annual
rePOrT
www.middleby.com | www.greenstainless.com
2011 Financial Highlights
(dollars in thousands)
Net sales
Gross profit
Income from operations
Net earnings
EPS on net earnings
Weighted average shares
Cashflow from operations
Total assets
Total debt
Stockholders’ equity
2011
2010
2009
2008
2007
$855,907
$719,121
$646,629
$651,888
$500,472
$344,137
$148,710
95,473
286,677
122,788
72,867
250,628
111,441
61,156
248,142
119,618
63,901
192,365
92,933
52,614
$5.15
$
3.97
$
3.29
$
3.75
$
3.11
18,534,000
18,337,000
18,575,000
17,030,000
16,938,000
$ 130,393
$ 97,955
$ 100,774
$ 85,349
$ 59,493
1,146,512
317,335
510,969
873,172
214,017
424,913
816,346
275,641
342,655
654,498
234,700
227,960
413,647
96,197
182,912
Net Sales
(dollars in millions)
Net Earnings
(dollars in millions)
EPS on Net Earnings
$1000
$100
800
600
400
200
0
80
60
40
20
0
$6
5
4
3
2
1
0
’07
’08
’09
’10
’11
’07
’08
’09
’10
’11
’07
’08
’09
’10
’11
Commercial Foodser vice Equipment
$500.5
$403.1
$316.7
$271.1
$242.2
I N C .
BAKING E QUIPMENT SPECIALISTS
$52.6
$42.4
$32.2
$23.6
$18.7
$3.11
$2.57
$1.99
$1.19
$1.00
Food Processing Equipment
M E A T PR E S S E S • DE F R O S T SY S T E M S
HAM PR OCESS SYSTEMS & PRESS TOWE RS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
_X_ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
_ _ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the Fiscal Year Ended December 31, 2011
or
Commission File No. 1-9973
THE MIDDLEBY CORPORATION
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(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, 2011 was approximately
$1,695,367,810.
The number of shares outstanding of the Registrant’s class of common stock, as of February 24, 2012, was 18,655,910 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
DECEMBER 31, 2011
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
1
8
14
15
15
15
16
17
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business ............................................................................................................
Risk Factors.......................................................................................................
Unresolved Staff Comments..............................................................................
Properties ..........................................................................................................
Legal Proceedings .............................................................................................
Mine Safety Issues ............................................................................................
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities ........................................................
PART II
Item 6.
Item 7.
Selected Financial Data.....................................................................................
Management’s Discussion and Analysis of Financial
Condition and Results of Operations ..........................................................
18
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
73
73
Item 9B.
Other Information............................................................................................... 75
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 ...........................................................
76
76
76
76
76
Item 15.
Exhibits and Financial Statement Schedule.......................................................
77
PART IV
Item 1. Business
General
PART I
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.
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 Segments and Products
The company conducts its business through two principal business segments: the Commercial Foodservice Equipment
Group and the Food Processing Equipment Group. See Note 9 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 cooking and warming equipment, which
enable it to serve virtually any cooking or warming application within a commercial kitchen or foodservice operation. 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.
This commercial foodservice equipment is marketed under a portfolio of thirty brands, including Anets®, Beech®,
Blodgett®, Blodgett Combi®, Blodgett Range®, Bloomfield®, Britannia®, CTX®, Carter-Hoffmann®, CookTek®, Doyon®,
Frifri®, Giga®, Holman®, Houno®, IMC®, Jade®, Lang®, Lincat®, MagiKitch'n®, Middleby Marshall®, MPC®, Nu-Vu®,
PerfectFry®, Pitco Frialator®, Southbend®, Star®, Toastmaster®, TurboChef® and Wells®.
The products offered by this group include conveyor ovens, combi-ovens, convection ovens, baking ovens, proofing
ovens, deck ovens, speed cooking ovens, hydrovection ovens, ranges, fryers, rethermalizers, steam cooking equipment,
warming equipment, heated cabinets, charbroliers, ventless cooking systems, kitchen ventilation, induction cooking
equipment, countertop cooking equipment, toasters, and beverage equipment.
Food Processing Equipment Group
The Food Processing Equipment Group offers a broad portfolio processing solutions for customers producing pre-
cooked meat products, such as hot dogs, dinner sausages, poultry and lunchmeats and baked goods such as muffins, cookies
and bread. 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 company can offer highly integrated solutions that
provide a food processing operation a uniquely integrated solution providing for the highest level of food quality, product
consistency, and reduced operating costs resulting from increased product yields, increased capacity and throughput and
reduced labor costs though automation.
This food processing equipment is marketed under a portfolio of eight brands, including, Alkar®, Armor Inox®, Auto-
Bake®, Cozzini®, Danfotech®, Drake®, MP Equipment®, and RapidPak®.
The products offered by this group include a wide array of cooking and baking solutions including, batch ovens,
baking ovens, proofing ovens, conveyor ovens, continuous processing ovens, and automated thermal processing systems.
The company also provides a comprehensive portfolio of complementary food preparation equipment such as grinders,
slicers, emulsifiers, mixers, blenders, battering equipment, breading equipment, food presses, and forming equipment, as
well as a variety of food safety, freezing and packaging equipment. This portfolio of equipment can be integrated to provide
customers a highly efficient and customized solution.
1
Acquisition Strategy
The company has pursued a strategy to acquire and assemble a leading portfolio of brands and technologies for each
of its two business segments. Over the past three years the company has completed thirteen acquisitions to add to its
portfolio of brands and technologies of the Commercial Foodservice Equipment Group and its Food Processing Equipment
Group. These acquisitions have added fifteen brands to the Middleby portfolio and positioned the company as a leading
provider of equipment in both industries.
In January 2009, 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, 34,263 shares of Middleby common stock valued at $1.8 million and $2.0 million in
deferred payments. The acquisition of Cozzini complements Middleby’s existing food processing equipment brands Alkar,
RapidPak and MP Equipment.
In April 2011, the company acquired all of the capital stock of J.W. Beech Pty. Ltd., together with its subsidiary, Beech
Ovens Pty. Ltd. (“Beech”), a leading manufacturer of stone hearth ovens for the commercial foodservice industry for a purchase
price of approximately $13.0 million. The acquisition of Beech continues to expand Middleby’s portfolio of leading brands in the
cooking and warming segments and reinforce its position as a leading manufacturer of commercial ovens.
In May 2011, the company acquired all of the capital stock of Lincat Group PLC (“Lincat”), a leading manufacturer of
ranges, ovens, and counterline equipment for the commercial foodservice industry for a purchase price of approximately $82.1
million. The acquisition of Lincat not only expands its portfolio of leading brands but also increases its presence in European
markets.
In July 2011, the company acquired all of the capital stock of Danfotech Inc. (“Danfotech”), a leading manufacturer of
meat presses and defrosting equipment for the food processing industry for a purchase price of approximately $6.1 million and
$1.5 million in contingent payments. The acquisition of Danfotech further complements Middleby’s existing food processing
brands.
In July 2011, the company acquired the assets of Maurer-Atmos GmbH (“Maurer”), a leading manufacturer of thermal
processing systems for the food processing industry based in Germany for a purchase price of approximately $3.3 million. The
addition of this brand complements and further strengthens Middleby’s food processing equipment platform.
In August 2011, the company acquired all of the capital stock of Auto-Bake Pty. Ltd., (“Auto-Bake”) a leading
manufacturer of automated baking systems for the food processing industry for a purchase price of approximately $22.5 million.
The acquisition of Auto-Bake allows further expansion of product offerings in food processing equipment.
2
In December 2011, the company acquired all of the capital stock of F.R. Drake Company (“Drake”), a leading manufacturer of
automated loading systems for the food processing industry for approximately $21.7 million. The acquisition of Drake further
complements the Middleby’s existing food processing brands.
In December 2011, the company acquired all of the capital stock of Armor Inox, S.A. together with its subsidiaries
Armor Inox Production S.a.r.l. and Armor Inox UK Ltd. (collectively “Armor Inox”), a leading manufacturer of thermal processing
systems for the food processing industry for approximately $28.7 million.
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.
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.
Food Processing Equipment Industry
The company's customers include a diversified base of leading food processors. Customers include 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 and producers of
baked goods such as muffins, cookies and bread; 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.
3
Improving living standards in developing countries is spurring increased worldwide demand for pre-cooked and
convenience food products. As industrializing countries create more jobs, consumers in these countries will have the means to
buy pre-cooked food products. In industrialized regions, such as Western Europe and the U.S., consumers are demanding more
pre-cooked and convenience food products, such as deli tray variety packs, frozen food products and ready-to-eat varieties of
ethnic foods.
The global food processing equipment industry is highly fragmented, large and growing. The company estimates
demand for food processing equipment is approximately $3.0 billion in the U.S and $20.0 billion worldwide. The company’s
product offerings compete in a subsegment of the total industry, and the relevant market size for its products is estimated by
management to exceed $0.5 billion in the U.S. and $1.5 billion worldwide.
Backlog
Commercial Foodservice Equipment Group
The backlog of orders for the Commercial Foodservice Equipment Group was $30.3 million at December 31, 2011,
all of which is expected to be filled during 2012. The acquired Beech and Lincat businesses accounted for $1.6 million of the
backlog. The Commercial Foodservice Equipment Group's backlog was $32.8 million at January 1, 2011. 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.
Food Processing Equipment Group
The backlog of orders for the Food Processing Equipment Group was $108.7 million at December 31, 2011, of
which $88.8 million is expected to be filled during 2012. The acquired Danfotech, Maurer, Auto-bake, Drake and Armor Inox
businesses accounted for $68.9 million of the backlog. The company's backlog was $30.7 million at January 1, 2011.
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 and marketing personnel, 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, Auto-Bake, Cozzini, Danfotech, Drake, Maurer,
MP Equipment and Rapidpak brands and maintains direct relationships with each of its customers. The company also
involves division management in the relationships with large global accounts. In North America, the company employs
regional sales managers, each with responsibility for a group of customers and a particular region. Internationally, the
company maintains sales and distribution offices in Australia, Brazil, Italy, Germany 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.
4
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
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.
5
Manufacturing and Quality Control
The company’s manufacturing operations provide for an expertise in the design and production of specific products for
each of the two business segments. The company has from time to time either consolidated manufacturing facilities producing
similar product or transferred production of certain products to another existing operation with a higher level of expertise or
efficiency.
The Commercial Foodservice Equipment Group manufactures its products in ten domestic and eight international
production facilities. These production facilities are located in Brea, California; Chicago, Illinois; Elgin, Illinois; Mundelein, Illinois;
Menominee, Michigan; Bow, New Hampshire; Fuquay-Varina, North Carolina; Smithville, Tennessee; Dallas, Texas; Burlington,
Vermont; Brisbane, Australia; Randers, Denmark; Scandicci, Italy; Shanghai, China; Laguna, the Philippines; Lincoln, the United
Kingdom; Wrexham, the United Kingdom; and Warwickshire, the United Kingdom.
The Food Processing Equipment Group manufactures its products in four domestic and four international production
facilities. These production facilities are located in Algona, Iowa; Chicago, Illinois; Waynesboro, Virginia; Lodi, Wisconsin; New
South Wales, Australia; Mauron, France; Guadalupe, Mexico; and Reichenau, Germany.
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.
Sources of Supply
The company purchases its raw materials and component parts from a number of suppliers. The majority of the
company’s material purchases are standard commodity-type materials, such as stainless steel, electrical components and
hardware. These materials and parts generally are available in adequate quantities from numerous suppliers. Some
component parts are obtained from sole sources of supply. In such instances, management believes it can substitute other
suppliers as required. The majority of fabrication is done internally through the use of automated equipment. Certain
equipment and accessories are manufactured by other suppliers for sale by the company. The company believes it enjoys
good relationships with its suppliers and considers the present sources of supply to be adequate for its present and
anticipated future requirements.
Research and Development
The company believes its future success will depend in part on its ability to develop new products and to improve
existing products. Much of the company's research and development efforts at both the Commercial Foodservice
Equipment Group and the Foodprocessing Equipment Group are directed to the development and improvement of products
designed to reduce cooking and processing time, increase 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.
6
Trademarks, Patents and Licenses
The company has developed, acquired and assembled a leading portfolio of trademarks and trade names. The
company believes that these tradenames and trademarks provide for a significant competitive advantage due to a long-standing
recognition in the marketplace with customers, restaurant operators, distribution partners, sales and service agents, and
foodservice consultants that specify foodservice equipment. The company has historically maintained a high level of
marketshare of products sold with these tradenames and trademarks.
The company's leading portfolio of tradenames of its Commercial Foodservice Equipment Group include Anets®,
Blodgett®, Blodgett Combi®, Blodgett Range®, Beech®, Bloomfield®, Britannia®, Carter-Hoffmann®, CookTek®, CTX®,
Doyon®, FriFri®, Giga®, Holman®, Houno®, IMC®, Jade®, Lang®, Lincat®, MagiKitch'n®, Middleby Marshall®, MPC®,
Nu-Vu®, PerfectFry®, Pitco Frialator®, Southbend®, Star®, Toastmaster®, TurboChef® and Wells®.
The company’s leading portfolio of tradenames of its Food Processing Equipment Group include Alkar®, Armor
Inox®, Auto-Bake®, Cozzini®, Danfotech®, Drake®, Maurer-Atmos®, MP Equipment®, and RapidPak®.
The company holds a broad portfolio of patents and licenses 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
Commercial Foodservice Equipment Group
As of December 31, 2011, 2,150 persons were employed within the Commercial Foodservice Equipment Group.
Of this amount, 905 were management, administrative, sales, engineering and supervisory personnel; 1,109 were hourly
production non-union workers; and 136 were hourly production union members. Included in these totals were 778
individuals employed outside of the United States, of which 432 were management, sales, administrative and engineering
personnel, 272 were hourly production non-union workers and 74 were hourly production union workers, who participate in
an employee cooperative. At its Elgin, Illinois facility, the company has a union contract with the International Brotherhood of
Teamsters that expires on April 30, 2012. The company also has a union workforce at its manufacturing facility in the
Philippines, under a contract that extends through June 2015. Management believes that the relationships between
employees, unions and management are good.
Food Processing Equipment Group
As of December 31, 2011, 616 persons were employed within the Food Processing Equipment Group. Of this
amount, 319 were management, administrative, sales, engineering and supervisory personnel; 185 were hourly production
non-union workers; and 112 were hourly production union members. Included in these totals were 263 individuals employed
outside of the United States, of which 140 were management, sales, administrative and engineering personnel, 123 were
hourly production non-union workers. 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, 2014. At its
Algona, Iowa facility, the company has a union contract within the United Food and Commercial Workers that expires on
December 31, 2014. Management believes that the relationships between employees, unions and management are good.
Corporate
As of December 31, 2011, 18 persons were employed at the corporate office.
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.
7
Item 1A. Risk Factors
The company’s business, results of operations, cash flows and financial condition are subject to various risks,
including, but not limited to those set forth below. If any of the following risks actually occurs, the company’s business,
results of operations, cash flows and financial condition could be materially adversely affected These risk factors should be
carefully considered together with the other information in this Annual Report on Form 10-K, including the risks and
uncertainties described under the heading “Special Note Regarding Forward-Looking Statements.”
Economic conditions may cause a decline in business and consumer spending which could adversely affect the
company’s business and financial performance.
The company’s operating results are impacted by the health of the North American, European, Asian and Latin
American economies. The company’s business and financial performance, including collection of its accounts receivable,
may be adversely affected by the current and future economic conditions that caused, and may cause in the future, a decline
in business and consumer spending, a reduction in the availability of credit and decreased growth by our existing customers,
resulting in customers electing to delay the replacement of aging equipment. Higher energy costs, rising interest rates,
financial market volatility, recession and acts of terrorism may also adversely affect the company’s business and financial
performance. Additionally, the company may experience difficulties in scaling its operations due to economic pressures in
the U.S. and International markets.
The company’s level of indebtedness could adversely affect its business, results of operations and growth
strategy.
The company now has and may continue to have a significant amount of indebtedness. At December 31, 2011, the
company had $317.3 million of borrowings and $10.0 million in letters of credit outstanding. As of December 31, 2011, the
company could incur an additional $272.7 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’s current credit agreement limits its ability to conduct business, which could negatively affect the
company’s ability to finance future capital needs and engage in other business activities.
