spain 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.
16
17
PART II
Item 6. Selected Financial Data
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of 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 2010
First quarter........................................................................................................
Second quarter ..................................................................................................
Third quarter.......................................................................................................
Fourth quarter ....................................................................................................
Fiscal 2009
First quarter........................................................................................................
Second quarter ..................................................................................................
Third quarter.......................................................................................................
Fourth quarter ....................................................................................................
Closing Share Price
Low
High
59.52
65.01
63.93
86.35
35.65
49.76
56.51
53.00
42.17
52.66
53.28
63.86
20.76
33.75
39.34
43.67
Shareholders
The company estimates there were approximately 34,000 record holders of the company's common stock as of
February 25, 2011.
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.
Issuer Purchases of Equity Securities
October 3, 2010 to October 30, 2010 .......................
October 31, 2010 to November 27, 2010..................
November 28, 2010 to January 1, 2011....................
Quarter ended January 1, 2011 ................................
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
466,266
466,266
466,266
466,266
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 1, 2011, 1,333,734 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 1, 2011, the company had a total of 4,233,810 shares in treasury amounting to $111.0 million.
(amounts in thousands, except per share data)
Fiscal Year Ended(1)(2)
Income Statement Data:
Net sales .....................................................
Cost of sales ...............................................
$719,121
432,444
$646,629
396,001
$651,888
403,746
$500,472
308,107
$403,131
246,254
2010
2009
2008
2007
2006
Gross profit..................................................
Selling and distribution expenses...............
General and administrative expenses........
286,677
75,772
88,117
250,628
64,239
74,948
248,142
63,593
64,931
192,365
50,769
48,663
156,877
40,371
39,605
Income from operations.........................
122,788
111,441
119,618
92,933
76,901
Interest expense and deferred financing
amortization, net ....................................
8,592
Debt extinguishment expenses ..................
Loss on financing derivatives .....................
--
--
Other (income) expense, net......................
(40)
11,594
--
--
121
12,982
--
--
2,414
Earnings before income taxes...............
Provision for income taxes .........................
114,236
41,369
99,726
38,570
104,222
40,321
5,855
481
314
(1,696)
87,979
35,365
6,932
--
--
161
69,808
27,431
Net earnings ..........................................
$ 72,867
$ 61,156
$ 63,901
$ 52,614
$ 42,377
Net earnings per share:
Basic .................................................
Diluted...............................................
$ 4.09
$ 3.97
$ 3.47
$ 3.29
$ 4.00
$ 3.75
$ 3.35
$ 3.11
$ 2.77
$ 2.57
Weighted average number of shares
outstanding:
Basic .................................................
Diluted...............................................
17,801
18,337
17,605
18,575
15,978
17,030
15,694
16,938
15,286
16,518
Balance Sheet Data:
Working capital ...........................................
$ 79,807
$ 70,670
$ 68,198
Total assets.................................................
Total debt ....................................................
Stockholders' equity....................................
873,172
214,017
424,913
816,346
275,641
342,655
654,498
234,700
227,960
$ 61,573
413,647
96,197
182,912
$ 11,512
288,323
82,802
100,573
(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.
18
19
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 SEC filings.
NET SALES SUMMARY
(dollars in thousands)
Fiscal Year Ended(1)
2010
2009
2008
Sales
Percent
Sales
Percent
Sales
Percent
Business Divisions:
Commercial Foodservice...............
$611,596
85.0 %
$580,704
89.8 %
$573,378
Food Processing ...........................
107,525
15.0
65,925
10.2
78,510
88.0 %
12.0
Total............................................
$719,121
100.0 %
$646,629
100.0 %
$651,888
100.0 %
(1)
The company's fiscal year ends on the Saturday nearest to December 31.
Results of Operations
the periods presented:
The following table sets forth certain items in the consolidated statements of earnings as a percentage of net sales for
Fiscal Year Ended(1)
2010
2009
2008
Net sales ...........................................................................................
100.0%
100.0%
100.0%
Cost of sales......................................................................................
Gross profit ...................................................................................
Selling, general and administrative expenses...................................
Income from operations................................................................
Interest expense and deferred financing amortization, net.............
Other (income) expense, net.............................................................
Earnings before income taxes.........................................................
Provision for income taxes ................................................................
60.1
39.9
22.8
17.1
1.2
--
15.9
5.8
Net earnings..................................................................................
10.1%
61.2
38.8
21.6
17.2
1.8
--
15.4
5.9
9.5%
61.9
38.1
19.8
18.3
2.0
0.4
15.9
6.1
9.8%
(1)
The company's fiscal year ends on the Saturday nearest to December 31.
20
21
Fiscal Year Ended January 1, 2011 as Compared to January 2, 2010
Net sales. Net sales in fiscal 2010 increased by $72.5 million or 11.3% to $719.1 million as compared to $646.6
million in fiscal 2009. The increase in net sales of $37.8 million or 5.9% was attributable to acquisition growth, resulting
from the fiscal 2009 acquisitions of Cooktek, Anets and Doyon and the fiscal 2010 acquisitions of PerfectFry and Cozzini.
Excluding acquisitions, net sales increased $34.7 million or 5.4% from the prior year. Sales of both the Commercial
Foodservice Equipment Group and the Food Processing equipment group increased reflecting improving market conditions
as compared to fiscal 2009.
• Net sales of the Commercial Foodservice Equipment Group increased by $30.9 million or 5.3% to $611.6
million in fiscal 2010 as compared to $580.7 million in fiscal 2009. Net sales from the acquisitions of CookTek,
Anets, Doyon, PerfectFry which were acquired on April 27, 2009, April 30, 2009, December 14, 2009, July 13,
2010 and September 21, 2010, respectively, accounted for an increase of $19.2 million during fiscal 2010.
Excluding the impact of acquisitions, net sales of commercial foodservice equipment increased $11.7 million or
2.0% as compared to the prior year. The prior year sales included a significant order associated with an oven
rollout to support a new menu initiative with a major chain customer. Excluding this order and acquisition
growth, sales increased 8.5% in fiscal 2010. This growth reflects an increase in international business as the
company realized increased business related to the expansion of chain restaurants in emerging markets.
Domestically, the company also realized sales improvement, which accelerated in the second half of the year
as general market conditions improved and major chain customers increased their development activities.
• Net sales of the Food Processing Equipment Group increased by $41.6 million or 63.1% to $107.5 million in
fiscal 2010 as compared to $65.9 million in fiscal 2009. Net sales from the acquisition of Cozzini, which was
acquired on September 21, 2010, accounted for an increase of $18.6 million. Excluding the impact of
acquisition, net sales of food processing equipment increased $23.0 million or 34.9%. Net sales growth in this
business segment reflects improving market conditions as food processing operations increased their capital
spending. Numerous projects which had been deferred in 2008 and 2009 during the economic downturn were
realized in 2010. Additionally, international sales benefitted from increasing development and expansion of
food processing operations in emerging markets as demand for processed food in retail and restaurant
locations increases.
Gross profit. Gross profit increased by $36.1 million to $286.7 million in fiscal 2010 from $250.6 million in fiscal
2009. The gross margin rate increased from 38.8% in 2009 to 40.0% in 2010. The net increase in the gross margin rate
reflects:
Income from operations. Income from operations increased $11.4 million to $122.8 million in fiscal 2010 from
$111.4 million in fiscal 2009. The increase in operating income resulted from the increase in net sales and gross profit.
Operating income as a percentage of net sales decreased from 17.2% in 2009 to 17.1% in 2010.
Non-operating expenses. Non-operating expenses decreased $3.1 million to $8.6 million in fiscal 2010 from
$11.7 million in fiscal 2009. Net interest expense decreased $3.0 million from $11.6 million in fiscal 2009 to $8.6 million in
fiscal 2010 as a result of lower borrowing costs resulting from the decline in interest rates in 2010. Other income was less
than $0.1 million in fiscal 2010 as compared to other expense of $0.1 million in fiscal 2009.
Income taxes. A tax provision of $41.4 million, at an effective rate of 36.2%, was recorded for fiscal 2010 as
compared to $38.6 million at a 38.7% effective rate in fiscal 2009. The reduction in the effective rate reflects an increase in
deductions related to domestic manufacturing activities and non-recurring expenses associated with acquisition costs.
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 $7.3 million or 1.3% to $580.7 million
in fiscal 2009 as compared to $573.4 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 $97.1 million or 16.9% as compared to the prior year, primarily as a result of economic slowdown.
