FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
--- Securities Exchange Act of 1934
FOR THE PERIOD ENDED MARCH 29, 1997
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
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1400 TOASTMASTER DRIVE, ELGIN, ILLINOIS 60120
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No., including Area Code (847) 741-3300
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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 twelve (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
----- -----
As of March 29, 1997, there were 8,470,938 shares of the registrant's common
stock outstanding.
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
QUARTER ENDED MARCH 29, 1997
INDEX
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DESCRIPTION PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
BALANCE SHEETS 1
March 29, 1997 and December 28, 1996
STATEMENTS OF EARNINGS 2
March 29, 1997 and March 30, 1996
STATEMENTS OF CASH FLOWS 3
March 29, 1997 and March 30, 1996
NOTES TO FINANCIAL STATEMENTS 4
Item 2. Management's Discussion and Analysis 8
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION 10
PART I. FINANCIAL INFORMATION
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
ASSETS MARCH 29, 1997 DEC. 28, 1996
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Cash and Cash Equivalents............. $ 1,685 $ 1,410
Accounts Receivable, net.............. 22,665 19,859
Inventories, net...................... 23,997 20,956
Prepaid Expenses and Other............ 922 939
Net Assets of Discontinued Operations. 2,291 4,082
Current Deferred Taxes................ 2,099 2,086
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Total Current Assets............. 53,659 49,332
Property, Plant and Equipment, net of
accumulated depreciation of
$12,221,000 and $11,741,000......... 19,059 18,843
Excess Purchase Price Over Net Assets
Acquired, net of accumulated
amortization of $4,328,000 and
$4,216,000.......................... 13,227 13,339
Deferred Taxes........................ 2,318 2,950
Other Assets.......................... 1,541 1,504
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Total Assets.............. $89,804 $85,968
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LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------
Current Maturities of Long-Term Debt.. $ 2,805 $ 3,916
Accounts Payable...................... 13,142 10,369
Accrued Expenses...................... 9,775 10,001
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Total Current Liabilities........ 25,722 24,286
Long-Term Debt........................ 38,051 37,352
Minority Interest and Other
Non-current Liabilities............. 2,297 1,880
Shareholders' Equity:
Preferred Stock, $.01 par value;
nonvoting; 2,000,000 shares
authorized; none issued........... - -
Common Stock, $.01 par value;
20,000,000 shares authorized;
8,471,000 and 8,468,000 issued
and outstanding in 1997 and
1996, respectively................ 85 85
Paid-in Capital..................... 28,157 28,108
Cumulative Translation Adjustment... (335) (184)
Accumulated Deficit................. (4,173) (5,559)
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Total Shareholders' Equity....... 23,734 22,450
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Total Liabilities and
Shareholders' Equity.... $89,804 $85,968
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See accompanying notes
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THE MIDDLEBY CORPORATION AND SUBSIDIARIES
STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
--------------------------------
RESTATED
MARCH 29, 1997 MARCH 30, 1996
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Net Sales............................ $32,698 $29,510
Cost of Sales........................ 22,224 20,943
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Gross Margin.................... 10,474 8,567
Selling and Distribution Expenses.... 4,681 4,010
General and Administrative Expenses.. 2,675 2,269
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Income from Operations.......... 3,118 2,288
Interest Expense and Deferred
Financing Amortization............. 1,081 1,057
Other (Income) Expense, net.......... (38) 18
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Earnings Before Income
Taxes......................... 2,075 1,213
Provision for Income Taxes........... 689 447
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Earnings from Continuing
Operations................. $ 1,386 $ 766
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Loss from Discontinued Operations,
Net of Tax...................... - (80)
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Net Earnings......................... $ 1,386 $ 686
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Earnings Per Share from Continuing
Operations...................... $ .16 $ .09
Loss Per Share from Discontinued
Operations...................... - (.01)
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Net Earnings Per Share............... $ .16 $ .08
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See accompanying notes
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THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
--------------------------
RESTATED
MARCH 29, 1997 MARCH 30,1996
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Cash Flows From Operating Activities-
Net Earnings........................... $ 1,386 $ 686
Adjustments to reconcile Net
Earnings to cash provided by
continuing operating activities-
Depreciation and amortization........ 656 623
Utilization of NOL's................. 620 338