The covenants in the company’s existing credit agreement contain a number of significant limitations on its ability
to, among other things:
•
•
•
•
pay dividends;
incur additional indebtedness;
create liens on the company’s assets;
engage in new lines of business;
• make investments;
• make capital expenditures and enter into leases; and
•
acquire or dispose of assets.
8
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 immediately 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 at such time. The company may be unable to pay these debts in these
circumstances.
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 42% of its
total assets as of December 31, 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 Codification (“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. Various uncertainties, including continued adverse conditions in the capital markets or
changes in general economic conditions, could impact the future operating performance at one or more of the company’s
businesses, which could significantly affect the company’s valuations and could result in additional future impairments. Also,
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.
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.
9
In addition, 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 is subject to risks associated with developing products and technologies, which could delay product
introductions and result in significant expenditures.
The product, program and service needs of the company’s customers change and evolve regularly, and the
company invests substantial amounts in research and development efforts to pursue advancements in a wide range of
technologies, products and services. Also, 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, meeting development, production, certification and regulatory approval schedules, execution of internal and
external performance plans, availability of supplier- and internally-produced parts and materials, performance of suppliers
and subcontractors, hiring and training of qualified personnel, achieving cost and production efficiencies, identification of
emerging technological trends in the company’s target end-markets, validation of innovative technologies, the level of
customer interest in new technologies and products, and customer acceptance of the company’s products and products that
incorporate technologies that the company develops. These factors involve significant risks and uncertainties. Also, any
development efforts divert resources from other potential investments in the company’s businesses, and these efforts may
not lead to the development of new technologies or products on a timely basis or meet the needs of the company’s
customers as fully as competitive offerings. In addition, the markets for the company’s products or products that incorporate
the company’s technologies may not develop or grow as the company anticipates. The company or its suppliers and
subcontractors may encounter difficulties in developing and producing these new products and services, and may not realize
the degree or timing of benefits initially anticipated. Due to the design complexity of the company's products, the company
may in the future experience delays in completing the development and introduction of new products. Any delays could
result in increased development costs or deflect resources from other projects. 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 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. A 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 unanticipated delay in delivery of raw
materials and component inventories by suppliers—including a delay due to capacity constraints, labor disputes, the
financial condition of suppliers, weather emergencies, or other natural disasters—may impair the ability of the company to
satisfy customer demand. 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.
10
The company’s acquisition, investment and alliance strategy involves risks. If the company is unable to effectively
manage these risks, its business will be materially harmed.
To achieve the company’s strategic objectives, the company has pursued and may continue to pursue strategic
acquisitions and investments or invest in other companies, businesses or technologies. Acquisitions entail numerous risks,
including the following:
•
•
•
•
•
•
•
difficulties in the assimilation of acquired businesses or technologies;
inability to operate acquired businesses or utilize acquired technologies profitably;
diversion of management’s attention from other business concerns;
potential assumption of unknown material liabilities;
failure to achieve financial or operating objectives;
unanticipated costs relating to acquisitions or to the integration of the acquired businesses; and
loss of customers, suppliers, 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.
An inability to identify or complete future acquisitions could adversely affect future growth.
The company has historically followed a strategy of identifying and acquiring businesses with complementary
products and services. As part of its growth strategy, the company intends to pursue acquisitions that provide opportunities
for profitable growth and which enable it to leverage its competitive strengths. While the company continues to evaluate
potential acquisitions, it may not be able to identify and successfully negotiate suitable acquisitions, obtain financing for
future acquisitions on satisfactory terms, obtain regulatory approval for certain acquisitions, or otherwise complete
acquisitions in the future. An inability to identify or complete future acquisitions could limit the company’s growth.
Expansion of the company’s operations internationally involves special challenges that it may not be able to meet.
The company’s failure to meet these challenges could adversely affect its business, financial condition and
operating results.
The company plans to continue to expand its operations internationally. The company faces certain risks inherent
in doing business in international markets. These risks include:
•
•
•
•
•
•
•
•
•
•
extensive regulations and oversight, tariffs and other trade barriers;
reduced protection for intellectual property rights;
difficulties in staffing and managing foreign operations;
potentially adverse tax consequences;
limitations on ownership and on repatriation of earnings;
transportation delays and interruptions;
political, social, and economic instability and disruptions;
labor unrests;
potential for nationalization of enterprises; and
limitations on the company’s ability to enforce legal rights and remedies.
11
In addition, the company is and will be required to comply with the laws and regulations of foreign governmental
and regulatory authorities of each country in which the company conducts business.
There can be no assurance that the company will be able to succeed in marketing its products and services in
international markets. The company may also experience difficulty in managing its international operations because of,
among other things, competitive conditions overseas, management of foreign exchange risk, established domestic markets,
language and cultural differences and economic or political instability. Any of these factors could have a material adverse
effect on the success of the company’s international operations and, consequently, on the company’s business, financial
condition and operating results.
The company 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 and operating costs of the company’s foreign operations are realized in local currencies, 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. Furthermore, currency fluctuations may affect
the prices paid to the company’s suppliers for materials the company uses in production. As a result, operating margins may
also be negatively impacted by worldwide currency fluctuations that result in higher costs for certain cross-border
transactions.
The company may not be able to adequately protect its intellectual property rights, and this inability may materially
harm its business.
The company relies primarily on trade secret, copyright, service mark, trademark and patent law and contractual
protections to protect the company’s proprietary technology and other proprietary rights. The company has filed numerous
patent applications covering the company’s technology. Notwithstanding the precautions the company takes to protect its
intellectual property rights, it is possible that third parties may copy or otherwise obtain and use the company’s proprietary
technology without authorization or may otherwise infringe on the company’s rights. In some cases, including a number of
the company’s most important products, there may be no effective legal recourse against duplication by competitors. In the
future, the company may have to rely on litigation to enforce its intellectual property rights, protect its trade secrets,
determine the validity and scope of the proprietary rights of others or defend against claims of infringement or invalidity. Any
such litigation, whether successful or unsuccessful, could result in substantial costs to the company and diversions of the
company’s resources, either of which could adversely affect the company’s business.
Any infringement by the company on patent rights of others could result in litigation and adversely affect its ability
to continue to provide, or could increase the cost of providing, the company’s products and services.
Patents of third parties may have an important bearing on the company’s ability to offer some of its products and
services. The company’s competitors, as well as other companies and individuals, may obtain, and may be expected to
obtain in the future, patents related to the types of products and services the company offers or plans to offer. There can be
no assurance that the company is or will be aware of all patents containing claims that may pose a risk of infringement by its
products and services. In addition, some patent applications in the United States are confidential until a patent is issued
and, therefore, the company cannot evaluate the extent to which its products and services may be covered or asserted to be
covered by claims contained in pending patent applications. In general, if one or more of the company’s products or
services were to infringe patents held by others, the company may be required to stop developing or marketing the products
or services, to obtain licenses from the holders of the patents to develop and market the services, or to redesign the
products or services in such a way as to avoid infringing on the patent claims. The company cannot assess the extent to
which it may be required in the future to obtain licenses with respect to patents held by others, whether such licenses would
be available or, if available, whether it would be able to obtain such licenses on commercially reasonable terms. If the
company were unable to obtain such licenses, it also may not be able to redesign the company’s products or services to
avoid infringement, which could materially adversely affect the company’s business, financial condition and operating results.
12
The company may be the subject of product liability claims or product recalls, and it may be unable to obtain or
maintain insurance adequate to cover potential liabilities.
Product liability is a significant commercial risk to the company. The company’s business exposes it to potential
liability risks that arise from the manufacture, marketing and sale of the company’s products. In addition to direct
expenditures for damages, settlement and defense costs, there is a possibility of adverse publicity as a result of product
liability claims. Some plaintiffs in some jurisdictions have received substantial damage awards against companies based
upon claims for injuries allegedly caused by the use of their products. In addition, it may be necessary for the company to
recall products that do not meet approved specifications, which could result in adverse publicity as well as costs connected
to the recall and loss of revenue.
The company cannot be certain that a product liability claim or series of claims brought against it would not have an
adverse effect on the company’s business, financial condition or results of operations. If any claim is brought against the
company, regardless of the success or failure of the claim, the company cannot assure you that it will be able to obtain or
maintain product liability insurance in the future on acceptable terms or with adequate coverage against potential liabilities or
the cost of a recall. The company currently maintains insurance programs consisting of self insurance up to certain limits
and excess insurance coverage for claims over established limits. There can be no assurance that the company will be able
to obtain insurance on acceptable terms or that its insurance programs will provide adequate protection against actual
losses. In addition, the company is subject to the risk that one or more of its insurers may become insolvent or become
unable to pay claims that may be made in the future.
The company may be subject to litigation, environmental, and other legal compliance risks.
In addition to product liability claims, the company is subject to a variety of litigation, tax, and legal compliance
risks. These risks include, among other things, possible liability relating to personal injuries, intellectual property rights,
contract-related claims, taxes, environmental matters, and compliance with U.S. and foreign export laws, competition laws,
and laws governing improper business practices. The company or one of its business units could be charged with
wrongdoing as a result of such matters. If convicted or found liable, the company could be subject to significant fines,
penalties, repayments, or other damages.
An increase in warranty expenses could adversely affect the company’s financial performance.
The company offers purchasers of its products warranties covering workmanship and materials typically for one
year and, in certain circumstances, for periods of up to ten years, during which period the company or an authorized service
representative will make repairs and replace parts that have become defective in the course of normal use. The company
estimates and records its future warranty costs based upon past experience. These warranty expenses may increase in the
future and may exceed the company’s warranty reserves, which, in turn, could adversely affect the company’s financial
performance.
The company is subject to potential liability under environmental laws.
The company’s operations are regulated under a number of federal, state and local environmental laws and
regulations that govern, among other things, the discharge of hazardous materials into the air and water as well as the
handling, storage and disposal of these materials. Compliance with these environmental laws and regulations is a
significant consideration for the company because it uses hazardous materials in its manufacturing processes. In addition,
because the company is a generator of hazardous wastes, even if it fully complies with applicable environmental laws, it may
be subject to financial exposure for costs associated with an investigation and remediation of sites at which it has arranged
for the disposal of hazardous wastes if these sites become contaminated. In the event of a violation of environmental laws,
the company could be held liable for damages and for the costs of remedial actions. Environmental laws could also become
more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with any
violation, which could negatively affect the company’s operating results. There can be no assurance that identification of
presently unidentified environmental conditions, more vigorous enforcement by regulatory authorities, or other unanticipated
events will not arise in the future and give rise to additional environmental liabilities, compliance costs, and penalties that
could be material. Environmental laws and regulations are constantly evolving, and it is impossible to predict accurately the
effect they may have upon the financial condition, results of operations, or cash flows of the company.
13
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:
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•
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•
•
•
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general economic conditions;
the lengthy, unpredictable sales cycle for commercial foodservice equipment and food processing equipment;
the gain or loss of significant customers;
unexpected delays in new product introductions;
the level of market acceptance of new or enhanced versions of the company’s products;
unexpected changes in the levels of the company’s operating expenses; and
competitive product offerings and pricing actions.
Each of these factors could result in a material and adverse change in the company’s business, financial condition
and results of operations.
The company may be unable to manage its growth.
The company has recently experienced rapid growth in business. Continued growth could place a strain on the
company’s management, operations and financial resources. There also will be additional demands on the company’s
sales, marketing and information systems and on the company’s administrative infrastructure as it develops and offers
additional products and enters new markets. The company cannot be certain that the company’s operating and financial
control systems, administrative infrastructure, outsourced and internal production capacity, facilities and personnel will be
adequate to support the company’s future operations or to effectively adapt to future growth. If the company cannot manage
the company’s growth effectively, the company’s business may be harmed.
The company’s business could suffer in the event of a work stoppage by its unionized labor force.
Because the company has a significant number of workers whose employment is subject to collective bargaining
agreements and labor union representation, the company is vulnerable to possible organized work stoppages and similar
actions. Unionized employees accounted for approximately 9% of the company’s workforce as of December 31, 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 2014, respectively. The company also has a union workforce at its
manufacturing facility in the Philippines under a contract that extends through June 2015. 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.
The impact of future transactions on the company’s common stock is uncertain.
The company periodically reviews potential transactions related to products or product rights and businesses
complementary to the company’s business. Such transactions could include mergers, acquisitions, joint ventures, alliances
or licensing agreements. In the future, the company may choose to enter into such transactions at any time. The impact of
transactions on the market price of a company’s stock is often uncertain, but it may cause substantial fluctuations to the
market price. Consequently, any announcement of any such transaction could have a material adverse effect upon the
market price of the company’s common stock. Moreover, depending upon the nature of any transaction, the company may
experience a charge to earnings, which could be material and could possibly have an adverse impact upon the market price
of the company’s common stock.
Item 1B. Unresolved Staff Comments
Not applicable.
14
Item 2. Properties
The company's principal executive offices are located in Elgin, Illinois. The company operates fourteen manufacturing
facilities in the U.S and twelve manufacturing facilities internationally.
The principal properties of the company utilized to conduct business operations are listed below:
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
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
Waynesburg, VA
Manufacturing, Warehousing and Offices
Burlington, VT
Lodi, WI
Brisbane, Australia
New South Wales, Australia
Sao Paulo, Brazil
Quebec City, Canada
Shanghai, China
Randers, Denmark
Mauron, France
Reichenau, Germany
Scandicco, Italy
Guadalupe, Mexico
Laguna, the Philippines
Lincoln, the United Kingdom
Warwickshire, the United Kingdom
Wrexham, the United Kingdom
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
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
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Square
Footage
Owned/
Leased
Lease
Expiration
72,000
17,350
30,000
45,100
30,800
207,000
55,000
33,000
50,700
46,000
46,900
100,000
57,400
135,400
190,000
134,200
25,600
14,360
135,400
107,000
19,700
50,500
12,800
36,000
37,500
79,400
37,400
72,000
106,350
117,600
83,100
100,000
12,000
68,000
Leased
Leased
Leased
Leased
Leased
Owned
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Owned
Owned
Leased
Owned
Leased
Owned
Owned
Leased
Leased
Leased
Owned
Leased
Owned
Leased
Leased
Leased
Leased
Owned
Owned
Owned
Owned
June 2015
February 2013
December 2014
December 2012
March 2013/
November 2012
N/A
N/A
N/A
December 2012
N/A
August 2017
N/A
March 2015
N/A
N/A
September 2012/
November 2012
N/A
October 2012
N/A
N/A
December 2012
September 2015
May 2014
N/A
July 2012
N/A
April 2016
June 2016
March 2020
December 2014
N/A
N/A
N/A
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. The company also has a leased manufacturing facility in Verdi, Nevada which was exited as part of the
company's manufacturing consolidation efforts in 2009. This lease extends through June 2012.
Management believes that these facilities are adequate for the operation of the company's business as presently
conducted.
Item 3. Legal Proceedings
The company is routinely involved in litigation incidental to its business, including product liability claims, which are
partially covered by insurance or in certain cases by indemnification provisions under purchase agreements for recently
acquired companies. Such routine claims are vigorously contested and management does not believe that the outcome of
any such pending litigation will have a material effect upon the financial condition, results of operations or cash flows of the
company.
Item 4. Mine Safety Issues
Not Applicable
15
PART II
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 2011
First quarter........................................................................................................
Second quarter ..................................................................................................
Third quarter.......................................................................................................
Fourth quarter ....................................................................................................
Fiscal 2010
First quarter........................................................................................................
Second quarter ..................................................................................................
Third quarter.......................................................................................................
Fourth quarter ....................................................................................................
Closing Share Price
Low
High
94.84
96.25
97.74
98.00
59.52
65.01
63.93
86.35
80.55
79.70
65.39
66.36
42.17
52.66
53.28
63.86
Shareholders
The company estimates there were approximately 34,000 record holders of the company's common stock as of
February 24, 2012.
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 2, 2011 to October 29, 2011 .......................
October 30, 2011 to November 26, 2011..................
November 27, 2011 to December 31, 2011..............
Quarter ended December 31, 2011 ..........................
Total
Number of
Shares
Purchased
38,300
--
--
38,300
Average
Price Paid
per Share
$68.72
--
--
$68.72
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plan or
Program
38,300
--
--
38,300
Maximum
Number of
Shares that May
Yet be
Purchased
Under the Plan
or Program
259,817
259,817
259,817
259,817
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 December 31, 2011, 1,540,183 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 December 31, 2011, the company had a total of 4,437,428 shares in treasury amounting to $126.7 million.