• Net sales for the Food Processing Equipment Group in fiscal 2009 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.
•
Improved margins at certain of the newly acquired operating companies that have improved due to acquisition
integration initiatives including costs savings from plant consolidations
Gross profit. Gross profit increased by $2.5 million to $250.6 million in fiscal 2009 from $248.1 million in fiscal
2008. The gross margin rate increased from 38.1% in fiscal 2008 to 38.8% in fiscal 2009. The net increase in the gross
margin rate reflects:
• Benefit from increased sales volumes offset by a less favorable product mix
• Cost reduction initiatives that were instituted in 2009 due to economic conditions
Selling, general and administrative expenses. Combined selling, general, and administrative expenses
increased by $24.7 million to $163.9 million in fiscal 2010 from $139.2 million in 2009. As a percentage of net sales,
operating expenses amounted to 22.8% in 2010 as compared to 21.6% in fiscal 2009.
•
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 expenses increased $11.6 million to $75.8 million from $64.2 million, reflecting an increase of $5.4 million
associated with the recently acquired Cooktek, Anets, Doyon, PerfectFry and Cozzini operations, an increase of $4.1 million
in increased commissions resulting from the increase in sales and $1.5 million in increased marketing related costs.
Selling, general and administrative expenses. Combined selling, general, and administrative expenses
increased by $10.7 million to $139.2 million in fiscal 2009 from $128.5 million in fiscal 2008. As a percentage of net sales,
operating expenses amounted to 21.6% in fiscal 2009 as compared to 19.8% in fiscal 2008.
General and administrative expenses increased $13.2 million to $88.1 million from $74.9 million, reflecting an
increase of $4.2 million associated with the recently acquired Cooktek, Anets, Doyon, PerfectFry and Cozzini operations,
General and administrative expenses also included a $9.9 million increase in incentive compensation associated with
improvement in financial results and a $4.0 million increase in non-cash share based compensation offset by reduced
professional fees and other administrative expenses. Additionally, $1.7 million of non-recurring charges associated with
plant consolidation initiatives relating to the recently acquired Doyon and Perfectfry businesses were recorded in fiscal
2010. This compares to $5.1 million of non-recurring plant consolidation costs recorded in the prior year.
Selling expenses increased $0.6 million to $64.2 million in fiscal 2009 from $63.6 million in fiscal 2008, 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 in fiscal 2009 from $64.9 million in
fiscal 2008, 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.
22
23
Income from operations. Income from operations decreased $8.2 million to $111.4 million in fiscal 2009 from
Contractual Obligations
$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 fiscal 2008 to 17.2% in fiscal 2009.
Non-operating expenses. Non-operating expenses decreased $3.7 million to $11.7 million in fiscal 2009 from
$15.4 million in fiscal 2008. Net interest expense decreased $1.4 million from $13.0 million in fiscal 2008 to $11.6 million in
fiscal 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 fiscal 2008 to $0.1 million in fiscal 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 fiscal 2009 as
compared to $40.3 million at a 38.7% effective rate in fiscal 2008.
Financial Condition and Liquidity
Total cash and cash equivalents decreased by $0.7 million to $7.7 million at January 1, 2011 from $8.4 million at
January 2, 2010. Net borrowings decreased to $214.0 million at January 1, 2011, from $275.6 million at January 2, 2010.
Operating activities. Net cash provided by operating activities after changes in assets and liabilities amounted to
$98.0 million as compared to $100.8 million in the prior year.
Adjustments to reconcile 2010 net earnings to operating cash flows included $5.9 million of depreciation and $11.1
million of amortization, $14.7 million of non-cash stock compensation expense and $1.4 million of deferred tax benefit.
The changes in working capital included a $28.3 million increase in accounts receivable as a result of increased
sales volumes; a $6.3 million increase in inventories, resulting from increased sales volumes; and a $10.9 million increase in
accounts payable as a result of increased purchasing volumes. Accrued expenses and other liabilities increased by $14.7
million as a result of increased accruals for sales rebates, commissions and incentive compensation associated with higher
sales volumes and profit levels.
Investing activities. During 2010, net cash used for investing activities amounted to $28.9 million. This included
$25.7 million of acquisition related investments, which included $4.6 million in connection with the acquisition of PerfectFry,
$17.4 million in connection with the acquisition of Cozzini and $3.7 million of deferred payments and working capital
adjustments associated with acquisitions completed in prior years. Additional investing activities included $3.2 million of
additions and upgrades of production equipment, manufacturing facilities and training equipment.
Financing activities. Net cash flows used in financing activities amounted to $69.9 million in 2010. The
company’s borrowing activities under debt agreements included $58.7 million of net repayments under its senior secured
revolving credit facility and $2.4 million in repayments of foreign loans. The company also used $9.0 million to repurchase
161,066 shares of its common stock under a stock repurchase program.
The company’s financing activities are primarily funded from borrowings under its senior secured revolving credit
facility that matures in December 2012. Terms of this agreement provide for $497.8 million of availability under a revolving
credit line. Total outstanding borrowings under this facility amounted to $214.0 million at January 1, 2011. 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 $6.8 million at January 1, 2011.
At January 1, 2011, 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.
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
Contractual
Cash
Obligations
Less than 1 year ............ $ 3,804
1-3 years .......................
3,378
4-5 years .......................
--
After 5 years ..................
--
$ 5,097
207,488
262
$ 4,557
$ 666
5,272
2,328
820
485
$ 14,124
216,958
3,075
1,170
1,690
--
2,860
$ 7,182
$214,017
$ 13,847
$ 1,971
$237,017
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 continue through June 2015. These obligations
presented above do not reflect anticipated sublease income from the facilities.
The company has obligations to make $7.2 million of purchase price payments to the sellers of Giga, Cooktek and
Cozzini that were deferred in conjunction with the acquisitions.
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 $10.7 million at the end of 2010 as compared to $10.4 million at the
end of 2009. The unfunded benefit obligations were comprised of a $3.7 million underfunding of the company’s Smithville
plan, which was acquired as part of the Star acquisition, $0.8 million underfunding of the company's union plan and $7.0
million underfunding of the company's director plans. The company expects to contribute $0.3 million to the director plans in
2011. The company made minimum contributions required by the Employee Retirement Income Security Act of 1974
(“ERISA”) of $0.3 million in 2010 and 2009 to the company’s Smithville plan and $0.1 million in 2010 and 2009 to the
company's union plan. The company expects to continue to make minimum contributions to the Smithville and union plans
as required by ERISA,of $0.3 and $0.1 million, respectively, in 2011.
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 1, 2011 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.
24
25
Critical Accounting Policies and Estimates
New Accounting Pronouncements
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.
In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605), “Multiple-Deliverable
Revenue Arrangements” (“ASU No. 2009-13”). ASU No. 2009-13 establishes the accounting and reporting guidance for
arrangements including multiple revenue-generating activities. The amendments in ASU No. 2009-13 are effective
prospectively for revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15,
2010. The company will adopt the provisions of ASU No. 2009-13 as required. The company does not expect that the
adoption of ASU No. 2009-13 will have a material impact on the company’s financial position, results of operations or cash
flows.
Revenue Recognition. The company recognizes revenue on the sale of its products when risk of loss has passed
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.
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 defined within
ASC 605-35 “Construction-Type and Production-Type Contracts” 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.
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.
26
27
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)
2011......................................
2012......................................
2013......................................
2014......................................
2015 and thereafter...............
$ --
--
--
--
--
$ --
$ 5,097
207,367
121
128
1,304
$ 214,017
Terms of the company’s senior credit agreement provide for $497.8 million of availability under a revolving credit
line. As of January 1, 2011, the company had $207.2 million of borrowings outstanding under this facility. The company
also has $6.8 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 $277.0
million at January 1, 2011.
At January 1, 2011, borrowings under the senior secured credit facility were assessed at an interest rate at 1.00%
above LIBOR for long-term borrowings or at the higher of the Prime rate and the Federal Funds Rate. At January 1, 2011,
the average interest rate on the senior debt amounted to 1.34%. 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 1, 2011.
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 1, 2011 these facilities amounted to
$3.1 million in U.S. dollars, including $1.3 million outstanding under a revolving credit facility and $1.8 million of a term loan.
