Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
_X_ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the Fiscal Year Ended December 30, 2000
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 (IRS Employer Identification
of incorporation 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 26, 2001 was approximately $55,564,814. The number of
shares outstanding of the Registrant's class of common stock, as of March 26,
2001, was 8,980,172 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 2001
annual meeting of stockholders.
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
DECEMBER 30, 2000
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I Page
Item 1. Business......................................................... 1
Item 2. Properties....................................................... 9
Item 3. Legal Proceedings................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders.............. 9
Item 4A. Executive Officers of the Registrant............................. 10
PART II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters.................................. 11
Item 6. Selected Financial Data.......................................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 14
Item 8. Financial Statements and Supplementary Data...................... 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 48
PART III
Item 10. Directors and Executive Officers of the Registrant............... 48
Item 11. Executive Compensation........................................... 48
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................... 48
Item 13. Certain Relationships and Related Transactions................... 48
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.................................................. 48
PART I
Item 1. Business
General
The Middleby Corporation ("Middleby" or the "company"), through its
operating subsidiary Middleby Marshall Inc. ("Middleby Marshall") and its
subsidiaries, is a leader in the design, manufacture, marketing, distribution,
and service of a broad line of cooking and warming equipment used in all types
of foodservice operations, including quick-service restaurants, full-service
restaurants, retail outlets, hotels and other institutions. The company's
products include Middleby Marshall(R) and CTX(R) conveyor oven equipment,
Southbend(R) ranges, convection ovens and heavy-duty cooking equipment,
SteamMaster(R) steam cooking equipment and Toastmaster(R) toasters and
counterline cooking and warming equipment.
Founded in 1888 as a manufacturer of baking ovens, Middleby Marshall Oven
Company was acquired in 1983 by TMC Industries Ltd., a publicly traded company
that changed its name in 1985 to The Middleby Corporation. Throughout its
history, the company had been a leading innovator in the baking equipment
industry and in the early 1980s positioned itself as a leading foodservice
equipment manufacturer by introducing the conveyor oven that revolutionized the
pizza market. In 1989, the company became a broad line equipment manufacturer
through the acquisition of the Foodservice Equipment Group of Hussmann
Corporation, which included Southbend, Toastmaster and CTX. The company
initiated its international distribution and service strategy in 1990 by
acquiring a controlling interest in Asbury Associates, Inc., which was renamed
Middleby Worldwide in 1999. In 1991, the company established Middleby
Philippines Corporation ("MPC") to provide modular foodservice equipment and
custom kitchen fabrications to restaurant and hotel chains in the Pacific Rim
and Middle Eastern markets.
The company has identified, as a major area of growth, the rapidly growing
international markets targeted by restaurant and hotel chains. To capture this
market, Middleby established its own export management company, set up master
distribution in international markets and began to distribute complementary
products of other American, European, and Asian equipment manufacturers. As the
first company in its industry to take these initiatives, Middleby has positioned
itself as a preferred foodservice equipment supplier to major chains expanding
globally. Middleby's global network enables it to offer kitchen equipment to be
delivered virtually anywhere in the world, installed and serviced by Middleby.
The company believes that its full service program provides it with a
competitive advantage and will enable it to develop significant new
international business. The company has delivered and installed equipment in
over 100 countries throughout the world.
- 1 -
Business Divisions and Products
The company conducts its business through two principal business divisions;
the Cooking Systems Group and the International Distribution Division. See Note
9 to the Consolidated Financial Statements for further information on the
company's business divisions.
Cooking Systems Group
Middleby Cooking Systems Group, the company's manufacturing division, has
operations located in Illinois, North Carolina and the Philippines. The
division's principal product groups include:
Conveyor Oven Equipment Product Group - Middleby Marshall and CTX
The Middleby Marshall oven line is the world's conveyor cooking equipment
leader. A brand of baking and cooking equipment since 1888, the Middleby
Marshall name is renowned for quality and durability. Middleby Marshall ovens
are used by a majority of the leading pizza chains, as well as by other
restaurants and institutions. Middleby Marshall conveyor ovens utilize a
patented process, Jet-Sweep air impingement, that forces heated air at high
velocities through a system of nozzles above and below the food product which is
placed on a moving conveyor belt. This process achieves faster baking times and
greater consistency of bake than conventional ovens. The company's CTX line of
conveyor ovens utilizes patented infra-red cooking and precision control
technology for more specialized, lower volume applications. CTX conveyor ovens
are sold to restaurants and pizza outlets and offer such additional features as
a programmable time and temperature control as well as a self-cleaning function.
Conveyor oven products range in price from approximately $5,000 to $35,000 per
unit and are predominately assembled to order and purchased directly by
end-users (who order units customized for their operations) rather than through
dealers.
Core Cooking Equipment Product Group - Southbend
In the market for 100 years, Southbend products, mainly heavy-duty,
gas-fired equipment, include ranges, convection ovens, broilers, fryers,
griddles, steamers and steam cooking equipment. Southbend products are offered
as standardized equipment for general use in restaurants and institutions, and
also are made to specification for use by the professional chef. Southbend is
known for its innovative product features and premier cooking line. Its 40,000
BTU Pyromax(R) range doubled the industry standard for BTU's when it was
introduced in 1996. Southbend's Marathoner Gold(R) convection oven has been
judged by a leading industry publication to be the best baking convection oven
on the market today. The Southbend Simple Steam steamer is the industry's lowest
maintenance and lowest water usage pressureless steamer, and was awarded the
1998 Product Design of the Year by the Electric Foodservice Council. Core
cooking equipment products range in price from $800 to $15,000 and are
predominantly purchased by dealers on an order-by-order basis.
- 2 -
Counterline Cooking Equipment Product Group - Toastmaster
Toastmaster counterline cooking equipment products are predominantly light
and medium-duty electric equipment, including pop-up and conveyor toasters, hot
food servers, foodwarmers, griddles, convection ovens and ranges. A leading
equipment brand since 1917, Toastmaster has been voted the number one toaster
product for eighteen consecutive years in the Annual Industry Leaders survey by
ID magazine. As a major supplier to global restaurant chains, Toastmaster is
able to customize products to fit a chain's particular needs. Toastmaster
products are designed with energy saving features and food safety technologies.
Counterline cooking equipment products range in price from $300 to $12,000 per
unit and are predominately purchased from stock by dealers.
The company does not produce consumer products under the Toastmaster name,
as an unaffiliated company, Toastmaster, Inc., owns the rights to the brand name
for consumer markets.
International Specialty Equipment Product Group - Middleby Philippines
Corporation
Founded in 1991, Middleby Philippines Corporation (MPC) engineers,
manufactures and installs modular foodservice equipment and custom kitchen
fabrications used primarily in conjunction with standard equipment manufactured
in the U.S. to provide a complete kitchen installation. Principal products
include serving stations, worktables, undercounter refrigeration systems,
ventilation systems, cabinets and shelving. Customers are primarily Asian
operations of major U.S. and international foodservice chains. Additionally, in
2000 MPC began production of component parts and finished products for the
company's domestic operations. This activity accounted for approximately 50% of
MPC's business during the year. MPC's manufacturing and assembly operations are
located in a modern 54,000 square foot facility outside of Manila.
International Distribution Division - Middleby Worldwide
Middleby Worldwide provides integrated export management and distribution
services. The division sells the company's product lines and certain
non-competing complementary product lines of other manufacturers throughout the
world. The company offers customers a complete package of kitchen equipment,
delivered and installed in over 100 countries. For a local country distributor
or dealer, the division provides centralized sourcing of a broad line of
equipment with complete export management services, including export
documentation, freight forwarding, equipment warehousing and consolidation,
installation, warranty service and parts support. Middleby Worldwide has
regional export management companies in Asia, Europe and Latin America
complemented by sales and distribution offices located in Canada, China, France,
India, Japan, Korea, Mexico, the Philippines, Spain and Taiwan.
- 3 -
The Customers and Market
The company's domestic sales are primarily through independent dealers and
distributors and are marketed by the company's sales personnel and network of
independent manufacturers' representatives. The company's international sales
are through a combined network of independent and company-owned distributors.
The company maintains sales and distribution offices in Canada, China, France,
India, Japan, Korea, Mexico, the Philippines, Spain and Taiwan. The company's
end-user customers include: (i) fast food or quick-service restaurants,
including those restaurants that primarily offer pizza, (ii) full-service
restaurants, including casual-theme restaurants, (iii) retail outlets, such as
convenience stores, supermarkets and department stores and (iv) public and
private institutions, such as hotels, resorts, schools, hospitals, long-term
care facilities, correctional facilities, stadiums, airports, corporate
cafeterias, military facilities and government agencies. Many of the dealers in
the U.S. belong to buying groups that negotiate sales terms with the company.
Certain large multi-national restaurant and hotel chain customers have
purchasing organizations that manage product procurement for their systems.
Included in these customers are several large restaurant chains, which account
for a significant portion of the company's business. The company's five largest
customers accounted for approximately 24% of net sales in 2000, although no
single customer accounting for more than 10% of 2000 net sales.