Discontinued operations.............. - 80
Changes in assets and liabilities-
Accounts receivable.................. (2,806) (2,883)
Inventories.......................... (3,041) (639)
Prepaid expenses and other assets.... 231 (808)
Accounts payable and other
liabilities........................ 2,547 (169)
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Net Cash Used in Continuing
Operating Activities................. (407) (2,772)
Net Cash Used in Discontinued
Operations........................... (3,290) (1,086)
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Net Cash Used in Operating
Activities........................... (3,697) (3,858)
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Cash Flows From Investing Activities-
Proceeds from Sale of Discontinued
Operations........................... $ 5,081 $ -
Additions to Property and Equipment.... (697) (1,302)
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Net Cash Provided By (Used in)
Investing Activities................. 4,384 (1,302)
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Cash Flows From Financing Activities-
Increase in revolving credit line, net. $ 307 $ 3,139
Reduction in term loans................ (2,020) -
Proceeds from capital expenditure loan. - 500
Increase in foreign bank debt.......... 1,304 -
Other financing activities, net........ (3) 1,760
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Net Cash (Used in) Provided by
Financing Activities................. (412) 5,399
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Changes in Cash and Cash Equivalents-
Net increase in cash and cash
equivalents.......................... 275 239
Cash and cash equivalents at
beginning of year.................... 1,410 972
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Cash and Cash Equivalents at end
of quarter........................... $ 1,685 $ 1,211
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Interest paid............................ $ 964 $ 1,111
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Income taxes paid........................ $ 37 $ 5
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See accompanying notes
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THE MIDDLEBY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
(UNAUDITED)
1) BASIS OF PRESENTATION
The financial statements have been prepared by The Middleby
Corporation (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles 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 1996 Annual Report.
Other than as indicated herein, there have been no significant changes
from the data presented in said Report.
In the opinion of management, the financial statements contain all
adjustments necessary to present fairly the financial position of the
Company as of March 29, 1997 and December 28, 1996, and the results of
operations and cash flows for the three months ended March 29, 1997
and March 30, 1996.
2) DISCONTINUED OPERATION
On January 23, 1997,the Company completed the sale of substantially
all of the assets of its Victory Refrigeration Company ("Victory")
subsidiary to an investor group led by local management at Victory.
Gross proceeds from the sale are expected to amount to approximately
$7,300,000, less amounts for retained liabilities and transaction
costs aggregating approximately $2,600,000. The proceeds are subject
to post-closing adjustments. The terms of the sale were the results
of arms-length negotiations. This sale was announced on November 1,
1996, concluding the sale of all of the assets of Victory. The sale
and leaseback of the Victory facility to an unrelated third party had
previously been completed on December 27, 1996 for net proceeds of
approximately $4,556,000. Proceeds from these transactions were used
to pay down debt.
The results of the Victory Refrigeration Company subsidiary have been
reported separately as a discontinued operation in the consolidated
financial statements for all periods
presented. The results of the discontinued operations are
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not necessarily indicative of the results which may have been obtained
had the continuing and discontinuing operations been operating
independently. Summarized results of the Victory Refrigeration
Company for the quarter ended March 30, 1996 are as follows:
(In Thousands) March 30, 1996
-------------- --------------
Net Sales $9,036
Operating Income 121
(Loss) Earnings Before Taxes (120)
Provision for Taxes (40)
------------------------------------------
(Loss) Earnings from
Discontinued Operations (80)
----
----
Interest expense of $241,000 for the first quarter of 1996 has been
allocated based upon the ratio of the net assets of the discontinued
operations to the consolidated capitalization of the Company.
Continuing operations and discontinued operations reflect the net tax
expense or tax benefit generated by the respective operations,
limited, however, by the income tax benefit recognized in the
Company's historical financial statements. No general corporate
expenses have been allocated to the discontinued operations.
The net assets of discontinued operations included in the Consolidated
Balance Sheets at March 29, 1997 and December 28, 1996 amounted to
$2,291,000 and $4,082,000, respectively. The March 29, 1997 amount
represents the remaining amount due from the buyers. The December 30,
1996 amount consists primarily of receivables, inventory and equipment
related to the discontinued operations, net of accounts payable,
accrued liabilities and closing costs associated with the sale.
3) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for
Income Taxes.
