Annual Report 2015
AWA R D -W I N N I N G T E C H N O LO GY. F O R WA R D -T H I N K I N G S T R AT E GY.
S U S TA I N A B L E G R OW T H .
THIS IS MIDDLEBY.
2015 FINANCIAL HIGHLIGHTS
(dollars in thousands)
NET SALES
GROSS PROFIT
2015
2014
2013
2012
2011
$1,826,598
$1,636,538
$1,428,685
$1,038,174
$855,907
$706,505
$640,585
$550,011
$402,989
$344,137
INCOME FROM OPERATIONS
$302,603
$300,432
$244,462
$188,084
$148,710
NET EARNINGS
$191,610
$193,312
$153,928
$120,697
$95,473
EPS ON NET EARNINGS
$3.36
$3.40
$2.74
$2.20
$1.75
WEIGHTED AVERAGE SHARES
56,973,000
56,784,000
56,148,000
54,807,000
54,686,000
CASHFLOW FROM OPERATIONS
$249,592
$233,882
$146,158
$128,346
$130,393
TOTAL ASSETS
TOTAL DEBT
$2,761,151
$2,066,131
$1,819,206
$1,244,280
$1,146,512
$766,061
$598,167
$571,598
$260,070
$317,335
STOCKHOLDERS´ EQUITY
$1,166,830
$1,006,760
$838,347
$650,027
$510,969
4
1
0
2
3
1
0
2
2
1
0
2
1
1
0
2
5
1
0
2
$2,000
$1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
3
1
0
2
2
1
0
2
1
1
0
2
$200
5
1
0
2
4
1
0
2
190
180
170
160
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
4
1
0
2
5
1
0
2
3
1
0
2
2
1
0
2
1
1
0
2
$5
4
3
2
1
0
NET SALES
(dollars in millions)
NET EARNINGS
(dollars in millions)
EPS ON NET EARNINGS
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 January 2, 2016
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, 2015 was approximately $6,303,148,519.
The number of shares outstanding of the Registrant’s class of common stock, as of February 29, 2016, was 57,306,082 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 2016 annual meeting of stockholders.
Documents Incorporated by Reference
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
JANUARY 2, 2016
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
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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) foodservice equipment used in all types of commercial restaurants and institutional kitchens, (ii) food
preparation, cooking, baking, chilling and packaging equipment for food processing operations, and (iii) premium kitchen
equipment including ranges, ovens, refrigerators, ventilation and dishwashers primarily used in the residential market.
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, (ii) food processing equipment and (iii)
residential kitchen equipment as a result of its acquisition of industry leading brands and through the introduction of innovative
products within each 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 three principal business segments: the Commercial Foodservice
Equipment Group, the Food Processing Equipment Group and the Residential Kitchen Equipment Group. See Note 10 to the
Consolidated Financial Statements for further information on the company's business segments.
Commercial Foodservice Equipment Group
The Commercial Foodservice Equipment Group has a broad portfolio of foodservice 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 forty brands, including Anets®, Beech®,
Blodgett®, Blodgett Combi®, Blodgett Range®, Bloomfield®, Britannia®, CTX®, Carter-Hoffmann®, Celfrost®,
Concordia®, CookTek®, Desmon®, Doyon®, Eswood®, FriFri®, Giga®, Goldstein®, Holman®, Houno®, IMC®, Induc®,
Jade®, Lang®, Lincat®, MagiKitch'n®, Market Forge®, Marsal®, Middleby Marshall®, MPC®, Nieco®, Nu-Vu®,
PerfectFry®, Pitco Frialator®, Southbend®, Star®, Toastmaster®, TurboChef®, Wells® and Wunder-Bar®.
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, charbroilers, ventless cooking systems, kitchen ventilation, induction cooking equipment,
countertop cooking equipment, toasters, professional refrigerators, blast chillers, coldrooms, ice machines, freezers and
beverage dispensing 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.
1
This food processing equipment is marketed under a portfolio of thirteen brands, including Alkar®, Armor Inox®,
Auto-Bake®, Baker Thermal Solutions®, Cozzini®, Danfotech®, Drake®, Maurer-Atmos®, MP Equipment®, RapidPak®,
Spooner Vicars®, Stewart Systems® and Thurne®.
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, water cutting systems, 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.
Residential Kitchen Equipment Group
The Residential Kitchen Equipment Group manufactures, sells and distributes kitchen equipment for the residential
market. Principal product lines of this group are ranges, cookers, stoves, ovens, refrigerators, dishwashers, microwaves,
cooktops, refrigerators, wine coolers, ice machines, dishwashers, ventilation equipment and outdoor equipment. These products
are sold and marketed under a portfolio of twenty-one brands, including AGA®, AGA Cookshop®, Brigade®, Divertimenti®,
Falcon®, Fired Earth®, Grange®, Heartland®, La Cornue®, Leisure Sinks®, Lynx®, Marvel®, Mercury®, Rangemaster®,
Rayburn®, Redfyre®, Sedona®, Stanley®, TurboChef®, U-Line® and Viking®.
Acquisition Strategy
The company has pursued a strategy to acquire and assemble a leading portfolio of brands and technologies for each
of its three business segments. Over the past three years, the company has completed sixteen acquisitions to add to its portfolio
of brands and technologies of the Commercial Foodservice Equipment Group, the Food Processing Equipment Group and the
Residential Kitchen Equipment Group. These acquisitions have added twenty-nine brands to the Middleby portfolio and
positioned the company as a leading provider of equipment in each respective industry.
Commercial Foodservice Equipment Group
• October 2013: The company acquired substantially all of the assets of Celfrost Innovations Pvt. Ltd.
(“Celfrost”), a preferred commercial foodservice equipment supplier in India with a broad line of cold side
products such as professional refrigerators, coldrooms, ice machines and freezers marketed under the Celfrost
brand for a purchase price of approximately $11.2 million.
• December 2013: The company acquired all of the capital stock of Automatic Bar Controls, Inc. ("Wunder-
Bar"), a leading manufacturer of beverage dispensing systems for the commercial foodservice industry for
approximately $74.1 million.
•
•
•
•
January 2014: The company acquired certain assets of Market Forge Industries, Inc. ("Market Forge"), a
leading manufacturer of steam cooking equipment for the commercial foodservice industry for approximately
$7.0 million.
September 2014: The company acquired all of the capital stock of Concordia Coffee Company, Inc.
("Concordia"), a leading manufacturer of automated and self-service coffee and espresso machines for the
commercial foodservice industry, for a purchase price of approximately $12.5 million, net of cash acquired.
January 2015: The company acquired all of the capital stock of Desmon Food Service Equipment Company
("Desmon"), a leading manufacturer of blast chillers and refrigeration for the commercial foodservice industry,
located in Nusco, Italy, for a purchase price of approximately $13.5 million.
January 2015: The company acquired substantially all of the assets of J. Goldstein & Co. Pty. Ltd.
("Goldstein") and Eswood Australia Pty. Ltd. ("Eswood" and together with Goldstein, "Goldstein Eswood").
Goldstein is a leading manufacturer of cooking equipment including ranges, ovens, griddles, fryers and warning
equipment and Eswood is a leading manufacturer of dishwashing equipment, both for the commercial
foodservice in industry, located in Smithfield, Australia, for a purchase price of approximately $27.4 million.
•
February 2015: The company acquired certain assets of Marsal & Sons, Inc ("Marsal"), a leading manufacturer
of deck ovens for the commercial foodservice industry, for a purchase price of approximately $5.5 million.
2
• May 2015: The company acquired certain assets of the Induc Commercial Electronics Co. Ltd. ("Induc"), a
leading manufacturer of induction cooking equipment for the commercial foodservice industry, located in
Qingdoa, China, for a purchase price of approximately $10.6 million.
Food Processing Equipment Group
• March 2014: The company acquired substantially all of the assets of Processing Equipment Solutions, Inc.
("PES"), a leading manufacturer of water jet cutting equipment for the food processing industry, for a purchase
price of approximately $15.0 million. PES product offerings include the IntelliJet™ and MegaJet™ line of
water cutting systems, meat presses and fillet systems.
• April 2015: The company acquired certain assets of the High Speed Slicing business unit of Marel ("Thurne"),
a leading manufacturer of slicing equipment for the food processing industry, located in Norwich, United
Kingdom, for a purchase price of approximately $12.6 million.
Residential Kitchen Equipment Group
•
January 2013: The company acquired all of the capital stock of Viking Range Corporation (“Viking”), a leading
manufacturer of premium residential cooking ranges, ovens and kitchen appliances, for approximately $361.7
million.
• April - June 2013: The company, through Viking, purchased certain assets of four of Viking's former distributors
("Viking Distributors 2013"). The aggregate purchase price of these transactions was approximately $23.6
million.
•
January 2014: The company, through Viking, purchased certain assets of two of Viking's former distributors
("Viking Distributors 2014"). The aggregate purchase price of these transactions was approximately $44.5
million.
• November 2014: The company acquired all of the capital stock of U-Line Corporation ("U-Line"), a leading
manufacturer of premium residential built-in modular ice making, refrigeration and wine preservation market
for the residential industry, for a purchase price of approximately $142.0 million.
•
September 2015: The company acquired all of the capital stock of AGA Rangemaster Group plc ("AGA") a
leading manufacturer of residential kitchen equipment including cookers, ranges, ovens and refrigeration
located in Leamington Spa, the United Kingdom, for a purchase price of approximately $201.0 million.
• December 2015: The company acquired all of the capital stock of Lynx Grills, Inc ("Lynx"), a leading
manufacturer of premium residential outdoor equipment for a purchase price of approximately $83.8 million.
The Customers and Market
Commercial Foodservice Equipment Industry
The company's end-user customers include: (i) fast food, fast casual and 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.
3
Over the past several decades, the commercial 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 of foodservice into
nontraditional locations such as convenience stores and store equipment modernization driven by efforts to improve efficiencies
within foodservice operations. In the international markets, foodservice equipment manufacturers have been experiencing stronger
growth than the U.S. market due to 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.
A number of factors, including 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 $2.0 billion in North America and $4.0 billion worldwide.
4
Residential Kitchen Equipment Industry
The company’s end-user customers include the high-end residential kitchens. The premium segment of the residential
kitchen equipment industry is estimated to be in excess of $1.0 billion annually in North America. This segment has grown over
the past several decades after the original introduction premium cooking range. Viking was the first manufacturer to introduce
the premium cooking equipment to the North American market, providing equipment that was comparable to commercial grade
ranges and ovens for home chefs and culinarians. The market potential for such equipment has continued to broaden due to an
increase in interest from the consumer to have high-end, luxury appliances in their home. Other important factors which affect
the market size and growth include the level of new home starts, home remodels and general macro-economic factors. Macro-
economic factors such as GDP growth, employment rates, inflation and consumer confidence, which impact the overall
economy, impact the residential kitchen equipment industry and cause greater variability in the revenues at this segment than
the other business segments the company operates in.
Backlog
Commercial Foodservice Equipment Group
The backlog of orders for the Commercial Foodservice Equipment Group was $68.6 million at January 2, 2016, all of
which is expected to be filled during 2016. The acquired Desmon, Goldstein Eswood, Marsal and Induc businesses accounted
for $4.1 million of the backlog. The Commercial Foodservice Equipment Group's backlog was $60.6 million at January 3,
2015. 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 this segment's products.
Food Processing Equipment Group
The backlog of orders for the Food Processing Equipment Group was $108.5 million at January 2, 2016, all of which
is expected to be filled during 2016. The acquired Thurne business accounted for $2.1 million of the backlog. The Food
Processing Equipment Group's backlog was $67.7 million at January 3, 2015.
Residential Kitchen Equipment Group
The backlog of orders for the Residential Kitchen Equipment Group was $56.8 million at January 2, 2016, all of
which is expected to be filled during 2016. The acquired AGA and Lynx businesses accounted for $43.6 million of the backlog.
The Residential Kitchen Equipment Group's backlog was $29.7 million at January 3, 2015. 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 this segment's products.
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.
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. 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.
International sales are primarily made through a network of company owned and local independent distributors and dealers.
5
Food Processing Equipment Group
The company maintains a direct sales force to market the brands and maintain direct relationships with each of its
customers. In North America, the company employs regional sales managers, each with responsibility for a group of customers
and a particular region. This sales force is complimented with involvement of executive management to maintain relationships
with customer executives and facilitate coordination amongst the brands for the key global accounts. Internationally, the
company maintains sales and distribution offices in Brazil, China, Denmark, Dubai, France, Mexico and Russia along with
global sales managers supported by a network of independent sales representatives.
The company’s sale process is highly consultative due to the highly technical nature of the equipment. During a
typical sales process, a salesperson makes several visits to the customer’s facility to conceptually discuss the production
requirements, footprint and configuration of the proposed equipment. The company employs a technically proficient sales
force, many of whom have previous technical experience with the company as well as education backgrounds in food science.
Residential Kitchen Equipment Group
The company’s products are marketed through a network of distributors, dealers, designers, and home builders to the
residential customers. The company markets and sells its products to these channels through a company-employed sales force.
The company’s products are distributed through a combination of an independent network of distributors and its wholly owned
distribution operations. The company's wholly owned distribution operations were established in connection with the Viking
and related Viking Distributors' acquisitions and include two primary customer support centers and regional warehouse and
logistic operations, which stock products and service parts for the respective region.
Marketing support is provided to and coordinated with its network of dealers, designers, and home builders sales
partners to allow for coordinated efforts to market jointly to the end-user customers. The company in certain cases offers
incentive based financial programs to invest in local marketing activities with these sales partners.
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 real-time technical support to the technicians in the field through
factory-based technical service engineers. The company maintains sufficient service parts inventory to ensure short lead times
for service calls.
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.
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.
6
Residential Kitchen Equipment Group
The company maintains a network of independent authorized service agents throughout North America. Authorized
service agents are supported and trained by regional factory-support centers of the company. Trained technical support
personnel are available to support independent service agents with technical information and assist in repair issues. The factory-
support centers also dispatch service technicians to the customer and provide follow-up and monitoring to ensure field issues
are resolved. The company's independent service agents maintain a stock of factory-supplied parts to allow for a high first-call
completion rate for service and warranty repairs. The company maintains a substantial amount of service parts at each of its
manufacturing operations and at regional service parts depots to provide for quick ship of parts to service agents and end-user
customers when necessary.
Internationally, the company has a network of company owned and independent distributors that provide sales and
technical service support in their respective markets. These distributors are required to have a team of factory-trained service
technicians and maintain a required stock of service parts to support the equipment in the market. The factory supports the
international distributors with technical trainers which travel to the various markets to provide on-hands training and
monitoring of the distributor service operations.
Competition
The commercial foodservice, food processing and residential kitchen 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 commercial kitchen, food processing
and residential kitchen 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; Groen, a subsidiary of Dover Corporation; Rational AG; and the Ali Group. Major
competitors to the Food Processing Equipment Group include AMF Bakery Systems, The GEA Group, JBT Technologies,
Marel, and Provisur. The residential kitchen appliance sector is highly competitive and includes a number of large global
competitors including, Whirlpool Corporation, Electrolux, GE Appliances, LG Corporation, Panasonic Corporation and
Samsung Group. However, within the premium segment of this kitchen equipment market, there are fewer competitors and the
company’s primary competition includes Wolf and Subzero, subsidiaries of Sub-Zero Group, Inc.; Thermador, Bosch and
Gaggenau, subsidiaries of Bosch Siemens; Dacor and Miele.
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 three 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 thirteen domestic and ten international
production facilities. These production facilities are located in Brea, California; Vacaville, California; Windsor, California;
Elgin, Illinois; Mundelein, Illinois; Menominee, Michigan; Bow, New Hampshire; Fuquay-Varina, North Carolina; Cookeville,
Tennessee; Smithville, Tennessee; Carrollton, Texas; Burlington, Vermont; Redmond, Washington; New South Wales,
Australia: Qingdao, China; Shanghai, China; Randers, Denmark; Nusco, Italy; Scandicci, Italy; Laguna, the Philippines;
Lincoln, the United Kingdom; Warwickshire, the United Kingdom and Wrexham, the United Kingdom.
The Food Processing Equipment Group manufactures its products in seven domestic and three international
production facilities. These production facilities are located in Gainesville, Georgia; Chicago, Illinois; Algona, Iowa; Clayton,
North Carolina; Plano, Texas; Waynesboro, Virginia; Lodi, Wisconsin; Mauron, France; Reichenau, Germany and Norwich, the
United Kingdom.
7
The Residential Kitchen Equipment Group manufactures its products in six domestic and nine international production
facilities. These production facilities are located in Downey, California; Greenville, Michigan; Greenwood, Mississippi; Brown
Deer, Wisconsin; Rosyl St. Pierre, France; Saint Ouen L'aumone, France; Saint Symhorien, France; Waterford, Ireland; Gee
Targu Mures, Romania; Coalbrookdale, the United Kingdom; Ketley, the United Kingdom; Leamington Spa, the United
Kingdom and Nottingham, the United Kingdom.
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 the Commercial Foodservice Equipment Group,
the Food Processing Equipment Group and the Residential Kitchen 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 4(o) to the Consolidated Financial Statements for further information
on the company's research and development activities.
Trademarks, Patents and Licenses
The company has developed, acquired and assembled a leading portfolio of trademarks and trade names. The company
believes that these trademarks and trade names 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 trademarks and trade names.
The company's leading portfolio of trade names of its Commercial Foodservice Equipment Group include Anets®,
Beech®, Blodgett®, Blodgett Combi®, Blodgett Range®, Bloomfield®, Britannia®, CTX®, Carter-Hoffmann®, Celfrost®,
Concordia®, CookTek®, Desmon®, Doyon®, Eswood®, FriFri®, Giga®, Goldstein®, Holman®, Houno®, IMC®, Induc®,
Jade®, Lang®, Lincat®, MagiKitch'n®, Market Forge®, Marsal®, Middleby Marshall®, MPC®, Nieco®, Nu-Vu®,
PerfectFry®, Pitco Frialator®, Southbend®, Star®, Toastmaster®, Turbochef®, Wells® and Wunder-Bar®.
8
The company’s leading portfolio of trade names of its Food Processing Equipment Group include Alkar®, Armor
Inox®, Auto-Bake®, Baker Thermal Solutions®, Cozzini®, Danfotech®, Drake®, Maurer-Atmos®, MP Equipment®,
RapidPak®, Spooner Vicars®, Stewart Systems® and Thurne®.
The company’s leading portfolio of trade names of its Residential Kitchen Equipment Group include AGA®, AGA
Cookshop®, Brigade®, Divertimenti®, Falcon®, Fired Earth®, Grange®, Heartland®, La Cornue®, Leisure Sinks®, Lynx®,
Marvel®, Mercury®, Rangemaster®, Rayburn®, RedFyre®, Sedona®, Stanley®, ®TurboChef®, U-Line® and Viking®.
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 January 2, 2016, 3,215 persons were employed within the Commercial Foodservice Equipment Group. Of this
amount, 1,313 were management, administrative, sales, engineering and supervisory personnel; 1,694 were hourly production
non-union workers; and 208 were hourly production union members. Included in these totals were 1,284 individuals employed
outside of the United States, of which 711 were management, sales, administrative and engineering personnel, 499 were hourly
production non-union workers and 74 were hourly production union workers, who participate in an employee cooperative. At
its Windsor, California 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 expires on June 30, 2016. Management believes that the relationships between
employees, unions and management are good.
Food Processing Equipment Group
As of January 2, 2016, 1,057 persons were employed within the Food Processing Equipment Group. Of this amount,
537 were management, administrative, sales, engineering and supervisory personnel; 392 were hourly production non-union
workers; and 128 were hourly production union members. Included in these totals were 445 individuals employed outside of
the United States, of which 238 were management, sales, administrative and engineering personnel and 207 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, 2018. At its Algona, Iowa facility,
the company has a union contract with the United Food and Commercial Workers that expires on December 31, 2018.
Management believes that the relationships between employees, unions and management are good.
Residential Kitchen Equipment Group
As of January 2, 2016, 3,501 persons were employed within the Residential Kitchen Equipment Group. Of this
amount, 1,771 were management, administrative, sales, engineering and supervisory personnel and 1,730 were hourly
production workers. Included in these totals were 2,324 individuals employed outside of the United States, of which 1,326 were
management, sales, administrative and engineering personnel and 998 were hourly non-union production workers.
Management believes that the relationships between employees and management are good.
Corporate
As of January 2, 2016, 27 persons were employed at the corporate office.
Seasonality
The company’s revenues at the Commercial Foodservice Equipment Group historically have been slightly 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. Revenues at the Residential Kitchen Equipment Group are
historically stronger in the second and third quarters due to increased purchases of outdoor cooking equipment and greater new
home construction and remodels during the summer months.
9
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 its 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 January 2, 2016, the company had
$766.1 million of borrowings and $6.9 million in letters of credit outstanding. 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.
10
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's revolver and would result in a default under the company’s current 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 36% of its
total assets as of January 2, 2016. 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.
The company's defined benefit pension plans are subject to financial market risks that could adversely affect the
company's financial statements.
The performance of the financial markets and interest rates impact our defined benefit pension plan expenses and
funding obligations. Significant changes in market interest rates, decreases in fair value of plan assets, investment losses on
plan assets and changes in discount rates may increase the company's funding obligations and adversely impact our financial
statements. In addition, upward pressure on the cost of providing healthcare coverage to current employees and retirees may
increase our future funding obligations and adversely affect our financial statements.
