Attached files
file | filename |
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EX-32.1 - EXHIBIT 32.1 - MIDDLEBY CORP | v201122_ex32-1.htm |
EX-31.1 - EXHIBIT 31.1 - MIDDLEBY CORP | v201122_ex31-1.htm |
EXCEL - IDEA: XBRL DOCUMENT - MIDDLEBY CORP | Financial_Report.xls |
EX-32.2 - EXHIBIT 32.2 - MIDDLEBY CORP | v201122_ex32-2.htm |
EX-31.2 - EXHIBIT 31.2 - MIDDLEBY CORP | v201122_ex31-2.htm |
UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For
the quarterly period ended October 2, 2010
or
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
Commission
File No. 1-9973
THE MIDDLEBY
CORPORATION
(Exact
Name of Registrant as Specified in its Charter)
Delaware
|
36-3352497
|
|
(State or Other Jurisdiction of
|
(I.R.S. Employer Identification No.)
|
|
Incorporation or Organization)
|
1400 Toastmaster Drive, Elgin, Illinois
|
60120
|
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Registrant's
Telephone No., including Area Code
|
(847)
741-3300
|
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No ¨
Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes x No ¨
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 the definitions of “accelerated filer, large accelerated
filer and smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer x Accelerated
filer o Non-accelerated
filer o Smaller
reporting company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act). Yes o No x
As of
November 5, 2010, there were 18,454,934 shares of the registrant's common stock
outstanding.
THE MIDDLEBY CORPORATION AND
SUBSIDIARIES
QUARTER ENDED OCTOBER 2,
2010
INDEX
DESCRIPTION
|
PAGE
|
|||
PART
I. FINANCIAL INFORMATION
|
||||
Item
1.
|
Condensed
Consolidated Financial Statements (unaudited)
|
|||
CONDENSED
CONSOLIDATED BALANCE SHEETS
October 2, 2010 and January 2,
2010
|
1
|
|||
CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
October
2, 2010 and October 3, 2009
|
2
|
|||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
October
2, 2010 and October 3, 2009
|
3
|
|||
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
4
|
|||
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
25
|
||
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
35
|
||
Item
4.
|
Controls
and Procedures
|
38
|
||
PART
II. OTHER INFORMATION
|
||||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
39
|
||
Item
6.
|
Exhibits
|
40
|
PART I. FINANCIAL
INFORMATION
Item
1. Condensed Consolidated Financial Statements
THE MIDDLEBY CORPORATION AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
(In
Thousands, Except Share Data)
(Unaudited)
October 2, 2010
|
January 2, 2010
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 5,986 | $ | 8,363 | ||||
Accounts
receivable, net of reserve for doubtful accounts of $7,195 and
$6,596
|
102,710 | 78,897 | ||||||
Inventories,
net
|
106,053 | 90,640 | ||||||
Prepaid
expenses and other
|
9,139 | 9,914 | ||||||
Prepaid
taxes
|
4,176 | 5,873 | ||||||
Current
deferred taxes
|
25,229 | 23,339 | ||||||
Total
current assets
|
253,293 | 217,026 | ||||||
Property,
plant and equipment, net of accumulated depreciation of $48,750 and
$44,988
|
44,791 | 47,340 | ||||||
Goodwill
|
372,049 | 358,506 | ||||||
Other
intangibles
|
191,000 | 189,572 | ||||||
Other
assets
|
5,505 | 3,902 | ||||||
Total
assets
|
$ | 866,638 | $ | 816,346 | ||||
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Current
maturities of long-term debt
|
5,349 | $ | 7,517 | |||||
Accounts
payable
|
51,650 | 38,580 | ||||||
Accrued
expenses
|
113,185 | 100,259 | ||||||
Total
current liabilities
|
170,184 | 146,356 | ||||||
Long-term
debt
|
238,259 | 268,124 | ||||||
Long-term
deferred tax liability
|
14,379 | 14,187 | ||||||
Other
non-current liabilities
|
44,116 | 45,024 | ||||||
Stockholders'
equity:
|
||||||||
Preferred
stock, $0.01 par value; nonvoting; 2,000,000 shares authorized; none
issued
|
— | — | ||||||
Common
stock, $0.01 par value; 47,500,000 shares authorized; 22,685,913 and
22,622,650 shares issued in 2010 and 2009, respectively
|
137 | 136 | ||||||
Paid-in
capital
|
175,712 | 162,001 | ||||||
Treasury
stock at cost; 4,230,979 and 4,069,913 shares in 2010 and 2009,
respectively
|
(110,780 | ) | (102,000 | ) | ||||
Retained
earnings
|
339,260 | 287,387 | ||||||
Accumulated
other comprehensive income
|
(4,629 | ) | (4,869 | ) | ||||
Total
stockholders' equity
|
399,700 | 342,655 | ||||||
Total
liabilities and stockholders' equity
|
$ | 866,638 | $ | 816,346 |
See
accompanying notes
1
THE MIDDLEBY CORPORATION AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
(In
Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
Oct 2, 2010
|
Oct 3, 2009
|
Oct 2, 2010
|
Oct 3, 2009
|
|||||||||||||
Net
sales
|
$ | 177,793 | $ | 153,989 | $ | 511,888 | $ | 494,136 | ||||||||
Cost
of sales
|
107,106 | 91,952 | 308,304 | 301,989 | ||||||||||||
Gross
profit
|
70,687 | 62,037 | 203,584 | 192,147 | ||||||||||||
Selling
expenses
|
17,776 | 16,361 | 54,437 | 49,335 | ||||||||||||
General
and administrative expenses
|
20,900 | 17,602 | 60,972 | 59,702 | ||||||||||||
Income
from operations
|
32,011 | 28,074 | 88,175 | 83,110 | ||||||||||||
Net
interest expense and deferred financing amortization
|
2,177 | 2,797 | 6,898 | 8,800 | ||||||||||||
Other
expense, net
|
(121 | ) | (137 | ) | 443 | 607 | ||||||||||
Earnings
before income taxes
|
29,955 | 25,414 | 80,834 | 73,703 | ||||||||||||
Provision
for income taxes
|
9,353 | 9,913 | 28,961 | 30,421 | ||||||||||||
Net
earnings
|
$ | 20,602 | $ | 15,501 | $ | 51,873 | $ | 43,282 | ||||||||
Net
earnings per share:
|
||||||||||||||||
Basic
|
$ | 1.16 | $ | 0.88 | $ | 2.91 | $ | 2.46 | ||||||||
Diluted
|
$ | 1.13 | $ | 0.83 | $ | 2.84 | $ | 2.34 | ||||||||
Weighted
average number of shares
|
||||||||||||||||
Basic
|
17,815 | 17,600 | 17,811 | 17,589 | ||||||||||||
Dilutive
stock options1
|
459 | 1,154 | 460 | 931 | ||||||||||||
Diluted
|
18,274 | 18,754 | 18,271 | 18,520 |
|
1
|
There
were no anti-dilutive stock options excluded from common stock equivalents
for any period presented.
