Dear Shareholders,
The year 2012 was an exciting one for The Middleby Corporation. We achieved a financial milestone by posting more than $1 billion in sales,
entered a new platform in residential appliances with the acquisition of Viking Range and delivered for our customers, including a roll out of
“kitchen of the future.” We received recognitions from Forbes as a “Best Small Company” for the ninth consecutive year and Crain’s Chicago
Business ranked Middleby as one of Chicago’s most innovative companies. We grew to be a world leader in industrial baking equipment and
opened our offices in Brazil and Australia.
Middleby continued to grow and perform well financially, not only hitting the $1 billion sales milestone, but posting a year-end EPS that was
up 26 percent over 2011. International sales continue to grow, now over 30% of our overall sales.
Our customers in foodservice, as well as processing, are adopting our new, patented technologies. We introduced more than twenty new
products, continuing our track record of new product innovation. focusing on waterless applications, speed cooking, oil savings and ENERGY
STAR ratings. We continue to grow our chain business and made huge inroads in the casual dining segment with “kitchen of the future.” We
continue to focus on ventless technologies and a two-year payback to our operators. Remodeling of restaurant kitchens will accelerate in
2013, the most active since 2008, and new domestic unit growth is expected across all segments.
The food processing platform will continue to expand due to food safety issues. There will be a greater need for safeguards in emerging
markets as restaurant chains and supermarkets will require their food suppliers to make investments to ensure food quality and safety.
We are well positioned in emerging markets and continue to grow our overseas sales by double digits. We have a unique global
infrastructure and service network with local manufacturing in China, the Philippines, India, Australia, Italy, the UK, Denmark, France and
Germany. In addition to expanding with U.S. chains as they penetrate global markets, we have done well with local and regional chains and
food processing customers.
Through our acquisition strategy in fiscal 2012 we added Nieco, a leader in automatic broilers, Baker Thermal Solutions and Stewart Systems,
leaders in industrial baking equipment. Our largest acquisition to date, Viking Range, a leading brand in high-end residential appliances, was
completed as we entered 2013. There is significant potential in the residential market as the housing market is slowly recovering, new home
construction is increasing and current housing inventory is shrinking. Major new products in cooking and refrigeration will be introduced in
the second half of 2013 to capture share in this $1 billion market.
I thank all of our shareholders for investing in us and I am grateful to our employees for their hard work. I am appreciative of all of our
customers who trust us with their investments in our innovation and have helped us grow over the years.
Sincerely,
Selim A. Bassoul
Chairman and Chief Executive
2012 Financial Highlights (dollars in thousands)
2012
2011
2010
2009
2008
Net sales
Gross profit
$1,038,174
$855,907
$719,121
$646,629
$651,888
$402,989
$344,137
286,677
250,628
248,142
Income from operations
$188,084
$148,710
122,788
111,441
119,618
Net earnings
$120,697
$95,473
$72,867
$61,156
$63,901
EPS on net earnings
$6.49
$5.15
$3.97
$3.29
$3.75
Weighted average shares
18,594,000 18,534,000 18,337,000 18,575,000 17,030,000
Cashflow from Operations
$128,346
$130,393
$97,955
$100,774
$85,349
Total assets
Total debt
1,244,280
1,146,512
873,172
816,346
654,498
260,070
317,335
214,017
275,641
234,700
Stockholders’ equity
650,027
510,969
424,913
342,655
227,960
Net Sales
(dollars in millions)
Net Earnings
(dollars in millions)
$1200
1000
800
600
400
200
0
$150
128
107
85
64
42
21
0
’08
’09
’10
’11
’12
’08
’09
’10
’11
’12
EPS on Net Earnings
7
6
5
4
3
2
1
0
’08
’09
’10
’11
’12
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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 29, 2012
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
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes
No
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.
No
Yes
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).
No
Yes
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.
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
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of June 30, 2012 was approximately $1,740,873,212.
The number of shares outstanding of the Registrant’s class of common stock, as of February 25, 2013, was 18,791,446 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 2013 annual meeting of stockholders.
Documents Incorporated by Reference
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
December 29, 2012
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Issues
PART I
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosure about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
PART III
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
Item 15.
Exhibits and Financial Statement Schedule
PART IV
Page
1
8
16
17
18
18
19
21
22
32
34
86
86
88
89
89
89
89
89
90
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, baking, chilling 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 one 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®,
Nieco®, 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 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, greater throughput and
reduced labor costs though automation.
This food processing equipment is marketed under a portfolio of eleven brands, including Alkar®, Armor Inox®,
Auto-Bake®, Baker Thermal Solutions®, Cozzini®, Danfotech®, Drake®, Maurer-Atmos®, MP Equipment®, RapidPak®
and Stewart Systems®.
1
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, frying systems 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, food handling, freezing and packaging equipment. This portfolio of equipment can be
integrated to provide customers a highly efficient and customized solution.
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 twelve 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 fourteen brands to the Middleby portfolio and positioned the company as a leading provider of
equipment in both industries.
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.
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.
In March 2012, the company acquired certain assets of Turkington USA, LLC (now known as Baker Thermal Solutions
"Baker"), a manufacturer of automated baking ovens for the food processing industry for approximately $10.3 million.
2
In September 2012, the company acquired certain assets of Stewart Systems Global, LLC ("Stewart"), a manufacturer of
automated proofing and oven baking systems for the food processing industry for approximately $27.8 million.
In October 2012, the company acquired Nieco Corporation ("Nieco"), a leading manufacturer of automatic broilers for
the commercial foodservice industry for approximately $23.9 million.
On December 31, 2012, subsequent to the end of the company's 2012 fiscal year, the company acquired Viking Range
Corporation (“Viking”), a leading manufacturer of premium residential cooking ranges, ovens and kitchen appliances, for $380.0
million. The company believes that this acquisition will strategically position Middleby as a leading manufacturer in the premium
residential sector with a top brand.
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 $20.0 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 and the restaurant industry, 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, retailers and large restaurant chains are also dictating food safety standards that are often more strict than
government regulations.
3
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. Food 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 customer requirements, food processors are expected to continue to
demand new and innovative equipment that addresses food safety, food quality, automation and flexibility.
Improving living standards in developing countries is spurring increased worldwide demand for pre-cooked and
convenience food products. As industrializing countries create more jobs, consumers in these countries will have the means to
buy pre-cooked food products. In industrialized regions, such as Western Europe and the U.S., consumers are demanding more
pre-cooked and convenience food products, such as deli tray variety packs, frozen food products and ready-to-eat varieties of
ethnic foods.
The global food processing equipment industry is highly fragmented, large and growing. The company estimates
demand for food processing equipment is approximately $5.0 billion in North America and $40.0 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 $1.0 billion in North America and $4.0 billion worldwide.
Backlog
Commercial Foodservice Equipment Group
The backlog of orders for the Commercial Foodservice Equipment Group was $43.2 million at December 29, 2012, all
of which is expected to be filled during 2013. The acquired Nieco business accounted for $1.9 million of the backlog. The
Commercial Foodservice Equipment Group's backlog was $30.3 million at December 31, 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 $107.2 million at December 29, 2012, all of
which is expected to be filled during 2013. The acquired Baker and Stewart businesses accounted for $15.6 million of the
backlog. The Food Processing Equipment Group's backlog was $108.7 million at December 31, 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 brands and maintain 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, Denmark, France, Italy, Germany and
Mexico along with global sales managers supported by a network of independent sales representatives.
4
The company’s sale process is highly consultative due to the highly technical nature of the equipment. During a
typical sales process, a salesperson makes several visits to the customer’s facility to conceptually discuss the production
requirements, footprint and configuration of the proposed equipment. The company employs a technically proficient sales
force, many of whom have previous technical experience with the company as well as education backgrounds in food science.
Services and Product Warranty
The company is an industry leader in equipment installation programs and after-sales support and service. The
company provides a warranty on its products typically for a one year period and in certain instances greater periods. The
emphasis on global service increases the likelihood of repeat business and enhances Middleby's image as a partner and provider
of quality products and services.
Commercial Foodservice Equipment Group
The company's domestic service network consists of over 100 authorized service parts distributors and 3,000
independent certified technicians who have been formally trained and certified by the company through its factory training
school and on-site installation training programs. Technicians work through service parts distributors, which are required to
provide around-the-clock service. 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 thousands of 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 AMF Bakery Systems, 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 twelve domestic and eight international
production facilities. These production facilities are located in Brea, California; Windsor, 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 six domestic and four international production
facilities. These production facilities are located in Algona, Iowa; Chicago, Illinois; Clayton, North Carolina; Plano, TX;
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®,
Nieco®, 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®, Baker Thermal Solutions®, Cozzini®, Danfotech®, Drake®, Maurer-Atmos®, MP Equipment®,
RapidPak®, and Stewart Systems®.
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 29, 2012, 2,314 persons were employed within the Commercial Foodservice Equipment Group. Of
this amount, 920 were management, administrative, sales, engineering and supervisory personnel; 1,203 were hourly
production non-union workers; and 191 were hourly production union members. Included in these totals were 764 individuals
employed outside of the United States, of which 396 were management, sales, administrative and engineering personnel, 294
were hourly production non-union workers and 74 were hourly production union workers, who participate in an employee
cooperative. At its Windsor, CA facility, the company has a union contract with the Sheet Metal Workers International
Association that expires on December 31, 2016. At its Elgin, Illinois facility, the company has a union contract with the
International Brotherhood of Teamsters that expires on July 31, 2017. 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 29, 2012, 806 persons were employed within the Food Processing Equipment Group. Of this amount,
402 were management, administrative, sales, engineering and supervisory personnel; 285 were hourly production non-union
workers; and 119 were hourly production union members. Included in these totals were 263 individuals employed outside of
the United States, of which 139 were management, sales, administrative and engineering personnel, 124 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 29, 2012, 20 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, weakness in the residential construction, housing
and home improvement markets, 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 29, 2012, the company
had $260.1 million of borrowings and $7.8 million in letters of credit outstanding. On December 31, 2012, subsequent to year end,
the company incurred additional indebtedness to acquire Viking Range Corporation for $380.0 million. 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.
8
The company’s current credit agreement limits its ability to conduct business, which could negatively affect the company’s
ability to finance future capital needs and engage in other business activities.
The covenants in the company’s existing credit agreement contain a number of significant limitations on its ability to, among
other things:
•
•
•
•
pay dividends;
incur additional indebtedness;
create liens on the company’s assets;
engage in new lines of business;
• make investments;
• make capital expenditures and enter into leases; and
•
acquire or dispose of assets.
These restrictive covenants, among others, could negatively affect the company’s ability to finance its future capital
needs, engage in other business activities or withstand a future downturn in the company’s business or the economy.
Under the company’s current credit agreement, the company is required to maintain certain specified financial ratios
and meet financial tests, including certain ratios of leverage and fixed charge coverage. The company’s ability to comply with
these requirements may be affected by matters beyond its control, and, as a result, there can be no assurance that the company
will be able to meet these ratios and tests. A breach of any of these covenants would prevent the company from being able to
draw under the company revolver and would result in a default under the company’s credit agreement. In the event of a default
under the company’s current credit agreement, the lenders could terminate their commitments and declare all amounts
borrowed, together with accrued interest and other fees, to be 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 29, 2012. 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.
9
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.
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.
10
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.
11
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.
12
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.
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.
13
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.
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.
14
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.
The company’s financial performance is subject to significant fluctuations.
The company’s financial performance is subject to quarterly and annual fluctuations due to a number of factors,
including:
• general economic conditions;
•
the lengthy, unpredictable sales cycle for commercial foodservice equipment and food processing equipment;
• the gain or loss of significant customers;
• unexpected delays in new product introductions;
•
the level of market acceptance of new or enhanced versions of the company’s products;
• unexpected changes in the levels of the company’s operating expenses; and
• competitive product offerings and pricing actions.
Each of these factors could result in a material and adverse change in the company’s business, financial condition and
results of operations.
The company may be unable to manage its growth.
