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     10-Q
























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 October 2, 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 November 10, 1999, there were 10,170,971 shares of the
registrant’s common stock outstanding. 






























THE MIDDLEBY CORPORATION AND SUBSIDIARIES




QUARTER ENDED OCTOBER 2, 1999





INDEX 










DESCRIPTION                                                  PAGE

PART I.  FINANCIAL INFORMATION

         Item 1.  Consolidated Financial Statements

                  BALANCE SHEETS                               1
                    October 2, 1999 and January 2, 1999

                  STATEMENTS OF EARNINGS                       2
                    October 2, 1999 and October 3, 1998

                  STATEMENTS OF CASH FLOWS                     3
                    October 2, 1999 and October 3, 1998

                  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                         15


PART II. OTHER INFORMATION                                    16


















PART I. FINANCIAL INFORMATION 




THE MIDDLEBY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)













     
     (Unaudited)



     
     Oct. 2, 1999

     Jan. 2, 1999



     ASSETS
      
     
         
     
         



     Cash and cash equivalents 
     $   10,127
         
     $   6,768
         



     Accounts receivable, net 
     26,942
         
     24,330
         



     Inventories, net 
     17,424
         
     20,456
         



     Prepaid expenses and other 
     986
         
     941
         



     Current deferred taxes 
     2,895
         
     2,895
         



     



          Total current assets 
     58,374
         
     55,390
         



     Property, plant and equipment, net of 



       accumulated depreciation of 



       $17,241 and $15,910 
     21,497
         
     22,596
         



     Excess purchase price over net assets 



       acquired, net of accumulated 



       amortization of $5,592 and $5,186 
     13,212
         
     13,617
         



     Deferred taxes 
     4,110
         
     5,347
         



     Other assets 
     4,836
         
     2,729
         



     



                 Total assets 
     $ 102,029
         
     $ 99,679
         



     



     LIABILITIES AND SHAREHOLDERS’ EQUITY 



     Current maturities of long-term debt . 
     $     2,113
         
     $   1,893
         



     Accounts payable 
     8,191
         
     10,945
         



     Accrued expenses 
     15,699
         
     11,943
         



     



          Total current liabilities 
     26,003
         
     24,781
         



     Long-term debt 
     26,632
         
     25,932
         



     Retirement benefits and other 



       non-current liabilities 
     5,061
         
     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 
     54,654
         
     54,602
         



       Treasury stock at cost; 838,000 



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



       Accumulated deficit 
     (4,908
        )
     (4,303
        )



       Accumulated other comprehensive 



         income 
     (2,214
        )
     (2,366
        )



     



          Total shareholders’ equity 
     44,333
         
     44,734
         



     



                 Total liabilities and 



                   shareholders’ equity 
     $ 102,029
         
     $ 99,679
         



     











See accompanying notes





















THE MIDDLEBY CORPORATION AND SUBSIDIARIES

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



(Unaudited) 












     
     Three Months Ended

     Nine Months Ended



     
     Oct. 2, 1999

     Oct. 3, 1998

     Oct. 2, 1999

     Oct. 3, 1998



     Net sales
      
     $ 31,988
         
     $ 33,891
         
     $ 100,953
         
     $98,633
         



     Cost of sales 
     21,810
         
     24,471
         
     70,426
         
     69,103
         



     



         Gross profit 
     10,178
         
     9,420
         
     30,527
         
     29,530
         



     Selling and distribution expenses 
     4,817
         
     5,016
         
     14,158
         
     15,534
         



     General and administrative expenses 
     3,356
         
     2,992
         
     10,181
         
     8,901
         



     Non-recurring expense 
     1,248
         
     1,525
         
     2,208
         
     1,525
         



     



         Income (loss) from operations 
     757
         
     (113
        )
     3,980
         
     3,570
         



     Interest expense and deferred 



       financing amortization 
     665
         
     665
         
     2,052
         
     2,161
         



     Other expense, (income) net 
     218
         
     160
         
     570
         
     413
         



         (Loss) earnings before 



           income taxes 
     (126
        )
     (938
        )
     1,358
         
     996
         



     Provision for income taxes 
     531
         
     (50
        )
     1,963
         
     573
         



     