During the past several decades, growth in the U.S. foodservice industry
has been driven primarily by population growth, economic growth and demographic
changes, including the emergence of families with multiple wage-earners and
growth in the number of higher-income households. These factors have led to a
demand for convenience and speed in food preparation and consumption. According
to the National Restaurant Association, U.S. food consumers now spend
approximately 46% of their budget on food prepared away from home. As a result,
U.S. foodservice sales grew for the ninth consecutive year to approximately $379
billion in 2000. Despite the projected slowdown for the worldwide economy, 2001
sales are projected to increase to $399 billion, an increase of 5.2% over 2000.
The quick-service restaurant segment within the foodservice industry has been
the fastest growing segment since the mid '80's. Total quick-service sales
amounted to $107 billion in 2000 and are expected to increase 4.4% to $112
billion in 2001. The full-service restaurants represent the largest portion of
the foodservice industry and represented $135 billion in sales in 2000 and are
expected to increase 6.5% to $143 billion in 2001. This segment has seen
increased chain concepts and penetration in recent years, particularly in
upscale segments, driven by the aging of the baby boom generation.
Over the past decade, the food service industry has enjoyed steady growth
in the United States due to the development of new quick-service and
casual-theme restaurant chain concepts, the expansion into nontraditional
locations by quick-service restaurants and store equipment modernization. In the
international markets, foodservice equipment manufacturers have been
experiencing stronger growth than the U.S. market due to rapidly expanding
international economies and increased opportunity for expansion by U.S. chains
into developing regions. In 1997, the top 100 restaurant chains built more new
units outside the U.S. than inside, for the first time, according to Technomic
Inc., a leading foodservice research
- 4 -
firm. The company believes that the worldwide foodservice equipment market has
sales in excess of $10 billion at a growth rate outpacing the U.S. The company
believes that continuing growth in demand for foodservice equipment will result
from the development of new restaurant units and the expansion of U.S. chains
into international markets and the replacement and upgrade of existing
equipment.
The backlog of orders was $10,918,000 at December 30, 2000, all of which is
expected to be filled during 2001. The company's backlog was $12,040,000 at
January 1, 2000. The backlog is not necessarily indicative of the level of
business expected for the year, as there is generally a short time between order
receipt and shipment for the majority of the company's products.
Marketing and Distribution
Middleby's products and services are marketed in the U.S. and in over 100
countries through a combination of the company's sales personnel and
international marketing divisions and subsidiaries, together with an extensive
network of independent dealers, distributors, consultants, sales representatives
and agents. The company's relationships with major restaurant chains are
primarily handled through an integrated effort of top-level executive and sales
management at the corporate and business division levels to best serve each
customer's needs.
Each of the company's business divisions is responsible for the marketing
of its products and services, under the direction of the division's President.
Each business division manages its own sales, promotion and marketing programs
with coordination and support provided by corporate sales and marketing
functions.
In the United States, each business or sales division distributes its
products to independent end-users through a network of non-exclusive dealers
nationwide, who are supported by manufacturers' marketing representatives. Sales
are made direct to certain large restaurant chains that have established their
own procurement and distribution organization for their franchise system.
International sales are primarily made through the International
Distribution Division network to independent local country stocking and
servicing distributors and dealers and, at times, directly to major chains,
hotels and other large end-users by the company-owned distribution companies.
Services and Product Warranty
The company is an industry leader in equipment installation programs and
after-sales support and service. The emphasis on global service increases the
likelihood of repeat business and enhances Middleby's image as a partner and
provider of quality products and
- 5 -
services. It is critical to major foodservice chains that equipment providers be
capable of supporting equipment on a worldwide basis.
The company's domestic service network consists of over 80 authorized
service parts distributors and 2,500 independent certified technicians that have
been formally trained and certified by the company through its factory training
school and on-site installation training programs. The service network is
separate from the sales network to ensure that technicians remain focused on
service issues rather than new business. Technicians work through service parts
distributors, which are required to provide around-the-clock service via a
toll-free paging number. The company provides substantial technical support at
each factory to the technicians in the field through factory-based technical
service engineers. The company has stringent parts stocking requirements for
these agencies, leading to an exceptionally high first-call completion rate for
service and warranty repairs.
Middleby's international service network consists of distributors in over
100 countries with approximately 3,000 service technicians trained in the
installation and service of the company's products and supported by
internationally-based service managers along with the factory-based technical
service engineers. As with its domestic service network, the company maintains
stringent parts stocking requirements for its international distributors.
Competition
The cooking and warming segment of the foodservice equipment industry is
highly competitive and fragmented. Within a given product line, the industry
remains fairly concentrated, with typically a small number of competitors
accounting for the bulk of the line's industry-wide sales. Industry competition
includes companies that manufacture a broad line of products and those that
specialize in a particular product line. Competition in the industry is based
upon many factors, including brand recognition, product features and design,
quality, price, delivery lead times, serviceability and after-sale service. The
company believes that its ability to compete depends on strong brand equity,
exceptional product performance, short lead-times and timely delivery,
competitive pricing, and its superior customer service support. Management
believes that the demand for its labor saving, multi-functional and energy
efficient equipment will increase, driven by quick-service and full-service
chains that face labor supply issues, space limitations and increasing operating
costs.
In the international markets, the company competes with U.S. manufacturers
and numerous global and local competitors. Management believes that the
company's integrated international export management and distribution
capabilities uniquely position it to provide value-added services to U.S. and
internationally based chains, as well as to local country distributors offering
a complete line of kitchen equipment.
The company believes that it is among the largest multiple-line
manufacturers of cooking and warming equipment in the U.S. and worldwide,
although some of its competitors are units of operations that are larger than
the company and possess greater financial and
- 6 -
personnel resources. Among the company's major U.S. competitors are certain
subsidiaries and divisions of Welbilt Corporation, a subsidiary of Enodis plc;
G.S. Blodgett Corp., a subsidiary of Maytag Corporation; Hobart Corporation and
Vulcan-Hart Corporation, both subsidiaries of Illinois Tool Works Inc.; and
Wells Manufacturing company, a subsidiary of United Technologies Corporation.
Major international-based competitors include Zanussi, a subsidiary of
Electrolux AB, and Ali Group.
Manufacturing and Quality Control
The company operates two domestic and one international manufacturing
facilities. The company's conveyor oven and counterline cooking equipment
products are manufactured in Elgin, Illinois and its core cooking equipment
products are manufactured in Fuquay-Varina, North Carolina. Middleby's
international specialty cooking equipment operation is located in Laguna, the
Philippines. Metal fabrication, finishing, sub-assembly and assembly operations
are conducted at each manufacturing facility. Equipment installed at individual
manufacturing facilities includes numerically controlled turret presses and
machine centers, shears, press brakes, welding equipment, polishing equipment,
CAD/CAM systems and product testing and quality assurance measurement devices.
The company's CAD/CAM systems enable virtual electronic prototypes to be
created, reviewed and refined before the first physical prototype is built.
Detailed manufacturing drawings are quickly and accurately derived from the
model and passed electronically to manufacturing for programming and optimal
parts nesting on various numerically controlled punching cells. The company
believes that this integrated product development and manufacturing process is
critical to assuring product performance, customer service and competitive
pricing.
The company has established comprehensive programs to ensure the quality of
products, to analyze potential product failures and to certify vendors for
continuous improvement. Every product manufactured or licensed by the company is
individually tested prior to shipment to ensure compliance with company
standards.
Sources of Supply
The company purchases its raw materials and component parts from a number
of suppliers. The majority of the company's material purchases are standard
commodity-type materials, such as stainless steel, electrical components and
hardware. These materials and parts generally are available in adequate
quantities from numerous suppliers. Some component parts are obtained from sole
sources of supply. In such instances, management believes it can substitute
other suppliers as required. The majority of fabrication is done internally
through the use of automated equipment. Certain equipment and accessories are
manufactured by other suppliers for sale by the company. The company believes it
enjoys good relationships with its suppliers and considers the present sources
of supply to be adequate for its present and anticipated future requirements.
- 7 -
Licenses, Patents, and Trademarks
Middleby Marshall has an exclusive license from Enersyst Development Center
L.L.C. ("Enersyst") to manufacture, use and sell Jetsweep air impingement ovens
in the U.S. for commercial food applications in which the interior length or
width of a rectangular cooking area, or in which the diameter of a circular
cooking area, equals or exceeds 36 inches. The Enersyst license covers numerous
existing patents and provides further exclusive and non-exclusive license rights
to existing and future developed technology. Middleby Marshall also holds an
exclusive sublicense from Lincoln Foodservice Products, Inc. ("Lincoln"), a
subsidiary of Welbilt Corporation, to manufacture, use and sell throughout the
world, other than in the U.S. and Japan, air impingement ovens of the
above-described dimensions for commercial food applications. This sublicense
covers the foreign analogues of the patents covered by the Enersyst license and
grants Middleby Marshall rights of first refusal for a similar sublicense in
Japan. The Enersyst license expires the later of the expiration of the last of
the licensed patents or September 30, 2008. The Lincoln sublicense expires upon
the expiration of the last patented improvement covered by the license. Certain
individual patents covered under the Enersyst and Lincoln license agreements
expire at varying dates through 2008. While the loss of the Enersyst license or
the Lincoln sublicense could have an adverse effect on the company, management
believes it is capable of designing, manufacturing and selling similar
equipment, although not as technologically advanced. Lincoln and Fuji Chubo
Setsubi company, Ltd. are the only other foodservice equipment manufacturers
licensed under the Enersyst patents.