The company has recently experienced rapid growth in business. Continued growth could place a strain on the
company’s management, operations and financial resources. There also will be additional demands on the company’s sales,
marketing and information systems and on the company’s administrative infrastructure as it develops and offers additional
products and enters new markets. The company cannot be certain that the company’s operating and financial control systems,
administrative infrastructure, outsourced and internal production capacity, facilities and personnel will be adequate to support
the company’s future operations or to effectively adapt to future growth. If the company cannot manage the company’s growth
effectively, the company’s business may be harmed.
The company’s business could suffer in the event of a work stoppage by its unionized labor force.
Because the company has a significant number of workers whose employment is subject to collective bargaining
agreements and labor union representation, the company is vulnerable to possible organized work stoppages and similar
actions. Unionized employees accounted for approximately 10% of the company’s workforce as of December 29, 2012. The
company has union contracts with employees at its facilities in Windsor, California, Algona, Iowa, Elgin, Illinois and Lodi,
Wisconsin that extend through December 2016, December 2014, July 2017 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.
15
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.
16
Item 2. Properties
The company's principal executive offices are located in Elgin, Illinois. The company operates eighteen manufacturing
facilities in the U.S and twelve manufacturing facilities internationally.
The principal properties of the company utilize to conduct business operations are listed below:
Location
Brea, CA
Windsor, CA
Buford, GA
Chicago, IL
Chicago, IL
Elgin, IL
Mundelein, IL
Algona, IA
Menominee, MI
St. Louis, MO
Bow, NH
Square
Footage
Owned/
Leased
Lease
Expiration
Principal Function
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
74,800
75,000
50,000
64,400
30,800
Manufacturing, Warehousing and Offices
207,000
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Offices
70,000
47,000
60,000
46,900
Leased
Leased
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Leased
June 2016
October 2017
December 2014
December 2016
March 2014
N/A
N/A
N/A
N/A
August 2017
Manufacturing, Warehousing and Offices
100,000
Owned
N/A
Clayton, NC
Manufacturing, Warehousing and Offices
Fuquay-Varina, NC
Manufacturing, Warehousing and Offices
Cookville, TN
Smithville, TN
Carrollton, TX
Plano, TX
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Waynesburg, VA
Manufacturing, Warehousing and Offices
Burlington, VT
Manufacturing, Warehousing and Offices
Lodi, WI
Manufacturing, Warehousing and Offices
Brisbane, Australia
Manufacturing, Warehousing and Offices
New South Wales,
Australia
Sao Paulo, Brazil
Manufacturing, Warehousing and Offices
Warehousing and Offices
Quebec City, Canada
Warehousing and Offices
Shanghai, China
Manufacturing, Warehousing and Offices
Randers, Denmark
Manufacturing, Warehousing and Offices
Mauron, France
Manufacturing, Warehousing and Offices
Reichenau, Germany
Manufacturing, Warehousing and Offices
Scandicco, Italy
Manufacturing, Warehousing and Offices
Mexico City, Mexico
Warehousing and Offices
Guadalupe, Mexico
Manufacturing, Warehousing and Offices
Laguna, the Philippines
Manufacturing, Warehousing and Offices
57,400
65,300
138,900
90,000
190,000
132,200
133,300
25,600
14,360
135,400
114,600
22,800
50,500
20,700
36,000
74,000
79,400
75,300
57,900
106,350
28,000
117,600
83,100
Leased
Leased
Owned
Leased
Owned
Leased
Leased
Owned
Leased
Owned
Owned
Leased
Leased
Leased
Owned
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Owned
Lincoln, the United
Kingdom
Warwickshire, the United
Kingdom
Wrexham, the United
Kingdom
Manufacturing, Warehousing and Offices
100,000
Owned
Manufacturing, Warehousing and Offices
12,000
Owned
Manufacturing, Warehousing and Offices
68,000
Owned
17
March 2015
October 2019
N/A
February 2013
N/A
August 2022
December 2015
N/A
August 2014
N/A
N/A
January 2013
September 2015
May 2014
N/A
May 2013
N/A
April 2016
June 2016
March 2020
May 2017
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.
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
18
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 2012
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal 2011
First quarter
Second quarter
Third quarter
Fourth quarter
Shareholders
Closing Share Price
Low
High
103.75
104.82
122.57
134.51
94.84
96.25
97.74
98.00
91.81
93.48
94.03
115.61
80.55
79.70
65.39
66.36
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
September 30 to October 27, 2012
October 28 to November 24, 2012
November 25 to December 29, 2012
Quarter ended December 29, 2012
Total
Number of
Shares
Purchased
36,234
—
36,234
Average
Price Paid
per Share
129.28
—
129.28
$
$
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plan or
Program
36,234
—
36,234
Maximum
Number of
Shares that May
Yet be
Purchased
Under the Plan
or Program (1)
61,930
61,930
61,930
61,930
(1) This column does not include an additional 1.0 million shares authorized for repurchase by the company's Board of
Directors on February 22, 2013
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 29, 2012, 1,738,070 shares had been
purchased under the 1998 stock repurchase program.
19
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 29, 2012, the company had a total of 4,635,315 shares in treasury amounting to $147.4 million.
20
Item 6. Selected Financial Data
(amounts in thousands, except per share data)
Fiscal Year Ended(1, 2)
Income Statement Data:
Net sales
Cost of sales
Gross profit
Selling and distribution expenses
General and administrative expenses
Income from operations
Net interest expense and deferred financing
amortization, net
Other expense (income), net
Earnings before income taxes
Provision for income taxes
Net earnings
Net earnings per share:
Basic
Diluted
Weighted average number of shares
outstanding:
Basic
Diluted
Balance Sheet Data:
Working capital (3)
Total assets
Total debt
Stockholders' equity
2012
2011
2010
2009
2008
$
$
$
$
$
1,038,174
635,185
402,989
106,129
108,776
188,084
9,238
4,406
174,440
53,743
120,697
6.61
6.49
18,265
18,594
170,167
1,244,280
260,070
650,027
$
$
$
$
855,907
511,770
344,137
91,113
104,314
148,710
8,503
(241)
140,448
44,975
95,473
5.30
5.15
$
$
$
$
719,121
432,444
286,677
75,772
88,117
122,788
8,592
(40)
114,236
41,369
72,867
4.09
3.97
17,998
18,534
17,801
18,337
(182,234) $
1,146,512
317,335
510,969
79,807
873,172
214,017
424,913
$
$
$
$
$
$
$
$
$
$
646,629
396,001
250,628
64,239
74,948
111,441
11,594
121
99,726
38,570
61,156
3.47
3.29
17,605
18,575
70,670
816,346
275,641
342,655
651,888
403,746
248,142
63,593
64,931
119,618
12,982
2,414
104,222
40,321
63,901
4.00
3.75
15,978
17,030
68,198
654,498
234,700
227,960
(1)
(2)
(3)
The company's fiscal year ends on the Saturday nearest to December 31.
The company has acquired numerous businesses in the periods presented. Please see Footnote 2 in the Notes to
Consolidated Financial Statements for further information.
In 2011, the company's senior secured revolving credit line was classified as a current liability due to the maturity date
was within twelve months of the financial statement date.
21
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 state of the residential construction, housing and home improvement markets;
the state of the credit markets, including mortgages, home equity loans and consumer credit;
the company's ability to maintain and grow the Viking reputation and brand image;
intense competition in the premium residential appliance industry reflecting the impact of both new and established
global competitors, including Asian and European manufacturers;
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.
22
NET SALES SUMMARY
(dollars in thousands)
Fiscal Year Ended(1)
2012
2011
2010
Sales
Percent
Sales
Percent
Sales
Percent
Business Segments:
Commercial Foodservice
$
786,391
75.7% $
723,274
84.5% $
611,596
85.0%
Food Processing
251,783
24.3
132,633
15.5
107,525
15.0
Total
$ 1,038,174
100.0% $
855,907
100.0% $
719,121
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 expense (income), net
Earnings before income taxes
Provision for income taxes
Net earnings
2012
Fiscal Year Ended(1)
2011
2010
100.0%
61.2
38.8
20.7
18.1
0.9
0.4
16.8
5.2
11.6%
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%
(1)
The company's fiscal year ends on the Saturday nearest to December 31.
23
Fiscal Year Ended December 29, 2012 as Compared to December 31, 2011
Net sales. Net sales in fiscal 2012 increased by $182.3 million or 21.3% to $1,038.2 million as compared to $855.9
million in fiscal 2011. The increase in net sales of $120.5 million, or 14.1%, was attributable to acquisition growth, resulting
from the fiscal 2011 acquisitions of Beech, Lincat, Danfotech, Maurer, Auto-Bake, Drake and Armor Inox and the fiscal 2012
acquisitions of Baker, Stewart and Nieco. Excluding acquisitions, net sales increased $61.8 million, or 7.2%, from the prior
year, reflecting a net sales increase of 5.0% at the Commercial Foodservice Equipment Group and an increase of 19.1% at the
Food Processing Equipment Group.
• Net sales of the Commercial Foodservice Equipment Group increased by $63.1 million or 8.7% to $786.4 million
in fiscal 2012, as compared to $723.3 million in fiscal 2011. Net sales from the acquisitions of Beech, Lincat and
Nieco which were acquired on April 12, 2011, May 27, 2011 and October 31, 2012, respectively, accounted for an
increase of $26.6 million during fiscal 2012. Excluding the impact of acquisitions, net sales of Commercial
Foodservice Equipment increased $36.5 million, or 5.0%, as compared to the prior year. International sales
increased $23.1 million, or 11.7%, to $221.0 million, as compared to $197.9 million in the prior year. This
includes the increase of $25.4 million from the recent acquisitions, as these companies primarily have
international sales. Excluding acquisitions, the net decrease of $2.3 million in international sales reflects increased
sales in Asia, Latin America and the Middle East as the company continues to realize strong growth in emerging
markets due to expansion of restaurant chains, offset by lower sales in Europe due to economic conditions.
Domestically, the company also realized a sales increase of $40.0 million, or 7.6%, to $565.4 million, as
compared to $525.4 million in the prior year. This increase in domestic sales includes increased sales with
customer initiatives to improve efficiencies in restaurant operations by adopting new cooking and warming
technologies and general improvements in market conditions.
• Net sales of the Food Processing Equipment Group increased by $119.2 million or 89.9% to $251.8 million in
fiscal 2012, as compared to $132.6 million in fiscal 2011. Net sales from the acquisition of Danfotech, Maurer,
Auto-Bake, Drake, Armor Inox, Baker and Stewart which were acquired on July 5, 2011, July 22, 2011, August 1,
2011, December 2, 2011, December 21, 2011, March 14, 2012 and September 5, 2012, respectively, accounted for
an increase of $93.9 million. Excluding the impact of acquisitions, net sales of Food Processing Equipment
increased $25.3 million, or 19.1%. International sales increased $61.0 million, or 135.9%, to $105.9 million, as
compared to $44.9 million in the prior year. This includes an increase of $46.4 million from the recent
acquisitions. Domestically, the company realized a sales increase of $58.2 million, or 66.4%, to $145.9 million as
compared to $87.7 million in the prior year. This includes an increase of $47.5 million from the recent
acquisitions. The increase in sales, both international and domestic, reflects expansion of food processing
operations to support growing global demand and initiatives to upgrade food processing operations to more
efficient and cost effective equipment.
Gross profit. Gross profit increased by $58.9 million to $403.0 million in fiscal 2012 from $344.1 million in fiscal
2011. The gross margin rate decreased from 40.2% in 2011 to 38.8% in 2012. The net decrease in the gross margin rate reflects
the impact of lower margins at certain of the newly acquired companies and the effect of a higher sales mix of sales from the
Food Processing Equipment Group at a lower gross margin rate.
• Gross profit at the Commercial Foodservice Equipment Group increased by $21.8 million, or 7.3%, to $320.3
million in fiscal 2012 as compared to $298.5 million in fiscal 2011. The gross margin rate declined to 40.7% as
compared to 41.3% in the prior year. Gross profit from the acquisitions of Beech, Lincat and Nieco accounted for
approximately $9.8 million of the increase in gross profit during fiscal 2012. Excluding the recent acquisitions,
the gross profit increased by approximately $12.0 million on the higher sales volumes.