The interest rate on the revolving credit facility is assessed at 1.25% above Euro LIBOR, which amounted to 4.1% on
January 1, 2011. The term loan matures in 2013 and the interest rate is assessed at 5.146%.
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 1, 2011, these
facilities amounted to $3.7 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 1, 2011, the average interest rate on these facilities was approximately
3.0%.
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 1, 2011, the company had the
following interest rate swaps in effect.
Notional
Amount
10,000,000
10,000,000
10,000,000
25,000,000
15,000,000
10,000,000
20,000,000
15,000,000
20,000,000
Fixed
Interest
Rate
3.032%
3.590%
3.460%
3.670%
1.220%
1.120%
1.800%
0.950%
1.560%
Maturity
Date
02/06/11
06/10/11
09/06/11
09/23/11
11/23/11
03/11/12
11/23/12
12/06/12
12/11/12
Effective
Date
02/06/08
06/10/08
09/08/08
09/23/08
11/23/09
03/11/10
11/23/09
09/06/10
03/11/10
28
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 1,
2011, the company was in compliance with all covenants pursuant to its borrowing agreements.
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 1, 2011, the fair value of these instruments was a loss of $2.2 million. The change in fair value of these swap
agreements in fiscal 2010 was a gain of $0.4 million, net of taxes.
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.
29
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Page
Report of Independent Registered Public Accounting Firm............................................................. 31
Consolidated Balance Sheets ......................................................................................................... 32
Consolidated Statements of Earnings ............................................................................................. 33
Consolidated Statements of Changes in Stockholders’ Equity ....................................................... 34
Consolidated Statements of Cash Flows......................................................................................... 35
Notes to Consolidated Financial Statements................................................................................... 36
The following consolidated financial statement schedule is included in response to Item 15
Schedule II - Valuation and Qualifying Accounts and Reserves...................................................... 65
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.
To the Board of Directors and Stockholders of
The Middleby Corporation
Elgin, Illinois
We have audited the accompanying consolidated balance sheets of The Middleby Corporation and subsidiaries (the "Company") as
of January 1, 2011 and January 2, 2010, 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 1, 2011. 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
1, 2011, 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 PerfectFry Company Ltd (“PerfectFry”) and Cozzini Inc. (“Cozzini”), which were acquired
on July 13, 2010 and September 21, 2010, respectively. These acquisitions constitute 4.1% of total assets, 4.3% of net assets,
2.8% of net sales, and (0.4)% of net income of the consolidated financial statements of the Company as of and for the year ended
January 1, 2011. Accordingly, our audit did not include the internal control over financial reporting at PerfectFry and Cozzini.
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 opinions.
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.
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 1, 2011 and January 2, 2010, and the results of their operations and their
cash flows for each of the three years in the period ended January 1, 2011, 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 1, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
On January 4, 2009, the Company adopted ASC 805, Business Combinations.
Chicago, Illinois
March 2, 2011
30
31
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
2010
2009
2010
2009
2008
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE FISCAL YEARS ENDED JANUARY 1, 2011, JANUARY 2, 2010
AND JANUARY 3, 2009
(amounts in thousands, except per share data)
CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2011 AND JANUARY 2, 2010
(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.............................................................................................
$ 7,656
112,049
106,463
11,971
--
25,520
Total current assets.............................................................................................
263,659
Property, plant and equipment, net ..............................................................................
Goodwill........................................................................................................................
Other intangibles ..........................................................................................................
Other assets .................................................................................................................
43,656
369,989
189,254
6,614
Total assets .......................................................................................................
$ 873,172
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, 22,691,821 and 22,622,650
shares issued in 2010 and 2009, respectively ......................................................
Paid-in capital .............................................................................................................
Treasury stock at cost; 4,233,810 and 4,069,913
shares in 2010 and 2009, respectively..................................................................
Retained earnings....................................................................................................
Accumulated other comprehensive loss..................................................................
$ 5,097
52,945
125,810
183,852
208,920
11,858
43,629
--
137
179,575
(111,019)
360,254
(4,034)
Total stockholders' equity....................................................................................
424,913
Total liabilities and stockholders' equity ..............................................................
$ 873,172
Net sales ..................................................................................................
$ 719,121
$ 646,629
$ 651,888
Cost of sales ............................................................................................
Gross profit .....................................................................................
Selling and distribution expenses ............................................................
General and administrative expenses .....................................................
Income from operations ..................................................................
Interest expense and deferred financing amortization, net .....................
Other (income) expense, net ...................................................................
Earnings before income taxes ........................................................
Provision for income taxes.......................................................................
Net earnings ...............................................................................
Net earnings per share:
Basic ...............................................................................................
Diluted.............................................................................................
Weighted average number of shares
Basic..............................................................................................
Dilutive common stock equivalents ...............................................
Diluted ...........................................................................................
432,444
286,677
75,772
88,117
122,788
8,592
(40)
114,236
41,369
$ 72,867
$ 4.09
$ 3.97
17,801
536
18,337
396,001
250,628
64,239
74,948
111,441
11,594
121
99,726
38,570
$ 61,156
$ 3.47
$ 3.29
17,605
970
18,575
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
$ 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
--
136
162,001
(102,000)
287,387
(4,869)
342,655
$ 816,346
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
32
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
33
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JANUARY 1, 2011, JANUARY 2, 2010
AND JANUARY 3, 2009
(amounts in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JANUARY 1, 2011, JANUARY 2, 2010
AND JANUARY 3, 2009
(amounts in thousands)
Accumulated
Other
Total
Common
Paid-in
Treasury
Retained Comprehensive
Stockholders'
Stock
Capital
Stock
Earnings
Income/(loss)
Equity
activities--
Cash flows from operating activities--
Net earnings ...............................................................................................................
$ 72,867
$ 61,156
$ 63,901
Adjustments to reconcile net earnings to net cash provided by operating
2010
2009
2008
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 gain 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
Comprehensive income:
Net earnings
Currency translation adjustments
Change in unrecognized pension benefit
costs, net of tax of $105
Unrealized gain on interest rate
swap, net of tax of $(342)
Comprehensive income
Exercise of stock options
Stock issuance
Stock compensation
Tax benefit on stock compensation
Purchase of treasury stock
$ 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
-
-
-
-
-
-
16
-
-
-
-
-
-
-
-
391
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)
$ 136
$ 162,001 $ (102,000)
$ 287,387
$ (4,869)
$ 342,655
-
-
-
-
-
-
1
-
-
-
-
-
-
-
-
666
1,776
14,682
450
-
-
-
-
-
-
-
-
-
-
(9,019)
72,867
-
-
-
72,867
-
-
-
-
-
-
599
72,867
599
(187)
(187)
423
835
-
-
-
-
423
73,702
666
1,777
14,682
450
- (9,019)
Cash and cash equivalents at end of year.................................................................
$ 7,656
$ 8,363
$ 6,144
Balance, January 1, 2011
$ 137
$ 179,575 $ (111,019)
$ 360,254
$ (4,034)
$ 424,913
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
34
35
Depreciation and amortization..........................................................................
Non-cash share-based compensation .............................................................
Deferred taxes ..................................................................................................
17,014
14,682
1,420
(7)
Unrealized (gain) loss on derivative financial
instruments…………………………….
Changes in assets and liabilities, net of acquisitions
Accounts receivable, net ..................................................................................
(28,306)
Inventories, net.................................................................................................
(6,311)
Prepaid expenses and other assets.................................................................
Accounts payable.............................................................................................
Accrued expenses and other liabilities.............................................................
987
10,912
14,697
Net cash provided by operating activities...................................................................
97,955
Cash flows from investing activities--
Additions to property and equipment .........................................................................
(3,159)
(5,731)
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 .....................................................................................................
(1,621)
Acquisition of Frifri, net of cash acquired....................................................................
Acquisition of TurboChef, net of cash acquired..........................................................
Acquisition of CookTek ...............................................................................................
Acquisition of Anets ....................................................................................................
Acquisition of Doyon ...................................................................................................
Acquisition of PerfectFry, net of cash acquired………………………………………...
Acquisition of Cozzini, net of cash acquired……………………………………………
Cash flows from financing activities--
Net (repayments) proceeds under current revolving credit facilities.........................
Net (repayments) under foreign bank loan................................................................
Debt issuance costs ...................................................................................................
Repurchase of treasury stock .....................................................................................
Excess tax benefit related to share-based compensation .........................................
Net proceeds from stock issuances ...........................................................................