11
Competition in the commercial foodservice, food processing, and residential kitchen equipment industries is intense and
could impact the company’s results of operations and cash flows.
The company operates in highly competitive industries. In each of the company’s three business segments,
competition is based on a variety of factors including 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 numerous competitors in each business segment. 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 markets for the company’s products are characterized by changing technology and evolving industry
standards. The company’s ability to compete in the past has depended in part on the company’s ability to develop innovative
new products and bring them to market more quickly than the company’s competitors. The company’s ability to compete
successfully will depend, in large part, on its ability to enhance and improve its existing products, to continue to bring
innovative products to market in a timely fashion, to adapt the company’s products to the needs and standards of its current and
potential customers and to continue to improve operating efficiencies and lower manufacturing costs. Moreover, competitors
may develop technologies or products that render the company’s products obsolete or less marketable. If the company’s
products, markets and services are not competitive, the company’s business, financial condition and operating results will be
materially harmed.
The company is subject to risks associated with developing products and technologies, which could delay product
introductions and result in significant expenditures.
The 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.
12
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 disruptions in 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.
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;
•
•
loss of customers, suppliers, or key employees; and
the impact on the company's internal controls and compliance with the regulatory requirements under the
Sarbanes-Oxley Act of 2002.
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.
13
An inability to identify or complete future acquisitions could adversely affect future growth.
The company has historically followed a strategy of identifying and acquiring businesses with complementary
products and services. As part of its growth strategy, the company intends to pursue acquisitions that provide opportunities for
profitable growth and which enable it to leverage its competitive strengths. While the company continues to evaluate potential
acquisitions, it may not be able to identify and successfully negotiate suitable acquisitions, obtain financing for future
acquisitions on satisfactory terms, obtain regulatory approval for certain acquisitions, or otherwise complete acquisitions in the
future. An inability to identify or complete future acquisitions could limit the company’s growth.
Expansion of the company’s operations internationally involves special challenges that it may not be able to meet. The
company’s failure to meet these challenges could adversely affect its business, financial condition and operating results.
The company plans to continue to expand its operations internationally. The company faces certain risks inherent in doing
business in international markets. These risks include:
•
extensive regulations and oversight, tariffs and other trade barriers;
• reduced protection for intellectual property rights;
•
•
•
•
•
•
difficulties in staffing and managing foreign operations;
potentially adverse tax consequences;
limitations on ownership and on repatriation of earnings;
transportation delays and interruptions;
political, social, and economic instability and disruptions;
labor unrests;
• potential for nationalization of enterprises; and
• limitations on the company’s ability to enforce legal rights and remedies.
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.
14
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 with respect to a number of the company’s most important
products, there may be no effective legal recourse against duplication by competitors. In the future, the company may have to rely on
litigation to enforce its intellectual property rights, protect its trade secrets, determine the validity and scope of the proprietary rights
of others or defend against claims of infringement or invalidity. Any such litigation, whether successful or unsuccessful, could result
in substantial costs to the company and diversions of the company’s resources, either of which could adversely affect the company’s
business.
Any infringement by the company on patent rights of others could result in litigation and adversely affect its ability to
continue to provide, or could increase the cost of providing, the company’s products and services.
Patents of third parties may have an important bearing on the company’s ability to offer some of its products and
services. The company’s competitors, as well as other companies and individuals, may obtain 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.
15
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 periods the company or an authorized service
representative will make repairs and replace parts that have become defective in the course of normal use. The company
estimates and records its future warranty costs based upon past experience. These warranty expenses may increase in the future
and may exceed the company’s warranty reserves, which, in turn, could adversely affect the company’s financial performance.
The company 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.
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.
Unfavorable tax law changes and tax authority rulings may adversely affect results.
The company is subject to income taxes in the United States and in various foreign jurisdictions. Domestic and
international tax liabilities are based on the income and expenses in various tax jurisdictions. The amount of the company’s
income and other tax liability is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S.
authorities. If these audits result in assessments different from amounts recorded, future financial results may include
unfavorable tax adjustments.
The company’s reputation, ability to do business, and results of operations may be impaired by improper conduct by
any of its employees, agents, or business partners.
While the company strives to maintain high standards, the company cannot provide assurance that its internal controls
and compliance systems will always protect it from acts committed by its employees, agents, or business partners that would
violate U.S. and/or foreign laws or fail to protect the company’s confidential information, including the laws governing
payments to government officials, bribery, fraud, anti-kickback and false claims rules, competition, export and import
compliance, money laundering, and data privacy laws, as well as the improper use of proprietary information or social media.
Any such violations of law or improper actions could subject the company to civil or criminal investigations in the U.S. and in
other jurisdictions, could lead to substantial civil or criminal, monetary and non-monetary penalties, and related shareholder
lawsuits, could lead to increased costs of compliance and could damage the company’s reputation.
16
The company’s financial performance is subject to significant fluctuations.
The company’s financial performance is subject to quarterly and annual fluctuations due to a number of factors,
including:
• general economic conditions;
•
the lengthy, unpredictable sales cycle for commercial foodservice equipment, food processing equipment and
residential kitchen equipment group;
• 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 4% of the company’s workforce as of January 2, 2016. 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 2018, July 2017 and December 2018, respectively. The company
also has a union workforce at its manufacturing facility in the Philippines under a contract that extends through June 2016.
Approximately 2% of the company's workforce is covered by collective bargaining agreements that expire within one year.
Any future strikes, employee slowdowns or similar actions by one or more unions, in connection with labor contract
negotiations or otherwise, could have a material adverse effect on the company’s ability to operate the company’s business.
The company depends significantly on its key personnel.
The company depends significantly on the company’s executive officers and certain other key personnel, 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's business and operations.
17
The company may be subject to information technology system failures, network disruptions, cybersecurity attacks and
breaches in data security, which may materially adversely affect the company’s operations, financial condition and
operating results.
The company depends on information technology as an enabler to improve the effectiveness of its operations and to
interface with its customers, as well as to maintain financial accuracy and efficiency. Information technology system failures,
including suppliers’ or vendors’ system failures, could disrupt the company’s operations by causing transaction errors,
processing inefficiencies, delays or cancellation of customer orders, the loss of customers, impediments to the manufacture
or shipment of products, other business disruptions, or the loss of or damage to intellectual property through security breach.
The company’s information systems, or those of its third-party service providers, could also be penetrated by
outside parties intent on extracting information, corrupting information or disrupting business processes. Such unauthorized
access could disrupt the company’s business and could result in the loss of assets. Cybersecurity attacks are becoming more
sophisticated and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other
electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or
otherwise protected information, and corruption of data. These events could impact the company’s customers and reputation
and lead to financial losses from remediation actions, loss of business or potential liability or an increase in expense, all of
which may have a material adverse effect on the company’s business.
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.
The trading price of the company's common stock has been volatile, and investors in the company's common stock may
experience substantial losses.
The trading price of the company's common stock has been volatile and may become volatile again in the future. The
trading price of the company's common stock could decline or fluctuate in response to a variety of factors, including:
•
•
•
•
•
•
the company's failure to meet the performance estimates of securities analysts;
changes in buy/sell recommendations by securities analysts;
fluctuations in our operating results;
substantial sales of the company's common stock
general stock market conditions; or
other economic or external factors.
Item 1B. Unresolved Staff Comments
Not applicable.
18
Item 2. Properties
The company's principal executive offices are located in Elgin, Illinois. The company operates twenty-six
manufacturing facilities in the U.S and twenty-two manufacturing facilities internationally.
The principal properties of the company used to conduct business operations are listed below:
Location
Principal Function
Square
Footage
Owned/
Leased
Lease
Expiration
Commercial Foodservice:
Brea, CA
Vacaville, CA
Windsor, CA
Elgin, IL
Mundelein, IL
Menominee, MI
St. Louis, MO
Bow, NH
Pembroke, NH
Fuquay-Varina, NC
Cookeville, TN
Smithville, TN
Carrollton, TX
Burlington, VT
Essex Junction, VT
Redmond, WA
New South Wales, Australia
Qingdao, China
Shanghai, China
Randers, Denmark
Nusco, Italy
Scandicco, Italy
Laguna, the Philippines
Lincoln, the United Kingdom
Warwickshire, the United Kingdom
Wrexham, the United Kingdom
Food Processing:
Gainesville, GA
Chicago, IL
Algona, IA
Clayton, NC
Plano, TX
Waynesboro, VA
Waynesboro, VA
Lodi, WI
Mauron, France
Reichenau, Germany
Norwich, the United Kingdom
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Offices
Manufacturing, Warehousing and Offices
Warehousing
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
80,700
39,500
75,000
207,000
70,000
60,000
46,900
100,000
111,900
138,900
90,000
268,000
132,400
135,400
100,000
42,400
204,900
5,200
74,000
79,400
24,200
41,400
109,900
100,000
12,000
62,600
106,000
64,400
70,100
65,300
133,300
26,400
11,500
114,600
98,000
57,900
39,200
Leased
Leased
Leased
Owned
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Owned
Leased
Owned
Leased
Leased
Owned
Leased
Leased
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Leased
Owned
Leased
Leased
Owned
Leased
Owned
Leased
Leased
Owned
September 2018
April 2016
October 2017
N/A
N/A
N/A
August 2017
N/A
July 2024
N/A
March 2016
N/A
August 2022
N/A
June 2024
May 2022
N/A
May 2020
April 2016
N/A
N/A
April 2025
N/A
N/A
N/A
N/A
N/A
December 2016
N/A
October 2019
April 2022
N/A
July 2017
N/A
April 2016
December 2021
N/A
19
Principal Function
Location
Residential Kitchen:
Warehousing and Offices
Baldwin Park, CA
Manufacturing, Warehousing and Offices
Downey, CA
Warehousing and Offices
Suwanne, GA
Manufacturing, Warehousing and Offices
Greenville, MI
Manufacturing, Warehousing and Offices *
Greenwood, MS
Manufacturing, Warehousing and Offices
Brown Deer, WI
Manufacturing and Warehousing
Rosyl St Pierre, France
Manufacturing and Warehousing
Saint Ouen L'aumone, France
Manufacturing and Warehousing
Saint Symphorien, France
Manufacturing, Warehousing and Offices
Waterford, Ireland
Warehousing and Offices
Adderbury, the United Kingdom
Manufacturing and Offices
Coalbrookdale, the United Kingdom
Ketley, the United Kingdom
Manufacturing and Offices
Leamington Spa, the United Kingdom Manufacturing and Offices
Leamington Spa, the United Kingdom Warehousing and Offices
Nottingham, the United Kingdom
Gee Targu Mures, Romania
Manufacturing and Offices
Manufacturing and Warehousing
Square
Footage
Owned/
Leased
Lease
Expiration
61,400
122,500
142,000
225,000
738,000
144,800
40,900
30,400
155,000
55,000
81,000
153,100
217,300
270,200
100,300
153,100
48,000
Leased
Leased
Leased
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Leased
Owned
Owned
Owned
Leased
Owned
Owned
April 2017
December 2019
January 2018
N/A
N/A
May 2017
N/A
April 2021
N/A
July 2027
August 2020
N/A
N/A
N/A
August 2019
N/A
N/A
* Contains three separate manufacturing facilities.
At various other locations the company leases small amounts of office space for administrative, distribution and sales
functions, and in certain instances limited short-term inventory storage. These locations are in Brazil, China, Czech Republic,
Dubai, France, India, Italy, Mexico, Spain, the United Kingdom and various locations in the United States.
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.
20
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 2015
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal 2014
First quarter
Second quarter
Third quarter
Fourth quarter
Shareholders
Closing Share Price
Low
High
$
$
$
$
109.00
114.75
124.08
120.33
99.92
91.37
91.85
99.93
93.34
100.98
102.71
102.65
79.30
72.52
71.77
79.66
The company estimates there were approximately 78,742 record holders of the company's common stock as of
February 29, 2016.
Dividends
The company does not currently pay cash dividends on its common stock. Any future payment of cash dividends on
the company’s common stock will be at the discretion of the company’s Board of Directors and will depend upon the
company’s results of operations, earnings, capital requirements, contractual restrictions and other factors deemed relevant by
the Board of Directors. The company’s Board of Directors currently intends to retain any future earnings to support its
operations and to finance the growth and development of the company’s business and does not intend to declare or pay cash
dividends on its common stock for the foreseeable future. In addition, the company’s revolving credit facility limits its ability to
declare or pay dividends on its common stock.
Issuer Purchases of Equity Securities
October 4 to October 31, 2015
November 1 to November 28, 2015
November 29 to January 2, 2016
Year ended January 2, 2016
Total
Number of
Shares
Purchased
— $
—
—
— $
Average
Price Paid
per Share
—
—
—
—
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plan or
Program
—
—
—
—
Maximum
Number of
Shares that May
Yet be
Purchased
Under the Plan
or Program (1)
2,610,047
2,610,047
2,610,047
2,610,047
(1) In July 1998, the company's Board of Directors adopted a stock repurchase program and subsequently authorized the
purchase of common shares in open market purchases. During 2013, the company's Board of Directors authorized the purchase
of additional common shares in open market purchases. As of January 2, 2016, the total number of shares authorized for
repurchase under the program is 4,570,266. As of January 2, 2016, 1,960,219 shares had been purchased under the 1998 stock
repurchase program. At January 2, 2016, the company had a total of 4,862,264 shares in treasury amounting to $200.9 million.
21
In June 2014, the company’s Board of Directors approved a three-for-one split of the company’s common stock in the
form of a stock dividend. The stock dividend was paid on June 27, 2014 to shareholders of record as of June 16, 2014. The
company’s stock began trading on a split-adjusted basis on June 27, 2014. The stock split effectively tripled the number of
shares outstanding at June 27, 2014.
22
Item 6. Selected Financial Data
(amounts in thousands, except per share data)
Fiscal Year Ended(1, 2)
Income Statement Data:
Net sales
Cost of sales
Gross profit
Selling and distribution expenses
General and administrative expenses
Restructuring expenses
Gain on litigation settlement
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
2015
2014
2013
2012
2011
$ 1,826,598
1,120,093
706,505
193,353
181,795
28,754
—
302,603
$ 1,636,538
995,953
640,585
182,578
157,016
7,078
(6,519)
300,432
$ 1,428,685
878,674
550,011
155,639
140,809
9,101
—
244,462
$ 1,038,174
635,185
402,989
106,129
108,776
—
—
188,084
16,967
4,469
281,167
89,557
191,610
3.36
3.36
56,951
56,973
285,191
2,761,151
766,061
1,166,830
15,592
4,050
280,790
87,478
193,312
3.41
3.40
56,764
56,784
285,817
2,066,131
598,167
1,006,760
$
$
$
$
$
$
$
$
15,901
2,780
225,781
71,853
153,928
2.76
2.74
55,831
56,148
234,349
1,819,206
571,598
838,347
$
$
$
$
9,238
4,406
174,440
53,743
120,697
2.22
2.20
54,377
54,807
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
1.77
1.75
53,993
54,686
(182,234)
1,146,512
317,335
510,969
(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 being within twelve months of the financial statement date.
23
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements
This report contains "forward-looking statements" subject to the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties and other factors, which could cause the
company's actual results, performance or outcomes to differ materially from those expressed or implied in the forward-looking
statements. The following are some of the important factors that could cause the company's actual results, performance or
outcomes to differ materially from those discussed in the forward-looking statements:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
changing market conditions;
volatility in earnings resulting from goodwill impairment losses, which may occur irregularly and in varying amounts;
variability in financing costs;
quarterly variations in operating results;
dependence on key customers;
risks associated with the company's foreign operations, including market acceptance and demand for the company's
products and the company's ability to manage the risk associated with the exposure to foreign currency exchange rate
fluctuations;
the company's ability to protect its trademarks, copyrights and other intellectual property;
the impact of competitive products and pricing;
the 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 company's business segments including the impact of both new and established global
competitors;
unfavorable tax law changes and tax authority rulings;
cybersecurity attacks and other breaches in security;
the continued ability to realize profitable growth through the sourcing and completion of strategic acquisitions;
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.
24
NET SALES SUMMARY
(dollars in thousands)
Fiscal Year Ended(1)
2015
2014
2013
Sales
Percent
Sales
Percent
Sales
Percent
Business Segments:
Commercial Foodservice
$ 1,121,046
61.4% $ 1,041,228
63.6% $
895,494
62.7%
Food Processing
Residential Kitchen
297,712
407,840
16.3
22.3
322,783
272,527
19.7
16.7
301,522
231,669
21.1
16.2
Total
$ 1,826,598
100.0% $ 1,636,538
100.0% $ 1,428,685
100.0%
(1)
The company's fiscal year ends on the Saturday nearest to December 31.
25
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
Restructuring expenses
Gain on litigation settlement
Income from operations
Interest expense and deferred financing amortization, net
Other expense, net
Earnings before income taxes
Provision for income taxes
Net earnings
2015
Fiscal Year Ended(1)
2014
2013
100.0%
61.3
38.7
20.6
1.6
—
16.5
0.9
0.2
15.4
4.9
10.5%
100.0%
60.9
39.1
20.7
0.4
(0.4)
18.4
1.0
0.3
17.1
5.3
11.8%
100.0%
61.5
38.5
20.8
0.6
—
17.1
1.1
0.2
15.8
5.0
10.8%
(1)
The company's fiscal year ends on the Saturday nearest to December 31.
26
Fiscal Year Ended January 2, 2016 as Compared to January 3, 2015
Net sales. Net sales in fiscal 2015 increased by $190.1 million or 11.6% to $1,826.6 million as compared to $1,636.5
million in fiscal 2014. The increase in net sales of $231.3 million, or 14.1%, was attributable to acquisition growth, resulting
from the fiscal 2014 acquisitions of PES, Concordia and U-Line and the fiscal 2015 acquisitions of Desmon, Goldstein
Eswood, Marsal, Induc, Thurne, AGA and Lynx. Excluding acquisitions, net sales decreased $41.2 million, or 2.5%, from the
prior year. The impact of foreign exchange rates on foreign sales translated into U.S. Dollars for fiscal 2015 reduced net sales
by approximately $48.5 million or 3.0%. On a constant currency basis, organic sales growth amount to 0.4% for the year,
including a net sales increase of 6.3% at the Commercial Foodservice Equipment Group, a net sales decrease of 8.3% at the
Food Processing Equipment Group and a net sales decrease of 11.6% at the Residential Kitchen Equipment Group.
• Net sales of the Commercial Foodservice Equipment Group increased by $79.8 million or 7.7% to $1,121.0
million in fiscal 2015, as compared to $1,041.2 million in fiscal 2014. Net sales from the acquisitions of
Concordia, Desmon, Goldstein Eswood, Marsal and Induc which were acquired on September 8, 2014, January 7,
2015, January 30, 2015, February 10, 2015 and May 30, 2015, respectively, accounted for an increase of $42.3
million during fiscal 2015. Excluding the impact of acquisitions, net sales of the Commercial Foodservice
Equipment Group increased $37.5 million, or 3.6%, as compared to the prior year. On a constant currency basis,
organic net sales increased 6.3% at the Commercial Foodservice Equipment Group. Domestically, the company
realized a sales increase of $59.0 million, or 8.1%, to $783.8 million, as compared to $724.8 million in the prior
year. This includes an increase of $11.4 million from recent acquisitions. Excluding the acquisitions, the net
increase of $47.6 million, or 6.6%, in domestic sales includes continued growth with customer initiatives to
improve efficiencies in restaurant operations by adopting new cooking and warming technologies. International
sales increased $20.8 million, or 6.6%, to $337.2 million, as compared to $316.4 million in the prior year. This
includes the increase of $30.9 million from the recent acquisitions, offset by $28.2 million related to the
unfavorable impact of exchange rates. The change in both domestic and international net sales also includes the
favorable impact of increased prices over the prior year, which is estimated to have increased net sales by 2% to
3% as compared to the prior year.
• Net sales of the Food Processing Equipment Group decreased by $25.1 million or 7.8% to $297.7 million in fiscal
2015, as compared to $322.8 million in fiscal 2014. Net sales from the acquisitions of PES and Thurne which
were acquired on March 31, 2014, and April 7, 2015, respectively, accounted for an increase of $19.2 million.
Excluding the impact of these acquisitions, net sales of the Food Processing Equipment Group decreased $44.3
million, or 13.7%. On a constant currency basis, organic net sales decreased 8.3% at the Food Processing
Equipment Group. Domestically, the company realized a sales increase of $41.7 million, or 27.0%, to $196.4
million, as compared to $154.7 million in the prior year. This includes an increase of $18.0 million from recent
acquisitions. Excluding the acquisitions, the net increase of $23.7 million, or 15.3%. International sales
decreased $66.8 million, or 39.7%, to $101.3 million, as compared to $168.1 million in the prior year. This
includes the increase of $1.2 million from the recent acquisitions. The decrease in sales reflects a $17.4 million
unfavorable impact of foreign exchange rates, challenging economic conditions in certain international markets
and the timing of large orders associated with this business, impacting the growth in comparative periods.