• Gross profit at the Food Processing Equipment Group increased by $41.0 million, or 89.5%, to $86.8 million in
fiscal 2012 as compared to $45.8 million in fiscal 2011. The gross profit margin rate remained consistent at
34.5% in fiscal 2012 and fiscal 2011. Gross profit from the acquisitions of Danfotech, Maurer, Auto-Bake, Drake,
Armor Inox, Baker and Stewart accounted for approximately $30.6 million of the increase. Excluding the recent
acquisitions, the gross profit increased by approximately $10.4 million on higher sales volumes.
Selling, general and administrative expenses. Combined selling, general, and administrative expenses increased by
$19.5 million to $214.9 million in fiscal 2012 from $195.4 million in 2011. As a percentage of net sales, operating expenses
amounted to 20.7% in fiscal 2012 and 22.8% in fiscal 2011.
24
Selling expenses increased $15.0 million to $106.1 million from $91.1 million, reflecting an increase of $14.4 million
associated with the recently acquired Beech, Lincat, Danfotech, Maurer, Auto-Bake, Drake, Armor Inox, Baker, Stewart and
Nieco operations and $1.9 million related to increased commissions on higher sales volumes. The increase was offset by a
decrease of $1.4 million trade show and travel expenses.
General and administrative expenses increased $4.5 million to $108.8 million from $104.3 million, reflecting an
increase of $14.3 million associated with the recently acquired Beech, Lincat, Danfotech, Maurer, Auto-Bake, Drake, Armor
Inox, Baker, Stewart and Nieco acquistions including $5.7 million of non-cash intangible amortization expense. The increase in
general and administrative costs related to acquisitions is offset by decreases of $7.7 million in incentive compensation, $0.8
million in professional fees, $0.6 million in pension costs and $0.5 million in professional services associated with acquisition
related activities.
Income from operations. Income from operations increased $39.4 million to $188.1 million in fiscal 2012 from
$148.7 million in fiscal 2011. 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 18.1% in 2012 from 17.4% in 2011.
Income from operations in 2012 included $37.7 million of non-cash expenses, including $8.7 million of depreciation
expense, $17.0 million of intangible amortization related to acquisitions and $12.0 million of stock based compensation. This
compares to $37.2 million of non-cash expenses in the prior year, including $6.9 million of depreciation expense, $12.2 million
of intangible amortization related to acquisitions, and $18.1 million of stock based compensation costs. Operating income
excluding these non-cash expenses, amounted to $225.8 million, or 21.7%, of net sales in fiscal 2012 as compared to $185.9
million, or 21.7%, of net sales in 2011.
Non-operating expenses. Non-operating expenses increased $5.3 million to $13.6 million in fiscal 2012 from $8.3
million in fiscal 2011. Net interest expense increased $0.7 million from $8.5 million in fiscal 2011 to $9.2 million in fiscal 2012
as a result of higher borrowing costs associated with the new credit facility entered into during 2012. Other expense was $4.4
million in fiscal 2012 as compared to other income of $0.2 million in fiscal 2011 primarily reflecting foreign exchange losses
during the year.
Income taxes. A tax provision of $53.7 million, at an effective rate of 30.8%, was recorded for fiscal 2012 as
compared to $45.0 million at an effective rate of 32.0%, in fiscal 2011. The current year effective tax rate is comprised of a
35.0% U.S. federal tax rate and 2.7% in U.S. state income taxes, net of 2.4% in tax relief for U.S. manufacturers, 1.6% in
permanent tax deductions, 1.5% in foreign rate differentials and 1.4% in other adjustments benefiting the effective rate. In
comparison to the prior year, the tax provision reflects a lower effective rate on the increase permanent tax benefits, reduced
state tax provisions resulting from increased income in lower rate jurisdictions, increased benefit for U.S. manufacturers and
adjustments to tax reserves for reduced tax exposures, which benefited the effective tax rate by 0.5%, 0.3%, 0.3% and 0.1%,
respectively.
25
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 38.9% 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.
26
• 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.
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.
27
Financial Condition and Liquidity
Total cash and cash equivalents decreased by $5.8 million to $34.4 million at December 29, 2012 from $40.2 million
at December 31, 2011. Net borrowings decreased to $260.1 million at December 29, 2012, from $317.3 million at
December 31, 2011.
Operating activities. Net cash provided by operating activities before changes in assets and liabilities amounted to
$159.5 million as compared to $138.7 million in the prior year. Adjustments to reconcile 2012 net earnings to operating cash
flows before changes in assets and liabilities included $8.7 million of depreciation and $18.2 million of amortization, $12.0
million of non-cash stock compensation expense and $0.1 million of deferred tax benefit.
Net cash provided by operating activities after changes in assets and liabilities amounted to $128.3 million as
compared to $130.4 million in the prior year.
During fiscal 2012, working capital levels changed due to increased working capital needs. These changes in working
capital levels included a $19.0 million increase in inventory, primarily due to increased order rates and investments in
inventories in growing international markets including newly established distribution operations in Australia and Brazil.
Accounts receivable increased $3.9 million due to increased sales volumes and receivable balances at the Food Processing
Equipment Group resulting from the timing of projects. Changes in working capital levels also included a $7.2 million increase
in prepaid expenses and other assets primarily related to deferred financing costs in conjunction with the new credit facility, a
$2.7 million increase in accounts payable due to the timing of vendor payments and a $3.8 million decrease in accrued
expenses and other non-current liabilities.
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 2012, the amounts of acquired working capital in the opening
balance sheets included $6.4 million of accounts receivable, $10.7 million of inventories, $3.1 million of accounts payable and
$4.8 million of accrued liabilities. At December 29, 2012, the balances of the ending combined balance sheets for these
acquired business units amounted to $6.7 million of accounts receivable, $12.3 million of inventories, $4.8 million of accounts
payable and $8.2 million of accrued liabilities.
Investing activities. During 2012, net cash used for investing activities amounted to $69.9 million. This included
$62.0 million of acquisition related investments, which included $10.3 million, $27.8 million and $23.9 million in connection
with the acquisitions of Baker, Stewart and Nieco, respectively. Additional investing activities included $7.7 million of
additions and upgrades of production equipment, manufacturing facilities and training equipment.
Financing activities. Net cash flows used in financing activities amounted to $64.9 million in 2012. The company’s
borrowing activities included the repayment of $309.4 million under the company's previous credit facility which was repaid
and replaced with its new amended facility, $256.5 million of net proceeds under its newly amended $1.0 billion revolving
credit facility and $4.8 million of net repayments of foreign borrowings.
The company used $20.7 million to repurchase 197,887 shares of its common stock that were surrendered to the
company by employees in lieu of cash for payment for withholding taxes related to restricted stock vestings and stock option
exercises that occurred during the fiscal 2012.
At December 29, 2012, 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.
At December 31, 2012, subsequent to year end, the company completed the acquisition of Viking Range Corporation
for $380.0 million. This acquisition was financed with borrowings under the company's $1.0 billion revolving credit facility.
28
Contractual Obligations
The company's contractual cash payment obligations are set forth below (dollars in thousands):
Less than 1 year
1-3 years
4-5 years
After 5 years
$
Amounts
Due Sellers
From
Acquisition
3,563
5,046
—
—
$
Estimated
Interest
on Debt
7,352
14,861
13,608
224
$
Operating
Leases
7,981
12,943
6,298
5,289
$
Debt
1,850
568
256,747
905
$
Total
Contractual
Cash
Obligations
20,746
33,418
276,653
6,418
$
8,609
$
260,070
$
36,045
$
32,511
$
337,235
The company has obligations to make $8.6 million of contingent purchase price payments to the sellers of Cooktek,
Danfotech, Stewart and Nieco that were deferred in conjunction with the acquisitions.
As of December 29, 2012, the company had $256.5 million outstanding under its revolving credit line as part of its
senior credit agreement. The average interest rate on this debt amounted to 1.54% at December 29, 2012. This facility matures
on August 7, 2017. As of December 29, 2012, the company also has $3.2 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 August 2017. 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 29,
2012 rates. Also reflected in the table above is $3.5 million of payments to be made related to the company’s interest rate swap
agreements in 2013. On December 31, 2012, subsequent to the end of the company's 2012 fiscal year, the company acquired
Viking for $380.0 million in cash. This acquisition was funded through additional borrowings under the company's senior credit
agreement.
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 $20.2 million at the end of 2012 as compared to $22.6 million at the end of
2011. The unfunded benefit obligations were comprised of a $1.4 million underfunding of the company's union plan, $7.3
million underfunding of the company’s Smithville plan, which was acquired as part of the Star acquisition, $2.5 million
underfunding of the company’s Wrexham plan, which was acquired as part of the Lincat acquisition, and $9.0 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 $0.6 million and $0.2 million in 2012 and 2011, respectively, to the
company’s Smithville plan and $0.3 million and $0.2 million in 2012 and 2011, 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 $0.6
million and $0.3 million, respectively, in 2013. The company expects to contribute $0.5 million to the Wrexham plan in 2013.
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.
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.
29
Revenue Recognition. At the Commercial Foodservice Group, the company recognizes revenue on the sale of its
products where title transfers and 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.
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.
30
New Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. The company adopted the provisions of ASU No. 2011-04 on January 1, 2012.
There was no impact to the company’s financial position, results of operations or cash flows.
In June 2011 and December 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income” and
ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of
Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”, respectively. ASU No. 2011-05
eliminated the option to present the components of other comprehensive income in the statement of changes in stockholders’
equity. Instead, entities 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. The company adopted the provisions of ASU No. 2011-05 on January 1, 2012. As this guidance
only revises the presentation of comprehensive income, there was no impact to the company’s financial position, results of
operations or cash flows. For annual reporting purposes the company has elected to present comprehensive income in a two-
statement format.
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.
The company adopted the provisions of ASU 2011-08 on January 1, 2012. There was no impact to the company’s financial
position, results of operation or cash flows. The company applied the qualitative evaluation allowed under this ASU in
connection with the company’s annual goodwill impairment test for fiscal year 2012.
On July 27, 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350)”. Similar to ASU
2011-08, this ASU amends the guidance in ASC 350-30. While ASU 2011-08 allows 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, ASU-2012-02 allows an entity the option to make a qualitative evaluation to determine whether the existence of events
and circumstances indicate that it is more likely than not the indefinite-lived intangible asset is impaired thus requiring the
entity to perform quantitative impairment tests in accordance with ASC 350-30. The ASU also amends previous guidance by
expanding upon the examples of events and circumstances that an entity should consider when making the qualitative
evaluation. The company is currently evaluating its adoption approach to this guidance. The adoption of this guidance is not
expected to affect the company's financial position, results of operations or cash flows.
Certain Risk Factors That May Affect Future Results
An investment in shares of the company's common stock involves risks. The company believes the risks and
uncertainties described in "Item 1A Risk Factors" and in "Special Note Regarding Forward-Looking Statements" are the
material risks it faces. Additional risks and uncertainties not currently known to the company or that it currently deems
immaterial may impair its business operations. If any of the risks identified in "Item 1A. Risk Factors" actually occurs, the
company's business, results of operations and financial condition could be materially adversely affected, and the trading price
of the company's common stock could decline.
31
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:
2013
2014
2015
2016
2017 and thereafter
Variable Rate
Fixed Rate
Debt
Debt
(dollars in thousands)
— $
—
—
—
—
— $
1,850
444
124
124
257,528
260,070
$
$
On August 7, 2012, the company entered into a new senior secured multi-currency credit facility. Terms of the
company’s senior credit agreement provide for $1.0 billion of availability under a revolving credit line. As of December 29,
2012, the company had $256.5 million of borrowings outstanding under this facility. The company also has $7.8 million in
outstanding letters of credit as of December 29, 2012, 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 $735.7
million at December 29, 2012. On December 31, 2012, subsequent to the end of the company's 2012 fiscal year, the company
acquired Viking for $380.0 million in cash. This acquisition was funded through additional borrowings under the company's
senior credit agreement.
