ANNUAL REPORT 2017
2017 FINANCIAL HIGHLIGHTS
(dollars in thousands)
NET SALES
GROSS PROFIT
2017
2016
2015
2014
2013
$2,335,542
$2,267,852
$1,826,598
$1,636,538
$1,428,685
$912,741
$901,180
$706,505
$640,585
$550,011
INCOME FROM OPERATIONS
$410,341
$446,225
$302,603
$300,432
$244,462
NET EARNINGS
$298,128
$284,216
$191,610
$193,312
$153,928
EPS ON NET EARNINGS
$5.26
$4.98
$3.36
$3.40
$2.74
WEIGHTED AVERAGE SHARES
56,719,000
57,085,000
56,973,000
56,784,000
56,148,000
CASHFLOW FROM OPERATIONS
$304,455
$294,110
$249,592
$233,882
$146,158
TOTAL ASSETS
TOTAL DEBT
$3,339,713
$2,917,136
$2,761,151
$2,066,131
$1,819,206
$1,028,881
$732,126
$766,061
$598,167
$571,598
STOCKHOLDERS´ EQUITY
$1,361,148
$1,265,318
$1,166,830
$1,006,760
$838,347
$2,600
$350
$6
7
1
0
2
6
1
0
2
5
1
0
2
4
1
0
2
3
1
0
2
2,400
2,200
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
7
1
0
2
6
1
0
2
5
1
0
2
4
1
0
2
3
1
0
2
300
250
200
150
100
50
0
7
1
0
2
6
1
0
2
5
1
0
2
4
1
0
2
3
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 December 30, 2017
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)
Registrant’s telephone number, including area code: 847-741-3300
Securities registered pursuant to Section 12(b) of the Act:
60120
(Zip Code)
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
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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, 2017 was approximately $6,845,527,947.
The number of shares outstanding of the Registrant’s class of common stock, as of February 26, 2018, was 55,730,624 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 2018 annual meeting of stockholders.
Documents Incorporated by Reference
THE MIDDLEBY CORPORATION
DECEMBER 30, 2017
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
PART IV
Item 15.
Exhibits and Financial Statement Schedule
Item 16.
Form 10-K Summary
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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 9 to the Consolidated
Financial Statements for further information on the company's business segments.
Commercial Foodservice Equipment Group
The Commercial Foodservice Equipment Group has a broad portfolio of 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-six brands, including Anets, Bear Varimixer,
Beech, Blodgett, Blodgett Combi, Blodgett Range, Bloomfield, Britannia, CTX, Carter-Hoffmann, Celfrost, Concordia,
CookTek, Desmon, Doyon, Eswood, Follett, Frifri, Giga, Globe, Goldstein, Holman, Houno, IMC, Induc, Jade, L2F, Lang,
Lincat, MagiKitch’n, Market Forge, Marsal, Middleby Marshall, MPC, Nieco, Nu-Vu, PerfectFry, Pitco, QualServ, Southbend,
Star, Sveba Dahlen, 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, food warming
equipment, catering equipment, heated cabinets, charbroilers, ventless cooking systems, kitchen ventilation, induction cooking
equipment, countertop cooking equipment, toasters, griddles, professional mixers, stainless steel fabrication, custom millwork,
professional refrigerators, blast chillers, coldrooms, ice machines, freezers and coffee 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 eighteen brands, including Alkar, Armor Inox, Auto-Bake,
Baker Thermal Solutions, Burford, Cozzini, CVP Systems, Danfotech, Drake, Emico, Glimek, Maurer-Atmos, MP Equipment,
RapidPak, Scanico, 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 belt 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,
reduction and emulsion systems, mixers, blenders, battering equipment, breading equipment, seeding equipment, water cutting
systems, food presses, food suspension equipment and forming equipment, as well as a variety of automated loading and
unloading systems, food safety, food handling, freezing, defrosting 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, ventilation equipment and outdoor equipment. These products are sold and marketed
under a portfolio of nineteen brands, including AGA, AGA Cookshop, Brigade, 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 two years, the company has completed nine 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 eleven brands to the Middleby portfolio and positioned the company
as a leading provider of equipment in each respective industry.
Commercial Foodservice Equipment Group
• May 2016: The company acquired substantially all of the assets of Follett Corporation ("Follett"), a leading
manufacturer of ice machines, ice and water dispensing equipment, ice storage and transport products and
medical grade refrigeration products for the foodservice and healthcare industries headquartered in Easton,
Pennsylvania, for a purchase price of approximately $206.9 million, net of cash acquired.
•
June 2017: The company completed its acquisition of all of the capital stock of Sveba Dahlen Group ("Sveba
Dahlen"), a developer and manufacturer of ovens and baking equipment for the commercial foodservice and
industrial baking industries headquartered in Fristad, Sweden, for a purchase price of $81.4 million, net of cash
acquired.
• August 2017: The company completed its acquisition of substantially all of the assets of QualServ Solutions
LLC ("QualServ"), a global commercial kitchen design, manufacturing, engineering, project management and
equipment solutions provider located in Fort Smith, Arkansas, for a purchase price of $40.2 million, net of cash
acquired.
• October 2017: The company completed its acquisition of all of the capital stock of Globe Food Equipment
Company ("Globe"), a leading brand in slicers and mixers for the commercial foodservice industry located in
Dayton, Ohio, for a purchase price of $104.6 million, net of cash acquired.
• October 2017: The company completed its acquisition of all of the capital stock of L2F Inc. ("L2F"), an
integrator of robotics and automation systems, located in Fremont, California for a purchase price of $7.5
million, net of cash acquired.
Food Processing Equipment Group
• May 2016: The company completed its acquisition of certain assets of Emico Automated Bakery Equipment
Solutions ("Emico"), manufacturer of high speed dough make-up bakery equipment located in Sante Fe Springs,
California, for a purchase price of approximately $1.0 million.
2
• May 2017: The company completed its acquisition of all of the capital stock of Burford Corp. ("Burford").
Burford is a leading manufacturer of industrial baking equipment for the food processing industry located in
Maysville, Oklahoma, for a purchase price of approximately $14.8 million, net of cash acquired.
•
June 2017: the company completed its acquisition of all of the capital stock of CVP Systems, Inc. ("CVP
Systems"), a leading manufacturer of high-speed packaging systems for the meat processing industry located in
Downers Grove, Illinois, for a purchase price of approximately $30.3 million, net of cash acquired.
• December 2017: the company completed its acquisition of all of the capital stock of Scanico A/S ("Scanico"), a
leading manufacturer of industrial cooling and freezing equipment for the food processing industry located in
Aalborg, Denmark, for a purchase price of $34.9 million, net of cash acquired.
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.
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, warming and beverage dispensing equipment segment of this market is estimated by management to exceed $3.0
billion in North America and $5.0 billion worldwide. The company believes that continuing growth in demand for foodservice
equipment will result from the development of new restaurant concepts in the U.S. and the expansion of U.S. and foreign
chains into international markets, the replacement and upgrade of existing equipment and new equipment requirements
resulting from menu changes.
Food Processing Equipment Industry
The company's customers include a diversified base of leading food processors. Customers include several large international
food processing companies, which account for a significant portion of the revenues of this business segment, although none of
which is greater than 10% of net sales. A large portion of the company's revenues have been generated from producers of pre-
cooked meat products such as hot dogs, dinner sausages, poultry, and lunchmeats and producers of baked goods such as
muffins, cookies and bread; however, the company believes that it can leverage its expertise and product development
capabilities in thermal processing to organically grow into new end markets.
Food processing has quickly become a highly competitive landscape dominated by a few large conglomerates that possess a
variety of food brands. The consolidation of food processing plants associated with industry consolidation drives a need for
more flexible and efficient equipment that is capable of processing large volumes in quicker cycle times. In recent years, food
processors have had to conform to the demands of “big-box” retailers and the restaurant industry, including, most importantly,
greater product consistency and exact package weights. Food processors are beginning to realize that their old equipment is no
longer capable of efficiently producing adequate uniformity in the large product volumes required, and they are turning to
equipment manufacturers that offer product consistency, innovative packaging designs and other solutions. To protect their own
brands and reputations, retailers and large restaurant chains are also dictating food safety standards that are often more strict
than government regulations.
3
A number of factors, including 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 $3.0 billion in North America and $5.0 billion worldwide.
Residential Kitchen Equipment Industry
The company’s end-user include customers with 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 and $3.0 billion worldwide. The
market potential for such equipment has continued to broaden due to an increase in interest from the consumer to have
professional style higher performing appliances in their home. The kitchen has been an area in which consumers have invested
over the past several decades to increase the personal satisfaction and the value of 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 variability in the revenues at this segment.
Backlog
Commercial Foodservice Equipment Group
The backlog of orders for the Commercial Foodservice Equipment Group was $105.2 million at December 30, 2017, all of
which is expected to be filled during 2018. The acquired Sveba Dahlen, Qualserv, Globe and L2F businesses accounted for
$27.2 million of the backlog. The Commercial Foodservice Equipment Group's backlog was $77.7 million at December 31,
2016. 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 $61.6 million at December 30, 2017, all of which is
expected to be filled during 2018. The acquired Burford, CVP Systems and Scanico accounted for $11.5 million of the
backlog. The Food Processing Equipment Group's backlog was $115.9 million at December 31, 2016.
Residential Kitchen Equipment Group
The backlog of orders for the Residential Kitchen Equipment Group was $35.0 million at December 30, 2017, all of which is
expected to be filled during 2018. The Residential Kitchen Equipment Group's backlog was $44.2 million at December 31,
2016. 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.
4
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.
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 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.
5
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.
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 distribution operations 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: Welbilt, 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 competition
includes Wolf and Sub-Zero, subsidiaries of Sub-Zero Group, Inc.; Thermador, Bosch and Gaggenau, subsidiaries of Bosch
Siemens; Dacor, subsidiary of Samsung Electronics America; and Miele.
6
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 sixteen domestic and twelve international
production facilities. These production facilities are located in Fort Smith, Arkansas; Brea, California; Vacaville, California;
Windsor, California; Elgin, Illinois; Mundelein, Illinois; Menominee, Michigan; Bow, New Hampshire; Fuquay-Varina, North
Carolina; Dayton, Ohio; Bethlehem, Pennsylvania; Easton, Pennsylvania; Smithville, Tennessee; Carrollton, Texas; Essex
Junction, Vermont; Redmond, Washington; New South Wales, Australia; Shanghai, China; Brondby, Denmark; Randers,
Denmark; Viljandi, Estonia; Nusco, Italy; Scandicci, Italy; Laguna, the Philippines; Wislina, Poland; Fristad, Sweden; Lincoln,
the United Kingdom; and Wrexham, the United Kingdom.
The Food Processing Equipment Group manufactures its products in nine domestic and five international production facilities.
These production facilities are located in Gainesville, Georgia; Chicago, Illinois; Downers Grove, Illinois; Algona, Iowa;
Clayton, North Carolina; Maysville, Oklahoma; Plano, Texas; Waynesboro, Virginia; Lodi, Wisconsin; Aalborg, Denmark;
Mauron, France; Reichenau, Germany; Bangalore, India and Norwich, the United Kingdom.
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 (three
separate facilities); 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.
7
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 3(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 market share 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, Bear
Varimixer, Beech, Blodgett, Blodgett Combi, Blodgett Range, Bloomfield, Britannia, CTX, Carter-Hoffmann, Celfrost,
Concordia, CookTek, Desmon, Doyon, Eswood, Follett, Frifri, Giga, Globe, Goldstein, Holman, Houno, IMC, Induc, Jade,
L2F, Lang, Lincat, MagiKitch’n, Market Forge, Marsal, Middleby Marshall, MPC, Nieco, Nu-Vu, PerfectFry, Pitco, QualServ,
Southbend, Star, Sveba Dahlen, Toastmaster, TurboChef, Wells and Wunder-Bar.
The company’s leading portfolio of trade names of its Food Processing Equipment Group include Alkar, Armor Inox, Auto-
Bake, Baker Thermal Solutions, Burford, Cozzini, CVP Systems, Danfotech, Drake, Emico, Glimek, Maurer-Atmos, MP
Equipment, RapidPak, Scanico, 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, 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 December 30, 2017, 4,496 persons were employed within the Commercial Foodservice Equipment Group. Of this
amount, 1,827 were management, administrative, sales, engineering and supervisory personnel; 2,245 were hourly production
non-union workers; and 424 were hourly production union members. Included in these totals were 1,741 individuals employed
outside of the United States, of which 909 were management, sales, administrative and engineering personnel, 757 were hourly
production non-union workers and 75 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, 2020. At its Elgin, Illinois facility, the company has a union contract with the International
Brotherhood of Teamsters that expires on July 31, 2022. At its Easton, Pennsylvania facility, the company has a union contract
with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International
Union that expires on May 4, 2019. The company also has a union workforce at its manufacturing facility in the Philippines,
under a contract that expires on June 30, 2021. Management believes that the relationships between employees, unions and
management are good.
8
Food Processing Equipment Group
As of December 30, 2017, 1,248 persons were employed within the Food Processing Equipment Group. Of this amount, 599
were management, administrative, sales, engineering and supervisory personnel; 523 were hourly production non-union
workers; and 126 were hourly production union members. Included in these totals were 479 individuals employed outside of
the United States, of which 244 were management, sales, administrative and engineering personnel and 235 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 December 30, 2017, 2,719 persons were employed within the Residential Kitchen Equipment Group. Of this amount,
1,307 were management, administrative, sales, engineering and supervisory personnel and 1,412 were hourly production
workers. Included in these totals were 1,594 individuals employed outside of the United States, of which 900 were
management, sales, administrative and engineering personnel and 694 were hourly non-union production workers.
Management believes that the relationships between employees and management are good.
Corporate
As of December 30, 2017, 30 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, and the fourth quarter, due to increased holiday purchases in the
European markets.
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 December 30, 2017, the company
had $1,028.9 million of borrowings and $7.5 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:
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•
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•
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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:
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•
•
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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 38% of its total assets
as of December 30, 2017. 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;
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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;
•
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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;
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•
•
•
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.
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.
15
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 6% of the company’s workforce as of December 30, 2017. The company has union
contracts with employees at its facilities in Windsor, California; Algona, Iowa; Elgin, Illinois; Easton, Pennsylvania and Lodi,
Wisconsin that extend through December 2020, December 2018, July 2022, May 2019 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
2021. 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 thirty-one manufacturing
facilities in the U.S. and twenty-six 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:
Fort Smith, AR
Brea, CA
Vacaville, CA
Windsor, CA
Elgin, IL
Mundelein, IL
Menominee, MI
Bow, NH
Pembroke, NH
Fuquay-Varina, NC
Dayton, OH
Bethlehem, PA
Easton, PA
Smithville, TN
Carrollton, TX
Essex Junction, VT
Redmond, WA
New South Wales, Australia
Shanghai, China
Brøndby, Denmark
Randers, Denmark
Viljandi, Estonia
Nusco, Italy
Scandicci, Italy
Laguna, the Philippines
Fristad, Sweden
Lincoln, the United Kingdom
Wrexham, the United Kingdom
Food Processing:
Gainesville, GA
Chicago, IL
Downers Grove, IL
Algona, IA
Clayton, NC
Maysville, OK
Plano, TX
Waynesboro, VA
Lodi, WI
Aalborg, Denmark
Mauron, France
Reichenau, Germany
Bangalore, India
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
Manufacturing, Warehousing and 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
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
Manufacturing, Warehousing and Offices
19
30,000
80,700
81,200
75,000
207,000
70,000
60,000
100,000
111,900
138,900
37,700
71,700
156,700
268,000
132,400
180,000
42,400
204,900
74,000
50,900
78,500
47,000
24,200
37,600
115,200
77,500
158,100
100,000
62,600
107,000
64,400
18,000
70,100
65,300
36,700
339,100
26,400
114,600
64,000
98,000
57,900
75,000
39,200
Leased
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Leased
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Owned
Leased
Leased
Leased
Owned
Owned
Leased
Leased
Owed
Leased
Owned
August 2024
September 2020
May 2027
October 2022
N/A
N/A
N/A
N/A
July 2024
N/A
N/A
December 2024
N/A
N/A
August 2022
N/A
May 2022
N/A
April 2020
N/A
N/A
N/A
N/A
April 2025
N/A
N/A
N/A
N/A
N/A
N/A
March 2019
April 2020
N/A
October 2019
December 2018
April 2022
N/A
N/A
December 2022
January 2023
N/A
February 2022
N/A
Principal Function
Location
Residential Kitchen:
Warehousing and Offices
Chino, CA
Manufacturing, Warehousing and Offices
Downey, CA
Warehousing and Offices
Burford, GA
Warehousing and Offices
Suwanee, 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
Manufacturing and Warehousing
Gee Targu Mures, Romania
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
Manufacturing and Offices
Square
Footage
Owned/
Leased
Lease
Expiration
100,000
122,500
178,000
142,000
225,000
738,000
165,400
40,900
30,400
138,000
73,000
48,000
82,500
153,100
217,300
270,200
100,300
153,100
Leased
Leased
Leased
Leased
Owned
Owned
Leased
Owned
Leased
Owned
Leased
Owned
Leased
Owned
Owned
Owned
Leased
Owned
April 2021
December 2019
June 2022
January 2018
N/A
N/A
May 2022
N/A
April 2021
N/A
July 2027
N/A
August 2020
N/A
N/A
N/A
August 2019
N/A
* Contains three separate manufacturing facilities.