|
See
accompanying notes
2
THE MIDDLEBY CORPORATION AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
Thousands)
(Unaudited)
Nine Months Ended
|
||||||||
Oct 2, 2010
|
Oct 3, 2009
|
|||||||
Cash
flows from operating activities-
|
||||||||
Net
earnings
|
$ | 51,873 | $ | 43,282 | ||||
Adjustments
to reconcile net earnings to cash provided
by operating activities:
|
||||||||
Depreciation
and amortization
|
11,656 | 11,873 | ||||||
Deferred
taxes
|
(1,698 | ) | (2,850 | ) | ||||
Non-cash
share-based compensation
|
11,058 | 8,184 | ||||||
Unrealized
loss on derivative financial instruments
|
4 | 14 | ||||||
Changes
in assets and liabilities, net of acquisitions
|
||||||||
Accounts
receivable, net
|
(19,344 | ) | 22,065 | |||||
Inventories,
net
|
(5,563 | ) | 11,718 | |||||
Prepaid
expenses and other assets
|
2,003 | (850 | ) | |||||
Accounts
payable
|
9,279 | (2,636 | ) | |||||
Accrued
expenses and other liabilities
|
6,888 | (13,638 | ) | |||||
Net
cash provided by operating activities
|
66,156 | 77,162 | ||||||
Cash
flows from investing activities-
|
||||||||
Net
additions to property and equipment
|
(3,008 | ) | (4,941 | ) | ||||
Acquisition
of Giga
|
(1,621 | ) | — | |||||
Acquisition
of TurboChef, net of cash acquired
|
— | (116,129 | ) | |||||
Acquisition
of CookTek
|
(1,000 | ) | (8,000 | ) | ||||
Acquisition
of Anets
|
(500 | ) | (3,359 | ) | ||||
Acquisition
of Doyon
|
(577 | ) | — | |||||
Acquisition
of PerfectFry, net of cash acquired
|
(4,607 | ) | — | |||||
Acquisition
of Cozzini, net of cash acquired
|
(17,443 | ) | — | |||||
Net
cash (used in) investing activities
|
(28,756 | ) | (132,429 | ) | ||||
Cash
flows from financing activities-
|
||||||||
Net
(repayments) proceeds under revolving credit facilities
|
(30,050 | ) | 59,650 | |||||
Net
repayments under foreign bank loan
|
(1,508 | ) | 221 | |||||
Repurchase
of treasury stock
|
(8,780 | ) | — | |||||
Net
proceeds from stock issuances
|
565 | 384 | ||||||
Net
cash (used in) provided by financing activities
|
(39,773 | ) | 60,255 | |||||
Effect
of exchange rates on cash
|
||||||||
and
cash equivalents
|
(4 | ) | (141 | ) | ||||
Changes
in cash and cash equivalents-
|
||||||||
Net
(decrease) increase in cash and cash equivalents
|
(2,377 | ) | 4,847 | |||||
Cash
and cash equivalents at beginning of year
|
8,363 | 6,144 | ||||||
Cash
and cash equivalents at end of the nine-month period
|
$ | 5,986 | $ | 10,991 | ||||
Supplemental
disclosure of cash flow information:
|
||||||||
Interest
paid
|
$ | 6,352 | $ | 8,170 | ||||
Income
tax payments
|
$ | 24,283 | $ | 24,509 | ||||
Non-cash
financing and investing activities:
|
||||||||
Stock
issuance related to the acquisition of TurboChef
|
$ | — | $ | 44,048 | ||||
Stock
issuance related to the acquisition of Cozzini
|
$ | 2,090 | $ | — | ||||
Contingent
consideration related to the acquisition of CookTek
|
$ | — | $ | 7,360 | ||||
Contingent
consideration related to the acquisition of Cozzini
|
$ | 2,000 | $ | — |
See
accompanying notes
3
THE MIDDLEBY CORPORATION AND
SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
October 2,
2010
(Unaudited)
1)
|
Summary
of Significant Accounting Policies
|
A)
|
Basis
of Presentation
|
The
condensed consolidated financial statements have been prepared by The Middleby
Corporation (the "company"), pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements are unaudited and
certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations, although the company believes that the disclosures are
adequate to make the information not misleading. These financial statements
should be read in conjunction with the financial statements and related notes
contained in the company's 2009 Form 10-K.
In the
opinion of management, the financial statements contain all adjustments
necessary to present fairly the financial position of the company as of October
2, 2010 and January 2, 2010, and the results of operations for the three and
nine months ended October 2, 2010 and October 3, 2009 and cash flows for the
nine months ended October 2, 2010 and October 3, 2009.
B)
|
Non-Cash
Share-Based Compensation
|
The
company estimates the fair value of market-based stock awards and stock options
at the time of grant and recognizes compensation cost over the vesting period of
the awards and options. Non-cash share-based compensation expense was $3.7
million and $2.7 million for the third quarter of 2010 and 2009, respectively.
Non-cash share-based compensation expense was $11.1 million and $8.2 million for
the nine month periods ended October 2, 2010 and October 3, 2009,
respectively.
|
C)
|
Income
Tax Contingencies
|
On
December 31, 2006, the company adopted the provisions of Accounting Standards
Codification (“ASC”) 740 “Income Taxes”. This interpretation prescribes a
comprehensive model for how a company should recognize, measure, present and
disclose in its financial statements uncertain tax positions that the company
has taken or expects to take on a tax return. ASC 740 states that a tax benefit
from an uncertain tax position may be recognized only if it is “more likely than
not” that the position is sustainable, based on its technical merits. The tax
benefit of a qualifying position is the largest amount of tax benefit that is
greater than 50% likely of being realized upon settlement with a taxing
authority having full knowledge of all relevant information.
4
As of
January 2, 2010, the total amount of liability for unrecognized tax benefits
related to federal, state and foreign taxes was approximately $20.3 million (of
which $12.9 would impact the effective tax rate if recognized) plus
approximately $2.0 million of accrued interest and $2.2 million of penalties. As
of October 2, 2010, there were no significant changes in the total amount of
liability for unrecognized tax benefits. During the second quarter, the IRS
completed its audit of the company's 2007 federal tax return resulting in a $1.3
million benefit to the provision. The results of this audit were reflected in
the company's second quarter financial statements.
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. While a
reasonable range of the amount cannot be determined, the company believes such
decrease would not be material.
The
company operates in multiple taxing jurisdictions, both within the United States
and outside of the United States, and faces audits from various tax authorities.
