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 PERIODS ENDED SEPTEMBER 27, 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
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(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)
2850 W. GOLF ROAD, SUITE 405, ROLLING MEADOWS, ILLINOIS 60008
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No., including Area Code (847) 758-3880
---------------
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 September 27, 1997, there were 8,501,453 shares of the Registrant's
common stock outstanding.
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 27, 1997
INDEX
DESCRIPTION PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
BALANCE SHEETS 1
September 27, 1997 and December 28, 1996
STATEMENTS OF EARNINGS 2
September 27, 1997 and September 28, 1996
STATEMENTS OF CASH FLOWS 3
September 27, 1997 and September 28, 1996
NOTES TO FINANCIAL STATEMENTS 4
Item 2. Management's Discussion and Analysis 8
of Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
PART II. OTHER INFORMATION 13
PART I. FINANCIAL INFORMATION
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SEPT. 27, 1997 DEC. 28, 1996
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ASSETS
Cash and cash equivalents............. $ 1,798 $ 1,410
Accounts receivable, net.............. 24,047 19,859
Inventories, net...................... 25,811 20,956
Prepaid expenses and other............ 1,205 939
Net assets of discontinued operations. 200 4,082
Current deferred taxes................ 2,099 2,086
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Total current assets............. 55,160 49,332
Property, plant and equipment, net of
accumulated depreciation of
$12,925 and $11,741 ................ 19,872 18,843
Excess purchase price over net assets
acquired, net of accumulated
amortization of $4,559 and
$4,216 ............................. 12,996 13,339
Deferred taxes........................ 1,380 2,950
Other assets.......................... 2,358 1,504
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Total assets.............. $91,766 $85,968
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt.. $ 2,769 $ 3,916
Accounts payable...................... 11,686 10,369
Accrued expenses...................... 10,471 10,001
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Total current liabilities........ 24,926 24,286
Long-term debt........................ 38,579 37,352
Minority interest and other
non-current liabilities............. 2,312 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;
8,501,000 and 8,468,000 issued
and outstanding in 1997 and
1996, respectively................ 85 85
Paid-in capital..................... 28,349 28,108
Cumulative translation adjustment... (566) (184)
Accumulated deficit................. (1,919) (5,559)
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Total shareholders' equity....... 25,949 22,450
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Total liabilities and
shareholders' equity.... $91,766 $85,968
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See accompanying notes
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THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
Restated Restated
Sept 27, 1997 Sept 28, 1996 Sept 27, 1997 Sept 28, 1996
------------- ------------- ------------- -------------
Net sales...................... $ 35,850 $ 31,400 $ 110,630 $ 89,571
Cost of sales.................. 24,848 22,027 76,340 63,102
-------- -------- --------- --------
Gross profit........... 11,002 9,373 34,290 26,469
Selling and distribution expenses.. 5,450 4,797 16,166 13,279
General and administrative expenses.. 2,665 2,514 8,384 7,169
-------- -------- --------- --------
Income from operations..... 2,887 2,062 9,740 6,021
Interest expense and deferred
financing amortization........... 1,030 1,145 3,368 3,281
Other (income)expense, net......... 7 (115) (13) (120)
-------- -------- --------- --------
Earnings before income taxes. 1,850 1,032 6,385 2,860
Provision for income taxes........... 619 408 2,181 1,069
-------- -------- --------- --------
Earnings from continuing
operations............... 1,231 624 4,204 1,791
-------- -------- --------- --------
Loss from discontinued operations,
net of tax......................... - (232) - (744)
Estimated loss on disposal including
provision for operating losses
during the phase-out period........ - (1,371) (564) (1,371)
-------- -------- --------- --------
Net earnings (loss).........$ 1,231 $ (979) $ 3,640 $ (324)
-------- -------- --------- --------
Earnings per share from continuing
operations.........................$ 0.14 $ 0.07 $ 0.48 $ 0.20
Loss per share from discontinued
operations.........................$ 0.00 $ (0.19) $ (0.06) $ (0.24)
-------- -------- --------- --------
Net earnings (loss) per share........$ 0.14 $ (0.12) $ 0.42 $ (0.04)
-------- -------- --------- --------
-------- -------- --------- --------
See accompanying notes
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THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