          Net (loss) earnings 
     $    (657
        )
     $    (888
        )
     $      (605
        )
     $     423
         



     



     Net(loss) earnings per share: 



         Basic 
     $  (0.06
        )
     $  (0.08
        )
     $    (0.06
        )
     $    0.04
         



         Diluted 
     $  (0.06
        )
     $  (0.08
        )
     $    (0.06
        )
     $    0.04
         



     Weighted average number of shares: 



         Basic 
     10,158
         
     10,824
         
     10,158
         
     11,053
         



         Diluted 
     10,316
         
     10,864
         
     10,275
         
     11,211
         












See accompanying notes
























 THE MIDDLEBY CORPORATION AND SUBSIDIARIES

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
















     
     Nine Months Ended



     
     Oct. 2, 1999

     Oct. 3, 1998



     Cash flows from operating activities-
      
     
         
     
         



       Net earnings 
     $    (605
        )
     $      423
         



       Adjustments to reconcile net earnings 



         to cash provided by continuing 



         operating activities 



         Depreciation and amortization 
     2,855
         
     1,997
         



         Utilization of NOL’s 
     1,650
         
     513
         



         Non-cash portion of non-recurring 



           charges 
     1,248
         
     1,405
         



       Changes in assets and liabilities- 



         Accounts receivable 
     (2,612
        )
     (3,042
        )



         Inventories 
     3,032
         
     (2,395
        )



         Prepaid expenses and other assets 
     (2,407
        )
     (1,150
        )



         Accounts payable 
     (2,753
        )
     (2,090
        )



         Accrued expenses and other 



           liabilities 
     3,042
         
     (214
        )



     



       Net cash provided by (used in) 



         operating activities 
     3,450
         
     (4,553
        )



     



     Cash flows from investing activities- 



       Purchase of subsidiary minority 



         interest 
     —
         
     (1,134
        )



       Additions to property and equipment 
     (1,106
        )
     (2,425
        )



     



       Net cash (used in) provided by 



         investing activities 
     (1,106
        )
     (3,559
        )



     



     Cash flows from financing activities- 



       Proceeds (repayments under 



         intellectual property lease) 
     290
         
     (204
        )



       Increase in revolving credit line, net 
     811
         
     1,361
         



       Repurchase of treasury stock 
     —
         
     (1,948
        )



       Other financing activities, net 
     (310
        )
     (114
        )



     



       Net cash (used in) provided by 



         financing activities 
     791
         
     (905
        )



     Effect of exchange rates on cash 
     224
         
     (269
        )



     Changes in cash and cash equivalents- 



       Net decrease in cash and cash 



         equivalents 
     3,359
         
     (9,286
        )



       Cash and cash equivalents at 



         beginning of year 
     6,768
         
     12,321
         



     



       Cash and cash equivalents at end 



         of quarter 
     $ 10,127
         
     $   3,035
         



     



     Interest paid 
     $   1,695
         
     $   2,061
         



     



     Income taxes paid 
     $      176
         
     $      623
         



     











See accompanying notes























THE MIDDLEBY CORPORATION AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS



OCTOBER 2, 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 October
2, 1999 and January 2, 1999, and the results of operations for the nine months
ended October 2, 1999 and October 3, 1998 and cash flows for the nine months
ended October 2, 1999 and October 3, 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:












     
     Nine Months Ended



     
     Oct. 2, 1999

     Oct. 3, 1998



     
     (in thousands)



     Net earnings
      
     $(605
        )
     $ 423
         



     Cumulative translation 



       adjustment 
     152
         
     (477
        )



     



       Comprehensive (loss) 



         income 
     $(453
        )
     $(54
        )



     















 
3)

Inventories











 

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









 

Inventories
consist of the following:












     
     Oct. 2, 1999

     Jan. 2, 1999



     
     (In thousands)



     Raw materials and parts
      
     $  4,222
         
     $  5,281
         



     Work-in-process 
     4,607
         
     3,743
         



     Finished goods 
     8,595
         
     11,432
         



     



       
     $17,424
         
     $20,456
         



     









 
4)

Accrued Expenses











 

Accrued
expenses consist of the following:












     
     Oct. 2, 1999

     Jan. 2, 1999



     
     (In thousands)



