UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
-----------
Amendment No. 1
_X_ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
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 incorporation (IRS Employer Identification
or organization) Number)
1400 TOASTMASTER DRIVE, ELGIN, ILLINOIS 60120
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 847-741-3300
------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
COMMON STOCK,
PAR VALUE $0.01 PER SHARE
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 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. ( )
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of March 14, 1997 was approximately $29,025,000. The number of
shares outstanding of the Registrant's class of common stock, as of March 14,
1997, was 8,470,938 shares.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Part III of Form 10-K incorporates by reference the Company's definitive proxy
statement to be filed pursuant to Regulation 14A in connection with the 1997
annual meeting of stockholders.
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Public Accountants......................... 2
Consolidated Balance Sheets...................................... 3
Consolidated Statements of Earnings.............................. 4
Consolidated Statements of Changes in Shareholders' Equity....... 5
Consolidated Statements of Cash Flows............................ 6
Notes to Consolidated Financial Statements....................... 8
The following consolidated financial statement schedule is included in
response to Item 14(d).
Schedule II - Valuation and Qualifying Accounts and Reserves..... 23
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.
1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of The Middleby Corporation
We have audited the accompanying consolidated balance sheets of THE
MIDDLEBY CORPORATION (a Delaware corporation) and Subsidiaries as of
December 28, 1996, and December 30, 1995, and the related consolidated
statements of earnings, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 28, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of The Middleby Corporation and Subsidiaries as of December 28, 1996, and
December 30, 1995, and the results of their operations and their cash flows
for each of the three years in the period ended December 28, 1996, in
conformity with generally accepted accounting principles.
As explained in Note 2(n) to the consolidated financial statements, the
Company has given retroactive effect to the change in accounting for the 1993
litigation settlement with the Hussmann Corporation.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The data on Schedule II is presented
for purposes of additional analysis and is not a required part of the basic
financial statements. This information has been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
February 17, 1997
2
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 28, 1996 AND DECEMBER 30, 1995
(In Thousands, Except Per Share Amounts)
Restated
ASSETS 1996 1995
- ------ -------- --------
Current Assets:
Cash and cash equivalents.......................... $ 1,410 $ 972
Accounts receivable, net........................... 19,859 14,058
Inventories, net................................... 20,956 18,320
Prepaid expenses and other......................... 939 879
Net assets of discontinued operations.............. 4,082 12,803
Current deferred taxes............................. 2,086 2,086
------- -------
Total Current Assets.......................... 49,332 49,118
Property, Plant and Equipment, net................... 18,843 17,305
Excess Purchase Price Over Net Assets Acquired, net.. 13,339 13,796
Deferred Taxes....................................... 2,950 2,930
Other Assets......................................... 1,504 2,082
------- -------
Total Assets.................................. $85,968 $85,231
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current maturities of long-term debt.............. $ 3,916 $ 1,710
Accounts payable.................................. 10,369 10,587
Accrued expenses.................................. 10,001 8,075
------- -------
Total Current Liabilities..................... 24,286 20,372
Long-Term Debt....................................... 37,352 41,318
Minority Interest and Other Non-current Liabilities.. 1,880 1,783
Shareholders' Equity:
Preferred stock, $.01 par value; none issued...... - -
Common stock, $.01 par value;
8,468,000 and 8,388,000 shares issued
and outstanding in 1996 and 1995, respectively... 85 84
Paid-in capital................................... 28,108 27,934
Cumulative translation adjustment................. (184) (228)
Accumulated deficit............................... (5,559) (6,032)
------- -------
Total Shareholders' Equity.................... 22,450 21,758
------- -------
Total Liabilities and Shareholders' Equity.... $85,968 $85,231
======= =======
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
3
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995
AND DECEMBER 31, 1994
(In Thousands, Except Per Share Amounts)
Restated Restated
1996 1995 1994
-------- -------- --------
Net Sales...................................... $124,765 $106,348 $94,158
Cost of Sales.................................. 87,330 73,841 65,594
-------- -------- -------
Gross Margin.............................. 37,435 32,507 28,564
Selling and Distribution Expenses.............. 18,319 15,385 13,398
General and Administrative Expenses............ 10,439 9,326 8,573
Provision for Product Line Discontinuance...... - 900 -
-------- -------- -------
Income from Operations.................... 8,677 6,896 6,593
Interest Expense and Deferred