The company holds numerous patents covering technology and applications
related to various products, equipment and systems. Management believes the
expiration of any one of these patents would not have a material adverse effect
on the overall operations or profitability of the company.
The company owns numerous trademarks and trade names; among them, CTX(R),
Middleby Marshall(R), Southbend(R) and Toastmaster(R) are registered with the
U.S. Patent and Trademark Office and in various foreign countries.
Employees
As of December 30, 2000, the company employed 699 persons. Of this amount,
263 were management, administrative, sales, engineering and supervisory
personnel; 168 were hourly production non-union workers; and 268 were hourly
production union members. Included in these totals were 206 individuals employed
outside of the United States, of which 133 were management, sales,
administrative and engineering personnel, and 73 were hourly production workers,
who participate in an employee cooperative. At its Elgin, Illinois facility, the
company has a union contract with the International Brotherhood of Teamsters
that expires on May 1, 2002. The company also has a union workforce at its
manufacturing facility in the Philippines, under a contract that extends through
November 2001. Management believes that the relationships between employees,
union and management are good.
- 8 -
Seasonality
The company's business, taken as a whole, is not materially affected by
seasonality.
Item 2. Properties
The company's principal executive offices are located in Elgin, Illinois.
The company operates two manufacturing facilities in the U.S. and one
manufacturing facility in the Philippines.
The principal properties of the company are listed below:
Principal Square Owned/
Location Function Footage Leased
-------- -------- ------- ------
Elgin, IL Manufacturing, Warehousing 207,000 Owned
and Offices
Fuquay-Varina, NC Manufacturing, Warehousing 131,000 Owned
and Offices
Laguna, the Manufacturing, Warehousing 54,000 Owned
Philippines and Offices
At various other locations the company leases small amounts of office space
for administrative and sales functions, and in certain instances limited
short-term inventory storage. These locations are in Canada, China, France,
Japan, Korea, Mexico, Spain, and Taiwan.
Management believes that these facilities are adequate for the operation of
the company's business as presently conducted.
Item 3. Legal Proceedings
The company is routinely involved in litigation incidental to its business,
including product liability actions, which are generally covered by insurance.
Such routine claims are vigorously contested and management does not believe
that the outcome of any such pending litigation will have a material adverse
effect upon the financial condition of the company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the security holders in the fourth
quarter of the year ended December 30, 2000.
- 9 -
Item 4A. Executive Officers of the Registrant
Principal Occupation and
Principal Position and
Name Age Office with the company
---- --- -----------------------
William F. Whitman, Jr. 61 Chairman of the Board of
the company and Middleby Marshall
Selim A. Bassoul 44 President and Chief Executive
Officer of the company and
Middleby Marshall
David B. Baker 43 Vice President, Chief Financial Officer
and Secretary of the company and
Middleby Marshall
The officers of the company are elected annually by the Board of
Directors, hold office until their successors are chosen and qualify, and may be
removed by the Board of Directors at any time, at a duly convened meeting of the
Board of Directors or by written consent. The company has employment agreements
with Mssrs. Whitman, Bassoul and Baker. Laura B. Whitman, a director of the
company, is the daughter of Mr. Whitman.
- 10 -
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
The company's Common Stock trades on the Nasdaq National Market System
under the symbol "MIDD". The following table sets forth, for the periods
indicated, the high and low closing sale prices per share of Common Stock, as
reported by the Nasdaq National Market System.
Closing Share Price
-------------------
High Low
---- ---
Fiscal 2000
First quarter............................... 7.010 5.473
Second quarter.............................. 7.563 5.104
Third quarter............................... 7.256 5.473
Fourth quarter.............................. 6.825 4.919
Fiscal 1999
First quarter............................... 5.688 3.625
Second quarter.............................. 6.688 3.750
Third quarter............................... 7.875 4.625
Fourth quarter.............................. 5.750 4.188
In December 1997, the company completed a public stock offering. The
offering totaled 3,001,500 shares of which the company sold 2,391,500 shares and
610,000 shares were sold by selling stockholders. Net proceeds to the company
totaled approximately $22.1 million and were used to repay certain indebtedness.
In July 1998, the company's Board of Directors adopted a stock repurchase
program and subsequently authorized the purchase of up to 1,800,000 common
shares in open market purchases. As of December 30, 2000, 899,800 shares had
been repurchased for $3.7 million.
In November 2000, the company completed a self tender offer. The company
purchased a total 1,135,359 shares through the tender. Payments by the company
totaled approximately $7.9 million. As of December 30, 2000, the company
estimates there were approximately 1,800 beneficial owners of the company's
common stock.
In December 2000, the company declared and paid a $0.10 per common share
special dividend to shareholders of record as of the close of business on
December 20, 2000. The company's credit agreement places certain limitations on
its right to issue dividends.
- 11 -
During the fiscal year ended December 30, 2000, the company issued an
aggregate of 32,875 shares of the company's common stock to current and former
employees and directors, pursuant to the exercise of stock options, for an
aggregate consideration of $140,125. Such options were granted under the
company's Amended and Restated 1989 Stock Incentive Plan and had exercise prices
ranging between a maximum of $7.50 and a minimum of $1.875. The issuance of such
shares was exempt from registration under the Securities Act of 1933, as
amended, pursuant to Section 4(2) thereof, as transactions by an issuer not
involving a public offering.
- 12 -
PART II
Item 6. Selected Financial Data
(amounts in thousands, except per share data)
Fiscal Year Ended(1)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Income Statement Data:
Net sales ......................... $ 126,888 $ 132,541 $ 132,320 $ 148,253 $ 124,765
Cost of sales ..................... 81,702 91,551 96,082 102,523 87,330
--------- --------- --------- --------- ---------
Gross profit ...................... 45,186 40,990 36,238 45,730 37,435
Selling and distribution expenses . 15,858 18,694 20,817 22,150 18,319
General and administrative expenses 17,478 14,430 12,304 10,689 10,439
Non-recurring expenses ............ -- 2,208 3,457 -- --
--------- --------- --------- --------- ---------
11,850 5,658 (340) 12,891 8,677
Income (loss) from operations ..
Interest expense and deferred
financing amortization, net .... 1,204 2,724 2,916 4,136 4,351
Other expense (income), net ....... 1,503 763 939 413 (146)
--------- --------- --------- --------- ---------
Earnings (loss) before income
taxes ....................... 9,143 2,171 (4,195) 8,342 4,472
Provision (benefit) for income
taxes .......................... 5,370 3,165 (211) 2,538 1,389
--------- --------- --------- --------- ---------
Earnings (loss) from continuing
operations .................. 3,773 (994) (3,984) 5,804 3,083
Discontinued operations, net of
income tax ..................... -- -- -- (564) (2,610)
--------- --------- --------- --------- ---------
Earnings (loss) before
extraordinary item .......... $ 3,773 $ (994) $ (3,984) $ 5,240 $ 473
--------- --------- --------- --------- ---------
Extraordinary loss, net of
income tax .................. (235) -- -- -- --
--------- --------- --------- --------- ---------
Net earnings (loss) ............ $ 3,538 $ (994) $ (3,984) $ 5,240 $ 473
========= ========= ========= ========= =========
Basic earnings (loss) per share:
Continuing operations ....... $ 0.38 $ (0.10) $ (0.37) $ 0.65 $ 0.37
Discontinued operations ..... -- -- -- (0.06) (0.31)
Extraordinary loss .......... (0.03) -- -- -- --
--------- --------- --------- --------- ---------
Net earnings(loss) per share $ 0.35 $ (0.10) $ (0.37) $ 0.59 $ 0.06
========= ========= ========= ========= =========
Weighted average number of
shares outstanding ........... 9,971 10,161 10,761 8,863 8,415
Diluted earnings (loss) per share:
Continuing operations ....... $ 0.37 $ (0.10) $ (0.37) $ 0.64 $ 0.35
Discontinued operations ..... -- -- -- (0.06) (0.30)
Extraordinary loss .......... (0.02) -- -- -- --
--------- --------- --------- --------- ---------
Net earnings(loss) per share $ 0.35 $ (0.10) $ (0.37) $ 0.58 $ 0.05
========= ========= ========= ========= =========
Weighted average number of
shares outstanding ........... 10,091 10,277 10,872 9,104 8,666
Balance Sheet Data:
Working capital ................... $ 19,084 $ 28,095 $ 30,609 $ 38,790 $ 25,046
Total assets ...................... 78,310 99,048 99,679 103,636 85,685
Total debt ........................ 8,539 28,135 27,825 27,913 41,268
Stockholders' equity .............. 37,461 43,168 44,734 52,333 22,167
(1) The company's fiscal year ends on the Saturday nearest to December 31.