Although total net sales in this segment declined during the year, backlog increased to $108.5 million at the end of
fiscal 2015 from $67.7 million at the end of fiscal 2014 as incoming orders exceeded shipments during the year
due to the timing of certain large orders. Due to the nature of competitive bidding on large jobs and variability of
equipment mix in comparison to the prior year, the impact of price changes are not estimated to be a significant or
meaningful factor in the change in net sales from the prior year.
27
• Net sales of the Residential Kitchen Equipment Group increased by $135.3 million or 49.7% to $407.8 million in
fiscal 2015, as compared to $272.5 million in fiscal 2014. Net sales from the acquisitions of U-Line, AGA and
Lynx which were acquired on November 5, 2014, September 23, 2015 and December 15, 2015, respectively,
accounted for an increase of $169.8 million. Excluding the impact of these acquisitions, net sales of the
Residential Kitchen Equipment Group decreased $34.5 million, or 12.7%. On a constant currency basis, organic
net sales decreased 11.6% at the Residential Kitchen Equipment Group. Domestically, the company also realized
a sales increase of $35.0 million, or 13.5%, to $294.6 million, as compared to $259.6 million in the prior year.
This includes an increase of $66.4 million from recent acquisitions. Excluding the acquisitions, the net sales
decreased $31.4 million, or 12.1%. International sales increased $100.3 million, or 777.5%, to $113.2 million, as
compared to $12.9 million in the prior year. This includes the increase of $103.4 million from the recent
acquisitions, offset by $2.9 million related to the unfavorable impact of exchange rates. Organic sales growth for
the year was adversely impacted by the announced recall of Viking product in 2015. Additionally, sales were
impacted by the discontinuation of certain non-Viking manufactured products sold by the Distributors in 2014,
resulting in comparatively lower sales in 2015 and lack of product availability related to the transition and initial
production startup for a new line of Viking refrigeration in the first half of 2015. The net organic decrease in sales
is net of price increases, which are estimated to have added approximately 2% to net sales in comparison to the
prior year.
Gross profit. Gross profit increased by $65.9 million to $706.5 million in fiscal 2015 from $640.6 million in fiscal
2014. The increase in the gross profit reflects the impact of increased acquisition sales, offset by the impact of foreign
exchange rates, which reduced gross profit by $13.8 million. Gross margin rate decreased from 39.1% in 2014 to 38.7% in
2015. The impact of increased selling prices net of higher input costs is not estimated to have a meaningful impact to the gross
margin rate in comparison to the prior year.
• Gross profit at the Commercial Foodservice Equipment Group increased by $28.7 million, or 6.7%, to $457.9
million in fiscal 2015 as compared to $429.2 million in fiscal 2014. The gross margin rate declined to 40.8% as
compared to 41.2% in the prior year. Gross profit from the acquisitions of Concordia, Desmon, Goldstein
Eswood, Marsal and Induc accounted for approximately $15.4 million of the increase in gross profit during fiscal
2015. Excluding the recent acquisitions, the gross profit increased by approximately $13.3 million on the higher
sales volumes. The gross margin rate was slightly less than the prior year reflecting the impact of sales mix,
including the effect of lower margins at recent acquisitions.
• Gross profit at the Food Processing Equipment Group decreased by $6.0 million, or 4.9%, to $116.1 million in
fiscal 2015 as compared to $122.1 million in fiscal 2014. The gross margin rate increased to 39.0% in fiscal 2015
as compared to 37.8% in fiscal 2014. Gross profit from the acquisitions of PES and Thurne accounted for
approximately $6.1 million of the increase in gross profit during fiscal 2015. Excluding the recent acquisitions,
the gross profit decreased by approximately $12.1 million on lower sales volumes. However, the gross margin rate
improved as the company realized the favorable impact of ongoing integration initiatives related to recent
acquisitions.
• Gross profit at the Residential Kitchen Equipment Group increased by $40.3 million, or 44.5%, to $130.9 million
in fiscal 2015 as compared to $90.6 million in fiscal 2014. Gross profit from the acquisition of U-Line, AGA and
Lynx accounted for approximately $53.9 million of the increase in gross profit during fiscal 2015. Excluding the
recent acquisitions, the gross profit decreased by approximately $13.6 million on lower sales volumes offsetting
price increases. The gross margin rate declined to 32.1% in fiscal 2015 as compared to 33.2% in fiscal 2014, due
to the impact of lower gross margins at the recent acquisitions offsetting improved margins at Viking related to
ongoing initiatives related to profitability improvement.
Selling, general and administrative expenses. Combined selling, general, and administrative expenses increased by
$63.8 million to $404.0 million in fiscal 2015 from $340.2 million in 2014. As a percentage of net sales, operating expenses
amounted to 20.5% in fiscal 2015 and 20.8% in fiscal 2014, excluding restructuring charges and the prior year gain on patent
litigation settlement.
Selling expenses increased $10.8 million to $193.4 million from $182.6 million, reflecting an increase of $27.8
million associated with the Concordia, U-Line, Desmon, Goldstein Eswood, Thurne, Induc, AGA and Lynx acquisitions. This
increase was offset in part by the favorable impact of $5.4 million in foreign currency translation, $10.4 million in reduced
compensation and commissions reflecting the impact of cost reduction initiatives implemented in 2014 and 2015 and $3.5
million of lower advertising expense.
28
General and administrative expenses increased $24.8 million to $181.8 million from $157.0 million, reflecting an
increase of $30.6 million associated with the Concordia, U-Line, Desmon, Goldstein Eswood, Thurne, Induc, AGA and Lynx
acquisitions including $7.8 million of non-cash intangible amortization expense and $7.3 million related to AGA acquisition
transaction costs. The increase was offset in part by the favorable impact of $3.9 million in foreign currency translation and
$5.7 million in lower compensation costs.
Restructuring expenses increased $21.7 million to $28.8 million from $7.1 million, reflecting restructuring costs of
$25.5 million at the Residential Kitchen Group related to the integration of the Viking Distributors acquired in 2013 and 2014
and cost reduction initiatives related to AGA primarily associated with headcount reductions. Additionally, restructuring
charges increased $3.3 million related to the consolidation of production facilities at the Food Processing Equipment Group and
Commercial Foodservice Equipment Group. In the prior year period, restructuring charges of $7.1 million were incurred
associated with the reorganization of the Residential Kitchen Equipment Group.
In the prior year, the gain on patent litigation consisted of $6.5 million of proceeds from a settlement related to a
patent infringement matter.
Income from operations. Income from operations increased $2.2 million to $302.6 million in fiscal 2015 from $300.4
million in fiscal 2014. The increase in operating income resulted from the increase in net sales and gross profit, offset in part by
increased operating and restructuring expenses. Operating income as a percentage of net sales amounted to 16.5% in 2015 as
compared to 18.4% in 2014. Excluding the impact of restructuring expenses and gain on litigation settlement, operating income
as a percentage of net sales amounted to 18.1% in 2015 in comparison to 18.4% in 2014, reflecting a slight decline from lower
operating margins on recent acquisitions.
Income from operations in 2015 included $68.8 million of non-cash expenses, including $25.5 million of depreciation
expense, $27.4 million of intangible amortization related to acquisitions and $15.9 million of stock based compensation. This
compares to $56.8 million of non-cash expenses in the prior year, including $15.5 million of depreciation expense, $24.6
million of intangible amortization related to acquisitions, and $16.7 million of stock based compensation costs.
Non-operating expenses. Non-operating expenses increased $1.8 million to $21.5 million in fiscal 2015 from $19.7
million in fiscal 2014. Net interest expense increased $1.4 million from $15.6 million in fiscal 2014 to $17.0 million in fiscal
2015 due to higher debt balances related to the funding of acquisitions. Other expense was $4.5 million in fiscal 2015 as
compared to $4.1 million in fiscal 2014 primarily reflecting foreign exchange losses during the year.
Income taxes. A tax provision of $89.6 million, at an effective rate of 31.9%, was recorded for fiscal 2015 as
compared to $87.5 million at an effective rate of 31.2%, in fiscal 2014. The current year effective tax rate is comprised of a
35.0% U.S. federal tax rate and 2.1% in U.S. state income taxes, 0.6% in other adjustments, net of 2.6% in U.S. domestic
manufacturers deduction, 1.1% in permanent tax deductions and 2.1% in foreign rate differentials. In comparison to the prior
year, the tax provision reflects a 0.7% higher effective rate impact mostly related to a decrease in permanent tax benefits and an
increase in tax reserves.
29
Fiscal Year Ended January 3, 2015 as Compared to December 28, 2013
Net sales. Net sales in fiscal 2014 increased by $207.8 million or 14.5% to $1,636.5 million as compared to $1,428.7
million in fiscal 2013. The increase in net sales of $87.3 million, or 6.1%, was attributable to acquisition growth, resulting from
the fiscal 2013 acquisitions of Celfrost and Wunder-Bar and the fiscal 2014 acquisitions of Market Forge, PES, Concordia and
U-Line. Excluding acquisitions, net sales increased $120.5 million, or 8.4%, from the prior year, reflecting a net sales increase
of 8.9% at the Commercial Foodservice Equipment Group, 3.7% at the Food Processing Equipment Group and 12.8% at the
Residential Kitchen Equipment Group.
• Net sales of the Commercial Foodservice Equipment Group increased by $145.7 million or 16.3% to $1,041.2
million in fiscal 2014, as compared to $895.5 million in fiscal 2013. Net sales from the acquisitions of Celfrost,
Wunder-Bar, Market Forge and Concordia which were acquired on October 15, 2013, December 17, 2013,
January 7, 2014 and September 8, 2014, respectively, accounted for an increase of $66.2 million during fiscal
2014. Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group increased
$79.5 million, or 8.9%, as compared to the prior year. International sales increased $57.6 million, or 22.3%, to
$316.4 million, as compared to $258.8 million in the prior year. This includes the increase of $27.4 million from
the recent acquisitions. Excluding acquisitions, the net increase of $30.2 million, or 11.7%, in international sales
reflects strong growth in emerging markets due to expansion of restaurant chains. Domestically, the company also
realized a sales increase of $88.1 million, or 13.8%, to $724.8 million, as compared to $636.7 million in the prior
year. This includes an increase of $38.8 million from recent acquisitions. Excluding the acquisitions, the net
increase of $49.3 million, or 7.7%, in domestic sales includes continued growth with customer initiatives to
improve efficiencies in restaurant operations by adopting new cooking and warming technologies.
• Net sales of the Food Processing Equipment Group increased by $21.3 million or 7.1% to $322.8 million in fiscal
2014, as compared to $301.5 million in fiscal 2013. Net sales from the acquisition of PES which was acquired on
March 31, 2014, accounted for an increase of $10.0 million. Excluding the impact of this acquisition, net sales of
the Food Processing Equipment Group increased $11.3 million, or 3.7%. The increase in sales 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.
• Net sales of the Residential Kitchen Equipment Group increased by $40.8 million or 17.6% to $272.5 million in
fiscal 2014, as compared to $231.7 million in fiscal 2013. Net sales from the acquisition of U-Line which was
acquired on November 5, 2014, accounted for an increase of $11.1 million. Excluding the impact of this
acquisition, net sales of the Residential Kitchen Equipment Group increased $29.7 million or 12.8%. Sales were
favorably impacted by distributor acquisitions which included the additional sales markup on Viking product sales
reported by the acquired distributors.
Gross profit. Gross profit increased by $90.6 million to $640.6 million in fiscal 2014 from $550.0 million in fiscal
2013. The gross margin rate increased from 38.5% in 2013 to 39.1% in 2014. The net increase in the gross margin rate reflects
the benefit of acquisition integration initiatives.
• Gross profit at the Commercial Foodservice Equipment Group increased by $56.7 million, or 15.2%, to $429.2
million in fiscal 2014 as compared to $372.5 million in fiscal 2013. The gross margin rate declined to 41.2% as
compared to 41.6% in the prior year. Gross profit from the acquisitions of Celfrost, Wunder-Bar, Market Forge
and Concordia accounted for approximately $24.4 million of the increase in gross profit during fiscal 2014.
Excluding the recent acquisitions, the gross profit increased by approximately $32.3 million on the higher sales
volumes.
• Gross profit at the Food Processing Equipment Group increased by $20.3 million, or 19.9%, to $122.1 million in
fiscal 2014 as compared to $101.8 million in fiscal 2013. The gross margin rate increased to 37.8% in fiscal 2014
as compared to 33.8% in fiscal 2013. Gross profit from the acquisition of PES accounted for approximately $4.8
million of the increase in gross profit during fiscal 2014. Excluding the recent acquisitions, the gross profit
increased by approximately $15.5 million as the company realized the favorable impact of ongoing integration
initiatives from previously acquired companies.
30
• Gross profit at the Residential Kitchen Equipment Group increased by $12.0 million, or 15.3%, to $90.6 million
in fiscal 2014 as compared to $78.6 million in fiscal 2013. The gross margin rate declined to 33.2% in fiscal 2014
as compared to 33.9% in fiscal 2013. Gross profit from the acquisition of U-Line accounted for approximately
$3.6 million of the increase in gross profit during fiscal 2014. Excluding the recent acquisitions, the gross profit
increased by approximately $8.4 million.
Selling, general and administrative expenses. Combined selling, general, and administrative expenses increased by
$34.7 million to $340.2 million in fiscal 2014 from $305.5 million in 2013. As a percentage of net sales, operating expenses
amounted to 20.7% in fiscal 2014 and 21.4% in fiscal 2013.
Selling expenses increased $27.0 million to $182.6 million from $155.6 million, reflecting an increase of $7.3 million
associated with the recently acquired Celfrost, Wunder-Bar, Market Forge, PES, Concordia and U-Line operations. Selling
expenses also reflect higher costs at Viking associated with the acquisition and addition of distributor operations, which
increased by approximately $9.5 million. Additionally, expenses increased $3.3 million related to increased commissions on
higher sales volumes and $4.2 million of increased compensation expenses related in part to investments in international sales
organizations for the Residential Kitchen Equipment Group and Food Processing Equipment Group.
General and administrative expenses increased $16.2 million to $157.0 million from $140.8 million, reflecting an
increase of $11.9 million associated with the recently acquired Celfrost, Wunder-Bar, Market Forge, PES, Concordia and U-
Line operations including $2.8 million of non-cash intangible amortization expense. General and administrative expenses also
included an increase of $3.7 million related to professional fees associated with acquisition related activities.
Restructuring expenses decreased $2.0 million to $7.1 million from $9.1 million, related to acquisition integration
initiatives pertaining to the Residential Kitchen Equipment Group.
The gain on litigation settlement of $6.5 million represents the net proceeds from a settlement related to a patent
infringement matter.
Income from operations. Income from operations increased $55.9 million to $300.4 million in fiscal 2014 from
$244.5 million in fiscal 2013. 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 18.4% in 2014 from 17.1% in 2013.
Income from operations in 2014 included $56.8 million of non-cash expenses, including $15.5 million of depreciation
expense, $24.6 million of intangible amortization related to acquisitions and $16.7 million of stock based compensation. This
compares to $53.9 million of non-cash expenses in the prior year, including $13.5 million of depreciation expense, $28.5
million of intangible amortization related to acquisitions, and $11.9 million of stock based compensation costs.
Non-operating expenses. Non-operating expenses increased $1.0 million to $19.7 million in fiscal 2014 from $18.7
million in fiscal 2013. Net interest expense decreased $0.3 million from $15.9 million in fiscal 2013 to $15.6 million in fiscal
2014 due to a reduced interest rate on the senior secured credit facility in 2014. Other expense was $4.1 million in fiscal 2014
as compared to $2.8 million in fiscal 2013 primarily reflecting foreign exchange losses during the year.
Income taxes. A tax provision of $87.5 million, at an effective rate of 31.2%, was recorded for fiscal 2014 as
compared to $71.9 million at an effective rate of 31.8%, in fiscal 2013. The current year effective tax rate is comprised of a
35.0% U.S. federal tax rate and 2.2% in U.S. state income taxes, 0.2% in other adjustments, net of 2.3% in U.S. domestic
manufacturers deductions, 2.0% in permanent tax deductions and 1.9% in foreign rate differentials. In comparison to the prior
year, the tax provision reflects a lower effective rate impact related to decreased international tax provision resulting from
increased earnings in lower rate jurisdictions and an increase in permanent tax benefits, which reduced the effective tax rate by
0.9% and 0.8%, respectively. The effective tax rate reflects a detriment from increased state tax provisions of 1.3%.
31
Financial Condition and Liquidity
Total cash and cash equivalents increased by $11.6 million to $55.5 million at January 2, 2016 from $43.9 million at
January 3, 2015. Net borrowings increased to $766.1 million at January 2, 2016, from $598.2 million at January 3, 2015.
Operating activities. Net cash provided by operating activities before changes in assets and liabilities amounted to
$263.5 million as compared to $266.6 million in the prior year. Adjustments to reconcile 2015 net earnings to operating cash
flows before changes in assets and liabilities included $25.5 million of depreciation and $28.6 million of amortization, $15.9
million of non-cash stock compensation expense and $1.9 million of deferred tax provision.
Net cash provided by operating activities after changes in assets and liabilities amounted to $249.6 million as
compared to $233.9 million in the prior year.
During fiscal 2015, net cash used to fund changes in assets and liabilities amounted to $13.8 million. These changes
included $17.1 million and $7.8 million in cash provided by reductions in accounts receivable and inventory, respectively,
offset by $5.7 million of cash used in connection with an increase in prepaid expenses and other assets, $18.0 million of cash
used in the reduction of accounts payable and $15.1 million in the reduction of accrued expenses and other non-current
liabilities. The reduction in accounts receivable reflects lower sales at the Food Processing Equipment Group and Residential
Kitchen Equipment Group, in addition to lower receivables at AGA due to timing of shipments and collections. Reduction in
inventories reflects lower amounts at the Residential Kitchen Equipment Group due to inventory reduction efforts related to the
consolidation of acquired Viking distributors and integration initiatives at AGA. Accounts payable reduction reflects lower
payables in connection with reduced inventory purchases and the timing of accounts payable payments related to AGA. The
reduction of accrued expenses and other liabilities includes $15.6 million in funding payments related to the AGA pension plan,
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.
Investing activities. During 2015, net cash used for investing activities amounted to $371.0 million. This included
$339.8 million of the 2015 acquisitions of Desmon, Goldstein Eswood, Marsal, Thurne, Induc, AGA and Lynx, $9.2 million
related to contingent consideration payments from previous years' acquisitions and $22.4 million of additions and upgrades of
production equipment and manufacturing facilities.
Financing activities. Net cash flows provided by financing activities amounted to $136.8 million in 2015. The
company borrowed $145.5 million under its $1.0 billion revolving credit facility and repaid $6.1 million under foreign
borrowing facilities.
The company used $4.8 million to repurchase 45,352 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 fiscal 2015.
The company realized a $2.4 million of excess tax benefits associated with the vesting of restricted stock grants.
At January 2, 2016, 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.
32
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
6,508
3,521
2,742
$
$
Estimated
Interest
on Debt
22,055
16,233
104
4
$
Operating
Leases
24,493
32,460
22,331
26,159
$
Debt
32,059
733,417
204
381
$
Total
Contractual
Cash
Obligations
85,115
785,631
25,381
26,544
$
12,771
$
766,061
$
38,396
$
105,443
$
922,671
The company has obligations to make $12.8 million of estimated contingent purchase price payments to the sellers of
Spooner Vicars, Celfrost, PES, Desmon, Goldstein and Induc that were deferred in conjunction with the acquisitions.
As of January 2, 2016, the company had $733.0 million outstanding under its revolving credit line as part of its senior
credit agreement. The average interest rate on this debt amounted to 1.87% at January 2, 2016. This facility matures on August
7, 2017. As of January 2, 2016, the company also has $32.8 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 January 2, 2016 rates. Also
reflected in the table above is $1.0 million of payments to be made related to the company’s interest rate swap agreements in
2016.
As indicated in Note 11 to the consolidated financial statements, the company’s projected benefit obligation under its
defined benefit plans exceeded the plans’ assets by $207.6 million at the end of 2015 as compared to $21.1 million at the end of
2014. The unfunded benefit obligations were comprised of a $18.9 million underfunding of the company's U.S. Plans and
$188.6 million underfunding of the company’s Non-US plans. The company made minimum contributions required by the
Employee Retirement Income Security Act of 1974 (“ERISA”) of $0.9 million and $0.9 million in 2015 and 2014, respectively,
to the company’s U.S. plans. The company expects to continue to make minimum contributions to the U.S. plans as required by
ERISA, of $0.9 million in 2016. The company expects to contribute $18.7 million to the Non-U.S. plans in 2016.
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 January 4, 2015 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.
33
Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of operations are based upon the company's
consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the company to make significant estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses as well as related disclosures. On an ongoing basis,
the company evaluates its estimates and judgments based on historical experience and various other factors that are believed to
be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions
and any such differences could be material to our consolidated financial statements.
Revenue Recognition. At the Commercial Foodservice Equipment Group and the Residential Kitchen Equipment
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 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.
Inventories. Inventories are stated at the lower of cost 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.
Pension Benefits. The company provides pension benefits to certain employees and accounts for these benefits in accordance
with ASC 715, Compensation-Retirement Benefits. For financial reporting purposes, long-term assumptions are developed through
consultations with actuaries. Such assumptions include the expected long-term rate of return on plan assets, discount rates.