At various other locations the company leases small amounts of space for administrative, manufacturing, distribution and sales
functions, and in certain instances limited short-term inventory storage. These locations are in Australia, Brazil, Canada, China,
Czech Republic, Denmark, Dubai, France, India, Italy, Mexico, Russia, 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 2017
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal 2016
First quarter
Second quarter
Third quarter
Fourth quarter
Shareholders
Closing Share Price
Low
High
$
$
$
$
141.74
141.07
131.74
134.95
108.38
126.52
132.17
142.38
128.59
120.04
115.72
108.72
80.62
103.39
112.94
109.23
The company estimates there were approximately 68,714 record holders of the company's common stock as of February 26,
2018.
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 1 to October 28, 2017
October 29 to November 25, 2017
November 26 to December 30, 2017
Quarter ended December 30, 2017
Total
Number of
Shares
Purchased
— $
20,000
106,200
126,200
$
Average
Price Paid
per Share
—
116.40
117.84
117.61
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plan or
Program
—
20,000
106,200
126,200
Maximum
Number of
Shares that May
Yet be
Purchased
Under the Plan
or Program (1)
709,270
2,480,000
2,373,800
2,373,800
(1) On November 7, 2017, the company's Board of Directors resolved to terminate the company's existing share repurchase
program, effective as of such date, which was originally adopted in 1998, and approved a new stock repurchase program. This
program authorizes the company to repurchase in the aggregate up to 2,500,000 shares of its outstanding common stock. As of
December 30, 2017, 126,200 shares had been purchased under the 2017 stock repurchase program. At December 30, 2017, the
company had a total of 6,889,241 shares in treasury amounting to $445.1 million.
21
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, general, and administrative expenses
Restructuring expenses
Gain on litigation settlement
Gain on sale of plant
Impairment of intangible asset
Income from operations
Net 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
outstanding:
Basic
Diluted
Balance Sheet Data:
Working capital
Total assets
Total debt
Stockholders' equity
2017
2016
2015
2014
2013
$ 2,335,542
1,422,801
912,741
436,491
19,951
—
(12,042)
58,000
410,341
$ 2,267,852
1,366,672
901,180
444,431
10,524
—
—
—
446,225
$ 1,826,598
1,120,093
706,505
375,148
28,754
—
—
—
302,603
$ 1,636,538
995,953
640,585
339,594
7,078
(6,519)
—
—
300,432
$ 1,428,685
878,674
550,011
296,448
9,101
—
—
—
244,462
25,983
829
383,529
85,401
298,128
5.26
5.26
56,715
56,719
458,236
3,339,713
1,028,881
1,361,148
23,880
1,040
421,305
137,089
284,216
4.98
4.98
57,030
57,085
323,290
2,917,136
732,126
1,265,318
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
$
$
$
$
$
$
$
$
$
$
$
$
(1)
(2)
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 Note 2 in the Notes to
Consolidated Financial Statements for further information.
22
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.
23
NET SALES SUMMARY
(dollars in thousands)
Fiscal Year Ended(1)
2017
2016
2015
Sales
Percent
Sales
Percent
Sales
Percent
Business Segments:
Commercial Foodservice
$ 1,382,108
59.2% $ 1,266,955
55.9% $ 1,121,046
61.4%
Food Processing
Residential Kitchen
352,717
600,717
15.1
25.7
342,235
658,662
15.1
29.0
297,712
407,840
16.3
22.3
Total
$ 2,335,542
100.0% $ 2,267,852
100.0% $ 1,826,598
100.0%
(1)
The company's fiscal year ends on the Saturday nearest to December 31.
24
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 sale of plant
Impairment of intangible asset
Income from operations
Interest expense and deferred financing amortization, net
Other expense, net
Earnings before income taxes
Provision for income taxes
Net earnings
2017
Fiscal Year Ended(1)
2016
2015
100.0%
60.9
39.1
18.7
0.9
(0.5)
2.5
17.5
1.1
—
16.4
3.7
12.7%
100.0%
60.3
39.7
19.6
0.5
—
—
19.6
1.1
—
18.5
6.0
12.5%
100.0%
61.3
38.7
20.6
1.6
—
—
16.5
0.9
0.2
15.4
4.9
10.5%
(1)
The company's fiscal year ends on the Saturday nearest to December 31.
25
Fiscal Year Ended December 30, 2017 as Compared to December 31, 2016
Net sales. Net sales in fiscal 2017 increased by $67.6 million or 3.0% to $2,335.5 million as compared to $2,267.9 million in
fiscal 2016. The increase in net sales of $161.9 million, or 7.1%, was attributable to acquisition growth, resulting from the
fiscal 2016 acquisition of Follett and the fiscal 2017 acquisitions of Burford, CVP Systems, Sveba Dahlen, QualServ, L2F,
Globe and Scanico. Excluding acquisitions, net sales decreased $94.3 million, or 4.2%, from the prior year. The impact of
foreign exchange rates on foreign sales translated into U.S. Dollars for fiscal 2017 reduced net sales by approximately $12.0
million or 0.5%. Excluding the impact of foreign exchange and acquisitions, sales decreased 3.6% for the year, including a net
sales decrease of 1.8% at the Commercial Foodservice Equipment Group, a net sales decrease of 3.5% at the Food Processing
Equipment Group and a net sales decrease of 7.2% at the Residential Kitchen Equipment Group.
• Net sales of the Commercial Foodservice Equipment Group increased by $115.1 million or 9.1% to $1,382.1
million in fiscal 2017, as compared to $1,267.0 million in fiscal 2016. Net sales from the acquisitions of Follett,
Sveba Dahlen, QualServ, L2F and Globe, which were acquired on May 31, 2016, June 30, 2017, August 31, 2017,
October 6, 2017 and October 17, 2017, respectively, accounted for an increase of $140.2 million during fiscal
2017. Excluding the impact of acquisitions, net sales of the Commercial Foodservice Equipment Group
decreased $25.1 million, or 2.0%, as compared to the prior year. Excluding the impact of foreign exchange and
acquisitions, net sales decreased $22.5 million, or 1.8% at the Commercial Foodservice Equipment Group.
Domestically, the company realized a sales increase of $85.3 million, or 10.0%, to $939.2 million, as compared to
$853.9 million in the prior year. This includes an increase of $102.5 million from recent acquisitions. Excluding
acquisitions, net sales decreased $17.2 million, or 2.0%. The domestic sales decrease reflects slower purchases
from major restaurant chains as equipment upgrade and replacement purchases were delayed. International sales
increased $29.8 million, or 7.2%, to $442.9 million, as compared to $413.1 million in the prior year. This
includes the increase of $37.7 million from the recent acquisitions, offset by $2.6 million related to the
unfavorable impact of exchange rates. Excluding acquisitions and foreign exchange, the net sales decrease in
international sales was $5.3 million, or 1.3%. The decline in international sales reflects strong chain rollouts in the
prior year that were not repeated and disruption in the Latin America market due in part to natural disasters in the
region.
• Net sales of the Food Processing Equipment Group increased by $10.5 million or 3.1% to $352.7 million in fiscal
2017, as compared to $342.2 million in fiscal 2016. Net sales from the acquisitions of Burford, CVP Systems and
Scanico, which were acquired on May 1, 2017, June 30, 2017, and December 7, 2017, respectively, accounted for
an increase of $21.7 million. Excluding the impact of these acquisitions, net sales of the Food Processing
Equipment Group decreased $11.2 million, or 3.3%. Excluding the impact of foreign exchange and acquisitions,
net sales decreased $12.1 million, or 3.5% at the Food Processing Equipment Group. Domestically, the company
realized a sales increase of $8.0 million, or 3.1%, to $262.4 million, as compared to $254.4 million in the prior
year. This includes an increase of $14.9 million from recent acquisitions. Excluding acquisitions, net sales
decreased $6.9 million, or 2.7%. International sales increased $2.5 million, or 2.8%, to $90.3 million, as
compared to $87.8 million in the prior year. This includes the increase of $6.8 million from the recent acquisitions
and $0.9 million related to the favorable impact of exchange rates.
• Net sales of the Residential Kitchen Equipment Group decreased by $58.0 million or 8.8% to $600.7 million in
fiscal 2017, as compared to $658.7 million in fiscal 2016. Excluding the impact of foreign currency, net sales
decreased $47.7 million, or 7.2% at the Residential Kitchen Equipment Group. Domestically, the company
realized a sales decrease of $15.6 million, or 4.3%, to $346.7 million, as compared to $362.3 million in the prior
year. Domestic sales declined primarily due to lower sales of Viking products, reflecting the residual impact of a
product recall. International sales decreased $42.4 million, or 14.3% to $254.0 million, as compared to $296.4
million in the prior year, including a reduction of $10.3 million related to the unfavorable impact of exchange
rates. Excluding foreign exchange, the net sales decrease in international sales was $32.1 million, or 10.8%. The
sales decrease reflects the impact of product rationalization at the AGA Group in conjunction with acquisition
integration initiatives and restructuring actions impacting sales related to non-core businesses within that group.
26
Gross profit. Gross profit increased by $11.5 million to $912.7 million in fiscal 2017 from $901.2 million in fiscal 2016. The
increase in the gross profit reflects the impact of increased sales from acquisitions, offset by the impact of foreign exchange
rates, which reduced gross profit by $4.5 million. The gross margin rate decreased from 39.7% in 2016 to 39.1% in 2017.
• Gross profit at the Commercial Foodservice Equipment Group increased by $19.0 million, or 3.6%, to $551.9
million in fiscal 2017 as compared to $532.9 million in fiscal 2016. Gross profit from the acquisitions of Follett,
Sveba Dahlen, QualServ, L2F, and Globe accounted for approximately $38.0 million of the increase in gross
profit during fiscal 2017. Excluding the recent acquisitions, the gross profit decreased by approximately $19.0
million due to lower sales volume and product mix in comparison to the prior year. The impact of foreign
exchange rates reduced gross profit by approximately $0.6 million. The gross profit margin rate decreased to
39.9% as compared to 42.1% in the prior year, primarily due to lower margins at recent acquisitions.
• Gross profit at the Food Processing Equipment Group increased by $5.4 million, or 3.9%, to $143.1 million in
fiscal 2017 as compared to $137.7 million in fiscal 2016. Gross profit from the acquisitions of Burford, CVP
Systems, and Scanico accounted for approximately $8.9 million of the increase in gross profit during fiscal 2017.
Excluding the recent acquisitions, the gross profit decreased by approximately $3.5 million based on lower sales
volumes. The impact of foreign exchange rates increased gross profit by approximately $0.1 million. The gross
profit margin rate increased to 40.6% in fiscal 2017 as compared to 40.2% in fiscal 2016. The increase in the
gross margin rate reflects the favorable impact of ongoing cost efficiency initiatives.
• Gross profit at the Residential Kitchen Equipment Group decreased by $9.8 million, or 4.2%, to $222.9 million in
fiscal 2017 as compared to $232.7 million in fiscal 2016. The impact of foreign exchange rates reduced gross
profit by approximately $4.0 million. The gross margin rate increased to 37.1% in fiscal 2017 as compared to
35.3% in fiscal 2016, due to the impact of improved margins at the AGA Group, U-Line and Lynx as a result of
cost reduction and acquisition integration initiatives.
Selling, general and administrative expenses. Combined selling, general, and administrative expenses decreased by $7.9
million to $436.5 million in fiscal 2017 from $444.4 million in 2016. As a percentage of net sales, selling, general and
administrative expenses amounted to 18.7% in fiscal 2017 and 19.6% in fiscal 2016.
Selling, general and administrative expenses reflect increased costs of $36.3 million associated with the Follett, Burford, CVP
Systems, Sveba Dahlen, QualServ, L2F, Globe and Scanico acquisitions, including $8.3 million of non-cash intangible
amortization expense. The unfavorable impact of foreign exchange rates increased selling, general and administrative expenses
by approximately $1.0 million. Selling, general and administrative expenses decreased $3.9 million related to net periodic
pension benefit and $3.1 million related to trade advertising, offset by an increase of $6.9 million related to strategic expenses
associated with acquisition activities. Additionally, selling, general and administrative expenses decreased $19.8 million related
to lower salaries and bonuses due to reorganization activities and $21.7 million related to lower non-cash share based
compensation.
Restructuring expenses. Restructuring expenses increased $9.5 million to $20.0 million from $10.5 million in the prior year
period. Restructuring expenses during fiscal 2017 included cost reduction initiatives primarily related to headcount reductions
at the Commercial Foodservice Equipment Group, Food Processing Equipment Group and Residential Kitchen Equipment
Group. Restructuring expenses during fiscal 2016 were primarily associated with acquisition integration initiatives at AGA.
Gain on sale of plant. Gain on sale of plant in the amount of $12.0 million was related to the sale of a manufacturing facility,
proceeds of which were used to purchase a larger manufacturing facility to gain efficiencies in workflow and allow for future
manufacturing consolidation efforts.
Impairment of intangible asset. The impairment of intangible asset in the amount of $58.0 million was recognized related to
the Viking tradename within the company's annual impairment assessment of goodwill and indefinite-lived assets. The
impairment resulted from weaker than expected revenue performance in the current year and a corresponding reduction in the
future revenue expectations. The decline in revenues was attributable, in part, to the product recall announced in 2015 related to
products manufactured prior to the acquisition of Viking.
27
Income from operations. Income from operations decreased $35.9 million to $410.3 million in fiscal 2017 from $446.2 million
in fiscal 2016. The decrease in operating income resulted from the increased restructuring expenses and the impairment of
intangible assets, offset by the increase in net sales, gross profit and the gain on sale of plant. Operating income as a percentage
of net sales amounted to 17.5% in 2017 as compared to 19.6% in 2016. Excluding the impact of restructuring expenses, gain on
sale of plant and impairment of intangible assets operating income increased $19.6 million to $476.3 million in fiscal 2017
from $456.7 million in fiscal 2016. Operating income as a percentage of net sales, excluding those items, amounted to 20.4% in
2017 in comparison to 20.1% in 2016, reflecting an increase in the net periodic pension benefit and ongoing cost reduction
initiatives.
Income from operations in 2017 included $74.5 million of non-cash expenses, including $29.7 million of depreciation expense,
$38.6 million of intangible amortization related to acquisitions and $6.2 million of stock based compensation. This compares to
$84.0 million of non-cash expenses in the prior year, including $26.2 million of depreciation expense, $29.9 million of
intangible amortization related to acquisitions, and $27.9 million of stock based compensation costs.
Non-operating expenses. Non-operating expenses increased $1.9 million to $26.8 million in fiscal 2017 from $24.9 million in
fiscal 2016. Net interest expense and deferred financing increased $2.1 million from $23.9 million in fiscal 2016 to $26.0
million in fiscal 2017 reflecting increased interest due to higher debt balances related to the funding of acquisitions. Other
expense was $0.8 million in fiscal 2017 as compared to $1.0 million in fiscal 2016 and consists mainly of net foreign exchange
gains and losses.