- 13 -
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Informational Note
This report contains forward-looking statements subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. The company
cautions readers that these projections are based upon future results or events
and are highly dependent upon a variety of important factors which could cause
such results or events to differ materially from any forward-looking statements
which may be deemed to have been made in this report, or which are otherwise
made by or on behalf of the company. Such factors include, but are not limited
to, changing market conditions; the availability and cost of raw materials; the
impact of competitive products and pricing; the timely development and market
acceptance of the company's products; foreign exchange and political risks
affecting international sales; and other risks detailed herein and from
time-to-time in the company's Securities and Exchange Commission filings,
including those discussed under "Risk Factors" in the company's Registration
Statement on Form S-2 (Reg No. 333-35397).
NET SALES SUMMARY
(dollars in thousands)
Fiscal Year Ended(1)
==============================================================================================================================
2000 1999 1998
---- ---- ----
Sales Percent Sales Percent Sales Percent
----- ------- ----- ------- ----- -------
Business Divisions:
- --------------------------------
Cooking Systems Group:
Conveyor oven equipment $ 51,941 40.9 $ 48,986 37.0 $ 45,605 34.5
Counterline cooking
equipment ........... 12,420 9.8 14,058 10.6 15,351 11.6
Core cooking equipment . 44,233 34.9 41,702 31.4 39,348 29.7
International specialty
equipment ........... 4,756 3.7 3,166 2.4 5,239 4.0
--------- ------ --------- ----- --------- ------
Cooking Systems Group(2) . 113,350 89.3 107,912 81.4 105,543 79.8
International Distribution
Division (3) ........... 34,446 27.1 40,352 30.4 39,096 29.5
Intercompany sales (4) ... (20,908) (16.4) (16,105) (12.1) (14,678) (11.1)
Other .................... -- 0.0 382 0.3 2,359 1.8
--------- ------ --------- ----- --------- ------
Total .................. $ 126,888 100.0 % $ 132,541 100.0 % $ 132,320 100.0 %
========= ====== ========= ===== ========= =====
==============================================================================================================================
(1) The company's fiscal year ends on the Saturday nearest to December 31.
(2) In 1999, the International Specialty Equipment division was merged into the
Cooking Systems Group. See Note 9 for further information.
(3) Consists of sales of products manufactured by Middleby and products
manufactured by third parties.
(4) Represents the elimination of sales to the company's International
Distribution Division from the Cooking Systems Group.
- 14 -
Results of Operations
The following table sets forth certain items in the consolidated statements
of earnings as a percentage of net sales for the periods presented:
Fiscal Year Ended(1)
--------------------
2000 1999 1998
---- ---- ----
Net sales ............................................... 100.0% 100.0% 100.0%
Cost of sales ........................................... 64.4 69.1 72.6
----- ----- -----
Gross profit ......................................... 35.6 30.9 27.4
Selling, general and administrative expenses ............ 26.3 25.0 24.9
Non-recurring expense ................................... -- 1.6 2.6
----- ----- -----
Income (loss) from operations ........................ 9.3 4.3 (0.1)
Interest expense and deferred financing
amortization, net 0.9 2.1 2.2
Other expense, net ...................................... 1.2 0.6 0.7
----- ----- -----
Earnings (loss) before income taxes ..................... 7.2 1.6 (3.0)
Provision for income taxes .............................. 4.2 2.4 --
----- ----- -----
Earnings (loss) from continuing operations .......... 3.0% (0.8)% (3.0)%
===== ===== =====
(1) The company's fiscal year ends on the Saturday nearest to December 31.
Fiscal Year Ended December 30, 2000 as Compared to January 1, 2000
Net sales. Net sales in fiscal 2000 decreased 4.3% from $132.5 million in
fiscal 1999 to $126.9 million in fiscal 2000. In 1999 the company discontinued
the manufacture of unprofitable product lines and the distribution of certain
third-party products inconsistent with the company's long-term growth strategy,
which led to the net sales reduction.
Net sales of the Cooking Systems Group increased by $5.4 million or 5.0%
from $107.9 million in fiscal 1999 to $113.4 million in fiscal 2000. Sales of
conveyor oven equipment increased by $3.0 million or 6.0%. The increase in
conveyor oven sales was attributable to increased sales internationally,
including sales to the major pizza chains as they expand globally. Core cooking
equipment sales increased $2.5 million or 6.1% due to the success of new product
introductions. Counterline cooking equipment sales decreased $1.6 million or
11.7% as a result of the discontinuation of numerous unprofitable product lines.
Sales of international specialty equipment increased $1.6 million or 50.2% from
the prior year as this division began to manufacture component parts for the
U.S. manufacturing operations and finished goods for the U.S. marketplace.
Net sales of the company's International Distribution Division, Middleby
Worldwide, decreased by $5.9 million or 14.6% from $40.4 million in 1999 to
$34.4 million in 2000. The sales decrease was primarily due to the
discontinuation of certain distributed products as the division refocused its
sales and service efforts toward products which best complement the
- 15 -
company's core competencies and provide the greatest profitability. This
adversely impacted sales in all international markets. Despite the overall
reduction, sales of Middleby manufactured products increased in Asia, Europe and
Latin America due to increased focus.
Gross profit. Gross profit increased 10.2%, from $41.0 million in fiscal
1999 to $45.2 million in fiscal 2000. As a percentage of net sales, gross profit
margin increased from 30.9% in 1999 to 35.6% in 2000.
At the Cooking Systems Group margins were favorably impacted by reduced
overhead resulting from prior year cost reduction measures and a more favorable
product mix with greater sales of higher margin product. The favorable sales mix
was due in part to actions to discontinue certain unprofitable product lines of
the counterline cooking equipment group.
Gross profit margin at the International Distribution Division also
improved as a result of the product refocusing efforts on higher margin Middleby
manufactured products and complimentary equipment.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $0.2 million from $33.1 million in 1999 to
$33.3 million in 2000 as reduced selling and distribution expenses were offset
by increased general and administrative expenses.
Selling and distribution expenses decreased by $2.8 million or 15.2%, from
$18.7 million in 1999 to $15.9 million in 2000. Selling and distribution
expenses at the International Distribution Division were lower due to the
closure of the division headquarters in the fourth quarter of the prior year.
Expenses were also lower at the Cooking Systems Group due to reduced payroll
costs and commissions expense.
General and administrative expenses increased by $3.0 million or 21.1%,
from $14.4 million in 1999 to $17.5 million in 2000. General and administrative
expenses included $1.5 million associated with the early retirement of the
company's President and Chief Executive Officer. This included the immediate
expensing of pension costs that would normally have been recognized ratably over
the remainder of his expected years of service. General and administrative
expenses also include approximately $0.5 million associated with the closure of
several administrative offices and the exit of the related leases, including the
lease for the corporate headquarters. Expenses associated with employee benefit
and compensation programs, including incentive compensation and retirement
benefits also increased from the prior year.
Income from operations. Income from operations increased $6.2 million or
109.4% to $11.9 million in fiscal 2000 from $5.7 million in fiscal 1999. The
improved results were due to higher gross margins and lower selling and
distribution expenses.
- 16 -
Non-operating expenses. Non-operating expenses decreased 22.4% from $3.5
million in fiscal 1999 to $2.7 million in fiscal 2000. Net interest expense
declined by $1.5 million to $1.2 million as a result of increased interest
income on higher cash balances held during the year and the repayment of high
interest debt balances. Other expenses increased by $0.7 million to $1.5 million
during the year as a result of unrealized foreign exchange losses primarily
associated with the Philippine Peso.
Income taxes. The company recorded a net tax provision of $5.4 million in
fiscal 2000 at an effective rate of 58.7% primarily related to the company's
domestic earnings, while no benefit was recorded related to losses incurred at
certain foreign locations. Despite the recorded tax provision, the company does
not pay U.S. federal taxes, other than AMT tax due to tax loss carry-forwards
available from prior years. In 1999 the company recorded a net tax provision of
$3.2 million at an effective rate of 145.8%.
Extraordinary Item. During the third quarter of 2000 the company repaid its
$15 million unsecured senior note obligation, which was due to mature over a
period ending January 10, 2003. An extraordinary charge of $0.4 million, or $0.2
million net of income tax, was recorded related to a prepayment penalty for the
early retirement of the note.
Fiscal Year Ended January 1, 2000 as Compared to January 2, 1999
Net sales. Net sales in fiscal 1999 increased 0.2% from $132.3 million in
fiscal 1998 to $132.5 million in fiscal 1999. In 1999 the company discontinued
the manufacture of unprofitable product lines and the distribution of certain
third-party products inconsistent with the company's long-term growth strategy.
Discontinued product offerings accounted for a reduction in sales of
approximately $7.0 million from 1998 to 1999, which was offset by increased
sales of continuing product lines. Excluding the effect of discontinued product
lines, the company sales grew roughly 5% and included increases at both the
Cooking Systems Group and International Distribution Division.
