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     10Q


















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 July 3, 1999 



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
(State or Other Jurisdiction of
Incorporation or Organization)		
      
     36-3352497
(I.R.S. Employer Identification No.)		










     2850 W. Golf Road, Suite 405, Rolling Meadows, Illinois
(Address of Principal Executive Offices)		
     60008
(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 July 30, 1999, there were 10,157,721 shares of the
registrant’s common stock outstanding. 






















THE MIDDLEBY CORPORATION AND SUBSIDIARIES



QUARTER ENDED JULY 3, 1999




INDEX 











     DESCRIPTION

     PAGE



     PART I.   FINANCIAL INFORMATION
      
     
         



      



                
            Item 1.   Consolidated Financial Statements 



      



                           
                 BALANCE SHEETS

                                
            July 3, 1999 and January 2, 1999		 
     1
         



      



                         
                   STATEMENTS OF EARNINGS

                   
                         July 3, 1999 and July 4, 1998		 
     2
         



      



                     
                       STATEMENTS OF CASH FLOWS

                   
                         July 3, 1999 and July 4, 1998		 
     3
         



      



                     
                       NOTES TO FINANCIAL STATEMENTS 
     4
         



      



                         Item 2.   Management’s Discussion and Analysis

                                        of Financial Condition and Results of


                                        Operations
     		 
     7
         



      



                         Item 3.   Quantitative and Qualitative Disclosures

                                        About Market Risk		 
     14
         



      



     PART II.   OTHER INFORMATION 
     14
         

















PART I.   FINANCIAL INFORMATION



THE MIDDLEBY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)












     
     (Unaudited)
July 3, 1999

     January 2, 1999



     ASSETS
      
     
         
     
         



     Cash and cash equivalents 
     $   4,411
         
     $   6,768
         



     Accounts receivable, net 
     27,156
         
     24,330
         



     Inventories, net 
     18,153
         
     20,456
         



     Prepaid expenses and other 
     782
         
     941
         



     Current deferred taxes 
     2,895
         
     2,895
         



     



          Total current assets 
     53,397
         
     55,390
         



     Property, plant and equipment, net of 



       accumulated depreciation of 



       $16,696 and $15,910 
     21,910
         
     22,596
         



     Excess purchase price over net assets 



       acquired, net of accumulated 



       amortization of $5,546 and $5,186 
     13,347
         
     13,617
         



     Deferred taxes 
     4,449
         
     5,347
         



     Other assets 
     5,002
         
     2,729
         



     



                 Total assets 
     $ 98,105
         
     $ 99,679
         



     



     LIABILITIES AND SHAREHOLDERS’ EQUITY 



     Current maturities of long-term debt . 
     $   2,166
         
     $   1,893
         



     Accounts payable 
     8,848
         
     10,945
         



     Accrued expenses 
     12,956
         
     11,943
         



     



          Total current liabilities 
     23,970
         
     24,781
         



     Long-term debt 
     24,644
         
     25,932
         



     Retirement benefits and other 



       non-current liabilities 
     4,853
         
     4,232
         



     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; 



         10,996,000 issued in 1999 and 



         1998 
     110
         
     110
         



       Paid-in capital 
     54,602
         
     54,602
         



       Treasury stock at cost; 838,000 



         shares in 1999 and 1998 
     (3,309
        )
     (3,309
        )



       Accumulated Deficit 
     (4,251
        )
     (4,303
        )



       Accumulated other comprehensive 



         income 
     (2,514
        )
     (2,366
        )



     



          Total shareholders’ equity 
     44,638
         
     44,734
         



     



                 Total liabilities and 



                   shareholders’ equity 
     $ 98,105
         
     $ 99,679
         



     











See accompanying notes 


















THE MIDDLEBY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands, Except Per Share Amounts)

(Unaudited)











     
     Three Months Ended

     Six Months Ended





     
     July 3, 1999

     July 4, 1998

     July 3, 1999

     July 4, 1998



     Net sales
      
     $36,527
         
     $33,641
         
     $68,965
         
     $64,742
         



     Cost of sales 
     25,801
         
     22,969
         
     48,616
         
     44,632
         



     