Financing Amortization....................... 4,351 4,327 3,262
Other (Income) Expense, net.................... (146) (36) 482
-------- -------- -------
Earnings Before Income Taxes.............. 4,472 2,605 2,849
Provision (Benefit) for Income Taxes........... 1,389 (140) 614
Earnings from Continuing Operations....... 3,083 2,745 2,235
Discontinued Operations, Net of Income Tax:
(Loss) Earnings from Discontinued
Operations.............................. (744) 419 505
Loss on Disposal Including Operating
Losses During the Phase Out Period...... (1,866) - -
-------- -------- -------
Net Earnings............................ $ 473 $ 3,164 $ 2,740
======== ======== =======
Net Earnings (Loss) Per Common Share:
Continuing Operations................... $ .35 $ .31 $ .26
Discontinued Operations................. (.30) .05 .06
-------- -------- -------
Net Earnings Per Common Share........... $ .05 $ .36 $ .32
======== ======== =======
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
4
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995
AND DECEMBER 31, 1994
(In Thousands)
Common Paid-In Accumulated
Stock Capital Deficit CTA Total
------ ------- ----------- --- -----
BALANCE,
January 1,1994 (Restated)........... $83 $22,207 $(11,936) $(254) $10,100
--- ------- -------- ----- -------
Net Earnings........................ - - 2,740 - 2,740
NOL Utilization and Change
in Tax Asset Valuation
Allowance........................ - 1,924 - - 1,924
Exercise of Employee
Stock Options.................... - 23 - - 23
Change in Cumulative
Translation Adjustment........... - - - (130) (130)
BALANCE,
December 31, 1994
(Restated)....................... $83 $24,154 $(9,196) $(384) $14,657
--- ------- ------- ----- -------
Net Earnings (Restated)............. - - 3,164 - 3,164
NOL Utilization and Change
in Tax Asset Valuation
Allowance........................ - 3,409 - - 3,409
Exercise of Employee
Stock Options.................... 1 121 - - 122
Issuance of Deferred
Warrant.......................... - 250 - - 250
Change in Cumulative
Translation Adjustment........... - - - 156 156
BALANCE,
December 30, 1995 (Restated) $84 $27,934 $(6,032) $(228) $21,758
--- ------- ------- ----- -------
Net Earnings........................ - - 473 - 473
Exercise of Employee
Stock Options.................... 1 174 - - 175
Change in Cumulative
Translation Adjustment........... - - - 44 44
BALANCE
December 28, 1996................... $85 $28,108 $(5,559) $(184) $22,450
=== ======= ======= ===== =======
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
5
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995
AND DECEMBER 31, 1994
(In Thousands)
Restated Restated
1996 1995 1994
-------- -------- --------
Cash Flows From Operating
Activities -
Net Earnings.................................. $ 473 $ 3,164 $ 2,740
Adjustments to reconcile net
earnings to net cash provided by
continuing operating activities-
Depreciation and
amortization.............................. 2,752 3,024 2,107
Utilization of N.O.L.'s..................... 98 (137) 601
Discontinued Operations..................... 2,610 (419) (505)
Cash effects of changes in -
Accounts receivable....................... (5,801) 862 (2,782)
Inventories............................... (2,636) (3,147) 812
Prepaid expenses and
other assets............................ (99) 911 28
Accounts payable.......................... (218) 3,071 (785)
Accrued expenses and
other liabilities....................... 1,925 (198) 2,463
------- ------- -------
Net Cash (Used in) Provided by
Continuing Operating Activities........... (896) 7,131 4,679
Net Cash Provided by (Used in)
Discontinued Operating Activities......... 1,311 (2,268) 408
Net Cash Provided by Operating
Activities................................ 415 4,863 5,087
------- ------- -------
Cash Flows From Investing
Activities -
Additions to property and
equipment................................. $(2,966) $(2,728) $(1,922)
Proceeds from Sale and Leaseback
of Discontinued Operations................ 4,800 - -
Net cash received from
sale of investment........................ - 1,337 -
------- ------- -------
Net Cash Provided by (Used in)
Investing Activities...................... 1,834 (1,391) (1,922)
------- ------- -------
6
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995
AND DECEMBER 31, 1994
(In Thousands)
(Continued)
Restated Restated
1996 1995 1994
-------- -------- --------
Cash Flows From Financing
Activities -
Proceeds from senior
secured note............................... $ - $15,000 $ -
Proceeds from credit facility................ - 31,000 -
Extinguishment of bank debt.................. - (44,055) -
Reduction in revolving credit
line, net.................................. (425) (1,000) (3,366)
Reduction in term loans...................... (3,597) (2,932) (20)
Proceeds from foreign bank debt.............. 2,233 1,200 -
Cost of financing activities................. - (1,726) -
Other financing activities, net.............. (22) (640) 457
------- ------- -------
Net Cash Used in
Financing Activities....................... (1,811) (3,153) (2,929)
------- ------- -------
Changes in Cash and Cash Equivalents -
Net increase in cash
and cash equivalents..................... $ 438 $ 319 $ 236
Cash and cash equivalents
at beginning of year..................... 972 653 417
------- ------- -------
Cash and Cash Equivalents
at end of year........................... $ 1,410 $ 972 $ 653
======= ======= =======
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
7
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
The Middleby Corporation (the "Company") is engaged in the design,
manufacture and sale of commercial and institutional foodservice equipment.