34
The amount of unrecognized actuarial gains and losses recognized in the current year’s operations is based on amortizing
the unrecognized gains or losses for each plan that exceed the larger of 10% of the projected benefit obligation or the fair value
of plan assets, also known as the corridor. The amount of unrecognized gain or loss that exceeds the corridor is amortized over
the average future service of the plan participants or the average life expectancy of inactive plan participants for plans where all
or almost all of the plan participants are inactive. While we believe that our assumptions are appropriate, significant differences
in our actual experience or significant changes in our assumptions may materially affect our pension obligations and our future
expense.
Income taxes. The company provides deferred income tax assets and liabilities based on the estimated future tax effects of
differences between the financial and tax bases of assets and liabilities based on currently enacted tax laws. The company’s deferred
and other tax balances are based on management’s interpretation of the tax regulations and rulings in numerous taxing jurisdictions.
Income tax expense and liabilities recognized by the company also reflect its best estimates and assumptions regarding, among
other things, the level of future taxable income, the effect of the company’s various tax planning strategies and uncertain tax
positions. Future tax authority rulings and changes in tax laws, changes in projected levels of taxable income and future tax planning
strategies could affect the actual effective tax rate and tax balances recorded by the company. The company follows the provisions
under ASC 740-10-25 that provides a recognition threshold and measurement criteria for the financial statement recognition of a
tax benefit taken or expected to be taken in a tax return. Tax benefits are recognized only when it is more likely than not, based
on the technical merits, that the benefits will be sustained on examination. Tax benefits that meet the more-likely-than-not
recognition threshold are measured using a probability weighting of the largest amount of tax benefit that has greater than 50%
likelihood of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a particular tax
benefit is a matter of judgment based on the individual facts and circumstances evaluated in light of all available evidence as of
the balance sheet date.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2014-08, “Presentation of Financial Statements and Property, Plant and Equipment: Reporting Discontinued Operations and
Disclosures of Disposals of Components of an Entity”. This update changes the criteria for determining which disposals can be
presented as discontinued operations and requires expanded disclosures. Under ASU No. 2014-08, a disposal of a component
of an entity or group of components of an entity is required to be reported in discontinued operations if the disposal represents a
strategic shift that has (or will have) a major effect on the entity’s operations and financial results. This update is effective for
annual and corresponding interim reporting periods beginning on or after December 15, 2014. The adoption of this guidance
did not have an impact on the company's financial position, results of operations or cash flows.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”. This update amends
the current guidance on revenue recognition related to contracts with customers. Under ASU No. 2014-09, an entity should
recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires additional
disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts,
including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a
contract. In July 2015 the FASB decided to delay the effective date of the new revenue standard to be effective for interim and
annual periods beginning on or after December 15, 2017 for public companies and December 15, 2018 for private companies.
Companies may elect to adopt the standard at the original effective date for public entities, that is, for interim and annual
periods beginning on or after December 15, 2016, but not earlier. The guidance can be applied using one of two retrospective
application methods. The company is evaluating the impact of adopting this new standard on the consolidated financial
statements.
In June 2014, the FASB issued ASU No. 2014-12, “Compensation - Stock Compensation”. This update requires that a
performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance
condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This
update is effective for annual and corresponding interim reporting periods beginning on or after December 15, 2015. Early
adoption is permitted. The company is evaluating the impact the application of this ASU will have, if any, on the company’s
financial position, results of operations and cash flows.
35
In January 2015, the FASB issued ASU No. 2015-01, "Income Statement - Extraordinary and Unusual Items". This
update eliminates the concept of extraordinary items from the current guidance. This update is effective for annual and
corresponding interim reporting periods beginning after December 15, 2015. Early adoption is permitted provided the
guidance is applied from the beginning of the fiscal year of adoption. Retrospective application is encouraged for all prior
periods presented in the financial statements. The company is evaluating the impact the application of this ASU will have, if
any, on the company’s financial position, results of operations and cash flows.
In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest: Simplifying the Presentation of Debt
Issuance Costs", which requires debt issuance costs to be recorded as a direct reduction of the debt liability on the balance sheet
rather than as an asset. The standard is effective for fiscal years beginning after December 15, 2015 and early adoption is
permitted. The new guidance will be applied retrospectively to each prior period presented. The company does not expect the
adoption of this standard to have a material impact on its consolidated balance sheets.
In April 2015, the FASB issued ASU 2015-04, "Practical Expedient for the Measurement Date of an Employer's
Defined Benefit Obligation and Plan Assets". This ASU is intended to provide a practical expedient for the measurement date
of defined benefit plan assets and obligations. The practical expedient allows employers with fiscal year-end dates that do not
fall on a calendar month-end (e.g., companies with a 52/53-week fiscal year) to measure pension and post-retirement benefit
plan assets and obligations as of the calendar month-end date closest to the fiscal year-end. The FASB also provided a similar
practical expedient for interim remeasurements for significant events. This ASU requires perspective application and is
effective for annual reporting periods beginning after December 15, 2015 and interim periods within those fiscal years. Early
adoption is permitted. The company is evaluating the impact the application of this ASU will have, if any, on the company’s
financial position, results of operations and cash flows.
In August 2015, the FASB issued ASU 2015-15, “Interest - Imputation of Interest” which relates to the presentation of
debt issuance costs. This standard clarifies the guidance set forth in FASB ASU 2015-03, which required that debt issuance
costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the debt liability rather
than as an asset. The new pronouncement clarifies that debt issuance costs related to line-of-credit arrangements could continue
to be presented as an asset and be subsequently amortized over the term of the line-of-credit arrangement, regardless of whether
there are any outstanding borrowings on the arrangement. The company does not expect the adoption of this standard to have a
material impact on its consolidated balance sheets.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which is intended to
simplify the subsequent measurement of inventories by replacing the current lower of cost or market test with a lower of cost
and net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-
in first-out and the retail inventory method. Application of the standard, which should be applied prospectively, is required for
the annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The company is currently
evaluating the impact the new standard will have on its consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting
for Measurement-Period Adjustments”, which eliminates the requirement for an acquirer in a business combination to account
for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments
during the period in which they determine the amounts, including the effect on earnings of any amounts they would have
recorded in previous periods if the accounting had been completed at the acquisition date. The ASU is effective for public
business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early
adoption is permitted. The company does not expect the adoption of this standard to have a material impact on its financial
condition, results of operations or cash flows.
In November 2015, the FASB issued ASU 2015-17 "Income Taxes (Topic 740): Balance Sheet Classification of
Deferred Taxes". The amendments in ASU 2015-17 simplify the accounting for, and presentation of, deferred taxes by
eliminating the need to separately classify the current amount of deferred tax assets or liabilities. Instead, aggregated deferred
tax assets and liabilities are classified and reported as non-current assets or liabilities. The update is effective for annual
reporting periods, and interim periods within those reporting periods, beginning after December 15, 2016. Early adoption is
permitted for financial statements that have not been issued. The company is currently evaluating the impact the new standard
will have on its consolidated financial statements.
36
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)". The amendments under this
pronouncement will change the way all leases with a duration of one year of more are treated. Under this guidance, lessees will
be required to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease
liability or capital lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified
asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the
lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing leases or operating
leases. Financing lease liabilities, those that contain provisions similar to capitalized leases, are amortized like capital leases are
under current accounting, as amortization expense and interest expense in the statement of operations. Operating lease
liabilities are amortized on a straight-line basis over the life of the lease as lease expense in the statement of operations. This
update is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December
15, 2018. The company is currently evaluating the impact this standard will have on its policies and procedures pertaining to its
existing and future lease arrangements, disclosure requirements and on its consolidated financial statements.
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.
37
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:
2016
2017
2018
2019
2019 and thereafter
Variable Rate
Debt
$
$
32,059
733,315
102
102
483
766,061
On August 7, 2012, the company entered into a 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 January 2, 2016, the
company had $733.0 million of borrowings outstanding under this facility. The company also has $6.9 million in outstanding
letters of credit as of January 2, 2016, which reduces the borrowing availability under the revolving credit line. Remaining
borrowing availability under this facility was $260.1 million at January 2, 2016.
At January 2, 2016, borrowings under the senior secured credit facility were assessed at an interest rate at 1.50%
above LIBOR for long-term borrowings or at the higher of the Prime rate and the Federal Funds Rate. At January 2, 2016, the
average interest rate on the senior debt amounted to 1.87%. 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 0.25% as of January 2, 2016.
In September 2015, the company completed its acquisition of Aga Rangemaster Group plc in the United Kingdom. At
the time of acquisition, credit facilities denominated in British Pounds, Euro and U.S. dollars, were established to fund local
working capital needs. At January 2, 2016, these credit facilities amounted to $24.7 million in U.S. dollars. At January 2, 2016,
the average interest rate assessed on these facilities was approximately 1.98%.
In addition, the company has other international credit facilities to fund working capital needs outside the United
States and the United Kingdom. At January 2, 2016, these foreign credit facilities amounted to $8.1 million in U.S. dollars with
a weighted average interest rate of approximately 9.0%.
38
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 January 2, 2016, the company had the
following interest rate swaps in effect:
Notional
Amount
25,000,000
15,000,000
25,000,000
25,000,000
25,000,000
35,000,000
10,000,000
15,000,000
25,000,000
Fixed
Interest
Rate
2.520%
1.185%
0.635%
0.789%
0.803%
0.880%
1.480%
0.920%
0.950%
Effective
Date
2/23/2011
9/12/2011
2/11/2013
2/11/2013
2/11/2013
2/11/2013
9/11/2013
3/11/2014
3/11/2014
Maturity
Date
2/23/2016
9/12/2016
8/11/2016
3/11/2017
5/11/2017
7/11/2017
7/11/2017
7/11/2017
7/11/2017
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. The potential loss on fair value for the company's debt
obligations from a hypothetical 10% adverse change in quoted interest rates would not have a material impact on the company's
financial position, results of operations and cash flows. At January 2, 2016, the company was in compliance with all covenants
pursuant to its borrowing agreements.
Financing Derivative Instruments
The company has entered into interest rate swaps to fix the interest rate applicable to certain of its variable-rate debt.
The agreements swap one-month LIBOR for fixed rates. The company has designated these swaps as cash flow hedges and all
changes in fair value of the swaps are recognized in accumulated other comprehensive income. As of January 2, 2016, the fair
value of these instruments was a liability of $0.4 million. The change in fair value of these swap agreements in fiscal 2015 was
a gain of $0.2 million, net of taxes. The potential net loss on fair value for such instruments from a hypothetical 10% adverse
change in quoted interest rates would not have a material impact on the company's financial position, results of operations and
cash flows.
39
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 potential loss on fair value for such instruments from a hypothetical 10% adverse change
in quoted foreign exchange rates would not have a material impact on the company's financial position, results of operations
and cash flows.
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.
40
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Earnings
Consolidated 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
42
44
45
46
47
48
49
95
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.
41
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 January 2, 2016,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) (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 Desmon, Goldstein Eswood, Thurne, Induc, AGA and Lynx which are included in the 2015 consolidated
financial statements of the Middleby Corporation and subsidiaries and constituted 26.3% of total assets and 6.3% of net assets,
respectively, as of January 2, 2016, and 8.9% of net sales and (5.8)% 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 Desmon, Goldstein Eswood, Thurne, Induc, AGA and Lynx.
In our opinion, the Middleby Corporation and subsidiaries maintained, in all material respects, effective internal control over
financial reporting as of January 2, 2016, 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 sheets of the Middleby Corporation and subsidiaries as of January 2, 2016 and January 3, 2015, and
the related consolidated statements of earnings, comprehensive income, stockholders' equity, and cash flows for each of the
three years in the period ended January 2, 2016 of the Middleby Corporation and subsidiaries and our report dated March 2,
2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
March 2, 2016
42
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 sheets of the Middleby Corporation and subsidiaries as of January 2,
2016 and January 3, 2015, and the related consolidated statements of earnings, comprehensive income, stockholders' equity and
cash flows for each of the three years in the period ended January 2, 2016. Our audits 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 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. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of the Middleby Corporation and subsidiaries at January 2, 2016 and January 3, 2015, and the consolidated results of
its operations and its cash flows for each of the three years in the period ended January 2, 2016, 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 January 2, 2016, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated March 2, 2016 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
March 2, 2016
43
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 2, 2016 AND JANUARY 3, 2015
(amounts in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories, net
Prepaid expenses and other
Prepaid taxes
Deferred taxes
Total current assets
Property, plant and equipment, net
Goodwill
Other intangibles, net
Long-term deferred tax assets
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
Accrued pension benefits
Other non-current liabilities
Stockholders' equity:
Preferred stock, $0.01 par value; none issued
Common stock, $0.01 par value, 62,168,346 and 62,088,592 shares issued in 2015 and
2014, respectively
Paid-in capital
Treasury stock at cost; 4,862,264 and 4,816,912 shares in 2015 and 2014, respectively
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
2015
2014
$
55,528
282,534
354,150
39,801
11,426
51,723
795,162
199,750
983,339
749,430
11,438
22,032
$ 2,761,151
$
43,945
229,875
255,776
27,980
5,538
51,017
614,131
129,697
808,491
492,031
2,925
18,856
$ 2,066,131
$
$
32,059
157,758
320,154
509,971
734,002
113,010
207,564
29,774
9,402
98,327
220,585
328,314
588,765
88,800
21,140
32,352
—
—
144
328,686
(200,862)
1,115,274
(76,412)
144
310,409
(196,026)
923,664
(31,431)
1,166,830
1,006,760
Total liabilities and stockholders' equity
$ 2,761,151
$ 2,066,131
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
44
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE FISCAL YEARS ENDED JANUARY 2, 2016, JANUARY 3, 2015
AND DECEMBER 28, 2013
(amounts in thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling and distribution expenses
General and administrative expenses
Restructuring expenses
Gain on litigation settlement
Income from operations
Interest expense and deferred financing amortization, net
Other expense, net
Earnings before income taxes
Provision for income taxes
Net earnings
Net earnings per share:
Basic
Diluted
Weighted average number of shares
Basic
Dilutive common stock equivalents
Diluted
2015
$ 1,826,598
1,120,093
706,505
193,353
181,795
28,754
—
302,603
16,967
4,469
281,167
89,557
191,610
$
2014
$ 1,636,538
995,953
640,585
182,578
157,016
7,078
(6,519)
300,432
15,592
4,050
280,790
87,478
193,312
$
2013
$ 1,428,685
878,674
550,011
155,639
140,809
9,101
—
244,462
15,901
2,780
225,781
71,853
153,928
$
$
$
3.36
3.36
$
$
3.41
3.40
$
$
2.76
2.74
56,951
22
56,973
56,764
20
56,784
55,831
317
56,148
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
45
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE FISCAL YEARS ENDED JANUARY 2, 2016, JANUARY 3, 2015
AND DECEMBER 28, 2013
(amounts in thousands)
Net earnings
Other comprehensive income:
Foreign currency translation adjustments
Pension liability adjustment, net of tax
Unrealized gain on interest rate swaps, net of tax
Comprehensive income
$
$
2015
2014
2013
191,610
$
193,312
$
153,928
(28,187)
(17,039)
245
(18,770)
(4,420)
394
(530)
3,477
817
146,629
$
170,516
$
157,692
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
46
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JANUARY 2, 2016, JANUARY 3, 2015
AND DECEMBER 28, 2013
(amounts in thousands)
Balance, December 29, 2012
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)
Exercise of stock options
Stock compensation
Tax benefit on stock compensation
Purchase of treasury stock
Balance, December 28, 2013
Net earnings
Currency translation adjustments
Change in unrecognized pension benefit costs, net of tax of
$3,302
Unrealized gain on interest rate swap, net of tax of $545
Stock compensation
Tax benefit on stock compensation
Purchase of treasury stock
Balance, January 3, 2015
Net earnings
Currency translation adjustments
Change in unrecognized pension benefit costs, net of tax of
$(3,740)
Unrealized gain on interest rate swap, net of tax of $163
Stock compensation
Tax benefit on stock compensation
Purchase of treasury stock
Balance, January 2, 2016
Common
Stock
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income/(loss)
Total
Stockholders'
Equity
$
141
$ 233,213
$ (147,352) $ 576,424
$
(12,399) $
—
—
—
—
3
—
—
—
—
—
—
—
3,839
11,862
19,315
—
—
—
—
—
—
—
—
(4,391)
153,928
—
—
—
—
—
—
—
—
(530)
3,477
817
—
—
—
—
$
144
$ 268,229
$ (151,743) $ 730,352
$
(8,635) $
—
—
—
—
—
—
—
—
—
—
—
16,690
25,490
—
—
—
—
—
—
—
(44,283)
193,312
—
—
—
—
—
—
—
(18,770)
(4,420)
394
—
—
—
650,027
153,928
(530)
3,477
817
3,842
11,862
19,315
(4,391)
838,347
193,312
(18,770)
(4,420)
394
16,690
25,490
(44,283)
$
144
$ 310,409
$ (196,026) $ 923,664
$
(31,431) $
1,006,760
—
—
—
—
—
—
—
—
—
—
—
15,863
2,414
—
—
—
—
—
—
—
(4,836)
191,610
—
—
—
—
—
—
—
(28,187)
191,610
(28,187)
(17,039)
(17,039)
245
—
—
—
245
15,863
2,414
(4,836)
$
144
$ 328,686
$ (200,862) $ 1,115,274
$
(76,412) $
1,166,830
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
47
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JANUARY 2, 2016, JANUARY 3, 2015
AND DECEMBER 28, 2013
(amounts in thousands)
Cash flows from operating activities—
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities
2015
2014
2013
$
191,610
$
193,312
$
153,928
Depreciation and amortization
Non-cash share-based compensation
Deferred income taxes
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
Sale of asset
Acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities—
Net proceeds under revolving credit facilities
Net (repayments) proceeds under foreign bank loan
Net (repayments) proceeds under other debt arrangement
Repurchase of treasury stock
Excess tax benefit related to share-based compensation
Net proceeds from stock issuances
Net cash provided by financing activities
54,074
15,864
1,919
17,112
7,826
(5,685)
(18,036)
(15,092)
249,592
41,252
16,690
15,341
(20,577)
(2,064)
(384)
(7,872)
(1,816)
233,882
(22,362)
(13,143)
—
(348,625)
(370,987)
145,500
(6,058)
(262)
(4,836)
2,414
—
136,758
—
(219,915)
(233,058)
18,900
8,815
(35)
(44,283)
25,490
—
8,887
43,164
11,862
(2,975)
(17,524)
(19,819)
(7,768)
(9,248)
(5,462)
146,158
(14,640)
7,000
(466,550)
(474,190)
312,100
(632)
(32)
(4,391)
19,315
3,842
330,202
Effect of exchange rates on cash and cash equivalents
(3,780)
(2,660)
358
Changes in cash and cash equivalents—
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
11,583
43,945
7,051
36,894
2,528
34,366
Cash and cash equivalents at end of year
$
55,528
$
43,945
$
36,894
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
48
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JANUARY 2, 2016, JANUARY 3, 2015
AND DECEMBER 28, 2013
(1)
NATURE OF OPERATIONS
The Middleby Corporation (the "company") is engaged in the design, manufacture and sale of commercial
foodservice, food processing equipment and residential kitchen equipment. The company manufactures and assembles this
equipment at twenty-six U.S. and twenty-two international manufacturing facilities. The company operates in three business
segments: 1) the Commercial Foodservice Equipment Group, 2) the Food Processing Equipment Group and 3) the Residential
Kitchen 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,
charbroilers, ventless cooking systems, kitchen ventilation, induction cooking equipment, countertop cooking equipment,
toasters, professional refrigerators, coldrooms, ice machines, freezers and beverage dispensing 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, water
cutting systems, 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.
The Residential Kitchen Equipment Group has a broad portfolio of innovative and professional-style residential
kitchen equipment. The products offered by this group include ranges, cookers, stoves, ovens, refrigerators, dishwashers,
microwaves, cooktops, refrigerators, wine coolers, ice machines, warming equipment, ventilation equipment, ice machines and
outdoor equipment.
49
(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, food processing equipment and residential kitchen 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 dates of acquisition.
Viking
On December 31, 2012 (subsequent to the 2012 fiscal year end), the company completed its acquisition of all of the capital
stock of Viking Range Corporation ("Viking"), a leading manufacturer of kitchen equipment for the residential market, for a
purchase price of approximately $361.7 million, net of cash acquired. During the third quarter of 2013, the company finalized
the working capital provision provided by the purchase agreement resulting in a return from the seller of $11.2 million.
The final allocation of cash paid for the Viking acquisition is summarized as follows (in thousands):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Other assets
Current liabilities
Other non-current liabilities
(as initially
reported)
Dec 31, 2012
Measurement
Period
Adjustments
(as adjusted)
Dec 31, 2012
$
6,900
$
(121) $
40,794
76,693
144,833
152,500
12,604
(52,202)
(2,386)
(2,385)
(20,446)
(32,752)
44,500
865
(886)
(1)
6,779
38,409
56,247
112,081
197,000
13,469
(53,088)
(2,387)
Net assets acquired and liabilities assumed
$
379,736
$
(11,226) $
368,510
The goodwill and $151.0 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350 "Intangibles - Goodwill and Other." Other intangibles also includes $44.0 million allocated to customer
relationships and $2.0 million allocated to backlog which are being amortized over periods of 6 years and 3 months,
respectively. Goodwill and other intangibles of Viking are allocated to the Residential Kitchen Equipment Group for segment
reporting purposes. These assets are expected to be deductible for tax purposes. Certain acquired assets included in other assets
were classified as held for sale at the date of acquisition and were sold during the second quarter of 2013.