             Gross profit 
     10,726
         
     10,672
         
     20,349
         
     20,110
         



     



     Selling and distribution expenses 
     4,675
         
     5,417
         
     9,341
         
     10,518
         



     General and administrative expenses 
     3,605
         
     3,193
         
     6,825
         
     5,909
         



     Non-recurring expense 
     210
         
     —
         
     960
         
     —
         



     



             Income from operations 
     2,236
         
     2,062
         
     3,223
         
     3,683
         



     



     Interest expense and deferred 



       financing amortization 
     696
         
     759
         
     1,387
         
     1,496
         



     Other expense (income), net 
     93
         
     141
         
     352
         
     253
         



     



             Earnings before income taxes . 
     1,447
         
     1,162
         
     1,484
         
     1,934
         



     Provision for income taxes 
     1,046
         
     371
         
     1,432
         
     623
         



     



             Net earnings 
     $     401
         
     $     791
         
     $       52
         
     $  1,311
         



     



     Net earnings per share: 



                   Basic 
     $    0.04
         
     $    0.07
         
     $    0.01
         
     $    0.12
         



                   Diluted 
     $    0.04
         
     $    0.07
         
     $    0.01
         
     $    0.12
         



     Weighted average number of shares: 



               Basic 
     10,158
         
     11,007
         
     10,158
         
     10,972
         



               Diluted 
     10,258
         
     11,202
         
     10,251
         
     11,170
         














See accompanying notes 





















THE MIDDLEBY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)













     
     Six Months Ended





     
     July 3, 1999

     July 4, 1998



     Cash flows from operating activities-
      
     
         
     
         



       Net earnings 
     $      52
         
     $   1,311
         



       Adjustments to reconcile net earnings 



         to cash provided by continuing 



         operating activities- 



         Depreciation and amortization 
     1,961
         
     1,395
         



         Utilization of NOL’s 
     1,349
         
     604
         



         Non-cash portion of non-recurring 



           expenses 
     428
         
     —
         



       Changes in assets and liabilities- 



         Accounts receivable 
     (3,018
        )
     (4,131
        )



         Inventories 
     2,278
         
     (2,764
        )



         Prepaid expenses and other assets 
     (2,456
        )
     (750
        )



         Accounts payable 
     (2,109
        )
     (2,613
        )



         Accrued expenses and other 



           liabilities 
     930
         
     387
         



       Net cash used in operating activities . 
     (585
        )
     (6,561
        )



     Cash flows from investing activities- 



       Purchase of subsidiary minority 



         interest 
     —
         
     (1,134
        )



       Additions to property and equipment 
     (871
        )
     (2,211
        )



       Net cash used in investing activities . 
     (871
        )
     (3,345
        )



     Cash flows from financing activities- 



       Proceeds (repayments) under 



         intellectual property lease 
     319
         
     (451
        )



       Decrease in revolving credit line, net 
     (915
        )
     —
         



       Reduction in foreign bank debt 
     —
         
     (419
        )



       Other financing activities, net 
     (93
        )
     43
         



       Net cash used in 



         financing activities 
     (689
        )
     (827
        )



     Effect of exchange rates on cash 
     (212
        )
     (55
        )



     Changes in cash and cash equivalents- 



       Net decrease in cash and cash 



         equivalents 
     (2,357
        )
     (10,788
        )



       Cash and cash equivalents at 



         beginning of year 
     6,768
         
     12,321
         



       Cash and cash equivalents at end 



         of quarter 
     $ 4,411
         
     $   1,533
         



     Interest paid 
     $    417
         
     $   1,152
         



     Income taxes paid 
     $      83
         
     $      558
         













See accompanying notes 





















THE MIDDLEBY CORPORATION AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



JULY 3, 1999
(Unaudited)






1)     Summary of Significant Accounting Policies



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 1998 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 July 3, 1999 and January 2, 1999, and the results of operations
for the six months ended July 3, 1999 and July 4, 1998 and cash flows for the
six months ended July 3, 1999 and July 4, 1998. Certain prior year amounts have
been reclassified to be consistent with the current year presentation. 