-----------------------------
RESTATED
SEPT 27,1997 SEPT 28, 1996
------------ --------------
Cash flows from operating activities-
Net earnings (loss).................... $ 3,640 $ (324)
Adjustments to reconcile net earnings
to cash provided by continuing
operating activities-
Depreciation and amortization........ 2,150 2,054
Utilization of NOL's................. 1,991 972
Discontinued operations.............. - 2,115
Changes in assets and liabilities-
Accounts receivable................ (4,188) (5,057)
Inventories........................ (4,855) (2,742)
Prepaid expenses and other assets.. (1,829) (982)
Accounts payable and other
liabilities........................ 1,787 1,352
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Net cash used in continuing
operating activities................. (1,304) (2,612)
Net cash (used in) provided by
discontinued operations.............. (2,399) 715
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Net cash used in operating activities.. (3,703) (1,897)
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Cash flows from investing activities-
Proceeds from sale of discontinued
operations........................... 6,281 -
Additions to property and equipment.... (2,458) (2,564)
Discontinued operations................ - (176)
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Net cash provided by (used in)
investing activities................. 3,823 (2,740)
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Cash flows from financing activities-
Increase in revolving credit line, net. 2,586 2,993
Reduction in term loans................ (3,195) (1,382)
(Reduction in) Proceeds from
capital expenditure loan............. (75) 450
Increase in foreign bank debt.......... 774 2,562
Other financing activities, net........ 178 -
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Net cash provided by
financing activities................. 268 4,623
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Changes in cash and cash equivalents-
Net increase (decrease)in cash
and cash equivalents................. 388 (14)
Cash and cash equivalents at
beginning of year.................... 1,410 972
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Cash and cash equivalents at end
of quarter........................... $ 1,798 $ 958
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Interest paid............................ $ 2,777 $ 3,434
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Income taxes paid........................ $ 245 $ 96
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See accompanying notes
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THE MIDDLEBY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 27, 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 September 27, 1997 and December 28, 1996, and
the results of operations for the three and nine months ended
September 27, 1997 and September 28, 1996 and cash flows for the
nine months ended September 27, 1997 and September 28, 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. Gross proceeds from the sale amounted to
approximately $6,700,000, less amounts for retained liabilities
and transaction costs aggregating approximately $2,600,000. 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 Victory have been reported separately as a
discontinued operation in the consolidated financial statements
for all periods presented. The results of the discontinued
operations are not necessarily indicative of the results which
may have been obtained had the continuing
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and discontinuing operations been operating independently.
Summarized results of Victory for the three and nine months ended
September 28, 1996 are as follows:
September 28, 1996
-------------------------
Three Months Nine Months
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(In Thousands)
Net sales..................... $ 9,876 $27,261
(Loss) from operations........ (155) (458)
(Loss) before taxes .......... (346) (1,112)
Provision for taxes........... (114) (368)
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(Loss) from Discontinued
Operations................. $ (232) $ (744)
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Interest expense of $190,000 and $653,000 for the three and nine
month periods ended September 28, 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 September 27, 1997 and December
28, 1996 amounted to $400,000 and $4,082,000, respectively. The
September 27, 1997 amount represents the remaining amount due
from the buyers. The Company received $1,200,000 during the third
quarter of 1997. The remaining $400,000 is payable in two annual
installments in June, 1998 and June, 1999. 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 $2,181,000 for
the fiscal nine months ended September 27, 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. The utilization of the net
operating loss and credit carry-forwards depend on future taxable
income during the applicable carry-forward periods.