15,888
10,721
11,123
--
23,145
17,257
(8,731)
(4,564)
(25,221)
100,774
--
--
--
--
--
--
(116,129)
(8,000)
(3,358)
(5,819)
--
--
39,550
(252)
--
--
(448)
391
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)
--
--
--
--
--
--
135,000
(803)
(1,007)
(12,359)
2,976
270
--
--
--
--
--
--
(1,000)
(500)
(577)
(4,607)
(17,413)
(28,877)
(58,650)
(2,421)
--
(9,019)
(450)
666
Net cash (used in) investing activities ........................................................................
(139,037)
(210,094)
Net cash provided by financing activities ...................................................................
(69,874)
39,241
124,077
Effect of exchange rates on cash and cash equivalents.....................................
89
1,241
(651)
Changes in cash and cash equivalents--
Net increase (decrease) in cash and cash equivalents.........................................
Cash and cash equivalents at beginning of year...................................................
(707)
8,363
2,219
6,144
(1,319)
7,463
Non-cash investing and financing activities:
Stock issuance related to the acquisition of TurboChef.............................................
$ --
$ 44,032
Stock issuance related to the acquisition of Cozzini………………………………….
$ 1,776
$ --
$ --
$ --
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JANUARY 1, 2011, JANUARY 2, 2010
AND JANUARY 3, 2009
(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 thirteen factories in the United
States and manufacturing facilities in China, Denmark, Italy, Mexico and the Philippines. The company operates in two business
segments: 1) the Commercial Foodservice Equipment Group and 2) the Food Processing Equipment Group.
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 company’s international sales are through independent manufacturing representatives and a combined network
of independent and company-owned distributors. The company maintains sales and distribution offices in Australia, Belgium,
China, France, Germany, Hong Kong, India, Italy, Mexico, the Philippines, Russia, Saudi Arabia, Singapore, South Korea,
Spain, Switzerland, Taiwan, United Arab Emirates and the United Kingdom.
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 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.
(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.
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
Cash
Current assets
Current deferred tax asset
Property, plant and equipment
Goodwill
Other intangibles
Deferred tax asset
Current liabilities
Other non-current liabilities
Total consideration
$ 10,146
23,183
12,246
1,320
79,485
63,050
19,021
(37,360)
(768)
$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 “Intangibles – Goodwill and Other”. 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.
36
37
CookTek
Anets
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 was made during the second quarter of 2010 as provided in the
purchase agreement. Additional contingent payments are also payable over the course of four years upon the achievement
of certain sales targets as described below.
The final allocation of cash paid for the CookTek acquisition is summarized as follows (in thousands):
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 was made in the second quarter of 2010 upon the
achievement of certain transition objectives.
The final allocation of cash paid for the Anets acquisition is summarized as follows (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
$ 2,583
152
5,895
6,622
(3,263)
(3,989)
$ 8,000
1,000
4,700
Net assets acquired and liabilities assumed
$ 13,700
The CookTek purchase agreement included an earnout provision providing for contingent payments due to the
reporting purposes. These assets are expected to be deductible for tax purposes.
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 $8 million. The contractual obligation associated with the contingent earnout provision recognized on the acquisition
date is $3.6 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.
Current assets
Goodwill
Other intangibles
Current liabilities
Other non-current liabilities
Total cash paid
Deferred cash payment
Apr 30, 2009
$ 2,210
3,342
1,085
(3,129)
(150)
$ 3,358
500
Net assets acquired and liabilities assumed
$ 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, both of which are to be amortized over the periods of 3
years. Goodwill and other intangibles of Anets are allocated to the Commercial Foodservice Equipment Group for segment
Doyon
On December 14, 2009, the company completed its acquisition of Doyon Equipment, Inc. (“Doyon”), a leading
Canadian manufacturer of baking ovens for the commercial foodservice industry, for a purchase price of approximately $6.4
million. In the third quarter 2010, the company finalized the working capital provision provided for by the purchase
agreement resulting in an additional payment of $577,000.
The final allocation of cash paid for the Doyon acquisition is summarized as follows (in thousands):
(as initially reported) Measurement Period
Dec 14, 2009
Adjustments
(as adjusted)
Dec 14, 2009
Current assets
Property, Plant and Equipment
Goodwill
Other intangibles
Current maturities of long-term debt
Current liabilities
Long-term debt
Other non-current liabilities
$ 5,034
1,876
191
2,355
(285)
(2,105)
(1,081)
(166)
$ (30)
--
1,331
(82)
--
(321)
--
(321)
$ 5,004
1,876
1,522
2,273
(285)
(2,426)
(1,081)
(487)
Net assets and liabilities assumed
$ 5,819
$ 577
$ 6,396
The goodwill and $1.4 million of other intangibles associated with the trade name are subject to the non-
amortization provisions of ASC 350. Other intangibles also includes $0.1 million allocated to developed technology and $0.8
million allocated to customer relationships which are to be amortized a period of 5 years. 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.
38
39
PerfectFry
On July 13, 2010, the company completed its acquisition of substantially all of the assets and operations of PerfectFry
Company LTD (“PerfectFry”), a leading manufacturer of ventless countertop frying units for the commercial foodservice
industry for a purchase price of approximately $4.9 million.
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):
(as initially reported)
Jul 13, 2010
Measurement Period
Adjustments
(as adjusted)
July 13, 2010
Cash
Current assets
Goodwill
Other intangibles
Current liabilities
$ 247
1,949
2,502
1,653
(1,497)
Net assets and liabilities assumed
$ 4,854
$ --
(316)
(296)
--
612
$ --
$ 247
1,633
2,206
1,653
(885)
$ 4,854
The goodwill and $1.2 million of other intangibles associated with the trade name are subject to the non-
amortization provisions of ASC 350. Other intangibles also include $0.1 million allocated to developed technology and $0.3
million allocated to customer relationships which are to be amortized over a period of 5 years. Goodwill and other
intangibles of PerfectFry 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.
Cozzini
The goodwill and $3.6 million of other intangibles associated with the trade name are subject to the non-
amortization provisions of ASC 350. Other intangibles also includes $2.7 million allocated to customer relationships and
$1.4 million allocated to backlog which are to be amortized over the periods of 4 years and 3 months respectively. Goodwill
and other intangibles of Cozzini are allocated to the Food Processing 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.
The Cozzini purchase agreement included an earnout provision providing for a contingent payment due to the
sellers to the extent certain financial targets are exceeded. This earnout payment is payable within the first quarter of 2011 if
Cozzini exceeds certain sales targets for fiscal 2010. The contractual obligation associated with the contingent earnout
provision recognized on the acquisition date was $2.0 million.
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
On September 21, 2010, the company completed its acquisition of the food processing equipment business of Cozzini,
Inc. (“Cozzini”), a leading manufacturer of equipment solutions for the food processing industry, for an aggregate purchase
price of approximately $19.2 million, including $17.4 million in cash and 34,263 shares of Middleby common stock valued at
$1.8 million. An additional contingent payment is also payable upon the achievement of certain sales targets. The purchase
price is subject to adjustment based upon a working capital provision within the purchase agreement.
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. The 2010 acquisitions of PerfectFry and Cozzini were not considered to be material individually or in aggregate.
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):
(as initially reported)
Sep 21, 2010
Measurement Period
Adjustments
(as adjusted)
Sep 21, 2010
Cash
Current assets
Property, Plant and Equipment
Goodwill
Other intangibles
Other assets
Current liabilities
Consideration paid at closing
Contingent consideration
Net assets acquired and
liabilities assumed
$ 557
13,601
863
9,601
6,691
636
(11,859)
$ 20,090
2,000
$ 30
238
13
(1,639)
1,078
71
(105)
(314)
--
$ 587
13,839
876
7,962
7,769
707
(11,964)
19,776
2,000
$ 22,090
$ (314)
$ 21,776
40
41
(3)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(e)
Property, Plant and Equipment
(a)
Basis of Presentation
Property, plant and equipment are carried at cost as follows:
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 2010, 2009 and 2008 ended on
January 1, 2011, January 2, 2010 and January 3, 2009, respectively, and included 52, 52, and 53 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.
(c)
Accounts Receivable
Accounts receivable, as shown in the consolidated balance sheets, are net of allowances for doubtful accounts of
$7,975,000 and $6,596,000 at January 1, 2011 and January 2, 2010, 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 $17.5 million in 2010 and $15.6 million in 2009 and represented
approximately 16% 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 1, 2011 and January 2, 2010 are as follows:
Raw materials and parts ............................................................