At December 29, 2012, borrowings under the senior secured credit facility were assessed at an interest rate at 1.25%
above LIBOR for long-term borrowings or at the higher of the Prime rate and the Federal Funds Rate. At December 29, 2012,
the average interest rate on the senior debt amounted to 1.54%. The interest rates on borrowings under the senior secured credit
facility may be adjusted quarterly based on the company’s 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 0.23% as of December 29, 2012.
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 29, 2012, these facilities amounted to
$1.7 million in U.S. dollars, including $0.1 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 2.75% on
December 29, 2012. The term loan matures in 2022 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 29, 2012, these facilities
amounted to $1.6 million in U.S. dollars. The interest rate on the credit facilities is tied to three-month Euro LIBOR. The
facilities mature in April 2013. At December 29, 2012, the average interest rate on these facilities was approximately 4.68%.
32
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 29, 2012, the company had the
following interest rate swaps in effect.
$
Notional
Amount
25,000,000
25,000,000
25,000,000
15,000,000
15,000,000
Fixed
Interest
Rate
1.610%
2.520%
0.975%
1.185%
0.620%
Effective
Date
2/23/2011
2/23/2011
7/18/2011
9/12/2011
9/12/2011
Maturity
Date
2/24/2014
2/23/2016
7/18/2014
9/12/2016
9/11/2014
The senior revolving facility matures on August 7, 2017, and accordingly has been classified as a long-term liability
on the consolidated balance sheet.
The terms of the senior secured credit facility limit the ability of the company and its subsidiaries to, with certain
exceptions: incur indebtedness; grant liens; engage in certain mergers, consolidations, acquisitions and dispositions; make
restricted payments; and enter into certain transactions with affiliates; and require, among other things, a maximum ratio of
indebtedness to EBITDA of 3.5 and a fixed charge coverage ratio (as defined in the senior secured credit facility) of 1.25. The
senior secured credit facility is secured by substantially all of the assets of Middleby Marshall, the company and the company's
domestic subsidiaries and is unconditionally guaranteed by, subject to certain exceptions, the company and certain of the
company's direct and indirect material domestic subsidiaries. The senior secured credit facility contains certain customary
events of default, including, but not limited to, the failure to make required payments; bankruptcy and other insolvency events;
the failure to perform certain covenants; the material breach of a representation or warranty; non-payment of certain other
indebtedness; the entry of undischarged judgments against the company or any subsidiary for the payment of material
uninsured amounts; the invalidity of the Company guarantee or any subsidiary guaranty; and a change of control of the
company. 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. At December 29, 2012, 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 29, 2012, the
fair value of these instruments was a loss of $2.9 million. The change in fair value of these swap agreements in fiscal 2012 was
a gain of $0.2 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.
33
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Earnings
Statements of Comprehensive Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
The following consolidated financial statement schedule is included in response to Item 15
Schedule II - Valuation and Qualifying Accounts and Reserves
Page
35
38
39
40
41
42
44
85
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.
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
The Middleby Corporation and Subsidiaries
We have audited the Middleby Corporation and subsidiaries' internal control over financial reporting as of December 29, 2012,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (the COSO criteria). The Middleby Corporation and subsidiaries' management is responsible 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 Form 10-K. Our responsibility is to express an opinion on the
company's internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal
control over financial reporting was maintained in all material respects. Our audit 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, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's 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. 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 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.
As indicated in the Company's accompanying “Management's Report on Internal Control over Financial Reporting”,
management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the
internal controls of Baker Thermal Solutions, Stewart Systems Global, LLC, and Nieco Corporation which are included in the
2012 consolidated financial statements of the Middleby Corporation and subsidiaries and constituted 6.3% of total assets and
0.6% of net assets, respectively, as of December 29, 2012 and 1.8% of net sales and (1.5%) of net earnings, respectively, for the
year then ended. Our audit of internal control over financial reporting of the Middleby Corporation and subsidiaries also did
not include an evaluation of the internal control over financial reporting of Baker Thermal Solutions, Stewart Systems Global,
LLC, and Nieco Corporation.
In our opinion, the Middleby Corporation and subsidiaries maintained, in all material respects, effective internal control over
financial reporting as of December 29, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheet of Middleby Corporation and subsidiaries as of December 29, 2012, and the related consolidated
statements of earnings, comprehensive income, stockholders' equity, and cash flows for the period ended December 29, 2012,
and our report dated February 27, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
February 27, 2013
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
The Middleby Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of the Middleby Corporation and subsidiaries as of December
29, 2012, and the related consolidated statements of earnings, comprehensive income, shareholders' equity and cash flows for
the period ended December 29, 2012. Our audit also includes the financial statement schedule listed in the Index at Item 8.
These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audit. The consolidated financial statements and schedule
of the Middleby Corporation and subsidiaries for the periods ended December 31, 2011 and January 1, 2011 were audited by
other auditors whose report dated March 12, 2012 expressed an unqualified opinion on those statements and schedule.
We conducted our audit 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. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of the Middleby Corporation and subsidiaries at December 29, 2012, and the consolidated results of their operations
and their cash flows for the period ended December 29, 2012, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the Middleby Corporation and subsidiaries' internal control over financial reporting as of December 29, 2012, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 27, 2013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
February 27, 2013
36
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 sheet of The Middleby Corporation and subsidiaries (the "Company")
as of December 31, 2011, and the related consolidated statements of earnings, comprehensive income, changes in stockholders'
equity, and cash flows for each of the two years in the period ended December 31, 2011. Our audits also included the financial
statement schedule listed in the Index at Item 8 for the fiscal years ended December 31, 2011 and January 1, 2011. These
financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and financial statement schedule based on our audits.
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. An audit includes 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. We believe that our audits provide a reasonable basis for our
opinion.
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 the results of their operations and their
cash flows for each of the two 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.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 12, 2012
37
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 29, 2012 AND December 31, 2011
(amounts in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid expenses and other
Current deferred taxes
Total current assets
Property, plant and equipment, net
Goodwill
Other intangibles
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
Accounts payable
Accrued expenses
Total current liabilities
Long-term debt
Long-term deferred tax liability
Other non-current liabilities
Stockholders' equity:
Preferred stock, $0.01 par value; none issued
Common stock, $0.01 par value, 23,438,287 and 23,093,338 shares issued in 2012 and
2011, respectively
Paid-in capital
Treasury stock at cost; 4,635,315 and 4,437,428 shares in 2012 and 2011, respectively
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
2012
2011
$
34,366
162,230
153,490
19,151
43,365
412,602
63,886
526,011
233,341
8,440
$ 1,244,280
$
40,216
151,441
124,300
12,336
39,090
367,383
62,507
477,812
234,726
4,084
$ 1,146,512
$
$
1,850
69,653
170,932
242,435
258,220
44,838
48,760
315,831
63,394
170,392
549,617
1,504
37,845
46,577
—
—
141
233,213
(147,352)
576,424
(12,399)
137
202,321
(126,682)
455,727
(20,534)
650,027
510,969
Total liabilities and stockholders' equity
$ 1,244,280
$ 1,146,512
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
38
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE FISCAL YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011
AND JANUARY 1, 2011
(amounts in thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling and distribution expenses
General and administrative expenses
Income from operations
Interest expense and deferred financing amortization, net
Other expense (income), net
Earnings before income taxes
Provision for income taxes
Net earnings
Net earnings per share:
Basic
Diluted
Weighted average number of shares
Basic
Dilutive common stock equivalents
Diluted
2012
$ 1,038,174
635,185
402,989
106,129
108,776
188,084
9,238
4,406
174,440
53,743
120,697
$
$
$
6.61
6.49
$
$
$
$
18,265
329
18,594
$
$
$
$
2011
855,907
511,770
344,137
91,113
104,314
148,710
8,503
(241)
140,448
44,975
95,473
5.30
5.15
17,998
536
18,534
2010
719,121
432,444
286,677
75,772
88,117
122,788
8,592
(40)
114,236
41,369
72,867
4.09
3.97
17,801
536
18,337
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
39
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE FISCAL YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011
AND JANUARY 1, 2011
(amounts in thousands)
Net earnings
Other comprehensive income:
Foreign currency translation adjustments
Pension liability adjustment, net of tax of $(137)
Unrealized gain on interest rate swaps, net of tax $(149)
Comprehensive income
$
$
2012
2011
2010
120,697
$
95,473
$
72,867
5,873
2,018
244
128,832
$
(10,769)
(5,145)
(586)
78,973
599
(187)
423
$
73,702
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
40
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011
AND JANUARY 1, 2011
(amounts in thousands)
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
Comprehensive income:
Net earnings
Currency translation adjustments
Change in unrecognized pension benefit costs, net of tax of
$(137)
Unrealized gain on interest rate swap, net of tax of $(149)
Comprehensive income
Exercise of stock options
Stock compensation
Tax benefit on stock compensation
Purchase of treasury stock
Balance, December 29, 2012
Common
Stock
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income/(loss)
Total
Stockholders'
Equity
$
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
(187)
423
835
—
—
—
—
—
72,867
599
(187)
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)
(5,145)
(586)
(16,500)
—
—
—
—
95,473
(10,769)
(5,145)
(586)
78,973
224
18,133
4,389
(15,663)
$
137
$ 202,321
$ (126,682) $ 455,727
$
(20,534) $
510,969
—
—
—
—
—
4
—
—
—
—
—
—
—
—
2,800
11,984
16,108
—
—
—
—
—
—
—
—
—
(20,670)
120,697
—
—
—
120,697
—
—
—
—
—
5,873
2,018
244
8,135
—
—
—
—
120,697
5,873
2,018
244
128,832
2,804
11,984
16,108
(20,670)
$
141
$ 233,213
$ (147,352) $ 576,424
$
(12,399) $
650,027
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
41
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011
AND JANUARY 1, 2011
(amounts in thousands)
Cash flows from operating activities—
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities
2012
2011
2010
$
120,697
$
95,473
$
72,867
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 Cooktek
Acquisition of Anets
Acquisition of Doyon
Acquisition of PerfectFry, net of cash aqcuired
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
Acquisition of Baker
Acquisition of Stewart, net of cash acquired
Acquisition of Nieco, net of cash acquired
Net cash (used in) investing activities
Cash flows from financing activities—
Net proceeds under current revolving credit facilities
Net (repayments) proceeds under previous revolving credit facilities
Net (repayments) proceeds under foreign bank loan
Proceeds under other debt arrangement
Repurchase of treasury stock
Debt issuance costs
Excess tax benefit related to share-based compensation
Net proceeds from stock issuances
Net cash (used in) provided by financing activities
42
26,903
11,984
(83)
25
(3,880)
(19,026)
(7,198)
2,684
(3,760)
128,346
(7,652)
—
(335)
—
—
—
—
—
—
361
—
—
(403)
—
(10,250)
(27,756)
(23,860)
(69,895)
256,500
(309,400)
(4,771)
350
(20,670)
(5,862)
16,108
2,804
(64,941)
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)
—
—
—
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)
—
—
—
—
—
—
—
—
—
(188,910)
(28,877)
—
102,150
862
—
(15,663)
(373)
4,389
224
91,589
—
(58,650)
(2,421)
—
(9,019)
—
(450)
666
(69,874)
Effect of exchange rates on cash and cash equivalents
640
(512)
89
Changes in cash and cash equivalents—
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Non-cash investing and financing activities:
Stock issuance related to the acquisition of Cozzini
(5,850)
40,216
32,560
7,656
(707)
8,363
34,366
$
40,216
$
7,656
— $
— $
1,776
$
$
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
43
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011
AND JANUARY 1, 2011
(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 eighteen 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 greater 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, frying systems
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, food handling, freezing and packaging equipment. This
portfolio of equipment can be integrated to provide customers a highly efficient and customized solution.
44
(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.
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. During the first
quarter of 2012, the company finalized the working capital provision provided for by the purchase agreement resulting in no
additional payments.
The final allocation of cash paid for the Beech acquisition is summarized as follows (in thousands):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
Other non-current liabilities
(as initially
reported)
Apr 12, 2011
525
$
1,145
57
11,433
2,317
(1,100)
(893)
Measurement
Period
Adjustments
$
— $
(as adjusted)
Apr 12, 2011
525
846
57
11,241
2,023
(1,141)
(67)
(299)
—
(192)
(294)
(41)
826
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.