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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 includes 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
$3.00 per share. Alternatively, under certain conditions, the
warrant terms provide for the purchase of 200,000 shares at $0.01
per share. The warrant is currently exercisable for 250,000
shares at $3.00 per share and expires July 10, 2003. Earnings per
share were computed based upon the weighted average number of
common shares outstanding of 8,793,000 and 8,687,000 for the
fiscal quarters ended September 27, 1997 and September 28, 1996,
respectively and 8,742,000 and 8,696,000 for the fiscal year-to-
date periods ended September 27, 1997 and September 28, 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 8,501,000 and 8,417,000 for the
fiscal quarters ended September 27, 1997 and September 28, 1996,
respectively and 8,484,000 and 8,406,000 for the year-to-date
periods ended September 27, 1997 and September 28, 1996,
respectively. The adoption of this accounting method would not
affect earnings per share for the quarter or year-to-date periods
ended September 27, 1997 and September 28, 1996.
5) INVENTORIES
Inventories are valued using the first-in, first-out method.
Inventories consist of the following:
Sept. 27, 1997 Dec. 28, 1996
-------------- -------------
(In Thousands)
Raw Materials and Parts.......... $ 7,435 $ 6,492
Work-in-Process.................. 4,795 4,621
Finished Goods................... 13,581 9,843
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$ 25,811 $ 20,956
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6) ACCRUED EXPENSES
Accrued expenses consist of the following:
Sept. 27, 1997 Dec. 28, 1996
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(In Thousands)
Accrued payroll and
related expenses............... $ 3,723 $ 3,567
Accrued commissions.............. 1,728 1,392
Accrued warranty................. 1,269 1,252
Other accrued expenses........... 3,751 3,790
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$10,471 $10,001
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7) RECLASSIFICATIONS AND RESTATEMENT
Sale of Discontinued Operations:
The financial statements exclude Victory 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 September 27, 1997 and September
28, 1996 was to increase non-cash amortization charges by $49,000
or $0.01 per share and $69,000, or $0.01 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 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 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 the heading "Risk Factors" in the
Company's Registration Statement on Form S-2 (No. 333-35397) filed with
the Securities and Exchange Commission.
NET SALES SUMMARY
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 27, 1997 SEPT. 28, 1996 SEPT. 27, 1997 SEPT. 28, 1996
-------------------- -------------------- -------------------- ------------------
Sales Percent Sales Percent Sales Percent Sales Percent
------- -------- ------- ------- ------- ------- ------- ---------
BUSINESS DIVISIONS
Conveyor oven
equipment............. $11,473 32.0% $10,187 32.4% $40,911 37.0% $28,729 32.1%
Counterline cooking
equipment and
specialty products... 5,219 14.6% 5,189 16.5% 15,586 14.1% 15,057 16.8%
Core cooking
equipment............. 9,230 25.7% 7,126 22.7% 25,236 22.8% 20,993 23.4%
------- ------ ------- ------ -------- ------ ------- ------
TOTAL COOKING AND
WARMING EQUIPMENT
DIVISIONS......... 25,922 72.3% 22,502 71.6% 81,733 73.9% 64,779 72.3%
International specialty
equipment............ 2,154 6.0% 1,801 5.7% 5,893 5.3% 4,540 5.1%
International
distribution (1)...... 11,456 32.0% 10,103 32.2% 34,477 31.2% 29,383 32.8%
------- ------ ------- ------ -------- ------ ------- ------
TOTAL INTERNATIONAL
DIVISIONS......... 13,610 38.0% 11,904 37.9% 40,370 36.5% 33,923 37.9%
Intercompany
sales (2)............. (3,728) (10.4%) (3,279) (10.4%) (11,578) (10.5%) (10,270) (11.5%)
Other.................. 46 0.1% 273 0.9% 105 0.1% 1,139 1.3%
------- ------ ------- ------ -------- ------ ------- ------
TOTAL............... $35,850 100.0% $31,400 100.0% $110,630 100.0% $89,571 100.0%
------- ------ ------- ------ -------- ------ ------- ------
------- ------ ------- ------ -------- ------ ------- ------
(1) Consists of sales of products manufactured by Middleby and products
manufactured by third parties.