Net sales of the Cooking Systems Group increased by $2.4 million or 2.2%
from $105.5 million in fiscal 1998 to $107.9 million in fiscal 1999. Sales of
conveyor oven equipment increased by $3.4 million or 7.4%. The increase in
conveyor oven sales was attributable to increased sales to the major pizza
chains, as these customers continue to execute domestic and international
expansion strategies. Core cooking equipment sales increased $2.4 million or
6.0% reflecting continued market penetration and the initial success of new
product introductions. These increases were offset in part by reduced sales of
counterline cooking equipment and international specialty equipment. Counterline
cooking equipment sales decreased $1.3 million or 8.4% as a result of the
discontinuation of unprofitable product lines, while sales of continuing
products increased slightly as compared to the prior year. Sales of
international specialty equipment decreased $2.1 million or 39.6%from the prior
year due primarily to lower sales resulting from slowed store openings of a
major quick-service restaurant chain customer in Asia.
Net sales of the company's International Distribution Division, Middleby
Worldwide, increased by $1.3 million or 3.2% from $39.1 million in 1998 to $40.4
million in 1999. The sales increase was due in part to stronger conveyor oven
sales, including those sales to major pizza chains expanding internationally.
This increase was offset in part by the discontinuation of certain distributed
products as the division refocused its sales and service efforts toward products
which best complement the company's core competencies and provide the greatest
profitability. The division experienced growth in the European and Latin
American markets, while sales results within the Asian markets were mixed.
- 17 -
Gross profit. Gross profit increased 13.1%, from $36.2 million in fiscal
1998 to $41.0 million in fiscal 1999. As a percentage of net sales, gross profit
margin increased from 27.4% in 1998 to 30.9% in 1999.
The Cooking Systems Group realized margin improvement in its conveyor oven,
core cooking, and counterline cooking equipment product groups as a result of
the benefits from cost reduction initiatives implemented during the year. The
counterline cooking equipment product group also benefited from actions to
discontinue certain unprofitable product models. These improvements were partly
offset by deterioration in gross margin for the international specialty
equipment product group due to lower efficiencies resulting from reduced sales
volumes and production slowdowns during extended negotiations with the labor
union during the second half of the year.
Gross profit margin at the International Distribution Division improved
only slightly from the prior year, as the immediate benefits gained from product
refocusing efforts were offset by increased inventory provisions related to the
discontinued product offerings.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $33.1 million in 1999 and remained unchanged with
the prior year as reduced selling and distribution expenses were offset by
increased general and administrative expenses.
Selling and distribution expenses decreased by $2.1 million or 10.2%, from
$20.8 million in 1998 to $18.7 million in 1999, reflecting lower spending at
both the Cooking Systems Group and the International Distribution Division.
Lower expenses at the Cooking Systems Group were due to reduced payroll costs
from employee reduction initiatives. In addition, commissions expense in 1999
was lower than 1998, as a greater portion of sales were sold direct to the
customer rather than through independent sales representatives. Selling and
distribution expenses at the International Distribution Division were also lower
reflecting the benefit of cost reduction actions implemented in 1998 and 1999
which included the relocation, closure, and consolidation of various
international sales offices and warehousing locations.
General and administrative expenses increased by $2.1 million or 17.3%,
from $12.3 million in 1998 to $14.4 million in 1999. This increase was due in
part to higher provisions for bad debt both at the Cooking Systems Group and
International Distribution Division. Expenses also reflect increased costs
associated with employee benefit and compensation programs, including employee
healthcare, incentive compensation and retirement benefits. Furthermore,
depreciation and amortization expenses were also greater than in the prior year.
Non-recurring expenses. Non-recurring expenses of $2.2 million were
recorded during 1999 related to cost reduction initiatives. Included in these
charges were $1.5 million related to severance obligations for headcount
reductions and $0.7 million of expenses related to office closures. Severance
charges were recorded related both to the Cooking
- 18 -
Systems Group and International Distribution Division. In 1999, the employee
headcount was reduced by 24% from 1,002 at January 2, 1999 to 763 at January 1,
2000, including a decrease of 150 employees internationally and 89 employees
domestically.
Income from operations. Income from operations increased $6.0 million to
$5.7 million in fiscal 1999, as compared to a loss of $0.3 million in fiscal
1998. The improved results were due to higher gross margins and lower
non-recurring expense.
Non-operating expenses. Non-operating expenses decreased 9.5% from $3.9
million in fiscal 1998 to $3.5 million in fiscal 1999. Net interest expense
declined by $0.2 million as a result of increased interest income on higher cash
balances held during the year. Other expenses also decreased by $0.2 million
during the year.
Income taxes. The company recorded a net tax provision of $3.2 million in
fiscal 1999 at an effective rate of 145.8% primarily related to the company's
domestic earnings, while no benefit was recorded related to losses incurred at
certain foreign locations. Despite the recorded tax provision, the company does
not pay U.S. federal taxes, other than AMT tax due to tax loss carry-forwards
available from prior years. In 1998 the company recorded a net tax benefit of
$0.2 million or 5.0% related to the company's domestic tax losses, reduced for
adjustments in the tax valuation allowance for tax credits expected to expire
unutilized.
Financial Condition and Liquidity
Total cash and cash equivalents decreased by $12.4 million to $2.1 million
at December 30, 2000 from $14.5 million at January 1, 2000. The overall
reduction in cash resulted from net cash used by financing activities of $29.4
million and cash used by investing activities of $0.7 million less cash provided
by operating activities of $17.7 million. Net borrowings decreased from $28.1
million at January 1, 2000 to $8.5 million at December 30, 2000.
Operating activities. Net cash provided by operating activities before
changes in assets and liabilities was $10.9 million in 2000 as compared to $5.4
million in fiscal 1999. This increase reflects the improvement in net earnings
in 2000 as compared to 1999. Net cash provided by operating activities after
changes in assets and liabilities was $17.7 million as compared to net cash
provided of $9.8 million in the prior year. Accounts receivable decreased $6.0
million due to increased collection efforts on a lower sales volume. Inventories
increased by $1.5 million, as a result of the introduction of new products
manufactured by the company, including product manufactured in the Philippines
for the U.S. market requiring a four to six week transit. Accounts payable
decreased $1.7 million as a result of the timing of disbursements. Net cash
provided by changes in other assets and liabilities amounted to $3.9 million
primarily due to an increase in unpaid liabilities associated with executive
retirement benefits, employee compensation, customer deposits and restructuring
expenses.
- 19 -
Investing activities. During 2000 the company had capital expenditures of
$0.7 million primarily to enhance manufacturing capabilities at the Cooking
Systems Group.
Financing activities. Net cash used by financing activities amounted to
$29.4 million in fiscal 2000 and included the net repayment of debt related
obligations of $20.0 million, the repurchase of stock for treasury in the amount
of $8.5 million, and the payment of a $0.9 million special dividend.
The net reduction in borrowings includes the early retirement of $15
million under an unsecured credit note and $8.9 million under an intellectual
property lease. The unsecured senior note obligation was repaid in full with a
scheduled payment of $2.5 million in July 2000 and a $12.5 million early
retirement payment in August 2000. The note obligation was at a 10.99% rate of
interest and was due to mature over a period ending January 10, 2003. In
conjunction with the early debt retirement, the company repurchased a warrant
that gave the noteholder the right to purchase 250,000 shares of common stock at
an exercise price of $3 per share for $0.9 million. The company incurred an
early prepayment penalty of $0.4 million associated with the retirement of the
unsecured note. The intellectual property lease was repaid in December 2000. The
lease facility was at a 10.3% rate of interest and was due to mature on December
31, 2001. There was no prepayment penalty associated with the early payment of
the lease.
In December 2000, the company entered into a new multi-currency revolving
credit facility with its existing bank. The facility has a maturity of December
31, 2003 with an option to extend the expiration to December 31, 2004. The
company has the ability to borrow $20.0 million under this facility. During
fiscal 2000, borrowings under the revolving credit facilities increased
$4.9 million to $8.2 million, and were comprised of $2.4 million in a Yen
denominated loan and $5.8 million in U.S. dollar denominated borrowings. At
December 30, 2000, the company was in compliance with all covenants pursuant to
the credit facility.
In October 2000, the company's Board of Directors approved a self tender
offer that authorized the purchase of up to 1.5 million common shares from
existing stockholders at a per share price of $7.00. In November 2000, the
company announced that 1.1 million shares were accepted for payment pursuant to
the tender offer for $7.9 million. Prior to the tender offer the company had
purchased 64,000 shares in the open market for $0.5 million in conjunction with
the company's stock repurchase program adopted in July 1998.
In December 2000, the Board of Directors directed the payment of a $.10 per
share special dividend amounting to a total payment of $0.9 million. The Board
of Directors wanted shareholders to participate in the company's improved
earnings and strong after-tax cash flows.
Management believes that the company will have sufficient financial
resources available to meet its anticipated requirements for working capital,
capital expenditures and debt amortization for the foreseeable future.
