-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ruu/NEe6MdJtpbTOZZDIv/l0cK6cKJDfyOMZZLRsFj+8SsTQt4/RofXYy3+4Fdpu k0aXTRwiLKky50iizpXFTw== 0000912057-97-019272.txt : 19970603 0000912057-97-019272.hdr.sgml : 19970603 ACCESSION NUMBER: 0000912057-97-019272 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970602 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDDLEBY CORP CENTRAL INDEX KEY: 0000769520 STANDARD INDUSTRIAL CLASSIFICATION: REFRIGERATION & SERVICE INDUSTRY MACHINERY [3580] IRS NUMBER: 363352497 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09973 FILM NUMBER: 97618026 BUSINESS ADDRESS: STREET 1: 1400 TOASTMASTER DR CITY: ELGIN STATE: IL ZIP: 60120 BUSINESS PHONE: 7087413300 MAIL ADDRESS: STREET 1: 1400 TOASTMASTER DRIVE CITY: ELGIN STATE: IL ZIP: 60120 10-K/A 1 10-K/A 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) -----END PRIVACY-ENHANCED MESSAGE-----