(2) Consists of sales to the Company's international distribution division
from the Company's other business divisions.
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RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of
earnings items as a percentage of net sales for the periods.
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPT 27, 1997 SEPT 28, 1996 SEPT 27, 1997 SEPT 28, 1996
------------- ------------- ------------- -------------
Net Sales .................................... 100.0% 100.0% 100.0% 100.0%
Cost of Sales ................................ 69.3% 70.1% 69.0% 70.4%
------ ------ ------ ------
Gross Profit. .............................. 30.7% 29.9% 31.0% 29.6%
Selling, general and administrative expenses.. 22.6% 23.3% 22.2% 22.8%
------ ------ ------ ------
Income from operations...................... 8.1% 6.6% 8.8% 6.8%
Interest expense and deferred financing
amortization, net............................ 2.9% 3.6% 3.0% 3.7%
Other (income) expense, net................... 0.0% (0.3%) 0.0% (0.1%)
------ ------ ------ ------
Earnings before income taxes................ 5.2% 3.3% 5.8% 3.2%
Provision (benefit) for income taxes.......... 1.7% 1.3% 2.0% 1.2%
------ ------ ------ ------
Net earnings from continuing operations..... 3.5% 2.0% 3.8% 2.0%
------ ------ ------ ------
------ ------ ------ ------
THREE MONTHS ENDED SEPTEMBER 27, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 28, 1996
NET SALES. Net sales in the three-month period ended September 27,
1997 increased $4.5 million or 14% to $35.9 million as compared to
$31.4 million in the three-month period ended September 28, 1996,
reflecting higher unit volume in the Company's cooking and warming
equipment divisions and international divisions.
Sales of the Company's cooking and warming equipment divisions
increased 15% for the three-month period ended September 27, 1997, led
by a 30% increase in sales of the core cooking equipment division. The
increase at this division is primarily due to continued market
penetration and new products. Sales of the conveyor oven equipment
division increased 13% in the three-month period as major chain
customers continue to expand and upgrade equipment. Sales of the
counterline cooking equipment and specialty products division increased
1% in the three-month period.
Sales of the international divisions represented 38% of total sales in
the three-month period and increased 14% as compared to the prior year
period. Sales of the Company's international specialty
equipment division increased 20% in the three-month period, reflecting
the increase in production capacity since the opening of the new
Philippines factory in mid-1996. Sales of the Company's international
distribution division increased 13% in this three-month period,
primarily due to the Company's sales and distribution offices
established over the past three years.
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GROSS PROFIT. Gross profit increased $1.6 million or 17% in the three-
month period to $11.0 million as compared to $9.4 million in the prior
year period. As a percentage of net sales, gross profit margin
increased 0.8% to 30.7% from 29.9%. The increase in gross margin
percent was primarily due to higher capacity utilization and improved
manufacturing efficiencies at the Philippines operation, which moved
into a newly constructed facility in 1996, as well as increased
leverage of overhead costs at the core cooking equipment division.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.8 million or 11% in the three-
month period to $8.1 million as compared to $7.3 million in the prior
year period. The increase was primarily due to variable costs
associated with the higher sales volume and the expansion of the
Company's international sales and service capabilities, including the
establishment of sales and distribution offices in Mexico, Japan and
Korea during the past twelve months. As a percentage of sales,
selling, general and administrative expenses decreased to 22.6% from
23.3% as expenses were leveraged over the higher sales volume.
INCOME FROM OPERATIONS. Income from operations increased $0.8 million
or 40% to $2.9 million for the three-month period ended September 27,
1997 from $2.1 million in the prior year period. The improvement in
income from operations was attributable to the higher sales volumes and
gross profit increases.
INTEREST EXPENSE AND DEFERRED FINANCING AMORTIZATION. Interest expense
and deferred financing amortization for the three-months ended
September 27, 1997 decreased 10% to $1.0 million as compared to $1.1
million in the prior year period. The decrease was due to a lower
average outstanding debt balance.