The company remains subject to examination until the statute of limitations
expires for the respective tax jurisdiction. Federal tax years 2006 and 2007
were examined by competent IRS agents. Therefore the company believes the tax
years to be effectively settled and closed for ASC 740 purposes. Within specific
countries, the company and its operating subsidiaries may be subject to audit by
various tax authorities and may be subject to different statute of limitations
expiration dates. A summary of the tax years that remain subject to examination
in the company’s major tax jurisdictions are:
United
States – federal
|
2006 - 2009
|
United
States – states
|
2002 - 2009
|
China
|
2002 - 2009
|
Canada
|
2009
|
Denmark
|
2006 - 2009
|
Italy
|
2008 - 2009
|
Mexico
|
2005 - 2009
|
Philippines
|
2006 - 2009
|
South
Korea
|
2005 - 2009
|
Spain
|
2007 - 2009
|
Taiwan
|
2007 - 2009
|
United
Kingdom
|
2007 - 2009
|
5
D) Fair
Value Measures
On
December 30, 2007 (first day of fiscal year 2008), the company adopted the
provisions of ASC 820 “Fair Value Measurements and Disclosures”. This statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosure about fair value
measurements.
ASC 820
defines fair value as the price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal most advantageous market
for the asset or liability in an orderly transaction between market participants
on the measurement date. ASC 820 establishes a fair value hierarchy, which
prioritizes the inputs used in measuring fair value into the following
levels:
Level 1 –
Quoted prices in active markets for identical assets or
liabilities.
Level 2 –
Inputs, other than quoted prices in active markets, that are observable either
directly or indirectly.
Level 3 –
Unobservable inputs based on our own assumptions.
The
company’s financial assets and liabilities that are measured at fair value and
are categorized using the fair value hierarchy at October 2, 2010 are as follows
(in thousands):
Fair Value
|
Fair Value
|
Fair Value
|
||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
As
of October 2, 2010
|
||||||||||||||||
Financial
Assets:
|
||||||||||||||||
None
|
— | — | — | $ | — | |||||||||||
Financial
Liabilities:
|
||||||||||||||||
Interest
rate swaps
|
— | $ | 2,921 | — | $ | 2,921 | ||||||||||
Contingent
consideration
|
— | — | $ | 5,706 | $ | 5,706 | ||||||||||
As
of January 2, 2010
|
||||||||||||||||
Financial
Assets:
|
||||||||||||||||
None
|
— | — | — | $ | — | |||||||||||
Financial
Liabilities:
|
||||||||||||||||
Interest
rate swaps
|
— | $ | 2,966 | — | $ | 2,966 | ||||||||||
Contingent
consideration
|
— | — | $ | 4,134 | $ | 4,134 |
The
contingent consideration relates to earnout provisions recorded in conjunction
with the acquisitions of CookTek LLC and the food processing equipment division
of Cozzini, Inc. See Note 2 for more information.
6
2)
|
Acquisitions
and Purchase Accounting
|
The
company operates in a highly fragmented industry and has completed numerous
acquisitions over the past several years as a component of its growth strategy.
The company has acquired industry leading brands and technologies to position
itself as a leader in the commercial foodservice equipment and food processing
equipment industries.
The
company has accounted for all business combinations using the purchase method to
record a new cost basis for the assets acquired and liabilities assumed. The
difference between the purchase price and the fair value of the assets acquired
and liabilities assumed has been recorded as goodwill in the financial
statements. The results of operations are reflected in the consolidated
financial statements of the company from the date of acquisition.
CookTek
On April
26, 2009, the company completed its acquisition of substantially all of the
assets and operations of CookTek LLC (“CookTek”), the leading
manufacturer of induction cooking and warming systems for a purchase price of
$8.0 million in cash. An additional deferred payment of $1.0 million was made
during the second quarter of 2010 as provided for in the purchase agreement.
Additional contingent payments are also payable over the course of four years
upon the achievement of certain sales targets as described below.
The final
allocation of cash paid for the CookTek acquisition is summarized as follows (in
thousands):
(as initially reported)
|
Measurement Period
|
(as adjusted)
|
||||||||||
Apr 26, 2009
|
Adjustments
|
Apr 26, 2009
|
||||||||||
Current
assets
|
$ | 2,595 | $ | (12 | ) | $ | 2,583 | |||||
Property,
plant and equipment
|
152 | — | 152 | |||||||||
Goodwill
|
11,544 | (5,649 | ) | 5,895 | ||||||||
Other
intangibles
|
3,622 | 3,000 | 6,622 | |||||||||
Current
liabilities
|
(3,428 | ) | 165 | (3,263 | ) | |||||||
Other
non-current liabilities
|
(6,485 | ) | 2,496 | (3,989 | ) | |||||||
Total
cash paid at closing
|
$ | 8,000 | $ | — | $ | 8,000 | ||||||
Deferred
cash payment
|
1,000 | — | 1,000 | |||||||||
Contingent
consideration
|
7,360 | (2,660 | ) | 4,700 | ||||||||
Net
assets acquired and liabilities assumed
|
$ | 16,360 | $ | (2,660 | ) | $ | 13,700 |
7
The
CookTek purchase agreement included an earnout provision providing for
contingent payments due to the sellers to the extent certain financial targets
are exceeded. The earnout amounts are payable in the four consecutive years
subsequent to the acquisition date if CookTek exceeds certain sales targets for
each of those years. The earnout payment will amount to 10% of the sales in
excess of the target for each of the respective years. There is no cap on the
potential earnout payment, however, the company’s estimated probable range of
the contingent consideration is between $0 and $8 million. The contractual
obligation associated with the contingent earnout provision recognized on the
acquisition date was $4.7 million.
This amount was determined based on an income approach.
The
goodwill and $3.5 million of other intangibles associated with the trade name
are subject to the non-amortization provisions of ASC 350 “Intangibles –
Goodwill and Other.” Other intangibles also include less than $0.1 million
allocated to backlog, $0.7 million allocated to developed technology and $2.4
million allocated to customer relationships which are to be amortized over
periods of 3 months, 6 years and 5 years, respectively. Goodwill and other
intangibles of CookTek are allocated to the Commercial Foodservice Equipment
Group for segment reporting purposes. These assets are expected to be deductible
for tax purposes.
During
the second quarter of 2009, the company recorded a preliminary estimate of the
intangible assets acquired in conjunction with the CookTek acquisition. The
company also recorded intangible amortization expense related to those assets in
its results of operations for the second quarter of 2009. The final valuation of
intangible assets acquired was completed during the fourth quarter of 2009.
Therefore, the company adjusted the intangible amortization expense in its full
year results of operations for 2009. This adjustment did not have a material
impact on the company’s results of operations.
8
Anets
On April
30, 2009, the company completed its acquisition of substantially all of the
assets and operations of Anetsberger Brothers, Inc. (“Anets”), a leading
manufacturer of griddles, fryers and dough rollers, for a purchase price of $3.4
million. An additional deferred payment of $0.5 million was made in the second
quarter of 2010 upon the achievement of certain transition
objectives.