50
Viking Distributors 2013
Subsequent to the acquisition of Viking, the company, through Viking, purchased certain assets of four of Viking's former
distributors ("Viking Distributors 2013"). The aggregate purchase price of these transactions as of June 29, 2013 was
approximately $23.6 million. This included $8.7 million in forgiveness of liabilities owed to Viking resulting from pre-existing
relationships with Viking.
The final allocation of cash paid for the Viking Distributors 2013 is summarized as follows (in thousands):
Current assets
Property, plant and equipment
Goodwill
Current liabilities
Net assets acquired and liabilities assumed
Forgiveness of liabilities owed to Viking
Consideration paid at closing
$
$
$
(as initially
reported)
Jun 29, 2013
Measurement
Period
Adjustments
(as adjusted)
Jun 29, 2013
21,390
$
1,318
1,709
(804)
(3,599) $
—
3,599
—
17,791
1,318
5,308
(804)
23,613
$
— $
23,613
(8,697)
—
(8,697)
14,916
$
— $
14,916
The goodwill is subject to the non-amortization provisions of ASC 350 and is allocated to the Residential Kitchen Equipment
Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.
51
Celfrost
On October 15, 2013, the company completed its acquisition of substantially all of the assets of Celfrost Innovations Pvt. Ltd.
("Celfrost"), a preferred commercial foodservice equipment supplier in India with a broad line of cold side products such as
professional refrigerators, coldrooms, ice machines and freezers marketed under the Celfrost brand for a purchase price of
approximately $11.2 million. Additional deferred payments totaling $0.8 million were made in the fourth quarter of 2014 and
2015, as provided for in the purchase agreement. Additional deferred payments of approximately $0.3 million in aggregate are
also due to the seller in equal installments on the second and third anniversary of the acquisition.
The final allocation of cash paid for the Celfrost acquisition is summarized as follows (in thousands):
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Other assets
Current liabilities
Other non-current liabilities
Consideration paid at closing
Deferred payments
Net assets acquired and liabilities assumed
(as initially
reported)
Oct 15, 2013
Measurement
Period
Adjustments
(as adjusted)
Oct 15, 2013
$
5,638
$
182
5,943
4,333
4
(3,979)
(875)
(124) $
—
1,718
—
—
(1,594)
—
5,514
182
7,661
4,333
4
(5,573)
(875)
$
$
11,246
$
— $
11,246
1,067
—
1,067
12,313
$
— $
12,313
The goodwill and $2.3 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 $0.1 million
allocated to backlog which are being amortized over periods of 7 years and 3 months, respectively. Goodwill and other
intangibles of Celfrost are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These
assets are expected to be deductible for tax purposes.
52
Wunder-Bar
On December 17, 2013, the company completed its acquisition of all of the capital stock of Automatic Bar Controls, Inc.
("Wunder-Bar") a leading manufacturer of beverage dispensing systems for the commercial foodservice industry, for a purchase
price of approximately $74.1 million, net of cash acquired. During the third quarter of 2014, the company finalized the working
capital provision provided by the purchase agreement resulting in a return from the seller of $0.1 million. In 2014, the company
purchased additional assets related to Wunder-Bar for approximately $0.8 million. An additional deferred payment of $0.6
million is also payable to the seller pursuant to the purchase agreement.
The final allocation of cash paid for the Wunder-Bar acquisition is summarized as follows (in thousands):
Cash
Current 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
Deferred payments
Net assets acquired and liabilities assumed
(as initially
reported)
Dec 17, 2013
Measurement
Period
Adjustments
(as adjusted)
Dec 17, 2013
$
857
$
— $
50
13,127
1,735
45,056
30,000
—
(5,013)
(10,811)
(1)
188
656
(312)
(3,251)
3,060
290
865
(1,280)
(365)
857
238
13,783
1,423
41,805
33,060
290
(4,148)
(12,091)
(366)
$
$
75,000
$
(149) $
74,851
—
—
848
586
848
586
75,000
$
1,285
$
76,285
The current deferred tax assets and long term deferred tax liabilities amounted to $0.2 million and $12.1 million, respectively.
These net assets are comprised of $0.2 million of assets arising from the difference between the book and tax basis of tangible
asset and liability accounts, net of $12.1 million of deferred tax liabilities related to difference between the book and tax basis
of identifiable intangible assets.
The goodwill and $12.7 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also includes $20.2 million allocated to customer relationships and $0.2 million
allocated to backlog which are to be amortized over a period of 14 years and 3 months, respectively. Goodwill and other
intangibles of Wunder-Bar are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes.
These assets are not expected to be deductible for tax purposes.
53
Market Forge
On January 7, 2014, the company completed its acquisition of certain assets of Market Forge Industries, Inc. (“Market Forge”),
a leading manufacturer of steam cooking equipment for the commercial foodservice industry, for a purchase price of
approximately $7.0 million. During the first quarter of 2014, the company finalized the working capital provision provided for
by the purchase agreement resulting in an additional payment to the seller of $0.2 million. Additional deferred payments of
$3.0 million in aggregate were paid to the seller during the second and third quarters of 2014. An additional contingent
payment of $1.5 million was paid to the seller during the first quarter of 2015 upon the achievement of certain financial targets
for the fiscal year 2014.
The final allocation of cash paid for the Market Forge acquisition is summarized as follows (in thousands):
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
Consideration paid at closing
Deferred payments
Contingent consideration
Net assets acquired and liabilities assumed
(as initially
reported)
Jan 7, 2014
Measurement
Period
Adjustments
(as adjusted)
Jan 7, 2014
$
$
$
2,051
$
120
5,252
4,191
(4,374)
(100) $
—
654
—
(554)
7,240
$
— $
3,000
1,374
—
126
1,951
120
5,906
4,191
(4,928)
7,240
3,000
1,500
11,614
$
126
$
11,740
The goodwill and $2.9 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also includes $1.1 million allocated to customer relationships, $0.2 million allocated
to developed technology and less than $0.1 million allocated to backlog, which are to be amortized over periods of 4 years, 5
years and 3 months, respectively. Goodwill and other intangibles of Market Forge are allocated to the Commercial Foodservice
Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.
54
Viking Distributors 2014
The company, through Viking, purchased certain assets of two of Viking's former distributors ("Viking Distributors 2014").
The aggregate purchase price of these transactions as of January 31, 2014 was approximately $44.5 million. This included $6.0
million in forgiveness of liabilities owed to Viking resulting from pre-existing relationships with Viking.
The final allocation of cash paid for the Viking Distributors 2014 acquisition is summarized as follows (in thousands):
Current assets
Property, plant and equipment
Goodwill
Current liabilities
Net assets acquired and liabilities assumed
Forgiveness of liabilities owed to Viking
Consideration paid at closing
$
$
$
(as initially
reported)
Jan 31, 2014
Measurement
Period
Adjustments
(as adjusted)
Jan 31, 2014
35,909
$
2,000
7,552
(1,005)
(8,101) $
(291)
8,647
(255)
27,808
1,709
16,199
(1,260)
44,456
$
— $
44,456
(5,971)
—
(5,971)
38,485
$
— $
38,485
The goodwill is subject to the non-amortization provisions of ASC 350 and is allocated to the Residential Kitchen Equipment
Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.
55
Processing Equipment Solutions
On March 31, 2014, the company completed its acquisition of substantially all of the assets of Processing Equipment Solutions,
Inc. ("PES"), a leading manufacturer of water jet cutting equipment for the food processing industry, for a purchase price of
approximately $15.0 million. An additional payment is also due upon the achievement of certain financial targets. During the
third quarter of 2014, the company finalized the working capital provision provided by the purchase agreement resulting in no
adjustment to the original purchase price.
The final allocation of cash paid for the PES acquisition is summarized as follows (in thousands):
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Other assets
Current liabilities
Consideration paid at closing
Contingent consideration
Net assets acquired and liabilities assumed
(as initially
reported)
Mar 31, 2014
Measurement
Period
Adjustments
(as adjusted)
Mar 31, 2014
$
$
$
$
2,211
3,493
10,792
1,600
21
(816)
(153) $
—
332
18
(21)
—
2,058
3,493
11,124
1,618
—
(816)
15,000
$
— $
15,000
2,301
176
2,477
17,301
$
176
$
17,477
The goodwill is subject to the non-amortization provisions of ASC 350. Other intangibles includes $1.0 million allocated to
customer relationships, $0.6 million allocated to developed technology and less than $0.1 million allocated to backlog, which
are being amortized over periods of 5 years, 5 years and 3 months, respectively. Goodwill and other intangibles of PES are
allocated to the Food Processing Equipment Group for segment reporting purposes. These assets are expected to be deductible
for tax purposes.
The PES purchase agreement includes an earnout provision providing for a contingent payment due to the sellers to the extent
certain financial targets are exceeded. This earnout is payable within the first quarter of 2017 if PES exceeds certain sales
targets for fiscal 2014, 2015 and 2016. The contractual obligation associated with the contingent earnout provision recognized
on the acquisition date is $2.5 million.
56
Concordia
On September 8, 2014, the company completed its acquisition of all of the capital stock of Concordia Coffee Company, Inc.
("Concordia"), a leading manufacturer of automated and self-service coffee and espresso machines for the commercial
foodservice industry, for a purchase price of approximately $12.5 million, net of cash acquired. An additional payment is also
due upon the achievement of certain financial targets. During the first quarter of 2015, the company finalized the working
capital provision provided by the purchase agreement resulting in a return from the seller of $0.1 million.
The final allocation of cash paid for the Concordia acquisition is summarized as follows (in thousands):
Cash
Current deferred tax asset
Current assets
Goodwill
Other intangibles
Long-term deferred tax asset
Current liabilities
Other non-current liabilities
Consideration paid at closing
Contingent consideration
Net assets acquired and liabilities assumed
(as initially
reported)
Sep 8, 2014
Measurement
Period
Adjustments
(as adjusted)
Sep 8, 2014
$
345
$
— $
—
3,767
11,255
4,500
—
(2,296)
(4,710)
726
(497)
(5,720)
(1,200)
3,264
(842)
4,189
345
726
3,270
5,535
3,300
3,264
(3,138)
(521)
$
$
12,861
$
(80) $
12,781
4,710
(4,189)
521
17,571
$
(4,269) $
13,302
The current and long term deferred tax assets amounted to $0.7 million and $3.3 million, respectively. These net assets are
comprised of $4.1 million related to federal net operating loss carry forwards, $1.1 million of assets arising from the difference
between the book and tax basis of tangible asset and liability accounts, net of $1.2 million of deferred tax liabilities related to
the difference between the book and tax basis of identifiable intangible assets. Federal net operating loss carry forwards are
subject to carry forward limitations for income tax purposes.
The goodwill and $1.1 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles includes $2.2 million allocated to customer relationships, which is being amortized
over a period of 10 years. Goodwill and other intangibles of Concordia are allocated to the Commercial Foodservice Equipment
Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.
The Concordia purchase agreement includes an earnout provision providing for a contingent payment due to the sellers to the
extent certain financial targets are exceeded. This earnout is payable within the first quarter of 2017 if Concordia exceeds
certain sales targets for fiscal 2015 and 2016. The contractual obligation associated with the contingent earnout provision
recognized on the acquisition date is $0.5 million.
57
U-Line
On November 5, 2014, the company completed its acquisition of all of the capital stock of U-Line Corporation ("U-Line"), a
leading manufacturer of premium residential built-in modular ice making, refrigeration and wine preservation products for the
residential industry, for a purchase price of approximately $142.0 million, net of cash acquired. During the first quarter of 2015,
the company finalized the working capital provision provided by the purchase agreement resulting in a return from the seller of
$0.3 million.
The final allocation of cash paid for the U-Line acquisition is summarized as follows (in thousands):
Cash
Current deferred tax asset
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
Long-term deferred tax liability
Other non-current liabilities
(as initially
reported)
Nov 5, 2014
Measurement
Period
Adjustments
(as adjusted)
Nov 5, 2014
$
12,764
$
— $
657
12,237
3,376
89,501
57,500
(6,032)
(13,095)
(2,111)
114
—
—
(8,000)
17,700
(1,973)
(4,657)
(3,459)
12,764
771
12,237
3,376
81,501
75,200
(8,005)
(17,752)
(5,570)
Net assets acquired and liabilities assumed
$
154,797
$
(275) $
154,522
The current deferred tax assets and long term deferred tax liabilities amounted to $0.8 million and $17.8 million, respectively.
These net assets are comprised of $5.7 million related to federal and state net operating loss carry forwards, $1.5 million of
assets arising from the difference between the book and tax basis of tangible asset and liability accounts, net of $24.2 million of
deferred tax liabilities related to the difference between the book and tax basis of identifiable intangible assets. Federal and
state net operating loss carry forwards are subject to carry forward limitations for income tax purposes.
The goodwill and $52.7 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles includes $20.7 million allocated to customer relationships and $1.8 million allocated
to backlog, which are being amortized over a period of 6 years and 5 months, respectively. Goodwill and other intangibles of
U-Line are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. These assets are not
expected to be deductible for tax purposes.
58
Desmon
On January 7, 2015, the company completed its acquisition of all of the capital stock of Desmon Food Service Equipment
Company ("Desmon"), a leading manufacturer of blast chillers and refrigeration for the commercial foodservice industry
located in Nusco, Italy, for a purchase price of approximately $13.5 million, net of cash acquired. An additional payment is also
due upon the achievement of certain financial targets. During the fourth quarter of 2015, the company finalized the working
capital provision provided by the purchase agreement resulting in a return from the seller of $0.4 million.
The final allocation of cash paid for the Desmon acquisition is summarized as follows (in thousands):
Cash
Current deferred tax asset
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
Long-term deferred tax liability
Other non-current liabilities
Consideration paid at closing
Contingent consideration
Net assets acquired and liabilities assumed
(as initially
reported)
Jan 7, 2015
Measurement
Period
Adjustments
(as adjusted)
Jan 7, 2015
$
441
535
8,639
7,989
7,175
3,129
(8,668)
(2,389)
(2,463)
(12) $
—
(1,105)
—
53
(899)
998
282
269
429
535
7,534
7,989
7,228
2,230
(7,670)
(2,107)
(2,194)
14,388
$
(414) $
13,974
2,416
(269)
2,147
16,804
$
(683) $
16,121
$
$
$
The current deferred tax assets and long term deferred tax liabilities amounted to $0.5 million and $2.1 million, respectively.
These net liabilities are comprised of $0.7 million of deferred tax liabilities related to the difference between the book and tax
basis of identifiable intangible assets, $1.1 million of liabilities arising from the difference between the book and tax basis of
tangible asset and liability accounts, net of $0.2 million of assets related to foreign net operating loss carry forwards.
The goodwill and $1.3 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also includes $0.6 million allocated to customer relationships and $0.3 million
allocated to developed technology, which are to be amortized over periods of 9 years and 7 years, respectively. Goodwill and
other intangibles of Desmon are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes.
These assets are not expected to be deductible for tax purposes.
The Desmon purchase agreement includes an earnout provision providing for a contingent payment due to the sellers to the
extent certain financial targets are exceeded. This earnout is payable within the second quarter of each of the fiscal years 2016,
2017 and 2018, respectively, if Desmon exceeds certain sales targets for fiscal 2015, 2016 and 2017, respectively. The
contractual obligation associated with the contingent earnout provision recognized on the acquisition date is $2.1 million.
59
Goldstein Eswood
On January 30, 2015, the company completed its acquisition of substantially all of the assets of J. Goldstein & Co. Pty. Ltd.
("Goldstein") and Eswood Australia Pty. Ltd. ("Eswood" and together with Goldstein, "Goldstein Eswood") for a purchase
price of approximately $27.4 million. Goldstein is a leading manufacturer of cooking equipment including ranges, ovens,
griddles, fryers and warming equipment and Eswood is a leading manufacturer of dishwashing equipment, both for the
commercial foodservice industry and located in Smithfield, Australia. An additional payment is also due upon the achievement
of certain financial targets. During the third quarter of 2015, the company finalized the working capital provision provided by
the purchase agreement resulting in no adjustment to the original purchase price.
The final allocation of cash paid for the Goldstein acquisition is summarized as follows (in thousands):
Current assets
Property, plant and equipment
$
Goodwill
Other intangibles
Current liabilities
Other non-current liabilities
(as initially
reported)
Jan 30, 2015
Measurement
Period
Adjustments
(as adjusted)
Jan 30, 2015
8,036
8,690
8,493
5,648
(1,806)
(1,655)
$
— $
—
(2,727)
3,113
(202)
(184)
8,036
8,690
5,766
8,761
(2,008)
(1,839)
Consideration paid at closing
$
27,406
$
— $
27,406
Contingent consideration
1,655
183
1,838
Net assets acquired and liabilities assumed
$
29,061
$
183
$
29,244
The goodwill and $2.8 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also includes $5.9 million allocated to customer relationships, and less than $0.1
million allocated to backlog, which are to be amortized over periods of 7 years and 3 months, respectively. Goodwill and other
intangibles of Goldstein Eswood are allocated to the Commercial Foodservice Equipment Group for segment reporting
purposes. These assets are expected to be deductible for tax purposes.
The Goldstein Eswood purchase agreement includes an earnout provision providing for a contingent payment due to the sellers
to the extent certain financial targets are exceeded. This earnout is payable within the second quarter of each of the fiscal years
2016 and 2017, respectively, if Goldstein Eswood exceeds certain sales targets for fiscal 2015 and 2016, respectively. The
contractual obligation associated with the contingent earnout provision recognized on the acquisition date is $1.8 million.
60
Marsal
On February 10, 2015, the company completed its acquisition of certain assets of Marsal & Sons, Inc. ("Marsal"), a leading
manufacturer of deck ovens for the commercial foodservice industry, for a purchase price of approximately $5.5 million. The
purchase price is subject to adjustment based upon a working capital provision provided by the purchase agreement. During
the second quarter of 2015, the company finalized the working capital provision provided by the purchase agreement resulting
in no adjustment to the purchase price.
The final allocation of cash paid for the Marsal acquisition is summarized as follows (in thousands) :
Current assets
Property, plant and equipment
$
Goodwill
Other intangibles
Current liabilities
(as initially
reported)
Feb 10, 2015
Measurement
Period
Adjustments
(as adjusted)
Feb 10, 2015
$
455
201
3,012
2,027
(195)
— $
(6)
6
—
—
455
195
3,018
2,027
(195)
Net assets acquired and liabilities assumed
$
5,500
$
— $
5,500
The goodwill and $1.3 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also includes $0.5 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, 5
years and 3 months, respectively. Goodwill and other intangibles of Marsal are allocated to the Commercial Foodservice
Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.
61
Thurne
On April 7, 2015, the company completed its acquisition of certain assets of the High Speed Slicing business unit of Marel
("Thurne"), a leading manufacturer of slicing equipment for the food processing industry located in Norwich, United Kingdom,
for a purchase price of approximately $12.6 million. During the second quarter of 2015, the company finalized the working
capital provision provided for by the purchase agreement resulting in a refund from the seller of $2.7 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):
Current assets
Property, plant and equipment
$
Goodwill
Other intangibles
Current liabilities
(as initially
reported)
Apr 7, 2015
Preliminary
Measurement
Period
Adjustments
(as adjusted)
Apr 7, 2015
$
3,419
3,334
609
3,625
(1,115)
(275) $
—
2,378
(2,024)
—
3,144
3,334
2,987
1,601
(1,115)
Net assets acquired and liabilities assumed
$
9,872
$
79
$
9,951
The goodwill and $0.4 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also includes $0.6 million allocated to customer relationships, $0.6 million allocated
to developed technology and less than $0.1 million allocated to backlog, which are to be amortized over periods of 9 years, 7
years, and 3 months, respectively. Goodwill and other intangibles of Thurne 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.
62
Induc
On May 30, 2015, the company completed its acquisition of certain assets of the Induc Commercial Electronics Co. Ltd.
("Induc"), a leading manufacturer of induction cooking equipment for the commercial foodservice industry located in Qingdao,
China, for a purchase price of approximately $10.6 million. An additional deferred payment of approximately $1.4 million is
also due to the seller on the second anniversary of the acquisition. An additional payment is also due upon the achievement of
certain financial targets. The purchase price is subject to adjustment based upon a working capital provision provided by the
purchase agreement. The company expects to finalize this in the first quarter of 2016.
The following estimated fair values of assets acquired and liabilities assumed are provisional and are based on the information
that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed (in thousands):
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Other assets
Current liabilities
Other non-current liabilities
(as initially
reported)
May 30, 2015
$
1,705
$
536
13,496
1,500
32
(854)
(5,793)
Preliminary
Measurement
Period
Adjustments
(as adjusted)
May 30, 2015
(342) $
255
(476)
(300)
(32)
854
41
1,363
791
13,020
1,200
—
—
(5,752)
Consideration paid at closing
$
10,622
$
— $
10,622
Deferred payment
Contingent consideration
1,516
4,276
(125)
84
1,391
4,360
Net assets acquired and liabilities assumed
$
16,414
$
(41) $
16,373
The goodwill and $0.5 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also includes $0.7 million allocated to customer relationships, which is to be
amortized over a period of 9 years, Goodwill and other intangibles of Induc are allocated to the Commercial Foodservice
Equipment Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.