INCOME TAXES. The Company recorded a net tax provision of $0.6 million
for the three-month period ended September 27, 1997 as compared to a
net tax provision of $0.4 million in the prior year period. There were
no tax benefits due to net operating loss utilization or valuation
allowance reductions recorded in either three-month period, as it has
been the Company's policy to evaluate and adjust the valuation
allowances in conjunction with the annual budgeting process.
NET EARNINGS. For the three-month period ended September 27, 1997, the
Company recorded net earnings from continuing operations of $1.2
million as compared to $0.6 million in the prior year period. During
the prior year quarter the Company recorded net losses from
discontinued operations of $1.6 million. For the three months ended
September 27, 1997, the Company recorded net earnings of $1.2 million
as compared to a net loss of $1.0 million in the prior year period.
NINE MONTHS ENDED SEPTEMBER 27, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 28, 1996
NET SALES. Net sales in the nine-month period ended September 27, 1997
increased $21.0 million or 24% to $110.6 million as compared
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to $89.6 million in the nine-month period ended September 28, 1996,
reflecting higher unit volume in the Company's cooking and warming
equipment divisions and international divisions.
Sales of the Company's cooking and warming equipment divisions
increased 26% for the nine-month period ended September 27, 1997, led
by a 42% increase in sales of the conveyor oven equipment division due
to new store expansion and equipment upgrade programs of major
restaurant chains. The period also included increased sales to a major
restaurant chain, primarily during the second quarter, to support the
introduction of a new product, including $4.5 million of equipment
upgrade kits and field service work to improve existing equipment
within their system. Sales of the core cooking equipment division
increased 20% in this nine-month period due primarily to continued
market penetration and new products. Sales of the counterline cooking
equipment and specialty products division increased 4% in this nine-
month period, even though sales in the prior year period included a
large equipment roll-out to an international chain customer.
Sales of the international divisions represented 37% of total sales in
the nine-month period and increased 19% as compared to the prior year
period. Sales of the Company's international specialty
equipment division increased 30% in the nine-month period, reflecting
the increase in production capacity since the opening of the new
Philippines factory in mid-1996. Sales of the Company's international
distribution division increased 17% in this nine-month period,
primarily due to the Company's sales and distribution offices
established over the past three years.
GROSS PROFIT. Gross profit increased $7.8 million or 30% in the nine-
month period to $34.3 million as compared to $26.5 million in the prior
year period. As a percentage of net sales, gross profit margin
increased 0.4% to 31.0% from 29.6%. The increase in gross margin
percent was primarily due to the higher sales level and capacity
utilization, improved manufacturing efficiencies and favorable product
mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $4.1 million or 20% in the nine-month
period to $24.5 million as compared to $20.4 million in the prior year
period. The increase was primarily due to variable costs associated
with the higher sales volume and the expansion of the Company's
international sales and service capabilities, including the
establishment of sales and distribution offices in Mexico, Japan, Korea
and Taiwan during the past eighteen months. As a percentage of sales,
selling, general and administrative expenses decreased to 22.2% from
22.8% as expenses were leveraged over the higher sales volume.
INCOME FROM OPERATIONS. Income from operations increased $3.7 million
or 62% to $9.7 million for the nine-month period ended September 27,
1997 from $6.0 million in the prior year period. The improvement in
income from operations was attributable to the higher sales volumes and
gross profit increases.
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INTEREST EXPENSE AND DEFERRED FINANCING AMORTIZATION. Interest expense
and deferred financing amortization for the nine-months ended September
27, 1997 increased 3% to $3.4 million as compared to $3.3 million in
the prior year period. The increase was due to a higher average
outstanding debt balance.