Its major lines of products consist of conveyor ovens, toasters, counter-
top cooking and warming equipment, heavy duty gas ovens, convection ovens,
broilers, steamers and semi-custom fabrication units. The Company
manufactures and assembles most of this equipment at two factories in the
United States and one operation in the Philippines. The Company conducts
its business principally through two domestic and two international
business units. Each unit operates primarily on a decentralized basis.
The Company's products are sold primarily to independent dealers and
distributors and are marketed primarily through the Company's sales
personnel and network of independent manufacturers' representatives. End
user customers include quick service restaurant chains, general full
service restaurants, cafeterias, hotels, resorts, supermarkets, convenience
stores and certain healthcare, educational and correctional institutions.
Included in these customers are several large multi-national restaurant
chains which account for a significant portion of the company's business,
although no single customer accounts for more than 10% of net sales.
The Company purchases raw materials and component parts, the majority of
which are standard commodity type materials, from a number of suppliers.
Although certain component parts are procured from a sole source, the
Company can purchase such parts from alternate vendors.
The Company has numerous licenses and patents to manufacture, use and sell
its products and equipment. Certain of these licenses begin to expire in
the year 2000. Management believes the loss of any one of these licenses
or patents would not have a material adverse effect on the financial and
operating results of the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
The Company's fiscal year ends on the Saturday nearest December 31. Fiscal
years 1996, 1995 and 1994 ended on December 28, 1996, December 30, 1995 and
December 31, 1994, respectively, and each included 52 weeks.
8
(b) Accounts Receivable
Accounts receivable, as shown in the consolidated balance sheets, is net of
allowances for doubtful accounts of $495,000 and $413,000 at December 28,
1996 and December 30, 1995, respectively.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
utilizing the first-in-first-out (FIFO) inventory method. Inventories, as
of December 28, 1996 and December 30, 1995, are as follows:
(In Thousands)
1996 1995
---- ----
Raw materials and parts................ $ 6,492 $ 6,338
Work in process........................ 4,621 4,652
Finished goods......................... 9,843 7,330
------- -------
$20,956 $18,320
======= =======
The amounts shown above are net of inventory reserves of $946,000 and
$1,016,000 as of December 28, 1996 and December 30, 1995, respectively.
(d) Property, Plant and Equipment
Property, plant and equipment are carried at cost as follows:
(In Thousands)
1996 1995
---- ----
Land and improvements.................. $ 3,322 $ 3,293
Building and improvements.............. 11,012 10,206
Machinery and equipment................ 16,250 14,516
------- -------
$30,584 $28,015
Less accumulated
depreciation........................ (11,741) (10,710)
------- -------
Property, Plant and
Equipment, net...................... $18,843 $17,305
======= =======
9
Depreciation is provided for financial statement purposes using the
straight-line method and amounted to $1,594,000, $1,543,000 and
$1,547,000 in fiscal 1996, 1995 and 1994, respectively. Following is a
summary of the estimated useful lives:
Description Life
----------- ----
Land improvements...................... 7 years
Building and improvements.............. 20 to 40 years
Machinery and equipment................ 3 to 10 years
Expenditures which significantly extend useful lives are capitalized.
Maintenance and repairs are charged to expense as incurred.
(e) Excess Purchase Price Over Net Assets Acquired
The excess purchase price over net assets acquired is being amortized using
a straight-line method over 40 years. Amounts presented are net of
accumulated amortization of $4,216,000 in fiscal 1996 and $3,759,000 in
fiscal 1995. The Company periodically evaluates the useful life and
realizability of the excess purchase price over net assets acquired based
on current events and circumstances. Impairments are measured utilizing an
undiscounted forecasted income method pertaining to business units and are
recorded at the time management deems an impairment has occurred.
(f) Intangible Assets
Trademarks, patents, license agreements and other intangibles, included in
other assets in the consolidated balance sheets, are being amortized on a
straight-line basis over estimated useful lives ranging from 5 to 14 years.
Net recorded intangible assets of $243,000 and $364,000 are presented net
of accumulated amortization of $2,314,000 and $2,193,000 in fiscal 1996 and
1995, respectively.
(g) Accrued Expenses
Accrued expenses consist of the following:
(In Thousands)
1996 1995
---- ----
Accrued payroll and
related expenses.................. $ 3,567 $ 3,200
Accrued commissions.................... 1,392 1,190
Accrued warranty....................... 1,252 879
Other accrued expenses................. 3,790 2,806
------- -------
$10,001 $ 8,075
======= =======
10
(h) Research and Development Costs
Research and development costs, included in cost of sales in the
consolidated statements of earnings, are charged to expense when incurred.
These costs were $1,515,000, $1,438,000 and $1,295,000 in fiscal 1996, 1995
and 1994, respectively.