The Induc purchase agreement includes an earnout provision providing for a contingent payment due to the sellers to the extent
certain financial targets are exceeded. This earnout is payable within the first quarter of each of the fiscal years 2018, 2019 and
2020, respectively, if Induc exceeds certain sales and earnings targets for fiscal 2017, 2018 and 2019, respectively. The
contractual obligation associated with the contingent earnout provision recognized on the acquisition date is $4.4 million.
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.
63
AGA
On September 23, 2015, the company completed its acquisition of all of the capital stock of AGA Rangemaster Group plc
("AGA") a leading manufacturer of residential kitchen equipment including cookers, ranges, ovens and refrigeration for a
purchase price of approximately $184.7 million, net of cash acquired. AGA is headquartered in Leamington Spa, United
Kingdom. Additionally, the company incurred $7.3 million of transaction expenses, which are reflected in the general and
administrative expenses in the consolidated statements of earnings for such period. During the fourth quarter of 2015, the
company completed the purchase of the minority interest of an AGA subsidiary for approximately $4.3 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):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Deferred tax asset
Other assets
Current portion long-term debt
Current liabilities
Long term debt
Long-term deferred tax liability
Other non-current liabilities
(as initially
reported)
Sep 23, 2015
$
15,316
$
163,216
61,423
144,645
190,000
5,306
1,573
(30,703)
(147,279)
(138)
—
(202,312)
Preliminary
Measurement
Period
Adjustments
(as adjusted)
Sep 23, 2015
$
984
(9,723)
(2,688)
(20,373)
30,000
(5,306)
289
—
(5,726)
—
(143)
12,686
16,300
153,493
58,735
124,272
220,000
—
1,862
(30,703)
(153,005)
(138)
(143)
(189,626)
Net assets acquired and liabilities assumed
$
201,047
$
— $
201,047
The long-term deferred tax liabilities amounted to $0.1 million. These net liabilities are comprised of $33.6 million of assets
related to pension liabilities, $0.9 million of assets related to foreign net operating loss, $1.7 million of assets related to federal
net operating loss carry forwards and $5.2 million of assets related to the difference between the book and tax basis of tangible
assets and liability accounts, net of $41.5 million of deferred tax liabilities related to the difference between the book and tax
basis of identifiable intangible assets. Net operating loss carryforwards are subject to carryforward limitations.
The goodwill and $145.0 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also includes $75.0 million allocated to customer relationships, which is to be
amortized over a period of 8 years. Goodwill and other intangibles of AGA are allocated to the Residential Kitchen Equipment
Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.
The company estimated the fair value of the assets and liabilities of AGA on a preliminary basis at the time of acquisition based
on third-party appraisals used to assist in determining the fair market value for acquired tangible and intangible assets.
Changes to these allocations will occur as additional information becomes available. The company is in the process of
obtaining third-party valuations related to the fair value of tangible and intangible assets, in addition to determining and
recording the tax effects of the transaction to include all assets/liabilities since those are recorded at fair value. Acquired
goodwill represents the premium paid over the fair value of assets acquired and liabilities assumed.
64
Lynx
On December 15, 2015, the company completed its acquisition of all of the capital stock of Lynx Grills, Inc. ("Lynx"), a
leading manufacturer of premium residential outdoor equipment located in Downey, California, for a purchase price of
approximately $83.8 million, net of cash acquired. The purchase price is subject to adjustment based upon a working capital
provision provided by the purchase agreement. The company expects to finalize this in the second quarter of 2016.
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 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
$
(as initially
reported)
Dec 15, 2015
276
467
18,630
1,690
42,502
39,800
130
(6,208)
(12,589)
(666)
Net assets acquired and liabilities assumed
$
84,032
The current deferred tax assets and long term deferred tax liabilities amounted to $0.5 million and $12.6 million, respectively.
These net liabilities are comprised of $14.0 million of deferred tax liabilities related to the difference between book and tax
basis of identifiable intangible assets, net of $1.6 million related to federal and state net operating loss carryforwards and $0.3
million of assets arising from the difference between the book and tax basis of tangible assets and liability accounts. Federal
and state net operating loss carryforwards are subject to carryforward limitations.
The goodwill and $30.0 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also includes $9.0 million allocated to customer relationships and $0.8 million
allocated to backlog, which is to be amortized over a period of 5 years and 3 months respectively. Goodwill and other
intangibles of Lynx are allocated to the Residential Kitchen Equipment Group for segment reporting purposes. These assets are
not expected to be deductible for tax purposes.
The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets
acquired and liabilities assumed but the company is waiting for additional information necessary to finalize those fair values.
Thus, the provisional measurements of fair value set forth above are subject to change. The company expects to complete the
purchase price allocation as soon as practicable but no later than one year from the acquisition date.
65
Pro forma financial information
In accordance with ASC 805 “Business Combinations”, the following unaudited pro forma results of operations for the years
ended January 2, 2016 and January 3, 2015, assumes the 2015 acquisitions of Desmon, Goldstein Eswood, Marsal, Induc,
Thurne, AGA and Lynx and the 2014 acquisitions of PES, Concordia and U-Line were completed on December 29, 2013 (first
day of fiscal 2014). 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
January 2, 2016
January 3, 2015
$
2,157,396
185,624
$
1,863,518
201,366
3.26
3.26
3.55
3.55
The supplemental pro forma financial information presented above has been prepared for comparative purposes and is not
necessarily indicative of either the results of operations that would have occurred had the acquisitions of these companies been
effective on December 29, 2013, 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 PES, Concordia, U-Line, Desmon, Marsal, Goldstein
Eswood, Thurne, Induc, AGA and Lynx.
66
(3)
STOCK SPLIT
In June 2014, the company’s Board of Directors approved a three-for-one split of the company’s common stock in the
form of a stock dividend. The stock dividend was paid on June 27, 2014 to shareholders of record as of June 16, 2014. The
company’s stock began trading on a split-adjusted basis on June 27, 2014. The stock split effectively tripled the number of
shares outstanding at June 27, 2014. All references in the accompanying condensed consolidated financial statements and notes
thereto to net earnings per share and the number of shares have been adjusted to reflect this stock split.
(4)
(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 2015, 2014, and 2013 ended on
January 2, 2016, January 3, 2015 and December 28, 2013, respectively, and included 52, 53 and 52 weeks, respectively.
Certain prior year amounts have been reclassified to be consistent with current year presentation, including
restructuring expenses previously classified in general and administrative expenses.
(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 $8.8
million and $9.1 million at January 2, 2016 and January 3, 2015, respectively. At January 2, 2016, all accounts receivable are
expected to be collected within one year.
67
(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 $35.6 million in 2015 and $30.2 million in 2014 and represented
approximately 10.1% and 11.8% of the total inventory in each respective year. The amount of LIFO reserve at January 2, 2016
and January 3, 2015 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 January 2, 2016 and January 3, 2015 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
2014
2015
(dollars in thousands)
180,262
34,771
139,117
354,150
$
$
126,121
17,828
111,827
255,776
2014
2015
(dollars in thousands)
18,401
108,210
52,738
120,746
300,095
(100,345)
199,750
$
$
10,642
84,777
28,597
88,679
212,695
(82,998)
129,697
$
$
$
$
Property, plant 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 $25.5 million, $15.5 million and $13.5 million in fiscal 2015, 2014 and 2013,
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.
68
(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 December 28, 2013
Commercial
Foodservice
444,321
$
Food
Processing
$ 127,872
Residential
Kitchen
$ 115,762
Total
$ 687,955
Goodwill acquired during the year
Measurement period adjustments to goodwill acquired in prior year
Exchange effect
12,567
(1,533)
(4,465)
11,061
—
(4,421)
105,700
1,627
—
129,328
94
(8,886)
Balance as of January 3, 2015
$
450,890
$ 134,512
$ 223,089
$ 808,491
Goodwill acquired during the year
Measurement period adjustments to goodwill acquired in prior year
Exchange effect
29,032
(1,126)
(5,669)
2,987
63
(3,470)
166,774
(8,000)
(5,743)
198,793
(9,063)
(14,882)
Balance as of January 2, 2016
$
473,127
$ 134,092
$ 376,120
$ 983,339
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
6.1
0.3
3.8
January 2, 2016
January 3, 2015
Gross
Carrying
Amount
Accumulated
Amortization
$
$
$
264,373
$
(109,096)
13,763
20,868
(12,963)
(17,220)
299,004
$
(139,279)
589,705
Estimated
Weighted
Avg
Remaining
Life
4.7
0.0
4.6
Gross
Carrying
Amount
Accumulated
Amortization
$
$
$
167,278
$
11,178
19,786
(84,312)
(11,178)
(16,356)
198,242
$
(111,846)
405,635
Amortized intangible assets:
Customer lists
Backlog
Developed technology
Indefinite-lived assets:
Trademarks and tradenames
The aggregate intangible amortization expense was $27.4 million, $24.6 million and $28.5 million in 2015, 2014 and
2013, respectively. The estimated future amortization expense of intangible assets is as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
$
$
31,649
26,647
25,410
19,362
16,779
39,878
159,725
69
(g)
Accrued Expenses
Accrued expenses consist of the following at January 2, 2016 and January 3, 2015, respectively:
Accrued payroll and related expenses
Advanced customer deposits
Accrued customer rebates
Accrued warranty
Accrued sales and other tax
Accrued product liability and workers compensation
Accrued agent commission
Product recall
Accrued professional services
Restructuring
Other accrued expenses
$
2015
2014
(dollars in thousands)
$
65,623
57,595
45,154
37,901
13,537
11,635
9,948
7,786
7,019
6,266
57,690
50,844
20,367
32,357
28,786
7,660
14,582
11,207
12,125
7,053
37
35,567
$
320,154
$
220,585
(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
2015
2014
(dollars in thousands)
$
(23,579) $
9
(52,842)
(6,540)
(236)
(24,655)
$
(76,412) $
(31,431)
70
(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 January 2, 2016 and January 3, 2015 are as follows (in thousands):
As of January 2, 2016
Financial Assets:
Pension Plans
Financial Liabilities:
Interest rate swaps
Contingent consideration
As of January 3, 2015
Financial Assets:
Pension Plans
Financial Liabilities:
Interest rate swaps
Contingent consideration
Fair Value
Level 1
Fair Value
Level 2
Fair Value
Level 3
Total
$
785,034
$
518,576
— $ 1,303,610
— $
—
412
— $
— $
$
11,065
412
11,065
$
27,647
$
1,234
— $
28,881
— $
—
810
— $
— $
$
14,558
810
14,558
The contingent consideration as of January 2, 2016 relates to the earnout provisions recorded in conjunction with the
acquisitions of Spooner Vicars, PES, Desmon, Goldstein and Induc.
The contingent consideration as of January 3, 2015 relates to the earnout provisions recorded in conjunction with the
acquisitions of Stewart, Nieco and Spooner Vicars, Market Forge, PES and Concordia.
The earnout provisions associated with these acquisitions are based upon performance measurements related to sales
and earnings, as defined in the respective purchase agreements. On a quarterly basis the company assesses the projected results
for each of the acquisitions in comparison to the earnout targets and adjusts the liability accordingly.
(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 $6.8 million, $3.6 million and $3.1 million in 2015, 2014 and 2013,
respectively, and are included in other expense on the statements of earnings.
71
(l)
Revenue Recognition
At the Commercial Foodservice Equipment Group and Residential Kitchen Equipment 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.
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 sheets. For 2015 and 2014, the amount of this
asset was $13.0 million and $12.7 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 2015 and 2014 are as follows:
Beginning balance
Warranty reserve related to acquisitions
Warranty expense
Warranty claims paid
Ending balance
(o)
Research and Development Costs
2015
2014
(dollars in thousands)
$
$
28,786
5,815
45,994
(42,694)
37,901
$
$
20,826
2,450
44,547
(39,037)
28,786
Research and development costs, included in cost of sales in the consolidated statements of earnings, are charged to
expense when incurred. These costs were $22.4 million, $22.6 million and $21.4 million in fiscal 2015, 2014 and 2013,
respectively.
72
(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 $15.9
million, $16.7 million and $11.9 million was recognized for fiscal 2015, 2014 and 2013, respectively, associated with restricted
share grants. The company recorded a related tax benefit of $6.0 million, $4.6 million and $4.4 million in fiscal 2015, 2014 and
2013, respectively.
As of January 2, 2016, there was $9.3 million of total unrecognized compensation cost related to nonvested restricted
share grant compensation arrangements, which will be recognized over a weighted average life of 0.8 years.
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. There were no restricted share grant awards in 2013 or 2012. The company issued 100,704 and
369,807 restricted share grant awards in 2015 and 2014, respectively with a fair value of $10.9 million and 32.5 million,
respectively. Share grant awards issued in 2015 and 2014 are performance based and were not subject to market conditions.
The fair value of $107.81 and $87.80 per share for the awards for 2015 and 2014, respectively, represent the closing share price
of the company’s stock as of the date of grant.
(q)
Earnings Per Share
“Basic earnings per share” is calculated based upon the weighted average number of common shares actually
outstanding, and “diluted earnings per share” is calculated based upon the weighted average number of common shares
outstanding and other dilutive securities.
The company’s potentially dilutive securities consist of shares issuable on exercise of outstanding options and vesting
of restricted stock grants computed using the treasury method and amounted to 22,000, 20,000, and 317,000 for fiscal 2015,
2014 and 2013, respectively. There were no anti-dilutive equity awards excluded from common stock equivalents for 2015,
2014 or 2013.
(r)
Consolidated Statements of Cash Flows
Cash paid for interest was $14.8 million, $14.8 million and $14.1 million in fiscal 2015, 2014 and 2013, respectively.
Cash payments totaling $94.6 million, $43.5 million, and $49.5 million were made for income taxes during fiscal 2015, 2014
and 2013, respectively.
(s)
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
2014-08, “Presentation of Financial Statements and Property, Plant and Equipment: Reporting Discontinued Operations and
Disclosures of Disposals of Components of an Entity”. This update changes the criteria for determining which disposals can be
presented as discontinued operations and requires expanded disclosures. Under ASU No. 2014-08, a disposal of a component
of an entity or group of components of an entity is required to be reported in discontinued operations if the disposal represents a
strategic shift that has (or will have) a major effect on the entity’s operations and financial results. This update is effective for
annual and corresponding interim reporting periods beginning on or after December 15, 2014. The adoption of this guidance
did not have an impact on the company's financial position, results of operations or cash flows.
73
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”. This update amends
the current guidance on revenue recognition related to contracts with customers. Under ASU No. 2014-09, an entity should
recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 also requires additional
disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts,
including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a
contract. In July 2015 the FASB decided to delay the effective date of the new revenue standard to be effective for interim and
annual periods beginning on or after December 15, 2017 for public companies and December 15, 2018 for private companies.
Companies may elect to adopt the standard at the original effective date for public entities, that is, for interim and annual
periods beginning on or after December 15, 2016, but not earlier. The guidance can be applied using one of two retrospective
application methods. The company is evaluating the impact of adopting this new standard on the consolidated financial
statements.
In June 2014, the FASB issued ASU No. 2014-12, “Compensation - Stock Compensation”. This update requires that a
performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance
condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This
update is effective for annual and corresponding interim reporting periods beginning on or after December 15, 2015. Early
adoption is permitted. The company is evaluating the impact the application of this ASU will have, if any, on the company’s
financial position, results of operations and cash flows.
In January 2015, the FASB issued ASU No. 2015-01, "Income Statement - Extraordinary and Unusual Items". This
update eliminates the concept of extraordinary items from the current guidance. This update is effective for annual and
corresponding interim reporting periods beginning after December 15, 2015. Early adoption is permitted provided the
guidance is applied from the beginning of the fiscal year of adoption. Retrospective application is encouraged for all prior
periods presented in the financial statements. The company is evaluating the impact the application of this ASU will have, if
any, on the company’s financial position, results of operations and cash flows.
In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest: Simplifying the Presentation of Debt
Issuance Costs", which requires debt issuance costs to be recorded as a direct reduction of the debt liability on the balance sheet
rather than as an asset. The standard is effective for fiscal years beginning after December 15, 2015 and early adoption is
permitted. The new guidance will be applied retrospectively to each prior period presented. The company does not expect the
adoption of this standard to have a material impact on its consolidated balance sheets.
In April 2015, the FASB issued ASU 2015-04, "Practical Expedient for the Measurement Date of an Employer's
Defined Benefit Obligation and Plan Assets". This ASU is intended to provide a practical expedient for the measurement date
of defined benefit plan assets and obligations. The practical expedient allows employers with fiscal year-end dates that do not
fall on a calendar month-end (e.g., companies with a 52/53-week fiscal year) to measure pension and post-retirement benefit
plan assets and obligations as of the calendar month-end date closest to the fiscal year-end. The FASB also provided a similar
practical expedient for interim remeasurements for significant events. This ASU requires perspective application and is
effective for annual reporting periods beginning after December 15, 2015 and interim periods within those fiscal years. Early
adoption is permitted. The company is evaluating the impact the application of this ASU will have, if any, on the company’s
financial position, results of operations and cash flows.
In August 2015, the FASB issued ASU 2015-15, “Interest - Imputation of Interest” which relates to the presentation of
debt issuance costs. This standard clarifies the guidance set forth in FASB ASU 2015-03, which required that debt issuance
costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the debt liability rather
than as an asset. The new pronouncement clarifies that debt issuance costs related to line-of-credit arrangements could continue
to be presented as an asset and be subsequently amortized over the term of the line-of-credit arrangement, regardless of whether
there are any outstanding borrowings on the arrangement. The company does not expect the adoption of this standard to have a
material impact on its consolidated balance sheets.
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which is intended to
simplify the subsequent measurement of inventories by replacing the current lower of cost or market test with a lower of cost
and net realizable value test. The guidance applies only to inventories for which cost is determined by methods other than last-
in first-out and the retail inventory method. Application of the standard, which should be applied prospectively, is required for
the annual and interim periods beginning after December 15, 2016. Early adoption is permitted. The company is currently
evaluating the impact the new standard will have on its consolidated financial statements.
74
In September 2015, the FASB issued ASU 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting
for Measurement-Period Adjustments”, which eliminates the requirement for an acquirer in a business combination to account
for measurement-period adjustments retrospectively. Instead, acquirers must recognize measurement-period adjustments
during the period in which they determine the amounts, including the effect on earnings of any amounts they would have
recorded in previous periods if the accounting had been completed at the acquisition date. The ASU is effective for public
business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early
adoption is permitted. The company does not expect the adoption of this standard to have a material impact on its financial
condition, results of operations or cash flows.
In November 2015, the FASB issued ASU 2015-17 "Income Taxes (Topic 740): Balance Sheet Classification of
Deferred Taxes". The amendments in ASU 2015-17 simplify the accounting for, and presentation of, deferred taxes by
eliminating the need to separately classify the current amount of deferred tax assets or liabilities. Instead, aggregated deferred
tax assets and liabilities are classified and reported as non-current assets or liabilities. The update is effective for annual
reporting periods, and interim periods within those reporting periods, beginning after December 15, 2016. Early adoption is
permitted for financial statements that have not been issued. The company is currently evaluating the impact the new standard
will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)". The amendments under this
pronouncement will change the way all leases with a duration of one year of more are treated. Under this guidance, lessees will
be required to capitalize virtually all leases on the balance sheet as a right-of-use asset and an associated financing lease
liability or capital lease liability. The right-of-use asset represents the lessee’s right to use, or control the use of, a specified
asset for the specified lease term. The lease liability represents the lessee’s obligation to make lease payments arising from the
lease, measured on a discounted basis. Based on certain characteristics, leases are classified as financing leases or operating
leases. Financing lease liabilities, those that contain provisions similar to capitalized leases, are amortized like capital leases are
under current accounting, as amortization expense and interest expense in the statement of operations. Operating lease
liabilities are amortized on a straight-line basis over the life of the lease as lease expense in the statement of operations. This
update is effective for annual reporting periods, and interim periods within those reporting periods, beginning after December
15, 2018. The company is currently evaluating the impact this standard will have on its policies and procedures pertaining to its
existing and future lease arrangements, disclosure requirements and on its consolidated financial statements.
75
(5)
FINANCING ARRANGEMENTS
The following is a summary of long-term debt at January 2, 2016 and January 3, 2015:
Senior secured revolving credit line
Foreign loans
Other debt arrangement
Total debt
2015
2014
(dollars in thousands)
$
$
733,000
32,813
248
766,061
$
$
587,500
10,384
283
598,167
Less current maturities of long-term debt
32,059
9,402
Long-term debt
$
734,002
$
588,765
On August 7, 2012, the company entered into a 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 January 2, 2016, the
company had $733.0 million of borrowings outstanding under this facility. The company also had $6.9 million in outstanding
letters of credit as of January 2, 2016, which reduces the borrowing availability under the revolving credit line. Remaining
borrowing availability under this facility was $260.1 million at January 2, 2016.