INCOME TAXES. The Company recorded a net tax provision of $2.2 million
for the nine-month period ended September 27, 1997 as compared to a net
tax provision of $1.1 million in the prior year period. There were no
tax benefits due to net operating loss utilization or valuation
allowance reductions recorded in either nine-month period, as it has
been the Company's policy to evaluate and adjust the valuation
allowances in conjunction with the annual budgeting process.
NET EARNINGS. For the nine-month period ended September 27, 1997, the
Company recorded net earnings from continuing operations of $4.2
million as compared to $1.8 million in the prior year period. The
Company recorded an additional estimated loss on disposal of
discontinued operations of $0.6 million, net of tax, during the second
fiscal quarter of 1997. During the prior year nine-month period the
Company recorded net losses from discontinued operations of $2.1
million. For the nine months ended September 27, 1997, the Company
recorded net earnings of $3.6 million as compared to a net loss of $0.3
million in the prior year period.
FINANCIAL CONDITION AND LIQUIDITY
For the nine months ended September 27, 1997, net cash provided by
operating activities before changes in assets and liabilities was $7.8
million as compared to $4.8 million for the nine-months ended September
28, 1996. Net cash used by continuing operating activities after
changes in assets and liabilities was $1.3 million as compared to net
cash used of $2.6 million in the prior year nine month period.
Accounts receivable increased $4.2 million, and inventories increased
$4.9 million. These increases were partially offset by increased
accounts payable of $1.8 million. The increase in accounts receivable
was largely due to the sales increase and higher international
receivables. Inventories increased to support the increased sales level
and the additional international distribution centers.
During the first nine-months of 1997, the Company increased its overall
outstanding debt by $0.1 million under various facilities. During this
period the Company increased its borrowings on its revolving credit
line by $2.6 million, repaid $3.3 million on its term loans and
increased its borrowings with a foreign lending institution by $0.8
million primarily to finance the Company's international expansion.
The Company maintains a revolving credit facility which, as of
September 27, 1997, provided $20.6 million of total borrowing
availability. There was $17.2 million outstanding under this
facility at September 27, 1997. The Company has executed letters
of credit of $0.8 million against this facility, leaving an
- 12 -
available line of credit of $2.6 million at September 27, 1997. The
Company's public stock offering, announced in September, closed on
November 4, 1997. The offering totaled 2,610,000 common shares of which
the Company sold 2,000,000 shares and 610,000 shares were sold by
selling shareholders. The public offering price was $10.00 per share.
Gross proceeds from the offering of $18.8 million were received by the
Company. After deducting other expenses of approximately $0.3 million
the net proceeds will be used to pay down certain indebtedness and the
remaining proceeds, if any, will be used for general corporate
purposes. The underwriters have been granted a 30 day option to
purchase from the Company up to an additional 391,500 shares of common
stock to cover over-allotments. As of the date of this 10-Q report that
option has not been exercised by the underwriters. If the over-
allotment option is exercised, the Company will receive approximately
$3.7 million of additional proceeds. The Company believes that 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 for the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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
September 27, 1997, except as follows:
Item 2. Changes in Securities and Use of Proceeds
c) None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - The following Exhibits are filed herewith:
10.1 - Underwriting Agreement dated October 29,1997 between
the Company and Schroder and Co. Inc. and Brean
Murray, Co. Inc., incorporated by reference to
Exhibit 2 to the Schedule 13D for William F.
Whitman, Jr. filed with the Commission on
November 5, 1997.
Exhibit (27) - Financial Data Schedules (EDGAR only)
- 13 -
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: November 10, 1997 By: /s/ John J. Hastings
------------------ ------------------------
John J. Hastings, Executive
Vice President, Chief
Financial Officer and
Secretary
(Principal Financial and
Accounting Officer)
5
1,000
9-MOS
JAN-03-1998
SEP-27-1997
1,798
0
24,047
0
25,811
55,160
32,797
12,925
91,766
24,926
38,579
0
0
85
25,864
91,766
110,630
110,630
76,340
76,340
24,550
0
3,368
6,385
2,181
4,204
(564)
0
0
3,640
.42
.42