The final
allocation of cash paid for the Anets acquisition is summarized as follows (in
thousands):
(as initially reported)
|
Measurement Period
|
(as adjusted)
|
||||||||||
Apr 30, 2009
|
Adjustments
|
Apr 30, 2009
|
||||||||||
Current
assets
|
$ | 2,210 | $ | — | $ | 2,210 | ||||||
Goodwill
|
3,320 | 22 | 3,342 | |||||||||
Other
intangibles
|
1,085 | — | 1,085 | |||||||||
Current
liabilities
|
(3,107 | ) | (22 | ) | (3,129 | ) | ||||||
Other
non-current liabilities
|
(150 | ) | — | (150 | ) | |||||||
Total
cash paid at closing
|
$ | 3,358 | $ | — | $ | 3,358 | ||||||
Deferred
cash payment
|
500 | — | 500 | |||||||||
Net
assets acquired and liabilities assumed
|
$ | 3,858 | $ | — | $ | 3,858 |
The
goodwill and $0.9 million of other intangibles associated with the trade name
are subject to the non-amortization provisions of ASC 350. Other intangibles
also include less than $0.1 million allocated to developed technology and $0.2
million allocated to customer relationships, both of which are to be amortized
over the period of 3 years. Goodwill and other intangibles of Anets are
allocated to the Commercial Foodservice Equipment Group for segment reporting
purposes. These assets are expected to be deductible for tax
purposes.
9
Doyon
On
December 14, 2009, the company completed its acquisition of Doyon Equipment,
Inc. (“Doyon”), a leading Canadian manufacturer of baking ovens for the
commercial foodservice industry, for a purchase price of approximately $5.8
million. During the three month period ended October 2, 2010, the company
finalized the working capital provision resulting in an additional payment of
$577,000.
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. Measurement period adjustments reflect new information
obtained about facts and circumstances that existed as of the acquisition date
(in thousands):
(as initially reported)
|
Measurement Period
|
(as adjusted)
|
||||||||||
Dec 14, 2009
|
Adjustments
|
Dec 14, 2009
|
||||||||||
Current
assets
|
$ | 5,034 | $ | — | $ | 5,034 | ||||||
Property,
Plant and Equipment
|
1,876 | — | 1,876 | |||||||||
Goodwill
|
191 | 1,550 | 1,741 | |||||||||
Other
intangibles
|
2,355 | (82 | ) | 2,273 | ||||||||
Current
maturities of long-term debt
|
(285 | ) | — | (285 | ) | |||||||
Current
liabilities
|
(2,105 | ) | (891 | ) | (2,996 | ) | ||||||
Long-term
debt
|
(1,081 | ) | — | (1,081 | ) | |||||||
Other
non-current liabilities
|
(166 | ) | — | (166 | ) | |||||||
Net
assets and liabilities assumed
|
$ | 5,819 | $ | 577 | $ | 6,396 |
The
goodwill and $1.4 million of other intangibles associated with the trade name
are subject to the non-amortization provisions of ASC 350. Other intangibles
also include $0.1 million allocated to developed technology and $0.8 million
allocated to customer relationships which are to be amortized over the periods
of 5 years. Goodwill and other intangibles of Doyon are allocated to the
Commercial Foodservice Equipment Group for segment reporting purposes. These
assets are not expected to be deductible for tax purposes.
The
company believes that information gathered to date provides a reasonable basis
for estimating the fair values of assets acquired and liabilities assumed but
the company is waiting for additional information necessary to finalize those
fair values. Thus, the provisional measurements of fair value set forth above
are subject to change. Such changes are not expected to be significant. The
company expects to complete the purchase price allocation as soon as practicable
but no later than one year from the acquisition date. In the company’s financial
statements for the fiscal year 2009, the company recorded a preliminary estimate
of the intangible assets acquired in conjunction with the Doyon acquisition. The
company also recorded intangible amortization expense related to these assets in
its results of operations for the first quarter of 2010. The final valuation of
intangible assets acquired was completed during the second quarter of 2010.
Therefore, the company adjusted the intangible amortization expense in its
results of operations for the second quarter of 2010 on a year to date basis.
This adjustment did not have a material impact on the company’s results of
operations.
10
PerfectFry
On July
13, 2010, the company completed its acquisition of substantially all of the
assets and operations of PerfectFry Company LTD (“PerfectFry”), a leading
manufacturer of ventless countertop frying units for the commercial foodservice
industry for a purchase price of approximately $4.6 million. The purchase price
is subject to adjustment based upon a working capital provision within the
purchase agreement.
The
following estimated fair values of assets acquired and liabilities assumed are
provisional and are based on the information that was available as of
the acquisition date to estimate the fair value of assets acquired and
liabilities assumed (in thousands):
Jul 13, 2010
|
||||
Cash
|
$ | 247 | ||
Current
assets
|
1,949 | |||
Goodwill
|
2,502 | |||
Other
intangibles
|
1,653 | |||
Current
liabilities
|
(1,497 | ) | ||
Net
assets and liabilities assumed
|
$ | 4,854 |
The
goodwill and $1.2 million of other intangibles associated with the trade name
are subject to the non-amortization provisions of ASC 350. Other intangibles
also include $0.1 million allocated to developed technology and $0.3 million
allocated to customer relationships which are to be amortized over the periods
of 5 years. Goodwill and other intangibles of PerfectFry are allocated to the
Commercial Foodservice Equipment Group for segment reporting purposes. These
assets are expected to be deductible for tax purposes.
The
company believes that information gathered to date provides a reasonable basis
for estimating the fair values of assets acquired and liabilities assumed but
the company is waiting for additional information necessary to finalize those
fair values. Thus, the provisional measurements of fair value set forth above
are subject to change. Such changes are not expected to be significant. The
company expects to complete the purchase price allocation as soon as practicable
but no later than one year from the acquisition date.
Cozzini
On
September 21, 2010, the company completed its acquisition of the food processing
equipment business of Cozzini, Inc. (“Cozzini”), a leading manufacturer of
equipment solutions for the food processing industry, for an aggregate purchase
price of approximately $19.5 million, including $17.4 million in cash and 34,263
shares of Middleby common stock valued at $2.1 million. An additional contingent
payment is also payable upon the achievement of certain sales targets. The
purchase price is subject to adjustment based upon a working capital provision
within the purchase agreement.
11
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):
Sep 21, 2010
|
||||
Cash
|
$ | 557 | ||
Current
assets
|
13,601 | |||
Property,
Plant and Equipment
|
863 | |||
Goodwill
|
9,601 | |||
Other
intangibles
|
6,691 | |||
Other
assets
|
636 | |||
Current
liabilities
|
(11,859 | ) | ||
Consideration
paid at closing
|
$ | 20,090 | ||
Contingent
consideration
|
2,000 | |||
Net
assets acquired and liabilities assumed
|
$ | 22,090 |
The
goodwill and $3.2 million of other intangibles associated with the trade name
are subject to the non-amortization provisions of ASC 350. Other intangibles
also includes $0.6 million allocated to developed technology, $2.4 million
allocated to customer relationships and $0.4 million allocated to backlog which
are to be amortized over the periods of 5 years, 7 years and 3 months
respectively. Goodwill and other intangibles of Cozzini are allocated to the
Food Processing Group for segment reporting purposes. These assets are expected
to be deductible for tax purposes.