2)     Comprehensive Income



During the first quarter of 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive
Income,” (SFAS No. 130), which requires companies to report all changes in
equity during a period, except those resulting from investment by owners and
distribution to owners, in a financial statement for the period in which they
are recognized. 



Components of comprehensive income were as follows: 












     
     Six Months Ended




     
     July 3, 1999

     July 4, 1998



     
     (in thousands)




     Net earnings
      
     $    52
         
     $ 1,311
         



     Cumulative translation 



       adjustment 
     (148
        )
     (258
        )



     
  Comprehensive (loss) income		 
     $  (96
        )
     $ 1,053
         



     




















3)     Inventories



Inventories are valued using the first-in, first-out method. 



Inventories consist of the following: 












     
     July 3, 1999

     January 2, 1999



     
     (In thousands)




     Raw materials and parts
      
     $  3,976
         
     $  5,281
         



     Work-in-process 
     4,441
         
     3,743
         



     Finished goods 
     9,736
         
     11,432
         



     



       
     $18,153
         
     $20,456
         



     













4)     Accrued Expenses



Accrued expenses consist of the following: 











     
     July 3, 1999

     January 2, 1999



     
     (In thousands)




     Accrued payroll and
      
     
         
     
         



       related expenses 
     $  3,606
         
     $  2,629
         



     Accrued customer rebates 
     2,009
         
     3,088
         



     Accrued commissions 
     1,444
         
     1,497
         



     Accrued warranty 
     2,014
         
     1,372
         



     Other accrued expenses 
     3,883
         
     3,357
         



     



       
     $12,956
         
     $11,943
         



     















5)     Non-recurring Expenses



During the first half of 1999, the Company recorded
non-recurring expenses in the amount of $960,000 principally related to
severance benefits for terminated employees at the Cooking Systems Group and
the International Distribution Division. As of July 3, 1999, the remaining
liability associated with unpaid severance benefits amounted to $428,000. 



During the fourth quarter of 1998, the Cooking Systems Group
recorded charges of $1,932,000 associated with the decision to discontinue
certain non-strategic product lines. Through the end of the quarter the Company
had incurred approximately $1,545,000 primarily associated with the sale and
disposal of the related assets. As of July 3, 1999, the remaining reserve
amounted to $387,000. All actions associated with this initiative will be fully
concluded by the end of the third quarter of 1999. 
























6)     Segment Information



The Company operates in three reportable business segments
defined by factors including physical location, management reporting structure,
and operating activities. These segments include the Cooking Systems Group, the
International Specialty Equipment Division and the International Distribution
Division. 



The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates individual segment performance based on operating income.
Intersegment sales are made at established arms-length transfer prices. 



The following table summarizes the results of operations for
the Company’s business segments: 














     
     Cooking
Systems
Group

     International
Specialty
Equipment

     International
Distribution

     Corporate
and
Other(1)

     Eliminations
(2)

     Total



     
Three months ended July 3, 1999		
      
     
         
     
         
     
         
     
         
     
         
     
         