(i) Earnings Per Share
Primary earnings per share is based upon the weighted average number of
outstanding shares of common stock and common stock equivalents. The
weighted average number of shares outstanding was 8,666,000, 8,678,000 and
8,434,000 shares for the fiscal years 1996, 1995 and 1994, respectively.
Fully diluted earnings per common and common equivalent shares are not
presented, since dilution is less than 3%.
(j) Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid instruments with a maturity of three months or
less to be cash equivalents. Cash paid for interest was $4,397,000,
$4,076,000 and $4,060,000 in fiscal 1996, 1995 and 1994, respectively.
Cash payments totaling $256,000, $371,000 and $192,000 were made for income
taxes during fiscal 1996, 1995 and 1994, respectively.
(k) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
(l) Fair Value of Financial Instruments
The carrying value of all assets and liabilities approximates the fair
value of those financial instruments.
(m) Adoption of Accounting Standards
In fiscal 1996, the Company adopted "SFAS 121: Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of"
and "SFAS 123: Accounting for Stock-Based Compensation." The adoption of
these accounting standards did not have a material impact on the financial
statements.
11
(n) Restatements
Sale of Discontinued Operations:
The financial statements presented have been restated for all periods
presented to exclude the Victory Refrigeration Company which has been
accounted for as a discontinued operation (see Note 3 to the Financial
Statements).
Litigation Settlement Accounting:
During 1996, the Company restated its accounting for proceeds received from
the September 1993 litigation settlement with the Hussmann Corporation in
accordance with generally accepted accounting principles (GAAP). This
settlement related to a dispute arising from the Company's acquisition of
the Hussmann Corporation's Foodservice Equipment Group in July 1989. The
effect of this accounting change was to record a greater gain from the 1993
litigation settlement. Certain assets related to the 1989 acquisition,
that were written-off in conjunction with the Company's original
accounting for the settlement in 1993, have been restored in the historical
balance sheets or written-off prior to 1993. This accounting has been
reflected in the respective periods in the consolidated financial
statements.
The effect on the 1991 financial statements was to write-off amounts
related to the 1991 arbitration settlement, and other amounts due from
Hussmann, deemed to be unrealizable under the revised accounting treatment.
This resulted in a decrease to net earnings, excess purchase price over net
assets acquired, and shareholders equity of $3,902,000. The effect on the
1993 financial statements was to record a greater gain on the settlement,
resulting in an increase to net earnings and shareholders equity of
$10,936,000. Excess purchase price over net assets acquired and property,
plant and equipment were also increased by $10,936,000 to restore amounts
written-off under the original accounting treatment. The resulting impact
on non-cash amortization and depreciation charges was to increase such
amounts by $104,000, $310,000 and $310,000 in 1993, 1994 and 1995,
respectively. The net effect of these restatements on earnings per share
resulted in a decrease of $.47 in 1991, an increase of $1.29 in 1993, a
decrease of $.04 in 1994 and a decrease of $.03 in 1995.
(3) DISCONTINUED OPERATION
On January 23, 1997, the Company completed the sale of substantially all of
the assets of its Victory Refrigeration Company ("Victory") subsidiary to
an investor group led by local management at Victory. Gross proceeds from
the sale are expected to amount to approximately $7,300,000, less amounts
for retained liabilities and transaction costs aggregating approximately
$2,600,000. The proceeds are subject to post-closing adjustments. The
terms of the sale were the results of arms-length negotiations. This sale
was announced on November 1, 1996, concluding the sale of
12
all of the assets of Victory. The sale and leaseback of the Victory
facility to an unrelated third party had previously been completed on
December 27, 1996 for net proceeds of approximately $4,556,000. Proceeds
from these transactions were used to pay down debt.
The results of the Victory Refrigeration Company subsidiary have been
reported separately as a discontinued operation in the consolidated
financial statements for all periods presented. The results of the
discontinued operations are not necessarily indicative of the results
which may have been obtained had the continuing and discontinuing
operations been operating independently. Summarized results of the
Victory Refrigeration Company are as follows:
(In Thousands)
1996 1995 1994
------- ---
Net Sales........................................ $27,261 $32,841 $35,809
Operating (Loss) Income.......................... (458) 1,642 1,572
(Loss) Earnings Before Taxes..................... (1,111) 603 754
Provision for Taxes.............................. (367) 184 249
------- ------- ------
(Loss) Earnings from Discontinued
Operations................................. (744) 419 505
Estimated Loss on Disposal Including
Operating Results During the
Phase-out Period....................... (1,866) - -
-------- ------ ------
Total (Loss) Earnings Related to
Discontinued Operations..................... $(2,610) $419 $505
======== ======= =========
During the fourth quarter of 1996, the Company provided for additional
losses on disposal of $495,000 net of taxes. The additional provision was
required due to higher than anticipated operating losses prior to the sale
of Victory. The loss on disposal of Victory consists primarily of
operating losses of $1,409,000 during the fourth quarter of 1996 and
$457,000 during 1997 until the sale was completed. The effective tax rate
included in these amounts differs from the U.S. statutory rate due to
permanent book vs. tax differences.