- 20 -
Derivative Financial Instruments
The company uses derivative financial instruments, principally foreign
currency forward purchase and sale contracts with terms of less than one year,
to hedge its exposure to changes in foreign currency exchange rates. The
company's primary exposure to changes in foreign currency rates results from
intercompany loans made between Middleby affiliates to minimize the need for
borrowings from third parties. Additionally, the company enters into foreign
currency forward purchase and sale contracts to mitigate its exposure to changes
in exchange rates on intercompany and third party trade receivables and
payables. The company does not currently enter into derivative financial
instruments for speculative purposes. In managing its foreign currency
exposures, the company identifies and aggregates naturally occurring offsetting
positions and then hedges residual exposures. The following table summarizes the
forward purchase contracts outstanding at December 30, 2000:
Sell Purchase Maturity
843,500,000 South Korean Won $ 700,000 US Dollars March 15, 2001
32,205,000 Taiwan Dollar $ 950,000 US Dollars March 15, 2001
10,060,500 Taiwan Dollar $ 300,000 US Dollars March 1, 2001
600,000 Euro Dollar $ 535,260 US Dollars March 7, 2001
1,600,000 Euro Dollar $ 1,375,040 US Dollars March 15, 2001
600,000 Euro Dollar $ 524,100 US Dollars March 12, 2001
Interest Rate Risk
The company is exposed to market risk related to changes in interest rates.
The following table summarizes the maturity of the company's debt obligations:
Fixed Rate Debt Variable Rate Debt
--------------- ------------------
(dollars in thousands)
2001 $ 249 $ --
2002 46 --
2003 -- 8,244
------ ------
$ 295 $8,244
====== ======
Fixed rate debt is comprised of a capital lease, which bears an interest
rate of 9%. Variable rate debt is comprised of borrowings under the company's
$20.0 million revolving credit line, which includes a $2.4 million Yen
denominated loan and $5.8 million in U.S. dollar denominated borrowings.
Interest under the revolving credit facility is assessed based upon the bank's
reference rate in each respective country. The interest rate assessed to the Yen
denominated loan and the U.S. dollar denominated loan at December 30, 2000 was
1.5% and 7.5%, respectively.
- 21 -
Certain Risk Factors That May Affect Future Results
Quarterly variations in operating results. Results of the company's
operations have fluctuated from quarter to quarter in the past, and may
fluctuate significantly in the future. Such fluctuations may result from a
variety of factors, including the timing of orders from major customers, the
timing of new product introductions, the loss of any of its significant
customers or distributors, currency fluctuations, disruption in the supply of
components for the company's products, changes in product mix or capacity
utilization, personnel changes, production delays, seasonality and other factors
affecting sales and results of operations.
International exposure. The company has manufacturing operations located in
Asia and distribution operations in Asia, Europe, and Latin America. The
company's operations are subject to the impact of economic downturns, political
instability, and foreign trade restrictions, which may adversely affect the
financial results. The company anticipates that international sales will
continue to account for a significant portion of consolidated net sales in the
foreseeable future. Some sales by the foreign operations are in local currency
and an increase in the relative value of the U.S. dollar against such currencies
would lead to the reduction in consolidated sales and earnings. Additionally,
foreign currency exposures are not fully hedged and there can be no assurances
that the company's future results of operations will not be adversely affected
by currency fluctuations.
Dependence on key customers. The company's growth is strongly influenced by
the growth of its key customers, many of which are large restaurant chains. The
number of new store openings by these chains can vary from quarter to quarter
depending on internal growth plans, construction, seasonality and other factors.
If these chains were to conclude that the market for their type of restaurant
had become saturated, they could open fewer restaurants. In addition, during an
economic downturn, key customers could both open fewer restaurants and defer
purchases of new equipment for existing restaurants. Either of these conditions
could have a material adverse effect on the company's future results of
operations. While no single customer accounts for more than 10% of net sales,
the company's top five customers accounted for approximately 24% of sales in
fiscal 2000.
Competition. The cooking and warming segment of the foodservice equipment
industry is highly competitive and fragmented. Within a given product line, the
industry remains fairly concentrated, with typically a small number of
competitors accounting for the bulk of the industry-wide sales. Industry
competition includes companies that manufacture a broad line of commercial
foodservice equipment products and those that specialize in a particular product
line. Some of the company's competitors have greater financial and marketing
resources than the company. In addition, some competitors have different pricing
structures and may be able to deliver their products at lower prices. Although
the company believes that the performance and price characteristics of its
products will provide competitive solutions for its customers' needs, there can
be no assurance that its customers will choose the company's products over
products offered by competitors. Further, the market for the company's products
is
- 22 -
characterized by changing technology and evolving industry standards. The
company is aware of other companies that are developing, and in some cases have
introduced, new ovens based on high-speed heating methods and technologies.
Accordingly, the company's ability to compete successfully will depend, in large
part, on its ability to enhance and improve its existing products.
Product liability matters. The company is engaged in a business that could
expose it to possible liability claims from others, including foodservice
operators and their staffs, as well as from consumers, for personal injury or
property damage due to alleged design or manufacturing defects in the company's
products. The company maintains an umbrella liability insurance policy to cover
claims up to $15 million per occurrence. There can be no assurance, however,
that the company's insurance will be sufficient to cover potential claims or
that an adequate level of coverage will be available in the future at reasonable
cost. A partially insured or a completely uninsured successful claim against the
company could have a material adverse effect on the company.
Risks relating to intellectual property. The company holds numerous patents
covering technology and applications related to various products, equipment and
systems, and numerous trademarks and trade names registered with the U.S. Patent
and Trademark Office and in various foreign countries, including the names CTX,
Middleby Marshall, Southbend, SteamMaster, and Toastmaster. There can be no
assurance as to the breadth or degree of protection that existing or future
patents or trademarks may afford the company.
Dependence on key personnel. The company depends significantly on certain
of its executive officers and certain other key personnel, many of whom could be
difficult to replace. The incapacity, inability or unwillingness of certain of
these people to perform their services may have a material adverse effect on the
company. There can be no assurance that the company will be able to continue to
attract, motivate and retain personnel with the skills and experience needed to
successfully manage the company's business and operations.
- 23 -
Item 8. Financial Statements and Supplementary Data
Page
----
Report of Independent Public Accountants ................................ 25
Consolidated Balance Sheets.............................................. 26
Consolidated Statements of Earnings...................................... 27
Consolidated Statements of Changes in Stockholders' Equity .............. 28
Consolidated Statements of Cash Flows ................................... 29
Notes to Consolidated Financial Statements .............................. 30
The following consolidated financial statement schedule is included in response
to Item 14(d).
Schedule II - Valuation and Qualifying Accounts and Reserves............. 47
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.