45
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 final allocation of cash paid for the Lincat acquisition is summarized as follows (in thousands):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
Long-term deferred tax liability
Other non-current liabilities
(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)
— $
(29)
—
(7,274)
1,976
1,174
4,153
—
12,392
16,963
14,368
38,491
33,319
(9,750)
(9,650)
(1,611)
Net assets acquired and liabilities assumed
$
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.
46
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. During the first quarter of 2012, the company finalized the working capital provision
provided for by the purchase agreement resulting in a refund from the seller in the amount of $0.4 million.
The final allocation of cash paid for the Danfotech acquisition is summarized as follows (in thousands):
Cash
Deferred tax asset
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
$
$
$
(as initially
reported)
Jul 5, 2011
165
—
1,073
102
3,423
1,864
4
(309)
(46)
—
Measurement
Period
Adjustments
$
— $
(as adjusted)
Jul 5, 2011
235
(370)
(55)
2,255
(778)
—
(807)
(91)
(750)
165
235
703
47
5,678
1,086
4
(1,116)
(137)
(750)
6,276
$
(361) $
5,915
—
1,500
730
—
730
1,500
7,776
$
369
$
8,145
The long term deferred tax liabilities amounted to $0.1 million. This net liability represents less than $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.
47
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 final allocation of cash paid for the Maurer acquisition is summarized as follows (in thousands):
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
$
(as initially
reported)
Jul 22, 2011
1,673
628
870
922
(246)
Measurement
Period
Adjustments
$
(as adjusted)
Jul 22, 2011
1,005
628
1,220
922
(511)
(668) $
—
350
—
(265)
Net assets acquired and liabilities assumed
$
3,847
$
(583) $
3,264
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.
48
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 final allocation of cash paid for the Auto-Bake acquisition is summarized as follows (in thousands):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Other assets
Current liabilities
Long-term deferred tax liability
(as initially
reported)
Aug 1, 2011
110
$
3,209
477
16,259
6,784
336
(2,506)
(2,035)
Measurement
Period
Adjustments
$
(as adjusted)
Aug 1, 2011
110
3,256
477
18,124
4,058
325
(2,498)
(1,218)
— $
47
—
1,865
(2,726)
(11)
8
817
Net assets acquired and liabilities assumed
$
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.
49
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. During the second quarter of 2012, the company finalized the working capital provision
provided for by the purchase agreement resulting in an additional payment to the seller of $0.4 million.
The final allocation of cash paid for the Drake acquisition is summarized as follows (in thousands):
Cash
Deferred tax asset
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Other assets
Current liabilities
Long-term deferred tax liability
(as initially
reported)
Dec 2, 2011
Measurement
Period
Adjustments
(as adjusted)
Dec 2, 2011
$
$
427
390
4,245
1,773
15,237
5,810
9
(3,334)
(2,395)
— $
56
(213)
—
474
—
—
54
32
427
446
4,032
1,773
15,711
5,810
9
(3,280)
(2,363)
Net assets acquired and liabilities assumed
$
22,162
$
403
$
22,565
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.
50
Armor Inox
On December 21, 2011, the company completed its acquisition of all of the capital stock ofArmor 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 final allocation of cash paid for the Armor Inox acquisition is summarized as follows (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
(as initially
reported)
Dec 21, 2011
Measurement
Period
Adjustments
(as adjusted)
Dec 21, 2011
$
18,201
14,612
941
23,789
12,155
25
(18,440)
(3,975)
(450)
$
— $
(958)
630
2,346
(2,735)
—
(186)
903
—
18,201
13,654
1,571
26,135
9,420
25
(18,626)
(3,072)
(450)
Net assets acquired and liabilities assumed
$
46,858
$
— $
46,858
The goodwill and $3.4 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also includes $1.1 million allocated to customer relationships, $1.1 million allocated
to developed technology and $3.8 million allocated to backlog, which are to be amortized over periods of 6 years, 7 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.
51
Baker
On March 14, 2012, the company completed its acquisition of certain assets of Turkington USA, LLC (now known as
Baker Thermal Solutions "Baker"), a manufacturer of automated baking ovens for the food processing industry, for a purchase
price of approximately $10.3 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)
Mar 14, 2012
Measurement
Period
Adjustments
(as adjusted)
Mar 14, 2012
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
$
4,617
$
221
5,797
—
(385)
10,250
$
(2,176) $
—
1,427
750
(1)
— $
2,441
221
7,224
750
(386)
10,250
Net assets acquired and liabilities assumed
$
The goodwill is subject to the non-amortization provisions of ASC 350. Other intangibles includes $0.8 million
allocated to customer relationships, which are being amortized over 5 years. Goodwill of Baker is 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.
52
Stewart
On September 5, 2012, the company completed its acquisition of certain assets of Stewart Systems Global, LLC
("Stewart"), a manufacturer of automated proofing and oven baking systems for the food processing industry, for a purchase
price of approximately $27.8 million. An additional payment is also payable upon the achievement of certain financial targets.
The purchase price is subject to adjustment based upon a working capital provision within the purchase agreement. The
company expects to finalize this in the first quarter of 2013.
The following estimated fair values of assets acquired and liabilities assumed are provisional and are based on the
information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed (in
thousands)
(as initially
reported)
Sep 5, 2012
Measurement
Period
Adjustments
(as adjusted)
Sep 5, 2012
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
Other non-current liabilities
Consideration paid at closing
Contingent consideration
Net assets acquired and liabilities assumed
$
— $
$
244
(715)
(11)
(2,142)
3,310
(469)
(217)
244
11,124
642
15,744
10,160
(5,697)
(4,217)
28,000
$
— $
11,839
653
17,886
6,850
(5,228)
(4,000)
28,000
4,000
32,000
$
—
— $
4,000
32,000
$
$
The goodwill and $4.5 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also includes $5.3 million allocated to customer relationships and $0.4 million
allocated to backlog, which are being amortized over periods of 5 years and 6 months, respectively. Goodwill and other
intangibles of Stewart 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.
The Stewart purchase agreement includes an earnout provision providing for a contingent payment due the sellers to
the extent certain financial targets are exceeded. This earnout is payable within the first quarters of 2014 and 2015,
respectively, if Stewart exceeds certain sales and earnings targets for fiscal 2013 and 2014. The contractual obligation
associated with the contingent earnout provision recognized on the acquisition date is $4.0 million.
53
Nieco
On October 31, 2012, the company completed its acquisition of Nieco Corporation, ("Nieco"), a leading manufacturer
of automated broilers for the commercial foodservice industry, for a purchase price of approximately $23.9 million. An
additional payment is also payable upon the achievement of certain financial targets. The purchase price is subject to
adjustment based upon a working capital provision within the purchase agreement. The company expects to finalize this in the
first quarter of 2013.
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
Other non-current liabilities
Consideration paid at closing
Contingent consideration
Net assets acquired and liabilities assumed
(as initially reported)
Oct 31, 2012
$
$
$
140
4,011
268
18,855
5,620
(1,836)
(3,058)
24,000
3,058
27,058
The goodwill and $2.5 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also includes $3.0 million allocated to customer relationships and $0.1 million
allocated to backlog, which are being amortized over periods of 4 years and 3 months, respectively. Goodwill and other
intangibles of Nieco 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. The company expects to
complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.
The Nieco purchase agreement includes an earnout provision providing for a contingent payment due the sellers to the
extent certain financial targets are exceeded. This earnout is payable within the first quarters of 2014 and 2015, respectively, if
Nieco exceeds certain sales and earnings targets for fiscal 2013 and 2014. The contractual obligation associated with the
contingent earnout provision recognized on the acquisition date is $3.1 million.
54
Pro forma financial information
In accordance with ASC 805 “Business Combinations”, the following unaudited pro forma results of operations for the
years ended December 29, 2012 and December 31, 2011, assumes the 2012 acquisitions of Baker, Stewart and Nieco and the
2011 acquisitions of Beech, Lincat, Danfotech, Maurer, Auto-Bake, Drake and Armor Inox were completed on January 2, 2011.
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:
Net sales
Net earnings
Net earnings per share:
Basic
Diluted
December 29, 2012 December 31, 2011
1,001,467
$
102,304
1,074,910
124,167
$
6.80
6.68
5.68
5.52
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 2, 2011 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, Armor Inox, Baker, Stewart and Nieco.
(3)
(a)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 2012, 2011, and 2010 ended on
December 29, 2012, December 31, 2011 and January 1, 2011, respectively, and each included 52 weeks.
Certain prior year amounts have been reclassified to be consistent with current year presentation.
(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 $6.4
million and $6.9 million at December 29, 2012 and December 31, 2011, respectively. At December 29, 2012, all accounts
receivable are expected to be collected within one year.
55
(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 $22.2 million in 2012 and $18.6 million in 2011 and represented
approximately 14% and 15% of the total inventory in each respective year. The amount of LIFO reserve at December 29, 2012
and December 31, 2011 was not material. 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 29, 2012 and December 31, 2011 are as follows:
Raw materials and parts
Work in process
Finished goods
(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
2012
(dollars in thousands)
$
87,184
18,957
47,349
153,490
69,576
15,463
39,261
124,300
2011
2012
(dollars in thousands)
8,402
48,164
13,644
57,650
127,860
(63,974)
63,886
$
$
8,189
46,104
11,680
50,548
116,521
(54,014)
62,507
$
$
$
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
Furniture and fixtures
Machinery and equipment
Life
20 to 40 years
3 to 7 years
3 to 10 years
Depreciation expense amounted to $8.7 million, $6.9 million and $5.9 million in fiscal 2012, 2011 and 2010,
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.
56
(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 on the first day of the fourth quarter 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):
Balance as of January 1, 2011
Commercial
Foodservice
330,501
$
$
Food
Processing
39,488
$
Goodwill acquired during the year
Measurement period adjustments to goodwill acquired in prior year
Exchange effect
49,204
(1,272)
(3,081)
64,486
(5)
(1,509)
Total
369,989
113,690
(1,277)
(4,590)
Balance as of December 31, 2011
$
375,352
$
102,460
$
477,812
Goodwill acquired during the year
Measurement period adjustments to goodwill acquired in prior year
Exchange effect
18,855
528
2,511
22,968
2,381
956
41,823
2,909
3,467
Balance as of December 29, 2012
$
397,246
$
128,765
$
526,011
The company has not recognized any goodwill impairments and therefore no accumulated impairment loss.
Intangible assets consist of the following (in thousands):
Estimated
Weighted
Avg
Remaining
Life
3.3
1.0
3.3
December 29, 2012
December 31, 2011
Gross
Carrying
Amount
Accumulated
Amortization
$
$
$
76,763
$
(40,349)
8,751
17,876
103,390
$
(6,713)
(11,975)
(59,037)
188,988
Estimated
Weighted
Avg
Remaining
Life
3.1
2.0
1.7
Gross
Carrying
Amount
Accumulated
Amortization
$
$
$
67,904
$
(28,435)
9,733
18,106
(4,378)
(9,033)
95,743
$
(41,846)
180,829
Amortized intangible assets:
Customer lists
Backlog
Developed technology
Indefinite-lived assets:
Trademarks and tradenames
The aggregate intangible amortization expense was $17.0 million, $12.2 million and $10.6 million in 2012, 2011 and
2010, respectively. The estimated future amortization expense of intangible assets is as follows (in thousands):
2013
2014
2015
2016
2017
Thereafter
$
$
17,713
12,702
7,498
4,596
1,503
341
44,353
57
(g)
Accrued Expenses
Accrued expenses consist of the following at December 29, 2012 and December 31, 2011, respectively:
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
$
2012
2011
(dollars in thousands)
$
42,960
37,392
23,901
17,593
13,290
9,531
8,346
17,919
41,434
33,246
23,136
13,842
10,771
8,668
7,497
31,798
$
170,932
$
170,392
(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:
Unrecognized pension benefit costs, net of tax
Unrealized loss on interest rate swap, net of tax
Currency translation adjustments
2011
2012
(dollars in thousands)
$
(5,597) $
(1,447)
(5,355)
(7,615)
(1,691)
(11,228)
$
(12,399) $
(20,534)
58
(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 29, 2012 and December 31, 2011 are as follows (in thousands):
As of December 29, 2012
Financial Assets:
Pension Plans
Financial Liabilities:
Interest rate swaps
Contingent consideration
As of December 31, 2011
Financial Assets:
Pension Plans
Financial Liabilities:
Interest rate swaps
Contingent consideration
Fair Value
Level 1
Fair Value
Level 2
Fair Value
Level 3
Total
$
24,346
$
935
— $
25,281
— $
—
2,853
— $
— $
$
8,609
2,853
8,609
$
21,229
$
1,297
— $
22,526
— $
—
3,216
— $
— $
$
3,398
3,216
3,398
The contingent consideration as of December 29, 2012 relates to the earnout provisions recorded in conjunction with
the acquisitions of Cooktek, Danfotech, Stewart and Nieco.