The
company believes that information gathered to date provides a reasonable basis
for estimating the fair values of assets acquired and liabilities assumed but
the company is waiting for additional information necessary to finalize those
fair values. Thus, the provisional measurements of fair value set forth above
are subject to change. Such changes are not expected to be significant. The
company expects to complete the purchase price allocation as soon as practicable
but no later than one year from the acquisition date.
The
Cozzini purchase agreement included an earnout provision providing for a
contingent payment due to the sellers to the extent certain financial targets
are exceeded. This earnout payment is payable within the first quarter of 2011
if Cozzini exceeds certain sales targets for fiscal 2010. The contractual
obligation associated with the contingent earnout provision recognized on the
acquisition date was $2.0 million.
12
3)
|
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 reserve requirement may change in the future due to new
developments or changes in approach such as a change in settlement strategy in
dealing with these matters. The company does not believe that any pending
litigation will have a material adverse effect on its financial condition,
results of operations or cash flows.
4)
|
Recently
Issued Accounting Standards
|
In
January 2010, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements
and Disclosures (Topic 820), “Improving Disclosures about Fair Value
Measurements” (“ASU No. 2010-06”). ASU No. 2010-06 requires new disclosures
about significant transfers in and out of Level 1 and Level 2 fair value
measurements and the reasons for such transfers and to disclose separately
information about purchases, sales, issuances and settlements in the
reconciliation for Level 3 fair value measurements. The company adopted the
provisions of ASU No. 2010-06 on January 3, 2010, except for
disclosures about purchases, sales, issuances and settlements in the
reconciliation for Level 3 fair value measurements. These disclosures will be
effective for financial statements issued for fiscal years beginning after
December 15, 2010. The company does not expect that the adoption of ASU No.
2010-06 will have a material impact on the company’s financial position, results
of operations or cash flows.
In
October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic
605), “Multiple-Deliverable Revenue Arrangements” (“ASU No. 2009-13”). ASU No.
2009-13 establishes the accounting and reporting guidance for arrangements
including multiple revenue-generating activities. The amendments in ASU
No. 2009-13 are effective prospectively for revenue arrangements entered into or
materially modified in the fiscal years beginning on or after June 15,
2010. The company will adopt the provisions of ASU No. 2009-13 as
required. The company does not expect that the adoption of ASU No. 2009-13 will
have a material impact on the company’s financial position, results of
operations or cash flows.
13
5)
|
Other
Comprehensive Income
|
The
company reports changes in equity during a period, except those resulting from
investments by owners and distributions to owners, in accordance with ASC 220,
"Comprehensive Income."
Components
of other comprehensive income were as follows (in thousands):
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
Oct 2, 2010
|
Oct 3, 2009
|
Oct 2, 2010
|
Oct 3, 2009
|
|||||||||||||
Net
earnings
|
$ | 20,602 | $ | 15,501 | $ | 51,873 | $ | 43,282 | ||||||||
Currency
translation adjustment
|
2,557 | 365 | 251 | 1,333 | ||||||||||||
Unrealized
gain on interest rate swaps, net of tax
|
(79 | ) | 466 | (11 | ) | 1,041 | ||||||||||
Comprehensive
income
|
$ | 23,080 | $ | 16,332 | $ | 52,113 | $ | 45,656 |
Accumulated
other comprehensive income is comprised of unrecognized pension benefit costs of
$2.3 million, net of taxes of $0.6 million as of October 2, 2010 and January 2,
2010, foreign currency translation adjustments of $0.9 million as of October 2,
2010 and $1.1 million as of January 2, 2010 and an unrealized loss on interest
rate swaps of $1.5 million, net of taxes of $1.0 million as of October 2, 2010
and January 2, 2010.
6)
|
Inventories
|
Inventories
are composed of material, labor and overhead and are stated at the lower of cost
or market. Costs for inventory at two of the company's manufacturing facilities
have been determined using the last-in, first-out ("LIFO") method. These
inventories under the LIFO method amounted to $16.0 million at October 2, 2010
and $15.6 million at January 2, 2010 and represented approximately 15% and 17%
of the total inventory in each respective period. Costs for all other inventory
have been determined using the first-in, first-out ("FIFO") method. The company
estimates reserves for inventory obsolescence and shrinkage based on its
judgment of future realization. Inventories at October 2, 2010 and January 2,
2010 are as follows:
Oct 2, 2010
|
Jan 2, 2010
|
|||||||
(in thousands)
|
||||||||
Raw
materials and parts
|
$ | 60,708 | $ | 51,071 | ||||
Work-in-process
|
18,440 | 13,629 | ||||||
Finished
goods
|
27,696 | 26,731 | ||||||
106,844 | 91,431 | |||||||
LIFO
reserve
|
(791 | ) | (791 | ) | ||||
$ | 106,053 | $ | 90,640 |
14
7)
|
Goodwill
|
Changes
in the carrying amount of goodwill for the nine months ended October 2, 2010 are
as follows (in thousands):
Commercial
|
Food
|
|||||||||||
Foodservice
|
Processing
|
Total
|
||||||||||
Balance
as of January 2, 2010
|
$ | 326,980 | $ | 31,526 | $ | 358,506 | ||||||
Goodwill
acquired during the year
|
2,502 | 9,601 | 12,103 | |||||||||
Adjustments
to prior year acquisitions
|
1,567 | — | 1,567 | |||||||||
Foreign
exchange rate effect
|
(127 | ) | — | (127 | ) | |||||||
Balance
as of October 2, 2010
|
$ | 330,922 | $ | 41,127 | $ | 372,049 |
8)
|
Accrued
Expenses
|
|
Accrued
expenses consist of the following:
|
Oct 2, 2010
|
Jan 2, 2010
|
|||||||
(in thousands)
|
||||||||
Accrued
payroll and related expenses
|
$ | 28,372 | $ | 19,988 | ||||
Advance
customer deposits
|
17,630 | 14,066 | ||||||
Accrued
warranty
|
14,213 | 14,265 | ||||||
Accrued
customer rebates
|
13,161 | 12,980 | ||||||
Accrued
product liability and workers comp
|
9,443 | 9,877 | ||||||
Accrued
agent commission
|
6,701 | 4,825 | ||||||
Accrued
professional services
|
5,559 | 4,931 | ||||||
Other
accrued expenses
|
18,106 | 19,327 | ||||||
$ | 113,185 | $ | 100,259 |
15
9)
|
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, actual claims costs may differ
from amounts provided. Adjustments to initial obligations for warranties are
made as changes in the obligations become reasonably estimable.