Interest expense of $809,000, $771,000 and $818,000 for 1996, 1995 and
1994, respectively, has been allocated based upon the ratio of the net
assets of the discontinued operations to the consolidated capitalization of
the Company. Continuing operations and discontinued operations reflect the
net tax expense or tax benefit generated by the respective operations,
limited, however, by the income tax
13
benefit recognized in the Company's historical financial statements. No
general corporate expenses have been allocated to the discontinued
operations.
The net assets of discontinued operations included in the Consolidated
Balance Sheets at December 28, 1996 and December 30, 1995 amounted to
$4,082,000 and $12,803,000, respectively, and consist primarily of
receivables, inventory, and property, plant and equipment related to the
discontinued operations, net of accounts payable, accrued liabilities and
closing costs associated with the sale. Property and plant are not
included in the December 28, 1996 amount, as the sale and leaseback
transaction was completed on December 27, 1996.
(4) FINANCING ARRANGEMENTS
The following is a summary of long-term debt as of December 28, 1996 and
December 30, 1995.
(In Thousands)
1996 1995
------- -------
Senior secured credit facility:
Revolving credit line................ $14,575 $15,000
Term loans........................... 8,362 11,959
Senior secured note....................... 15,000 15,000
Other..................................... 3,331 1,069
------- -------
$41,268 $43,028
Less current maturities of
long-term debt........................... 3,916 1,710
------- -------
Total long-term debt........ $37,352 $41,318
======= =======
On January 10, 1995, the Company's subsidiaries consummated a $57,500,000
financing package to replace the existing bank debt and provide working
capital for future growth. The financing included a $42,500,000 senior
secured credit facility from a group of lenders led by an affiliate of a
major international bank and a $15,000,000 senior secured note placement
with a major insurance company.
The senior secured credit facility included a $15,000,000 five-year term
loan, a $2,500,000 capital expenditure facility renewable annually, and a
$25,000,000 revolving credit line expiring in January, 2000. Borrowings
under the revolving credit line are limited to specified percentages of
defined accounts receivable and inventories. The credit agreement
initially permitted borrowings for the term loan and revolving credit line
at floating rates of 2.5% above LIBOR rate or 1% above base rate. The
interest rate can be adjusted quarterly based on the Company's achievement
of defined coverage ratios on a rolling four quarter basis. As of
14
December 28, 1996, borrowings under LIBOR contracts were at 2.5% above the
LIBOR rate and borrowings under prime rate contracts were at 1% above the
base rate. A facility fee of .0625% is payable annually and a commitment
fee of .375% is charged on the unused portion of the revolving credit
facility and capital expenditure facility. The term loan is repayable in
quarterly installments that total $2,325,000 in 1997, plus a one-time
payment of $1,470,000 related to the sale of Victory due also in 1997.
Additional scheduled repayments towards the term loan will total
$2,625,000 in 1998 and $1,517,000 in 1999. The outstanding capital
expenditure loans of $425,000 are repayable in quarterly installments that
total $100,000 in each of 1997, 1998, and 1999 with a lump sum payment of
$125,000 or the remaining balance on January 2, 2000. Mandatory
prepayments are required in the case of any excess cash flow, as defined,
or in the event of any sale or disposition of assets. The credit facility
is secured by a senior security interest of substantially all property,
plant and equipment and all accounts receivable and inventory of the
Company's domestic subsidiaries.
As of December 28, 1996, the Company's revolving credit facility provided
$23,650,000 of total borrowing availability. There was $14,575,000
outstanding under that facility at December 28, 1996. The Company had
executed letters of credit of $632,000 against this facility, leaving an
available line of credit of $8,443,000 at December 28, 1996. As of
December 28, 1996, the assets of Victory Refrigeration Company provided
$5,412,000 of the $23,650,000 total borrowing availability of the revolving
credit facility.
The senior secured note bears interest at 10.99% and has an eight-year term
maturing January, 2003 with semi-annual payments of $2,500,000 beginning in
July, 2000. A warrant for the purchase of 250,000 shares of common stock
of the Company at an exercise price of $3 per share was issued in
conjunction with the note. Alternatively, the terms of the warrant provide
for the purchase of 200,000 shares at $.01 per share. The note agreement
is secured by a senior security interest in substantially all the
intellectual property collateral of the Company's subsidiaries.
The terms of the credit and note agreements prohibit the paying of
dividends, limit capital expenditures and leases, and require, among other
terms, a minimum amount, as defined, of shareholders' equity, and minimum
ratios of current assets to current liabilities, cash flow coverage
indebtedness and fixed charged coverage. The credit and note agreements
also provide that if a material adverse change in the Company's business
operations or conditions occurs, the lender and noteholder could declare
an event of default. The Company was in compliance with all covenants as
amended for the period ending December 28, 1996.
