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UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-Q 
 
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 27, 2020
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)  
Delaware36-3352497
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification Number)
 
 
1400 Toastmaster Drive,Elgin,Illinois60120
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:(847)741-3300
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o   
 
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x   No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer, large accelerated filer, smaller reporting and emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common StockMIDDNasdaq Global Market
As of July 31, 2020, there were 55,617,662 shares of the registrant's common stock outstanding.



THE MIDDLEBY CORPORATION
 
QUARTER ENDED JUNE 27, 2020
  
INDEX
DESCRIPTIONPAGE
PART I.  FINANCIAL INFORMATION 
  
Item 1. 
   
 CONDENSED CONSOLIDATED BALANCE SHEETS as of JUNE 27, 2020 and DECEMBER 28, 2019
  
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three and six months ended JUNE 27, 2020 and JUNE 29, 2019
  
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY for the three and six months ended JUNE 27, 2020 and JUNE 29, 2019
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the six months ended JUNE 27, 2020 and JUNE 29, 2019
 
  
Item 2.
  
Item 3.
  
Item 4.
  
PART II. OTHER INFORMATION
  
Item 1.A
Item 2.
  
Item 6.



PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
 
ASSETSJun 27, 2020Dec 28, 2019
Current assets:  
Cash and cash equivalents$649,720  $94,500  
Accounts receivable, net of reserve for doubtful accounts of $20,382 and $14,886
313,084  447,612  
Inventories, net608,484  585,699  
Prepaid expenses and other66,237  61,224  
Prepaid taxes13,741  20,161  
Total current assets1,651,266  1,209,196  
Property, plant and equipment, net of accumulated depreciation of $212,923 and $197,629
343,369  352,145  
Goodwill1,841,684  1,849,747  
Other intangibles, net of amortization of $368,647 and $333,507
1,429,802  1,443,381  
Long-term deferred tax assets32,787  36,932  
Other assets115,793  110,742  
Total assets$5,414,701  $5,002,143  
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Current maturities of long-term debt$23,971  $2,894  
Accounts payable124,995  173,693  
Accrued expenses355,587  416,550  
Total current liabilities504,553  593,137  
Long-term debt2,372,945  1,870,246  
Long-term deferred tax liability133,324  133,500  
Accrued pension benefits255,169  289,086  
Other non-current liabilities209,193  169,360  
Stockholders' equity:  
Preferred stock, $0.01 par value; nonvoting; 2,000,000 shares authorized; none issued
    
Common stock, $0.01 par value; 63,518,604 and 63,129,775 shares issued in 2020 and 2019, respectively
145  145  
Paid-in capital406,640  387,402  
Treasury stock, at cost; 7,943,989 and 6,940,089 shares in 2020 and 2019
(528,111) (451,262) 
Retained earnings2,456,403  2,361,462  
Accumulated other comprehensive loss(395,560) (350,933) 
Total stockholders' equity1,939,517  1,946,814  
Total liabilities and stockholders' equity$5,414,701  $5,002,143  
 


See accompanying notes
1


THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
 
 
 Three Months EndedSix Months Ended
 Jun 27, 2020Jun 29, 2019Jun 27, 2020Jun 29, 2019
Net sales$471,977  $761,004  $1,149,436  $1,447,806  
Cost of sales318,851  474,525  746,120  904,015  
Gross profit153,126  286,479  403,316  543,791  
Selling, general and administrative expenses111,824  144,631  255,766  300,540  
Restructuring expenses2,184  2,241  3,018  2,583  
Income from operations39,118  139,607  144,532  240,668  
Interest expense and deferred financing amortization, net21,750  21,968  37,463  42,488  
Net periodic pension benefit (other than service costs)(9,766) (7,297) (19,855) (15,058) 
Other expense (income), net382  (520) 3,708  (1,933) 
Earnings before income taxes26,752  125,456  123,216  215,171  
Provision for income taxes5,590  33,246  28,275  53,948  
Net earnings$21,162  $92,210  $94,941  $161,223  
Net earnings per share:  
Basic$0.39  $1.66  $1.72  $2.90  
Diluted$0.39  $1.66  $1.72  $2.90  
Weighted average number of shares  
Basic54,935  55,660  55,165  55,630  
Dilutive common stock equivalents22    12    
Diluted54,957  55,660  55,177  55,630  
Comprehensive income$35,862  $70,895  $50,314  $135,961  
 



