Income taxes. A tax provision of $85.4 million, at an effective rate of 22.3%, was recorded for fiscal 2017 as compared to
$137.1 million at an effective rate of 32.5%, in fiscal 2016. The effective tax rate for 2017 is lower than the statutory tax rate of
35% primarily due to the impact of complying with the Tax Cuts and Job Act of 2017. The Tax Cuts and Job Act of 2017
includes a tax benefit for revaluing the U.S. deferred taxes based on the 2018 enacted corporate income tax rate of 21%,
partially offset by additional taxes related to the transition tax for the move from a worldwide tax system to a territorial tax
system. Additionally, the effective tax rate was impacted by excess stock compensation tax benefits from the adoption of
Accounting Standards Update ("ASU") 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to
Employee Share Based Accounting." The effective tax rates for both 2017 and 2016 similarly benefited from the U.S. domestic
manufacturers deduction, permanent tax deductions and favorable foreign rate differentials.
28
Fiscal Year Ended December 31, 2016 as Compared to January 2, 2016
Net sales. Net sales in fiscal 2016 increased by $441.3 million or 24.2% to $2,267.9 million as compared to $1,826.6 million in
fiscal 2015. The increase in net sales of $409.6 million, or 22.4%, was attributable to acquisition growth, resulting from the
fiscal 2015 acquisitions of Goldstein Eswood, Marsal, Induc, Thurne, AGA and Lynx and the fiscal 2016 acquisition of Follett.
Excluding acquisitions, net sales increased $31.7 million, or 1.7%, from the prior year. The impact of foreign exchange rates
on foreign sales translated into U.S. Dollars for fiscal 2016 reduced net sales by approximately $39.9 million or 2.2%.
Excluding the impact of foreign exchange, organic sales growth amount to 3.9% for the year, including a net sales increase of
5.5% at the Commercial Foodservice Equipment Group, a net sales increase of 13.7% at the Food Processing Equipment Group
and a net sales decrease of 7.7% at the Residential Kitchen Equipment Group.
• Net sales of the Commercial Foodservice Equipment Group increased by $146.0 million or 13.0% to $1,267.0
million in fiscal 2016, as compared to $1,121.0 million in fiscal 2015. Net sales from the acquisitions of Goldstein
Eswood, Marsal, Induc and Follett which were acquired on January 30, 2015, February 10, 2015, May 30, 2015,
and May 31, 2016, respectively, accounted for an increase of $106.0 million during fiscal 2016. Excluding the
impact of acquisitions, net sales of the Commercial Foodservice Equipment Group increased $40.0 million, or
3.6%, as compared to the prior year. Excluding the impact of foreign exchange, organic net sales increased $62.2
million, or 5.5% at the Commercial Foodservice Equipment Group. Domestically, the company realized a sales
increase of $70.1 million, or 8.9%, to $853.9 million, as compared to $783.8 million in the prior year. This
includes an increase of $90.4 million from recent acquisitions. Excluding acquisitions, net sales decreased $20.3
million, or 2.6%. The decline in domestic sales reflect the impact of several large rollouts with major restaurant
chain customers in the prior year period. International sales increased $75.9 million, or 22.5%, to $413.1 million,
as compared to $337.2 million in the prior year. This includes the increase of $15.6 million from the recent
acquisitions, offset by $22.2 million related to the unfavorable impact of exchange rates. Excluding acquisitions
and exchange effect, net sales increased $82.5 million, or 24.5%. Strong international growth continued in all
regions due to more favorable market conditions than in the prior year and growth with local restaurant chain
concepts.
• Net sales of the Food Processing Equipment Group increased by $44.5 million or 14.9% to $342.2 million in
fiscal 2016, as compared to $297.7 million in fiscal 2015. Net sales from the acquisition of Thurne which was
acquired on April 7, 2015, accounted for an increase of $5.6 million. Excluding the impact of this acquisition, net
sales of the Food Processing Equipment Group increased $38.9 million, or 13.1%. Excluding the impact of
foreign exchange, organic net sales increased $40.7 million, or 13.7% at the Food Processing Equipment Group.
Domestically, the company realized a sales increase of $58.0 million, or 29.5%, to $254.4 million, as compared to
$196.4 million in the prior year. This includes an increase of $5.3 million from the recent acquisition. Excluding
this acquisition, net sales increased $52.7 million, or 26.8%. International sales decreased $13.5 million, or
13.3%, to $87.8 million, as compared to $101.3 million in the prior year. This includes the increase of $0.3
million from the recent acquisition, offset by $1.8 million related to the unfavorable impact of exchange rates. The
overall net sales growth at the Food Processing Equipment Group reflects revenue recognized from a strong
backlog and continued strong incoming order levels as customers continue to upgrade facilities to new
technologies and expand capacity to meet growing demand. The variability in growth rates for domestic and
international sales reflects the shift in mix related to the timing of certain larger projects in differing geographic
regions that regularly occur between comparative periods.
29
• Net sales of the Residential Kitchen Equipment Group increased by $250.9 million or 61.5% to $658.7 million in
fiscal 2016, as compared to $407.8 million in fiscal 2015. Net sales from the acquisitions of AGA and Lynx which
were acquired on September 23, 2015 and December 15, 2015, respectively, accounted for an increase of $298.0
million. Excluding the impact of these acquisitions, net sales of the Residential Kitchen Equipment Group
decreased $47.1 million, or 11.5%. Excluding the impact of foreign currency, organic net sales decreased $31.2
million, or 7.7% at the Residential Kitchen Equipment Group. This decrease is net of price increases, which are
estimated to have added 2.0% to net sales in comparison to the prior year. Domestically, the company realized a
sales increase of $67.7 million, or 23.0%, to $362.3 million, as compared to $294.6 million in the prior year. This
includes an increase of $93.0 million from recent acquisitions. Excluding acquisitions, net sales decreased $25.3
million, or 8.6%. International sales increased $183.2 million, or 161.8% to $296.4 million, as compared to
$113.2 million in the prior year. This includes an increase of $205.0 million from recent acquisitions and a
reduction of $15.9 million related to the unfavorable impact of exchange rates. Excluding acquisitions and
exchange effect, net sales decreased $5.9 million, or 5.2%. Organic sales growth for the year was adversely
impacted by lower sales at U-Line due to a prior year new product launch resulting in higher sales to dealers.
Additionally, sales continued to be affected by the 2015 recall of certain Viking products manufactured prior to
2013 and Middleby's acquisition of Viking.
Gross profit. Gross profit increased by $194.7 million to $901.2 million in fiscal 2016 from $706.5 million in fiscal 2015. The
increase in the gross profit reflects the impact of increased sales from revenue growth and acquisition sales, offset by the
impact of foreign exchange rates, which reduced gross profit by $13.2 million. The gross margin rate increased from 38.7% in
2015 to 39.7% in 2016.
• Gross profit at the Commercial Foodservice Equipment Group increased by $75.0 million, or 16.4%, to $532.9
million in fiscal 2016 as compared to $457.9 million in fiscal 2015. Gross profit from the acquisitions of
Goldstein Eswood, Marsal, Induc, and Follett accounted for approximately $36.9 million of the increase in gross
profit during fiscal 2016. Excluding the recent acquisitions, the gross profit increased by approximately $38.1
million on the higher sales volumes. The impact of foreign exchange rates reduced gross profit by approximately
$5.8 million. The gross profit margin rate increased to 42.1% as compared to 40.8% in the prior year, due
primarily to changes in sales mix and efficiency gains, as compared to the prior year period.
• Gross profit at the Food Processing Equipment Group increased by $21.6 million, or 18.6%, to $137.7 million in
fiscal 2016 as compared to $116.1 million in fiscal 2015. Gross profit from the acquisition of Thurne accounted
for approximately $3.0 million of the increase in gross profit during fiscal 2016. Excluding the recent acquisition,
the gross profit increased by approximately $18.6 million on higher sales volumes. The impact of foreign
exchange rates reduced gross profit by approximately $1.6 million. The gross profit margin rate increased to
40.2% in fiscal 2016 as compared to 39.0% in fiscal 2015. The increase in the gross margin rate reflects the
favorable impact of ongoing cost efficiency initiatives related to recent acquisitions and favorable sales mix.
• Gross profit at the Residential Kitchen Equipment Group increased by $101.8 million, or 77.8%, to $232.7
million in fiscal 2016 as compared to $130.9 million in fiscal 2015. Gross profit from the acquisitions of AGA and
Lynx accounted for approximately $96.3 million of the increase in gross profit during fiscal 2016. Excluding the
recent acquisitions, the gross profit increased by approximately $5.5 million on lower sales volumes offsetting
price increases. The impact of foreign exchange rates reduced gross profit by approximately $5.8 million. The
gross margin rate increased to 35.3% in fiscal 2016 as compared to 32.1% in fiscal 2015, due to improved
margins at Viking as a result of continued efficiency gains and AGA profitability improvements recognized in
connection with ongoing integration initiatives.
Selling, general and administrative expenses. Combined selling, general, and administrative expenses increased by $69.3
million to $444.4 million in fiscal 2016 from $375.1 million in 2015. As a percentage of net sales, operating expenses
amounted to 19.6% in fiscal 2016 and 20.5% in fiscal 2015, excluding restructuring charges.
Selling, general and administrative expenses increased $80.0 million associated with the Goldstein Eswood, Thurne, Induc,
AGA, Lynx, and Follett acquisitions, including $8.8 million of non-cash intangible amortization expense. This increase was
offset by the favorable impact of foreign exchange rates of $3.4 million, reduced compensation and commissions of $2.5
million, lower trade advertising expense of $2.1 million and the net periodic pension benefit related to the AGA pension plans
which amount to $24.5 million.
30
Restructuring expenses. Restructuring expenses decreased $18.3 million to $10.5 million from $28.8 million in the prior year
period. Restructuring expenses during fiscal 2016 are related to acquisition integration initiatives to reduce costs related to
AGA. Restructuring expenses during fiscal 2015 were associated with cost reductions initiatives related to AGA, the closure
and consolidation of distribution facilities at the Residential Kitchen Equipment Group and the consolidation of two production
facilities at the Food Processing and Commercial Foodservice Equipment Groups.
Income from operations. Income from operations increased $143.6 million to $446.2 million in fiscal 2016 from $302.6
million in fiscal 2015. 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 19.6% in 2016 as
compared to 16.5% in 2015. Excluding the impact of restructuring expenses, operating income as a percentage of net sales
amounted to 20.1% in 2016 in comparison to 18.1% in 2015, reflecting an increase in the net periodic pension benefit and
ongoing cost reduction initiatives.
Income from operations in 2016 included $84.0 million of non-cash expenses, including $26.2 million of depreciation expense,
$29.9 million of intangible amortization related to acquisitions and $27.9 million of stock based compensation. This compares
to $68.8 million of non-cash expenses in the prior year, including $25.5 million of depreciation expense, $27.4 million of
intangible amortization related to acquisitions, and $15.9 million of stock based compensation costs.
Non-operating expenses. Non-operating expenses increased $3.4 million to $24.9 million in fiscal 2016 from $21.5 million in
fiscal 2015. Net interest expense increased $6.9 million from $17.0 million in fiscal 2015 to $23.9 million in fiscal 2016
reflecting increased interest due to higher debt balances related to the funding of acquisitions. Other expense was $1.0 million
in fiscal 2016 as compared to $4.5 million in fiscal 2015 and consists mainly of net foreign exchange losses attributable to the
strengthening of the U.S. Dollar.
Income taxes. A tax provision of $137.1 million, at an effective rate of 32.5%, was recorded for fiscal 2016 as compared to
$89.6 million at an effective rate of 31.9%, in fiscal 2015. The effective tax rates for both years were lower than the statutory
tax rate of 35.0% primarily due to tax benefits from the U.S. domestic manufacturers deduction, permanent tax deductions and
favorable foreign rate differentials.
31
Financial Condition and Liquidity
Total cash and cash equivalents increased by $21.2 million to $89.7 million at December 30, 2017 from $68.5 million at
December 31, 2016. Net borrowings increased to $1,028.9 million at December 30, 2017, from $732.1 million at December 31,
2016.
Operating activities. Net cash provided by operating activities before changes in assets and liabilities amounted to $408.7
million as compared to $391.7 million in the prior year. Adjustments to reconcile 2017 net earnings to operating cash flows
before changes in assets and liabilities included $29.7 million of depreciation expense and $40.1 million of amortization
expense, $6.2 million of non-cash stock compensation expense, $58.0 million of impairment of intangible asset, $3.1 million of
impairment of equipment, $12.0 million of gain on sale of plant and $14.5 million of deferred tax benefit.
Net cash provided by operating activities after changes in assets and liabilities amounted to $304.5 million as compared to
$294.1 million in the prior year.
During fiscal 2017, net cash used to fund changes in assets and liabilities amounted to $104.2 million. These changes included
a $26.2 million decrease in accounts receivable due to the impact of lower sales volumes and due to the impact of lower
receivable balances at the Food Processing Equipment Group due to the timing of projects which are often paid in advance.
Inventory increased $9.7 million and accounts payables decreased by $21.6 million due to several factors including normal
business seasonality affecting working capital, the timing of large orders for the Food Processing Equipment Group and lower
sales volumes. Prepaid expenses and other assets increased $34.1 million primarily due to an increase in prepaid taxes. Accrued
expenses and other non-current liabilities decreased by $65.0 million due in part to reduced customer deposits due to timing of
projects related to the Food Processing Equipment Group, reduced incentive compensation in comparison to the prior year and
payments related to restructuring initiatives.
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 2017, net cash used for investing activities amounted to $345.5 million. This included $300.2
million of the 2017 acquisitions of Burford, CVP Systems, Sveba Dahlen, QualServ, Globe, L2F, and Scanico, $5.9 million
related to deferred and contingent consideration payments from previous years' acquisitions and $54.5 million primarily
associated with additions and upgrades of production equipment and the purchase of a manufacturing facility. During 2017, the
company completed the sale of an existing manufacturing facility. The $14.3 million proceeds from the sale were used to
purchase a larger facility to gain efficiencies in workflow and allow for future manufacturing consolidation efforts.
Financing activities. Net cash flows provided by financing activities amounted to $55.8 million in 2017. The company
borrowed $296.8 million under its $2.5 billion Credit Facility and repaid $1.1 million under foreign borrowing facilities.
The company repurchased $239.8 million of Middleby common shares during 2017. This was comprised of $24.6 million used
to repurchase 177,097 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 that occurred during 2017 and $215.2 million used to
repurchase 1,806,595 shares of its common stock under a stock repurchase program. See Part 1, Notes to Condensed
Consolidated Financial Statements, Note 13 - Share Repurchases for further details.
At December 30, 2017, 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
2,020
—
—
—
Estimated
Interest
on Debt
31,575
63,046
19,192
721
$
Operating
Leases
25,689
37,946
26,428
19,815
$
Total
Contractual
Cash
Obligations
64,433
101,493
1,068,851
20,536
$
$
Debt
5,149
501
1,023,231
—
$
2,020
$ 1,028,881
$
114,534
$
109,878
$ 1,255,313
The company has obligations to make $2.0 million of estimated contingent purchase price payments to the sellers of Desmon,
Emico and Scanico that were deferred in conjunction with the acquisitions.
As of December 30, 2017, the company had $1,022.9 million outstanding under its Credit Facility. The average interest rate on
this debt amounted to 2.72% at December 30, 2017. This facility matures on July 28, 2021. As of December 30, 2017, the
company also has $5.8 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 July 2021. The estimated payments also
assume that relative to the company’s foreign borrowings: all scheduled term loan payments are made; the level of borrowings
does not change; and the average interest rates remain at their December 30, 2017 rates. Also reflected in the table above is
$0.1 million of payments to be made related to the company’s interest rate swap agreements in 2018.
As indicated in Note 10 to the consolidated financial statements, the company’s projected benefit obligation under its defined
benefit plans exceeded the plans’ assets by $334.5 million at the end of 2017 as compared to $323.0 million at the end of
2016. The unfunded benefit obligations were comprised of a $15.8 million underfunding of the company's U.S. Plans and
$318.7 million underfunding of the company’s Non-U.S. Plans. The company made minimum contributions required by the
Employee Retirement Income Security Act of 1974 (“ERISA”) of $1.5 million and $0.8 million in 2017 and 2016, 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 2018. The company expects to contribute $5.4 million to the Non-U.S. Plans in 2018.
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 1, 2017 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 is 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 and 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
See Note 3 to the Consolidated Financial Statements for further information on the new accounting pronouncements.
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.