A
rollforward of the warranty reserve is as follows:
Nine Months Ended
|
||||
Oct 2, 2010
|
||||
(in thousands)
|
||||
Beginning
balance
|
$ | 14,265 | ||
Warranty
reserve related to acquisitions
|
481 | |||
Warranty
expense
|
16,416 | |||
Warranty
claims
|
(16,949 | ) | ||
Ending
balance
|
$ | 14,213 |
10)
|
Financing
Arrangements
|
Oct 2, 2010
|
Jan 2, 2010
|
|||||||
(in thousands)
|
||||||||
Senior
secured revolving credit line
|
$ | 235,850 | $ | 265,900 | ||||
Foreign
loan
|
7,758 | 9,741 | ||||||
Total
debt
|
$ | 243,608 | $ | 275,641 | ||||
Less:
Current maturities of long-term debt
|
5,349 | 7,517 | ||||||
Long-term
debt
|
$ | 238,259 | $ | 268,124 |
Terms of
the company’s senior credit agreement provide for $497.8 million of availability
under a revolving credit line. As of October 2, 2010, the company had $235.9
outstanding under this facility. The company also has $6.9 million in
outstanding letters of credit as of October 2, 2010, which reduces the borrowing
availability under the revolving credit line. Remaining borrowing availability
under this facility, which is also reduced by the company’s foreign borrowings,
was $247.2 million at October 2, 2010.
16
At
October 2, 2010, borrowings under the senior secured credit facility are
assessed at an interest rate of 1.25% above LIBOR for long-term borrowings or at
the higher of the Prime rate and the Federal Funds Rate. At October 2, 2010 the
average interest rate on the senior debt amounted to 1.55%. The interest rates
on borrowings under the senior secured credit facility may be adjusted quarterly
based on the company’s indebtedness ratio on a rolling four-quarter basis.
Additionally, a commitment fee based upon the indebtedness ratio is charged on
the unused portion of the revolving credit line. This variable commitment fee
amounted to 0.25% as of October 2, 2010.
In August
2006, the company completed its acquisition of Houno A/S in Denmark. This
acquisition was funded in part with locally established debt facilities with
borrowings in Danish Krone. On October 2, 2010 these facilities amounted
to $2.7 million in U.S. dollars, including $0.9 million outstanding under a
revolving credit facility and $1.8 million of a term loan. The interest
rate on the revolving credit facility is assessed at 1.25% above Euro LIBOR,
which amounted to 3.85% on October 2, 2010. The term loan matures in 2013 and
the interest rate is assessed at 5.146%.
In April
2008, the company completed its acquisition of Giga Grandi Cucine S.r.l (“Giga”)
in Italy. This acquisition was funded in part with locally established debt
facilities with borrowings denominated in Euro. On October 2, 2010 these
facilities amounted to $4.1 million in U.S. dollars. The interest rate on
the credit facilities is tied to six-month Euro LIBOR. At October 2, 2010, the
average interest rate on these facilities was approximately 3.5%. The facilities
mature in April of 2015.
In
December 2009, the company completed its acquisition of Doyon in Canada. This
acquisition was funded in part with locally established debt facilities with
borrowings denominated in Canadian dollars. On October 2, 2010, these facilities
amounted to $0.9 million U.S. dollars. The borrowings under these facilities are
collateralized by the assets of the company. The interest rate on these credit
facilities is assessed at 0.75% above the prime rate. At October 2, 2010, the
average interest rate on these facilities amounted to 3.0%. These facilities
mature in 2017.
The
company’s debt is reflected on the balance sheet at cost. Based on current
market conditions, the company believes its interest rate margins on its
existing debt are below the rate available in the market, which causes the fair
value of debt to fall below the carrying value. The company believes the current
interest rate margin is approximately 1.0% below current market rates. However,
as the interest rate margin is based upon numerous factors, including but not
limited to the credit rating of the borrower, the duration of the loan, the
structure and restrictions under the debt agreement, current lending policies of
the counterparty, and the company’s relationships with its lenders, there is no
readily available market data to ascertain the current market rate for an
equivalent debt instrument. As a result, the current interest rate margin is
based upon the company’s best estimate based upon discussions with its
lenders.
17
The
company estimated the fair value of its loans by calculating the upfront cash
payment a market participant would require to assume the company’s obligations.
The upfront cash payment is the amount that a market participant would be able
to lend at October 2, 2010 to achieve sufficient cash inflows to cover the cash
outflows under the company’s senior revolving credit facility assuming the
facility was outstanding in its entirety until maturity. Since the company
maintains its borrowings under a revolving credit facility and there is no
predetermined borrowing or repayment schedule, for purposes of this calculation
the company calculated the fair value of its obligations assuming the current
amount of debt at the end of the period was outstanding until the maturity of
the company’s senior revolving credit facility in December 2012. Although
borrowings could be materially greater or less than the current amount of
borrowings outstanding at the end of the period, it is not practical to estimate
the amounts that may be outstanding during future periods. The fair value of the
company’s senior debt obligations as estimated by the company based upon its
assumptions is approximately $238.2 million at October 2, 2010, as compared to
the carrying value of $243.6 million.
The
carrying value and estimated aggregate fair value, based primarily on market
prices, of debt is as follows (in thousands):
October 2, 2010
|
January 2, 2010
|
|||||||||||||||
Carrying Value
|
Fair Value
|
Carrying Value
|
Fair Value
|
|||||||||||||
Total
debt
|
$ | 243,608 | $ | 238,227 | $ | 275,641 | $ | 267,632 |
The
company believes that its current capital resources, including cash and cash
equivalents, cash generated from operations, funds available from its revolving
credit facility and access to the credit and capital markets will be sufficient
to finance its operations, debt service obligations, capital expenditures,
product development and integration expenditures for the foreseeable
future.
The
company has historically entered into interest rate swap agreements to
effectively fix the interest rate on its outstanding debt. The agreements swap
one-month LIBOR for fixed rates. As of October 2, 2010 the company had the
following interest rate swaps in effect:
Fixed
|
|||||||
Notional
|
Interest
|
Effective
|
Maturity
|
||||
Amount
|
Rate
|
Date
|
Date
|
||||
10,000,000
|
3.032 | % |
02/06/08
|
02/06/11
|
|||
10,000,000
|
3.590 | % |
06/10/08
|
06/10/11
|
|||
10,000,000
|
3.460 | % |
09/08/08
|
09/06/11
|
|||
25,000,000
|
3.670 | % |
09/23/08
|
09/23/11
|
|||
15,000,000
|
1.220 | % |
11/23/09
|
11/23/11
|
|||
10,000,000
|
1.120 | % |
03/11/10
|
03/11/12
|
|||
20,000,000
|
1.800 | % |
11/23/09
|
11/23/12
|
|||
20,000,000
|
1.560 | % |
03/11/10
|
12/11/12
|
|||
15,000,000
|
0.950 | % |
09/07/10
|
12/06/12
|
18
The terms
of the senior secured credit facility limit the paying of dividends, capital
expenditures and leases, and require, among other things, ratios of indebtedness
of 3.5 debt to earnings before interest, taxes, depreciation and amortization
(“EBITDA”) and fixed charge coverage of 1.25 EBITDA to fixed charges. The credit
agreement also provides that if a material adverse change in the company’s
business operations or conditions occurs, the lender could declare an event of
default. Under terms of the agreement, a material adverse effect is defined as
(a) a material adverse change in, or a material adverse effect upon, the
operations, business properties, condition (financial and otherwise) or
prospects of the company and its subsidiaries taken as a whole; (b) a material
impairment of the ability of the company to perform under the loan agreements
and to avoid any event of default; or (c) a material adverse effect upon the
legality, validity, binding effect or enforceability against the company of any
loan document. A material adverse effect is determined on a subjective basis by
the company's creditors. The credit facility is secured by the capital stock of
the company’s domestic subsidiaries, 65% of the capital stock of the company’s
foreign subsidiaries and substantially all other assets of the company. At
October 2, 2010, the company was in compliance with all covenants pursuant to
its borrowing agreements.