See accompanying notes
2


THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(amounts in thousands)
(Unaudited)
Common
Stock
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income/(loss)
Total
Stockholders'
Equity
Balance, March 28, 2020$145  $395,442  $(525,862) $2,435,241  $(410,260) $1,894,706  
Net earnings      21,162    21,162  
Currency translation adjustments        19,852  19,852  
Change in unrecognized pension benefit costs, net of tax of $(532)
        (2,491) (2,491) 
Unrealized loss on interest rate swap, net of tax of $(964)
        (2,661) (2,661) 
Stock compensation  4,963        4,963  
Stock issuance  6,235        6,235  
Purchase of treasury stock    (2,249)     (2,249) 
Balance, June 27, 2020$145  $406,640  $(528,111) $2,456,403  $(395,560) $1,939,517  
Balance, December 28, 2019$145  $387,402  $(451,262) $2,361,462  $(350,933) $1,946,814  
Net earnings      94,941    94,941  
Currency translation adjustments        (29,064) (29,064) 
Change in unrecognized pension benefit costs, net of tax of $2,591
        12,317  12,317  
Unrealized loss on interest rate swap, net of tax of $(10,263)
        (27,880) (27,880) 
Stock compensation  9,122        9,122  
Stock issuance  10,116        10,116  
Purchase of treasury stock    (76,849)     (76,849) 
Balance, June 27, 2020$145  $406,640  $(528,111) $2,456,403  $(395,560) $1,939,517  























See accompanying notes
3


THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(amounts in thousands)
(Unaudited)
Common
Stock
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income/(loss)
Total
Stockholders'
Equity
Balance, March 30, 2019$145  $378,488  $(450,386) $2,078,235  $(280,423) $1,726,059  
Net earnings      92,210    92,210  
Currency translation adjustments        (12,445) (12,445) 
Change in unrecognized pension benefit costs, net of tax of $1,081
        5,254  5,254  
Unrealized gain on interest rate swap, net of tax of $(4,846)
        (14,124) (14,124) 
Stock compensation  265        265  
Stock issuance  1,850        1,850  
Purchase of treasury stock    (818)     (818) 
Balance, June 29, 2019$145  $380,603  $(451,204) $2,170,445  $(301,738) $1,798,251  
Balance, December 29, 2018$145  $377,419  $(445,118) $2,009,233  $(276,476) $1,665,203  
Net earnings      161,223    161,223  
Adoption of ASU 2017-12 (1)      (11) 11    
Currency translation adjustments        (1,762) (1,762) 
Change in unrecognized pension benefit costs, net of tax of $(71)
        (9) (9) 
Unrealized loss on interest rate swap, net of tax of $(8,023)
        (23,502) (23,502) 
Stock compensation  1,334        1,334  
Stock issuance  1,850        1,850  
Purchase of treasury stock    (6,086)     (6,086) 
Balance, June 29, 2019$145  $380,603  $(451,204) $2,170,445  $(301,738) $1,798,251  

        (1) As of December 30, 2018, the company adopted ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" using the modified retrospective method. The adoption of this guidance resulted in the recognition of less than $0.1 million as an adjustment to the opening balance of retained earnings.

