35
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:
2018
2019
2020
2021
2022 and thereafter
Variable Rate
Debt
$
5,149
338
163
1,023,098
133
$ 1,028,881
On July 28, 2016, the company entered into an amended and restated five-year $2.5 billion multi-currency senior secured
revolving credit agreement (the "Credit Facility"), with the potential under certain circumstances to increase the amount of the
Credit Facility to $3.0 billion. As of December 30, 2017, the company had $1,022.9 million of borrowings outstanding under
the Credit Facility, including $1,015.5 million of borrowings in U.S. Dollars and $7.4 million of borrowings denominated in
British Pounds. The company also has $7.5 million in outstanding letters of credit as of December 30, 2017, which reduces the
borrowing availability under the Credit Facility. Remaining borrowing availability under the Credit Facility was $1.5 billion at
December 30, 2017.
At December 30, 2017, borrowings under the Credit Facility accrued interest at a rate of 1.25% above LIBOR per annum or
0.25% above the highest of the prime rate, the federal funds rate plus 0.50% and one month LIBOR plus 1.00%. The average
interest rate per annum on the debt under the Credit Facility was equal to 2.72% for the period. The interest rates on borrowings
under the Credit Facility may be adjusted quarterly based on the company’s Funded Debt Less Unrestricted Cash to Pro Forma
EBITDA (the "Leverage Ratio") on a rolling four-quarter basis. Additionally, a commitment fee based upon the Leverage Ratio
is charged on the unused portion of the commitments under the Credit Facility. This variable commitment fee was equal to
0.20% per annum as of December 30, 2017.
In addition, the company has other international credit facilities to fund working capital needs outside the United States and the
United Kingdom. At December 30, 2017, these foreign credit facilities amounted to $5.8 million in U.S. Dollars with a
weighted average per annum interest rate of approximately 6.06%.
The company uses floating-to-fixed interest rate swap agreements to hedge variable interest rate risk associated with the Credit
Facility. At December 30, 2017, the company had outstanding floating-to-fixed interest rate swaps totaling $399.0 million
notional amount carrying an average interest rate of 1.47% that mature in more than 12 months but less than 84 months.
The Credit Facility matures on July 28, 2021, and accordingly has been classified as a long-term liability on the consolidated
balance sheet.
36
The terms of the 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;
enter into certain transactions with affiliates; and requires, among other things, the company to satisfy certain financial
covenants: (i) a minimum Interest Coverage Ratio (as defined in the Credit Facility) of 3.00 to 1.00 and (ii) a maximum
Leverage Ratio of Funded Debt less Unrestricted Cash to Pro Forma EBITDA (each as defined in the Credit Facility) of 3.50 to
1.00, which may be adjusted to 4.00 to 1.00 for a four consecutive fiscal quarter period in connection with certain qualified
acquisitions, subject to the terms and conditions contained in the Credit Facility. The 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 foreign and domestic
subsidiaries. The 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. At December 30, 2017, the company was in compliance with all
covenants pursuant to its borrowing agreements.
Financing Derivative Instruments
The company has entered into interest rate swaps to fix the interest rate applicable to certain of its variable-rate debt. The
agreements swap one-month LIBOR for fixed rates. The company has designated these swaps as cash flow hedges and all
changes in fair value of the swaps are recognized in accumulated other comprehensive income. As of December 30, 2017, the
fair value of these instruments was an asset of $10.3 million. The change in fair value of these swap agreements in fiscal 2017
was a gain of $1.5 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.
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.
37
Item 8. Financial Statements and Supplementary Data
Reports 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
39
41
42
43
44
45
46
84
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.
38
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of The Middleby Corporation
Opinion on Internal Control over Financial Reporting
We have audited The Middleby Corporation's internal control over financial reporting as of December 30, 2017, 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). In our opinion, The Middleby Corporation (the
Company) maintained, in all material respects, effective internal control over financial reporting as of December 30,
2017, based on the COSO criteria.
As indicated in the 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 Globe, Qualserv, L2F, Burford, Sveba Dahlen, Scanico, and CVP Systems which are included in the 2017
consolidated financial statements of the Company and constituted 11.9% and 0.1% of total and net assets, respectively, as
of December 30, 2017 and 3.9% and (0.7%) of revenues and net income, respectively, for the year then ended. Our audit
of internal control over financial reporting of the Company also did not include an evaluation of the internal control over
financial reporting of Globe, Qualserv, L2F, Burford, Sveba Dahlen, Scanico, and CVP Systems.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 30, 2017 and December 31, 2016, the
related consolidated statements of earnings, comprehensive income, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 30, 2017, and the related notes and financial statement schedule and
our report dated February 28, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s 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 Management’s
Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ Ernst & Young LLP
Chicago, Illinois
February 28, 2018
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of The Middleby Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Middleby Corporation (the Company) as of December
30, 2017 and December 31, 2016, the related consolidated statements of earnings, comprehensive income, changes in
shareholders' equity and cash flows for each of the three years in the period ended December 30, 2017, and the related notes
and financial statement schedule listed in the Index at Item 8, (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at
December 30, 2017 and December 31, 2016, and the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 30, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company's internal control over financial reporting as of December 30, 2017, 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 February 28, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2012.
Chicago, Illinois
February 28, 2018
40
THE MIDDLEBY CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 2017 AND DECEMBER 31, 2016
(amounts in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of reserve of doubtful accounts of $13,182 and $12,600
Inventories, net
Prepaid expenses and other
Prepaid taxes
Total current assets
Property, plant and equipment, net of accumulated depreciation of $142,278 and $119,435
Goodwill
Other intangibles, net of amortization of $207,334 and $168,369
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; nonvoting; 2,000,000 shares authorized; none issued
Common stock, $0.01 par value, 62,619,865 and 62,445,315 shares issued in 2017 and
2016, respectively
Paid-in capital
Treasury stock at cost; 6,889,241 and 4,905,549 shares in 2017 and 2016, respectively
Retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
2017
2016
$
89,654
328,421
424,639
55,427
33,748
931,889
281,915
1,264,810
780,426
44,565
36,108
$ 3,339,713
$
68,485
325,868
368,243
42,704
6,399
811,699
221,571
1,092,722
696,171
51,699
43,274
$ 2,917,136
$
$
5,149
146,333
322,171
473,653
1,023,732
87,815
334,511
58,854
5,883
146,921
335,605
488,409
726,243
77,760
322,988
36,418
—
—
145
374,922
(445,118)
1,697,618
(266,419)
144
355,287
(205,280)
1,399,490
(284,323)
1,361,148
1,265,318
Total liabilities and stockholders' equity
$ 3,339,713
$ 2,917,136
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
41
THE MIDDLEBY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE FISCAL YEARS ENDED DECEMBER 30, 2017, DECEMBER 31, 2016
AND JANUARY 2, 2016
(amounts in thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling, general, and administrative expenses
Restructuring expenses
Gain on sale of plant
Impairment of intangible asset
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
2017
$ 2,335,542
1,422,801
912,741
436,491
19,951
(12,042)
58,000
410,341
25,983
829
383,529
85,401
298,128
$
2016
$ 2,267,852
1,366,672
901,180
444,431
10,524
—
—
446,225
23,880
1,040
421,305
137,089
284,216
$
2015
$ 1,826,598
1,120,093
706,505
375,148
28,754
—
—
302,603
16,967
4,469
281,167
89,557
191,610
$
$
$
5.26
5.26
$
$
4.98
4.98
$
$
3.36
3.36
56,715
4
56,719
57,030
55
57,085
56,951
22
56,973
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
42
THE MIDDLEBY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE FISCAL YEARS ENDED DECEMBER 30, 2017, DECEMBER 31, 2016
AND JANUARY 2, 2016
(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
$
$
2017
2016
2015
298,128
$
284,216
$
191,610
46,690
(29,669)
883
(63,569)
(149,815)
5,473
316,032
$
76,305
$
(28,187)
(17,039)
245
146,629
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
43
THE MIDDLEBY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED DECEMBER 30, 2017, DECEMBER 31, 2016
AND JANUARY 2, 2016
(amounts in thousands)
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
Net earnings
Currency translation adjustments
Change in unrecognized pension benefit costs, net of tax of
$(30,717)
Unrealized gain on interest rate swap, net of tax of $3,649
Stock compensation
Tax benefit on stock compensation
Purchase of treasury stock
Balance, December 31, 2016
Net earnings
Currency translation adjustments
Change in unrecognized pension benefit costs, net of tax of
$(5,588)
Unrealized gain on interest rate swap, net of tax of $588
Stock compensation
Stock issuance
Purchase of treasury stock
Balance, December 30, 2017
Common
Stock
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income/(loss)
Total
Stockholders'
Equity
$
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
—
—
—
—
—
—
—
—
—
—
—
27,905
(1,304)
—
—
—
—
—
—
(4,418)
284,216
—
—
—
—
—
—
—
(63,569)
284,216
(63,569)
(149,815)
(149,815)
5,473
—
—
—
5,473
27,905
(1,304)
(4,418)
$
144
$ 355,287
$ (205,280) $ 1,399,490
$
(284,323) $
1,265,318
—
—
—
—
—
1
—
—
—
—
—
6,237
13,398
—
—
—
—
—
—
— (239,838)
298,128
—
—
—
—
—
—
—
46,690
298,128
46,690
(29,669)
(29,669)
883
—
—
—
883
6,237
13,399
(239,838)
$
145
$ 374,922
$ (445,118) $ 1,697,618
$
(266,419) $
1,361,148
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
44
THE MIDDLEBY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 30, 2017, DECEMBER 31, 2016
AND JANUARY 2, 2016
(amounts in thousands)
Cash flows from operating activities—
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities
2017
2016
2015
$
298,128
$
284,216
$
191,610
Depreciation and amortization
Non-cash share-based compensation
Deferred income taxes
Gain on sale of plant
Impairment of equipment
Impairment of intangible asset
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
Proceeds on sale of plant
Acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities—
Net proceeds (repayments) under revolving credit facilities
Net repayments under foreign bank loan
Net repayments under other debt arrangement
Repurchase of treasury stock
Debt issuance costs
Excess tax benefit related to share-based compensation
Net cash provided by (used in) financing activities
69,774
6,237
(14,492)
(12,042)
3,114
58,000
26,180
(9,744)
(34,122)
(21,631)
(64,947)
304,455
(54,493)
14,278
(305,251)
(345,466)
296,771
(1,062)
(35)
(239,838)
—
—
58,234
27,905
21,363
—
—
—
(33,908)
(22,246)
(11,550)
(7,730)
(22,174)
294,110
54,074
15,864
1,919
—
—
—
17,112
7,826
(5,685)
(18,036)
(15,092)
249,592
(24,817)
(22,362)
—
(210,921)
(235,738)
(2,482)
(26,821)
(35)
(4,418)
(6,310)
(1,304)
—
(348,625)
(370,987)
145,500
(6,058)
(262)
(4,836)
—
2,414
55,836
(41,370)
136,758
Effect of exchange rates on cash and cash equivalents
6,344
(4,045)
(3,780)
Changes in cash and cash equivalents—
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Non-cash investing and financing activities:
Stock issuance related to acquisitions
21,169
68,485
12,957
55,528
11,583
43,945
89,654
$
68,485
$
55,528
13,399
$
— $
—
$
$
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated financial statements.
45
THE MIDDLEBY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 30, 2017, DECEMBER 31, 2016
AND JANUARY 2, 2016
(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 thirty-
one U.S. and twenty-six 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, food warming equipment, catering equipment, heated cabinets,
charbroilers, ventless cooking systems, kitchen ventilation, induction cooking equipment, countertop cooking equipment,
toasters, griddles, professional mixers, stainless steel fabrication, custom millwork, professional refrigerators, blast chillers,
coldrooms, ice machines, freezers and coffee 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 through automation. The products offered by this group include a wide array of cooking and baking solutions, including
batch ovens, baking ovens, proofing ovens, conveyor belt 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, reduction and emulsion systems, mixers, blenders, battering equipment, breading
equipment, seeding equipment, water cutting systems, food presses, food suspension equipment, and forming equipment, as
well as a variety of automated loading and unloading systems, food safety, food handling, freezing, defrosting 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, ventilation equipment and outdoor equipment.
46
(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.
The following represents the company's more significant acquisitions in 2017 and 2016. The company also made smaller
acquisitions not listed below which are individually and collectively immaterial.
Follett
On May 31, 2016, the company completed its acquisition of substantially all of the assets of Follett Corporation ("Follett"),
a leading manufacturer of ice machines, ice and water dispensing equipment, ice storage and transport products and
medical grade refrigeration products for the foodservice and healthcare industries headquartered in Easton, Pennsylvania,
for a purchase price of approximately $206.9 million, net of cash acquired. During the first quarter of 2017, the company
finalized the working capital provision provided for by the purchase agreement resulting in an additional payment to the
seller of $0.7 million.
The final allocation of cash paid for the Follett 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)
May 31, 2016
Measurement
Period
Adjustments
(as adjusted)
May 31, 2016
$
22,620
$
41,602
19,868
76,220
82,450
1,358
(11,779)
(616)
$
2,888
(2,249)
8,598
(35,656)
41,810
170
(10,801)
(4,064)
25,508
39,353
28,466
40,564
124,260
1,528
(22,580)
(4,680)
Net assets acquired and liabilities assumed
$
231,723
$
696
$
232,419
The goodwill and $67.8 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350 "Intangibles - Goodwill and Other". Other intangibles also includes $55.2 million allocated to
customer relationships and $1.3 million allocated to backlog, which are to be amortized over periods of 8 years and 3
months, respectively. Goodwill and other intangibles of Follett are allocated to the Commercial Foodservice Equipment
Group for segment reporting purposes. These assets are expected to be deductible for tax purposes.
47
Burford
On May 1, 2017, the company completed its acquisition of all of the capital stock of Burford Corp. ("Burford"). Burford is
a leading manufacturer of industrial baking equipment for the food processing industry located in Maysville, Oklahoma,
for a purchase price of approximately $14.8 million, net of cash acquired. During the fourth quarter of 2017, the company
finalized the working capital provision provided for by the purchase agreement resulting in a refund from the seller of $0.3
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
Current liabilities
Long term deferred tax liability
Other non-current liabilities
$
(as initially
reported)
May 1, 2017
2,514
6,424
656
7,289
4,900
(2,254)
(1,840)
—
Preliminary
Measurement
Period
Adjustments
$
— $
126
(13)
808
1,840
(961)
612
(2,761)
(as adjusted)
May 1, 2017
2,514
6,550
643
8,097
6,740
(3,215)
(1,228)
(2,761)
Net assets acquired and liabilities assumed
$
17,689
$
(349) $
17,340
The long term deferred tax liability amounted to $1.2 million. The net deferred tax liability is comprised of $2.7 million of
deferred tax liability related to the difference between the book and tax basis of identifiable intangible assets, net of $0.7
million related to federal and state net operating loss carryforwards and $0.8 million of deferred tax asset arising from the
difference between the book and tax basis of identifiable tangible asset and liability accounts.
The goodwill and $2.7 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also include $3.1 million allocated to customer relationships, $0.7 million
allocated to developed technology and $0.3 million allocated to backlog, which are to be amortized over periods of 6 years,
7 years and 3 months, respectively. Goodwill and other intangibles of Burford are allocated to the Food Processing
Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.
The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets
acquired and liabilities assumed but the company is waiting for additional information necessary to finalize those fair
values. Thus, the provisional measurements of fair value set forth above are subject to change. The company expects to
complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.
48
CVP Systems
On June 30, 2017, the company completed its acquisition of all of the capital stock of CVP Systems, Inc. ("CVP
Systems"), a leading manufacturer of high-speed packaging systems for the meat processing industry located in Downers
Grove, Illinois, for a purchase price of approximately $30.3 million, net of cash acquired. The purchase price included
$17.9 million in cash and 106,254 shares of Middleby common stock valued at $12.3 million. The purchase price is subject
to adjustment based upon a working capital provision provided for by the purchase agreement. The company expects to
finalize this in the first quarter of 2018.
The following estimated fair values of assets acquired and liabilities assumed are provisional and are based on the
information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed
(in thousands):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
Long term deferred tax liability
Other non-current liabilities
(as initially
reported)
June 30, 2017
Preliminary
Measurement
Period
Adjustments
$
621
$
— $
5,973
238
20,297
8,700
(1,532)
(3,168)
—
(1,435)
(91)
432
4,350
(514)
(633)
(2,362)
(as adjusted)
June 30, 2017
621
4,538
147
20,729
13,050
(2,046)
(3,801)
(2,362)
Net assets acquired and liabilities assumed
$
31,129
$
(253) $
30,876
The long term deferred tax liability amounted to $3.8 million. The net liability is comprised of $5.0 million of deferred tax
liability related to the difference between the book and tax basis of identifiable intangible assets, net of $0.4 million related
to federal and state net operating loss carryforwards and $0.8 million of deferred tax assets arising from the difference
between the book and tax basis of identifiable tangible asset and liability accounts.