     Net sales 
     $  28,112
         
     $    1,179
         
     $  10,476
         
     $         65
         
     $     (3,305
        )
     $  36,527
         



     Operating income (loss) 
     4,241
         
     (383
        )
     (642
        )
     (1,063
        )
     83
         
     2,236
         



     Non-recurring expense 
     86
         
     —
         
     124
         
     —
         
     —
         
     210
         



     Depreciation expense 
     626
         
     106
         
     73
         
     41
         
     —
         
     846
         



     Capital expenditures 
     476
         
     28
         
     22
         
     47
         
     —
         
     573
         



     
Six months ended July 3, 1999		 



     Net sales 
     53,553
         
     2,370
         
     19,689
         
     307
         
     (6,954
        )
     68,965
         



     Operating income (loss) 
     6,828
         
     (625
        )
     (1,232
        )
     (1,832
        )
     84
         
     3,223
         



     Non-recurring expense 
     582
         
     —
         
     378
         
     —
         
     —
         
     960
         



     Depreciation expense 
     1,177
         
     213
         
     146
         
     91
         
     —
         
     1,627
         



     Capital expenditures 
     709
         
     58
         
     47
         
     57
         
     —
         
     871
         



     Total assets 
     47,895
         
     10,008
         
     21,663
         
     29,521
         
     (10,982
        )
     98,105
         



     Long-lived assets 
     17,759
         
     3,808
         
     1,125
         
     22,016
         
     —
         
     44,708
         



     
Three months ended July 4, 1998		 



     Net sales 
     27,121
         
     1,248
         
     9,710
         
     249
         
     (4,687
        )
     33,641
         



     Operating income (loss) 
     3,318
         
     96
         
     (304
        )
     (1,048
        )
     —
         
     2,062
         



     Non-recurring expense 
     —
         
     —
         
     —
         
     —
         
     —
         
     —
         



     Depreciation expense 
     407
         
     76
         
     64
         
     24
         
     —
         
     571
         



     Capital expenditures 
     1,021
         
     —
         
     3
         
     8
         
     —
         
     1,032
         



     
Six months ended July 4, 1998		 



     Net sales 
     49,788
         
     2,613
         
     18,991
         
     1,127
         
     (7,777
        )
     64,742
         



     Operating income (loss) 
     5,603
         
     236
         
     (663
        )
     (1,493
        )
     —
         
     3,683
         



     Non-recurring expense 
     —
         
     —
         
     —
         
     —
         
     —
         
     —
         



     Depreciation expense 
     783
         
     151
         
     131
         
     62
         
     —
         
     1,127
         



     Capital expenditures 
     1,960
         
     72
         
     132
         
     47
         
     —
         
     2,211
         



     
Total assets		 
     60,592
         
     10,156
         
     22,977
         
     20,563
         
     (10,982
        )
     103,306
         



     Long-lived assets 
     24,297
         
     4,151
         
     1,386
         
     12,781
         
     —
         
     42,615
         







     

     (1)
     
     
Includes sales of discontinued
     product lines in addition to corporate and other general Company assets and
     operations. 




     

     (2)
     
     
Includes elimination of intercompany
     sales and receivables. Intercompany sale transactions are predominantly from
     the Cooking Systems Group to the International Distribution Division. 
















Net sales by major geographic region, including those sales
from the Cooking Systems Group direct to international customers, were as
follows (in thousands): 












     
     Three Months Ended

     Six Months Ended





     
     July 3,

     July 4,

     July 3,

     July 4,



     
     1999

     1998

     1999

     1998



     United States
      
     $24,765
         
     $22,791
         
     $46,818
         
     $42,726
         



     



     Asia 
     3,669
         
     3,215
         
     7,003
         
     7,289
         



     Europe and Middle East 
     3,696
         
     3,378
         
     6,825
         
     7,338
         



     Latin America 
     3,123
         
     3,015
         
     5,785
         
     5,168
         



     Canada 
     1,274
         
     1,242
         
     2,534
         
     2,221
         



     



          Total International 
     11,762
         
     10,850
         
     22,147
         
     22,016
         



     



     Net Sales 
     $36,527
         
     $33,641
         
     $68,965
         
     $64,742
         



     















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 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,
in particular any continued weakness in Asian economies; 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). Any forward
looking statements contained in this report speak only as of the date of this
filing. The Company undertakes no obligation to update publicly any forward
looking information, whether as a result of new information, future events or
otherwise. 





















Net Sales Summary











     
     Three Months Ended

     Six Months Ended  





     
     July 3, 1999

     July 4, 1998

     July 3, 1999

     July 4, 1998





     
     Sales  

     Percent

     Sales  

     Percent

     Sales  

     Percent

     Sales  

     Percent



     Business Divisions
      
     
         
     
         
     
         
     
         
     
         
     
         
     
         
     
         



     
Conveyor oven		 



       equipment 
     $ 13,374
         
     36.6
         
     $ 12,601
         
     37.5
         
     $ 24,809
         
     36.0
         
     $ 22,142
         
     34.2
         



     Counterline cooking 



       equipment 
     3,667
         
     10.0
         
     4,391
         
     13.1
         
     7,199
         
     10.4
         
     7,997
         
     12.4
         



     Core cooking 



       equipment 
     11,071
         
     30.3
         
     10,129
         
     30.1
         
     21,546
         
     31.3
         
     19,649
         
     30.3
         



     