Work in process .........................................................................
Finished goods...........................................................................
LIFO reserve..............................................................................
2010
(dollars in thousands)
2009
$ 60,452
12,292
33,432
106,176
287
$106,463
$ 51,071
13,629
26,731
91,431
(791)
$ 90,640
Land...................................................................................................
Building and improvements ...............................................................
Furniture and fixtures.........................................................................
Machinery and equipment .................................................................
Less accumulated depreciation.........................................................
2010
2009
(dollars in thousands)
$ 6,566
37,796
8,037
38,612
91,011
(47,355)
$ 43,656
$ 6,866
37,660
10,045
37,757
92,328
(44,988)
$ 47,340
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.
Following is a summary of the estimated useful lives:
Description
Life
Building and improvements......................................................................................... 20 to 40 years
Furniture and fixtures .................................................................................................. 3 to 7 years
Machinery and equipment........................................................................................... 3 to 10 years
Depreciation expense amounted to $5,929,000, $6,287,000 and $5,007,300 in fiscal 2010, 2009 and 2008,
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 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 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.
42
43
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
Unrecognized pension benefit costs, net of tax.................... $ (2,470)
Unrealized loss on interest rate swap, net of tax ..................
Currency translation adjustments .........................................
(1,105)
(459)
2010
2009
(dollars in thousands)
$ (2,283)
(1,528)
(1,058)
$ (4,869)
$ (4,034)
(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 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
Goodwill is allocated to the business segments as follows (in thousands):
(h)
Litigation Matters
Commercial
Foodservice
Food
Processing
Total
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
Goodwill acquired during the year
Exchange effect
3,555
(34)
7,962
--
11,517
(34)
Balance as of January 1, 2011
$330,501
$ 39,488
$369,989
consolidated balance sheets:
The company has not had any goodwill impairments and therefore no accumulated impairment loss.
Intangible assets consist of the following (in thousands):
January 1, 2011
Estimated
Weighted Ave Gross
Amortized intangible assets:
Customer lists
Backlog
Developed technology
Life
3.9
--
3.7
Remaining Carrying Accumulated
Amortization
$ (19,597)
(3,568)
(6,358)
$ (29,523)
Amount
$ 43,662
3,568
15,821
$ 63,051
Indefinite-lived assets:
Trademarks and tradenames
$155,726
January 2, 2010
Estimated
Weighted Ave Gross
Remaining
Life
2.9
0.1
2.7
Carrying Accumulated
Amortization
Amount
$ (13,240)
$ 40,319
(2,131)
2,158
(3,535)
14,847
$ (18,906)
$ 57,324
$151,154
The aggregate intangible amortization expense was $10.6 million, $9.1 million and $6.9 million in 2010, 2009 and
2008, respectively. The estimated future amortization expense of intangible assets is as follows (in thousands):
2011 ............................ $ 9,555
8,705
2012 ............................
8,459
2013 ............................
5,696
2014 ............................
630
2015 ............................
483
Thereafter....................
$33,528
(g)
Accrued Expenses
Accrued expenses consist of the following at January 1, 2011 and January 2, 2010, respectively:
2010
2009
(dollars in thousands)
Accrued payroll and related expenses..............................................
Accrued customer rebates................................................................
Accrued warranty ..............................................................................
Advanced customer deposits............................................................
Accrued product liability and workers compensation .......................
Accrued agent commission ..............................................................
Accrued professional services..........................................................
Other accrued expenses...................................................................
$ 32,625
18,086
14,468
13,357
9,711
7,824
5,944
23,795
$ 19,988
12,980
14,265
14,066
9,877
4,825
4,931
19,327
$125,810
$100,259
44
45
The company’s financial assets and liabilities that are measured at fair value are categorized using the fair value
(n)
Warranty Costs
hierarchy at January 1, 2011 and January 2, 2010 are as follows (in thousands):
Fair Value
Level 1
Fair Value
Level 2
Fair Value
Level 3
Total
As of January 1, 2011
Financial Assets:
Pension Plan
Financial Liabilities:
Interest rate swaps
Contingent consideration
As of January 2, 2010
Financial Assets:
Pension Plan
Financial Liabilities:
Interest rate swaps
Contingent consideration
$ 11,241
$ 354
--
$11,595
A rollforward of the warranty reserve is as follows:
--
--
$ 2,196
--
--
$ 5,579
$ 2,196
$ 5,579
$ 5,614
$ 5,100
--
$10,714
--
--
$ 2,966
--
--
$ 4,134
$ 2,966
$ 4,134
The contingent consideration relates to earnout provisions recorded in conjunction with the acquisitions of CookTek
and Cozzini.
(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 gain of $0.2 million in fiscal 2010, a loss of $0.2 million in fiscal 2009 and a
loss of $1.9 million in fiscal 2008 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 defined within
ASC 605-35 “Construction-Type and Production-Type Contracts” 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.
(m)
Shipping and Handling Costs
Shipping and handling costs are included in cost of products sold.
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.
2010
2009
(dollars in thousands)
Beginning balance.....................................
Warranty reserve related to acquisitions...
Warranty expense .....................................
Warranty claims ........................................
Ending balance .........................................
$ 14,265
537
22,789
(23,123)
$ 14,468
$ 12,595
2,674
23,389
(24,393)
$ 14,265
(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 $7,736,000, $7,114,000 and $6,638,000 in fiscal 2010, 2009 and 2008, respectively.
(p)
Non-Cash Share-Based Compensation
The company estimates the fair value of restricted share grants 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 $14.7 million, $10.8 million and $11.4 million was recognized for fiscal 2010, 2009 and 2008, respectively. The
company recorded a related tax benefit of $5.8 million, $4.2 million and $4.5 million in fiscal 2010, 2009 and 2008,
respectively. This included less than $0.1 million and $0.6 million, for fiscal 2009, and 2008, respectively, associated with
stock options and $14.7 million, $10.8 million and $10.8 million for fiscal 2010, 2009 and 2008, respectively, associated with
restricted share grants. The company issued restricted share grants with a fair value of $16.1 million in fiscal 2009 and
$11.4 million in fiscal 2008. There were no restricted share grants issued in fiscal 2010.
As of January 1, 2011, there was $8.9 million of total unrecognized compensation cost related to nonvested
restricted share grant compensation arrangements, which will be recognized over a weighted average life of 1.5 years.
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 share grant awards. Share grant awards not subject to market conditions for vesting are
valued at the closing share price of the company’s stock 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 and 266,500 restricted share grant awards in 2009 and 2008,
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
Fair value
2009
2008
N/A
N/A
N/A
N/A
37.8%
4.0
2.9%
0.0%
$47.78(1)
$42.87
(1) Share grant awards granted in 2009 are performance based and were not subject to market conditions.
Therefore, the fair value represents the closing share price of the company’s stock as of the date of grant.
46
47
(q)
Earnings Per Share
Basic 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 536,000, 970,000, and 1,052,000 for fiscal
2010, 2009 and 2008, respectively.
(r)
Consolidated Statements of Cash Flows
Cash paid for interest was $7.6 million, $10.6 million and $11.2 million in fiscal 2010, 2009 and 2008, respectively.
Cash payments totaling $34.3 million, $34.6 million, and $35.0 million were made for income taxes during fiscal 2010, 2009 and
2008, respectively.
(s)
New Accounting Pronouncements
In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605), “Multiple-Deliverable
Revenue Arrangements” (“ASU No. 2009-13”). ASU No. 2009-13 establishes the accounting and reporting guidance for
arrangements including multiple revenue-generating activities. The amendments in this ASU are effective prospectively for
revenue arrangements entered into or materially modified in the fiscal years beginning on or after June 15, 2010. The
company has early adopted the provisions of ASU No. 2009-13. The adoption of ASU No. 2009-13 did not have a material
impact on the company’s financial position, results of operations or cash flows.
(4)
FINANCING ARRANGEMENTS
The following is a summary of long-term debt at January 1, 2011 and January 2, 2010:
2010
2009
(dollars in thousands)
Senior secured revolving credit line .............................
Foreign loans ...............................................................
$207,250
6,767
Total debt
$214,017
Less current maturities of
long-term debt ..........................................