The contingent consideration as of December 31, 2011 relates to the earnout provisions recorded in conjunction with
the acquisitions of Cooktek and Danfotech.
(k)
Foreign Currency
Foreign currency transactions are accounted for in accordance with ASC 830 “Foreign Currency Translation”. The
income statements of the company’s foreign operations are translated at the monthly average rates. Assets and liabilities of the
company’s foreign operations are translated at exchange rates at the balance sheet date. These translation adjustments are not
included in determining net income for the period but are disclosed and accumulated in a separate component of stockholders’
equity. Exchange gains and losses on foreign currency transactions are included in determining net income for the period in
which they occur. These transactions amounted to a loss of $3.7 million in 2012, and gains of $0.2 million in 2011 and 2010
and are included in other expense on the statements of earnings.
59
(l)
Revenue Recognition
The company recognizes revenue on the sale of its products where title transfers and 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 2012 and 2011, the amount of this
asset was $8.2 million and $1.9 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 2012 and 2011 are as follows:
Beginning balance
Warranty reserve related to acquisitions
Warranty expense
Warranty claims
Ending balance
(o)
Research and Development Costs
2012
2011
(dollars in thousands)
$
$
13,842
819
28,789
(25,857)
17,593
$
$
14,468
939
21,019
(22,584)
13,842
Research and development costs, included in cost of sales in the consolidated statements of earnings, are charged to
expense when incurred. These costs were $14.1 million, $10.4 million, and $7.7 million in fiscal 2012, 2011 and 2010,
respectively.
60
(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 $12.0
million, $18.1 million and $14.7 million was recognized for fiscal 2012, 2011 and 2010, respectively, associated with restricted
share grants. The company recorded a related tax benefit of $4.6 million, $7.1 million and $5.8 million in fiscal 2012, 2011 and
2010, respectively. The company issued restricted share grants with a fair value of $34.7 million in fiscal year 2011. There were
no restricted share grants issued in fiscal 2012 or 2010.
As of December 29, 2012, there was $13.1 million of total unrecognized compensation cost related to nonvested
restricted share grant compensation arrangements, which will be recognized over a weighted average life of 2.0 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 restricted share grant
awards in 2011. There were no restricted share grant awards in 2012 or 2010. Share grant awards issued in 2011 are
performance based and were not subject to market conditions. The fair value of $89.98 per share for the awards for 2011
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 329,000, 536,000, and 536,000 for fiscal 2012,
2011 and 2010, respectively. There were no anti-dilutive equity awards excluded from common stock equivalents for 2012,
2011 or 2010.
(r)
Consolidated Statements of Cash Flows
Cash paid for interest was $8.0 million, $7.8 million and $7.6 million in fiscal 2012, 2011 and 2010, respectively.
Cash payments totaling $49.0 million, $32.3 million, and $34.3 million were made for income taxes during fiscal 2012, 2011
and 2010, respectively.
61
(s)
New Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. The company adopted the provisions of ASU No. 2011-04 on January 1, 2012.
There was no impact to the company’s financial position, results of operations or cash flows.
In June 2011 and December 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income” and
ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of
Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”, respectively. ASU No. 2011-05
eliminated the option to present the components of other comprehensive income in the statement of changes in stockholders’
equity. Instead, entities 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. The company adopted the provisions of ASU No. 2011-05 on January 1, 2012. As this guidance
only revises the presentation of comprehensive income, there was no impact to the company’s financial position, results of
operations or cash flows. For annual reporting purposes the company has elected to present comprehensive income in a two-
statement format.
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.
The company adopted the provisions of ASU 2011-08 on January 1, 2012. There was no impact to the company’s financial
position, results of operation or cash flows. The company applied the qualitative evaluation allowed under this ASU in
connection with the company’s annual goodwill impairment test for fiscal year 2012.
On July 27, 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350)”. Similar to ASU
2011-08, this ASU amends the guidance in ASC 350-30. While ASU 2011-08 allows 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, ASU-2012-02 allows an entity the option to make a qualitative evaluation to determine whether the existence of events
and circumstances indicate that it is more likely than not the indefinite-lived intangible asset is impaired thus requiring the
entity to perform quantitative impairment tests in accordance with ASC 350-30. The ASU also amends previous guidance by
expanding upon the examples of events and circumstances that an entity should consider when making the qualitative
evaluation. The company is currently evaluating its adoption approach to this guidance. The adoption of this guidance is not
expected to affect the company's financial position, results of operations or cash flows.
62
(4)
FINANCING ARRANGEMENTS
The following is a summary of long-term debt at December 29, 2012 and December 31, 2011:
Senior secured revolving credit line
Foreign loans
Other debt arrangement
Total debt
2012
2011
(dollars in thousands)
$
$
256,500
3,220
350
260,070
$
$
$
309,400
7,935
—
317,335
Less current maturities of long-term debt
1,850
315,831
Long-term debt
$
258,220
$
1,504
On August 7, 2012, the company entered into a new senior secured multi-currency credit facility. Terms of the
company’s senior credit agreement provide for $1.0 billion of availability under a revolving credit line. As of December 29,
2012, the company had $256.5 million of borrowings outstanding under this facility. The company also had $7.8 million in
outstanding letters of credit as of December 29, 2012, which reduces the borrowing availability under the revolving credit line.
Remaining borrowing availability under this facility was $735.7 million million at December 29, 2012.
At December 29, 2012, borrowings under the senior secured credit facility are assessed at an interest rate of 1.25%
above LIBOR for long-term borrowings or at the higher of the Prime rate and the Federal Funds Rate. At December 29, 2012
the average interest rate on the senior debt amounted to 1.54%. The interest rates on borrowings under the senior secured credit
facility may be adjusted quarterly based on the company’s 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 0.23% as of December 29, 2012.
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 29, 2012 these facilities amounted to
$1.7 million in U.S. dollars, including $0.1 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 2.75% on
December 29, 2012. The term loan matures in 2022 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 29, 2012 these facilities
amounted to $1.6 million in U.S. dollars. The interest rate on the credit facilities is variable based on the three-month Euro
LIBOR. At December 29, 2012, the average interest rate on these facilities was approximately 4.68%. The facilities mature in
April 2013.
The company’s debt is reflected on the balance sheet at cost. Based on current market conditions, the company
believes its interest rate margins on its existing debt are consistent with current market conditions and therefore the carrying
value of debt reflects the fair value. At December 31, 2011, prior to the company's debt refinancing, the company concluded
the interest rate margins on its debt were below the rate available on the market, which causes the fair value of debt to fall
below the carrying value. However, as the interest rate margin is based upon numerous factors, including but not limited to the
credit rating of the borrower, the duration of the loan, the structure and restrictions under the debt agreement, current lending
policies of the counterparty, and the company’s relationships with its lenders, there is no readily available market data to
ascertain the current market rate for an equivalent debt instrument. As a result, the current interest rate margin is based upon the
company’s best estimate based upon discussions with its lenders.
63
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 to achieve sufficient cash inflows to cover the cash outflows under the company’s senior revolving credit facility
assuming the facility was outstanding in its entirety until maturity. Since the company maintains its borrowings under a
revolving credit facility and there is no predetermined borrowing or repayment schedule, for purposes of this calculation the
company calculated the fair value of its obligations assuming the current amount of debt at the end of the period was
outstanding until the maturity of the company’s senior revolving credit facility in August 2017. 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, a
level 2 measurement, based primarily on market prices, of debt is as follows (in thousands):
Total debt
December 29, 2012
December 31, 2011
Carrying Value
260,070
$
Fair Value
$
260,070
Carrying Value
317,335
$
Fair Value
$
315,749
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 29, 2012, the company had
the following interest rate swaps in effect:
$
Notional
Amount
25,000,000
25,000,000
25,000,000
15,000,000
15,000,000
Fixed
Interest
Rate
1.610%
2.520%
0.975%
1.185%
0.620%
Effective
Date
Maturity
Date
2/23/2011
2/23/2011
7/18/2011
9/12/2011
9/12/2011
2/24/2014
2/23/2016
7/18/2014
9/12/2016
9/11/2014
The terms of the senior secured credit facility limit the ability of the company and its subsidiaries to, with certain
exceptions: incur indebtedness; grant liens; engage in certain mergers, consolidations, acquisitions and dispositions; make
restricted payments; and enter into certain transactions with affiliates; and require, among other things, a maximum ratio of
indebtedness to EBITDA of 3.5 and a fixed charge coverage ratio (as defined in the senior secured credit facility) of 1.25. The
senior secured credit facility is secured by substantially all of the assets of Middleby Marshall, the company and the company's
domestic subsidiaries and is unconditionally guaranteed by, subject to certain exceptions, the company and certain of the
company's direct and indirect material domestic subsidiaries. The senior secured credit facility contains certain customary
events of default, including, but not limited to, the failure to make required payments; bankruptcy and other insolvency events;
the failure to perform certain covenants; the material breach of a representation or warranty; non-payment of certain other
indebtedness; the entry of undischarged judgments against the company or any subsidiary for the payment of material
uninsured amounts; the invalidity of the Company guarantee or any subsidiary guaranty; and a change of control of the
company. 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. At December 29, 2012, the company was in compliance with
all covenants pursuant to its borrowing agreements.
64
The aggregate amount of debt payable during each of the next five years is as follows:
2013
2014
2015
2016
2017 and thereafter
(in thousands)
1,850
444
124
124
257,528
260,070
$
$
(5)
(a)
COMMON AND PREFERRED STOCK
Shares Authorized and Issued
At December 29, 2012 and December 31, 2011 the company had 47,500,000, shares of common stock and 2,000,000
shares of non-voting preferred stock authorized. At December 29, 2012 and December 31, 2011, there were 18,802,972 and
18,655,910, 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 29, 2012, 1,738,070 shares had been
purchased under the 1998 stock repurchase program and 61,930 remain authorized for repurchase.
At December 29, 2012, the company had a total of 4,635,315 shares in treasury amounting to $147.4 million.
65
(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, zero shares are available for issuance under the 1998 Plan.
As of December 29, 2012, 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 59,115 remain unvested and 123,514 have been cancelled. This also
includes 2,435,320 stock options, of which 2,092,404 have been exercised and 347,916 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, zero additional shares are available for issuance under the 2007 Plan.