The goodwill and $6.2 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also include $5.7 million allocated to customer relationships, $0.8 million
allocated to developed technology and $0.3 million allocated to backlog, which are to be amortized over periods of 5 years,
7 years and 3 months, respectively. Goodwill and other intangibles of CVP Systems are allocated to the Food Processing
Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.
The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets
acquired and liabilities assumed but the company is waiting for additional information necessary to finalize those fair
values. Thus, the provisional measurements of fair value set forth above are subject to change. The company expects to
complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.
49
Sveba Dahlen
On June 30, 2017, the company completed its acquisition of all of the capital stock of Sveba Dahlen Group ("Sveba
Dahlen"), a developer and manufacturer of ovens and baking equipment for the commercial foodservice and industrial
baking industries headquartered in Fristad, Sweden, for a purchase price of $81.4 million, net of cash acquired.
The following estimated fair values of assets acquired and liabilities assumed are provisional and are based on the
information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed
(in thousands):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Other assets
Current portion of long-term debt
Current liabilities
Long term debt
Long term deferred tax liability
Other non-current liabilities
(as initially
reported)
June 30, 2017
Preliminary
Measurement
Period
Adjustments
$
4,569
$
— $
22,686
9,128
33,785
34,175
1,170
—
(11,782)
—
(7,751)
(42)
(767)
(332)
(2,843)
7,775
(3)
(14)
649
(140)
(2,600)
(1,725)
(as adjusted)
June 30, 2017
4,569
21,919
8,796
30,942
41,950
1,167
(14)
(11,133)
(140)
(10,351)
(1,767)
Net assets acquired and liabilities assumed
$
85,938
$
— $
85,938
The long term deferred tax liability amounted to $10.4 million. The liability is comprised of $9.2 million of deferred tax
liability related to the difference between the book and tax basis of identifiable intangible assets and $1.2 million of
deferred tax liability related to the difference between the book and tax basis on identifiable tangible asset and liability
accounts.
The goodwill and $22.2 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also include $18.1 million allocated to customer relationships and $1.6 million
allocated to backlog, which are to be amortized over periods of 6 years and 3 months, respectively. Goodwill and other
intangibles of Sveba Dahlen are allocated to the Commercial Foodservice Equipment Group for segment reporting
purposes. These assets are not expected to be deductible for tax purposes.
The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets
acquired and liabilities assumed but the company is waiting for additional information necessary to finalize those fair
values. Thus, the provisional measurements of fair value set forth above are subject to change. The company expects to
complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.
50
QualServ
On August 31, 2017, the company completed its acquisition of substantially all of the assets of QualServ Solutions LLC
("QualServ"), a global commercial kitchen design, manufacturing, engineering, project management and equipment
solutions provider located in Fort Smith, Arkansas, for a purchase price of $40.2 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 first quarter of 2018.
The following estimated fair values of assets acquired and liabilities assumed are provisional and are based on the
information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed
(in thousands):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
(as initially
reported)
August 31, 2017
$
1,130
$
18,031
4,785
14,590
9,600
(6,810)
Preliminary
Measurement
Period
Adjustments
(as adjusted)
August 31, 2017
— $
(64)
—
195
—
(131)
1,130
17,967
4,785
14,785
9,600
(6,941)
Net assets acquired and liabilities assumed
$
41,326
$
— $
41,326
The goodwill and $6.2 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also include $3.3 million allocated to customer relationships and $0.1 million
allocated to backlog, which are to be amortized over periods of 6 years and 3 months, respectively. Goodwill and other
intangibles of QualServ are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes.
These assets are expected to be deductible for tax purposes.
The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets
acquired and liabilities assumed but the company is waiting for additional information necessary to finalize those fair
values. Thus, the provisional measurements of fair value set forth above are subject to change. The company expects to
complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.
51
Globe
On October 17, 2017, the company completed its acquisition of all of the capital stock of Globe Food Equipment Company
("Globe"), a leading brand in slicers and mixers for the commercial foodservice industry located in Dayton, Ohio, for a
purchase price of $104.6 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 first quarter of 2018.
The following estimated fair values of assets acquired and liabilities assumed are provisional and are based on the
information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed
(in thousands):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
Long term deferred tax liability
Other non-current liabilities
(as initially
reported)
October 17, 2017
$
3,420
17,197
1,120
67,176
43,444
(5,994)
(16,456)
(1,907)
Net assets acquired and liabilities assumed
$
108,000
The long term deferred tax liability amounted to $16.5 million. The net liability is comprised of $16.3 million of deferred
tax liability related to the difference between the book and tax basis of identifiable intangible assets and $0.2 million of
deferred tax liability related to the difference between the book and tax basis on identifiable tangible asset and liability
accounts.
The goodwill and $28.2 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also include $14.9 million allocated to customer relationships and $0.3 million
allocated to backlog, which are to be amortized over periods of 5 years and 3 months, respectively. Goodwill and other
intangibles of Globe are allocated to the Commercial Foodservice Equipment Group for segment reporting purposes. These
assets are not expected to be deductible for tax purposes.
The company believes that information gathered to date provides a reasonable basis for estimating the fair values of assets
acquired and liabilities assumed but the company is waiting for additional information necessary to finalize those fair
values. Thus, the provisional measurements of fair value set forth above are subject to change. The company expects to
complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.
52
Scanico
On December 7, 2017, the company completed its acquisition of all of the capital stock of Scanico A/S ("Scanico"), a
leading manufacturer of industrial cooling and freezing equipment for the food processing industry located in Aalborg,
Denmark, for a purchase price of $34.9 million, net of cash acquired. The purchase price is subject to adjustment based
upon a working capital provision provided for by the purchase agreement. The company expects to finalize this in the first
quarter of 2018. An additional payment is also due upon the achievement of certain financial targets.
The following estimated fair values of assets acquired and liabilities assumed are provisional and are based on the
information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed
(in thousands):
Cash
Current assets
Property, plant and equipment
Goodwill
Other intangibles
Current liabilities
Long term deferred tax liability
Consideration paid at closing
Contingent consideration
Net assets acquired and liabilities assumed
(as initially
reported)
December 7, 2017
$
$
$
6,766
3,428
447
30,072
11,491
(7,236)
(3,305)
41,663
(751)
40,912
The long term deferred tax liability amounted to $3.3 million. The net liability is comprised of $2.5 million of deferred tax
liability related to the difference between the book and tax basis of identifiable intangible assets and $0.8 million of
deferred tax liability related to the difference between the book and tax basis on identifiable tangible asset and liability
accounts.
The goodwill and $6.6 million of other intangibles associated with the trade name are subject to the non-amortization
provisions of ASC 350. Other intangibles also include $2.0 million allocated to customer relationships, $0.9 million
allocated to developed technology and $2.0 million allocated to backlog, which are to be amortized over periods of 5 years,
5 years and 3 months, respectively. Goodwill and other intangibles of Scanico are allocated to the Food Processing
Equipment Group for segment reporting purposes. These assets are not expected to be deductible for tax purposes.
The Scanico 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 during the third quarter of 2018, if Scanico exceeds
certain sales and earnings targets for the twelve months ended June 30, 2018. The contractual obligation associated with
this contingent earnout provision recognized on the acquisition date is $0.8 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.
53
Pro forma financial information
In accordance with ASC 805 “Business Combinations”, the following unaudited pro forma results of operations for the years
ended December 30, 2017 and December 31, 2016, assumes the 2016 acquisition of Follett and the 2017 acquisitions of
Burford, CVP Systems, Sveba Dahlen, QualServ, L2F, Globe and Scanico were completed on January 3, 2016 (first day of
fiscal 2016). The following pro forma results include adjustments to reflect additional interest expense to fund the acquisition,
amortization of intangibles associated with the acquisition, and the effects of adjustments made to the carrying value of certain
assets (in thousands, except per share data):
Net sales
Net earnings
Net earnings per share:
Basic
Diluted
December 30, 2017 December 31, 2016
2,606,379
$
281,680
2,500,434
305,770
$
5.39
5.39
4.94
4.93
The historical consolidated financial information of the Company and the acquisitions have been adjusted in the pro forma
information to give effect to pro forma events that are (1) directly attributable to the transactions, (2) factually supportable and
(3) expected to have a continuing impact on the combined results. Pro forma data may not be indicative of the results that
would have been obtained had these acquisitions occurred at the beginning of the periods presented, nor is it intended to be a
projection of future results. Additionally, the pro forma financial information does not reflect the costs which the company has
incurred or may incur to integrate Follett, Burford, CVP Systems, Sveba Dahlen, QualServ, L2F, Globe and Scanico.
54
(3)
(a)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation. The company's consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States. The
preparation of these financial statements requires the company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses as well as related disclosures. Significant items that are subject to such
estimates and judgments include allowances for doubtful accounts, reserves for excess and obsolete inventories, long-lived and
intangible assets, warranty reserves, insurance reserves, income tax reserves and post-retirement obligations. On an ongoing
basis, the company evaluates its estimates and assumptions based on historical experience and various other factors that are
believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions
or conditions.
The company's fiscal year ends on the Saturday nearest December 31. Fiscal years 2017, 2016, and 2015 ended on
December 30, 2017, December 31, 2016 and January 2, 2016, respectively, with each year including 52 weeks.
Certain prior year amounts have been reclassified to be consistent with current year presentation, including combining selling
and distribution expenses with 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 $13.2 million
and $12.6 million at December 30, 2017 and December 31, 2016, respectively. At December 30, 2017, all accounts receivable
are expected to be collected within one year.
(d) Inventories
Inventories are composed of material, labor and overhead and are stated at the lower of cost or market. Costs for inventory have
been determined using the first-in, first-out ("FIFO") method. The company estimates reserves for inventory obsolescence and
shrinkage based on its judgment of future realization. Inventories at December 30, 2017 and December 31, 2016 are as follows:
Raw materials and parts
Work in process
Finished goods
2017
2016
(dollars in thousands)
$
$
180,559
38,917
205,163
424,639
$
$
154,647
35,975
177,621
368,243
55
(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
2017
2016
(dollars in thousands)
28,996
175,678
54,362
165,157
424,193
(142,278)
281,915
$
$
21,309
134,158
56,851
128,688
341,006
(119,435)
221,571
$
$
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 $29.7 million, $26.2 million and $25.5 million in fiscal 2017, 2016 and 2015, 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.
(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.
56
Goodwill is allocated to the business segments as follows (in thousands):
Balance as of January 2, 2016
Commercial
Foodservice
473,127
$
Food
Processing
$ 134,092
Residential
Kitchen
$ 376,120
Total
$ 983,339
Goodwill acquired during the year
Measurement period adjustments to goodwill acquired in prior year
Exchange effect
76,972
(503)
(7,506)
1,958
—
(1,370)
—
86,822
(46,990)
78,930
86,319
(55,866)
Balance as of December 31, 2016
$
542,090
$ 134,680
$ 415,952
$ 1,092,722
Goodwill acquired during the year
Measurement period adjustments to goodwill acquired in prior year
Exchange effect
118,419
(36,408)
7,350
58,899
41
4,658
—
—
19,129
177,318
(36,367)
31,137
Balance as of December 30, 2017
$
631,451
$ 198,278
$ 435,081
$ 1,264,810
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
5.2
0.8
4.2
December 30, 2017
December 31, 2016
Gross
Carrying
Amount
Accumulated
Amortization
$
$
$
330,496
$
(171,005)
19,689
22,485
(18,081)
(18,248)
372,670
$
(207,334)
615,090
Estimated
Weighted
Avg
Remaining
Life
5.5
0.0
4.8
Gross
Carrying
Amount
Accumulated
Amortization
$
$
$
251,025
$
(136,895)
13,550
24,874
(13,550)
(17,924)
289,449
$
(168,369)
575,091
Amortized intangible assets:
Customer lists
Backlog
Developed technology
Indefinite-lived assets:
Trademarks and tradenames
The company performed its annual impairment for trademarks and tradenames (indefinite-lived intangible assets) on the first
day of the fourth quarter and based on the results the company determined that the Viking tradename within the Residential
Kitchen Equipment Group was impaired. The company estimated the fair value of tradenames using a relief from royalty
method under the income approach. The decline in fair value of the Viking tradename was primarily the result of weaker than
expected revenue performance in the current year and a corresponding reduction of future revenue expectations. The
impairment resulted from the decline in revenues attributable, in part, to the product recall announced in 2015 related to
products manufactured prior to the acquisition of Viking. The fair value of the Viking tradename was estimated to be $93.0
million as compared to the carrying value of $151.0 million and resulted in a $58.0 million indefinite-lived intangible asset
impairment charge.
The aggregate intangible amortization expense was $38.6 million, $29.9 million and $27.4 million in 2017, 2016 and 2015,
respectively. The estimated future amortization expense of intangible assets is as follows (in thousands):
2018
2019
2020
2021
2022
2023 and thereafter
$
$
39,017
29,423
28,560
25,153
21,056
22,127
165,336
57
(g)
Accrued Expenses
Accrued expenses consist of the following at December 30, 2017 and December 31, 2016, respectively:
Accrued payroll and related expenses
Accrued warranty
Accrued customer rebates
Advanced customer deposits
Accrued sales and other tax
Accrued professional fees
Accrued product liability and workers compensation
Accrued agent commission
Product recall
Restructuring
Other accrued expenses
$
2017
2016
(dollars in thousands)
$
67,935
52,834
48,590
31,069
20,881
18,250
11,976
11,035
6,068
1,715
51,818
74,505
40,851
49,923
41,735
13,565
16,605
11,417
12,834
7,003
2,295
64,872
$
322,171
$
335,605
(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 (Loss)
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 of ($43,592) and ($38,004)
Unrealized gain on interest rate swap, net of tax of $4,243 and $3,655
Currency translation adjustments
$
2016
2017
(dollars in thousands)
(203,063) $
6,365
(69,721)
(173,394)
5,482
(116,411)
$
(266,419) $
(284,323)
58
Changes in accumulated other comprehensive income (loss) were as follows (in thousands):
Balance as of January 2, 2016
Other comprehensive income before reclassification
Amounts reclassified from accumulated other
comprehensive income
Net current-period other comprehensive income
Balance as of December 31, 2016
Other comprehensive income before reclassification
Amounts reclassified from accumulated other
comprehensive income
Net current-period other comprehensive income
Balance as of December 30, 2017
Currency
Translation
Adjustment
Pension
Benefit
Costs(1)
Unrealized
Gain/(Loss)
Interest
Rate
Swap(1)
$
$
$
$
$
(52,842) $
(63,569)
(23,579) $
(149,907)
—
(63,569) $
(116,411) $
46,690
92
(149,815) $
(173,394) $
(31,683)
—
46,690
$
(69,721) $
2,014
(29,669) $
(203,063) $
9
$
6,703
(1,230)
5,473
5,482
1,822
(939)
883
6,365
$
$
$
$
Total
(76,412)
(206,773)
(1,138)
(207,911)
(284,323)
16,829
1,075
17,904
(266,419)
(1) Pension and interest rate swap amounts are net of tax.
(j)
Fair Value Measures
ASC 820 “Fair Value Measurements and Disclosures” defines fair value as the price that would be received for an asset or paid
to transfer a liability (an exit price) in the principal most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs
used in measuring fair value into the following levels:
Level 1 – Quoted prices in active markets for identical assets or liabilities
Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly
Level 3 – Unobservable inputs based on our own assumptions
The company’s financial assets and liabilities that are measured at fair value are categorized using the fair value hierarchy at
December 30, 2017 and December 31, 2016 are as follows (in thousands):
Fair Value
Level 1
Fair Value
Level 2
Fair Value
Level 3
Total
As of December 30, 2017
Financial Assets:
Interest rate swaps
Financial Liabilities:
Interest rate swaps
Contingent consideration
As of December 31, 2016
Financial Assets:
Interest rate swaps
Financial Liabilities:
Interest rate swaps
Contingent consideration
— $
10,266
$
— $
10,266
— $
— $
— $
— $
— $
$
1,780
—
1,780
— $
8,842
$
— $
8,842
— $
— $
100
$
— $
— $
$
6,612
100
6,612
$
$
$
$
$
$
59
The contingent consideration as of December 30, 2017 relates to the earnout provisions recorded in conjunction with the
acquisitions of Desmon and Scanico. The contingent consideration as of December 31, 2016 relates to the earnout provisions
recorded in conjunction with the acquisitions of PES, Desmon, Goldstein Eswood and Induc.