- 24 -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders 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 30, 2000,
and January 1, 2000, and the related consolidated statements of earnings,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 30, 2000. 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
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the 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 30, 2000, and January 1,
2000, and the results of its operations and its cash flows for each of the three
years in the period ended December 30, 2000, in conformity with generally
accepted accounting principles in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
February 9, 2001
- 25 -
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 2000 AND JANUARY 1, 2000
(dollars in thousands, except share data)
ASSETS 2000 1999
- ------ ---- ----
Current assets:
Cash and cash equivalents ............................. $ 2,094 $ 14,536
Accounts receivable, net .............................. 18,879 24,919
Inventories, net ...................................... 18,372 16,884
Prepaid expenses and other ............................ 976 689
Current deferred taxes ................................ 4,141 3,350
-------- --------
Total current assets ............................... 44,462 60,378
Property, plant and equipment, net ....................... 18,968 21,281
Excess purchase price over net assets acquired, net ...... 13,056 13,962
Deferred taxes ........................................... 1,224 2,332
Other assets ............................................. 600 1,095
-------- --------
Total assets ...................................... $ 78,310 $ 99,048
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt .................. $ 249 $ 7,131
Accounts payable ...................................... 7,211 8,861
Accrued expenses ...................................... 17,918 16,291
-------- --------
Total current liabilities .......................... 25,378 32,283
Long-term debt ........................................... 8,290 21,004
Retirement benefits and other non-current liabilities .... 7,181 2,593
Stockholders' equity:
Preferred stock, $.01 par value; none issued .......... -- --
Common stock, $.01 par value, 11,021,896 and 11,008,771
shares issued in 2000 and 1999, respectively ...... 110 110
Paid-in capital ....................................... 53,585 54,220
Treasury stock at cost; 2,015,409 and 837,800
shares in 2000 and 1999, respectively ............ (11,777) (3,309)
Accumulated deficit .................................. (2,665) (5,297)
Accumulated other comprehensive income ............... (1,792) (2,556)
-------- --------
Total stockholders' equity ......................... 37,461 43,168
-------- --------
Total liabilities and stockholders' equity ......... $ 78,310 $ 99,048
======== ========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
- 26 -
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE FISCAL YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000
AND JANUARY 2, 1999
(amounts in thousands, except per share data)
2000 1999 1998
---- ---- ----
Net sales ............................................... $ 126,888 $ 132,541 $ 132,320
Cost of sales ........................................... 81,702 91,551 96,082
--------- --------- ---------
Gross profit ...................................... 45,186 40,990 36,238
Selling and distribution expenses ....................... 15,858 18,694 20,817
General and administrative expenses ..................... 17,478 14,430 12,304
Non-recurring expenses .................................. -- 2,208 3,457
--------- --------- ---------
Income (loss) from operations ..................... 11,850 5,658 (340)
Interest expense and deferred financing amortization, net 1,204 2,724 2,916
Other expense, net ...................................... 1,503 763 939
--------- --------- ---------
Earnings (loss) before income taxes ............... 9,143 2,171 (4,195)
Provision (benefit) for income taxes .................... 5,370 3,165 (211)
--------- --------- ---------
Earnings (loss) before extraordinary item ....... 3,773 (994) (3,984)
Extraordinary loss, net of income tax ............. (235) -- --
--------- --------- ---------
Net earnings (loss) ............................. $ 3,538 $ (994) $ (3,984)
--------- --------- ---------
Basic earnings (loss) per share:
Before extraordinary item .......................... $ 0.38 $ (0.10) $ (0.37)
Extraordinary loss ................................. (0.03) -- --
--------- --------- ---------
Net earnings (loss) per share ...................... $ 0.35 $ (0.10) $ (0.37)
========= ========= =========
Weighted average number of shares ....................... 9,971 10,161 10,761
Diluted earnings (loss) per share:
Before extraordinary item ......................... $ 0.37 $ (0.10) $ (0.37)
Extraordinary loss ................................ (0.02) -- --
--------- --------- ---------
Net earnings (loss) per share ..................... $ 0.35 $ (0.10) $ (0.37)
========= ========= =========
Weighted average number of shares ....................... 10,091 10,277 10,872
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
- 27 -
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000
AND JANUARY 2, 1999
(dollars in thousands)
Accumulated
Other
Common Paid-in Treasury Accumulated Comprehensive
Stock Capital Stock Deficit Income Total
- --------------------------------------------------------------------------------------------------------------------------------
Balance January 3, 1998 $109 $ 53,984 $ -- $ (319) $(1,441) $ 52,333
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net loss -- -- -- (3,984) -- (3,984)
Currency translation adjustments -- -- -- -- 177 177
Increase in minimum pension
liability -- -- -- -- (1,102) (1,102)
- --------------------------------------------------------------------------------------------------------------------------------
Net comprehensive income -- -- -- (3,984) (925) (4,909)
Exercise of stock options -- 81 -- -- -- 81
Issuance of stock 1 537 -- -- -- 538
Purchase of treasury stock -- -- (3,309) -- -- (3,309)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, January 2, 1999 $110 $ 54,602 $ (3,309) $(4,303) $(2,366) $ 44,734
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net loss -- -- -- (994) -- (994)
Currency translation adjustments -- -- -- -- (288) (288)
Decrease in minimum pension
liability -- -- -- -- 98 98
- --------------------------------------------------------------------------------------------------------------------------------
Net comprehensive income -- -- -- (994) (190) (1,184)
Exercise of stock options -- 52 -- -- -- 52
Purchase of stock on behalf of employee -- (434) -- -- -- (434)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2000 $110 $ 54,220 $ (3,309) $(5,297) $(2,556) $ 43,168
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings -- -- -- 3,538 -- 3,538
Currency translation adjustments -- -- -- -- 549 549
Decrease in minimum pension
liability -- -- -- -- 215 215
- --------------------------------------------------------------------------------------------------------------------------------
Net comprehensive income -- -- -- 3,538 764 4,302
Exercise of stock options -- 143 -- -- -- 143
Purchase of stock on behalf of employee -- 144 -- -- -- 144
Warrant retirement -- (922) -- -- -- (922)
Purchase of treasury stock -- -- (8,468) -- -- (8,468)
Dividend payment -- -- -- (906) -- (906)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 30, 2000 $110 $ 53,585 $(11,777) $(2,665) $(1,792) $ 37,461
- --------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
- 28 -
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 30, 2000, JANUARY 1, 2000
AND JANUARY 2, 1999
(dollars in thousands)
2000 1999 1998
---- ---- ----
Cash flows from operating activities--
Net earnings (loss) ............................................................. $ 3,538 $ (994) $ (3,984)
Adjustments to reconcile net earnings to net cash provided by continuing
operating activities--
Depreciation and amortization ............................................. 3,661 3,509 3,160
Non-cash portion of tax provision ......................................... 3,690 2,560 (843)
Non-cash portion of non-recurring expense ................................. -- 300 3,001
Cash effects of changes in--
Accounts receivable ....................................................... 6,040 (454) 1,009
Inventories ............................................................... (1,488) 3,548 1,774
Prepaid expenses and other asset .......................................... 208 980 (670)
Accounts payable .......................................................... (1,650) (2,068) (655)
Accrued expenses and other liabilities .................................... 3,654 2,381 (487)
-----------------------------------------
Net cash provided by operating activities ....................................... 17,653 9,762 2,305
-----------------------------------------
Cash flows from investing activities--
Additions to property and equipment ............................................. (656) (1,401) (3,830)
Purchase of subsidiary minority interest ........................................ -- (203) (1,249)
-----------------------------------------
Net cash provided by (used in) investing activities ............................. (656) (1,604) (5,079)
-----------------------------------------
Cash flows from financing activities--
Proceeds (repayments) under intellectual property lease ......................... (8,939) 290 (1,551)
Proceeds (repayments) under revolving credit facilities ......................... 4,906 (145) 3,474
Retirement of note obligation ................................................... (15,000) -- --
Retirement of warrant associated with note obligation ........................... (922) -- --
Reduction in foreign bank debt .................................................. -- -- (1,793)
Repurchase of treasury stock .................................................... (8,468) -- (3,309)
Payment of special dividend ..................................................... (906) -- --
Proceeds from stock issuances ................................................... 143 52 618
Stock purchased on behalf of employee ........................................... -- (434) --
Other financing activities, net ................................................. (253) (153) (218)
-----------------------------------------
Net cash provided by (used in) financing activities ............................. (29,439) (390) (2,779)
-----------------------------------------
Changes in cash and cash equivalents--
Net increase (decrease) in cash and cash equivalents ......................... (12,442) 7,768 (5,553)
Cash and cash equivalents at beginning of year ............................... 14,536 6,768 12,321
-----------------------------------------
Cash and cash equivalents at end of year ........................................ $ 2,094 $ 14,536 $ 6,768
=========================================
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
- 29 -
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, ranges, convection ovens, broilers, steamers and
semi-custom fabrication. The company manufactures and assembles most of this
equipment at two factories in the United States and one operation in the
Philippines.
The company's domestic sales are primarily through independent dealers and
distributors and are marketed by the company's sales personnel and network of
independent manufacturers' representatives. The company's international sales
are through a combined network of independent and company-owned distributors.
The company maintains regional sales offices in Asia, Europe and Latin America
complemented by sales and distribution offices in Canada, China, France, India,
Japan, Korea, Mexico, the Philippines, Spain and Taiwan. The company's end-user
customers include: (i) fast food or quick-service restaurants, including those
restaurants that primarily offer pizza, (ii) full-service restaurants, including
casual-theme restaurants, (iii) retail outlets, such as convenience stores,
supermarkets and department stores and (iv) public and private institutions,
such as hotels, resorts, schools, hospitals, long-term care facilities,
correctional facilities, stadiums, airports, corporate cafeterias, military
facilities and government agencies. 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. 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.
- 30 -
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The consolidated financial statements include the accounts of the company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation. Certain prior year amounts have been
reclassified to be consistent with the current year presentation.
The company's fiscal year ends on the Saturday nearest December 31. Fiscal
years 2000, 1999 and 1998 ended on December 30, 2000, January 1, 2000 and
January 2, 1999, respectively, and each included 52 weeks.
(b) Cash and Cash Equivalents
The company considers all short-term investments with original maturities
of three months or less when acquired to be cash equivalents. The company's
policy is to invest its excess cash in U.S. Government securities,
interest-bearing deposits with major banks, municipal notes and bonds and
commercial paper of companies with strong credit ratings that are subject to
minimal credit and market risk.
(c) Accounts Receivable
Accounts receivable, as shown in the consolidated balance sheets, are net
of allowances for doubtful accounts of $2,408,000 and $1,721,000 at December 30,
2000 and January 1, 2000, respectively.
(d) Inventories
Inventories are comprised of material, labor and overhead and are stated at
the lower of cost or market. Cost is determined utilizing the first-in,
first-out (FIFO) inventory method. Inventories at December 30, 2000 and January
1, 2000 are as follows:
2000 1999
---- ----
(dollars in thousands)
Raw materials and parts .............. $ 5,515 $ 4,738
Work in process ...................... 3,985 3,904
Finished goods ....................... 8,872 8,242
------- -------
$18,372 $16,884
======= =======
- 31 -
(e) Property, Plant and Equipment
Property, plant and equipment are carried at cost as follows:
2000 1999
---- ----
(dollars in thousands)
Land ................................ $ 3,322 $ 3,322
Building and improvements ........... 12,732 12,745
Furniture and fixtures .............. 8,179 8,077
Machinery and equipment ............. 14,924 14,964
-------- --------
39,157 39,108
Less accumulated depreciation ....... (20,189) (17,827)
-------- --------
$ 18,968 $ 21,281
======== ========
Depreciation expense is provided for using the straight-line method and
amounted to $2,755,000, $2,745,000 and $2,510,000 in fiscal 2000, 1999 and 1998,
respectively. Following is a summary of the estimated useful lives:
Description Life
- ----------- ----
Building and improvements............................. 20 to 40 years
Furniture and fixtures................................ 5 to 7 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. Asset impairments
are recorded whenever events or changes in circumstances indicate that the
recorded value of an asset is less than the sum of its expected future
undiscounted cash flows.