     
Total Cooking Systems		 



       Group 
     28,112
         
     76.9
         
     27,121
         
     80.6
         
     53,554
         
     77.7
         
     49,788
         
     76.9
         



     International Specialty 



       Equipment 
     1,179
         
     3.2
         
     1,248
         
     3.7
         
     2,370
         
     3.4
         
     2,613
         
     4.0
         



     
International		 



       Distribution (1) 
     10,476
         
     28.7
         
     9,710
         
     28.9
         
     19,688
         
     28.6
         
     18,991
         
     29.3
         



     



     
Total international		 



       divisions 
     11,655
         
     31.9
         
     10,958
         
     32.6
         
     22,058
         
     32.0
         
     21,604
         
     33.4
         



     
Intercompany		 



       sales (2) 
     (3,305
        )
     (9.0
        )
     (4,687
        )
     (13.9
        )
     (6,954
        )
     (10.1
        )
     (7,777
        )
     (12.0
        )



     Other 
     65
         
     0.2
         
     249
         
     0.7
         
     307
         
     0.4
         
     1,127
         
     1.7
         



     



     
  Total		 
     $ 36,527
         
     100.0
         
     $ 33,641
         
     100.0
         
     $ 68,965
         
     100.0
         
     $ 64,742
         
     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. 










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

     Six Months Ended  





     
     July 3, 1999

     July 4, 1998

     July 3, 1999

     July 4, 1998



     Net sales
      
     100.0
        %
     100.0
        %
     100.0
        %
     100.0
        %



     Cost of sales 
     70.6
        %
     68.3
        %
     70.5
        %
     68.9
        %



     



        Gross profit 
     29.4
        %
     31.7
        %
     29.5
        %
     31.1
        %



     Selling, general and administrative 



        expenses 
     22.7
        %
     25.6
        %
     23.4
        %
     25.4
        %



     Non-recurring expense 
     0.6
        %
     —
         
     1.4
        %
     —
         



     



        Income from operations 
     6.1
        %
     6.1
        %
     4.7
        %
     5.7
        %



     Interest expense and deferred 



        financing amortization, net 
     1.9
        %
     2.2
        %
     2.0
        %
     2.3
        %



     Other (income) expense, net 
     0.2
        %
     0.4
        %
     0.5
        %
     0.4
        %



     



        Earnings before income taxes 
     4.0
        %
     3.5
        %
     2.2
        %
     3.0
        %



     Provision for income taxes 
     2.9
        %
     1.1
        %
     2.1
        %
     1.0
        %



     



        Net earnings 
     1.1
        %
     2.4
        %
     0.1
        %
     2.0
        %



     
















Three Months Ended July 3, 1999 Compared to Three Months Ended July 4, 1998




NET SALES.   Net sales in the three-month period ended July 3,
1999 increased 9% to $36.5 million as compared to $33.6 million in the
three-month period ended July 4, 1998. 



Sales of the Cooking Systems Group for the three-month period
ended July 3, 1999 increased 4% to $28.1 million from $27.1 million in the
prior year. Sales of conveyor oven equipment increased 6% due to continued
strength in sales to major restaurant chains. Core cooking equipment sales
increased 9% with continued success of new product introductions and market
penetration. Sales of counterline equipment decreased 16% due to the
replacement of certain product offerings, as the Company continues to
strengthen the Toastmaster brand. 



Sales of the international divisions increased 6% to $11.7
million from $11.0 million in the previous year period. Net sales of the
International Distribution Division increased by 8%. Improved sales in most international markets were
offset in part by reduced sales into
Japan, and the Philippines. Sales of the International Specialty Equipment
Division decreased by $69,000, or 5%, reflecting continued sluggishness of
restaurant, hotel and resort development within the region. 



GROSS PROFIT.   Gross profit remained consistent with the prior year period
at $10.7 million.
As a percentage of sales, gross margins decreased from 31.7% in the prior year
to 29.4%, principally due to lower margins at the Philippines manufacturing
operation resulting from lower volume and unfavorable sales mix. Also, margins
for the International Distribution business were slightly lower due to costs
associated with inventory reduction programs, which have resulted in a 25%
decrease in inventory levels within Asia and Europe since year-end. Further,
provisions for inventory increased for potential exposures resulting from
product replacement decisions at the Cooking Systems Group. 



SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.   Selling, general
and administrative expenses decreased to $8.3 million as compared to $8.6
million in the prior year period. As a percentage of net sales, expenses
decreased to 22.7% as compared to 25.6%. The net decrease reflects the partial
impact of cost reductions made during the first half of the year and lower
commissions expense. 



NON-RECURRING EXPENSES.   Non-recurring expenses of
approximately $0.2 million were recorded during the quarter for severance and
benefit costs associated with employee reduction efforts at the Cooking Systems
Group and the International Distribution division. 






















     
INCOME FROM OPERATIONS.   Income from operations increased to $2.2 million
from $2.1 million in the prior year. The net change in earnings reflects
increased sales offset by lower gross margins and the effect of non-recurring
expenses. 


     
NON-OPERATING EXPENSES.   Non-operating expenses decreased to $0.8 million
from $0.9 million in the prior year due in part to slightly reduced interest
expense on lower borrowings. 


     
INCOME TAXES.   A tax provision of $1.0 million at an effective rate of 72%
was recorded during the quarter primarily associated with taxable income
reported at the domestic operations, while no benefit was recognized for losses
at international subsidiaries. 









Six Months Ended July 3, 1999 Compared to Six Months Ended July 4, 1998


     
NET SALES.   Net sales in the six-month period ended July 3, 1999 increased 7%
to $69.0 million as compared to $64.7 million in the six-month period ended
July 3, 1998. 


     
Sales of the Cooking Systems Group for the six-month period ended July 3,
1999 increased 8% to $53.6 million from $49.8 million in the prior year. Sales
of conveyor oven equipment increased 12% due to improved sales to major
restaurant chains. Core cooking equipment sales increased 10% largely due to
market penetration and success with new product introductions. Counterline
equipment sales decreased 10% due to product replacement as the Company
continues with efforts to strengthen the Toastmaster product offering. 


     
Sales of the international divisions increased 2% to $22.1 million from
$21.6 million in the previous year period. Net sales of the International
Distribution division increased by 4% with greater sales in Latin America and
Canada, offset by decreased sales in Europe and Asia. Within Asia, improving
sales within Taiwan and Korea have been more than offset by reduced sales into
Japan, the Philippines and certain other Asian markets. Sales of the
International Specialty Equipment division decreased 9% from the prior year
period, as a result of continued sluggishness of restaurant, hotel and resort
development within the region. Prior year revenue included sales to a certain
major U.S. restaurant chain, which has temporarily slowed the rate of store
openings within Asia. 


     
GROSS PROFIT.   Gross profit increased to $20.3 million from $20.1 million.
However, as a percentage of sales, gross margins decreased from 31.1% to 29.5%.
Margin percentage has been affected by lower margins at the Philippines
manufacturing operation resulting from lower volume and unfavorable sales mix.
Margins for the Cooking Systems Group have been impacted by provisions for
inventory associated with product replacement decisions and by higher warranty
costs associated with new product offerings. Also, margins for the
International Distribution business were slightly lower due to costs associated
with inventory reduction programs. 




















     
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.   Selling, general and
administrative expenses decreased from $16.4 million to $16.2 million. As a
percentage of net sales, selling, general and administrative expenses decreased
to 23.4% as compared to 25.4%. Expenses for the first half of the year reflect
higher commissions and marketing costs offset by the partial benefit of cost
reduction measures implemented during the first and second quarters of 1999. 


     
NON-RECURRING EXPENSES.   Non-recurring expenses of approximately $1.0 million
were recorded during the six months ended July 3, 1999 for severance and
benefit costs associated with employee reduction efforts and office relocations
at the International Distribution division and the Cooking Systems Group.
Employee headcount has been reduced as a result of the cost reduction measures
to 872 at the end of the quarter as compared to 994 at the fiscal year-end of
1998. 