A foreign subsidiary of the Company had borrowings of $3,433,000 at
December 28, 1996, including a $1,700,000 term loan and a $1,733,000
omnibus revolving credit line. The term loan is secured by the real
property of the foreign subsidiary. The revolving credit line is
guaranteed by the Company. Interest on both the term loan and the
revolving credit line are at the prevailing bank rate. The term loan is
repayable in twenty equal quarterly installments starting on March 31, 1998
and the revolving credit line is payable in full on January 1, 1998 if not
renewed for an
15
additional one-year period.
The weighted average interest rates under credit agreements during fiscal
1996, 1995 and 1994 were 9.3%, 9.5% and 8.7%, respectively.
The aggregate amount of long-term debt payable during each of the next five
years is as follows:
(In Thousands)
1997.......................................... $3,916
1998.......................................... $4,819
1999.......................................... $1,963
2000.......................................... $17,390
2001.......................................... $5,340
Thereafter.................................... $7,840
-------
Total.............................. $41,268
=======
(5) COMMON AND PREFERRED STOCK
(a) Shares Authorized
At December 28, 1996 and December 30, 1995, the Company had 20,000,000
shares of common stock and 2,000,000 shares of Non-voting Preferred Stock
authorized.
(b) Warrant
In conjunction with the issuance of the senior secured notes in January,
1995 (see Note 4), the Company issued a transferrable warrant to the
noteholders for the purchase of 250,000 shares of common stock at an
exercise price of $3 per share. Alternatively under certain conditions,
which have been met, the terms of the warrant provide for the purchase
of 200,000 shares at $.01 per share. The warrant provides for adjustment
of the exercise price if the Company issues additional shares at a
purchase price below the then current market price, as defined, and for
adjustment of the number of shares if the Company declares a stock
dividend. The warrant became exercisable on February 10, 1995 and expires
July 10, 2003.
(c) Stock Options
The Company maintains an Amended and Restated 1989 Stock Incentive Plan
(the "Plan"), effective as of February 16, 1989, which provides key
employees of the Company rights to purchase shares of common stock at the
fair market value of the stock on the date of grant. The Plan was amended
in 1996, by shareholder approval, to increase the maximum amount that can
be issued under the Plan to 400,000
16
shares from 200,000 shares. Options may be exercised upon certain vesting
requirements being met but expire, to the extent unexercised, within a
maximum of ten years from the date of grant. 147,075 shares remain
available for issue at December 28, 1996 under the Plan. The weighted
average exercise price of options outstanding under the Plan was $4.43
at December 28, 1996 and $3.10 at December 30, 1995.
In addition to the above Plan, the directors of the Company have options
for 7,000 shares exercisable at $1.875 per share and 75,000 shares
exercisable at $7.50 per share.
A summary of stock option activity is presented below.
Key Option
Stock Option Activity Employees Directors Price Per Share
-------------------- ---------- ---------- ---------------
Outstanding at
December 31, 1994.. 140,000 9,000 $1.25 to $4.38
Granted.......................... 39,000 - $5.63
Exercised........................ (22,000) - $1.25 to $4.38
Forfeited........................ (2,000) - $3.00
Outstanding at
December 30, 1995................ 155,000 9,000 $1.25 to $5.63
Granted.......................... 60,000 75,000 $5.25 to $7.50
Exercised........................ (72,500) (2,000) $1.25 to $4.38
Forfeited........................ (5,900) - $3.00 to $5.63
---------- --------
Outstanding at
December 28, 1996............... 136,600 82,000 $1.25 to $7.50
=========== =========
The weighted average fair value of options granted was $5.78 and $3.82 in
1996 and 1995, respectively. The Company accounts for options under APB
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for these options been recorded, the Company's net
income and earnings per share would have been reduced as follows:
1996 1995
---- ----
Earnings from Continuing Operations: As Reported $3,083,000 $2,745,000
Pro Forma $2,893,000 $2,671,000
17
Net Earnings: As Reported $473,000 $3,164,000
Pro Forma $283,000 $3,090,000
Continuing Operations EPS: As Reported $0.35 $0.31
Pro Forma $0.33 $0.31
EPS: As Reported $0.05 $0.36
Pro Forma $0.03 $0.36
Under SFAS 123, the fair value of each option grant is estimated on the
date of grant using the following general assumptions for 1995 and 1996:
risk-free interest rate of 6.5 percent, no expected dividend yield,
expected lives of four to five years, and an expected annual increase in
stock value of ten percent.
(6) PROVISION FOR PRODUCT LINE DISCONTINUANCE AND
RESTRUCTURING CHARGE
Company management made the decision to discontinue the production of a
unique line of mixers during the fourth quarter of 1995. A provision of
$900,000 was recorded for this product line discontinuance. The charge
related to the disposal and rationalization of assets associated with the
product line and its operations. No changes in operating personnel were
made as a result of this decision.