11)
|
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 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.
Foreign Exchange: The company
has entered into derivative instruments, principally forward contracts to reduce
exposures pertaining to fluctuations in foreign exchange rates. As of October 2,
2010, the company had no forward contracts outstanding.
19
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 October 2, 2010, the fair value of these instruments
was a loss of $2.9 million. The change in fair value of these swap agreements in
the first nine months of 2010 was a gain of less than $0.1 million, net of
taxes.
The
following tables summarize the company’s fair value of interest rate swaps (in
thousands):
Condensed Consolidated
|
||||||||||
Balance Sheet Presentation
|
Oct 2, 2010
|
Jan 2, 2010
|
||||||||
Fair
value
|
Other
non-current liabilities
|
$ | (2,921 | ) | $ | (2,966 | ) |
The
impact on earnings from interest rate swaps was as follows (in
thousands):
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||
Presentation of
Gain/(loss)
|
Oct 2, 2010
|
Oct 3, 2009
|
Oct 2, 2010
|
Oct 3, 2009
|
||||||||||||||
Gain/(loss)
recognized in other comprehensive income
|
Other
comprehensive
income
|
$ | (860 | ) | $ | (500 | ) | $ | (2,621 | ) | $ | (2,045 | ) | |||||
Gain/(loss)
reclassified from accumulated other comprehensive income (effective
portion)
|
Interest
expense
|
$ | (759 | ) | $ | (1,279 | ) | $ | (2,670 | ) | $ | (3,767 | ) | |||||
Gain
recognized in income (ineffective portion)
|
Other
expense
|
$ | 7 | $ | 1 | $ | (4 | ) | $ | (14 | ) |
Interest
rate swaps are subject to default risk to the extent the counterparties are
unable to satisfy their settlement obligations under the interest rate swap
agreements. The company reviews the credit profile of the financial institutions
and assesses its creditworthiness prior to entering into the interest rate swap
agreements. 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 agreements.
20
12)
|
Segment
Information
|
The
company operates in two reportable operating segments defined by management
reporting structure and operating activities.
The
Commercial Foodservice Equipment Group manufactures cooking equipment for the
restaurant and institutional kitchen industry. This business segment has
manufacturing facilities in California, Illinois, Michigan, New Hampshire, North
Carolina, Tennessee, Texas, Vermont, Canada, China, Denmark, Italy and the
Philippines. Principal product lines of this group include conveyor ovens,
ranges, steamers, convection ovens, combi-ovens, broilers and steam cooking
equipment, induction cooking systems, baking and proofing ovens, griddles,
charbroilers, catering equipment, fryers, toasters, hot food servers,
foodwarming equipment, griddles and coffee and beverage dispensing equipment.
These products are sold and marketed under the brand names: Anets, Blodgett,
Blodgett Combi, Blodgett Range, Bloomfield, CTX, Carter-Hoffmann, CookTek,
Doyon, Frifri, Giga, Holman, Houno, Jade, Lang, MagiKitch’n, Middleby Marshall,
Nu-Vu, PerfectFry, Pitco, Southbend, Star, Toastmaster, TurboChef and
Wells.
The Food
Processing Equipment Group manufactures preparation, cooking, packaging and food
safety equipment for the food processing industry. This business division has
manufacturing operations in Illinois, Iowa, Wisconsin and Mexico. Its principal
products include batch ovens, belt ovens and conveyorized cooking systems sold
under the Alkar brand name; grinding and slicing equipment and food suspension,
reduction and emulstion systems sold under the Cozzini brand name; breading,
battering, mixing, slicing and forming equipment sold under the MP Equipment
brand name and packaging and food safety equipment sold under the RapidPak brand
name.
During
the second quarter of 2010, the company made a determination that the
International Distribution Division, previously reported as a separate business
segment, no longer met the criteria requiring it to be reported as separate
operating segment. Accordingly, the associated financial information has been
incorporated within the Commercial Foodservice Group for the current and prior
year periods.
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The chief decision maker evaluates
individual segment performance based on operating income. Management believes
that intersegment sales are made at established arms-length transfer
prices.
Net Sales
Summary
(dollars
in thousands)
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||||||||||||||||
Oct 2, 2010
|
Oct 3, 2009
|
Oct 2, 2010
|
Oct 3, 2009
|
|||||||||||||||||||||||||||||
Sales
|
Percent
|
Sales
|
Percent
|
Sales
|
Percent
|
Sales
|
Percent
|
|||||||||||||||||||||||||
Business Divisions:
|
||||||||||||||||||||||||||||||||
Commercial
Foodservice
|
$ | 156,081 | 87.8 | $ | 136,643 | 88.7 | $ | 450,036 | 87.9 | $ | 448,252 | 90.7 | ||||||||||||||||||||
Food
Processing
|
21,712 | 12.2 | 17,346 | 11.3 | 61,852 | 12.1 | 45,884 | 9.3 | ||||||||||||||||||||||||
Total
|
$ | 177,793 | 100.0 | % | $ | 153,989 | 100.0 | % | $ | 511,888 | 100.0 | % | $ | 494,136 | 100.0 | % | ||||||||||||||||
21
The
following table summarizes the results of operations for the company's business
segments(1)(in
thousands):
Commercial
|
Food
|
Corporate
|
||||||||||||||
Foodservice
|
Processing
|
and Other(2)
|
Total
|
|||||||||||||
Three
months ended October 2, 2010
|
||||||||||||||||
Net
sales
|
$ | 156,081 | $ | 21,712 | $ | — | $ | 177,793 | ||||||||
Income
from operations
|
38,002 | 4,040 | (10,031 | ) | 32,011 | |||||||||||
Depreciation
and amortization expense
|
3,257 | 438 | 154 | 3,849 | ||||||||||||
Net
capital expenditures
|
400 | 65 | 138 | 603 | ||||||||||||
Nine
months ended October 2, 2010
|
||||||||||||||||
Net
sales
|
$ | 450,036 | $ | 61,852 | $ | — | $ | 511,888 | ||||||||
Income
from operations
|
107,042 | 12,076 | (30,943 | ) | 88,175 | |||||||||||
Depreciation
and amortization expense
|
10,040 | 1,150 | 466 | 11,656 | ||||||||||||
Net
capital expenditures
|
2,492 | 167 | 349 | 3,008 | ||||||||||||
Total
assets
|
709,733 | 104,377 | 52,528 | 866,638 | ||||||||||||
Long-lived
assets
|
524,905 | 58,271 | 30,169 | 613,345 | ||||||||||||
Three
months ended October 3, 2009
|
||||||||||||||||
Net
sales
|
$ | 136,643 | $ | 17,346 | $ | — | $ | 153,989 | ||||||||
Income
from operations
|
30,655 | 3,815 | (6,396 | ) | 28,074 | |||||||||||
Depreciation
and amortization expense
|
3,288 | 319 | 191 | 3,798 | ||||||||||||
Net
capital expenditures
|
879 | 50 | 42 | 971 | ||||||||||||
Nine
months ended October 3, 2009
|
||||||||||||||||
Net
sales
|
$ | 448,252 | $ | 45,884 | $ | — | $ | 494,136 | ||||||||
Income
from operations
|
100,072 | 7,658 | (24,620 | ) | 83,110 | |||||||||||
Depreciation
and amortization expense
|
10,381 | 980 | 512 | 11,873 | ||||||||||||
Net
capital expenditures
|
4,467 | 74 | 400 | 4,941 | ||||||||||||
Total
assets
|
715,737 | 68,177 | 39,267 | 823,181 | ||||||||||||
Long-lived
assets
|
542,634 | 43,347 | 11,916 | 597,897 |
(1)
|
Non-operating
expenses are not allocated to the operating 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)
|
Includes
corporate and other general company assets and
operations.