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 $2.4 million, $1.9 million and $6.8 million in 2017, 2016 and 2015,
respectively, and are included in other expense on the statements of earnings.
(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 2017 and 2016, the amount of this
asset was $19.5 million and $12.2 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
Fees billed to the customer for shipping and handling are classified as a component of net revenues. 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.
60
A rollforward of the warranty reserve for the fiscal years 2017 and 2016 are as follows:
Beginning balance
Warranty reserve related to acquisitions
Warranty expense
Warranty claims paid
Ending balance
(o)
Research and Development Costs
2017
2016
(dollars in thousands)
$
$
40,851
7,769
58,398
(54,184)
52,834
$
$
37,901
2,446
48,975
(48,471)
40,851
Research and development costs, included in cost of sales in the consolidated statements of earnings, are charged to expense
when incurred. These costs were $29.1 million, $26.3 million and $22.4 million in fiscal 2017, 2016 and 2015, respectively.
(p)
Non-Cash Share-Based Compensation
The company estimates the fair value of restricted share grants and stock options at the time of grant and recognizes
compensation costs over the vesting period of the awards and options. Non-cash share-based compensation expense of $6.2
million, $27.9 million and $15.9 million was recognized for fiscal 2017, 2016 and 2015, respectively, associated with restricted
share grants. The company recorded a related tax benefit of $2.4 million, $10.5 million and $6.0 million in fiscal 2017, 2016
and 2015, respectively.
As of December 30, 2017, there was $6.8 million of total unrecognized compensation cost related to nonvested restricted share
grant compensation arrangements, which will be recognized over a weighted average life of 1.2 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. The company issued 76,788 and 382,125 restricted share grant awards in 2017 and 2016, respectively
with a fair value of $10.5 million and $36.0 million, respectively. Share grant awards issued in 2017 and 2016 are performance
based and were not subject to market conditions. The fair value of $136.29 and $94.19 per share for the awards for 2017 and
2016, 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 4,000, 55,000, and 22,000 for fiscal 2017, 2016
and 2015, respectively. There were no anti-dilutive equity awards excluded from common stock equivalents for 2017, 2016 or
2015.
(r)
Consolidated Statements of Cash Flows
Cash paid for interest was $25.9 million, $21.0 million and $14.8 million in fiscal 2017, 2016 and 2015, respectively. Cash
payments totaling $123.3 million, $89.0 million, and $94.6 million were made for income taxes during fiscal 2017, 2016 and
2015, respectively.
61
(s)
New Accounting Pronouncements
Accounting Pronouncements - Recently Adopted
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 was permitted. We adopted this guidance on
January 1, 2017 and it did not have an impact on the company's financial position, 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. The company early adopted ASU 2015-17
effective April 3, 2016 on a prospective basis. Adoption of this ASU resulted in a reclassification of the company's net current
deferred tax asset to the net non-current deferred tax liability in the company's Consolidated Balance Sheet as of July 2, 2016.
In March 2016, the FASB issued ASU No. 2016-05, "Derivatives and Hedging (Topic 815): Effect of Derivative Contract
Novations on Existing Hedge Accounting Relationships". The amendments in ASU 2016-05 clarify that a change in the
counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of
itself, require dedesignation of the hedging relationship provided that all other hedge accounting criteria continue to be met.
The amendments in this update may be applied on either a prospective basis or a modified retrospective basis. This ASU is
effective for annual reporting periods, and interim periods with those reporting periods, beginning after December 15, 2016.
We adopted this guidance on January 1, 2017 and it did not have an impact on the company's financial position, results of
operations or cash flows.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718)". The amendments in
ASU-09 simplify the accounting for share-based payment transactions, including the income tax consequences, classification of
awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for annual
reporting periods, and interim periods with those reporting periods, beginning after December 15, 2016. The company adopted
ASU No. 2016-09 effective January 1, 2017 on a prospective basis. The adoption of this guidance resulted in the recognition of
excess tax benefits in the company's provision for income taxes within the Condensed Consolidated Statements of
Comprehensive Income rather than paid-in-capital of approximately $8.1 million for the twelve months period ended
December 30, 2017. Additionally, the company's Condensed Consolidated Statement of Cash Flows now presents excess tax
benefits as an operating activity rather than a financing activity.
Accounting Pronouncements - To be adopted
In May 2014, the Financial Accounts Standards Board ("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 early 2016, the FASB issued additional updates: ASU No. 2016-10, 2016-11 and 2016-12.
These updates provide further guidance and clarification on specific items within the previously issued update. 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. The guidance can be applied using one of two retrospective
application methods.
62
The company has substantially completed its evaluation of significant contracts and the review of its current accounting
policies and practices to identify potential differences that would result from applying the requirements of the new standard to
the company's revenue contracts. The company has also identified and implemented appropriate changes to business processes,
systems and controls to support recognition and disclosure under the new standard. While the company continues to assess all
potential impacts of the new standard, the company will adopt the new revenue standard in the first quarter of 2018 applying
the modified retrospective transition method. Under the modified retrospective method, we will recognize the cumulative effect
of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The company
estimates this adjustments to be approximately $4.0 million to $6.0 million. The main impact is related to the deferral of
equipment revenue associated with long term contracts for the Food Processing Equipment Group when the contract does not
specifically provide for an enforceable right to payment for performance completed to date. We do not expect other significant
changes to our business processes, systems or internal controls as a result of the standard. The company is finalizing updates to
the accounting policies and processes to address the variations from current practices, inclusive of the required additional
disclosures in the period subsequent to adoption.
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 operating
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 ASU requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial
adoption. The company is currently in process of identifying the population of leases, evaluating technology solutions and
collecting lease data. We expect most of our operating lease commitments as disclosed in Note 8 Lease Commitments will be
subject to the new standard and recognized as lease liabilities and right-of-use assets upon adoption, increasing our total assets
and liabilities reported. The company is evaluating the overall impact this standard will have on its policies and procedures
pertaining to its existing and future lease arrangements, disclosure requirements and the company's financial position, results of
operations and cash flows.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments". The amendments in ASU-15 address eight specific cash flow classification issues to reduce
current and potential future diversity in practice. This ASU is effective for annual reporting periods, and interim periods with
those reporting periods, beginning after December 15, 2017. The company is evaluating the impact the application of this ASU
will have, if any, on the company's cash flows.
In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than
Inventory". The amendments in ASU-16 prohibit the recognition of current and deferred income taxes for an intra-entity asset
transfer other than inventory until the asset has been sold to an outside party. This ASU is effective for annual reporting periods,
and interim periods with those reporting periods, beginning after December 15, 2017. The company is evaluating the impact the
application of this ASU will have, if any, on the company's financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a
Business". The amendments in ASU-01 clarify the definition of a business with the objective of adding guidance to assist
entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. This ASU is
effective for annual reporting periods, and interim periods with those reporting periods, beginning after December15, 2017.
The company is evaluating the impact the application of this ASU. The company does not expect the adoption of this ASU to
have a material impact on its financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment". The amendments in ASU-04 simplify the subsequent measurement of goodwill, by removing the
second step of the goodwill impairment test. An entity will apply a one-step quantitative test and record the amount of
goodwill impairment as the excess of a reporting unit's carrying amount over its fair value. The new guidance does not amend
the optional qualitative assessment of goodwill impairment. This ASU is effective for annual reporting periods, and interim
reporting periods, beginning after December 15, 2019. Early adoption is permitted for testing dates after January 1, 2017. The
company is evaluating the application of this ASU on the company's annual impairment test. The company does not expect the
adoption of this ASU to have a material impact on its financial position, results of operations or cash flows.
63
In March 2017, the FASB issued ASU No. 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost". The amendments in ASU-07 require
that an employer report the service costs component in the same line item or items as other compensation costs arising from
services rendered by the pertinent employees during the period. The other components of net periodic pension cost and net
periodic postretirement benefit cost are required to be presented in the income statement separately from the service cost
component and outside a subtotal of income from operations. In addition, the new standard will allow only the service cost
component to be eligible for capitalization, when applicable. Application of the standard, which should be applied
retrospectively for the income statement presentation changes and prospectively for the capitalization changes, is required for
the annual and interim reporting periods beginning after December 15, 2017. As reported in Note 10 - Employee Retirement
Plans the 2017 and 2016 net periodic pension benefit were $27.3 million and $23.4 million, respectively, and the 2015 net
periodic pension costs were $1.5 million. The service cost component of these amounts in 2017, 2016 and 2015, which will
remain as a component of operating profit, was $4.4 million, $3.8 million and $1.7 million, respectively. Net income will not
change as a result of the adoption of this standard. The company will adopt the standard in the first quarter of 2018.
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting
for Hedging Activities". The amendments in ASU-12 provide new guidance about income statement classification and
eliminates the requirement to separately measure and report hedge ineffectiveness. The entire change in fair value for
qualifying hedge instruments included in the effectiveness will be recorded in other comprehensive income (OCI) and amounts
deferred in OCI will be reclassified to earnings in the same income statement line item in which the earnings effect of the
hedged item is reported. This ASU is effective for annual reporting periods, and interim periods with those reporting periods,
beginning after December 15, 2018 with early adoption permitted. The company is currently evaluating the impacts the ASU
will have on its condensed consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income". The amendments in ASU-02 allow a
reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the
Tax Cuts and Jobs Act and require certain disclosures about stranded tax effects. This ASU is effective for annual reporting
periods, and interim periods with those reporting periods beginning after December 15, 2018 with early adoption permitted.
The company will be adopting the standard in fiscal 2018 retrospectively for the effects recognized in 2017 related to the
change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act.
64
(4)
FINANCING ARRANGEMENTS
The following is a summary of long-term debt at December 30, 2017 and December 31, 2016:
Senior secured revolving credit line
Foreign loans
Other debt arrangement
Total debt
2017
2016
(dollars in thousands)
$ 1,022,935
5,768
178
$ 1,028,881
$
$
725,500
6,413
213
732,126
Less current maturities of long-term debt
5,149
5,883
Long-term debt
$ 1,023,732
$
726,243
On July 28, 2016, the company entered into an amended and restated five year $2.5 billion multi-currency senior secured
revolving credit agreement (the "Credit Facility"), with the potential under certain circumstances to increase the amount of the
Credit Facility to $3.0 billion. As of December 30, 2017, the company had $1,022.9 million of borrowings outstanding under
the Credit Facility, including $1,015.5 million of borrowings in U.S. Dollars and $7.4 million of borrowings denominated in
British Pounds. The company also has $7.5 million in outstanding letters of credit as of December 30, 2017, which reduces the
borrowing availability under the Credit Facility. Remaining borrowing availability under this facility was $1.5 billion at
December 30, 2017.
At December 30, 2017, borrowings under the Credit Facility accrued interest at a rate of 1.25% above LIBOR per annum or
0.25% above the highest of the prime rate, the federal funds rate plus 0.50% and one month LIBOR plus 1.00%. The average
interest rate per annum on the debt under the Credit Facility was equal to 2.72% for the period. The interest rates on borrowings
under the Credit Facility may be adjusted quarterly based on the company’s Funded Debt Less Unrestricted Cash to Pro Forma
EBITDA (the "Leverage Ratio") on a rolling four-quarter basis. Additionally, a commitment fee based upon the Leverage Ratio
is charged on the unused portion of the commitments under the Credit Facility. This variable commitment fee was equal to
0.20% per annum as of December 30, 2017.
In addition, the company has other international credit facilities to fund working capital needs outside the United States and the
United Kingdom. At December 30, 2017, these foreign credit facilities amounted to $5.8 million in U.S. Dollars with a
weighted average per annum interest rate of approximately 6.06%.
The company’s debt is reflected on the balance sheet at cost. 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. The interest rate
margin is based on the company's Leverage Ratio.
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 secured 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 Credit Facility in July 2021. Although borrowings could be materially greater
or less than the current amount of borrowings outstanding at the end of the period, it is not practical to estimate the amounts
that may be outstanding during future periods. The carrying value and estimated aggregate fair value, a level 2 measurement,
based primarily on market prices, of debt is as follows (in thousands):
Total debt
December 30, 2017
December 31, 2016
Carrying Value
1,028,881
$
Fair Value
$
1,028,881
Carrying Value
732,126
$
Fair Value
$
732,126
65
The company uses floating-to-fixed interest rate swap agreements to hedge variable interest rate risk associated with the Credit
Facility. At December 30, 2017, the company had outstanding floating-to-fixed interest rate swaps totaling $399.0 million
notional amount carrying an average interest rate of 1.47% that mature in more than 12 months but less than 84 months.
The terms of the 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;
enter into certain transactions with affiliates; and requires, among other things, the company to satisfy certain financial
covenants: (i) a minimum Interest Coverage Ratio (as defined in the Credit Facility) of 3.00 to 1.00 and (ii) a maximum
Leverage Ratio of Funded Debt less Unrestricted Cash to Pro Forma EBITDA (each as defined in the Credit Facility) of 3.50 to
1.00, which may be adjusted to 4.00 to 1.00 for a four consecutive fiscal quarter period in connection with certain qualified
acquisitions, subject to the terms and conditions contained in the Credit Facility. The 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 foreign and domestic
subsidiaries. The 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. At December 30, 2017, the company was in compliance with all
covenants pursuant to its borrowing agreements.
The aggregate amount of debt payable during each of the next five years is as follows (in thousands):
2018
2019
2020
2021
2022 and thereafter
$
$
5,149
338
163
1,023,098
133
1,028,881
(5)
(a)
COMMON AND PREFERRED STOCK
Shares Authorized and Issued
At December 30, 2017 and December 31, 2016, the company had 95,000,000 authorized shares of common stock and
2,000,000 authorized shares of non-voting preferred stock. At December 30, 2017 and December 31, 2016, there were
55,730,624 and 57,539,766, respectively, issued and outstanding shares of common stock.
(b)
Treasury Stock
On November 7, 2017, the company's Board of Directors resolved to terminate the company's existing share repurchase
program, effective as of such date, which was originally approved in 1998, and approved a new stock repurchase program.
This program authorizes the company to repurchase in the aggregate up to 2,500,000 shares of its outstanding common stock.
During fiscal year 2017, the company repurchased 1,680,395 shares of its common stock under the 1998 program for $200.4
million, including applicable commissions, which represented an average price of $119.23. Additionally, during fiscal year
2017, the company repurchased 126,200 shares of its common stock under the 2017 program for $14.8 million, including
applicable commissions, which represented an average price of $117.61. As of December 30, 2017, 126,200 shares had been
purchased under the 2017 stock repurchase program and 2,373,800 remain authorized for repurchase.
At December 30, 2017, the company had a total of 6,889,241 shares in treasury amounting to $445.1 million.
66
(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 December 30, 2017, a total of 2,683,554 share-based awards have been issued under the 2007 Plan. This
includes 2,672,667 restricted share grants, all of which have vested. 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"), was adopted on April 1, 2011, under which the company's Board of
Directors issues stock grants to key employees. On July 11, 2017 the company increased the maximum amount of
shares reserved for issuance under the 2011 Plan by 1,000,000. A maximum amount of 2,650,000 shares can be issued
under the 2011 Plan. Stock grants issued to employees are transferable upon certain vesting requirements.
As of December 30, 2017, a total of 929,424 share-based awards have been issued under the 2011 Plan. This includes
929,424 restricted share grants, of which 159,203 remain outstanding and unvested.