The Company has recorded an income tax provision of $689,000 for the
fiscal three months ended March 29, 1997. The Company has significant
tax loss carry-forwards, and although a tax provision is recorded, the
Company makes no payment of federal tax other than AMT amounts.
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The utilization of the net operating loss and credit carry-forwards
depend on future taxable income during the applicable carry-forward
periods. Management evaluates and adjusts the valuation allowance,
based on the Company's expected taxable income as part of the annual
budgeting process. These adjustments reflect management's judgment as
to the Company's ability to generate taxable income which will, more
likely than not, be sufficient to recognize these tax assets.
4) EARNINGS PER SHARE
Earnings per share of common stock are based upon the weighted average
number of outstanding shares of common stock and common stock
equivalents. The treasury stock method is used in computing common
stock equivalents, which included stock options and a warrant issued
in conjunction with the senior secured note. The terms of the warrant
provide for the purchase of 250,000 shares at $3 per share.
Alternatively, under certain conditions, which have been met, the
warrant terms provide for the purchase of 200,000 shares at $.01 per
share. Earnings per share were computed based upon the weighted
average number of common shares outstanding of 8,723,000 and 8,700,000
for the fiscal quarters ended March 29, 1997 and March 30, 1996,
respectively.
The Company is required to adopt "FAS 128: Earnings Per Share" during
the fourth quarter of 1997. Under this method, average shares
outstanding would have been 8,470,000 and 8,397,000 for the fiscal
quarters ended March 29, 1997 and March 30, 1996, respectively. The
adoption of this accounting method would not affect earnings per share
for the quarters ended March 29, 1997 and March 30, 1996.
5) INVENTORIES
Inventories are valued using the first-in, first-out method.
Inventories consist of the following:
(In Thousands)
March 29, 1997 Dec. 28, 1996
-------------- -------------
Raw Materials and Parts $ 6,018 $ 6,492
Work-in-Process 3,843 4,621
Finished Goods 14,136 9,843
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$23,997 $20,956
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6) ACCRUED EXPENSES
Accrued expenses consist of the following:
(In Thousands)
March 29, 1997 Dec. 28, 1996
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Accrued payroll and
related expenses......... $2,930 $ 3,567
Accrued commissions........ 1,405 1,392
Accrued warranty........... 1,277 1,252
Other accrued expenses..... 4,163 3,790
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$9,775 $10,001
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7) RECLASSIFICATIONS AND RESTATEMENT
Sale of Discontinued Operations:
The financial statements exclude Victory Refrigeration Company
which has been accounted for as a discontinued operation (see
Note 2 to the Financial Statements).
Litigation Settlement Accounting:
During 1996, the Company restated its accounting for the proceeds
from the September, 1993 litigation settlement with the Hussmann
Corporation in accordance with generally accepted accounting
principles (GAAP). The effect of this accounting change was to
record a greater gain from the litigation settlement. Certain
assets related to the 1989 acquisition that were written-off as a
result of the Company's original accounting for the settlement in
1993, were restored in the historical financial statements or
written-off in periods prior to 1993. The effect on the
financial statements for the periods ended March 29, 1997 and March
30, 1996 was to increase non-cash amortization charges by $49,000 or
$.01 per share and $69,000, or $.01 per share, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (UNAUDITED).
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 statements 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 such statements. 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 risks affecting international sales; and other risks
detailed herein and from time-to-time in the Company's Securities and
Exchange commission filings.
RESULTS OF OPERATIONS
Net sales for the fiscal quarter ended March 29, 1997 were $32,698,000,
an increase of $3,188,000 (10.8%) as compared to $29,510,000 in the
prior fiscal quarter. The increase was primarily driven by strong
conveyor oven sales which increased 18% over sales for the same period
in 1996. The overall sales increase was largely due to unit volume
increases. Cooking and warming equipment manufacturing divisions
showed a sales increase of 14%. Sales in the core cooking and steaming
equipment line increased 3% in the quarter. Sales of the Company's
international-based fabricated equipment division increased by 28%.
International sales represented 35% of total sales for the quarter as
compared to 38% in the 1996 fiscal first quarter.
Gross margin increased $1,907,000 (22.3%) for the quarter to
$10,474,000, as compared to $8,567,000 in the prior year's quarter.