16
Item 6. Selected Financial Data
(amounts in thousands, except per share data)
Fiscal Year Ended(1)
Income Statement Data:
Net sales .....................................................
Cost of sales ...............................................
$855,907
511,770
$719,121
432,444
$646,629
396,001
$651,888
403,746
$500,472
308,107
2011
2010
2009
2008
2007
Gross profit..................................................
Selling and distribution expenses...............
General and administrative expenses........
344,137
91,113
104,314
286,677
75,772
88,117
250,628
64,239
74,948
248,142
63,593
64,931
192,365
50,769
48,663
Income from operations.........................
148,710
122,788
111,441
119,618
92,933
Interest expense and deferred financing
amortization, net ....................................
Debt extinguishment expenses ..................
Loss on financing derivatives .....................
Other (income) expense, net......................
8,503
--
--
(241)
8,592
--
--
(40)
Earnings before income taxes...............
Provision for income taxes .........................
Net earnings ..........................................
140,448
44,975
$ 95,473
114,236
41,369
$ 72,867
11,594
--
--
121
99,726
38,570
$ 61,156
12,982
--
--
2,414
104,222
40,321
$ 63,901
5,855
481
314
(1,696)
87,979
35,365
$ 52,614
Net earnings per share:
Basic .................................................
Diluted...............................................
$5.30
$5.15
$ 4.09
$ 3.97
$ 3.47
$ 3.29
$ 4.00
$ 3.75
$ 3.35
$ 3.11
Weighted average number of shares
outstanding:
Basic .................................................
Diluted...............................................
17,998
18,534
17,801
18,337
17,605
18,575
15,978
17,030
15,694
16,938
Balance Sheet Data:
Working capital ...........................................
Total assets.................................................
Total debt ....................................................
Stockholders' equity....................................
$(182,234)
1,146,512
317,335
510,969
$ 79,807
873,172
214,017
424,913
$ 70,670
816,346
275,641
342,655
$ 68,198
654,498
234,700
227,960
$ 61,573
413,647
96,197
182,912
(1)
The company's fiscal year ends on the Saturday nearest to December 31.
17
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.
18
NET SALES SUMMARY
(dollars in thousands)
Fiscal Year Ended(1)
2011
2010
2009
Sales
Percent
Sales
Percent
Sales
Percent
Business Segments:
Commercial Foodservice...............
$723,274
84.5 %
$611,596
85.0 %
$580,704
89.8 %
Food Processing............................
132,633
15.5
107,525
15.0
65,925
10.2
Total............................................
$855,907
100.0 %
$719,121
100.0 %
$646,629
100.0 %
(1)
The company's fiscal year ends on the Saturday nearest to December 31.
Results of Operations
The following table sets forth certain items in the consolidated statements of earnings as a percentage of net sales for
the periods presented:
Net sales ...........................................................................................
Cost of sales......................................................................................
Gross profit ...................................................................................
Selling, general and administrative expenses...................................
Income from operations................................................................
Interest expense and deferred financing amortization, net.............
Other (income) expense, net.............................................................
Earnings before income taxes.........................................................
Provision for income taxes ................................................................
Net earnings..................................................................................
(1)
The company's fiscal year ends on the Saturday nearest to December 31.
Fiscal Year Ended(1)
2011
2010
100.0%
59.8
40.2
22.8
17.4
1.0
--
16.4
5.2
11.2%
100.0%
60.1
39.9
22.8
17.1
1.2
--
15.9
5.8
10.1%
2009
100.0%
61.2
38.8
21.6
17.2
1.8
--
15.4
5.9
9.5%
19
Fiscal Year Ended December 31, 2011 as Compared to January 1, 2011
Net sales. Net sales in fiscal 2011 increased by $136.8 million or 19.0% to $855.9 million as compared to $719.1
million in fiscal 2010. The increase in net sales of $86.3 million, or 12.0%, was attributable to acquisition growth, resulting
from the fiscal 2010 acquisitions of PerfectFry and Cozzini and the fiscal 2011 acquisitions of Beech, Lincat, Danfotech,
Maurer, Auto-Bake, Drake and Armor Inox. Excluding acquisitions, net sales increased $50.5 million, or 7.0%, from the prior
year, reflecting a net sales increase of 11.6% at the Commercial Foodservice Equipment Group offset by a decline of 18.9%
at the Food Processing Equipment Group.
• Net sales of the Commercial Foodservice Equipment Group increased by $111.7 million or 18.3% to $723.3
million in fiscal 2011, as compared to $611.6 million in fiscal 2010. Net sales from the acquisitions of
PerfectFry, Beech, and Lincat, which were acquired on July 13, 2010, April 4, 2011 and May 27, 2011,
respectively, accounted for an increase of $40.9 million during fiscal 2011. Excluding the impact of
acquisitions, net sales of Commercial Foodservice Equipment increased $70.8 million, or 11.6%, as compared
to the prior year. International sales increased $70.7 million, or 55.8%, to $197.9 million, as compared to
$127.2 million in the prior year. This includes the increase of $40.9 million from the recent acquisitions, as
these companies primarily have international sales. The increase in international sales reflects continued
market penetration resulting from investments in the international selling organization over the past several
years and growing business in emerging markets where the company is well positioned. Domestically, the
company also realized a sales increase of $41.0 million, or 8.5%, to $525.4 million, as compared to $484.4
million in the prior year. This increase in domestic sales includes increased sales with major restaurant chains
on new product initiatives and improvements in general market conditions.
• Net sales of the Food Processing Equipment Group increased by $25.1 million or 23.3% to $132.6 million in
fiscal 2011, as compared to $107.5 million in fiscal 2010. Net sales from the acquisition of Cozzini, Danfotech,
Maurer, Auto-Bake, Drake, and Armor Inox which were acquired on September 21, 2010, July 5, 2011, July 22,
2011, August 1, 2011, December 2, 2011 and December 21, 2011, respectively, accounted for an increase of
$45.4 million. Excluding the impact of acquisitions, net sales of Food Processing Equipment decreased $20.3
million, or 18.9%. International sales amounted to $44.9 million in 2011, an increase of 77.5% over sales of
$25.3 million in 2010, while domestic sales amounted to $87.7 million in 2011 an increase of 6.7% over sales
of $82.2 million in 2010. Excluding the impact of acquisitions, international sales decreased $5.6 million while
domestic sales decreased $14.7 million. The prior year sales of the Food Processing Group reflected the
benefit of orders that had been delayed during the 2008 and 2009 economic downturn. These orders were
deferred to 2010 resulting in stronger sales for the period. As a result, 2011 sales for the group were less
favorable than those in 2010, although significantly better than 2008 and 2009, and market conditions remain
favorable. Additionally, due to the nature of large orders associated with this business, the timing of orders
impacts the growth in comparative periods. During 2011, while order rates were relatively consistent year over
year, the timing of orders in the current year was stronger in the second half of the year. However, due to the
long lead times less revenue was recognized in the current year period from orders received during the year.
Gross profit. Gross profit increased by $57.4 million to $344.1 million in fiscal 2011 from $286.7 million in fiscal
2010. The gross margin rate increased from 40.0% in 2010 to 40.2% in 2011. The net increase in the gross margin rate
reflects the benefit of increased sales volumes and margin improvement related to acquisition integration initiatives, offset in
part by lower margins at newly acquired companies.
• Gross profit at the Commercial Foodservice Equipment Group increased by $48.8 million, or 19.5%, to $298.5
million in fiscal 2011 as compared to $249.7 million in fiscal 2010. The gross margin rate improved to 41.3%
as compared to 39.8% in the prior year. Gross profit from the acquisitions of Beech and Lincat, which were
acquired during fiscal 2011, accounted for approximately $14.8 million of the increase in gross profit during
fiscal 2011. Excluding the recent acquisitions, the gross profit increased by approximately $34.0 million on the
higher sales volumes. The gross profit margin rate benefited from increased volumes which resulted in greater
absorption of fixed production costs as well as improved profit margins resulting from acquisition integration
initiatives implemented during fiscal 2011 and prior years. The margin rate also benefitted from lower warranty
costs which had been higher in the prior year due to initial costs associated with new product introductions.
• Gross profit at the Food Processing Equipment Group increased by $9.0 million, or 24.5%, to $45.8 million in
fiscal 2011 as compared to $36.8 million in fiscal 2010. The gross profit margin rate improved to 34.5% as
compared to 34.2% in the prior year. Gross profit from the acquisitions of Cozzini, Danfotech, Maurer, Auto-
Bake, Drake, and Armor Inox, accounted for approximately $13.5 million of the increase. Excluding the recent
acquisitions, the gross profit declined approximately $4.5 million due to lower net sales as compared to the
prior year. The gross profit margin rate improved slightly as improvement from integration activities related the
Cozzini business acquired in 2010 was offset by lower margins at the business acquired in fiscal 2011.
20
Selling, general and administrative expenses. Combined selling, general, and administrative expenses
increased by $31.5 million to $195.4 million in fiscal 2011 from $163.9 million in 2010. As a percentage of net sales,
operating expenses amounted to 22.8% in fiscal 2010 and fiscal 2011.
Selling expenses increased $15.3 million to $91.1 million from $75.8 million, reflecting an increase of $13.4 million
associated with the recently acquired PerfectFry, Cozzini, Beech, Lincat, Danfotech, Maurer, Auto-Bake, Drake and Armor
Inox operations. Additionally, expenses increased $1.5 million due to increased trade show and marketing related costs.
General and administrative expenses increased $16.2 million to $104.3 million from $88.1 million, reflecting an
increase of $10.0 million associated with the recently acquired PerfectFry, Cozzini, Beech, Lincat, Danfotech, Maurer, Auto-
Bake, Drake and Armor Inox operations. General and administrative expenses also included a $3.5 million increase in non-
cash share based compensation, a $2.7 million increase in incentive compensation, a $3.7 million increase in professional
fees associated with acquisition related activities and legal matters and a $1.2 million increase in pension costs. General
and administrative expenses were offset by a $1.3 million decrease in bad debt expenses and a $1.1 million reduction in
amounts due to sellers on contingent earnout arrangements related to a prior year acquisition. Additionally, in 2010, $1.7
million of non-recurring charges associated with plant consolidation initiatives relating to the acquisitions of Doyon and
PerfectFry were recorded, while no such charges were recorded in 2011.
Income from operations. Income from operations increased $25.9 million to $148.7 million in fiscal 2011 from
$122.8 million in fiscal 2010. The increase in operating income resulted from the increase in net sales and gross profit.
Operating income as a percentage of net sales increased to 17.4% in 2011 from 17.1% in 2010.
Income from operations in 2011 included $37.2 million of non-cash expenses, including $6.9 million of depreciation
expense, $12.2 million of intangible amortization related to acquisitions and $18.1 million of stock based compensation. This
compares to $31.2 million of non-cash expenses in the prior year, including $5.9 million of depreciation expense, $10.6
million of intangible amortization related to acquisitions, and $14.7 million of stock based compensation costs. Operating
income excluding these non-cash expenses, amounted to $185.9 million, or 21.7%, of net sales in fiscal 2011 as compared
to $154.0 million, or 21.4%, of net sales in 2010.
Non-operating expenses. Non-operating expenses decreased $0.3 million to $8.3 million in fiscal 2011 from $8.6
million in fiscal 2010. Net interest expense decreased $0.1 million from $8.6 million in fiscal 2010 to $8.5 million in fiscal
2011 as a result of lower average interest rates during the year offset in part by higher average debt balances. Other
income was $0.2 million in fiscal 2011 as compared to other income of less than $0.1 million in fiscal 2010.
Income taxes. A tax provision of $45.0 million, at an effective rate of 32.0%, was recorded for fiscal 2011 as
compared to $41.4 million at an effective rate of 36.2%, in fiscal 2010. The current year effective tax rate is comprised of a
35.0% U.S. federal tax rate and 3.0% in U.S. state income taxes, net of 2.1% in tax relief for U.S. manufacturers, 1.1% in
permanent tax deductions, 1.5% in foreign rate differentials and 1.3% in other adjustments benefitting the effective rate. In
comparison to the prior year, tax provision reflects a lower effective rate on increased income in lower tax rate foreign
jurisdictions, reduced state tax provisions resulting from increased income in lower rate jurisdictions, and adjustments to tax
reserves for reduced tax exposures, which benefitted the effective tax rate by 1.2%, 1.1% and 1.9%, respectively, as
compared to the prior year.
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 and 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:
•
Improved margins at certain of the newly acquired operating companies that have improved due to acquisition
integration initiatives, including costs savings from plant consolidations. In 2009, the company closed a
manufacturing facility in Nevada and transferred production to another of its manufacturing facilities. The
expected annual cost savings in gross profit at that time was $4.5 million. In 2010, the company realized
approximately $2.8 million of cost savings in gross profit from the initiative.
• 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.
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 commissions resulting from the increase in sales and $1.5 million in increased marketing related costs.
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.
22
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.
Financial Condition and Liquidity
Total cash and cash equivalents increased by $32.5 million to $40.2 million at December 31, 2011 from $7.7 million
at January 1, 2011. Net borrowings increased to $317.3 million at December 31, 2011, from $214.0 million at January 1,
2011.
Operating activities. Net cash provided by operating activities after changes in assets and liabilities amounted to
$130.4 million as compared to $98.0 million in the prior year.
Adjustments to reconcile 2011 net earnings to operating cash flows included $6.9 million of depreciation and $12.8
million of amortization, $18.1 million of non-cash stock compensation expense and $5.4 million of deferred tax benefit.
The changes in working capital included a $19.0 million increase in accounts receivable as a result of increased
sales volumes. Inventories increased by $2.3 million as a result of increased order rates and higher levels of stock
associated with foreign sales initiatives, offset in part by inventory reductions resulting from plant consolidation initiatives
completed in prior years. Accounts payable decreased $2.6 million as a result of reduced purchasing volumes. Accrued
expenses and other liabilities increased by $13.1 million due in part to increased accruals for sales rebates, commissions
and incentive compensation associated with higher sales volumes and profit levels.
In connection with the company’s acquisition activities during the year, the company added assets and liabilities
from the opening balance sheets of the acquired businesses in its consolidated balance sheets and accordingly these
amounts are not reflected in the net change in working capital. During fiscal 2011, the amounts of acquired working capital
in the opening balance sheets included $23.4 million of accounts receivable, $17.3 million of inventories, $13.9 million of
accounts payable and $24.0 million of accrued liabilities. At December 31, 2011, the balances of the ending combined
balance sheets for these acquired business units amounted to $22.3 million of accounts receivable, $14.8 million of
inventories, $12.2 million of accounts payable and $29.0 million of accrued liabilities.
Investing activities. During 2011, net cash used for investing activities amounted to $188.9 million. This
included $177.4 million of current period acquisitions, which included $13.0 million, $82.1 million, $6.1 million, $3.3 million,
$22.5 million, $21.7 million and $28.7 million in connection with the acquisitions of Beech, Lincat, Danfotech, Maurer, Auto-
Bake, Drake and Armor Inox, respectively. Investing activities also includes $3.7 million of deferred payments associated
with acquisitions completed in prior years. Additional investing activities included $7.8 million of additions and upgrades of
production equipment, manufacturing facilities and training equipment.
Financing activities. Net cash flows provided by financing activities amounted to $91.6 million in 2011. The
company’s borrowing activities included $102.2 million of net proceeds under its $600.0 million revolving credit facility and
$0.9 million in net proceeds of foreign borrowings. Net borrowings were utilized primarily to fund the company’s acquisition
activities and share purchases.
The company repurchased $15.7 million of Middleby common shares during the year. This was comprised of $9.5
million used to repurchase 113,550 shares of its common stock that were surrendered to the company by employees in lieu
of cash for payment for withholding of taxes related to restricted stock vestings that occurred during the first quarter of 2011
and $6.2 million used to repurchase 90,068 shares of its common stock under a stock repurchase program.
23
The company’s borrowings are primarily under a senior revolving credit facility that provides for $600.0 million in
total available borrowing capacity. At December 31, 2011, the company had $317.3 million of total debt, of which $309.4
million was borrowed under this facility. The senior revolving facility matures on December 28, 2012, and accordingly has
been classified as a current liability on the consolidated balance sheet. The company anticipates it will enter into a new and
similarly structured senior revolving credit facility during first half of 2012 and is in discussions with its current lenders in this
regard. The company does not foresee any difficulty in renewing the facility given the financial position and performance of
the company and its long standing relationships with its lending partners.