At January 2, 2016, borrowings under the senior secured credit facility are assessed at an interest rate of 1.50% above
LIBOR for long-term borrowings or at the higher of the Prime rate and the Federal Funds Rate. At January 2, 2016 the average
interest rate on the senior debt amounted to 1.87%. 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 0.25% as of January 2, 2016.
In September 2015, the company completed its acquisition of Aga Rangemaster Group plc in the United Kingdom. At
the time of acquisition, credit facilities denominated in British Pounds, Euro and U.S. dollars, had been established to fund
local working capital needs. At January 2, 2016, these credit facilities amounted to $24.7 million in U.S. dollars. At January 2,
2016, the average interest rate assessed on these facilities was approximately 1.98%.
In addition, the company has other international credit facilities to fund working capital needs outside the United
States and the United Kingdom. At January 2, 2016, these foreign credit facilities amounted to $8.1 million in U.S. dollars with
a weighted average interest rate of approximately 9.0%.
The company’s debt is reflected on the balance sheet at cost. Based on current market conditions, the company
believes its interest rate margins on its existing debt are consistent with current market conditions and therefore the carrying
value of debt reflects the fair 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.
76
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
January 2, 2016
January 3, 2015
Carrying Value
766,061
$
Fair Value
$
766,061
Carrying Value
598,167
$
Fair Value
$
598,167
The company has historically entered into interest rate swap agreements to effectively fix the interest rate on a portion
of its outstanding debt. The agreements swap one-month LIBOR for fixed rates. As of January 2, 2016, the company had the
following interest rate swaps in effect:
Notional
Amount
25,000,000
15,000,000
25,000,000
25,000,000
25,000,000
35,000,000
10,000,000
15,000,000
25,000,000
Fixed
Interest
Rate
Effective
Date
Maturity
Date
2.520%
1.185%
0.635%
0.789%
0.803%
0.880%
1.480%
0.920%
0.950%
2/23/2011
9/12/2011
2/11/2013
2/11/2013
2/11/2013
2/11/2013
9/11/2013
3/11/2014
3/11/2014
2/23/2016
9/12/2016
8/11/2016
3/11/2017
5/11/2017
7/11/2017
7/11/2017
7/11/2017
7/11/2017
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 January 2, 2016, the company was in compliance with all
covenants pursuant to its borrowing agreements.
77
The aggregate amount of debt payable during each of the next five years is as follows:
2016
2017
2018
2019
2019 and thereafter
(in thousands)
32,059
733,315
102
102
483
766,061
$
$
(6)
(a)
COMMON AND PREFERRED STOCK
Shares Authorized and Issued
At January 2, 2016 and January 3, 2015, the company had 95,000,000 shares of common stock and 2,000,000 shares
of non-voting preferred stock authorized. At January 2, 2016 and January 3, 2015, there were 57,306,082 and 57,271,680,
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 common shares in open market purchases. During 2013, the company's Board of Directors authorized the purchase
of additional common shares in open market purchases. As of December 28, 2013, the total number of shares authorized for
repurchase under the program is 4,570,266. As of January 2, 2016, 1,960,219 shares had been purchased under the 1998 stock
repurchase program and 2,610,047 remain authorized for repurchase.
At January 2, 2016, the company had a total of 4,862,264 shares in treasury amounting to $200.9 million.
(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 provided key employees with
rights to purchase shares of common stock at specified exercise prices. Options were exercised upon certain vesting
requirements being met, but expired 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.
•
•
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 January 2, 2016, a total of 2,683,554 share-based awards have been issued under the 2007 Plan. This includes
2,672,667 restricted share grants, of which 7,200 remain outstanding and unvested. This also includes 10,887 stock
options, of which 2,124 have been exercised, 7,791 have been forfeited and zero remain outstanding.
2011 Stock Incentive Plan (the "2011 Plan"), as created on April 1, 2011, under which the company's Board of
Directors issues stock grants to key employees. A maximum amount of 1,650,000 shares can be issued under the 2011
Plan. Stock grants issued to employees are transferable upon certain vesting requirements.
As of January 2, 2016, a total of 470,511 share-based awards have been issued under the 2011 Plan. This includes
470,511 restricted share grants, of which 333,704 remain outstanding and unvested.
78
A summary of the company’s nonvested restricted share grant activity for fiscal years ended January 2, 2016 and
January 3, 2015 is as follows:
Nonvested shares at December 28, 2013
Granted
Vested
Forfeited
Nonvested shares at January 3, 2015
Granted
Vested
Forfeited
Nonvested shares at January 2, 2016
Weighted
Average
Grant-Date
Fair Value
29.89
87.80
29.12
29.99
Shares
1,164,774
$
369,807
(1,141,974)
(6,000)
386,607
$
85.25
100,704
(125,457)
(20,950)
107.81
83.93
80.29
340,904
$
94.86
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
2015
$
2014
(dollars in thousands)
— $
— $
—
—
—
—
2013
80,528
3,842
20,196
79
(7)
INCOME TAXES
Earnings before taxes is summarized as follows:
2015
Domestic
Foreign
Total
The provision for income taxes is summarized as follows:
$
$
2015
Federal
State and local
Foreign
Total
Current
Deferred
Total
$
$
$
$
2014
(dollars in thousands)
$
$
240,936
39,854
280,790
$
266,831
14,336
281,167
$
2014
(dollars in thousands)
$
$
78,617
9,515
1,425
89,557
87,638
1,919
89,557
$
$
$
69,536
9,316
8,626
87,478
72,137
15,341
87,478
$
$
$
2013
195,435
30,346
225,781
2013
60,232
3,248
8,373
71,853
74,828
(2,975)
71,853
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
U.S. domestic manufacturers deduction
Permanent book vs. tax differences
Foreign tax rate differentials
Reserve adjustments and other
Consolidated effective tax
2015
2014
2013
35.0%
35.0%
35.0%
2.1
(2.6)
(1.1)
(2.1)
0.6
31.9%
2.2
(2.3)
(2.0)
(1.9)
0.2
31.2%
0.9
(2.6)
(1.2)
(1.0)
0.7
31.8%
80
At January 2, 2016 and January 3, 2015, the company had recorded the following deferred tax assets and liabilities:
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
Foreign 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
Interest rate swap
Other
Deferred tax liabilities
Net deferred tax assets (liabilities)
Current deferred asset
Long-term deferred asset
Long-term deferred liability
Net deferred tax assets (liabilities)
2014
2015
(dollars in thousands)
13,416
19,160
43,930
8,183
5,811
9,252
3,069
3,520
1,483
17,549
—
32,347
157,720
(20,395)
137,325
$
$
7,020
17,092
8,211
6,503
7,810
9,191
3,277
3,727
2,731
—
157
18,154
83,873
—
83,873
(182,471) $
(1,363)
(93)
(551)
(6)
(2,690)
(111,501)
(3,029)
(90)
(1,366)
—
(2,745)
(187,174) $
(118,731)
(49,849) $
(34,858)
$
51,723
11,438
(113,010)
(49,849) $
51,017
2,925
(88,800)
(34,858)
$
$
$
$
$
$
$
The company does not provide for deferred taxes and foreign withholding taxes on the remaining undistributed
earnings of certain international subsidiaries of approximately $104.5 million and $86.1 million as of January 2, 2016 and
January 3, 2015, 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 January 2, 2016, the company has U.S. federal and foreign income tax net operating loss carryforwards of
approximately $38.3 million and $67.1 million, respectively. If not utilized, the federal and state net operating loss
carryforwards will expire at various dates beginning 2024 through 2035. The foreign net operating losses have no expiration
period. Certain of these carryforwards are subject to limitations on use due to tax rules affecting acquired tax attributes, loss
sharing between group members, and business profitability, and therefore the company has established tax-effected valuation
allowances against these tax benefits.
81
The valuation allowances that the company has provided against the deferred tax assets, primarily related to the
acquisition of AGA in 2015 in the amount of $20.4 million. The company will continue to maintain a valuation allowance on
certain deferred tax assets until such time as in management’s judgment, considering all available positive and negative
evidence, the company determines that these deferred tax assets are more likely than not realizable.
As of January 2, 2016, the total amount of liability for unrecognized tax benefits related to federal, state and foreign
taxes was approximately $14.4 million (of which $14.1 million would impact the effective tax rate if recognized) plus
approximately $1.9 million of accrued interest and $3.8 million of penalties. The company recognizes interest and penalties
accrued related to unrecognized tax benefits in income tax expense. Interest recognized in fiscal years 2015, 2014 and 2013
was $0.3 million, $(0.3) million and $0.4 million, respectively. Penalties recognized in fiscal years 2015, 2014 and 2013 was
$0.8 million, $1.1 million and $0.2 million, respectively.
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 following table summarizes the activity related to the unrecognized tax benefits for the fiscal years ended
December 28, 2013, January 3, 2015 and January 2, 2016 (dollars in thousands):
Balance at December 28, 2013
$
12,727
Increases to current year tax positions
Increase to prior year tax positions
Decrease to prior year tax positions
Settlements
Lapse of statute of limitations
3,270
1,105
(189)
(4,092)
(347)
Balance at January 3, 2015
$
12,474
Increases to current year tax positions
Increase to prior year tax positions
Decrease to prior year tax positions
Settlements
Lapse of statute of limitations
3,089
116
(755)
—
(505)
Balance at January 2, 2016
$
14,419
82
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 $1.6 million of its remaining unrecognized tax benefits may be recognized by the end of 2016
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
Czech Republic
Denmark
France
Germany
India
Ireland
Italy
Luxembourg
Mexico
Netherlands
Philippines
Romania
South Korea
Spain
Sweden
Switzerland
Taiwan
United Kingdom
2012 – 2015
2006 – 2015
2011 – 2015
2011 – 2015
2009 – 2015
2006 – 2015
2013 – 2015
2012 – 2015
2011 – 2015
2013 – 2015
2013 – 2015
2009 – 2015
2011 – 2015
2011 – 2015
2010 – 2015
2004 – 2015
2012 – 2015
2006 – 2015
2010 – 2015
2011 – 2015
2009 – 2015
2008 – 2015
2010 – 2015
2003 – 2015
83
(8) FINANCIAL INSTRUMENTS
ASC 815 “Derivatives and Hedging” requires an entity to recognize all derivatives as either assets or liabilities and
measure those instruments at fair value. Derivatives that do not qualify as a hedge must be adjusted to fair value in earnings. If
the derivative does qualify as a hedge under ASC 815, changes in the fair value will either be offset against the change in fair
value of the hedged assets, liabilities or firm commitments or recognized in other accumulated other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a hedge's change in fair value will be immediately
recognized in earnings.
(a)
Foreign Exchange
The company periodically enters into derivative instruments, principally forward contracts to reduce exposures
pertaining to fluctuations in foreign exchange rates. The fair value of these forward contracts was a gain of $0.8 million at the
end of the year.
(b)
Interest Rate
The company has entered into interest rate swaps to fix the interest rate applicable to certain of its variable-rate debt.
The agreements swap one-month LIBOR for fixed rates. The company has designated these swaps as cash flow hedges and all
changes in fair value of the swaps are recognized in accumulated other comprehensive income. As of January 2, 2016, the fair
value of these instruments was a liability of $0.4 million. The change in fair value of these swap agreements in 2015 was a gain
of $0.2 million, net of taxes.
A summary of the company’s interest rate swaps is as follows:
Twelve Months Ended
Location
Jan 2, 2016
Jan 3, 2015
(dollars in thousands)
Fair value
Other liabilities
$
(412) $
(810)
Amount of gain/(loss) recognized in other comprehensive
income
Gain/(loss) reclassified from accumulated other comprehensive
income (effective portion)
Gain/(loss) recognized in income (ineffective portion)
Other
comprehensive
income
Interest expense
Other expense
$
$
$
(1,502) $
(1,494)
(1,909) $
$
9
(2,151)
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.
84
(9)
LEASE COMMITMENTS
The company leases warehouse space, office facilities and equipment under operating leases, which expire in fiscal
2016 and thereafter. Future minimum payment obligations under these leases are as follows:
2016
2017
2018
2019
2020
2021 and thereafter
Total
Operating
Lease
Commitments
$
24,493
19,583
12,877
12,961
9,370
26,159
$
105,443
Rental expense pertaining to the operating leases was $17.6 million, $14.9 million and $11.0 million in fiscal 2015,
2014 and 2013 respectively.
(10)
SEGMENT INFORMATION
The company operates in three reportable operating segments defined by management reporting structure and
operating activities.
The Commercial Foodservice Equipment Group manufactures, sells, and distributes foodservice 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, Washington, 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, food warming equipment, griddles, coffee and beverage
dispensing equipment, professional refrigerators, coldrooms, ice machines, freezers 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, Celfrost, Concordia, CookTek, Desmon, Doyon, Eswood, Frifri, Giga,
Goldstein, Holman, Houno, IMC, Induc, Jade, Lang, Lincat, MagiKitch’n, Market Forge, Marsal, Middleby Marshall, MPC,
Nieco, Nu-Vu, PerfectFry, Pitco, Southbend, Star, Toastmaster, TurboChef, Wells and Wunder-Bar.
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 Georgia, Illinois, Iowa,
North Carolina, Texas, Virginia, Wisconsin, France, Germany and the United Kingdom. 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, water cutting systems, 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, Cozzini, Danfotech, Drake, Maurer-Atmos, MP Equipment, RapidPak, Spooner Vicars, Stewart Systems and Thurne.
The Residential Kitchen Equipment Group manufactures, sells and distributes kitchen equipment for the residential
market. This business segment has manufacturing facilities in California, Michigan, Mississippi, Wisconsin, France, Ireland,
Romania and the United Kingdom. Principal product lines of this group are ranges, cookers, ovens, refrigerators, dishwashers,
microwaves, cooktops and outdoor equipment. These products are sold and marketed under the brand names of Brigade,
Divertimenti, Falcon, Fired Earth, Grange, Heartland, La Cornue, Leisure Sinks, Lynx, Marvel, Mercury, Rangemaster,
Rayburn, Redfyre, Sedona, Stanley, TurboChef, U-Line and Viking.
85
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 arm's length transfer prices.
The following table summarizes the results of operations for the company’s business segments(1,2) (dollars in
thousands):
2015
Net sales
Operating income
Depreciation and amortization expense
Net capital expenditures
Total assets
Long-lived assets
2014
Net sales
Operating income
Depreciation and amortization expense
Net capital expenditures
Total assets
Long-lived assets
2013
Net sales
Operating income
Depreciation and amortization expense
Net capital expenditures
Total assets
Long-lived assets
Commercial
Foodservice
Food
Processing
Residential
Kitchen
Corporate
and Other(3)
Total
$
$
$
$
$
$
1,121,046
296,061
17,117
12,123
1,115,840
61,835
1,041,228
269,559
19,661
6,752
1,053,921
50,211
895,494
234,190
18,787
7,227
1,000,065
47,490
$
$
$
297,712
64,650
5,839
2,164
308,677
20,307
322,783
67,395
6,601
4,487
304,241
19,627
301,522
49,528
8,387
3,140
303,289
12,475
$
$
$
407,840
4,653
29,515
7,935
1,250,503
129,751
272,527
14,585
13,356
1,811
636,680
71,500
231,669
10,815
14,148
4,090
441,299
60,570
— $ 1,826,598
302,603
54,074
22,362
2,761,151
233,220
(62,761)
1,603
140
86,131
21,327
— $ 1,636,538
300,432
41,252
13,143
2,066,131
151,478
(51,107)
1,634
93
71,289
10,140
— $ 1,428,685
244,462
43,164
14,640
1,819,206
137,573
(50,071)
1,842
183
74,553
17,038
(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 consist of property, plant and equipment, long-term deferred tax assets and other assets.
(3) Includes corporate and other general company assets and operations.
86
Long-lived assets, not including goodwill and other intangibles (in thousands):
2015
Geographic Information
United States and Canada
$
149,299
Asia
Europe and Middle East
Latin America
Total international
Net sales (in thousands):
United States and Canada
Asia
Europe and Middle East
Latin America
Total international
2014
(dollars in thousands)
$
127,308
$
17,336
65,581
1,004
83,921
5,714
16,739
1,717
24,170
2013
115,162
5,133
15,762
1,516
22,411
$
233,220
$
151,478
$
137,573
2015
2014
(dollars in thousands)
$ 1,139,034
$ 1,274,907
$ 1,049,280
2013
165,541
319,387
66,763
551,691
171,995
222,974
102,535
497,504
109,599
187,381
82,425
379,405
$ 1,826,598
$ 1,636,538
$ 1,428,685
(11)
EMPLOYEE RETIREMENT PLANS
(a)
Pension Plans
U.S. Plans:
The company maintains a non-contributory defined benefit plan for its union employees at the Elgin, Illinois facility.
Benefits are determined based upon retirement age and years of service with the company. This defined benefit plan was frozen on
April 30, 2002, and no further benefits accrue to the participants beyond this date. Plan participants will receive or continue to
receive payments for benefits earned on or prior to April 30, 2002 upon reaching retirement age.
The 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 also maintains a retirement benefit agreement with its Chairman ("Chairman Plan"). The retirement benefits
are based upon a percentage of the Chairman’s final base salary using a weighted average rate of increase in future compensation
levels of 10.0%.
Non-U.S. Plans:
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.
87
The company maintains several pension plans related to AGA and its subsidiaries (collectively, the "AGA Group"), the most
significant being the Aga Rangemaster Group Pension Scheme, which covers the majority of employees in the United Kingdom.
Membership in the plan on a defined benefit basis of pension provision was closed to new entrants in 2001. The plan became open
to new entrants on a defined contribution basis of pension provision in 2002, but was generally closed to new entrants on this basis
during 2014.
The other, much smaller, defined benefit pension plans operating within the AGA Group cover employees in France, Ireland
and the United Kingdom. All pension plan assets are held in separate trust funds although the net defined benefit pension obligations
are included in the company's consolidated balance sheet.
88
A summary of the plans’ net periodic pension cost, benefit obligations, funded status, and net balance sheet position is as
follows (dollars in thousands):
Net Periodic Pension Cost:
Service cost
Interest cost
Expected return on assets
Amortization of net loss (gain)
Curtailment loss
Pension settlement
Change in Benefit Obligation:
Benefit obligation – beginning of year
Benefit obligation – acquisition
Service cost
Interest on benefit obligations
Employee contributions
Actuarial (gain) loss
Pension settlement
Net benefit payments
Curtailment loss
Exchange effect
Benefit obligation – end of year
Change in Plan Assets:
Plan assets at fair value – beginning of year
Plan assets at fair value – acquisition
Company contributions
Investment (loss) gain
Employee contributions
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:
Accrued pension benefits
Pre-tax components in accumulated other comprehensive
income:
Net actuarial loss
Net prior service cost
Net transaction (asset) obligations
Total amount recognized
Accumulated Benefit Obligation
Salary growth rate
Assumed discount rate
Expected return on assets
Fiscal 2015
Fiscal 2014
U.S. Plans
Non-U.S.
Plans
U.S. Plans
Non-U.S.
Plans
$
$
$
$
$
$
$
$
$
$
$
505
1,286
(844)
694
—
—
1,641
$
$
1,216
12,992
(20,547)
—
3,202
—
(3,137)
33,907
2,988
505
1,286
—
(2,960)
—
(922)
—
—
34,804
13,575
2,943
881
(590)
—
(922)
—
15,887
$
16,114
1,495,089
1,216
12,992
182
8,668
—
(24,179)
3,202
(36,914)
$ 1,476,370
$
15,306
1,305,506
16,950
6,173
182
(24,179)
(32,215)
$ 1,287,723
(18,917)
$ (188,647)
(18,917)
$ (188,647)
5,811
—
—
5,811
$
$
20,457
—
—
20,457
33,080
$ 1,475,631
n/a
4.1%
5.6%
0.4%
3.7%
6.2%
$
$
$
$
$
$
$
$
$
$
$
447
1,289
(799)
(46)
—
—
891
27,748
—
447
1,289
—
5,293
—
(870)
—
—
33,907
13,324
—
913
208
—
(870)
—
13,575
(20,332)
(20,332)
8,030
—
—
8,030
30,567
n/a
3.8%
6.0%
—
639
(996)
—
—
—
(357)
15,745
—
—
639
—
1,273
—
(634)
—
(909)
16,114
15,172
—
511
1,133
—
(634)
(876)
15,306
(808)
(808)
2,188
—
—
2,188
16,114
n/a
3.6%
6.3%
$
$
$
$
$
$
$
$
$
$
$
89
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):
U.S. Plans:
Equity
Fixed income
Money market
Other (real estate investment trusts & commodities contracts)
Non-U.S. Plans:
Equity
Fixed income
Alternatives/Other
Real Estate
Cash and cash equivalents
Target
Allocation
Percentage of Plan Assets
45%
45
3
7
2015
43%
46
4
7
2014
48%
36
4
12
100%
100%
100%
Target
Allocation
Percentage of Plan Assets
16%
45
28
11
—
2015
19%
44
20
12
5
2014
72%
24
—
—
4
100%
100%
100%
90
In accordance with ASC 820 “Fair Value Measurements and Disclosures”, the company has measured its defined benefit
pension plans at fair value. The following tables summarize the basis used to measure the pension plans’ assets at fair value as of
January 2, 2016 (in thousands):
U.S. Plans:
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)
$
1,371
$
— $
1,371
$
Equity Securities:
Large Cap
Mid Cap
Small Cap
International
Fixed Income:
Government/Corporate
High Yield
Alternative:
Global Real Estate Investment Trust
Commodities Contracts
3,402
437
575
2,298
4,831
819
1,773
381
3,149
383
383
2,291
4,311
778
771
381
253
54
192
7
520
41
1,002
—
Total
$
15,887
$
12,447
$
3,440
$
—
—
—
—
—
—
—
—
—
—
(a) Represents collective short term investment fund, composed of high-grade money market instruments with short maturities.