(f) Excess Purchase Price Over Net Assets Acquired
The excess purchase price over net assets acquired is being amortized using
a straight-line method over periods of 3 to 40 years. Amounts presented are net
of accumulated amortization of $7,391,000 and $6,485,000 at December 30, 2000
and January 1, 2000, respectively. 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 future cash flow method and are recorded at the time management
deems an impairment has occurred.
- 32 -
(g) Accrued Expenses
Accrued expenses consist of the following at December 30, 2000 and January
1, 2000, respectively:
2000 1999
---- ----
(dollars in thousands)
Accrued payroll and related expenses ....... $ 6,253 $ 4,820
Accrued customer rebates ................... 3,479 3,472
Accrued commissions ........................ 925 1,074
Accrued warranty ........................... 1,449 1,628
Other accrued expenses ..................... 5,812 5,297
------- -------
$17,918 $16,291
======= =======
(h) Fair Value of Financial Instruments
The carrying value of all financial instruments approximates the fair value
of those assets and liabilities. The company uses derivative financial
instruments, principally forward contracts, to hedge its exposure to changes in
foreign currency exchange rates. These instruments are adjusted to market value
and the related exchange gains and losses are recorded in the statement of
earnings.
(i) Foreign Currency
Foreign currency transactions are accounted for in accordance with
Statement of Financial Accounting Standards No. 52 (`SFAS No. 52") "Foreign
Currency Translation." Assets and liabilities of the company's foreign
operations are translated at exchange rates at the balance sheet date. These
translation adjustments are not included in determining net income for the
period but are disclosed and accumulated in a separate component of
stockholders' equity until sale or liquidation of the net investment in the
foreign entity takes place. Exchange gains and losses on foreign currency
transactions are included in determining net income for the period in which they
occur. Intercompany transactions of a long-term investment nature are considered
part of the company's net investment and hence do not give rise to gains or
losses.
(j) 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.
- 33 -
(k) Revenue Recognition
Revenue is recognized from sales when a product is shipped. The company
recognizes warranty and equipment installation expenses at the time a product is
shipped, if applicable. The expense is estimated considering warranty policies
and historical experience.
(l) 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 $1,346,000, $1,505,000 and $1,796,000 in fiscal 2000, 1999 and 1998,
respectively.
(m) Earnings Per Share
In accordance with SFAS No. 128 "Earnings Per Share", "basic earnings per
share" is calculated based upon the weighted average number of common shares
actually outstanding, and "diluted earnings per share" is calculated based upon
the weighted average number of common shares outstanding, warrants and other
potential common shares, if they are dilutive. The company's common share
equivalents consist of shares issuable on exercise of outstanding options
computed using the treasury method and amounted to 120,000, 116,000 and 111,000
for fiscal 2000, 1999 and 1998, respectively.
(n) Consolidated Statements of Cash Flows
Cash paid for interest was $2,307,000, $2,335,000 and $2,877,000 in fiscal
2000, 1999 and 1998, respectively. Cash payments totaling $1,162,000, $204,000
and $565,000 were made for income taxes during fiscal 2000, 1999 and 1998,
respectively.
(o) New Accounting Pronouncements
In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." This standard
requires that an entity recognize derivatives as either assets or liabilities on
its balance sheet and measure those instruments at fair value. SFAS No. 137
amended the effective date of SFAS No. 133 to being effective for fiscal years
beginning after June 15, 2000. As a result, the company will adopt the
requirements of SFAS No. 133 in the first quarter of the fiscal year 2001. Based
on current circumstances, the adoption of SFAS No. 133 will not have a material
effect on the financial position or results of operations of the company.
- 34 -
(3) FINANCING ARRANGEMENTS
The following is a summary of long-term debt at December 30, 2000 and
January 1, 2000:
2000 1999
---- ----
(dollars in thousands)
Unsecured senior note .................. $ -- $15,000
Unsecured revolving credit line ........ 8,244 3,647
Intellectual property lease ............ -- 8,939
Other financing ........................ 295 549
------- -------
8,539 28,135
Less current maturities of
long-term debt ...................... 249 7,131
------- -------
$ 8,290 $21,004
======= =======
As of December 30, 2000, the company had borrowings of $2,444,000 in a Yen
denominated loan and $5,800,000 in a U.S. dollar denominated loan under the
company's $20.0 million unsecured multi-currency revolving credit line. Interest
on U.S. borrowings is assessed at floating interest rates of between 0.75% to
1.75% above LIBOR rate or at the bank's reference rate. The interest rate is
adjusted quarterly based on the company's defined indebtedness ratio on a
rolling four-quarter basis. Interest on foreign borrowings is determined based
upon the bank's reference rate within that country. As of December 30, 2000, the
interest rate on the Yen and U.S. Dollar denominated borrowings were 1.5% and
7.5%, respectively. A variable commitment fee, based upon the indebtedness
ratio, of between 0.10% to 0.25% is charged on the unused portion of the line of
credit. The multi-currency revolving line of credit expires on December 31,
2003, and may be extended for an additional year at the company's option.
Other financing arrangements are comprised primarily of capital lease
arrangements for production equipment, with repayment periods extending through
fiscal 2002. Ownership of the related equipment transfers to the company at the
end of the lease period.
The unsecured senior note obligation was repaid in full with a $2.5 million
scheduled payment in July 2000 and a $12.5 million early retirement payment in
August, 2000. The note obligation was at a 10.99% rate of interest and was due
to mature over a period ending January 10, 2003. In conjunction with the early
debt retirement, the company repurchased a warrant that gave the noteholder the
right to purchase 250,000 shares of common stock at an exercise price of $3 per
share, for $0.9 million. An extraordinary charge of $0.4 million, or $0.2
million net of tax, was recorded related to a prepayment penalty for the early
retirement of the unsecured senior note obligation.
- 35 -
In December 2000, the company elected to prepay the remaining obligation
due under the intellectual property lease. The lease facility was at a 10.3%
implicit rate and was due to mature on December 30, 2001. No prepayment penalty
was incurred associated with the early payment of this borrowing obligation.
The terms of the revolving credit agreement limit the paying of dividends,
capital expenditures and leases, and require, among other things, a minimum
amount, as defined, of stockholders' equity, and certain ratios of indebtedness
and fixed charge coverage. The credit agreement also provides that if a material
adverse change in the company's business operations or conditions occurs, the
lender could declare an event of default. At December 30, 2000, the company was
in compliance with all covenants pursuant to its revolving credit facility.
The aggregate amount of long-term debt payable during each of the next five
years and thereafter is as follows:
(dollars in thousands)
2001 ...................... $ 249
2002 ...................... 46
2003 ...................... 8,244
2004 ...................... --
2005 ...................... --
2006 and thereafter ....... --
------
$8,539
======
(4) COMMON AND PREFERRED STOCK
(a) Shares Authorized and Issued
At December 30, 2000 and January 1, 2000, the company had 20,000,000
shares of common stock and 2,000,000 shares of Non-voting Preferred Stock
authorized. At December 30, 2000, there were 9,006,487 common stock shares
issued and outstanding.
(b) Treasury Stock
In July 1998, the company's Board of Directors adopted a stock
repurchase program and during 1998 authorized the purchase of up to
1,800,000 common shares in open market purchases. As of December 30, 2000,
899,800 shares had been purchased for $3.7 million.
- 36 -
In October 2000, the company's Board of Directors approved a self
tender offer that authorized the purchase of up to 1,500,000 common shares
from existing stockholders at a per share price of $7.00. On November 22,
2000 the company announced that 1,135,359 shares were accepted for payment
pursuant to the tender offer for $7.9 million.
(c) Stock Options
The company maintains a 1998 Stock Incentive Plan (the "Plan"), as
adopted effective as of February 19, 1998, which provides rights to key
employees to purchase shares of common stock at specified exercise prices.
The Plan supercedes the 1989 Stock Incentive Plan, as amended, and no
further options will be granted under the 1989 Plan. A maximum amount of
550,000 shares can be issued under the Plan. 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. Options
typically vest over a four year period from the date of grant. The weighted
average exercise price of options outstanding under the Plan was $6.64 at
December 30, 2000 and $7.43 at January 1, 2000.
In addition to the above Plan, certain directors of the company have
options outstanding at December 30, 2000 for 1,000 shares exercisable at
$1.875 per share, 75,000 shares exercisable at $7.50 per share and 24,000
shares exercisable at $6.00 per share.
- 37 -
A summary of stock option activity is presented below:
Option
Stock Option Activity Employees Directors Price Per Share
--------------------- --------- --------- ---------------
Outstanding at
January 3, 1998 124,538 76,000
=======