At December 31, 2011, the company was in compliance with all covenants pursuant to its borrowing agreements.
Management believes that future cash flows from operating activities and borrowings from current lenders will provide the
company with sufficient financial resources to meet its anticipated requirements for working capital, capital expenditures and
debt amortization for the foreseeable future.
Contractual Obligations
The company's contractual cash payment obligations are set forth below (dollars in thousands):
Amounts
Due Sellers
From
Acquisition
Estimated
Debt
Interest Operating
Leases
on Debt
Less than 1 year ............ $ 1,233
2,165
1-3 years .......................
--
4-5 years .......................
--
After 5 years ..................
$ 315,831
234
257
1,013
$ 7,036
575
552
--
$ 7,286
8,206
4,035
1,685
Idle
Facility
Lease
$ 174
--
--
--
Total
Contractual
Cash
Obligations
$ 331,560
11,180
4,844
2,698
$ 3,398
$ 317,335
$ 8,163
$ 21,212
$ 174
$ 350,282
The company has obligations to make $3.4 million of contingent purchase price payments to the sellers of CookTek
and Danfotech that were deferred in conjunction with the acquisitions.
As of December 31, 2011, the company had $309.4 million outstanding under its revolving credit line as part of its
senior credit agreement. The average interest rate on this debt amounted to 1.56% at December 31, 2011. This facility
matures on December 28, 2012. As of December 31, 2011, the company also has $7.9 million of debt outstanding under
various foreign credit facilities. The estimated interest payments reflected in the table above assume that the level of debt
and average interest rate on the company’s revolving credit line under its senior credit agreement does not change until the
facility reaches maturity in December 2012. The estimated payments also assume that relative to the company’s foreign
borrowings: all scheduled term loan payments are made; the level of borrowings does not change; and the average interest
rates remain at their December 31, 2011 rates. Also reflected in the table above is $2.0 million of payments to be made
related to the company’s interest rate swap agreements in 2012.
Idle facility lease consists of an obligation for a manufacturing location that was exited in 2009 in conjunction with
the company's manufacturing consolidation efforts. This lease obligation continues through June 2012. The obligation
presented above does not reflect anticipated sublease income from the facility.
As indicated in Note 10 to the consolidated financial statements, the company’s projected benefit obligation under
its defined benefit plans exceeded the plans’ assets by $22.6 million at the end of 2011 as compared to $10.7 million at the
end of 2010. The unfunded benefit obligations were comprised of a $1.6 million underfunding of the company's union plan,
$7.4 million underfunding of the company’s Smithville plan, which was acquired as part of the Star acquisition, $2.2 million
underfunding of the company’s Wrexham plan, which was acquired as part of the Lincat acquisition, and $11.4 million
underfunding of the company's director plans. The company made minimum contributions required by the Employee
Retirement Income Security Act of 1974 (“ERISA”) of $0.2 million and $0.3 million in 2011 and 2010, respectively, to the
company’s Smithville plan and $0.2 million and $0.1 million in 2011 and 2010, respectively, 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 2012. The company expects to contribute $0.5 million to the Wrexham plan in 2012.
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 no activities, obligations or exposures associated with off-balance sheet arrangements.
24
Related Party Transactions
From December 31, 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.
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of operations are based upon the
company's consolidated financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements requires the company to make significant
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 and any such differences could be material to our consolidated financial
statements.
Revenue Recognition. At the Commercial Foodservice Group, 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
that are often significant relative to the business. 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. Revenue for sales of products and services not
covered by long-term sales contracts are recognized 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.
Inventories. Inventories are stated at the lower of cost or or market using the first-in, first-out method for the
majority of the company’s inventories. The company evaluates the need to record valuation adjustments for inventory on a
regular basis. The company’s policy is to evaluate all inventories including raw material, work-in-process, finished goods,
and spare parts. Inventory in excess of estimated usage requirements is written down to its estimated net realizable
value. Inherent in the estimates of net realizable value are estimates related to our future manufacturing schedules,
customer demand, possible alternative uses, and ultimate realization of potentially excess inventory.
Goodwill and Other Intangibles. The company’s business acquisitions result in the recognition of goodwill and
other intangible assets, which are a significant portion of the company’s total assets. The company recognizes goodwill and
other intangible assets under the guidance of ASC Topic 350-10, “Intangibles — Goodwill and Other.” Goodwill represents
the excess of acquisition costs over the fair value of the net tangible assets and identifiable intangible assets acquired in a
business combination. Identifiable intangible assets are recognized separately from goodwill and include trademarks and
trade names, technology, customer relationships and other specifically identifiable assets. Trademarks and trade names are
deemed to be indefinite-lived. Goodwill and indefinite-lived intangible assets are not amortized, but are subject to
impairment testing. On an annual basis, or more frequently if triggering events occur, the company compares the estimated
fair value to the carrying value to determine if a potential goodwill impairment exists. If the fair value is less than its carrying
value, an impairment loss, if any, is recorded for the difference between the implied fair value and the carrying value of
goodwill. In estimating the fair value of specific intangible assets, management relies on a number of factors, including
operating results, business plans, economic projections, anticipated future cash flows, comparable transactions and other
market data. There are inherent uncertainties related to these factors and management’s judgment in applying them in the
impairment tests of goodwill and other intangible assets.
25
Income taxes. The company provides deferred income tax assets and liabilities based on the estimated future tax
effects of differences between the financial and tax bases of assets and liabilities based on currently enacted tax laws. The
company’s deferred and other tax balances are based on management’s interpretation of the tax regulations and rulings in
numerous taxing jurisdictions. Income tax expense and liabilities recognized by the company also reflect its best estimates
and assumptions regarding, among other things, the level of future taxable income, the effect of the Company’s various tax
planning strategies and uncertain tax positions. Future tax authority rulings and changes in tax laws, changes in projected
levels of taxable income and future tax planning strategies could affect the actual effective tax rate and tax balances
recorded by the company. The company follows the provisions under ASC 740-10-25 that provides a recognition threshold
and measurement criteria for the financial statement recognition of a tax benefit taken or expected to be taken in a tax
return. Tax benefits are recognized only when it is more likely than not, based on the technical merits, that the benefits will
be sustained on examination. Tax benefits that meet the more-likely-than-not recognition threshold are measured using a
probability weighting of the largest amount of tax benefit that has greater than 50% likelihood of being realized upon
settlement. Whether the more-likely-than-not recognition threshold is met for a particular tax benefit is a matter of judgment
based on the individual facts and circumstances evaluated in light of all available evidence as of the balance sheet date.
New Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2010-29, “Business Combinations (Topic 805).” ASU No. 2010-29 clarifies the disclosures required for pro
forma information for business combinations. ASU No. 2010-29 specifies if comparative financial statements are presented,
revenue and earnings of a combined entity should be disclosed as though the business combination that occurred during the
current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in
ASU 2010-29 are effective for business combinations for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15, 2010. The company adopted the provisions of ASU No. 2010-
29 on January 2, 2011.
In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRSs.” This update provides clarification on existing fair value measurement
requirements, amends existing guidance primarily related to fair value measurements for financial instruments, and requires
enhanced disclosures on fair value measurements. The additional disclosures are specific to Level 3 fair value
measurements, transfers between Level 1 and Level 2 of the fair value hierarchy, financial instruments not measured at fair
value and use of an asset measured or disclosed at fair value differing from its highest and best use. This ASU is effective
for interim and annual periods beginning after December 15, 2011, and will be applied prospectively. The adoption of this
guidance is not expected to affect the company’s financial position, results of operations or cash flows.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income,” which eliminates the
option to present the components of other comprehensive income in the statement of changes in stockholders’ equity.
Instead, entities will have the option to present the components of net income, the components of other comprehensive
income and total comprehensive income in a single continuous statement or in two separate but consecutive statements.
The guidance does not change the items reported in other comprehensive income or when an item of other comprehensive
income is reclassified to net income. This ASU is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2011, and will be applied retrospectively. The adoption of this guidance will require a change in the
presentation of comprehensive income and its components which are currently reported within the Consolidated Statement
of Changes in Stockholders’ Equity. As this guidance only revises the presentation of comprehensive income, the adoption
of this guidance is not expected to affect the company’s financial position, results of operations or cash flows.
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350),” This ASU
will allow an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine
whether it should calculate the fair value of a reporting unit. The ASU also amends previous guidance by expanding upon
the examples of events and circumstances that an entity should consider between annual impairment tests in determining
whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the ASU
provides additional examples of events and circumstances that an entity having a reporting unit with a zero or negative
carrying amount should consider in determining whether to measure an impairment loss, if any, under the second step of the
goodwill impairment test. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests
performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim
period have not yet been issued. The company did not early adopt this ASU and is evaluating whether it will elect to apply
this option for qualitative evaluation in future goodwill impairment tests.
26
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.
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)
2012......................................
2013......................................
2014......................................
2015......................................
2016 and thereafter...............
$ --
--
--
--
--
$ --
$ 315,831
115
119
125
1,145
$ 317,335
During the second quarter of 2011, the company exercised a provision under its current credit facility that allowed
the company to increase the amount of availability under the revolving credit line by approximately $102.0 million. Terms of
the company’s senior credit agreement provide for $600.0 million of availability under a revolving credit line which matures
on December 28, 2012. As of December 31, 2011, the company had $309.4 million of borrowings outstanding under this
facility. The company also has $10.0 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 $272.7 million at December 31, 2011.
At December 31, 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 December
31, 2011, the average interest rate on the senior debt amounted to 1.56%. The interest rates on borrowings under the senior
bank facility may be adjusted quarterly based on the company’s defined indebtedness ratio on a rolling four-quarter basis.
Additionally, a commitment fee, based upon the indebtedness ratio, is charged on the unused portion of the revolving credit
line. This variable commitment fee amounted to 0.20% as of December 31, 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 December 31, 2011, these facilities
amounted to $3.3 million in U.S. dollars, including $1.7 million outstanding under a revolving credit facility and $1.6 million of
a term loan. The interest rate on the revolving credit facility is assessed at 1.25% above Euro LIBOR, which amounted to
3.05% on December 31, 2011. The term loan matures in 2013 and the interest rate is assessed at 4.55%.
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 December 31, 2011, these
facilities amounted to $4.1 million in U.S. dollars. The interest rate on the credit facilities is tied to six-month Euro LIBOR.
The facilities mature in April of 2015. At December 31, 2011, the average interest rate on these facilities was approximately
4.11%.
In December 2011, the company completed its acquisition of Armor Inox in France. This acquisition was funded in
part with locally established debt facilities with borrowings denominated in Euro. On December 31, 2011, these facilities
amounted to $0.5 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 December 31, 2011, the average interest rate on these facilities was approximately
3.15%.
28
The company has historically entered into interest rate swap agreements to effectively fix the interest rate on a
portion its outstanding debt. The agreements swap one-month LIBOR for fixed rates. As of December 31, 2011, the
company had the following interest rate swaps in effect.
Notional
Amount
$20,000,000
20,000,000
10,000,000
15,000,000
25,000,000
25,000,000
25,000,000
15,000,000
15,000,000
Fixed
Interest
Rate
1.800%
1.560%
1.120%
0.950%
1.610%
2.520%
0.975%
1.185%
0.620%
Effective
Date
11/23/09
03/11/10
03/11/10
08/06/10
02/23/11
02/23/11
07/18/11
09/12/11
09/12/11
Maturity
Date
11/23/12
12/11/12
03/11/12
12/06/12
02/24/14
02/23/16
07/18/14
09/12/16
09/11/14
The senior revolving facility matures on December 28, 2012, and accordingly has been classified as a current
liability on the consolidated balance sheet. The company anticipates it will enter into a new and similarly structured senior
revolving credit facility during first half of 2012 and is in discussions with its current lenders in this regard. The company
does not foresee any difficulty in renewing the facility given the financial position and performance of the company and its
long standing relationships with its lending partners.
The terms of the senior secured credit facility limit the paying of dividends, capital expenditures and leases, and
require, among other things, a maximum ratio of indebtedness to earnings before interest, taxes, depreciation and
amortization (“EBITDA”) of 3.5 and a minimum EBITDA to fixed charges ratio of 1.25. 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 the 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 December 31,
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
December 31, 2011, the fair value of these instruments was a loss of $3.2 million. The change in fair value of these swap
agreements in fiscal 2011 was a liability of $0.6 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, "Derivatives and
Hedging." In accordance with ASC 815, 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
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...................................................... 72
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.
30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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
December 31, 2011 and January 1, 2011, and the related consolidated statements of earnings, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 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 December 31, 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 J.W. Beech Pty. Ltd (“Beech”), Lincat Group PLC (“Lincat”), Danfotech Inc. (“Danfotech”), Maurer-Atmos
GmbH (“Maurer”), Auto-Bake Pty. Ltd. (“Auto-Bake”), F.R. Drake Company (“Drake”), and Armor Inox S.A. (“Armor Inox”), which were
acquired on April 12, 2011; May 27, 2011; July 5, 2011; July 22, 2011; August 1, 2011; December 2, 2011; and December 21, 2011,
respectively. These acquisitions constitute 21.7% of total assets, 38.2% of net assets, 6.0% of net sales, and 2.4% of net income of the
consolidated financial statements of the Company as of and for the year ended December 31, 2011. Accordingly, our audit did not include
the internal control over financial reporting at Beech, Lincat, Danfotech, Maurer, Auto-Bake, Drake, and Armor Inox.
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 December 31, 2011 and January 1, 2011, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 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 December 31, 2011, based on the
criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
Chicago, Illinois
March 12, 2012
31
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2011 AND JANUARY 1, 2011
(amounts in thousands, except share data)
2011
2010
ASSETS
Current assets:
Cash and cash equivalents......................................................................................
Accounts receivable, net..........................................................................................
Inventories, net ........................................................................................................
Prepaid expenses and other....................................................................................
Current deferred taxes.............................................................................................
$ 40,216
151,441
124,300
12,336
39,090
Total current assets.............................................................................................
367,383
Property, plant and equipment, net ..............................................................................
Goodwill........................................................................................................................
Other intangibles ..........................................................................................................
Other assets .................................................................................................................
62,507
477,812
234,726
4,084
Total assets .......................................................................................................
$1,146,512
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ........................................................................
Accounts payable.....................................................................................................
Accrued expenses ...................................................................................................
$ 315,831
63,394
170,392
Total current liabilities..........................................................................................
549,617
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, 23,093,338 and 22,691,821
shares issued in 2011 and 2010, respectively ......................................................
Paid-in capital...........................................................................................................
Treasury stock at cost; 4,437,428 and 4,233,810
shares in 2011 and 2010, respectively..................................................................
Retained earnings....................................................................................................
1,504
37,845
46,577
--
137
202,321
(126,682)
455,727
Accumulated other comprehensive loss..................................................................
(20,534)
Total stockholders' equity....................................................................................
510,969
$ 7,656
112,049
106,463
11,971
25,520
263,659
43,656
369,989
189,254
6,614
$ 873,172
$ 5,097
52,945
125,810
183,852
208,920
11,858
43,629
--
137
179,575
(111,019)
360,254
(4,034)
424,913
Total liabilities and stockholders' equity ..............................................................
$1,146,512
$ 873,172
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
32
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 2011, JANUARY 1, 2011
AND JANUARY 2, 2010
(amounts in thousands, except per share data)
2011
2010
2009
Net sales ..................................................................................................
Cost of sales ............................................................................................
Gross profit .....................................................................................
$ 855,907
511,770
344,137
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 ...............................................................................
91,113
104,314
148,710
8,503
(241)
140,448
44,975
$ 95,473
Net earnings per share:
Basic ...............................................................................................
Diluted.............................................................................................
Weighted average number of shares
Basic..............................................................................................
Dilutive common stock equivalents ...............................................
Diluted ...........................................................................................