     
INCOME FROM OPERATIONS.   Income from operations decreased to $3.2 million
from $3.7 million in the prior year, principally due to non-recurring expenses
incurred during 1999. Excluding non-recurring expenses, income from operations
increased by $0.5 million to $4.1 million, as a result of increased sales and
the benefit of continuing cost reduction efforts. 


     
NON-OPERATING EXPENSES.   Non-operating expenses of $1.7 million remained
consistent with the prior year period. Interest expense decreased by $0.1
million from the prior year on lower borrowings, while other expense increased
by $0.1 million due in part to foreign exchange losses. 


     
INCOME TAXES.   A tax provision of $1.4 million was recorded during the six
months ended July 3, 1999 at an effective rate of 96%. A provision has been
recorded for income associated with U.S. operations, while no benefit has been
recorded for losses associated with the foreign operations. 







Financial Condition and Liquidity



     
Total cash and cash equivalents decreased by $2.4 million to $4.4 million at
July 3, 1999 from $6.8 million at January 2, 1999. Net borrowings declined from
$27.8 million at January 2, 1999 to $26.8 million at July 3, 1999. The net use
of liquidity was primarily to fund capital expenditures of $0.9 million and
operating activities of $0.6 million. 


     
OPERATING ACTIVITIES.   Net cash provided by operating activities before
changes in assets and liabilities was $3.7 million in the six months ended July
3, 1999 as compared to $3.3 million in the prior year period. Net cash used by
operating activities after changes in assets and liabilities was $0.6 million
as compared to $6.6 million in the prior year period. The improvement in
operating cash flow from the prior year period is largely due to inventory
reduction efforts which took place during the first six months of 1999,
representing a $5.0 million improvement in cash flow from the prior year period. 




















     
During the first six months of 1999, accounts receivables increased $3.0
million due to increased domestic sales and slower collections of receivables in the
Philippines from a certain major restaurant chain due to a delay in store
openings. Inventories decreased by $2.3 million as a result of the Company’s
inventory reduction efforts, particularly within the international markets. The
net increase in prepaid expenses and other assets of $2.2 million was
principally due to the establishment of a trust to fund retirement benefits
under executive employment agreements. Accounts payable decreased $2.1 million
due to the timing of payments, including the effect of repayments of payables
which were extended at the prior year-end. Accrued expenses and other
liabilities increased $0.9 million due to increased reserve levels associated
with severance requirements and an increase in liabilities under certain sales
related programs. 


     
INVESTING ACTIVITIES.   During the first half of 1999, the Company had capital
expenditures of $0.9 million primarily to enhance manufacturing capabilities
and upgrade computer systems at the Cooking Systems Group. 


     
FINANCING ACTIVITIES.   Net borrowings under financing arrangements decreased
from $27.8 million to $26.8 million during the first half of 1999. The net
decrease is primarily due to the repayment of $0.9 million in borrowings in a
peseta-denominated loan under the Company’s multi-currency revolving line of
credit during the second quarter of 1999. 


     
During the first quarter of 1999, the Company’s financing agreements were
amended to reduce the credit limit under the revolving credit facility from
$20.0 million to $10.0 million and to adjust the minimum requirements for
certain covenants which the Company had violated at year-end. As of July 3,
1999, the Company was in compliance with the amended covenants. Management
believes that the Company will have sufficient financial resources available to
meet its anticipated requirements for working capital, growth strategies,
capital expenditures and debt amortization for the foreseeable future. 










Year 2000 Compliance


     
The Company has assessed and continues to assess the impact of the Year 2000
issue on its reporting systems and operations. The Year 2000 issue exists
because many computer systems and applications currently use two-digit date
fields to designate a year. As the century date occurs, date sensitive systems
may recognize the Year 2000 as 1900 or not at all. This inability to recognize
or properly treat the year 2000 may cause the Company’s systems to process
critical financial and operational information incorrectly. 


     
The Company has undertaken a review of its information technology (“IT”)
systems. The Company has implemented new IT systems at its International
Distribution Division to enhance its current transaction processing and
information reporting capabilities. These systems are Year 2000 compliant. 



















     
In addition, the Company has substantially completed upgrades to existing IT
systems at all other business units to make these systems Year 2000 compliant. 