5,097
Long-term debt
$208,920
$265,900
9,741
$275,641
7,517
$268,124
Terms of the company’s senior credit agreement provide for $497.8 million of availability under a revolving credit
line. As of January 1, 2011, the company had $207.2 million of borrowings outstanding under this facility. The company
also has $6.8 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 $277.0
million at January 1, 2011.
At January 1, 2011, borrowings under the senior secured credit facility were assessed at an interest rate at 1.00%
above LIBOR for long-term borrowings or at the higher of the Prime rate and the Federal Funds Rate. At January 1, 2011,
the average interest rate on the senior debt amounted to 1.34%. 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 1, 2011.
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 1, 2011, these facilities amounted to
$3.1 million in U.S. dollars, including $1.3 million outstanding under a revolving credit facility and $1.8 million of a term loan.
The interest rate on the revolving credit facility is assessed at 1.25% above Euro LIBOR, which amounted to 4.1% on
January 1, 2011. The term loan matures in 2013 and the interest rate is assessed at 5.146%.
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 1, 2011, these
facilities amounted to $3.7 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 1, 2011, the average interest rate on these facilities was approximately
3.0%.
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 1, 2011 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 $209.8 million
at January 1, 2011, as compared to the carrying value of $214.0 million.
The carrying value and estimated aggregate fair value, based primarily on market prices, of debt is as follows
(dollars in thousands):
Total debt
$214,017
$209,808
$275,641
January 1, 2011
January 2, 2010
Carrying Value
Fair Value
Carrying Value
Fair Value
$267,632
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.
48
49
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 1, 2011 the
company had the following interest rate swaps in effect:
(c)
Share-Based Awards
Notional
Amount
10,000,000
10,000,000
10,000,000
25,000,000
15,000,000
10,000,000
20,000,000
15,000,000
20,000,000
Fixed
Interest
Rate
3.032%
3.590%
3.460%
3.670%
1.220%
1.120%
1.800%
0.950%
1.560%
Effective
Date
02/06/08
06/10/08
09/08/08
09/23/08
11/23/09
03/11/10
11/23/09
09/06/10
03/11/10
Maturity
Date
02/06/11
06/10/11
09/06/11
09/23/11
11/23/11
03/11/12
11/23/12
12/06/12
12/11/12
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 1,
2011, 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:
(in thousands)
2011 ........................................................
2012 ........................................................
2013 ........................................................
2014 ........................................................
2015 ........................................................
2016 and thereafter.................................
$ 5,097
207,367
121
128
134
1,170
$214,017
(5)
COMMON AND PREFERRED STOCK
(a)
Shares Authorized and Issued
At January 1, 2011 and January 2, 2010 the company had 47,500,000, shares of common stock and
2,000,000 shares of Non-voting Preferred Stock authorized. At January 1, 2011 and January 2, 2010, there were
18,458,011 and 18,552,737, respectively, 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 1, 2011,
1,333,734 shares had been purchased under the 1998 stock repurchase program and 466,266 remain authorized
for repurchase.
At January 1, 2011, the company had a total of 4,233,810 shares in treasury amounting to $111.0 million.
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.
As of January 1, 2011, 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 178,729 remain unvested and 123,514 have been
cancelled. This also includes 2,435,320 stock options, of which 1,715,432 have been exercised and 724,888
remain outstanding.
As of January 1, 2011, a total of 729,477 share based awards have been issued under the 2007 Plan.
This includes 721,614 restricted share grants, of which 456,185 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 2011 to satisfy obligations under its share-based award programs.
A summary of stock option activity under the 1998 Stock Incentive Plan is presented below (amounts in
thousands, except share and per share data):
Weighted
Average
Exercise
Weighted
Average
Remaining
Life
Aggregate
Intrinsic
Value
Shares
Price
Outstanding at January 2, 2010:
759,388
$ 9.92
3.54
$26,690
Granted
Exercised
Forfeited
--
(34,500)
--
--
18.91
--
Outstanding at January 1, 2011:
724,888
$ 9.49
Exercisable at January 1, 2011:
724,888
$ 9.49
2.36
2.36
$54,312
$54,312
Vested or expected to vest
At January 1, 2011
724,888
$ 9.49
2.36
$54,312
50
51
Earnings before taxes is summarized as follows:
Domestic.................................................................
Foreign....................................................................
Total........................................................................
$104,421
9,815
$114,236
$ 96,788
2,938
$ 97,307
6,915
$ 99,726 $104,222
2010
2009
2008
(dollars in thousands)
The provision for income taxes is summarized as follows:
2010
2009
2008
(dollars in thousands)
Federal....................................................................
$31,309
$31,359
$31,936
State and local ........................................................
Foreign....................................................................
Total........................................................................
Current....................................................................
Deferred..................................................................
Total........................................................................
7,052
3,008
$ 41,369
$ 39,949
1,420
$ 41,369
6,100
1,111
$ 38,570
5,719
2,666
$ 40,321
$ 27,447
11,123
$ 38,570
$ 41,863
(1,542)
$ 40,321
U.S. federal statutory tax rate ...................................
35.0%
2010
2009
35.0%
2008
35.0%
Permanent book vs. tax
State taxes, net of federal
differences ...........................................................
(3.2)
(2.3)
(2.4)
benefit..................................................................
4.1
4.0
3.4
U.S. taxes on foreign earnings and
foreign tax rate differentials..................................
Reserve adjustments and other ................................
(0.3)
0.6
(0.7)
2.7
1.3
1.4
Consolidated effective tax.........................................
36.2%
38.7%
38.7%
Reconciliation of the differences between income taxes computed at the federal statutory rate to the effective rate
are as follows:
A summary of stock option activity under the 2007 Stock Incentive Plan is presented below(amounts in
(6)
INCOME TAXES
thousands, except share and per share data):
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
Aggregate
Intrinsic
Value
Shares
Outstanding at January 2, 2010:
3,742
$ 28.75
2.41
$ 76
Granted
Exercised
Forfeited
Outstanding at January 1, 2011:
Exercisable at January 1, 2011:
Vested or expected to vest
At January 1, 2011
--
(408)
(413)
2,921
2,921
--
36.22
113.20
$ 15.76
$ 15.76
1.11
1.11
$ 200
$ 200
2,921
$ 15.76
1.11
$ 200
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 January 2, 2010 and January 1, 2011 is as
follows:
Weighted
Average
Grant-Date
Shares Fair Value
Nonvested Shares
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
Granted
Vested
Forfeited
-
(47,250)
-
Nonvested shares at January 1, 2011
631,993
$72.33
$47.78
$26.42
$58.13
$60.88
$53.61
$ -
$44.62
$ -
$48.47
Additional information related to the share based compensation is as follows:
2010
2009
(dollars in thousands)
Intrinsic value of options exercised
Cash received from exercise
Tax benefit from option exercises
$ 2,280
666
450
$ 1,091
391
335
2008
$ 985
270
166
52
53
At January 1, 2011 and January 2, 2010, the company had recorded the following deferred tax assets and liabilities,
which were comprised of the following:
2010
2009
(dollars in thousands)
Deferred tax assets:
Federal NOL carryforwards
Compensation related......................................................................
Accrued retirement benefits..................................................................
Inventory reserves ...........................................................................
Product liability and workers comp reserves ....................................
Warranty reserves ................................................................................
Receivable related reserves.............................................................
UNICAP ................................................................................................
Accrued plant closure ...........................................................................
State NOL carryforward………………………………………….
Interest rate swap .................................................................................
Foreign NOL carryforwards..............................................................
Other ....................................................................................................
Gross deferred tax assets .............................................................
Valuation allowance .........................................................................
Deferred tax assets................................................................
Deferred tax liabilities:..............................................................................
Intangible assets ..............................................................................
Foreign tax earnings repatriation .....................................................
LIFO reserves ..................................................................................
Depreciation.....................................................................................
Other
$ 28,079
12,474
5,228
4,429
4,295
4,175
2,509
1,984
868
740
676
--
8,805
74,262
--
$ 74,262
$ (55,901)
(2,266)
(583)
(497)
(1,353)
Deferred tax liabilities.............................................................