     Accrued payroll and
      
     
         
     
         



       related expenses 
     $  4,327
         
     $  2,629
         



     Accrued customer rebates 
     2,954
         
     3,088
         



     Accrued commissions 
     1,436
         
     1,497
         



     Accrued warranty 
     1,920
         
     1,372
         



     Other accrued expenses 
     5,062
         
     3,357
         



     



       
     $15,699
         
     $11,943
         



     








 
5)

Non-recurring Expenses











 

During
the third quarter of 1999, the Company recorded restructuring charges
aggregating to $1,248,000. The charge provided for $1,020,000 related to cost
reduction actions at the Company’s International Distribution business. These
actions include the closure of the division headquarters located in Florida and
employee reduction efforts at the Florida headquarters office and the Japanese
distribution operation. The headquarters for the International Distribution
business has been integrated within the Company’s existing Corporate office.
Distribution operations previously existing at the Florida facility have been
integrated within regional distribution operations in Asia, Europe, and Latin
America. The recorded charge pertains to lease exit costs, the disposal of
fixed assets, and severance benefits. Additional charges of $228,000 were
recorded principally for severance benefits related to headcount reductions
within the International Specialty Equipment division. The Company anticipates
actions related to the third quarter initiatives to be substantially completed
by year-end.











 

During
the first and second quarters of 1999, the Company recorded non-recurring
expenses in the amount of $750,000 and $211,000, respectively. Theses charges
principally related to severance benefits for terminated employees at the





















 

Cooking
Systems Group and the International Distribution Division. As of October 2,
1999, the remaining liability associated with unpaid severance benefits
amounted to $245,000.











 

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. All actions associated with this initiative were fully concluded
at 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 October 2, 1999
      
     
         
     
         
     
         
     
         
     
         
     
         



     Net sales 
     $25,947
         
     $      538
         
     $   9,181
         
     $        41
         
     $(3,719
        )
     $   31,988
         



     Operating income (loss) 
     4,233
         
     (444
        )
     (472
        )
     (2,154
        )
     (406
        )
     757
         



     Non-recurring expense 
     —
         
     44
         
     —
         
     1,204
         
     —
         
     1,248
         



     Depreciation expense 
     502
         
     105
         
     73
         
     41
         
     —
         
     721
         



     Capital expenditures 
     127
         
     —
         
     69
         
     39
         
     —
         
     235
         



     Nine months ended October 2, 1999 



     Net sales 
     79,501
         
     2,908
         
     28,869
         
     348
         
     (10,673
        )
     100,953
         



     Operating income (loss) 
     11,061
         
     (1,069
        )
     (1,704
        )
     (3,986
        )
     (322
        )
     3,980
         



     Non-recurring expense 
     582
         
     44
         
     378
         
     1,204
         
     —
         
     2,208
         



     Depreciation expense 
     1,679
         
     318
         
     219
         
     132
         
     —
         
     2,348
         



     Capital expenditures 
     836
         
     58
         
     116
         
     96
         
     —
         
     1,106
         



     Total assets 
     47,134
         
     9,535
         
     19,659
         
     36,683
         
     (10,982
        )
     102,029
         



     Long-lived assets 
     17,506
         
     3,688
         
     1,160
         
     21,301
         
     —
         
     43,655
         



     Three months ended October 3, 1998 



     Net sales 
     26,474
         
     1,700
         
     9,409
         
     100
         
     (3,792
        )
     33,891
         



     Operating income (loss) 
     2,496
         
     183
         
     (553
        )
     (2,239
        )
     —
         
     (113
        )



     Non-recurring expense 
     —
         
     —
         
     —
         
     1,525
         
     —
         
     1,525
         



     Depreciation expense 
     418
         
     71
         
     67
         
     27
         
     —
         
     583
         



     Capital expenditures 
     188
         
     —
         
     6
         
     8
         
     —
         
     202
         



     Nine months ended October 3, 1998 



     Net sales 
     76,659
         
     4,312
         
     28,273
         
     832
         
     (11,443
        )
     98,633
         



     Operating income (loss) 
     8,029
         
     418
         
     (1,216
        )
     (3,661
        )
     —
         
     3,570
         



     Non-recurring expense 
     —
         
     —
         
     —
         
     1,525
         
     —
         
     1,525
         



     Depreciation expense 
     1,201
         
     222
         
     198
         
     89
         
     —
         
     1,710
         



     Capital expenditures 
     2,148
         
     72
         
     138
         
     67
         
     —
         
     2,425
         



     Total assets 
     44,450
         
     10,487
         
     22,856
         
     32,868
         
     (10,982
        )
     99,679
         



     Long-lived assets 
     18,226
         
     3,960
         
     1,350
         
     20,753
         
     —
         
     44,289
         













 
 