$ 5.30
$ 5.15
17,998
536
18,534
$ 719,121
432,444
286,677
75,772
88,117
122,788
8,592
(40)
114,236
41,369
$ 72,867
$ 646,629
396,001
250,628
64,239
74,948
111,441
11,594
121
99,726
38,570
$ 61,156
$ 4.09
$ 3.97
17,801
536
18,337
$ 3.47
$ 3.29
17,605
970
18,575
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
33
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED DECEMBER 31, 2011, JANUARY 1, 2011
AND JANUARY 2, 2010
(amounts in thousands)
Accumulated
Other
Total
Common
Paid-in
Treasury
Retained Comprehensive
Stockholders'
Stock
Capital
Stock
Earnings
Income/(loss)
Equity
$ 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)
$ 137
$ 179,575 $ (111,019)
$ 360,254
$ (4,034)
$ 424,913
-
-
-
-
-
-
-
-
-
-
-
-
-
-
224
18,133
4,389
-
-
-
-
-
-
-
-
-
(15,663)
95,473
-
-
-
95,473
-
-
-
-
-
(10,769)
95,473
(10,769)
(5,145)
(5,145)
(586)
(16,500)
-
-
-
-
(586)
78,973
224
18,133
4,389
(15,663)
$ 137
$ 202,321 $ (126,682)
$ 455,727
$ (20,534)
$ 510,969
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
Balance, January 1, 2011
Comprehensive income:
Net earnings
Currency translation adjustments
Change in unrecognized pension benefit
costs, net of tax of $3,200
Unrealized loss on interest rate
swap, net of tax of $437
Comprehensive income
Exercise of stock options
Stock compensation
Tax benefit on stock compensation
Purchase of treasury stock
Balance, December 31, 2011
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
34
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 2011, JANUARY 1, 2011
AND JANUARY 2, 2010
(amounts in thousands)
Cash flows from operating activities--
Net earnings ...............................................................................................................
Adjustments to reconcile net earnings to net cash provided by operating
activities--
Depreciation and amortization..........................................................................
Non-cash share-based compensation .............................................................
Deferred taxes ..................................................................................................
Unrealized loss/(gain) on derivative financial instruments ...............................
Changes in assets and liabilities, net of acquisitions
Accounts receivable, net ..................................................................................
Inventories, net.................................................................................................
Prepaid expenses and other assets.................................................................
Accounts payable.............................................................................................
Accrued expenses and other liabilities.............................................................
Net cash provided by operating activities...................................................................
Cash flows from investing activities--
Additions to property and equipment .........................................................................
Acquisition of Giga ....................................................................................................
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...............................................................
Acquisition of Beech, net of cash acquired ...............................................................
Acquisition of Lincat, net of cash acquired.................................................................
Acquisition of Danfotech, net of cash acquired..........................................................
Acquisition of Maurer..................................................................................................
Acquisition of Auto-Bake, net of cash acquired .........................................................
Acquisition of Drake, net of cash acquired.................................................................
Acquisition of Armor Inox, net of cash acquired.........................................................
Net cash (used in) investing activities ........................................................................
Cash flows from financing activities--
Net proceeds (repayments) under current revolving credit facilities..........................
Net proceeds (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 ...........................................................................
Net cash (used in) provided by financing activities ....................................................
2011
2010
2009
$ 95,473
$ 72,867
$ 61,156
19,708
18,133
5,421
4
(18,990)
(2,287)
2,455
(2,581)
13,057
130,393
(7,840)
(1,603)
--
(86)
--
--
--
(2,000)
(12,959)
(82,130)
(6,111)
(3,264)
(22,524)
(21,735)
(28,658)
(188,910)
102,150
862
(373)
(15,663)
4,389
224
91,589
17,014
14,682
1,420
(7)
(28,306)
(6,311)
987
10,912
14,697
97,955
(3,159)
(1,621)
--
(1,000)
(500)
(577)
(4,607)
(17,413)
--
--
--
--
--
--
--
(28,877)
(58,650)
(2,421)
--
(9,019)
(450)
666
(69,874)
15,888
10,721
11,123
--
23,145
17,257
(8,731)
(4,564)
(25,221)
100,774
(5,731)
--
(116,129)
(8,000)
(3,358)
(5,819)
--
--
--
--
--
--
--
--
--
(139,037)
39,550
(252)
--
--
(448)
391
39,241
Effect of exchange rates on cash and cash equivalents.....................................
(512)
89
1,241
Changes in cash and cash equivalents--
Net increase (decrease) in cash and cash equivalents.........................................
Cash and cash equivalents at beginning of year...................................................
32,560
7,656
(707)
8,363
2,219
6,144
Cash and cash equivalents at end of year.................................................................
$ 40,216
$ 7,656
$ 8,363
Non-cash investing and financing activities:
Stock issuance related to the acquisition of TurboChef.............................................
$ --
Stock issuance related to the acquisition of Cozzini ..................................................
$ --
$ --
$ 1,776
$ 44,032
$ --
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
35
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 31, 2011, JANUARY 1, 2011
AND JANUARY 2, 2010
(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 fourteen U.S. production
facilities and twelve international production facilities and manufacturing facilities. 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 has a broad portfolio of cooking and warming equipment, which
enables it to serve virtually any cooking or warming application within a commercial kitchen or foodservice operation. 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 products offered by this group include
conveyor ovens, combi-ovens, convection ovens, baking ovens, proofing ovens, deck ovens, speed cooking ovens,
hydrovection ovens, ranges, fryers, rethermalizers, steam cooking equipment, warming equipment, heated cabinets,
charbroliers, ventless cooking systems, kitchen ventilation, induction cooking equipment, countertop cooking equipment,
toasters, and beverage equipment.
The Food Processing Equipment Group offers a broad portfolio of processing solutions for customers producing pre-
cooked meat products, such as hot dogs, dinner sausages, poultry and lunchmeats and baked goods such as muffins, cookies
and bread. 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 company can offer highly integrated solutions that
provide a food processing operation a uniquely integrated solution providing for the highest level of food quality, product
consistency, and reduced operating costs resulting from increased product yields, increased capacity and throughput and
reduced labor costs though automation. The products offered by this group include a wide array of cooking and baking
solutions including, batch ovens, baking ovens, proofing ovens, conveyor ovens, continuous processing ovens, and
automated thermal processing systems. The company also provides a comprehensive portfolio of complementary food
preparation equipment such as grinders, slicers, emulsifiers, mixers, blenders, battering equipment, breading equipment,
food presses, and forming equipment, as well as a variety of food safety, freezing and packaging equipment. This portfolio
of equipment can be integrated to provide customers a highly efficient and customized solution.
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 trademarks, patents and licenses 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.
36
(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 acquisition 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.
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 $4.6 million, net of cash acquired.
The final allocation of cash paid for the PerfectFry acquisition is summarized as follows (in thousands):
(as initially reported)
Jul 13, 2010
Measurement Period
Adjustments
(as adjusted)
Jul 13, 2010
Cash
Current assets
Goodwill
Other intangibles
Current liabilities
$ 247
1,949
2,502
1,653
(1,497)
$ --
(316)
(296)
--
612
$ 247
1,633
2,206
1,653
(885)
Net assets acquired and
liabilities assumed
$ 4,854
$ --
$ 4,854
The goodwill and $1.2 million of other intangibles associated with the trade name are subject to the non-
amortization provisions of Accounting Standards Codification (“ASC”) 350 “Intangibles – Goodwill and Other.”
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.
37
Cozzini
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, net of cash acquired, including $17.4 million in cash and
34,263 shares of Middleby common stock valued at $1.8 million. An additional contingent payment of $2.0 million
was made in the first quarter of 2011 upon the achievement of certain sales targets. During the second quarter of
2011, the company finalized the working capital provision resulting in no additional payments.
The final allocation of cash paid for the Cozzini acquisition is summarized as follows (in thousands):
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
(as initially reported)
Sep 21, 2010
Measurement Period
Adjustments
(as adjusted)
Sep 21, 2010
$ 557
13,601
863
9,601
6,691
636
(11,859)
$ 20,090
2,000
$ 30
172
(30)
(1,745)
1,119
72
68
$ (314)
--
$ 587
13,773
833
7,856
7,810
708
(11,791)
$ 19,776
2,000
$ 22,090
$ (314)
$ 21,776
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 include $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 Equipment Group for
segment reporting purposes. These assets are expected to be deductible for tax purposes.
38
Beech
On April 12, 2011, the company completed its acquisition of all of the capital stock of J.W. Beech Pty. Ltd.,
together with its subsidiary, Beech Ovens Pty. Ltd. (collectively “Beech”), a leading manufacturer of stone hearth
ovens for the commercial foodservice industry for a purchase price of approximately $13.0 million, net of cash
acquired. The purchase price is subject to adjustment based on a working capital provision with the purchase
agreement. The company expects to finalize this in the first quarter of 2012.
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)
Apr 12, 2011
Measurement Period
Adjustments
(as adjusted)
Apr 12, 2011
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
Other non-current liabilities
$ 525
1,145
57
11,433
2,317
(1,100)
(893)
$ --
(299)
--
(192)
(294)
(41)
826
$ 525
846
57
11,241
2,023
(1,141)
(67)
Net assets acquired and
liabilities assumed
$ 13,484
$ --
$ 13,484
The goodwill and $1.9 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 backlog which is to be
amortized over a period of 3 months. Goodwill and other intangibles of Beech 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.
39
Lincat Group
On May 27, 2011, the company completed its acquisition of Lincat Group PLC (“Lincat”), a leading
manufacturer of ranges, ovens, and counterline equipment for the commercial foodservice industry for a purchase
price of approximately $82.1 million, net of cash acquired.
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):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
Long-term deferred tax liability
Other non-current liabilities
Net assets acquired and
liabilities assumed
(as initially reported)
May 27, 2011
Measurement Period
Adjustments
(as adjusted)
May 27, 2011
$ 12,392
16,992
14,368
45,765
31,343
(10,924)
(13,803)
(1,611)
$ --
--
--
(7,802)
1,976
(6)
5,832
--
$ 12,392
16,992
14,368
37,963
33,319
(10,930)
(7,971)
(1,611)
$ 94,522
$ --
$ 94,522
The goodwill and $15.2 million of other intangibles associated with the trade name are subject to the non-
amortization provisions of ASC 350. Other intangibles also includes $17.6 million allocated to customer
relationships and $0.5 million allocated to backlog, which are to be amortized over periods of 5 years and 3
months, respectively. Goodwill and other intangibles of Lincat are allocated to the Commercial Foodservice
Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax
purposes.
The company believes that information gathered to date provides a reasonable basis for estimating the
fair values of assets acquired and liabilities assumed but the company is waiting for additional information
necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above are
subject to change. The company expects to complete the purchase price allocation as soon as practicable but no
later than one year from the acquisition date.
40
Danfotech
On July 5, 2011, the company completed its acquisition of all of the capital stock of Danfotech Inc.
(“Danfotech”), a manufacturer of meat presses and defrosting equipment for the food processing industry for a
purchase price of approximately $6.1 million, net of cash acquired. The purchase price is subject to adjustment
based upon a working capital provision within the purchase agreements. Pursuant to terms of the purchase
agreement, in December 2011 the company purchased additional assets from the sellers of Danfotech for
approximately $0.7 million. An additional contingent payment is also payable upon the achievement of certain
sales targets. The purchase price is subject to adjustment based on a working capital provision within the purchase
agreement. The company expects to finalize this in the first quarter of 2012.
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 5, 2011
Measurement Period
Adjustments
(as adjusted)
Jul 5, 2011
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Other assets
Current liabilities
Long-term deferred tax liability
Other non-current liabilities
Consideration paid at closing
Additional assets acquired post closing
Contingent consideration
Net assets acquired and
liabilities assumed
$ 165
1,073
102
3,423
1,864
4
(309)
(46)
--
$ 6,276
--
1,500
$ --
(366)
(55)
2,846
(778)
--
(753)
(144)
(750)
$ --
730
--
$ 165
707
47
6,269
1,086
4
(1,062)
(190)
(750)
$ 6,276
730
1,500
$ 7,776
$ 730
$ 8,506
The long term deferred tax liabilities amounted to $0.2 million. This net liability represents $0.1 million
arising from the difference between the book and tax basis of tangible assets and $0.1 million related to the
difference between the book and tax basis of identifiable intangible assets.
The goodwill and $0.6 million of other intangibles associated with the trade name are subject to the non-
amortization provisions of ASC 350. Other intangibles also includes $0.4 million allocated to customer
relationships, $0.1 million allocated to developed technology and less than $0.1 million allocated to backlog, which
are to be amortized over periods of 4 years, 3 years and 3 months, respectively. Goodwill and other intangibles of
Danfotech are allocated to the Food Processing Equipment Group for segment reporting purposes. These assets
are not expected to be deductible for tax purposes.
The company believes that information gathered to date provides a reasonable basis for estimating the
fair values of assets acquired and liabilities assumed but the company is waiting for additional information
necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above are
subject to change. The company expects to complete the purchase price allocation as soon as practicable but no
later than one year from the acquisition date.
41
Maurer
On July 22, 2011, the company completed its acquisition of substantially all of the assets of Maurer-Atmos
GmbH (“Maurer”), a manufacturer of batch ovens and thermal processing systems for the food processing industry
for a purchase price of approximately $3.3 million. In the fourth quarter of 2011, pursuant to terms of the purchase
agreement, the purchase price was adjusted to reflect the final valuation of acquired inventories, resulting in a net
reduction of approximately $0.6 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 22, 2011
Measurement Period
Adjustments
(as adjusted)
Jul 22, 2011
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
Net assets acquired and
liabilities assumed
$ 1,673
628
870
922
(246)
$ (668)
--
122
--
(36)
$ 1,005
628
992
922
(282)
$ 3,847
$ (582)
$ 3,265
The goodwill and $0.6 million of other intangibles associated with the trade name are subject to the non-
amortization provisions of ASC 350. Other intangibles also includes $0.3 million allocated to customer
relationships and less than $0.1 million allocated to developed technology, which are to be amortized over periods
of 4 years and 3 years, respectively. Goodwill and other intangibles of Maurer are allocated to the Food
Processing 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. The company expects to complete the purchase price allocation as soon as practicable but no
later than one year from the acquisition date.
42
Auto-Bake
On August 1, 2011, the company completed its acquisition of all of the capital stock of Auto-Bake Proprietary
Limited (“Auto-Bake”), a manufacturer of automated baking ovens for the food processing industry for a purchase
price of approximately $22.5 million, net of cash acquired. During the fourth quarter of 2011, the company finalized
the working capital provision provided for by the purchase agreement resulting in no additional adjustment to the
purchase price.
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):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Other assets
Current liabilities
Long-term deferred tax liability
Net assets acquired and
liabilities assumed
(as initially reported)
Aug 1, 2011
Measurement Period
Adjustments
(as adjusted)
Aug 1, 2011
$ 110
3,209
477
16,259
6,784
336
(2,506)
(2,035)
$ --
(28)
--
1,940
(2,726)
(11)
8
817
$ 110
3,181
477
18,199
4,058
325
(2,498)
(1,218)
$ 22,634
$ --
$ 22,634
The goodwill and $2.0 million of other intangibles associated with the trade name are subject to the non-
amortization provisions of ASC 350. Other intangibles also includes $1.9 million allocated to customer
relationships and $0.2 million allocated to backlog, which are to be amortized over periods of 5 years and 3
months, respectively. Goodwill and other intangibles of Auto-Bake are allocated to the Food Processing
Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax
purposes.
The company believes that information gathered to date provides a reasonable basis for estimating the
fair values of assets acquired and liabilities assumed but the company is waiting for additional information
necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above are
subject to change. The company expects to complete the purchase price allocation as soon as practicable but no
later than one year from the acquisition date.
43
Drake
On December 2, 2011, the company completed its acquisition of all of the capital stock of the F.R. Drake
Company (“Drake”), a manufacturer of automated loading systems for the food processing industry for a purchase
price of approximately $21.7 million, net of cash acquired. The purchase price is subject to adjustment based upon
a working capital provision within the purchase agreement.
The following estimated fair values of assets acquired and liabilities assumed are provisional and are
based on the information that was available as of the acquisition date to estimate the fair value of assets acquired
and liabilities assumed (in thousands):
Cash
Current assets
Deferred tax asset
Property, plant and equipment
Goodwill
Other intangibles
Other assets
Current liabilities
Long-term deferred tax liability
Net assets acquired and
liabilities assumed
Dec 2, 2011
$ 427
4,245
390
1,773
15,237
5,810
9
(3,334)
(2,395)
$ 22,162
The current deferred tax asset and long term deferred tax liability amounted to $0.4 million and $2.4
million, respectively. The current deferred tax asset represents $0.4 million of assets arising from the difference
between the book and tax basis of tangible asset and liability accounts. The net long term deferred tax liability is
comprised of $0.1 million arising from the difference between the book and tax basis of tangible assets and liability
accounts and $2.3 million related to the difference between the book and tax basis of identifiable intangible assets.