(7) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income
Taxes."
The provision for income taxes for continuing operations is summarized as
follows:
(In Thousands)
1996 1995 1994
------ ------ -----
Federal $1,153 $(385) $460
State and Local 188 183 144
Foreign 48 62 10
----- ------ -----
Total $1,389 $(140) $614
======= ====== ======
18
Although the Company is not a Federal taxpayer due to its NOL carry-
forwards, a tax provision is still required to be recorded. The majority
of the NOL carry-forwards expiring prior to 1998 relate to a 1983 quasi-
reorganization and were not recorded as a credit to the tax provision, but
were directly credited to paid-in-capital. NOL's expiring in 1998 and
thereafter will be recorded entirely as a credit to the tax provision as
they are recognized. Reconciliation of the differences between income taxes
computed at the Federal statutory rate and effective rate are as follows:
(In Thousands)
1996 1995 1994
------ ------- -------
U.S. Federal statutory tax rate..... 34.0% 34.0% 34.0%
Utilizations of NOL and reductions
in valuation allowance......... (19.3) (65.6) (18.1)
Permanent book vs. tax
differences......................... 1.2 15.5 7.6
Foreign tax losses and rate
differentials........................ 11.0 3.7 (7.0)
State taxes, net of federal
benefit.............................. 4.2 7.0 5.1
------ ------- -------
Consolidated effective tax rate for
continuing operations................. 31.1% (5.4%) 21.6%
====== ======= =======
As of December 28, 1996 and December 30, 1995, the Company had recorded
the following deferred tax assets and liabilities which were comprised
of the following:
(In Thousands)
1996 1995
---- -------
Deferred Tax Assets:
Net operating loss carry-forwards.. $12,073 $13,736
Tax credit carry-forwards.......... 1,503 1,426
Accrued pension benefits............ 703 606
Accrued warranty.................... 641 469
Other............................... 1,141 960
Valuation allowance................. (9,437) (10,515)
------- --------
Deferred Tax Assets...... 6,624 6,682
Deferred Tax Liabilities:
Depreciation....................... (1,588) (1,666)
-------- -------
Net Deferred Tax Assets...................... $5,036 $5,016
======== =======
19
As of December 28, 1996, the consolidated tax loss carry-forwards for
Federal income tax purposes were approximately $12,073,000 on a tax
effected basis. These carry-forwards expire as follows: $6,849,000 in
1997; $3,000 in 1998; $264,000 in 2001; $508,000 in 2004; $1,619,000 in
2005; $1,913,000 in 2006; and $917,000 in 2007. Consolidated business tax
credit carry-forwards available at December 28, 1996 to reduce future tax
liabilities were approximately $898,000 and expire from 1996 through 2000.
The Company also has tax credits of approximately $605,000 resulting from
Federal AMT payments which do not expire.
The decrease in the gross tax asset and the related valuation allowance
was primarily due to the utilization of NOL carry-forwards during the
year. The utilization of the net operating loss and credit carry-forwards
depend on future taxable income during the applicable carry-forward
periods. Management evaluates and adjusts the valuation allowance, based
on the Company's expected taxable income as part of the annual budgeting
process. These adjustments reflect management's judgment as to the
Company's ability to generate taxable income which will, more likely
than not, be sufficient to recognize these tax assets.
(8) COMMITMENTS AND CONTINGENCIES
The Company leases office and plant facilities and equipment under
operating leases which expire in fiscal 1997 through 2001. Rental expense
was $692,000, $816,000 and $897,000 in fiscal 1996, 1995, and 1994,
respectively. Future minimum rental payments under these leases are as
follows:
(In Thousands)
1997................................. $782,000
1998................................. 709,000
1999................................. 550,000
2000................................. 552,000
2001................................. 405,000
Thereafter........................ -
----------
$2,998,000
==========
In addition to the above, the Company entered into an agreement with the
landlord of the Victory Refrigeration Company facility (before that
subsidiary was sold - see Note 3) to guarantee Victory's lease payments.
The duration of this lease guarantee is 19 months. The contingent
liability related to this guarantee totals approximately $996,000 at
December 28, 1996. This contingent liability is scheduled to decrease by
approximately $52,400 per month during fiscal 1997.
20
(9) SEGMENT INFORMATION
The Company is engaged in the manufacture and sale of commercial and
institutional food cooking and preparation equipment for the foodservice
industry. The Company's principal operations are in the United States,
with a majority of sales made to domestic dealers and distributors. No
customer accounted for 10% or more of sales during fiscal 1996, 1995 and
1994.
Sales outside the United States, based on dealer locations, are given
below. These export sales represented 37%, 36% and 35% of the Company's
net sales in fiscal 1996, 1995 and 1994, respectively. Additionally, a
small amount of sales to U.S. customers are transshipped by those customers
for installation at their international locations.