As a percentage of net sales, gross margin increased 3.0% to 32% for
the quarter from 29.0% in the prior year's quarter. The increase in
gross margin percent was primarily due to higher capacity utilization,
improved manufacturing efficiencies and favorable product mix.
Selling, general and administrative expenses increased $1,077,000
(17.2%) to $7,356,000 as compared to $6,279,000 in the first quarter
of 1996. Increased selling, general and administrative expenses were
primarily due to the continued expansion of the Company's
international sales and service capabilities, including the
establishment of sales and distribution offices in Taiwan, Mexico,
Japan and Korea during the past year, and variable costs associated
with the higher sales volume during the quarter. As a percentage of
sales, selling, general and administrative expenses increased to 22.5%
for the fiscal quarter ended March 29, 1997, compared to 21.3% for the
prior year's quarter.
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Interest expense and deferred financing costs for the fiscal quarter ended
March 29, 1997 increased $24,000 (2.3%) to $1,081,000 as compared to
$1,057,000 in the prior year fiscal quarter.
The Company recorded net earnings from continuing operations of $1,386,000
for the fiscal quarter ended March 29, 1997 compared to earnings from
continuing operations of $766,000 for the prior year fiscal quarter. The
Company recorded net earnings of $1,386,000 for the fiscal quarter ended
March 29, 1997 as compared to net earnings of $686,000 for the prior year
fiscal quarter.
FINANCIAL CONDITION AND LIQUIDITY
For the three months ended March 29, 1997, net cash provided by operating
activities before changes in assets and liabilities was $2,662,000, as
compared to $1,727,000 for the three months ended March 30, 1996. Net cash
used by continuing operating activities after changes in assets and
liabilities was $407,000 as compared to net cash used of $2,772,000 in the
prior year's quarter. Accounts receivable increased $2,806,000, and
inventories increased $3,041,000. These increases were partially offset by
increased accounts payable and other liabilities. The increase in accounts
receivable was largely due to the sales increase and timing of shipments to
certain large domestic customers. Inventories increased due to increased
international distribution centers and timing of orders and shipments.
During the first quarter of 1997, the Company decreased its overall outstanding
debt by $412,000 under various facilities. During this period the Company
increased its borrowings on its revolving credit line by $307,000, repaid
$2,020,000 on its term loans and increased its borrowings with a foreign
lending institution by $1,304,000 primarily to finance the Company's
international expansion.
The Company maintains a revolving credit facility which, as of March 29,
1997, provided $22,617,000 of total borrowing availability. There was
$14,882,000 outstanding under this facility at March 29, 1997. The Company
has executed letters of credit of $991,000 against this facility, leaving an
available line of credit of $6,744,000 at March 29, 1997. The Company
believes that its cash flow from operations, together with available
financing and cash on hand, will be sufficient to fund its working capital
needs, capital expenditure program, and debt amortization.
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PART II. OTHER INFORMATION
The Company was not required to report the information pursuant to
Items 1 through 6 of Part II of Form 10-Q for the three months ended
March 29, 1997, except as follows:
ITEM 2. CHANGES IN SECURITIES
c) During the first quarter of fiscal 1997, the Company issued
3,000 shares of the Company's common stock to a director,
pursuant to the exercise of stock options, for $5,625. Such
options were granted at an exercise price of $1.875 per share.
The issuance of such shares was exempt under the Securities Act
of 1933, as amended, pursuant to Section 4(2) thereof, as
transactions by an issuer not involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - The following Exhibits are filed herewith:
Exhibit (27) - Financial Data Schedules (EDGAR only)
b) Reports on Form 8-K - On February 10, 1997, the Company filed
a Form 8-K report to announce the completion of its sale of
the Victory Refrigeration Company subsidiary.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MIDDLEBY CORPORATION
------------------------
(Registrant)
Date May 13, 1997 By: /s/ John J. Hastings
-------------------- -----------------------------
John J. Hastings, Executive
Vice President, Chief
Financial Officer and
Secretary
(Principal Financial and
Accounting Officer)
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5
1,000
3-MOS
JAN-03-1998
MAR-29-1997
1,685
0
22,665
0
23,997
53,659
31,280
12,221
89,804
2,805
38,051
0
0
85
23,649
89,804
32,698
32,698
22,224
22,224
7,356
0
1,081
2,075
689
1,386
0
0
0
1,386
.16
.16