The goodwill and $3.2 million of other intangibles associated with the trade name are subject to the non-
amortization provisions of ASC 350. Other intangibles also includes $2.5 million allocated to customer
relationships and $0.1 million allocated to backlog, which are to be amortized over periods of 5 years and 1 month,
respectively. Goodwill and other intangibles of Drake are allocated to the Food Processing Equipment Group for
segment reporting purposes. These assets are not expected to be deductible for tax purposes.
The company believes that information gathered to date provides a reasonable basis for estimating the
fair values of assets acquired and liabilities assumed but the company is waiting for additional information
necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above are
subject to change. The company expects to complete the purchase price allocation as soon as practicable but no
later than one year from the acquisition date.
44
Armor Inox
On December 21, 2011, the company completed its acquisition of all of the capital stock of Armor Inox, S.A.,
together with its subsidiaries Armor Inox Production S.a.r.l and Armor Inox UK Ltd (collectively “Armor Inox”, a
manufacturer of thermal processing systems for the food processing industry for a purchase price of approximately
$28.7 million, net of cash acquired.
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):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Other assets
Current liabilities
Long-term deferred tax liability
Other non-current liabilities
Net assets acquired and
liabilities assumed
Dec 21, 2011
$ 18,201
14,612
941
23,789
12,155
25
(18,440)
(3,975)
(450)
$ 46,858
The goodwill and $3.9 million of other intangibles associated with the trade name are subject to the non-
amortization provisions of ASC 350. Other intangibles also includes $1.3 million allocated to customer
relationships, $1.8 million allocated to developed technology and $5.2 million allocated to backlog, which are to be
amortized over periods of 5 years, 6 years and 2 years, respectively. Goodwill and other intangibles of Armor Inox
are allocated to the Food Processing Equipment Group for segment reporting purposes. These assets are not
expected to be deductible for tax purposes.
The company believes that information gathered to date provides a reasonable basis for estimating the
fair values of assets acquired and liabilities assumed but the company is waiting for additional information
necessary to finalize those fair values. Thus, the provisional measurements of fair value set forth above are
subject to change. The company expects to complete the purchase price allocation as soon as practicable but no
later than one year from the acquisition date.
45
Pro forma financial information
In accordance with ASC 805 “Business Combinations”, the following unaudited pro forma results of operations for
the years ended December 31, 2011 and January 1, 2011, assumes the 2011 acquisitions of Beech, Lincat, Danfotech,
Maurer, Auto-Bake, Drake and Armor Inox were completed on January 3, 2010. The following 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 (in thousands, except per share data:
Dec 31, 2011
Jan 1, 2011
Net sales ..........................................................................
Net earnings .....................................................................
$932,479
101,718
$862,351
87,120
Net earnings per share:
Basic ..........................................................................
Diluted........................................................................
5.65
5.49
4.89
4.70
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 January 3, 2010 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 Beech, Lincat, Danfotech,
Maurer, Auto-Bake, Drake and Armor Inox. The 2010 acquisitions of PerfectFry and Cozzini were not considered to be
material, individually or in aggregate.
(3)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a)
Basis of Presentation
The consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation. The company's consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States. The
preparation of these financial statements requires the company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses as well as related disclosures. Significant items that are subject to
such estimates and judgments include allowances for doubtful accounts, reserves for excess and obsolete inventories, long-
lived and intangible assets, warranty reserves, insurance reserves, income tax reserves and post-retirement obligations. On
an ongoing basis, the company evaluates its estimates and assumptions based on historical experience and various other
factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions.
The company's fiscal year ends on the Saturday nearest December 31. Fiscal years 2011, 2010, and 2009 ended on
December 31, 2011, January 1, 2011 and January 2, 2010, respectively, and each included 52 weeks.
(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 $6.9
million and $8.0 million at December 31, 2011 and January 1, 2011, respectively. At December 31, 2011, all accounts
receivable are expected to be collected within one year.
46
(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 $18.6 million in 2011 and $17.5 million in 2010 and represented
approximately 15% and 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 December 31, 2011 and January 1, 2011 are as follows:
Raw materials and parts ............................................................
Work in process .........................................................................
Finished goods...........................................................................
LIFO reserve..............................................................................
(e)
Property, Plant and Equipment
Property, plant and equipment are carried at cost as follows:
Land...................................................................................................
Building and improvements ...............................................................
Furniture and fixtures.........................................................................
Machinery and equipment .................................................................
Less accumulated depreciation.........................................................
2011
(dollars in thousands)
2010
$ 69,576
15,204
39,261
124,041
259
$124,300
$ 60,452
12,292
33,432
106,176
287
$106,463
2011
2010
(dollars in thousands)
$ 8,189
46,104
11,680
50,548
116,521
(54,014)
$ 62,507
$ 6,566
37,796
8,037
38,612
91,011
(47,355)
$ 43,656
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
Building and improvements......................................................................................... 20 to 40 years
Furniture and fixtures .................................................................................................. 3 to 7 years
Machinery and equipment........................................................................................... 3 to 10 years
Life
Depreciation expense amounted to $6.9 million, $5.9 million and $6.3 million in fiscal 2011, 2010 and 2009,
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 greater than the sum of its expected future undiscounted cash flows.
47
(f)
Goodwill and Other Intangibles
In accordance with 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.
Goodwill is allocated to the business segments as follows (in thousands):
Commercial
Foodservice
Food
Processing
Total
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
Goodwill acquired during the year
Measurement period adjustments to
goodwill acquired in prior year
Exchange effect
49,204
64,486
113,690
(1,272)
(3,081)
(5)
(1,509)
(1,277)
(4,590)
Balance as of December 31, 2011
$375,352
$102,460
$477,812
The company has not recognized any goodwill impairments and therefore no accumulated impairment loss.
Intangible assets consist of the following (in thousands):
December 31, 2011
January 1, 2011
Amortized intangible assets:
Customer lists
Backlog
Developed technology
Estimated
Weighted Avg Gross
Life
3.1
2.0
1.7
Remaining Carrying Accumulated
Amortization
$ (28,435)
(4,378)
(9,033)
$ (41,846)
Amount
$ 67,904
9,733
18,106
$ 95,743
Indefinite-lived assets:
Trademarks and tradenames
$180,829
Estimated
Weighted Avg Gross
Remaining
Life
3.9
--
3.7
Carrying Accumulated
Amortization
Amount
$ (19,597)
$ 43,662
(3,568)
3,568
(6,358)
15,821
$ (29.523)
$ 63.051
$155,726
The aggregate intangible amortization expense was $12.2 million, $10.6 million and $9.1 million in 2011, 2010 and
2009, respectively. The estimated future amortization expense of intangible assets is as follows (in thousands):
2012 ............................
2013 ............................
2014 ............................
2015 ............................
2016 ............................
Thereafter....................
$17,465
16,322
10,887
5,683
2,876
664
$53,897
48
(g)
Accrued Expenses
Accrued expenses consist of the following at December 31, 2011 and January 1, 2011, respectively:
2011
2010
(dollars in thousands)
Accrued payroll and related expenses..............................................
Advanced customer deposits............................................................
Accrued customer rebates................................................................
Accrued warranty ..............................................................................
Accrued product liability and workers compensation .......................
Accrued agent commission ..............................................................
Accrued professional services..........................................................
Other accrued expenses...................................................................
$ 41,434
33,246
23,136
13,842
10,771
8,668
7,497
31,798
$ 32,625
13,357
18,086
14,468
9,711
7,824
5,944
23,795
$170,392
$125,810
(h)
Litigation Matters
From time to time, the company is subject to proceedings, lawsuits and other claims related to products, suppliers,
employees, customers and competitors. The company maintains insurance to partially cover product liability, workers
compensation, property and casualty, and general liability matters. The company is required to assess the likelihood of any
adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the
amount of accrual required, if any, for these contingencies is made after assessment of each matter and the related
insurance coverage. The required accrual may change in the future due to new developments or changes in approach such
as a change in settlement strategy in dealing with these matters. The company does not believe that any such matter will
have a material adverse effect on its financial condition, results of operations or cash flows of the company.
(i)
Accumulated Other Comprehensive Income
The following table summarizes the components of accumulated other comprehensive income (loss) as reported in the
consolidated balance sheets:
2011
(dollars in thousands)
2010
Unrecognized pension benefit costs, net of tax.................... $ (7,615)
(1,691)
Unrealized loss on interest rate swap, net of tax ..................
(11,228)
Currency translation adjustments .........................................
$ (2,470)
(1,105)
(459)
$ (20,534)
$ (4,034)
49
(j)
Fair Value Measures
ASC 820 “Fair Value Measurements and Disclosures” 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
The company’s financial assets and liabilities that are measured at fair value are categorized using the fair value
hierarchy at December 31, 2011 and January 1, 2011 are as follows (in thousands):
Fair Value
Level 1
Fair Value
Level 2
Fair Value
Level 3
Total
As of December 31, 2011
Financial Assets:
Pension Plans
Financial Liabilities:
Interest rate swaps
Contingent consideration
As of January 1, 2011
Financial Assets:
Pension Plans
Financial Liabilities:
Interest rate swaps
Contingent consideration
$ 21,229
$ 1,297
--
$22,526
--
--
$ 3,216
--
--
$ 3,398
$ 3,216
$ 3,398
$ 11,241
$ 354
--
$11,595
--
--
$ 2,186
--
--
$ 5,579
$ 2,186
$ 5,579
The contingent consideration as of December 31, 2011 relates to the earnout provisions recorded in conjunction
with the acquisitions of CookTek and Danfotech.
The contingent consideration as of January 1, 2011 relates to the 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 2011 and fiscal 2010 and a loss of $0.2 million
in fiscal 2009 and are included in other expense on the statements of earnings.
50
(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 collectability 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.
Under ASC 605, the company records the asset for revenue recognized but not yet billed on contracts accounted for under
the percentage of completion method in Prepaid Expenses and Other on the consolidated balance sheet. For 2011 and
2010, the amount of this asset was $1.9 million and $5.1 million, respectively. 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.
(n)
Warranty Costs
In the normal course of business the company issues product warranties for specific product lines and provides for
the estimated future warranty cost in the period in which the sale is recorded. The estimate of warranty cost is based on
contract terms and historical warranty loss experience that is periodically adjusted for recent actual experience. Because
warranty estimates are forecasts that are based on the best available information, claims costs may differ from amounts
provided. Adjustments to initial obligations for warranties are made as changes in the obligations become reasonably
estimable.
A rollforward of the warranty reserve for the fiscal years 2011 and 2010 are as follows:
2011
2010
(dollars in thousands)
Beginning balance.....................................
Warranty reserve related to acquisitions...
Warranty expense .....................................
Warranty claims ........................................
Ending balance .........................................
$ 14,468
939
21,019
(22,584)
$ 13,842
$ 14,265
537
22,789
(23,123)
$ 14,468
(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 $10.4 million, $7.7 million, and $7.1 million in fiscal 2011, 2010 and 2009,
respectively.
51
(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 $18.1 million, $14.7 million and $10.8 million was recognized for fiscal 2011, 2010 and 2009, respectively. This
included less than $0.1 million for fiscal 2009 associated with stock options and $18.1 million, $14.7 million and $10.8 million
for fiscal 2011, 2010 and 2009, respectively, associated with restricted share grants. The company recorded a related tax
benefit of $7.1 million, $5.8 million and $4.2 million in fiscal 2011, 2010 and 2009, respectively. The company issued
restricted share grants with a fair value of $34.7 million in fiscal year 2011 and $16.1 million in fiscal 2009. There were no
restricted share grants issued in fiscal 2010.
As of December 31, 2011, there was $25.4 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. The company issued 386,000 and
335,614 restricted share grant awards in 2011 and 2009, respectively. There were no restricted share grant awards in 2010.
Share grant awards issued in 2011 and 2009 are performance based and were not subject to market conditions. The fair
value of $89.98 and $47.78 per share for the awards for 2011 and 2009, respectively, represent the closing share price of
the company’s stock as of the date of grant.
(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 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, 536,000, and 970,000 for fiscal 2011,
2010 and 2009, respectively. There were no anti-dilutive equity awards excluded from common stock equivalents for 2011,
2010 or 2009.
(r)
Consolidated Statements of Cash Flows
Cash paid for interest was $7.8 million, $7.6 million and $10.6 million in fiscal 2011, 2010 and 2009, respectively. Cash
payments totaling $32.3 million, $34.3 million, and $34.6 million were made for income taxes during fiscal 2011, 2010 and 2009,
respectively.
Net borrowings under the company’s senior revolving credit facility in fiscal 2011 consisted of $290.0 million of
borrowings offset by $187.8 million of repayments.
52
(s)
New Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2010-29, “Business Combinations (Topic 805).” ASU No. 2010-29 clarifies the disclosures required for pro
forma information for business combinations. ASU No. 2010-29 specifies if comparative financial statements are presented,
revenue and earnings of a combined entity should be disclosed as though the business combination that occurred during the
current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in
ASU 2010-29 are effective for business combinations for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15, 2010. The company adopted the provisions of ASU No. 2010-
29 on January 2, 2011.
In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and
Disclosure Requirements in U.S. GAAP and IFRSs.” This update provides clarification on existing fair value measurement
requirements, amends existing guidance primarily related to fair value measurements for financial instruments, and requires
enhanced disclosures on fair value measurements. The additional disclosures are specific to Level 3 fair value
measurements, transfers between Level 1 and Level 2 of the fair value hierarchy, financial instruments not measured at fair
value and use of an asset measured or disclosed at fair value differing from its highest and best use. This ASU is effective
for interim and annual periods beginning after December 15, 2011, and will be applied prospectively. The adoption of this
guidance is not expected to affect the company’s financial position, results of operations or cash flows.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income,” which eliminates the
option to present the components of other comprehensive income in the statement of changes in stockholders’ equity.
Instead, entities will have the option to present the components of net income, the components of other comprehensive
income and total comprehensive income in a single continuous statement or in two separate but consecutive statements.
The guidance does not change the items reported in other comprehensive income or when an item of other comprehensive
income is reclassified to net income. This ASU is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2011, and will be applied retrospectively. The adoption of this guidance will require a change in the
presentation of comprehensive income and its components which are currently reported within the Consolidated Statement
of Changes in Stockholders’ Equity. As this guidance only revises the presentation of comprehensive income, the adoption
of this guidance is not expected to affect the company’s financial position, results of operations or cash flows.
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350),” This ASU
will allow an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine
whether it should calculate the fair value of a reporting unit. The ASU also amends previous guidance by expanding upon
the examples of events and circumstances that an entity should consider between annual impairment tests in determining
whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the ASU
provides additional examples of events and circumstances that an entity having a reporting unit with a zero or negative
carrying amount should consider in determining whether to measure an impairment loss, if any, under the second step of the
goodwill impairment test. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests
performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim
period have not yet been issued. The company did not early adopt this ASU and is evaluating whether it will elect to apply
this option for qualitative evaluation in future goodwill impairment tests.
53
(4)
FINANCING ARRANGEMENTS
The following is a summary of long-term debt at December 31, 2011 and January 1, 2011:
2011
2010
(dollars in thousands)
Senior secured revolving credit line .............................
Foreign loans ...............................................................
$309,400
7,935
Total debt
$317,335
Less current maturities of
long-term debt ..........................................
315,831
Long-term debt
$ 1,504
$207,250
6,767
$214,017
5,097
$208,920
During the second quarter of 2011, the company exercised a provision under its current credit facility that allowed
the company to increase the amount of availability under the revolving credit line by approximately $102.0 million. Terms of
the company’s senior credit agreement provide for $600.0 million of availability under a revolving credit line which matures
on December 28, 2012. As of December 31, 2011, the company had $309.4 million of borrowings outstanding under this
facility. The company also has $10.0 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 $272.7 million at December 31, 2011.
At December 31, 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 December
31, 2011, the average interest rate on the senior debt amounted to 1.56%. The interest rates on borrowings under the senior
bank facility may be adjusted quarterly based on the company’s defined indebtedness ratio on a rolling four-quarter basis.
Additionally, a commitment fee, based upon the indebtedness ratio is charged on the unused portion of the revolving credit
line. This variable commitment fee amounted to 0.20% as of December 31, 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 December 31, 2011, these facilities
amounted to $3.3 million in U.S. dollars, including $1.7 million outstanding under a revolving credit facility and $1.6 million of
a term loan. The interest rate on the revolving credit facility is assessed at 1.25% above Euro LIBOR, which amounted to
3.05% on December 31, 2011. The term loan matures in 2013 and the interest rate is assessed at 4.55%.