As of December 29, 2012, a total of 894,518 share-based awards have been issued under the 2007 Plan. This includes
890,889 restricted share grants, of which 365,801 remain outstanding and unvested. This also includes 3,629 stock
options, of which 708 have been exercised, 2,597 have been forfeited and zero 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 29, 2012, zero 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):
Outstanding at December 31, 2011:
Granted
Exercised
Forfeited
Outstanding at December 29, 2012:
Exercisable at December 29, 2012:
Vested or expected to vest At December 29, 2012:
Weighted
Average
Exercise
Price
9.41
Weighted
Average
Remaining
Life
1.36
—
7.82
—
11.04
11.04
11.04
0.65
0.65
0.65
Aggregate
Intrinsic
Value
59,809
39,811
39,811
39,811
$
$
$
$
Shares
706,670
$
—
(358,754)
—
347,916
347,916
347,916
$
$
$
66
A summary of stock option activity under the 2007 Plan is presented below (amounts in thousands, except share and
per share data):
Outstanding at December 31, 2011:
Granted
Exercised
Forfeited
Outstanding at December 29, 2012:
Exercisable at December 29, 2012:
Vested or expected to vest At December 29, 2012:
Weighted
Average
Exercise
Price
14.56
Weighted
Average
Remaining
Life
0.78
Aggregate
Intrinsic
Value
206
$
—
—
14.56
—
—
—
— $
— $
— $
—
—
—
Shares
2,597
$
—
—
(2,597)
— $
— $
— $
A summary of the company’s nonvested restricted share grant activity under the 1998 and 2007 Plans and related
information for fiscal years ended December 29, 2012 and December 31, 2011 is as follows:
Nonvested shares at January 1, 2011
Granted
Vested
Forfeited
Nonvested shares at December 31, 2011
Granted
Vested
Forfeited
Nonvested shares at December 29, 2012
Weighted
Average
Grant-Date
Fair Value
48.47
89.98
83.61
54.81
Shares
631,993
$
386,000
$
(327,933) $
(2,700) $
687,360
$
65.78
— $
(248,639) $
(13,805) $
—
96.05
89.98
424,916
$
87.73
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 2013 to satisfy obligations under
its share-based award programs.
Additional information related to the share based compensation is as follows:
Intrinsic value of options exercised
Cash received from exercise
Tax benefit from option exercises
$
67
2012
2011
(dollars in thousands)
$
$
42,208
2,804
14,149
1,477
236
74
2010
2,280
666
450
(6)
INCOME TAXES
Earnings before taxes is summarized as follows:
2012
Domestic
Foreign
Total
The provision for income taxes is summarized as follows:
$
$
2012
Federal
State and local
Foreign
Total
Current
Deferred
Total
$
$
$
$
2011
(dollars in thousands)
$
$
125,730
14,719
140,449
$
157,471
16,969
174,440
$
2011
(dollars in thousands)
$
$
42,660
7,216
3,867
53,743
53,826
(83)
53,743
$
$
$
33,778
7,169
4,028
44,975
39,554
5,421
44,975
$
$
$
2010
104,421
9,815
114,236
2010
31,309
7,052
3,008
41,369
39,949
1,420
41,369
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
State taxes, net of federal benefit
Tax relief for U.S. manufacturers
Permanent book vs. tax differences
U.S. taxes on foreign earnings and foreign tax rate differentials
Reserve adjustments and other
Consolidated effective tax
2012
2011
2010
35.0%
35.0%
35.0%
2.7
(2.4)
(1.6)
(1.5)
(1.4)
30.8%
3.0
(2.1)
(1.1)
(1.5)
(1.3)
32.0%
4.1
(1.9)
(1.3)
(0.3)
0.6
36.2%
68
At December 29, 2012 and December 31, 2011, the company had recorded the following deferred tax assets and
liabilities, which were comprised of the following:
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
State net operating loss carryforwards
Interest rate swap
Other
Gross deferred tax assets
Valuation allowance
Deferred tax assets
Deferred tax liabilities:
Intangible assets
Foreign tax earnings repatriation
LIFO reserves
Depreciation
Other
Deferred tax liabilities
Net deferred tax assets (liabilities)
Current deferred asset
Long-term deferred liability
Net deferred tax assets (liabilities)
2012
2011
(dollars in thousands)
13,406
20,038
7,105
5,241
6,351
5,122
2,192
2,425
509
964
10,501
73,854
(740)
73,114
$
$
20,430
18,654
8,780
4,611
5,052
4,490
2,350
2,138
580
1,114
10,802
79,001
—
79,001
(68,568) $
(2,005)
(72)
(1,794)
(2,148)
(69,998)
(1,546)
(161)
(2,547)
(3,504)
(74,587) $
(77,756)
(1,473) $
1,245
$
43,365
(44,838)
(1,473) $
39,090
(37,845)
1,245
$
$
$
$
$
$
$
The company does not provide for deferred taxes and foreign withholding taxes on the remaining undistributed
earnings of certain international subsidiaries of approximately $38.1 million and $27.2 million as of December 29, 2012 and
December 31, 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 29, 2012, the company has federal and state income tax net operating loss carryforwards of
approximately $38.8 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.
In addition, the company has Australian income tax net operating loss carryforwards of approximately $5.2 million which have
an indefinite carryforward life.
69
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 29, 2012.
As of December 29, 2012, the total amount of liability for unrecognized tax benefits related to federal, state and
foreign taxes was approximately $12.1 million (of which $10.4 million would impact the effective tax rate if recognized) plus
approximately $1.6 million of accrued interest and $1.6 million of penalties. The company recognizes interest and penalties
accrued related to unrecognized tax benefits in income tax expense. Interest recognized in fiscal years 2012, 2011 and 2010 was
$(0.2) million, $(0.3) million and $0.1 million, respectively. Penalties recognized in fiscal years 2012, 2011 and 2010 was
$(0.4) million, $(0.5) million and $0.2 million, respectively.
The following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended
January 1, 2011, December 31, 2011 and December 29, 2012 (dollars in thousands):
$
20,251
3,524
1,700
(7,689)
$
17,786
2,113
334
(2,393)
(1,494)
(755)
$
15,591
1,572
84
(1,289)
(3,836)
$
12,122
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
Increases to current year tax positions
Increase to prior year tax positions
Decrease to prior year tax positions
Settlements
Balance at December 29, 2012
70
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 none of its remaining unrecognized tax benefits may be recognized by the end of 2013 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
United States – states
Australia
Brazil
Canada
China
Denmark
France
Germany
Italy
Luxembourg
Mexico
Philippines
South Korea
Spain
Taiwan
United Kingdom
2008 – 2012
2004 – 2012
2011 – 2012
2010 – 2012
2009 – 2012
2003 – 2012
2009 – 2012
2011 – 2012
2011 – 2012
2009 – 2012
2011 – 2012
2007 – 2012
2008 – 2012
2006 – 2012
2008 – 2012
2008 – 2012
2008 – 2012
71
(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. There were no forward contracts outstanding 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 29, 2012, the
fair value of these instruments was a liability of $2.9 million. The change in fair value of these swap agreements in 2012 was a
gain of $0.2 million, net of taxes.
A summary of the company’s interest rate swaps is as follows:
Fair value
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)
Twelve Months Ended
Location
Dec 29, 2012
Dec 31, 2011
Other liabilities
$
Other
comprehensive
income
Interest expense
Other expense
$
$
$
(dollars in thousands)
(2,853) $
(1,663) $
(2,001) $
$
25
(3,216)
(4,045)
(3,019)
(4)
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.
72
(8)
LEASE COMMITMENTS
The company leases warehouse space, office facilities and equipment under operating leases, which expire in fiscal
2013 and thereafter. Future payment obligations under these leases are as follows:
2013
2014
2015
2016
2017
2018 and thereafter
Total
Operating
Lease
Commitments
$
7,981
6,990
5,953
3,701
2,597
5,289
$
32,511
Rental expense pertaining to the operating leases was $8.8 million, $6.6 million, and $5.6 million in fiscal 2012, 2011
and 2010 respectively.
(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, Nieco, Nu-Vu, PerfectFry, Pitco,
Southbend, Star, Toastmaster, TurboChef and Wells.
The Food Processing Equipment Group manufactures preparation, cooking, packaging food handling and food safety
equipment for the food processing industry. This business segment has manufacturing operations in Illinois, Iowa, North
Carolina, Texas, Virginia, Wisconsin, Australia, France, Germany and Mexico. Principal product lines of this group include
batch ovens, belt ovens, continuous processing ovens, frying systems, 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, Baker Thermal Solutions, Danfotech, Drake,
Maurer-Atmos, MP Equipment, RapidPak and Stewart Systems.
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.
73
The following table summarizes the results of operations for the company’s business segments(1,2) (dollars in
thousands):
2012
Net sales
Operating income
Depreciation and amortization expense
Net capital expenditures
Total assets
Long-lived assets
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
Commercial
Foodservice
Food
Processing
Corporate
and Other(3)
$
$
$
$
$
$
786,391
194,573
17,920
3,834
880,333
45,240
723,274
181,963
15,839
6,896
848,655
45,971
611,596
148,443
13,331
2,810
712,738
34,559
251,783
39,924
7,366
3,829
291,913
11,074
132,633
19,997
3,053
447
238,724
7,771
107,525
20,580
3,130
136
103,829
4,120
$
— $
(46,413)
1,617
(11)
72,034
16,012
$
— $
(53,250)
816
497
59,133
12,849
$
— $
(46,235)
553
213
56,605
11,591
Total
1,038,174
188,084
26,903
7,652
1,244,280
72,326
855,907
148,710
19,708
7,840
1,146,512
66,591
719,121
122,788
17,014
3,159
873,172
50,270
(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.
(2) Long lived assets as previously reported included goodwill and other intangibles assets, which have been removed from all
years in the current year presentation. In addition, certain amounts of total assets reported in Corporate and Other in 2011
have been reclassified to Commercial Foodservice in the current year presentation.
(3) Includes corporate and other general company assets and operations.
74
Long-lived assets, not including goodwill and other intangibles(1) (in thousands):
Geographic Information
2012
United States and Canada
Asia
Europe and Middle East
Latin America
Total international
$
2011
(dollars in thousands)
$
41,428
$
48,516
3,391
19,198
1,221
23,810
2,467
18,780
3,916
25,163
2010
44,357
1,805
3,159
949
5,913
(1) Long lived assets as previously reported included goodwill and other intangibles assets, which have been removed from all
$
72,326
$
66,591
$
50,270
years in the current year presentation.
Net sales (in thousands):
United States and Canada
Asia
Europe and Middle East
Latin America
Total international
(10)
EMPLOYEE RETIREMENT PLANS
(a)
Pension Plans
2012
2011
(dollars in thousands)
$
613,081
$
$
711,241
91,021
167,840
68,072
326,933
61,078
137,335
44,413
242,826
2010
575,527
42,786
79,859
20,949
143,594
$ 1,038,174
$
855,907
$
719,121
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.
75
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 29, 2012, 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.