See accompanying notes
4


THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
 Six Months Ended
 Jun 27, 2020Jun 29, 2019
Cash flows from operating activities--  
Net earnings$94,941  $161,223  
Adjustments to reconcile net earnings to net cash provided by operating activities--  
Depreciation and amortization54,210  50,135  
Non-cash share-based compensation9,122  1,334  
Deferred income taxes11,975  10,057  
Net periodic pension benefit (other than service costs)(19,855) (15,058) 
Changes in assets and liabilities, net of acquisitions  
Accounts receivable, net137,208  934  
Inventories, net(11,398) (65,154) 
Prepaid expenses and other assets13,707  (8,255) 
Accounts payable(54,169) (4,561) 
Accrued expenses and other liabilities(70,981) (29,065) 
Net cash provided by operating activities164,760  101,590  
Cash flows from investing activities--  
Net additions to property, plant and equipment(22,712) (21,630) 
Proceeds on sale of property, plant and equipment9,381    
Acquisitions, net of cash acquired(29,850) (167,089) 
Net cash used in investing activities(43,181) (188,719) 
Cash flows from financing activities--  
Proceeds under Credit Facility2,547,306  313,107  
Repayments under Credit Facility(2,025,355) (209,484) 
Net proceeds under international credit facilities2,989  254  
Net repayments under other debt arrangement(23) (175) 
Payments of deferred purchase price(2,145) (446) 
Repurchase of treasury stock(76,849) (6,086) 
Debt issuance costs(7,592)   
Net cash provided by financing activities438,331  97,170  
Effect of exchange rates on cash and cash equivalents(4,690) (55) 
Changes in cash and cash equivalents--  
Net increase in cash and cash equivalents555,220  9,986  
Cash and cash equivalents at beginning of year94,500  71,701  
Cash and cash equivalents at end of period$649,720  $81,687  
 

See accompanying notes
5


THE MIDDLEBY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 27, 2020
(Unaudited)
1)Summary of Significant Accounting Policies
a)Basis of Presentation
The condensed consolidated financial statements have been prepared by The Middleby Corporation (the "company" or “Middleby”), pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial statements are unaudited and certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the company believes that the disclosures are adequate to make the information not misleading. These financial statements should be read in conjunction with the financial statements and related notes contained in the company's 2019 Form 10-K. The company’s interim results are not necessarily indicative of future full year results for the fiscal year 2020. 
In the opinion of management, the financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly the financial position of the company as of June 27, 2020 and December 28, 2019, the results of operations for the three and six months ended June 27, 2020 and June 29, 2019, cash flows for the six months ended June 27, 2020 and June 29, 2019 and statement of stockholders' equity for the three and six months ended June 27, 2020 and June 29, 2019.
Certain prior year amounts have been reclassified to be consistent with current year presentation, including classifying the non-operating components of pension benefit as an individual adjustment within the operating activities on the Consolidated Statements of Cash Flows. Previously the amounts were reported as changes in accrued expenses and other liabilities.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses. Significant estimates and assumptions are used for, but are not limited to, allowances for doubtful accounts, reserves for excess and obsolete inventories, long-lived and intangible assets, warranty reserves, insurance reserves, income tax reserves, non-cash share-based compensation and post-retirement obligations. Actual results could differ from the company's estimates.
b)Non-Cash Share-Based Compensation
The company estimates the fair value of market-based stock awards and stock options at the time of grant and recognizes compensation cost over the vesting period of the awards and options. Non-cash share-based compensation expense was $5.0 million and $0.3 million for the three months period ended June 27, 2020 and June 29, 2019, respectively. Non-cash share-based compensation expense was $9.1 million and $1.3 million for the six months period ended June 27, 2020 and June 29, 2019, respectively.
c)Income Taxes
A tax provision of $5.6 million, at an effective rate of 20.9% was recorded during the three months period ended June 27, 2020, as compared to a $33.2 million tax provision at an effective rate of 26.5% in the prior year period. A tax provision of $28.3 million, at an effective rate of 22.9%, was recorded during the six months period ended June 27, 2020, as compared to a $53.9 million tax provision at a 25.1% effective rate in the prior year period. The effective tax rates in 2020 are lower than the comparable prior year rates primarily due to a reduction in non-deductible costs.