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 December 31, 2011, these
facilities amounted to $4.1 million in U.S. dollars. The interest rate on the credit facilities is tied to six-month Euro LIBOR.
The facilities mature in April of 2015. At December 31, 2011, the average interest rate on these facilities was approximately
4.11%.
In December 2011, the company completed its acquisition of Armor Inox in France. This acquisition was funded in
part with locally established debt facilities with borrowings denominated in Euro. On December 31, 2011, these facilities
amounted to $0.5 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 December 31, 2011, the average interest rate on these facilities was approximately
3.15%.
The company’s debt is reflected on the balance sheet at cost. Based on current market conditions, the company
believes its interest rate margins under its senior secured revolving credit line 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 0.5% 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.
54
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 December 31, 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 the majority of 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 carrying value and estimated aggregate fair value, based primarily on market prices, of debt is as follows
(dollars in thousands):
Total debt
$317,335
$315,749
$214,017
Carrying Value
Fair Value
Carrying Value
Fair Value
$209,808
December 31, 2011
January 1, 2011
The company believes that its current capital resources, including cash and cash equivalents, cash generated from
operations, funds available from its current lenders and access to the credit and capital markets will be sufficient to finance
its operations, debt service obligations, capital expenditures, product development and expenditures for the foreseeable
future.
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 December 31, 2011, the
company had the following interest rate swaps in effect:
Notional
Amount
$20,000,000
20,000,000
10,000,000
15,000,000
25,000,000
25,000,000
25,000,000
15,000,000
15,000,000
Fixed
Interest
Rate
1.800%
1.560%
1.120%
0.950%
1.610%
2.520%
0.975%
1.185%
0.620%
Effective
Date
11/23/09
03/11/10
03/11/10
08/06/10
02/23/11
02/23/11
07/18/11
09/12/11
09/12/11
Maturity
Date
11/23/12
12/11/12
03/11/12
12/06/12
02/24/14
02/23/16
07/18/14
09/12/16
09/11/14
The senior revolving facility matures on December 28, 2012, and accordingly has been classified as a current
liability on the consolidated balance sheet. The company anticipates it will enter into a new and similarly structured senior
revolving credit facility during first half of 2012 and is in discussions with its current lenders in this regard. The company
does not foresee any difficulty in renewing the facility given the financial position and performance of the company and its
long standing relationships with its lending partners.
The terms of the senior secured credit facility limit the paying of dividends, capital expenditures and leases, and
require, among other things, a maximum ratio of indebtedness to earnings before interest, taxes, depreciation and
amortization (“EBITDA”) of 3.5 and a minimum EBITDA to fixed charges ratio of 1.25. 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 December 31,
2011, the company was in compliance with all covenants pursuant to its borrowing agreements.
55
The aggregate amount of debt payable during each of the next five years is as follows:
(in thousands)
2012 ........................................................
2013 ........................................................
2014 ........................................................
2015 ........................................................
2016 and thereafter.................................
$315,831
115
119
125
1,145
$317,335
(5)
COMMON AND PREFERRED STOCK
(a)
Shares Authorized and Issued
At December 31, 2011 and January 1, 2011 the company had 47,500,000, shares of common stock and
2,000,000 shares of non-voting preferred stock authorized. At December 31, 2011 and January 1, 2011, there
were 18,655,910 and 18,458,011, 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 December 31, 2011,
1,540,183 shares had been purchased under the 1998 stock repurchase program and 259,817 remain authorized
for repurchase.
At December 31, 2011, the company had a total of 4,437,428 shares in treasury amounting to $126.7
million.
56
(c)
Share-Based Awards
The company maintains several stock incentive plans under which the company's Board of Directors
issues stock options and makes restricted share grants to key employees. Stock options issued under the plans
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.
•
•
1998 Stock Incentive Plan (the "1998 Plan"), as amended on December 15, 2003. 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.
As of December 31, 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 132,072 remain unvested and
123,514 have been cancelled. This also includes 2,435,320 stock options, of which 1,733,650 have
been exercised and 706,670 remain outstanding.
2007 Stock Incentive Plan (the "2007 Plan"), as amended on May 7, 2009. Effective August 11,
2011 and in accordance with plan parameters, the company is no longer permitted to make grants
under the 2007 Plan. Accordingly, no additional shares are available for issuance under the 2007
Plan.
As of December 31, 2011, a total of 894,518 share-based awards have been issued under the 2007
Plan. This includes 890,889 restricted share grants, of which 555,288 remain outstanding and
unvested. This also includes 3,629 stock options, of which 708 have been exercised and 2,597
remain outstanding.
•
2011 Stock Incentive Plan (the "2011 Plan"). A maximum amount of 550,000 shares can be issued
under the 2011 Plan.
As of December 31, 2011, no share-based awards have been issued under the 2011 Plan.
A summary of stock option activity under the 1998 Plan is presented below (amounts in thousands, except
share and per share data):
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
Aggregate
Intrinsic
Value
Shares
Outstanding at January 1, 2011:
724,888
$ 9.49
2.36
$54,312
Granted
Exercised
Forfeited
--
(18,218)
--
--
12.95
--
Outstanding at December 31, 2011:
706,670
$ 9.41
Exercisable at December 31, 2011:
706,670
$ 9.41
1.36
1.36
$59,809
$59,809
Vested or expected to vest
At December 31, 2011
706,670
$ 9.41
1.36
$59,809
57
A summary of stock option activity under the 2007 Plan is presented below (amounts in thousands, except
share and per share data):
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Life
Aggrega
Intrinsic
Value
Shares
Outstanding at January 1, 2011:
2,921
$ 15.76
1.11
$ 200
Granted
Exercised
Forfeited
Outstanding at December 31, 2011:
Exercisable at December 31, 2011:
Vested or expected to vest
At December 31, 2011
--
--
(324)
2,597
2,597
--
--
25.39
$ 14.56
$ 14.56
0.78
0.78
$ 206
$ 206
2,597
$ 14.56
0.78
$ 206
A summary of the company’s nonvested restricted share grant activity under the 1998 and 2007 Plans and
related information for fiscal years ended January 1, 2011 and December 31, 2011 is as follows:
Shares
Nonvested shares at January 2, 2010
679,243
Granted
Vested
Forfeited
--
(47,250)
--
Nonvested shares at January 1, 2011
631,993
Granted
Vested
Forfeited
386,000
(327,933)
(2,700)
Nonvested shares at December 31, 2011
687,360
Weighted
Average
Grant-Date
Fair Value
$53.61
$ --
$44.62
$ --
$48.47
$89.98
$83.61
$54.81
$65.78
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 2012 to satisfy obligations under its share-based award programs.
Additional information related to the share based compensation is as follows:
2011
2010
2009
(dollars in thousands)
Intrinsic value of options exercised
Cash received from exercise
Tax benefit from option exercises
$ 1,477
236
74
$ 2,280
666
450
$ 1,091
391
335
58
(6)
INCOME TAXES
Earnings before taxes is summarized as follows:
Domestic.................................................................
Foreign....................................................................
Total........................................................................
2011
2009
2010
(dollars in thousands)
$104,421
9,815
$114,236
$ 96,788
2,938
$ 99,726
$125,730
14,719
$140,449
The provision for income taxes is summarized as follows:
2011
2010
(dollars in thousands)
2009
Federal....................................................................
State and local ........................................................
Foreign....................................................................
Total........................................................................
$ 33,778
7,169
4,028
$ 44,975
$ 31,309
7,052
3,008
$ 41,369
$ 31,359
6,100
1,111
$ 38,570
Current....................................................................
Deferred..................................................................
Total........................................................................
$ 39,554
5,421
$ 44,975
$ 39,949
1,420
$ 41,369
$ 27,447
11,123
$ 38,570
Reconciliation of the differences between income taxes computed at the federal statutory rate to the effective rate
are as follows:
U.S. federal statutory tax rate ...................................
2011
35.0%
2010
35.0%
2009
35.0%
State taxes, net of federal
benefit..................................................................
Tax reflief for U.S. manufacturers .............................
Permanent book vs. tax
3.0
(2.1)
4.1
(1.9)
differences ...........................................................
(1.1)
(1.3)
U.S. taxes on foreign earnings and
foreign tax rate differentials .................................
Reserve adjustments and other ................................
(1.5)
(1.3)
(0.3)
0.6
4.0
(0.6)
(1.7)
(0.7)
2.7
Consolidated effective tax rate..................................
32.0%
36.2%
38.7%
59
At December 31, 2011 and January 1, 2011, the company had recorded the following deferred tax assets and
liabilities, which were comprised of the following:
2011
2010
(dollars in thousands)
Deferred tax assets:
Federal net operating loss carryforwards .............................................
Compensation related......................................................................
Accrued retirement benefits..................................................................
Inventory reserves ...........................................................................
Product liability and workers compensation reserves.......................
Warranty reserves ................................................................................
Receivable related reserves.............................................................
UNICAP ................................................................................................
Accrued plant closure ...........................................................................
State net operating loss carryforwards .................................................
Interest rate swap .................................................................................
Other.....................................................................................................
Gross deferred tax assets .............................................................
Valuation allowance .........................................................................
$ 20,430
18,654
8,780
4,611
5,052
4,490
2,350
2,138
--
580
1,114
10,802
79,001
--
Deferred tax assets................................................................
$ 79,001
Deferred tax liabilities:..............................................................................
Intangible assets ..............................................................................
Foreign tax earnings repatriation .....................................................
LIFO reserves ..................................................................................
Depreciation.....................................................................................
Other… ............................................................................................
$ (69,998)
(1,546)
(161)
(2,547)
(3,504)
Deferred tax liabilities.............................................................
$ (77,756)
Net deferred tax assets (liabilities) .........................................
$ 1,245
Current deferred asset (liability) ...........................................................
Long-term deferred asset (liability) .......................................................
Net deferred tax assets (liabilities) .......................................................
$39,090
(37,845)
$ 1,245
$ 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)
$ (60,600)
$ 13,662
$25,520
(11,858)
$ 13,662
The company does not provide for deferred taxes and foreign withholding taxes on the remaining undistributed
earnings of certain international subsidiaries of approximately $27.2 million and $10.0 million as of December 31, 2011 and
January 1, 2011, respectively, as these earnings are considered permanently invested. Upon repatriation of these earnings
to the U.S. in the form of dividends or otherwise, the company may be subject to U.S. income taxes and foreign withholding
taxes. The actual U.S. tax cost would depend on income tax laws and circumstances at the time of distribution.
Determination of the related tax liability is not practicable because of the complexities associated with the hypothetical
calculation.
As of December 31, 2011, the company has federal and state income tax net operating loss carryforwards of
approximately $59.0 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 at 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 years ended January 3, 2009, January 2, 2010 and January 1, 2011. The completion dates of these examinations
have not been determined as of December 31, 2011.
60
As of December 31, 2011, the total amount of liability for unrecognized tax benefits related to federal, state and
foreign taxes was approximately $15.6 million (of which $14.1 million would impact the effective tax rate if recognized) plus
approximately $1.9 million of accrued interest and $2.0 million of penalties. The company recognizes interest and penalties
accrued related to unrecognized tax benefits in income tax expense. Interest recognized in fiscal years 2011, 2010 and
2009 was $(0.3) million, $0.1 million and $0.7 million, respectively. Penalties recognized in fiscal years 2011, 2010 and
2009 was $(0.5) million, $0.2 million and $0.5 million, respectively.
The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended
January 2, 2010, January 1, 2011 and December 31, 2011 (dollars in thousands):
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
Increases to current year tax positions
Increase to prior year tax positions
Decrease to prior year tax positions
Settlements
Lapse of statute of limitations
Balance at December 31, 2011
$ 10,372
3,316
7,474
(911)
$ 20,251
3,524
1,700
(7,689)
$ 17,786
2,113
334
(2,393)
(1,494)
(755)
$ 15,591
61
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 $3.7 million of its currently remaining unrecognized tax benefits
may be recognized by the end of 2012 as a result of settlements with taxing authorities or lapses of statutes 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 – 2011
United States – states ................................... 2004 – 2011
Australia ........................................................ . 2011
Brazil ............................................................. 2010 – 2011
Canada.......................................................... 2009 – 2011
China............................................................. 2003 – 2011
Denmark........................................................ 2007 – 2011
France ........................................................... 2011
Germany ....................................................... . 2011
Italy................................................................ 2009 – 2011
Mexico........................................................... 2006 – 2011
Philippines ..................................................... 2007 – 2011
South Korea .................................................. 2006 – 2011
Spain ............................................................. 2008 – 2011
Taiwan........................................................... 2008 – 2011
United Kingdom............................................. 2008 – 2011
62
(7)
FINANCIAL INSTRUMENTS
ASC 815 “Derivatives and Hedging” requires an entity to recognize all derivatives as either assets or liabilities and
measure those instruments at fair value. Derivatives that do not qualify as a hedge must be adjusted to fair value in
earnings. If the derivative does qualify as a hedge under ASC 815, changes in the fair value will either be offset against the
change in fair value of the hedged assets, liabilities or firm commitments or recognized in other accumulated other
comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a hedge's change in fair
value will be immediately recognized in earnings.
(a)
Foreign Exchange
The company periodically enters into derivative instruments, principally forward contracts to reduce exposures
pertaining to fluctuations in foreign exchange rates. The fair value of these forward contracts was $0.5 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
December 31, 2011, the fair value of these instruments was a loss of $3.2 million. The change in fair value of these swap
agreements in 2011 was a liability of $0.6 million, net of taxes.
A summary of the company’s interest rate swaps is as follows:
Location
Dec 31, 2011
Jan 1, 2011
Twelve Months Ended
(dollars in thousands)
Fair value
Other liabilities
$ (3,216)
$ (2,186)
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
$ (4,045)
$ (2,504)
Interest expense
$ (3,019)
$ (3,277)
Other expense
$ (4)
$ 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.
63
(8)
LEASE COMMITMENTS
The company leases warehouse space, office facilities and equipment under operating leases, which expire in
fiscal 2012 and thereafter. Future payment obligations under these leases are as follows:
Operating
Leases
2012 .......................................... $ 7,286
4,392
2013 ..........................................
3,814
2014 ..........................................
2,775
2015 .........................................
1,260
2016 .........................................
1,685
2017 and thereafter ...................
Idle
Facility
Leases
(dollars in thousands)
$ 174
--
--
--
--
--
Total Lease
Commitments
$ 7,460
4,392
3,814
2,775
1,260
1,685
$ 21,212
$ 174
$ 21,386
Rental expense pertaining to the operating leases was $6.6 million, $5.6 million, and $5.6 million in fiscal 2011,
2010 and 2009 respectively.
The idle lease obligations relate to a manufacturing facility in Verdi, Nevada that was exited in 2009 in conjunction
with manufacturing consolidation efforts. Obligations under this lease extend through June 2012. The company has
established reserves of $0.2 million representing the remaining obligations under this lease. Management believes the
remaining reserve balance is adequate to cover costs associated with the lease obligation.
(9)
SEGMENT INFORMATION
The company operates in two reportable operating segments defined by management reporting structure and
operating activities.
The Commercial Foodservice Equipment Group manufactures, sells, and distributes cooking equipment for the
restaurant and institutional kitchen industry. This business segment has manufacturing facilities in California, Illinois,
Michigan, New Hampshire, North Carolina, Tennessee, Texas, Vermont, Australia, China, Denmark, Italy, the Philippines
and the United Kingdom. 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, charbroilers,
catering equipment, fryers, toasters, hot food servers, foodwarming equipment, griddles, coffee and beverage dispensing
equipment and kitchen processing and ventilation equipment. These products are sold and marketed under the brand
names: Anets, Beech, Blodgett, Blodgett Combi, Blodgett Range, Bloomfield, Britannia, CTX, Carter-Hoffmann, CookTek,
Doyon, Frifri, Giga, Holman, Houno, IMC, Jade, Lang, Lincat, MagiKitch’n, Middleby Marshall, MPC, Nu-Vu, PerfectFry,
Pitco, Southbend, Star, Toastmaster, TurboChef and Wells.