The following represents net sales as reported by each major geographic
region:
Restated Restated
1996 1995 1994
------- -------- --------
United States $78,594 $67,878 $60,971
Asia/Pacific 25,606 20,161 13,641
Europe/Other 11,248 10,430 8,986
Latin America 5,281 4,036 6,790
Canada 4,036 3,843 3,770
-------- -------- -------
Total International 46,171 38,470 33,187
Total Net Sales $124,765 $106,348 $94,158
======== ========= ========
(10) EMPLOYEE BENEFIT PLANS
The Company has a discretionary profit sharing plan and a 401(k) savings
plan for salaried and non-union hourly employees. The company had profit
sharing expense of $350,000, $325,000 and $300,000 in fiscal 1996, 1995 and
1994, respectively.
The Company has a defined benefit pension plan for union hourly plant
employees at the Elgin, Illinois facility. The company's funding policy is
to contribute the minimum required by the Employee Retirement Income
Security Act of 1974. The plan had projected benefit obligations of
$1,911,000 and $1,653,000 at December 28, 1996 and December 30, 1995,
respectively. The market values of plan assets were $1,549,000 and
$1,371,000 at December 28, 1996 and December 30, 1995, respectively. The
discount rates used to determine the projected benefit obligations were
7.5% and 7.5% for 1996 and 1995, respectively. The net pension expense for
this plan was $155,000, $140,000 and $185,000 for fiscal 1996, 1995 and
1994, respectively.
21
In fiscal 1993, the Company adopted a non-qualified defined benefit pension
plan for certain officers of the Company and entered into a retirement
benefit agreement with its President. The Company also has a retirement
benefit agreement with its Chairman. The retirement benefit is based on a
percentage of the officer's final base salary and the number of years of
employment. The projected benefit obligations under these agreements were
$2,067,000 and $1,812,000 at December 28, 1996 and December 30, 1995,
respectively, and is currently unfunded. The discount rates used to
determine the projected benefit obligations were 7.5% and 7.5% for 1996 and
1995, respectively. Retirement benefit expense was $255,000, $255,000 and
$259,000 in fiscal 1996, 1995 and 1994, respectively.
(11) QUARTERLY DATA (UNAUDITED)
(In thousands, except per share data)
Restated Restated Restated Restated
1st 2nd 3rd 4th
------- ------- -------- --------
1996
Net sales.................................... $29,510 $28,661 $31,400 $35,194
Gross margin................................. 8,567 8,529 9,373 10,966
Operating income............................. 2,288 1,671 2,062 766
Earnings from continuing
operations.............................
(Loss) earnings from
discontinued operations................. (80) (432) (1,603) (495)
------ ------- ------ ------
Net earnings (Loss).......................... $686 $ (31) $(979) $797
====== ======== ====== =====
Net earnings (loss) per share:
Continuing operations................... $.09 $.04 $.07 $.15
Discontinued operations................. (.01) (.04) (.19) (.06)
------ ------- ----- ----
Net earnings (Loss) per
common share............................ $.08 $.00 $(.12) $.09
====== ======== ====== =====
1995
Net sales..................................... $25,743 $25,646 $27,558 $27,401
Gross margin.................................. 7,667 7,492 8,389 8,959
Operating income.............................. 1,836 1,484 2,117 1,459
Earnings from continuing
operations............................... 497 437 739 1,072
(Loss) earnings from
discontinued operations.................. 168 180 144 (73)
Net earnings.................................. $665 $617 $883 $999
Net earnings (loss) per share:
Continuing operations.................... $.06 $.05 $.08 $.12
Discontinued operations.................. .02 .02 .02 (.01)
Net earnings per common
share..................................... $.08 $.07 $.10 $.11
====== ======== ====== =====
22
THE MIDDLEBY CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994
Balance Additions Write-Offs Balance
Beginning Charged During the At End
of Period Expense The Period Of Period
--------- --------- ---------- ---------
Allowance for
doubtful accounts;
deducted from
accounts receiv-
able on the
balance sheets-
1994 $345,000 $202,000 $(205,000) $342,000
1995 $342,000 $170,000 $ (99,000) $413,000
1996 $413,000 $117,000 $ (35,000) $495,000
Reserve for
inventory
obsolescence;
deducted from
inventories on
the balance
sheets-
1994 $940,000 $457,000 $(882,000) $515,000
1995 $515,000 $783,000 $(282,000) $1,016,000
1996 $1,016,000 $209,000 $(279,000) $946,000
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
THE MIDDLEBY CORPORATION
(registrant)
Date May 30, 1997 BY: /s/ John J. Hasting
-------------------------------
John J. Hastings, Executive
Vice President, Chief Financial
Officer and Secretary
(Principal Financial and
Accounting Officer)