6


d)Fair Value Measures 
Accounting Standards Codification ("ASC") 820 "Fair Value Measurements and Disclosures" defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into the following levels:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.
Level 3 – Unobservable inputs based the company's own assumptions.
The company’s financial assets and liabilities that are measured at fair value and are categorized using the fair value hierarchy are as follows (in thousands):
Fair Value
Level 1
Fair Value
Level 2
Fair Value
Level 3
Total
As of June 27, 2020
Financial Liabilities:
    Interest rate swaps$  $61,433  $  $61,433  
    Contingent consideration$  $  $10,880  $10,880  
    Foreign exchange derivative contracts  1,036    $1,036  
As of December 28, 2019
Financial Assets:
    Interest rate swaps$  $1,830  $  $1,830  
Financial Liabilities:
    Interest rate swaps$  $25,120  $  $25,120  
    Contingent consideration$  $  $6,697  $6,697  
    Foreign exchange derivative contracts$  $901  $  $901  
The contingent consideration as of June 27, 2020 and December 28, 2019, relates to the earnout provisions recorded in conjunction with various purchase agreements. The earnout provisions associated with these acquisitions are based upon performance measurements related to sales and earnings, as defined in the respective purchase agreement. On a quarterly basis, the company assesses the projected results for each acquired business in comparison to the earnout targets and adjusts the liability accordingly.
E) Consolidated Statements of Cash Flows
Cash paid for interest was $32.9 million and $42.0 million for the six months ended June 27, 2020 and June 29, 2019, respectively. Cash payments totaling $8.0 million and $41.3 million were made for income taxes for the six months ended June 27, 2020 and June 29, 2019, respectively.
7


2) Acquisitions and Purchase Accounting
The company operates in a highly fragmented industry and has completed numerous acquisitions over the past several years as a component of its growth strategy. The company has acquired industry leading brands and technologies to position itself as a leader in the commercial foodservice equipment, food processing equipment and residential kitchen equipment industries.
 
The company has accounted for all business combinations using the acquisition method to record a new cost basis for the assets acquired and liabilities assumed. The difference between the purchase price and the fair value of the assets acquired and liabilities assumed has been recorded as goodwill in the financial statements. The company also recognizes identifiable intangible assets, primarily trade names and customer relationships, at their fair value using a discounted cash flow model. The significant assumptions used to estimate the value of the intangible assets include revenue growth rates, projected profit margins, discount rates, royalty rates, and customer attrition rates. These significant assumptions are forward-looking and could be affected by future economic and market conditions. The results of operations are reflected in the consolidated financial statements of the company from the dates of acquisition.

The following represents the company's significant acquisitions in 2020 and 2019 as well as summarized information on various acquisitions that were not individually material. The company also made smaller acquisitions not presented below which are individually and collectively immaterial.
Cooking Solutions Group
On April 1, 2019, the company completed its acquisition of all of the capital stock of Cooking Solutions Group, Inc. ("Cooking Solutions Group") from Standex International Corporation, which consists of the brands APW Wyott, Bakers Pride, BKI and Ultrafryer with locations in Texas, South Carolina and Mexico for a purchase price of approximately $106.1 million, net of cash acquired. During the third quarter of 2019, the company finalized the working capital provision provided for by the purchase agreement resulting in a payment due to the sellers of $0.1 million.
The final allocation of consideration paid for the Cooking Solutions Group acquisition is summarized as follows (in thousands):
(as initially
reported)
April 1, 2019
Measurement
Period
Adjustments
(as adjusted)
April 1, 2019
Cash$843  $  $843  
Current assets33,666  (1,625) 32,041  
Property, plant and equipment15,959  (58) 15,901  
Goodwill31,207  6,330  37,537  
Other intangibles53,450  (5,850)