91
Non-U.S. Plans:
Asset Category
Cash and cash equivalents
Equity Securities:
UK
International:
Developed
Emerging
Unquoted/Private Equity
Fixed Income:
Government/Corporate:
UK
International
Index Linked
Other
Convertible Bonds
Real Estate:
Direct
Indirect
Hedge Fund Strategy:
Equity Long/Short
Arbitrage & Event
Directional Trading & Fixed Income
Cash & Other
Direct Sourcing
Leveraged Loans
Alternative/Other
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Total
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
73,005
$
64,651
$
8,354
$
91,269
91,075
194
147,278
144,864
6,375
759
6,375
759
2,414
—
—
50,376
59,518
—
—
—
118,332
67,217
258,502
3,518
1,471
—
177
140,764
13,440
—
—
3,584
—
—
—
80,230
92,635
51,840
2,557
1,655
10,824
168,708
126,735
258,502
3,518
1,471
140,764
13,617
80,230
92,635
55,424
2,557
1,655
10,824
12,397
12,062
335
$ 1,287,723
$
772,587
$
515,136
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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.
92
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):
2016
2017
2018
2019
2020 through 2025
$
U.S.
Plans
Non-U.S.
Plans
$
1,184
1,203
1,907
1,909
11,913
63,628
65,323
66,322
68,185
427,101
Expected contributions to the U.S. Plans and Non-US Plans to be made in 2016 are $0.9 million and $18.7 million,
respectively.
(b)
Defined Contribution Plans
As of January 2, 2016, 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. The company also maintains defined contribution plans for its U.K.
based employees.
(12) QUARTERLY DATA (UNAUDITED)
2015
Net sales
Gross profit
Income from operations
Net earnings
Basic earnings per share (1)
Diluted earnings per share (1)
2014
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)
$
$
$
$
$
$
$
$
406,596
157,562
66,580
38,231
0.67
0.67
372,478
142,976
55,933
33,445
0.59
0.59
$
$
$
$
$
$
$
$
436,291
172,889
83,360
54,267
0.95
0.95
424,776
166,174
75,739
48,405
0.85
0.85
$
$
$
$
$
$
$
$
449,004
177,182
80,030
48,825
0.86
0.86
404,289
162,380
86,465
59,713
1.05
1.05
$
$
$
$
$
$
$
$
534,707
198,872
72,633
50,287
$ 1,826,598
706,505
302,603
191,610
$
0.88
0.88
$
$
3.36
3.36
434,995
169,055
82,295
51,749
$ 1,636,538
640,585
300,432
193,312
$
0.91
0.91
$
$
3.41
3.40
(1) Sum of quarters may not equal the total for the year due to changes in the number of shares outstanding during the year.
93
(13)
RESTRUCTURING AND ACQUISITION INTEGRATION INITIATIVES
During the fiscal year 2015, the company incurred restructuring charges relative to each of its business segments. The
costs and corresponding reserve balances (by segment) are summarized as follows (in thousands):
Commercial Foodservice Equipment Group:
During the third quarter of 2015, the company closed one manufacturing facility within the Commercial Foodservice
Equipment Group and transferred production to another existing manufacturing facility within the company. This action, which
is not material to the company’s operations, resulted in a charge of $0.9 million for severance and lease costs in restructuring
expenses in the consolidated statements of earnings for the year ended, January 2, 2016. The company estimates that these
restructuring initiatives will result in future cost savings of approximately $1.0 million annually, beginning in fiscal year 2016
and no significant future costs related to this action are expected.
Food Processing Equipment Group:
During the third quarter of 2015, the company closed one manufacturing facility within the Food Processing
Equipment Group and transferred production to another existing manufacturing facility within the company. This action, which
is not material to the company’s operations, resulted in a charge of $2.4 million for severance and lease costs in restructuring
expenses and $0.2 million in cost of sales in the consolidated statements of earnings for the year ended, January 2, 2016. The
company estimates that these restructuring initiatives will result in future cost savings of approximately $3.5 million annually,
beginning in fiscal year 2016 and no significant future costs related to this action are expected.
Residential Kitchen Equipment Group:
During the fiscal years 2015 and 2014, the company has taken actions to improve the operations of Viking within the
Residential Kitchen Equipment Group. Additionally, during the fourth quarter of 2015, the company undertook acquisition
integration initiatives related to AGA within the Residential Kitchen Equipment Group. These initiatives included
organizational restructuring and headcount reductions, consolidation and disposition of certain facilities and business
operations. The company recorded expense in the amount of $25.5 million, $7.1 million and $9.1 million, respectively in the
years ended January 2, 2016, January 3, 2015 and December 28, 2013, respectively. This expense is reflected in restructuring
expenses in the consolidated statements of earnings for such periods. The company estimates that these restructuring initiatives
will result in future cost savings of approximately $24.1 million annually, beginning in fiscal year 2015, primarily related to
compensation and facility costs. The company anticipates that all severance obligations for the Residential Kitchen Equipment
Group will be satisfied by the end of fiscal of 2016. The lease obligations extend through July 2020.
Expenses
Payments
Balance as of December 28, 2013
Expenses
Payments
Balance as of January 3, 2015
Expenses
Payments
Severance/
Benefits
Inventory/
Product
Facilities/
Operations
$
$
$
$
$
5,963
(4,344)
1,619
3,776
(5,248)
$
$
1,203
(619)
584
(151)
(433)
$
$
1,466
(1,389)
77
3,457
(3,534)
147
$
— $
— $
18,142
(2,628)
—
—
7,248
(2,606)
4,642
$
Other
Total
469
(361)
108
(4)
(67)
37
108
(25)
120
$
$
$
$
9,101
(6,713)
2,388
7,078
(9,282)
184
25,498
(5,259)
20,423
Balance as of January 2, 2016
$
15,661
$
— $
94
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED JANUARY 2, 2016, JANUARY 3, 2015
AND DECEMBER 28, 2013
Balance
Beginning
Of Period
Additions/
(Recoveries)
Charged
to Expense
Write-Offs
During the
the Period
Balance
At End
Of Period
Allowance for doubtful accounts; deducted
from accounts receivable on the balance
sheets-
2015
2014
2013
$ 9,091,000
$ 6,987,000
$ 6,377,000
$
$
$
1,108,900
$ (1,361,400) $ 8,838,500
3,075,000
1,571,000
$
$
(971,000) $ 9,091,000
(961,000) $ 6,987,000
Balance
Beginning
Of Period
Additions/
(Recoveries)
Charged
to Expense(1)
Write-Offs
During the
the Period
Balance
At End
Of Period
Valuation allowance - Deferred tax assets
2015
$
— $ 20,395,200
$
— $ 20,395,200
(1) Reserve related to the acquisition of AGA.
95
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 January 2, 2016. Based on the foregoing, the
company's Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and
procedures were effective as of the end of this period.
Changes in Internal Control Over Financial Reporting
During the quarter ended January 2, 2016, 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.
96
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. 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 (2013 framework) (COSO). Our assessment of the internal control structure excluded Desmon (acquired January
7, 2015), Goldstein Eswood (acquired January 30, 2015), Thurne (acquired April 7, 2015), Induc (acquired May 30, 2015),
AGA (acquired September 30, 2015) and Lynx (acquired December 15, 2015). These acquisitions constitute 6.3% and 26.3%
of net and total assets, respectively, 8.9% of net sales and (5.8)% of net income of the consolidated financial statements of the
Company as of and for the year ended January 2, 2016. These acquisitions are included in the consolidated financial statements
of the company as of and for the year ended January 2, 2016. Under guidelines established by the Securities Exchange
Commission, companies are allowed to exclude acquisitions from their assessment of internal control over financial reporting
during the first year of an acquisition while integrating the acquired company.
Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our
internal control over financial reporting was effective as of January 2, 2016.
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 January 2, 2016.
The Middleby Corporation
March 2, 2016
97
Item 9B. Other Information
Not applicable.
98
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.
99
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
3.1
3.2
3.3
3.4
4.1
10.1
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
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.
Third Amended and Restated Bylaws of The Middleby Corporation (effective as of May
14, 2013), incorporated by reference to the company's Form 8-K, Exhibit 3.1, dated May
14, 2013, filed on May 17, 2013.
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 Amendment to the Restated Certificate of Incorporation of The Middleby
Corporation (effective as of May 8, 2014), incorporated by reference to the company's
Form 8-K, Exhibit 3.1, dated May 6, 2014, filed on May 8, 2014.
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.
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.
Employment Agreement by and between The Middleby Corporation and Timothy J.
FitzGerald, dated March 21, 2013, incorporated by reference to the company's Form 8-K
Exhibit 10.1, dated March 21, 2013, filed on March 25, 2013.
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.
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.
100
10.8*
10.9*
10.10*
10.11*
21
23.1
31.1
31.2
32.1
32.2
101
Employment Agreement by and between The Middleby Corporation and Selim A. Bassoul,
dated as of January 25, 2013, incorporated by reference to the company's Form 8-K Exhibit
10.1, dated January 25, 2013, filed on January 28, 2013.
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 Commission 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 Commission on April 1, 2011.
Form of Restricted Performance Stock Agreement for The Middleby Corporation 2011
Long-Term Incentive Plan, incorporated by reference to Exhibit 10.1 to the company's
Form 8-K, dated February 24, 2014, filed on March 3, 2014.
List of subsidiaries.
Consent of Ernst & Young 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 January 2, 2016, filed on March 2,
2016, 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.
101
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 2nd day of March 2016.
SIGNATURES
THE MIDDLEBY CORPORATION
BY:
/s/ Timothy J. FitzGerald
Timothy J. FitzGerald
Vice President,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated on March 2, 2016.
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/ Cathy L. McCarthy
Cathy L. McCarthy
/s/ Sarah Palisi Chapin
Sarah Palisi Chapin
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
Director
102
Subsidiaries of The Middleby Corporation(1)
EXHIBIT 21
Name of Subsidiary
State/Country of
Incorporation/Organization
AGA Rangemaster Group PLC
AGA Rangemaster Ltd
AGA Rangemaster Properties Ltd
AGA Rayburn Ltd
Alkar Holdings, Inc.
Alkar-RapidPak, Inc.
Anetsberger, LLC
ARG Corporate Services Ltd
Armor Inox Holding France S.A.S.
Armor Inox Production S.a.r.l.
Armor Inox S.A.
Armor Inox Services S.A.S.
Armor Inox UK Ltd
Armor Inox USA LLC
Auto-Bake Acquisition Pty. Ltd
Auto-Bake Pty Ltd
Automatic Bar Controls, Inc.
Baker Thermal Solutions LLC
Beech Ovens LLC
Beech Ovens Pty Ltd
Blodgett Holdings, Inc.
Britannia Kitchen Ventilation
Carter-Hoffmann LLC
Catering Equipment Industry srl
Cloverleaf Properties, Inc.
Concordia Coffee Company, Inc.
CookTek Induction Systems, LLC
Cozzini do Brasil Ltda
Cozzini Middleby de Mexico, S. de R.L.de C.V.
Cozzini Middleby Europe, S.r.l.
Cozzini, LLC
Cranmore Property Ltd
Danfotech Holdings, LLC
Danfotech Inc.
Desmon S.p.A.
Divertimenti Ltd
Doyon Acquisition Company, LLC
Doyon Equipment Inc.
Eswood Australia Pty Ltd
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Wisconsin
Wisconsin
Delaware
United Kingdom
France
France
France
France
United Kingdom
Delaware
Australia
Australia
Delaware
Delaware
Delaware
Australia
Delaware
United Kingdom
Delaware
Italy
Vermont
Washington
Delaware
Brazil
Mexico
Italy
Delaware
United Kingdom
Delaware
Missouri
Italy
United Kingdom
Delaware
Canada
Australia
F.R. Drake Company
Fab-Asia Inc.
Fired Earth Ltd
G.S. Blodgett Corporation
Giga Grandi Cucine S.r.l.
Goldstein Eswood Commercial Cooking Pty Ltd
Goldstein Properties Pty Ltd
Grange Eastern Europe Inc.
Grange Furniture Canada (1989) Ltd
Grange Furniture Inc.
Grange Luxembourg SARL
Grange SAS
Heartland Appliances Inc.
Holman Cooking Equipment Inc.
Houno A/S
Houno Holdings LLC
Imperial Machine Company Ltd
J. Goldstein & Co. Pty Ltd
Jade Range LLC
LA Cornue SAS
Lincat Group PLC
Lincat Limited.
Lynx Grills Inc
Lynx Holdco Inc
MagiKitch'n Inc.
Maurer-Atmos Middleby GmbH
Middleby Advantage, LLC
Middleby Asia Ltd
Middleby Australia Pty Ltd
Middleby Canada Company
Middleby Celfrost Innovations Pvt Ltd
Middleby China Corporation
Middleby Cooking System Manufacturing (Shanghai) Corporation
Middleby Cozzini Brasil Equipamentos, Ltda
Middleby Espana SLU
Middleby Europe SL
Middleby Holding UK Ltd
Middleby India Engineering Pvt Ltd
Middleby Induction China Corporation
Middleby Lux Holdings SCS
Middleby Luxembourg S.a.r.l.
Middleby Marshall Holding, LLC
Middleby Marshall, Inc.
Middleby Nationals Sales LLC
Middleby Philippines Corporation
Middleby UK Ltd
Delaware
Philippines
United Kingdom
Vermont
Italy
Australia
Australia
Romania
Canada
Delaware
Luxembourg
France
Canada
Delaware
Denmark
Delaware
United Kingdom
Australia
Delaware
France
United Kingdom
United Kingdom
Delaware
Delaware
Pennsylvania
Germany
Delaware
Hong Kong
Australia
Canada
India
Peoples Republic of China
Peoples Republic of China
Brazil
Spain
Spain
United Kingdom
India
Peoples Republic of China
Luxembourg
Luxembourg
Delaware
Delaware
Delaware
Philippines
United Kingdom
Middleby UK Residential Holdings
Middleby Worldwide Mexico SA de CV
Middleby Worldwide Philippines
Middleby Worldwide Services SA de CV
Middleby Worldwide, Inc.
Middleby XME S.L.U.
MP Equipment LLC
New Star International Holdings, Inc.
Nieco Corporation
Northland Corporation
Peak Drink Dispense Ltd
Perfect Fry LLC
Pitco Frialator, Inc.
Star International Holdings, Inc.
Star Manufacturing International Inc.
Stewart Systems Baking, LLC
The Alluvian Spa, LLC
The Alluvian, LLC
The Piper Doyon Group, Inc.
Thurne-Middleby Ltd
TMC Lux Holdings Sarl
TMC Lux Sarl
TMC Scots Holdings LP
TMC Scottish Private Ltd
TurboChef Technologies Europe, Ltd
TurboChef Technologies Inc.
ULC Holding Company
U-Line Corporation
Viking Cooking Schools, LLC
Viking Culinary Group, LLC
Viking Range Brasil Participacoes Ltda
Viking Range Corporation do Brasil Importacao e Comercio Ltda
Viking Range, LLC
Waterford Stanley Ltd
Wells Bloomfield LLC
Wunder-Bar Europe S.r.o.
Wunder-Bar Holdings, Inc.
Wunder-Bar International, Inc.
(1) Certain subsidiaries have been omitted as allowed.
United Kingdom
Mexico
Philippines
Mexico
Florida
Spain
Delaware
Delaware
California
Michigan
United Kingdom
Delaware
New Hampshire
Delaware
Delaware
Delaware
Mississppi
Mississppi
Wisconsin
United Kingdom
Luxembourg
Luxembourg
United Kingdom
United Kingdom
United Kingdom
Delaware
Delaware
Wisconsin
Mississppi
Mississppi
Brazil
Brazil
Delaware
Ireland
Delaware
Czech Republic
Delaware
California
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statement (Form S-8 No. 333-176233) pertaining to the 2011 Long-Term Incentive Plan of
The Middleby Corporation,
(2) Registration Statement (Form S-8 No. 333-162957) pertaining to the Turbochef Technologies 1994 Stock
Option Plan,
(3) Registration Statement (Form S-8 No. 333-142588) pertaining to the 2007 Stock Incentive Plan of The
Middleby Corporation and
(4) Registration Statement (Form S-8 No. 333-128304) pertaining to the 1998 Stock Incentive Plan, 1989 Stock
Incentive Plan, 2003 Directors’ Option Plan, 2000 Directors Option Plan, and 1996 Directors’ Option Plan
of The Middleby Corporation;
of our reports dated March 2, 2016, with respect to the consolidated financial statements and schedule of the The
Middleby Corporation and the effectiveness of internal control over financial reporting of the The Middleby
Corporation, included in this Annual Report on Form 10-K of The Middleby Corporation for the year ended January
2, 2016.
Chicago, Illinois
March 2, 2016
EXHIBIT 31.1
I, Selim A. Bassoul, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of The Middleby Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent function):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal controls over financial reporting.
Date: March 2, 2016
/s/ Selim A. Bassoul
Selim A. Bassoul
Chairman, President and
Chief Executive Officer of The Middleby Corporation
EXHIBIT 31.2
I, Timothy J. FitzGerald, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of The Middleby Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, 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;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or
persons performing the equivalent function):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal controls over financial reporting.
Date: March 2, 2016
/s/ Timothy J. FitzGerald
Timothy J. FitzGerald
Chief Financial Officer of The Middleby Corporation
CERTIFICATION BY THE PRINCIPAL EXECUTIVE OFFICER OF
THE MIDDLEBY CORPORATION
PURSUANT TO RULE 13A-14(b) UNDER THE EXCHANGE ACT AND
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
EXHIBIT 32.1
This certification is being furnished pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
I, Selim A. Bassoul, Chairman, President and Chief Executive Officer (principal executive officer) of The Middleby
Corporation (the “Registrant”), certify, to the best of my knowledge, based upon a review of the Annual Report on Form 10-K
for the period ended January 2, 2016 of the Registrant (the “Report”), that:
(1)
(2)
Date: March 2, 2016
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
The information contained in the Report fairly presents, in all material aspects, the financial condition and
results of operations of the Registrant.
/s/ Selim A. Bassoul
Selim A. Bassoul
CERTIFICATION BY THE PRINCIPAL FINANCIAL OFFICER OF
THE MIDDLEBY CORPORATION
PURSUANT TO RULE 13A-14(b) UNDER THE EXCHANGE ACT AND
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
EXHIBIT 32.2
This certification is being furnished pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
I, Timothy J. FitzGerald, Vice President and Chief Financial Officer (principal financial officer) of The Middleby Corporation
(the “Registrant”), certify, to the best of my knowledge, based upon a review of the Annual Report on Form 10-K for the period
ended January 2, 2016 of the Registrant (the “Report”), that:
(1)
(2)
Date: March 2, 2016
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
The information contained in the Report fairly presents, in all material aspects, the financial condition and
results of operations of the Registrant.
/s/ Timothy J. FitzGerald
Timothy J. FitzGerald
CORPORATE INFORMATION
BOARD OF DIRECTORS
EXECUTIVE OFFICERS
Selim A. Bassoul
Chairman of the Board
and Chief Executive Officer
Sarah Palisi Chapin2
Chief Executive Officer
Hail Merry
Robert Lamb, Ph.D.1
Professor
NYU Graduate School of Business
Cathy L. McCarthy1
Chief Executive Officer
CrossTack, Inc.
John R. Miller III2, 4, 6
President
E.O.P., Inc.
Publishers
Gordon O’Brien2, 5, 6
Managing Director
American Capital Strategies
Philip G. Putnam1, 3, 6, 7
President
Highview Associates
Independent Corporate Advisors
STOCK PRICE PERFORMANCE
500
Selim A. Bassoul
Chairman of the Board
and Chief Executive Officer
Timothy J. FitzGerald
Vice President and
Chief Financial Officer
TRANSFER AGENT
AND REGISTRAR
Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021
CORPORATE HEADQUARTERS
The Middleby Corporation
1400 Toastmaster Drive
Elgin, Illinois 60120
847 741 3300
FAX 847 741 0015
INDEPENDENT REGISTERED
PUBLIC ACCOUNTANTS
Ernst & Young LLP
Chicago, Illinois
450
400
350
300
250
200
150
100
50
0
2011
2012
2013
2014
2015
COMMERCIAL FOODSERVICE EQUIPMENT
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:
The Middleby Corporation
1400 Toastmaster Drive
Elgin, IL 60120
investors@middleby.com
847 741 3300
or visit www.middleby.com
1 Audit Committee Member
2 Compensation Committee Member
3 Chair of Audit Committee
4 Chair of Compensation Committee
5 Lead Director
6 Nominating Committee
7 Chair of Nominating Committee
Middleby
NASDAQ Composite Index
NASDAQ 100 index
FOOD PROCESSING EQUIPMENT
RESIDENTIAL KITCHEN EQUIPMENT
1400 Toastmaster Drive | Elgin, Illinois 60120
www.middleby.com | www.greenstainless.com