76
A summary of the plans’ net periodic pension cost, benefit obligations, funded status, and net balance sheet position is as
follows (dollars in thousands):
Fiscal Year 2012
Net Periodic Pension Cost:
Service cost
Interest cost
Expected return on assets
Amortization of net loss (gain)
Pension settlement
Change in Benefit Obligation:
Benefit obligation – beginning of year
Benefit obligations – acquisitions
Service cost
Interest on benefit obligations
Actuarial loss (gain)
Pension settlement
Net benefit payments
Exchange effect
Benefit obligation – end of year
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
Exchange effect
Plan assets at fair value – end of year
Funded Status:
Unfunded benefit obligation
Amounts recognized in balance sheet at year end:
Other noncurrent liabilities
Pre-tax components in accumulated other comprehensive
income:
Net actuarial loss (gain)
Net prior service cost
Net transaction (asset) obligations
Total amount recognized
Accumulated Benefit Obligation
Salary growth rate
Assumed discount rate
Expected return on assets
Elgin
Plan
Smithville
Plan
Wrexham
Plan
Director
Plans
— $
198
(171)
218
—
245
$
— $
642
(546)
537
—
633
$
— $
654
(787)
—
—
(133)
$
4,801
—
—
198
125
—
(262)
—
4,862
3,188
—
255
322
(262)
—
3,503
$
$
$
$
15,204
—
—
642
724
—
(500)
—
16,070
7,820
—
638
823
(500)
—
8,781
$
$
$
$
13,689
—
—
654
1,238
—
(706)
587
15,462
11,518
—
499
1,191
(706)
495
12,997
$
$
$
$
1,625
553
—
(405)
—
1,773
11,378
—
1,625
553
(4,563)
—
—
—
8,993
—
—
—
—
—
—
—
(1,359)
$
(7,289)
$
(2,465)
$
(8,993)
(1,359)
$
(7,289)
$
(2,465)
$
(8,993)
1,857
—
—
1,857
4,862
$
$
$
6,201
—
—
6,201
16,070
$
$
$
2,303
—
—
2,303
15,462
$
$
$
n/a
4.0%
5.5%
n/a
4.0%
7.0%
n/a
4.1%
6.2%
(1,622)
—
—
(1,622)
4,764
10.0%
4.0%
n/a
$
$
$
$
$
$
$
$
$
$
$
77
Fiscal Year 2011
Net Periodic Pension Cost:
Service cost
Interest cost
Expected return on assets
Amortization of net loss (gain)
Pension settlement
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
Benefit obligation – end of year
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:
Unfunded benefit obligation
Amounts recognized in balance sheet at year end:
Other noncurrent liabilities
Pre-tax components in accumulated other comprehensive
income:
Net actuarial loss (gain)
Net prior service cost
Net transaction (asset) obligations
Total amount recognized
Accumulated Benefit Obligation
Salary growth rate
Assumed discount rate
Expected return on assets
Elgin
Plan
Smithville
Plan
Wrexham
Plan
Director
Plans
— $
226
(178)
125
—
173
$
— $
669
(571)
203
—
301
$
— $
415
(480)
—
—
(65)
$
4,142
—
—
226
695
—
(262)
4,801
3,342
—
156
(49)
(261)
3,188
$
$
$
$
11,958
—
—
669
2,978
—
(401)
15,204
8,253
—
225
(257)
(401)
7,820
$
— $
13,328
—
415
192
—
(246)
13,689
$
— $
11,798
465
(499)
(246)
11,518
$
$
$
$
1,123
472
—
507
13
2,115
7,028
—
1,123
472
3,043
12
(300)
11,378
—
—
300
—
(300)
—
(1,613)
$
(7,384)
$
(2,171)
$
(11,378)
(1,613)
$
(7,384)
$
(2,171)
$
(11,378)
2,102
—
—
2,102
4,801
$
$
$
6,291
—
—
6,291
15,204
$
$
$
1,409
—
—
1,409
13,689
$
$
$
n/a
4.3%
5.5%
n/a
4.3%
7.0%
n/a
4.7%
6.6%
2,536
—
—
2,536
3,999
10.0%
4.3%
n/a
$
$
$
$
$
$
$
$
$
$
$
78
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
Other (real estate & commodities)
Target
Allocation
Percentage of Plan Assets
48%
40
4
8
2012
52%
36
6
6
2011
49%
37
5
9
100%
100%
100%
Target
Allocation
Percentage of Plan Assets
48%
40
4
8
2012
52%
37
5
6
2011
51%
37
4
8
100%
100%
100%
Target
Allocation
Percentage of Plan Assets
50%
50
—
—
2012
71%
26
3
—
2011
66%
27
7
—
100%
100%
100%
79
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 29, 2012 (in thousands):
Elgin Plan
Asset Category
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Short Term Investment Fund (a)
$
205
$
— $
205
$
Equity Securities:
Large Cap
Mid Cap
Small Cap
International
Fixed Income:
Government/Corporate
High Yield
Alternative:
Global Real Estate
Commodities
Total
752
86
84
778
1,119
141
139
199
752
86
84
778
1,119
141
139
199
—
—
—
—
—
—
—
—
$
3,503
$
3,298
$
205
$
—
—
—
—
—
—
—
—
—
—
(a) Represents collective short term investment fund, composed of high-grade money market instruments with short maturities.
80
Smithville Plan
Asset Category
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Short Term Investment Fund (a)
$
402
$
— $
402
$
Equity Securities:
Large Cap
Mid Cap
Small Cap
International
Fixed Income:
Government/Corporate
High Yield
Alternative:
Global Real Estate
Commodities
Total
1,920
223
212
1,958
2,861
353
355
497
1,920
223
212
1,958
2,861
353
355
497
—
—
—
—
—
—
—
—
—
$
8,781
$
8,379
$
402
$
—
—
—
—
—
—
—
—
—
—
—
(a) Represents collective short term investment fund, composed of high-grade money market instruments with short maturities.
Wrexham Plan
Asset Category
Short Term Investment Fund (a)
Total
328
$
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
$
— $
Significant
Observable
Inputs
(Level 2)
328
Significant
Unobservable
Inputs
(Level 3)
—
$
Equity Securities:
UK
International
Developed
Emerging
Global
Fixed Income:
Government/Corporate
Aggregate
Index Linked
4,430
3,663
548
636
1,965
373
1,054
4,430
3,663
548
636
1,965
373
1,054
—
—
—
—
—
—
—
—
Total
$
12,997
$
12,669
$
328
$
81
—
—
—
—
—
—
—
—
—
(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):
2013
2014
2015
2016
2017 through 2022
$
Elgin
Plan
311
304
299
308
1,806
$
Smithville
Plan
470
501
522
568
4,195
$
$
Wrexham
Plan
646
679
711
743
5,170
Director
Plans
—
—
—
—
4,943
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 2013 are $0.3 million, $0.6 million and $0.5
million, respectively.
(b)
401K Savings Plans
As of December 29, 2012, 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 2012, 2011 and 2010.
82
(11) QUARTERLY DATA (UNAUDITED)
2012
Net sales
Gross profit
Income from operations
Net earnings
Basic earnings per share (1)
Diluted earnings per share (1)
2011
Net sales
Gross profit
Income from operations
Net earnings
Basic earnings per share (1)
Diluted earnings per share (1)
1st
2nd
3rd
4th
Total Year
(dollars in thousands, except per share data)
$
$
$
$
$
$
$
$
228,823
87,483
36,660
22,095
1.22
1.20
182,572
71,830
31,364
17,825
1.00
0.97
$
$
$
$
$
$
$
$
260,040
101,816
45,338
31,045
1.70
1.67
210,855
85,337
35,248
19,628
1.09
1.06
$
$
$
$
$
$
$
$
257,699
100,445
47,429
29,769
1.63
1.60
218,720
87,318
37,186
23,461
1.30
1.26
$
$
$
$
$
$
$
$
291,612
113,245
58,657
37,788
$ 1,038,174
402,989
188,084
120,697
$
2.06
2.03
243,760
99,652
44,912
34,559
1.92
1.87
$
$
$
$
$
$
6.61
6.49
855,907
344,137
148,710
95,473
5.30
5.15
(1) Sum of quarters may not equal the total for the year due to changes in the number of shares outstanding during the year.
83
(12)
SUBSEQUENT EVENT
On December 31, 2012, subsequent to the company's fiscal 2012 year end, the company completed its acquisition of
Viking Range Corporate (“Viking”) for $380.0 million in cash. The transaction was funded from borrowing under the
company's senior secured revolving credit facility. Viking is a leading manufacturer of premium residential cooking ranges,
ovens and kitchen appliances. Headquartered in Greenwood, Mississippi, Viking has approximately $200.0 million in annual
revenues. The financial results of Viking had no impact on the company's 2012 financial position, results of operations or cash
flows.
The company is currently assessing the fair value of assets acquired and liabilities assumed. On a preliminary basis,
the company anticipates that the identifiable intangibles will be approximately $152.5 million primarily related to the
tradename. The preliminary estimate of excess purchase price over net assets and liabilities assumed which is to be allocated
to goodwill is approximately $180.0 million. In future periods, the financial results, goodwill and other intangibles of Viking
will be allocated to a separate business segment. These assets are expected to be deductible for tax purposes.
Preliminary pro forma results of operations for the nine months ended September 29, 2012 and the full year ended
December 31, 2011 for the Viking acquisition assumes the acquisition was completed on January 1, 2011 are as follows:
Net sales
Net earnings
Net earnings per share
Basic
Diluted
September 29, 2012
December 31, 2011
920,232
70,217
3.79
18,237
18,539
1,075,278
79,665
4.30
17,998
18,534
84
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED DECEMBER 29, 2012, DECEMBER 31, 2011
AND JANUARY 1, 2011
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-
2012
2011
2010
$ 6,878,000
$ 1,382,000
$ (1,883,000) $
— $ 6,377,000
$ 7,975,000
$
83,000
$ (1,180,000) $
— $ 6,878,000
$ 6,596,000
$ 1,599,000
$
(512,000) $
292,000
$ 7,975,000
85
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.
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 as of December 29, 2012. 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 29, 2012, 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.
86
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 Baker (acquired March 14, 2012), Stewart
Systems Baking LLC (acquired September 5, 2012) and Nieco Corporation (acquired October 31, 2012). These acquisitions
constitute 0.6% and 6.3% of net and total assets, respectively, 1.8% of net sales and (1.5)% of net income of the consolidated
financial statements of the Company as of and for the year ended December 29, 2012. These acquisitions are included in the
consolidated financial statements of the company as of and for the year ended December 29, 2012. 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 29, 2012. Ernst & Young 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 control over financial reporting as of
December 29, 2012.
The Middleby Corporation
February 27, 2013
87
Item 9B. Other Information
None.
88
PART III
Pursuant to General Instruction G (3), of Form 10-K, the information called for by Part III (Item 10 (Directors,
Executive Officers and Corporate Governance), 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 Director Independence) 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.
89
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
2.7
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.
Stock Purchase Agreement, dated December 31, 2012, by and among Middleby Marshall
Inc., VRC Acquisition Company, LLC, Viking Range Corporation and the shareholders of
Viking Range Corporation Set Forth on the Signature Pages Thereto, incorporated by
reference to the company's Form 8-K, Exhibit 2.1, filed on January 7, 2013.
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.
90
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*
Fifth Amended and Restated Credit Agreement, dated as of August 7, 2012 among
Middleby Marshall Inc., The Middleby Corporation, the subsidiary borrowers named
therein, the lenders named therein, and Bank of America, N.A., as administrative agent for
the lenders, incorporated by reference to the company's Form 8-K, Exhibit 10.1, filed on
August 9, 2012.
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.
10.14*
Amendment to Employment Agreement by and between The Middleby Corporation and
Selim A. Bassoul, dated as of December 31, 2008.
91
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
21
23.1
23.2
31.1
31.2
32.1
32.2
101
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.
Letter Agreement, dated February 28, 2012, by and among The Middleby Corporation,
Middleby Marshall Inc., and Selim A. Bassoul, incorporated by reference to the company's
Form 8-K, Exhibit 10.1, dated February 28, 2012, filed on February 29, 2012.
List of subsidiaries.
Consent of Ernst & Young LLP.
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 29, 2012, filed on
February 27, 2013, 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.
92
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 27th day of February 2013.
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 February 27, 2013.
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
Chairman of the Board, President,
Chief Executive Officer and Director
Vice President, Chief Financial
Officer, Principal Financial Officer and Principal
Accounting Officer
Director
Director
Director
Director
Director
93
Corporate Information
Board of Directors
Selim A. Bassoul
Chairman of the Board
and Chief Executive Officer
Robert Lamb, Ph.D.1
Professor
NYU Graduate School of Business
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
Executive Officers
Selim A. Bassoul
Chairman of the Board
and Chief Executive Officer
Timothy J. FitzGerald
Vice President and
Chief Financial Officer
Transfer Agent and Registrar
Stock Market Information
The Middleby Corporation is traded on
The NASDAQ Stock Market LLC under the
symbol “MIDD.”
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
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
Ernst & Young LLP
Chicago, Illinois
Stock Price Performance
NASDAQ
NASDAQ Non-Finanacial
Middleby Corporation
180
160
140
120
100
80
60
40
20
0
2008
2009
2010
2011
2012
Commercial Foodservice Equipment
I N C .
BAKING EQUIPMENT SPECIALISTS
Food Processing Equipment
Residential Kitchen Equipment
M E A T P R E S S E S • D E F R O S T S Y S T E M S
HAM PROCESS SYSTEMS & PRESS TOWERS
Food Processing Manufacturing, Sales Office and Test Kitchen
Commercial Foodservice Manufacturing, Sales Office and Test Kitchen
Residential Kitchen Manufacturing, Sales Office and Test Kitchen
Sales and Distribution Office with Test Kitchen
Sales Office
The Middleby Corporation | 1400 Toastmaster Drive | Elgin, Illinois 60120
www.middleby.com | www.greenstainless.com