$ (60,600)
Net deferred tax assets (liabilities)
Current deferred asset (liability)
Long-term deferred asset (liability)
Net deferred tax assets (liabilities)
$ 13,662
$25,520
(11,858)
$ 13,662
$ 34,512
6,633
4,114
4,359
2,455
4,068
1,984
1,562
1,821
295
1,019
429
6,525
69,776
(429)
$ 69,347
$ (56,718)
(2,053)
(357)
(462)
(605)
$ (60,195)
$ 9,152
$23,339
(14,187)
$ 9,152
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 10.0 million as of January
1, 2011. The determination of the additional deferred taxes that have not been provided is not practicable.
As of January 1, 2011, the company has federal and state income tax net operating loss carryforwards of
approximately $80 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.
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. The company is currently under examination by the Internal Revenue Service for
the fiscal year ended January 3, 2009. The completion date of this examination has not been determined as of January 1,
2011.
On December 31, 2006, the company adopted the provisions of ASC 740-10 “Accounting for Uncertainty in 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 January 1, 2011, the total amount of liability for unrecognized tax benefits related to federal, state and foreign
taxes was approximately $17.8 million (of which $15.9 million would impact the effective tax rate if recognized) plus
approximately $2.1 million of accrued interest and $2.4 million of penalties. The company recognizes interest and penalties
accrued related to unrecognized tax benefits in income tax expense. Interest recognized in fiscal years 2010, 2009 and
2008 was $0.1 million, $0.7 million and $0.4 million, respectively. Penalties recognized in fiscal years 2010, 2009 and 2008
was $0.2 million, $0.5 million and $0.5 million, respectively.
The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended
January 3, 2009, January 2, 2010 and January 1, 2011 (dollars in thousands):
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
Increases to current year tax positions
Increase to prior year tax positions
Decrease to prior year tax positions
Balance at January 1, 2011
$ 7,666
4,156
835
(2,285)
$ 10,372
3,316
7,474
(911)
$ 20,251
3,524
1,700
(7,689)
$ 17,786
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 $0.3 million of our currently remaining unrecognized tax benefits,
each of which are individually insignificant, may be recognized by the end of 2011 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.................................. 2008 – 2010
United States – states ................................... 2003 – 2010
Brazil ............................................................. 2010
Canada.......................................................... 2009 – 2010
China............................................................. 2002 – 2010
Denmark........................................................ 2006 – 2010
Mexico........................................................... 2005 – 2010
Philippines ..................................................... 2006 – 2010
South Korea .................................................. 2005 – 2010
Spain ............................................................. 2007 – 2010
Taiwan........................................................... 2007 – 2010
United Kingdom............................................. 2007 – 2010
Italy................................................................ 2008 – 2010
54
55
(7)
FINANCIAL INSTRUMENTS
(8)
LEASE COMMITMENTS
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 $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 1, 2011, the fair value of these instruments was a loss of $2.2 million. The change in fair value of these swap
agreements in 2010 was a gain of $0.4 million, net of taxes.
A summary of the company’s interest rate swaps is as follows:
Twelve Months Ended
Location
Jan 1, 2011
Jan 2, 2010
(amounts in thousands)
Fair value
Other liabilities
$ (2,186)
$ (2,966)
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
$ (2,504)
$ (2,332)
Interest expense
$ (3,277)
$ (5,093)
Other expense
$ 7
$ --
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.
The company leases warehouse space, office facilities and equipment under operating leases, which expire in
fiscal 2011 and thereafter. The company also has lease obligations for manufacturing facilities that were exited in
conjunction with manufacturing consolidation efforts in 2001 and 2009. Future payment obligations under these leases are
as follows:
2011 .......................................... $ 4,557
2012 ..........................................
2013 ..........................................
2014 ..........................................
2015 .........................................
2016 and thereafter ...................
3,386
1,886
1,686
642
1,690
Operating
Leases
Total Lease
Commitments
(dollars in thousands)
$ 666
$ 5,223
Idle
Facility
Leases
497
323
323
162
3,883
2,209
2,009
804
--
1,690
$ 13,847
$ 1,971
$ 15,818
Rental expense pertaining to the operating leases was $5.6 million, $5.6 million, and $4.2 million in fiscal 2010,
2009 and 2008 respectively.
The idle lease obligations relate to manufacturing facilities in Quakertown, Pennsylvania and Verdi, Nevada exited
in 2001 and 2009, respectively. Obligations under these leases extend through June 2015 and June 2012, respectively.
The company has established reserves of $2.1 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.
(9)
SEGMENT INFORMATION
The company has two reportable segments defined by management reporting structure and operating activities.
The Commercial Foodservice Equipment Group manufactures, sells and distributes cooking equipment for
restaurants and institutional kitchens around the world. This business division has manufacturing facilities in California,
Illinois, Michigan, New Hampshire, North Carolina, Tennessee, Texas, Vermont, 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,
PerfectFry, Southbend, Star, Toastmaster, TurboChef and Wells. This business has sales, distribution and export
management in the offices located in Australia, Belgium, Brazil, China, France, Hong Kong, India, Italy, Germany, Mexico,
the Philippines, Russia, Saudi Arabia, Singapore, South Korea, Spain, Switzerland, United Arab Emirates and the United
Kingdom.
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 Illinois, Iowa, Wisconsin and
Mexico. Its principal products include; batch ovens, belt ovens and conveyorized cooking systems sold under the Alkar
brand name, grinding, slicing, emulsification, mixing and blending under the Cozzini brand name, breading, battering,
mixing, slicing and forming equipment sold under the MP Equipment brand name and packaging and food safety equipment
sold under the RapidPak brand name.
During the second quarter of 2010, the company made a determination that the International Distribution Division,
previously reported as a separate business segment, no longer met the criteria requiring it to be reported as separate
operating segment. Accordingly, the associated financial information has been incorporated within the Commercial
Foodservice Group for the current and prior year periods.
56
57
The accounting policies of the segments are the same as those described in the summary of significant accounting
Net sales by each major geographic region are as follows:
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.
The following table summarizes the results of operations for the company’s business segments1 (dollars in
thousands):
2010
Net sales
Operating income
Depreciation and amortization expense
Net capital expenditures
Total assets
Long-lived assets
2009
Net sales
Operating income
Depreciation and amortization expense
Net capital expenditures
Total assets
Long-lived assets
2008
Net sales
Operating income
Depreciation and amortization expense
Net capital expenditures
Total assets
Long-lived assets
Commercial
Foodservice
Food
Processing
Corporate
and Other(2)
Total
$611,596
$ 107,525
$ --
$719,121
148,443
13,331
2,810
712,738
521,915
20,580
3,130
136
103,829
57,950
(46,235)
122,788
553
213
56,605
29,648
17,014
3,159
873,172
609,513
$580,704
$ 65,925
$ --
$646,629
130,557
14,135
5,249
694,026
527,250
12,193
1,350
20
69,137
43,518
(31,309)
111,441
403
461
53,183
28,552
15,888
5,730
816,346
599,320
$573,378
$ 78,510
$ --
$651,888
140,800
10,637
3,887
543,355
371,832
13,540
1,650
389
66,183
43,459
(34,722)
119,618
(397)
61
44,960
29,510
11,890
4,337
654,498
444,801
(1) Non-operating expenses are not allocated to the reportable 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.
Includes corporate and other general company assets and operations.
(2)
Long-lived assets by major geographic region are as follows:
2010
2009
2008
(dollars in thousands)
United States and Canada
$585,614
$571,688
$423,379
Asia
Europe and Middle East
Latin America
Total international
1,805
21,143
951
1,878
25,546
208
2,061
19,133
228
23,899
27,632
21,422
$609,513
$599,320
$444,801
2010
2009
2008
(dollars in thousands)
United States and Canada
$575,527
$530,644
$529,637
Asia
Europe and Middle East
Latin America
Total international
42,786
79,859
20,949
143,594
28,936
69,773
17,276
115,985
34,516
69,046
18,689
122,251
$719,121
$646,629
$651,888
(10)
EMPLOYEE RETIREMENT PLANS
(a)
Pension Plans
The company maintains a non-contributory defined benefit plan for its employees at the 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. In November 2010, the Board of Directors
approved a revision to the directors’ compensation program that resulted in the plan being frozen and benefits being
distributed to vested plan participants. Benefit distributions were made in December 2010 and in January 2011 subsequent
to the fiscal year end. As of January, 2011, there are no longer any participants in the retirement plan for non-employee
directors. This plan is not available to any new non-employee directors.
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59
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
The assets of the plans were invested in the following classes of securities (none of which were securities of the
payments.