     
The Company has also undertaken a review of its critical non-IT systems,
such as production machinery and phone systems. The Company is in the process
of contacting equipment vendors and service providers to assess the potential
risk associated with these systems. Non-compliant systems will be replaced or
modified. Based upon internal evaluations and assurances provided by equipment
and service vendors, the Company does not believe significant modification to
or replacement of existing non-IT systems will be required. However, the
Company cannot verify the assurances it has been provided from third parties. 


     
Additionally, a review of key suppliers and customers is in process to
ensure that the flow of products and services will not be disrupted as a result
of failure of the supplier or customer to become Year 2000 compliant. While the
Company is receiving assurances that no such interruption will occur, the
Company cannot ensure that third parties will become compliant. Any significant
or prolonged interruption in the supply of essential services or products would
adversely affect the Company’s operations and ability to conduct business. In
the event that the Company identifies problems with a service provider or other
vendor, it will attempt to obtain services and products from other available
sources. Similarly, problems with a significant portion of the Company’s
customers in processing and paying invoices could materially impact the
Company’s cash flows or liquidity. The Company is unable to anticipate whether
a significant portion of its customers will have difficulty in processing and
paying invoices. 


     
Expenses associated with the Year 2000 issue relate primarily to the
modification of existing IT systems, and to date have not been material. The
Company anticipates that remaining costs to fully address these matters will
not exceed $0.1 million. The Company does not anticipate that future costs to
address the Year 2000 issue will have a material effect on its financial
condition. 


     
The foregoing is a Year 2000 readiness disclosure entitled to protection as
provided in the Year 2000 Information and Readiness Disclosure Act. 









International Exposure


     
The Company has manufacturing operations located in Asia and distribution
operations in Asia, Canada, Europe and Latin America. The Company anticipates
that international sales will continue to account for a significant portion of
consolidated net sales in the foreseeable future. Countries within Asia and
certain other regions continue to be impacted by adverse economic conditions
which have affected the Company’s sales volumes into these markets. 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 U.S. dollar sales and earnings.  





















     
Additionally, foreign currency exposures are currently not specifically
hedged and there can be no assurances that the Company’s future results of
operations will not be adversely affected by currency fluctuations.  









Item 3.     Quantitative and Qualitative Disclosures About Market 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)




     1999
      
     $  1,999
         
     $     —
         



     2000 
     10,096
         
     —
         



     2001 
     4,981
         
     2,234
         



     2002 
     5,000
         
     —
         



     2003 
     2,500
         
     —
         



     



       
     $24,576
         
     $2,234
         



     









     
Fixed rate debt is comprised of a $15.0 million senior note and $9.6 million
due under lease arrangements. The senior note bears interest at a rate of
10.99% and the lease arrangements bear interest at an average implicit interest
rate of 10.2%. Variable rate debt is comprised of a $2.2 million yen
denominated loan under the Company’s $10.0 million revolving credit line.
Interest under the revolving credit facility is assessed based upon the bank’s
reference rate. The average interest rate assessed to the yen denominated loan
during the first half of 1999 was 0.9%. 




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 July 3, 1999,
except as follows: 




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: 




     

     
     
     None. 

















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. 









  



                     5

                                   1,000

                             
                   3-MOS
                              JAN-01-2000
                                 APR-03-1999
                                   JUL-03-1999
                                               4,411
                                             0
                                       27,156
                                             0
                                         18,153
                                    53,397
                                              38,606
                                      16,696
                                      98,105
                               23,970
                                                  0
                                    0
                                              0
                                               110
                                          44,528
                        98,105
                                             36,527
                                    36,527
                                               25,801
                                       25,801
                                     8,490
                                         0
                                     696
                                      1,447
                                         1,046
                                    401
                                           0
                                          0
                                                0
                                           401
                                           0.04
                                         0.04






     

     
     
     
THE MIDDLEBY CORPORATION
         
              (Registrant)



      
      
      



     Date:    August 16, 1999   
     By:
     /s/ John J. Hastings              
     

John J. Hastings, Executive
Vice President, Chief
Financial Officer and

     Secretary
(Principal Financial and
Accounting Officer)