The Food Processing Equipment Group manufactures preparation, cooking, packaging and food safety equipment
for the food processing industry. This business segment has manufacturing operations in Illinois, Iowa, Virginia, Wisconsin,
Australia, France, Germany and Mexico. Principal product lines of this group include batch ovens, belt ovens, continuous
processing ovens, automated thermal processing systems, automated loading and unloading systems, meat presses,
breading, battering, mixing, forming, grinding and slicing equipment, food suspension, reduction and emulsion systems,
defrosting equipment, packaging and food safety equipment. These products are sold and marketed under the brand
names: Alkar, Armor Inox, Auto-Bake, Danfotech, Drake, Maurer-Atmos, MP Equipment and RapidPak.
The accounting policies of the segments are the same as those described in the summary of significant accounting
policies. The chief operating decision maker evaluates individual segment performance based on operating income.
Management believes that intersegment sales are made at established arms length transfer prices.
64
The following table summarizes the results of operations for the company’s business segments1 (dollars in
thousands):
2011
Net sales
Operating income
Depreciation and amortization expense
Net capital expenditures
Total assets
Long-lived assets
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
Commercial
Foodservice
Food
Processing
Corporate
and Other(2)
Total
$723,274
$132,633
$ --
$855,907
181,963
15,839
6,896
752,876
519,517
19,997
3,053
447
238,724
146,281
(53,250)
148,710
816
497
19,708
7,840
154,912
1,146,512
113,331
779,129
$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
(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:
2011
2010
2009
(dollars in thousands)
United States and Canada
$605,146
$585,614
$571,688
Asia
Europe and Middle East
Latin America
Total international
35,311
137,642
1,030
173,983
1,805
21,143
951
23,899
1,878
25,546
208
27,632
$779,129
$609,513
$599,320
65
Net sales by each major geographic region are as follows:
2011
2010
2009
(dollars in thousands)
United States and Canada
$613,081
$575,527
$530,644
Asia
Europe and Middle East
Latin America
Total international
61,078
137,335
44,413
242,826
42,786
79,859
20,949
143,594
28,936
69,773
17,276
115,985
$855,907
$719,121
$646,629
(10)
EMPLOYEE RETIREMENT PLANS
(a)
Pension Plans
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 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 defined benefit plan for its employees at the Wrexham, the United Kingdom facility,
which was acquired as part of the Lincat acquisition. Benefits are determined based upon retirement age and years of
service with the company. This defined benefit plan was frozen on April 30, 2010 prior to Middleby’s acquisition of the
company. 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, 2010 upon reaching retirement age.
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 (together with the Chairman’s agreement the
“Director Plans”). 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 December 31, 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.
66
A summary of the plans’ net periodic pension cost, benefit obligations, funded status, and net balance sheet
position is as follows (dollars in thousands):
Net Periodic Pension Cost:
Service cost
Interest cost
Expected return on assets
Amortization of net loss
Pension settlement
2011
Elgin
Plan
2011
2011
Smithville Wrexham
Plan
Plan
2011
Director
Plans
2010
Elgin
Plan
2010
Smithville
Plan
2010
Director
Plans
$ --
$ --
226
(178)
125
--
669
(571)
203
--
$ --
415
(480)
--
--
$ 1,123
$ --
$ --
$ 1,091
472
--
507
13
231
(167)
114
--
635
(523)
119
--
435
--
--
172
$ 173
$ 301
$ (65)
$ 2,115
$ 178
$ 231
$ 1,698
Change in Benefit Obligation:
Benefit obligation – beginning of year
Benefit obligations – acquisitions
Service cost
Interest on benefit obligations
Actuarial losses
Pension settlement
Net benefit payments
$ 4,142
$ 11,958
$ --
$ 7,028
$ 4,095
$ 10,821
$ 6,153
--
--
226
695
--
(262)
--
--
669
2,978
--
(401)
13,328
--
415
192
--
(246)
--
1,123
472
3,043
12
(300)
--
--
231
85
--
--
--
635
843
--
--
1,091
435
--
172
(269)
(341)
(823)
Benefit obligation – end of year
$ 4,801
$ 15,204
$ 13,689
$ 11,378
$ 4,142
$ 11,958
$ 7,028
Change in Plan Assets:
Plan assets at fair value – beginning
of year
Plan assets at fair value –
acquisitions
Company contributions
Investment (loss) gain
Benefit payments and plan expenses
Plan assets at fair value – end of
year
Funded Status:
$ 3,342
$ 8,253
$ --
$ --
$ 3,189
$ 7,526
$ --
--
156
(49)
(261)
--
11,798
225
(257)
(401)
465
(499)
(246)
--
300
--
--
118
304
--
250
818
--
823
--
(300)
(269)
(341)
(823)
$ 3,188
$ 7,820
$ 11,518
$ --
$ 3,342
$ 8,253
$ --
Unfunded benefit obligation
$ (1,614)
$ (7,384)
$ (2,170)
$ (11,378)
$ (799)
$ (3,704)
$ (7,028)
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
$ (1,614)
$ (7,384)
$ (2,170)
$ (11,378)
$ (799)
$ (3,704)
$ (7,028)
$ 2,102
$ 6,291
$ 1,409
$ 2,536
$ 1,304
$ 2,689
$ --
--
--
--
--
--
--
--
--
--
--
--
--
--
--
Total amount recognized
$ 2,102
$ 6,291
$ 1,409
$ 2,536
$ 1,304
$ 2,689
$ --
Accumulated Benefit Obligation
$ 4,801
$ 15,204
$ 13,689
$ 3,999
$ 4,142
$ 11,958
$ 4,371
Salary growth rate
Assumed discount rate
Expected return on assets
n/a
4.3%
5.5%
n/a
4.3%
7.0%
67
n/a
4.7%
6.6%
10.0%
4.3%
n/a
n/a
5.5%
5.5%
n/a
5.5%
7.0%
10.0%
6.0%
n/a
The company has engaged non-affiliated third party professional investment advisors to assist the company to
develop its investment policy and establish asset allocations. The company's overall investment objective is to provide a
return, that along with company contributions, is expected to meet future benefit payments. Investment policy is established
in consideration of anticipated future timing of benefit payments under the plans. The anticipated duration of the investment
and the potential for investment losses during that period are carefully weighed against the potential for appreciation when
making investment decisions. The company routinely monitors the performance of investments made under the plans and
reviews investment policy in consideration of changes made to the plans or expected changes in the timing of future benefit
payments.
The assets of the plans were invested in the following classes of securities (none of which were securities of the
company):
Elgin Plan
Equity
Fixed income
Money market
Other (real estate & commodities)
Smithville Plan
Equity
Fixed income
Money market
Other (real estate & commodities)
Wrexham Plan
Equity
Fixed income
Money market
Target Allocation
Percentage of Plan Assets
2010
2011
48 %
40
4
8
100 %
49 %
37
5
9
100 %
48 %
32
12
8
100 %
Target Allocation
Percentage of Plan Assets
2010
2011
48 %
40
4
8
100 %
51 %
37
4
8
100 %
56 %
36
-
8
100 %
Target Allocation
Percentage of Plan Assets
50 %
50
--
100 %
2011
66 %
27
7
100 %
68
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 December 31, 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)
$ 169
$ --
$ 169
$ --
Equity Securities:
Large Cap
Mid Cap
Small Cap
International
Fixed Income:
Government/Corporate
High Yield
Alternative:
Global Real Estate
Commodities
Total
768
86
121
607
989
183
768
86
121
607
989
183
--
--
--
--
--
--
--
--
--
--
--
--
88
177
$3,188
88
177
--
--
$3,019
$ 169
--
--
$ --
(a) Represents collective short term investment fund, composed of high-grade money market instruments with short
maturities.
Smithville Plan
Asset Category
Total
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Short Term Investment Fund (a)
$ 328
$ --
$ 328
$ --
Equity Securities:
Large Cap
Mid Cap
Small Cap
International
Fixed Income:
Government/Corporate
High Yield
Alternative:
Global Real Estate
Commodities
Total
1,895
209
328
1,535
2,435
449
225
416
$7,820
1,895
209
328
1,535
2,435
449
--
--
--
--
--
--
--
--
--
--
--
--
--
--
225
416
--
--
$7,492
$ 328
--
--
$ --
(a) Represents collective short term investment fund, composed of high-grade money market instruments with short
maturities.
69
Wrexham 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)
$ 800
$ --
$ 800
$ --
Equity Securities:
UK
International
Developed
Emerging
Global
Fixed Income:
Government/Corporate
Aggregate
Index Linked
3,599
2,008
341
1,604
1,802
354
1,010
3,599
2,008
341
1,604
1,802
354
1,010
--
--
--
--
--
--
--
Total
$11,518
$10,718
$ 800
--
--
--
--
--
--
--
$ --
(a) Represents collective short term investment fund, composed of high-grade money market instruments with short
maturities.
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):
2012
2013
2014
2015
2016 through 2021
Elgin
Plan
$ 304
309
302
297
1,788
Smithville
Plan
$ 409
461
496
516
3,945
Wrexham
Plan
$ 465
480
496
511
3,392
Director
Plans
$ --
--
--
--
6,865
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 Elgin, Smithville and Wrexham plans to be made in 2012 are
$0.1 million, $0.3 million and $0.5 million, respectively.
(b)
401K Savings Plans
As of December 31, 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 less than $0.1
million for each of the years presented. There were no other profit sharing contributions to the 401K savings plans for 2011,
2010 and 2009.
70
(11)
QUARTERLY DATA (UNAUDITED)
1st
4th
(dollars in thousands, except per share data)
2nd
3rd
Total Year
2011
Net sales ............................................................... $182,572
71,830
Gross profit…………………… ...............................
31,364
Income from operations ........................................
$ 17,825
Net earnings..........................................................
$210,855
85,337
35,248
$ 19,628
$218,720
87,318
37,186
$ 23,461
$243,760
99,652
44,912
$ 34,559
$855,907
344,137
148,710
$ 95,473
Basic earnings per share (1) .................................
Diluted earnings per share (1)...............................
$ 1.00
$ 0.97
$ 1.09
$ 1.06
$ 1.30
$ 1.26
$ 1.92
$ 1.87
$ 5.30
$ 5.15
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
(1) Sum of quarters may not equal the total for the year due to changes in the number of shares outstanding
during the year.
71
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS ENDED DECEMBER 31, 2011, JANUARY 1, 2011
AND JANUARY 2, 2010
Balance
Beginning
Of Period
Additions/
(Recoveries)
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-
2011
2010
2009
$7,975,000
$ 83,000
$(1,180,000)
$ --
$6,878,000
$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
72
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 December 31, 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 December 31, 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.
73
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as 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)
(ii)
pertain to the maintenance of records that in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets;
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 J.W. Beech Pty. Ltd. (acquired
April 12, 2011), Lincat Group PLC (acquired May 27, 2011), Danfotech, Inc. (acquired July 5, 2011), Maurer-Atmos GmbH
(acquired July 22, 2011), Auto-Bake Pty Ltd. (acquired August 1, 2011), F.R. Drake Company (acquired December 2, 2011),
and Armor Inox S.A. (acquired December 21, 2011). These acquisitions constitute 38.2% and 21.7% of net and total assets,
respectively, 6.0% of net sales and 2.4% of net income of the consolidated financial statements of the Company as of and
for the year ended December 31, 2011. These acquisitions are included in the consolidated financial statements of the
company as of and for the year ended December 31, 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 December 31, 2011. Deloitte & Touche LLP, independent
registered public accounting firm, who audited and reported on the consolidated financial statements of the company
included in this report, has issued an attestation report on the effectiveness of the company's internal contorol over financial
reporting as of December 31, 2011.
The Middleby Corporation
March 15, 2012
74
Item 9B. Other Information
None.
75
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.
76
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.
77
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.
Amended and Restated Employment Agreement by and between The
Middleby Corporation and Timothy J. FitzGerald, dated March 1, 2010,
incorporated by reference to the company's Form 8-K Exhibit 10.1, dated
March 1,2010, filed on March 4, 2010.
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.
78
10.14 *
10.15 *
10.16*
10.17*
10.18*
10.19*
21
23.1
31.1
31.2
32.1
32.2
101
Amendment to Employment Agreement by and between The Middleby
Corporation and Selim A. Bassoul, 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.
The Middleby Corporation 2011 Long-Term Incentive Plan, incorporated by
reference to Appendix A to the company’s definitive proxy statement filed with
the Securities and Exchange Commision on April 1, 2011.
The Middleby Corporation Value Creation Incentive Plan, incorporated by
reference to Appendix B to the company’s definitive proxy statement filed with
the Securities and Exchange Comission on April 1, 2011.
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.
Financial statements on Form 10-K for the year ended December 31, 2011,
filed on March 15, 2011, formatted in Extensive Business Reporting Language
(XBRL); (i) condensed consolidated balance sheets, (ii) condensed
consolidated statements of earnings, (iii) consolidated statements of cash
flows, (iv) notes to the consolidated financial statements.
*
Designates management contract or compensation plan.
(c)
See the financial statement schedule included under Item 8.
79
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 15th day of March 2012.
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 15, 2012.
Signatures
Title
PRINCIPAL EXECUTIVE OFFICER
/s/ Selim A. Bassoul
Selim A. Bassoul
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER
/s/ Timothy J. FitzGerald
Timothy J. FitzGerald
DIRECTORS
/s/ Robert Lamb
Robert Lamb
/s/ John R. Miller, III
John R. Miller, III
/s/ Gordon O'Brien
Gordon O'Brien
/s/ Philip G. Putnam
Philip G. Putnam
/s/ Sabin C. Streeter
Sabin C. Streeter
/s/ Ryan J. Levenson
Ryan J. Levenson
Chairman of the Board, President,
Chief Executive Officer and Director
Vice President, Chief Financial
Officer
Director
Director
Director
Director
Director
Director
80
Corporate Information
Board of directors
executive officers
stock market information
selim a. Bassoul
Chairman of the Board
and Chief Executive Officer
selim a. Bassoul
Chairman of the Board
and Chief Executive Officer
The Middleby Corporation is traded
on The naSDaQ Stock Market llC
under the symbol “MIDD.”
robert lamb, ph.d.1
Professor
NYU Graduate School of Business
timothy J. Fitzgerald
Vice President and
Chief Financial Officer
investor relations
For additional information
please contact:
Investor relations
The Middleby Corporation
1400 Toastmaster Drive
elgin, Il 60120
investors@middleby.com
847.741.3300
or visit www.middleby.com
transfer agent and registrar
Bny mellon shareowner services
200 W. Monroe St.
Suite 1590
Chicago, Il 60606
Corporate headquarters
the middleby Corporation
1400 Toastmaster Drive
elgin, Illinois 60120
847.741.3300
847.741.0015 fax
independent registered
public accountants
deloitte & touche llp
Chicago, Illinois
Stock Price Performance
NASDAQ Non-Financial Stocks Index
NASDAQ Stock Market Index
Middleby Corporation
400
350
300
250
200
150
100
50
0
2006
2007
2008
2009
2010
2011
STOCK PRICE PERFORMANCE
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
350.00
300.00
250.00
200.00
0
0
1
$
F
O
H
T
W
O
R
G
One ParTner.
many gloBal solutions.
Bakery, ConveCtion &
ComBi ovens
• Blodgett
• Doyon
• Hounö
• Lang
• Lincat
• NU-VU
• Southbend
CharBroilers
• Jade
• Lang
• MagiKitch’n
• Southbend
Conveyor ovens
• CTX
• Holman
• Middleby Marshall
• TurboChef
IMC
Countertop Cooking &
Beverage
• Bloomfield
•
• PerfectFry
• Star
• Toastmaster
• Wells
Custom Cooking
• Beech
• Jade
Fryers & rethermalizers
• anets
• FriFri
• Lincat
• PerfectFry
• Pitco
ventilation
• Britannia
• Wells
Warmers
• Carter-Hoffmann
• Doyon
• Toastmaster
• Wells
pizza
• Beech
• Blodgett
• CookTek
• Doyon
• Middleby Marshall
• TurboChef
ranges
• Giga
• Jade
• Lang
• Lincat
• Southbend
speed & induC tion Cooking
• CookTek
• TurboChef
paCkaging and loading
• rapidPak
• Drake
proCessing and
preparation equipment
• Cozzini
• Danfotech
• MP equipment
thermal proCessing
equipment
• alkar
• armor Inox
• Maurer-atmos
• auto-Bake
The Middleby Corporation | 1400 Toastmaster Drive | Elgin, Illinois 60120
www.middleby.com | www.greenstainless.com