|
22
Long-lived
assets by major geographic region are as follows (in
thousands):
Oct 2, 2010
|
Oct 3, 2009
|
|||||||
United
States and Canada
|
$ | 586,151 | $ | 568,891 | ||||
Asia
|
1,826 | 1,917 | ||||||
Europe
and Middle East
|
24,412 | 26,895 | ||||||
Latin
America
|
956 | 194 | ||||||
Total
international
|
$ | 27,194 | $ | 29,006 | ||||
$ | 613,345 | $ | 597,897 |
Net sales
by major geographic region were as follows (in thousands):
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
Oct 2, 2010
|
Oct 3, 2009
|
Oct 2, 2010
|
Oct 3, 2009
|
|||||||||||||
United
States and Canada
|
$ | 141,179 | $ | 125,071 | $ | 410,444 | $ | 417,703 | ||||||||
Asia
|
12,503 | 8,111 | 29,724 | 18,757 | ||||||||||||
Europe
and Middle East
|
17,675 | 17,039 | 56,915 | 46,392 | ||||||||||||
Latin
America
|
6,436 | 3,768 | 14,805 | 11,284 | ||||||||||||
Total
international
|
$ | 36,614 | $ | 28,918 | $ | 101,444 | $ | 76,433 | ||||||||
$ | 177,793 | $ | 153,989 | $ | 511,888 | $ | 494,136 |
23
13)
|
Employee
Retirement Plans
|
(a) Pension
Plans
The
company maintains a non-contributory defined benefit plan for its employees at
the Smithville, Tennessee facility, which was acquired as part of the New Star
International Holdings, Inc. (“Star”) acquisition. Benefits are determined based
upon retirement age and years of service with the company. This defined benefit
plan was frozen on April 1, 2008 and no further benefits accrue to the
participants beyond this date. Plan participants will receive or continue to
receive payments for benefits earned on or prior to April 1, 2008 upon reaching
retirement age.
The
company maintains a non-contributory defined benefit plan for its union
employees at the Elgin, Illinois facility. Benefits are determined based upon
retirement age and years of service with the company. This defined benefit plan
was frozen on April 30, 2002 and no further benefits accrue to the participants
beyond this date. Plan participants will receive or continue to receive payments
for benefits earned on or prior to April 30, 2002 upon reaching retirement age.
The employees participating in the defined benefit plan were enrolled in a newly
established 401K savings plan on July 1, 2002, further described
below.
The
company also maintains a retirement benefit agreement with its Chairman. The
retirement benefits are based upon a percentage of the Chairman’s final base
salary. Additionally, the company maintains a retirement plan for non-employee
directors who served on the Board of Directors prior to 2004. This plan is not
available to any new non-employee directors. The plan provides for an annual
benefit upon a change in control of the company or retirement from the Board of
Directors at age 70 equal to 100% of the director’s last annual retainer,
payable for a number of years equal to the director’s years of service up to a
maximum of 10 years.
In
March 2010, the Patient Protection and Affordable Care Act and a
reconciliation measure, the Health Care and Education Reconciliation Act of
2010, (collectively, the “Act”) were signed into law. The company is currently
evaluating provisions of the Act to determine its potential impact, if any, on
health care benefit costs.
(b) 401K
Savings Plans
The
company maintains 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 makes profit sharing
contributions to the various plans in accordance with the requirements of the
plan. Profit sharing contributions for the Elgin Union 401K savings plans are
made in accordance with the agreement.
24
Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Informational Notes
This
report contains forward-looking statements subject to the safe harbor created by
the Private Securities Litigation Reform Act of 1995. The company cautions
readers that these projections are based upon future results or events and are
highly dependent upon a variety of important factors which could cause such
results or events to differ materially from any forward-looking statements which
may be deemed to have been made in this report, or which are otherwise made by
or on behalf of the company. Such factors include, but are not limited to,
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; international
exposure; foreign exchange and political risks affecting international sales;
ability to protect trademarks, copyrights and other intellectual property;
changing market conditions; the impact of competitive products and pricing; the
timely development and market acceptance of the company’s products; the
availability and cost of raw materials; and other risks detailed herein and from
time-to-time in the company’s Securities and Exchange Commission (“SEC”)
filings, including the company’s 2009 Annual Report on Form 10-K.
The
economic outlook for 2010 continues to be uncertain at this time. As a global
business, the company’s operating results are impacted by the health of the
North American, European, Asian and Latin American economies. While the response
by governments and central banks around the world may reduce volatility in the
markets, the depth and duration of economic impact and the timing and strength
of the recovery remain unpredictable.
25
Net Sales
Summary
(dollars
in thousands)
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||||||||||||||||
Oct 2, 2010
|
Oct 3, 2009
|
Oct 2, 2010
|
Oct 3, 2009
|
|||||||||||||||||||||||||||||
Sales
|
Percent
|
Sales
|
Percent
|
Sales
|
Percent
|
Sales
|
Percent
|
|||||||||||||||||||||||||
Business Divisions:
|
||||||||||||||||||||||||||||||||
Commercial
Foodservice
|
$ | 156,081 | 87.8 | $ | 136,643 | 88.7 | $ | 450,036 | 87.9 | $ | 448,252 | 90.7 | ||||||||||||||||||||
Food
Processing
|
21,712 | 12.2 | 17,346 | 11.3 | 61,852 | 12.1 | 45,884 | 9.3 | ||||||||||||||||||||||||
Total
|
$ | 177,793 | 100.0 | % | $ | 153,989 | 100.0 | % | $ | 511,888 | 100.0 | % | $ | 494,136 | 100.0 | % | ||||||||||||||||