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
48 %
40 %
4 %
8 %
100 %
48 %
40 %
4 %
8 %
100 %
2010
48 %
32
12
2009
24 %
48
23
8
100 %
5
100 %
56 %
36
-
8
100 %
36 %
1
58
5
100 %
Target Allocation
Percentage of Plan Assets
2010
2009
A summary of the plans’ net periodic pension cost, benefit obligations, funded status, and net balance sheet
position is as follows (dollars in thousands):
2010
Smithville
Plan
2010
Elgin
Plan
2010
Director
Plans
2009
Smithville
Plan
2009
Elgin
Plan
2009
Director
Plans
$ --
$ --
$ 1,091
$ --
$ --
$ 1,029
635
(523)
119
--
231
(167)
114
--
435
--
--
172
620
(483)
155
--
239
(168)
150
--
357
--
--
(120)
$ 231
$ 178
$ 1,698
$ 292
$ 221
$ 1,266
Net Periodic Pension Cost:
Service cost
Interest cost
Expected return on assets
Amortization of net (gain) loss
Pension settlement
Change in Benefit Obligation:
Benefit obligation – beginning of year
$ 10,821
$ 4,095
$ 6,153
$ 10,212
$ 4,288
$ 5,087
Service cost
Interest on benefit obligations
Actuarial (gains) losses
Pension settlement
Net benefit payments
--
635
843
--
(341)
--
231
85
--
(269)
1,091
435
--
172
(823)
--
620
228
--
(239)
--
239
(158)
--
(273)
1,029
357
--
(120)
(200)
Benefit obligation – end of year
$ 11,958
$ 4,142
$ 7,028
$ 10,821
$ 4,096
$ 6,153
Change in Plan Assets:
Plan assets at fair value – beginning of
year
Company contributions
Investment (loss) gain
Benefit payments and plan expenses
$ 7,526
250
818
(341)
$ 3,189
118
304
(269)
$ --
823
$ 6,850
250
--
(823)
665
(239)
$ 3,211
--
251
(273)
$ --
200
--
(200)
Plan assets at fair value – end of year
$ 8,253
$ 3,342
$ --
$ 7,526
$ 3,189
$ --
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
$ (3,704)
$ (799)
$ (7,028)
$ (3,295)
$ (907)
$ (6,153)
$ (3,704)
$ (799)
$ (7,028)
$ (3,295)
$ (907)
$ (6,153)
$ 2,689
$ 1,304
$ --
$ 2,260
$ 1,471
$ --
--
--
--
--
--
--
--
--
--
--
--
--
Total amount recognized
$ 2,689
$ 1,304
$ --
$ 2,260
$ 1,471
$ --
Accumulated Benefit Obligation
$ 11,958
$ 4,142
$ 4,371
$ 10,821
$ 4,096
$ 4,065
Salary growth rate
Assumed discount rate
Expected return on assets
n/a
5.5%
7.0%
n/a
5.5%
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
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61
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):
2011
2012
2013
2014
2015
2016 through 2020
Smithville
Plan
$ 347
397
437
479
524
3,340
Elgin
Plan
$ 297
301
285
278
282
1,456
Director
Plans
$ 300
--
--
825
825
4,126
Contributions to the directors plans 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 and union plans to be made in 2011 are $0.3 and
$0.1 million, respectively. There are no expected contributions to the Elgin plan to be made in 2011.
(b)
401K Savings Plans
As of January 1, 2011, 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 $42,000 for
2010, $35,000 for 2009 and $48,000 for 2008. There were no other profit sharing contributions to the 401K savings plans
for 2010, 2009 and 2008.
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 1, 2011 (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:
Govt/Corp
High Yield
Alternative:
Global Real Estate
Commodities
Total
$ 391
$ --
$ 391
$ --
696
131
127
650
885
183
696
131
127
650
885
183
--
--
--
--
--
--
--
--
--
--
--
--
89
190
$ 3,342
89
190
$ 2,951
--
--
$ 391
--
--
$ --
(a) Represents collective short term investment fund, composed of high-grade money market instruments with short
maturities.
Smithville Plan
Asset Category
Short Term Investment Fund (a)
Equity Securities:
Large Cap
Mid Cap
Small Cap
International
Fixed Income:
Govt/Corp
High Yield
Alternative:
Global Real Estate
Commodities
Total
Total
$ (37)
1,888
427
406
1,910
2,485
473
252
449
$ 8,253
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$ --
$ (37)
$ --
1,888
427
406
1,910
2,485
473
252
449
$ 8,290
--
--
--
--
--
--
--
--
--
--
--
--
$ (37)
--
--
$ --
(a) Represents collective short term investment fund, composed of high-grade money market instruments with short
maturities.
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63
(11)
QUARTERLY DATA (UNAUDITED)
1st
4th
(dollars in thousands, except per share data)
2nd
3rd
Total Year
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS ENDED JANUARY 1, 2011, JANUARY 2, 2010
AND JANUARY 3, 2009
2010
Net sales ............................................................... $160,683
63,473
Gross profit…………………… ...............................
26,435
Income from operations ........................................
$ 13,762
Net earnings..........................................................
$173,412
69,424
29,729
$ 17,509
$177,793
70,687
32,011
$ 20,602
$207,233
83,093
34,613
$ 20,994
$719,121
286,677
122,788
$ 72,867
Basic earnings per share (1) .................................
Diluted earnings per share (1)...............................
$ 0.78
$ 0.74
$ 0.98
$ 0.96
$ 1.16
$ 1.13
$ 1.18
$ 1.13
$ 4.09
$ 3.97
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) .................................
Diluted earnings per share (1)...............................
$ 0.80
$ 0.77
$ 0.78
$ 0.74
$ 0.88
$ 0.83
$ 1.01
$ 0.95
$ 3.47
$ 3.29
(1) Sum of quarters may not equal the total for the year due to changes in the number of shares outstanding
during the year.
Additions/
Balance
(Recoveries)
Beginning
Of Period
Charged
to Expense
Write-Offs
During the
the Period
Acquisition
Balance
At End
Of Period
Allowance for
doubtful accounts; deducted from
accounts receivable on the
balance sheets-
2010
2009
2008
$6,596,000
$ 1,599,000
$ (512,000)
$292,000
$7,975,000
$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
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65
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 1, 2011, 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 1, 2011, 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.
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 PerfectFry Company Ltd and
Cozzini Inc., which were acquired on July 13, 2010 and September 21, 2010, respectively. These acquisitions constitute
4.3% and 4.1% of net and total assets, respectively, 2.8% of net revenues, and (0.4)% of net income of the consolidated
financial statements of the Company as of and for the year ended January 1, 2011. These acquisitions are included in the
consolidated financial statements of the company as of and for the year ended January 1, 2011. 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 1, 2011.
The Middleby Corporation
March 2, 2011
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67
Item 9B. Other Information
None.
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.
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69
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
4.1
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.
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.
10.1
10.2 *
10.3 *
10.4 *
10.5 *
10.6 *
10. 7 *
10.8 *
10.9 *
10.10 *
10.11 *
10.12 *
10.13
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.
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.
70
71
10.14 *
10.15 *
10.16 *
10.17*
10.18*
21
23.1
31.1
31.2
32.1
32.2
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.
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.
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.
/s/ Gordon O'Brien _____________________
Director
(c)
See the financial statement schedule included under Item 8.
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 2nd day of March 2011.
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 2, 2011.
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 _________________
Vice President, Chief Financial
Timothy J. FitzGerald
Officer
DIRECTORS
Robert Lamb
John R. Miller, III
Gordon O'Brien
Philip G. Putnam
Sabin C. Streeter
Ryan J. Levenson
/s/ Robert Lamb _______________________
Director
/s/ John R. Miller, III ____________________
Director
/s/ Philip G. Putnam ____________________
Director
/s/ Sabin C. Streeter ____________________
Director
/s/ Ryan J. Levenson ___________________
Director
72
73
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
(This page has been left blank intentionally.)
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
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0
1
$
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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 Registered
Public Accountants
Deloitte & Touche LLP
Chicago, Illinois
NASDAQ Non-Financial Stocks Index
Stock Price Performance
NASDAQ Stock Market Index
Middleby Corporation
NASDAQ Non-Financial Stocks Index
NASDAQ Stock Market Index
Middleby Corporation
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The Middleby Corporation | 1400 Toastmaster Drive | Elgin, Illinois 60120
www.middleby.com | www.greenstainless.com