A summary of the company’s nonvested restricted share grant activity for fiscal years ended December 30, 2017 and
December 31, 2016 is as follows:
Nonvested shares at January 2, 2016
Granted
Vested
Forfeited
Nonvested shares at December 31, 2016
Granted
Vested
Forfeited
Nonvested shares at December 30, 2017
Weighted
Average
Grant-Date
Fair Value
94.86
Shares
340,904
$
382,125
(100,511)
(6,393)
94.19
101.17
107.81
616,125
$
91.76
76,788
(418,125)
(115,585)
136.29
86.70
121.65
159,203
$
104.44
67
(6)
INCOME TAXES
Earnings before taxes is summarized as follows (in thousands):
Domestic
Foreign
Total
2017
290,866
92,663
383,529
$
$
2016
336,625
84,680
421,305
$
$
2015
266,831
14,336
281,167
$
$
The provision for income taxes is summarized as follows (in thousands):
Federal
State and local
Foreign
Total
Current
Deferred
Total
2017
2016
2015
$
$
$
$
48,688
9,076
27,637
85,401
99,893
(14,492)
85,401
$
$
$
$
94,621
13,107
29,361
137,089
115,726
21,363
137,089
$
$
$
$
78,617
9,515
1,425
89,557
87,638
1,919
89,557
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 differences
Foreign income tax rate at rates other than 35%
Tax Cuts and Jobs Act of 2017 deferred tax changes
Tax Cuts and Jobs Act of 2017 transition tax
Change in valuation allowances
Tax on unremitted earnings
Other
Consolidated effective tax
2017
2016
2015
35.0%
35.0%
35.0%
1.5
(2.1)
(0.7)
(1.6)
(10.0)
2.0
(2.0)
1.5
(1.3)
22.3%
2.3
(2.4)
(1.6)
(1.1)
—
—
—
—
0.3
32.5%
2.1
(2.6)
(1.1)
(2.1)
—
—
—
—
0.6
31.9%
The company’s effective tax rate for 2017 was 22.3% as compared to 32.5% in 2016. The effective tax rate for 2017 reflects
the impact of complying with the Tax Cuts and Job Act of 2017 (the Tax Act or tax reform), signed into law on December 22,
2017 and the adoption of ASU 2016-09 "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-
Based Payment Accounting" on January 1, 2017. The tax impact of these items in addition to the reversal of a valuation
allowance are the primary causes of the 2017 tax rate being lower than the federal statutory tax rate of 35.0% and lower than
the effective tax rate for 2016.
68
The company is still evaluating the impact of the Tax Act and how it will affect the company’s capital structure and permanent
reinvestment assertions for its foreign subsidiaries as the United States international taxation moves from a worldwide tax
system to a territorial tax system. Prior to the Tax Act the company largely asserted its foreign earnings where permanently
reinvested, while there were several entities whose earnings were only partially reinvested. As result of the Tax Act and the
transition tax the foreign earnings are being currently taxed, resulting in a net transition tax liability of approximately $7.5
million. The company has accordingly modified its partial reinvestment assertions for several foreign subsidiaries to provide
funds to help cover the transition tax liability. This is reflected as an increase in tax on unremitted earnings in the effective tax
rate reconciliation and increase in other deferred tax liabilities as shown in the components of deferred taxes. The company’s
impact of tax reform is based on current information and guidance available at this time and reflects our best provisional
estimates in accordance with Staff Accounting Bulletin No. 118. The provisional estimates will be subject to refinement in
2018.
At December 30, 2017 and December 31, 2016, the company had recorded the following deferred tax assets and liabilities:
Deferred tax assets:
Compensation related
Pension and post-retirement benefits
Inventory reserves
Accrued liabilities and reserves
Warranty reserves
Net operating loss carryforwards
Other
Gross deferred tax assets
Valuation allowance
Deferred tax assets
Deferred tax liabilities:
Intangible assets
Depreciable assets
Other
Deferred tax liabilities
Net deferred tax assets (liabilities)
Long-term deferred asset
Long-term deferred liability
Net deferred tax assets (liabilities)
2017
2016
(dollars in thousands)
3,129
56,502
11,342
9,813
7,232
37,911
19,826
145,755
(23,190)
122,565
$
25,650
60,986
14,379
4,550
10,141
35,591
41,198
192,495
(29,893)
162,602
(137,871) $
(10,426)
(17,518)
(173,673)
(2,957)
(12,033)
(165,815) $
(188,663)
(43,250) $
(26,061)
44,565
(87,815)
(43,250) $
51,699
(77,760)
(26,061)
$
$
$
$
$
The company recorded a transition tax on undistributed foreign earnings as required by the Tax Act. Additional the company
provided $3.9 million on undistributed earnings not permanently reinvested. No further provisions were made for income taxes
that may result from future remittances of undistributed earnings of foreign subsidiaries that are determined to be permanently
reinvested, which were $197.0 million on December 30, 2017. Determination of the total amount of unrecognized deferred
income taxes on undistributed earnings net of foreign subsidiaries is not practicable.
The company has a deferred tax asset on net operating loss carryforwards totaling $37.9 million as of December 30, 2017.
These net operating losses are available to reduce future taxable earnings of certain domestic and foreign subsidiaries. United
States federal loss carryforwards total $37.9 million and expire through 2037, state loss carryforwards total $124.2 million and
expire through 2037 and international loss carryforwards total $86.1 million and expire through 2030; however, some have no
expiration date. Of these carryforwards, $80.4 million is subject to full valuation allowance.
69
As of December 30, 2017, the total amount of liability for unrecognized tax benefits related to federal, state and foreign taxes
was approximately $29.9 million (of which $29.5 million would impact the effective tax rate if recognized) plus approximately
$4.5 million of accrued interest and $7.5 million of penalties. The company recognizes interest and penalties accrued related to
unrecognized tax benefits in income tax expense. Interest recognized in fiscal years 2017, 2016 and 2015 was $0.7 million,
$0.3 million and $0.3 million, respectively. Penalties recognized in fiscal years 2017, 2016 and 2015 was $1.3 million, $1.0
million and $0.8 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 January 2, 2016,
December 31, 2016 and December 30, 2017 (in thousands):
Balance at January 2, 2016
$
14,419
Increases to current year tax positions
Increase to prior year tax positions
Decrease to prior year tax positions
Settlements
Lapse of statute of limitations
6,367
601
(233)
—
(865)
Balance at December 31, 2016
$
20,289
Increases to current year tax positions
Increase to prior year tax positions
Decrease to prior year tax positions
Settlements
Lapse of statute of limitations
11,843
201
(9)
(439)
(1,955)
Balance at December 30, 2017
$
29,930
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 $4.3 million of its remaining unrecognized tax benefits may be recognized by the end of 2018 as a result
of settlements with taxing authorities or lapses of statutes of limitations.
In the normal course of business, income tax authorities in various income tax jurisdictions both in the United States and
internationally conduct routine audits of our income tax returns filed in prior years. These audits are generally designed to
determine if individual income tax authorities are in agreement with our interpretations of complex tax regulations regarding
the allocation of income to the various income tax jurisdictions. Income tax years are open from 2014 through the current year
for the United States federal jurisdiction. Income tax years open for our other major jurisdictions range from 2013 through the
current year.
70
(7) FINANCIAL INSTRUMENTS
ASC 815 “Derivatives and Hedging” requires an entity to recognize all derivatives as either assets or liabilities and measure
those instruments at fair value. Derivatives that do not qualify as a hedge must be adjusted to fair value in earnings. If the
derivative does qualify as a hedge under ASC 815, changes in the fair value will either be offset against the change in fair value
of the hedged assets, liabilities or firm commitments or recognized in other accumulated other comprehensive income until the
hedged item is recognized in earnings. The ineffective portion of a hedge's change in fair value will be immediately recognized
in earnings.
(a)
Foreign Exchange
The company periodically enters into derivative instruments, principally forward contracts to reduce exposures pertaining to
fluctuations in foreign exchange rates. The fair value of these forward contracts was an unrealized loss of $0.5 million at the
end of the year.
(b)
Interest Rate
The company has entered into interest rate swaps to fix the interest rate applicable to certain of its variable-rate debt. The
agreements swap one-month LIBOR for fixed rates. The company has designated these swaps as cash flow hedges and all
changes in fair value of the swaps are recognized in accumulated other comprehensive income. As of December 30, 2017, the
fair value of these instruments was an asset of $10.3 million. The change in fair value of these swap agreements in 2017 was a
gain of $1.5 million, net of taxes.
A summary of the company’s interest rate swaps is as follows (in thousands):
Fair value
Fair value
Location
Other assets
Other liabilities
Amount of gain/(loss) recognized in other
comprehensive income
Other comprehensive
income
Gain/(loss) reclassified from accumulated other
comprehensive income (effective portion)
Gain/(loss) recognized in income (ineffective
portion)
Interest expense
Other expense
Twelve Months Ended
Dec 30, 2017
Dec 31, 2016
10,266
$
— $
8,842
(100)
531
$
7,892
(939) $
(1,230)
54
$
32
$
$
$
$
$
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.
71
(8)
LEASE COMMITMENTS
The company leases warehouse space, office facilities and equipment under operating leases, which expire in fiscal 2018 and
thereafter. Future minimum payment obligations under these leases are as follows:
2018
2019
2020
2021
2022
2023 and thereafter
Total
Operating
Lease
Commitments
$
25,689
20,953
16,993
14,828
11,600
19,815
$
109,878
Rental expense pertaining to the operating leases was $27.1 million, $23.5 million and $17.6 million in fiscal 2017, 2016 and
2015 respectively.
(9)
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 Arkansas, California, Illinois,
Michigan, New Hampshire, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Vermont, Washington, Australia, China,
Denmark, Estonia, Italy, the Philippines, Poland, Sweden and the United Kingdom. Principal product lines of 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, food warming equipment, catering equipment,
heated cabinets, charbroilers, ventless cooking systems, kitchen ventilation, induction cooking equipment, countertop cooking
equipment, toasters, griddles, professional mixers, stainless steel fabrication, custom millwork, professional refrigerators, blast
chillers, coldrooms, ice machines, freezers and coffee and beverage dispensing equipment. These products are sold and
marketed under the brand names: Anets, Bear Varimixer, Beech, Blodgett, Blodgett Combi, Blodgett Range, Bloomfield,
Britannia, CTX, Carter-Hoffmann, Celfrost, Concordia, CookTek, Desmon, Doyon, Eswood, Follett, Frifri, Giga, Globe,
Goldstein, Holman, Houno, IMC, Induc, Jade, L2F, Lang, Lincat, MagiKitch’n, Market Forge, Marsal, Middleby Marshall,
MPC, Nieco, Nu-Vu, PerfectFry, Pitco, QualServ, Southbend, Star, Sveba Dahlen, 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, Oklahoma, Texas, Virginia, Wisconsin, Denmark, France, Germany, India and the United Kingdom. Principal
product lines of this group include batch ovens, baking ovens, proofing ovens, conveyor belt ovens, continuous processing
ovens, frying systems and automated thermal processing systems, grinders, slicers, reduction and emulsion systems, mixers,
blenders, battering equipment, breading equipment, seeding equipment, water cutting systems, food presses, food suspension
equipment, forming equipment, automated loading and unloading systems, food safety, food handling, freezing, defrosting and
packaging equipment. These products are sold and marketed under the brand names: Alkar, Armor Inox, Auto-Bake, Baker
Thermal Solutions, Burford, Cozzini, CVP Systems, Danfotech, Drake, Emico, Glimek, Maurer-Atmos, MP Equipment,
RapidPak, Scanico, Spooner Vicars, Stewart Systems and Thurne.
72
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, stoves, ovens, refrigerators, dishwashers,
microwaves, cooktops, refrigerators, wine coolers, ice machines, ventilation equipment and outdoor equipment. These products
are sold and marketed under the brand names: AGA, AGA Cookshop, Brigade, Fired Earth, Grange, Heartland, La Cornue,
Leisure Sinks, Lynx, Marvel, Mercury, Rangemaster, Rayburn, Redfyre, Sedona, Stanley, TurboChef, U-Line and Viking.
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) (dollars in thousands):
2017
Net sales
Operating income (4,5,6)
Depreciation and amortization expense
Net capital expenditures
Total assets
Long-lived assets (2)
2016
Net sales
Operating income (4)
Depreciation and amortization expense
Net capital expenditures
Total assets
Long-lived assets (2)
2015
Net sales
Operating income (4)
Depreciation and amortization expense
Net capital expenditures
Total assets
Long-lived assets (2)
Commercial
Foodservice
Food
Processing
Residential
Kitchen
Corporate
and Other(3)
Total
$
$
$
$
$
$
1,382,108
356,776
29,981
41,457
1,693,820
148,565
1,266,955
350,315
19,548
11,958
1,347,441
84,475
1,121,046
296,061
17,117
12,123
1,115,840
61,835
$
$
$
352,717
88,121
7,357
5,519
450,932
25,346
342,235
87,039
5,696
5,667
340,088
21,763
297,712
64,650
5,839
2,164
308,677
20,307
$
$
$
600,717
30,972
30,551
7,637
1,140,668
167,486
658,662
89,435
29,897
6,961
1,179,640
175,206
407,840
4,653
29,515
7,935
1,250,503
129,751
— $ 2,335,542
410,341
69,774
54,493
3,339,713
362,588
(65,528)
1,885
(120)
54,293
21,191
— $ 2,267,852
446,225
58,234
24,817
2,917,136
316,544
(80,564)
3,093
231
49,967
35,100
— $ 1,826,598
302,603
54,074
22,362
2,761,151
233,220
(62,761)
1,603
140
86,131
21,327
(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.
(4) Restructuring expenses are allocated in operating income by segment. See note 12 for further details.
(5) Gain on sale of plant allocated to Commercial Foodservice.
(6) Impairment of intangible assets allocated to Residential Kitchen.
73
Long-lived assets, not including goodwill and other intangibles (in thousands):
Geographic Information
United States and Canada
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
2017
221,479
$
2016
181,317
$
2015
149,299
$
14,033
126,264
812
141,109
14,729
119,511
987
135,227
17,336
65,581
1,004
83,921
$
362,588
$
316,544
$
233,220
2017
$ 1,549,876
2016
$ 1,470,566
2015
$ 1,274,907
192,638
501,247
91,781
785,666
190,548
522,819
83,919
797,286
165,541
319,387
66,763
551,691
$ 2,335,542
$ 2,267,852
$ 1,826,598
(10)
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 with no expected future increase in compensation.
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.
74
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.
75
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 Benefit:
Service cost
Interest cost
Expected return on assets
Amortization of net (gain) loss
Curtailment loss (gain)
Pension settlement gain
Change in Benefit Obligation:
Benefit obligation – beginning of year
Service cost
Interest on benefit obligations
Employee contributions
Actuarial (gain) loss
Pension settlement gain
Net benefit payments
Curtailment loss (gain)
Exchange effect
Benefit obligation – end of year
Change in Plan Assets:
Plan assets at fair value – beginning of year
Company contributions
Investment gain
Employee contributions
Pension settlement loss
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 at period end:
Net actuarial loss
Pre-tax components in recognized in other comprehensive
income for the period:
Current year actuarial (gain) loss
Actuarial gain (loss) recognized
Pension settlement gain
Pension settlement gain recognized
Total amount recognized
Accumulated Benefit Obligation
Salary growth rate
Assumed discount rate
Expected return on assets
Fiscal 2017
Fiscal 2016
U.S. Plans
Non-U.S.
Plans
U.S. Plans
Non-U.S.
Plans
$
$
$
$
$
$
$
$
$
$
$
$
402
1,240
(821)
(330)
—
—
491
$
$
4,013
32,748
(70,630)
3,073
3,305
(313)
(27,804)
31,949
402
1,240
—
(760)
—
(923)
—
—
31,908
13,589
1,476
1,960
—
—
(923)
—
16,102
$ 1,478,493
4,013
32,748
345
21,058
(4,017)
(65,160)
3,305
144,459
$ 1,615,244
$ 1,173,865
3,062
72,342
345
(3,254)
(65,160)
115,339
$ 1,296,539
(15,806)
$ (318,705)
(15,806)
$ (318,705)
3,340
$
243,315
(1,898)
330
—
—
(1,568)
$
$
44,316
(7,041)
(763)
313
36,825
31,908
$ 1,615,157
$
$
$
$
$
$
$
$
$
$
$
$
456
1,280
(777)
126
—
—
1,085
31,830
456
1,280
—
(722)
—
(895)
—
—
31,949
12,987
754
743
—
—
(895)
—
13,589
$
$
3,364
41,606
(68,845)
35
(632)
—
(24,472)
$ 1,476,370
3,364
41,606
404
297,754
—
(64,466)
(706)
(275,833)
$ 1,478,493
$ 1,287,723
17,758
161,405
404
—
(64,466)
(228,959)
$ 1,173,865
(18,360)
$ (304,628)
(18,360)
$ (304,628)
4,908
$
206,490
(691)
(126)
—
—
(817)
$
$
181,384
(35)
—
—
181,349
31,041
$ 1,478,435
n/a
3.5%
6.0%
0.6%
2.3%
6.2%
n/a
3.9%
6.0%
1.6%
2.5%
6.2%
76
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
48%
40
4
8
2017
55%
35
3
7
2016
51%
39
3
7
100%
100%
100%
Target
Allocation
Percentage of Plan Assets
17%
38
32
13
—
2017
26%
48
12
11
3
2016
20%
55
8
12
5
100%
100%
100%
77
In accordance with ASC 820 “Fair Value Measurements and Disclosures”, the company has measured its defined benefit pension
plans at fair value. The following tables summarize the basis used to measure the pension plans’ assets at fair value as of
December 30, 2017 and December 31, 2016 (in thousands):
U.S. Plans:
Asset Category
Total
Fiscal 2017
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Fiscal 2016
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Net Asset
Value
Net Asset
Value
Total
Short Term Investment Fund (a)
$
486
$
— $
486
$
368
$
— $
368
Equity Securities:
Large Cap
Mid Cap
Small Cap
International
Fixed Income:
Government/Corporate
High Yield
Alternative:
Global Real Estate Investment Trust
Commodities Contracts
3,485
474
475
4,507
4,744
809
469
653
3,485
474
475
4,507
4,744
809
469
653
—
—
—
—
—
—
—
—
3,055
512
455
2,917
4,367
971
539
405
3,055
512
455
2,917
4,367
971
539
405
—
—
—
—
—
—
—
—
Total
$
16,102
$
15,616
$
486
$
13,589
$
13,221
$
368
(a) Represents collective short term investment fund, composed of high-grade money market instruments with short maturities.
78
Non-U.S. Plans:
Asset Category
Total
Fiscal 2017
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) Net Asset Value
Cash and cash equivalents
$
42,857
$
8,135
$
15,851
$
— $
18,871
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
178,093
98,408
145,295
16,627
7,261
3,687
385
—
347,840
46,065
228,699
3,750
187
135,238
11,128
79,035
83,814
34,107
48,440
1,675
30,755
12,247
—
4,055
—
—
—
191
—
—
—
—
—
—
Alternative/Other
(131,387)
(4)
—
—
—
—
14,417
—
—
—
—
135,238
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
79,685
128,668
6,876
3,687
321,176
46,065
224,644
3,750
187
—
10,937
79,035
83,814
34,107
48,440
1,675
30,755
101
(131,484)
Total
$
1,296,539
$
140,044
$
165,506
$
101
$
990,888
79
Asset Category
Total
Fiscal 2016
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3) Net Asset Value
Cash and cash equivalents
$
58,131
$
4,730
$
2,886
$
— $
50,515
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
87,828
135,186
6,803
3,189
317,621
107,882
212,327
3,812
160
121,612
10,693
61,612
64,961
30,430
38,099
1,379
11,025
(98,885)
2,098
3,547
79
—
11,203
—
4,205
—
—
—
138
—
—
—
—
—
—
—
—
—
—
—
14,009
103
—
—
—
121,612
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
95
85,730
131,639
6,724
3,189
292,409
107,779
208,122
3,812
160
—
10,555
61,612
64,961
30,430
38,099
1,379
11,025
(98,980)
Total
$
1,173,865
$
26,000
$
138,610
$
95
$
1,009,160
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.
80
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):
2018
2019
2020
2021
2022 through 2027
$
U.S.
Plans
Non-U.S.
Plans
$
998
1,003
1,023
1,685
10,574
63,250
63,197
65,375
66,161
411,011
Expected contributions to the U.S. Plans and Non-U.S. Plans to be made in 2018 are $0.9 million and $5.4 million, respectively.
(b)
Defined Contribution Plans
As of December 30, 2017, 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 maintained defined contribution plans for its UK based employees.
(11) QUARTERLY DATA (UNAUDITED)
2017
Net sales
Gross profit
Income from operations
Net earnings
Basic earnings per share (1)
Diluted earnings per share (1)
2016
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)
$
$
$
$
$
$
$
$
530,297
209,450
101,079
70,702
1.24
1.24
516,355
196,773
86,375
54,538
0.96
0.96
$
$
$
$
$
$
$
$
579,343
234,608
122,136
77,569
1.35
1.35
580,456
233,502
111,913
72,891
1.28
1.28
$
$
$
$
$
$
$
$
593,043
228,519
118,257
74,671
1.31
1.31
574,224
231,728
121,439
75,851
1.33
1.33
$
$
$
$
$
$
$
$
632,859
240,164
68,869
75,186
$ 2,335,542
912,741
410,341
298,128
$
1.35
1.35
$
$
5.26
5.26
596,817
239,177
126,498
80,936
$ 2,267,852
901,180
446,225
284,216
$
1.42
1.41
$
$
4.98
4.98
(1) Sum of quarters may not equal the total for the year due to changes in the number of shares outstanding during the year.
81
(12)
RESTRUCTURING AND ACQUISITION INTEGRATION INITIATIVES
During the fiscal year 2017, 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 fiscal year 2017, the company undertook cost reduction initiatives related to the entire Commercial Foodservice
Equipment Group. This action, which is not material to the company's operations, resulted in a charge of $6.2 million in the
twelve months ended December 30, 2017, primarily for severance related to headcount reductions and consolidation of
manufacturing operations. These expenses are reflected in restructuring expenses in the consolidated statements of earnings.
The company estimates that these 2017 restructuring initiatives will result in future cost savings of approximately $10.0 million
annually. The realization of the saving began in 2017 and will continue into the first six months of fiscal year 2018 and the
restructuring costs in the future are not expected to be significant related to these actions.
Food Processing Equipment Group:
During the fiscal year 2017, the company undertook cost reduction initiatives related to the entire Food Processing Equipment
Group. This action, which is not material to the company's operations, resulted in a charge of $0.6 million in the twelve months
ended December 30, 2017, primarily for severance related to headcount reductions and is reflected in restructuring expenses in
the consolidated statements of earnings. The company estimates that these 2017 restructuring initiatives will result in future
cost savings of approximately $4.0 million annually. The realization of the savings began in 2017 and will continue into the
first six months of fiscal year 2018 and no significant future costs related to this action are expected.
Residential Kitchen Equipment Group:
During the fiscal years 2016 and 2015, the company undertook acquisition integration initiatives primarily 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. During fiscal year 2017, the company
continued initiatives, primarily related the AGA Group, including additional headcount reductions and the impairment of
equipment in conjunction of the disposition of certain facilities and business operations. The company recorded expense in the
amount of $13.1 million, $11.0 million and $25.5 million, respectively in the years ended December 30, 2017, December 31,
2016 and January 2, 2016, respectively. This expense is reflected in restructuring expenses in the consolidated statements of
earnings for such periods. The cumulative expenses incurred to date for these initiatives is approximately $40.6 million. The
company estimated that these restructuring initiatives in 2017 would result in future cost savings of approximately $20.0
million annually. The realization of the savings began in 2017 and will continue into the first six months of fiscal year 2018,
primarily related to compensation and facility costs. The company anticipates that all severance obligations for the Residential
Kitchen Equipment Group will be paid by the end of fiscal of 2018. The lease obligations extend through December 2019.
The costs and corresponding reserve balances for the Residential Kitchen Equipment Group are summarized as follows (in
thousands):
Balance as of January 3, 2015
$
147
$
— $
37
$
184
Severance/
Benefits
Facilities/
Operations
Other
Total
7,248
(2,606)
4,642
1,160
(73)
$
$
Expenses
Payments
18,142
(2,628)
Balance as of January 2, 2016
$
15,661
$
Expenses
Exchange Effect
Payments
Balance as of December 31, 2016
$
Expenses
Exchange Effect
Payments/Utilization
9,816
(749)
(19,583)
(3,697)
$
5,145
8,662
533
2,032
3,872
358
(10,642)
(4,795)
Balance as of December 30, 2017
$
3,698
$
1,467
$
82
108
(25)
120
10
(32)
(29)
69
601
11
(524)
157
25,498
(5,259)
20,423
10,986
(854)
(23,309)
7,246
13,135
902
(15,961)
5,322
$
$
$
(13)
SUBSEQUENT EVENT
On February 16, 2018, subsequent to the company's fiscal 2017 year end, the company completed its acquisition of the stock of
Hinds-Bock Corporation ("Hinds-Bock"), a leading manufacturer of solutions for filling and depositing bakery and food
product for the food processing industry for a purchase price of approximately $26.5 million. The product offerings of Hinds-
Bock include depositing and filling machines. Hinds-Bock is located in Bothell, Washington and has annual revenues of
approximately $15.0 million.
83
THE MIDDLEBY CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED DECEMBER 30, 2017, DECEMBER 31, 2016
AND JANUARY 2, 2016
Balance
Beginning
Of Period
Additions/
(Recoveries)
Charged
to Expense
Other
Adjustments
(1)
Write-Offs
During the
the Period
Balance
At End
Of Period
Allowance for doubtful accounts;
deducted from accounts receivable on the
balance sheets-
2017
2016
2015
$ 12,600,200
$
$
8,838,500
9,091,000
$
$
$
2,083,500
45,900
121,800
$
$
$
478,000
$ (1,979,400) $ 13,182,300
4,886,500
$ (1,170,700) $ 12,600,200
1,103,400
$ (1,477,700) $
8,838,500
(1) Amounts consist primarily of valuation allowances assumed from acquired companies.
Balance
Beginning
Of Period
Additions/
(Recoveries)
Charged
to Expense
Write-Offs
During the
the Period
Balance
At End
Of Period
Valuation allowance - Deferred tax assets
2017
2016
2015
$ 29,893,000
$ (6,703,000) $
— $ 23,190,000
$ 20,395,200
$
9,497,800
$
— $ 20,395,200
$
$
— $ 29,893,000
— $ 20,395,200
84
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report that are
designed to ensure that information required to be disclosed in the company's Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to the company's management, including its Chief Executive Officer and Chief Financial
Officer as appropriate, to allow timely decisions regarding required disclosure.
The company carried out an evaluation, under the supervision and with the participation of the company's management,
including the company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation
of the company's disclosure controls and procedures as of December 30, 2017. Based on the foregoing, the company's Chief
Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective
as of the end of this period.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 30, 2017, 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.
85
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 Burford (acquired May 1,
2017) CVP Systems (acquired June 30, 2017), Sveba Dahlen (acquired June 30, 2017), QualServ (acquired August 31, 2017),
L2F (acquired October 6, 2017), Globe (acquired October 17, 2017), and Scanico (acquired December 7, 2017).
These acquisitions constitute 0.1% and 11.9% of net and total assets, respectively, 3.9% of net sales and (0.7)% of net income
of the consolidated financial statements of the Company as of and for the year ended December 30, 2017. These acquisitions
are included in the consolidated financial statements of the company as of and for the year ended December 30, 2017. 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
companies.
Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our
internal control over financial reporting was effective as of December 30, 2017.
Ernst & Young LLP, independent registered public accounting firm, who audited and reported on the consolidated financial
statements of the company included in this report, has issued an attestation report on the effectiveness of the company's internal
control over financial reporting as of December 30, 2017.
The Middleby Corporation
February 28, 2018
86
Item 9B. Other Information
Not applicable.
87
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.
88
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.
Sixth Amended and Restated Credit Agreement, dated as of July 28, 2016, among Middleby
Marshall Inc, The Middleby Corporation, the Initial Subsidiary Borrowers named therein,
the lenders named therein and Bank of America, N.A., as administrative agent for the
lenders, incorporated by reference to Middleby's Form 8-K, Exhibit 10.1, filed on August 3,
2016.
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.
89
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 December 30, 2017, filed on
February 28, 2018, 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.
Item 16. Form 10-K Summary
None
90
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 1st day of March 2017.
SIGNATURES
THE MIDDLEBY CORPORATION
BY:
/s/ Timothy J. FitzGerald
Timothy J. FitzGerald
Vice President,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated on February 28, 2018.
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/ Nassem Ziyad
Nassem Ziyad
/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
91
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
A/S Wodschow & Co.
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
Burford Bakery Solutions Limited
Burford Corp
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
CVP Systems LLC
Danfotech Holdings, LLC
Danfotech Inc.
Desmon S.p.A.
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Wisconsin
Wisconsin
Delaware
United Kingdom
France
France
France
France
United Kingdom
Delaware
Denmark
Australia
Australia
Delaware
Delaware
Delaware
Australia
Delaware
United Kingdom
United Kingdom
Oklahoma
Delaware
Italy
Vermont
Washington
Delaware
Brazil
Mexico
Italy
Delaware
United Kingdom
Illinois
Delaware
Missouri
Italy
Doyon Acquisition Company, LLC
Doyon Equipment Inc.
Eswood Australia Pty Ltd
F.R. Drake Company
Fab-Asia Inc.
Field Service Solutions
Fired Earth Ltd
Follett Europe Polska sp. z.o.o.
Follett International sp. z.o.o.
Follett LLC
G.S. Blodgett Corporation
Giga Grandi Cucine S.r.l.
Globe Food Equipment Company
Globe Food Equipment Holding Company
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
Johs. Lassen Fjellebroen A/S
L2F Inc.
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 Denmark Holdings ApS
Delaware
Canada
Australia
Delaware
Philippines
Arkansas
United Kingdom
Poland
Poland
Pennsylvania
Vermont
Italy
Ohio
Delaware
Australia
Australia
Romania
Canada
Delaware
Luxembourg
France
Canada
Delaware
Denmark
Delaware
United Kingdom
Australia
Delaware
Denmark
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
Denmark
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 Sweden Holdings SB
Middleby UK Ltd
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.
QualServ Solutions LLC
Scanico A/S
SD Asia Pacific Ltd
SD Group Intressenter (SDGI)
SDG Russia AB
Star International Holdings, Inc.
Star Manufacturing International Inc.
Stewart Systems Baking, LLC
Sveba Dahlen Rus. Ltd.
Sveba-Dahlen Aktiebolag
SvebaDahlen Baltic OÜ
Sveba-Dahlen España
Sveba-Dahlen Group AB
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
Spain
Spain
United Kingdom
India
Peoples Republic of China
Luxembourg
Luxembourg
Delaware
Delaware
Delaware
Philippines
Sweden
United Kingdom
United Kingdom
Mexico
Philippines
Mexico
Florida
Spain
Delaware
Delaware
California
Michigan
United Kingdom
Delaware
New Hampshire
Delaware
Denmark
Hong Kong
Sweden
Sweden
Delaware
Delaware
Delaware
Russia
Sweden
Estonia
Spain
Sweden
Mississippi
Mississippi
Wisconsin
United Kingdom
Luxembourg
Luxembourg
United Kingdom
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
United Kingdom
Delaware
Delaware
Wisconsin
Mississippi
Mississippi
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 February 28, 2018, 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
December 30, 2017.
/s/ Ernst & Young LLP
Chicago, Illinois
February 28, 2018
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: February 28, 2018
/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: February 28, 2018
/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 December 30, 2017 of the Registrant (the “Report”), that:
(1)
(2)
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.
Date: February 28, 2018
/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 December 30, 2017 of the Registrant (the “Report”), that:
(1)
(2)
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.
Date: February 28, 2018
/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 Chapin 4, 6, 7
Chief Executive Officer
Chapin Creative
Robert Lamb, Ph.D.2
Professor
NYU Graduate School of Business
Cathy L. McCarthy 2, 3, 6
Chief Executive Officer
CrossTack, Inc.
John R. Miller III 4, 5, 6
Former President
E.O.P., Inc.
Gordon O’Brien 1, 2, 4
Managing Partner
Cannon Capital
Nassem Ziyad 2
Chief Operating Officer
Ziyad Brothers Importing
STOCK PRICE PERFORMANCE
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
500
450
400
350
300
250
200
150
100
50
0
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 Lead Independent Director
2 Audit Committee Member
3 Chair of Audit Committee
4 Compensation Committee Member
5 Chair of Compensation Committee
6 Nominating Committee Member
7 Chair of Nominating Committee
Middleby
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COMMERCIAL FOODSERVICE EQUIPMENT
FOOD PROCESSING EQUIPMENT
RESIDENTIAL KITCHEN EQUIPMENT
1400 Toastmaster Drive | Elgin, Illinois 60120
www.middleby.com
www.middlebyresidential.com
www.middprocessing.com