(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 were as follows (in thousands):












     
     Three Months Ended

     Nine Months Ended



     
     October 2,
1999

     October 3,
1998

     October 2,
1999

     October 3,
1998



     United States
      
     $22,104
         
     $22,903
         
     $  68,922
         
     $65,629
         



     Asia 
     2,509
         
     3,830
         
     9,512
         
     11,119
         



     Europe and Middle East 
     2,948
         
     3,471
         
     9,773
         
     10,809
         



     Latin America 
     3,462
         
     2,382
         
     9,247
         
     7,550
         



     Canada 
     965
         
     1,305
         
     3,499
         
     3,526
         



     



          Total International 
     9,884
         
     10,988
         
     32,031
         
     33,004
         



     



     Net Sales 
     $31,988
         
     $33,891
         
     $100,953
         
     $98,633
         



     











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

     Nine Months Ended



     
     Oct. 2, 1999

     Oct. 3, 1998

     Oct. 2, 1999

     Oct. 3, 1998



     
     Sales

     Percent

     Sales

     Percent

     Sales

     Percent

     Sales

     Percent



     Business Divisions
      
     
         
     
         
     
         
     
         
     
         
     
         
     
         
     
         



     Conveyor oven 



       equipment 
     $ 11,521
         
     36.0
         
     $ 11,462
         
     33.8
         
     $   36,330
         
     36.0
         
     $ 33,604
         
     34.1
         



     Counterline cooking 



       equipment 
     3,705
         
     11.6
         
     4,495
         
     13.3
         
     10,904
         
     10.8
         
     12,889
         
     13.0
         



     Core cooking 



       equipment 
     10,721
         
     33.5
         
     10,517
         
     31.0
         
     32,267
         
     32.0
         
     30,166
         
     30.6
         



     



     Total Cooking Systems 



       Group 
     25,947
         
     81.1
         
     26,474
         
     78.1
         
     79,501
         
     78.8
         
     76,659
         
     77.7
         



     International Specialty 



       Equipment 
     538
         
     1.7
         
     1,700
         
     5.0
         
     2,908
         
     2.9
         
     4,312
         
     4.4
         



     International 



       Distribution (1) 
     9,181
         
     28.7
         
     9,409
         
     27.8
         
     28,869
         
     28.6
         
     28,273
         
     28.7
         



     



     Total international 



       divisions 
     9,719
         
     30.4
         
     11,109
         
     32.8
         
     31,777
         
     31.5
         
     32,585
         
     33.1
         



      Intercompany 



       sales (2) 
     (3,719
        )
     (11.6
        )
     (3,792
        )
     (11.2
        )
     (10,673
        )
     (10.6
        )
     (11,443
        )
     (11.6
        )



     Other 
     41
         
     0.1
         
     100
         
     0.3
         
     348
         
     0.3
         
     832
         
     0.8
         



     



       Total 
     $ 31,988
         
     100.0
         
     $ 33,891
         
     100.0
         
     $ 100,953
         
     100.0
         
     $ 98,633
         
     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

     Nine Months Ended



     
     Oct. 2, 1999

     Oct. 3, 1998

     Oct. 2, 1999

     Oct. 3, 1998



     Net sales
      
     100.0
        %
     100.0
        %
     100.0
        %
     100.0
        %



     Cost of sales 
     68.2
        %
     72.2
        %
     69.8
        %
     70.1
        %



     



        Gross profit 
     31.8
        %
     27.8
        %
     30.2
        %
     29.9
        %



     Selling, general and administrative 



        expenses 
     25.5
        %
     23.6
        %
     24.1
        %
     24.8
        %



     Non-recurring expense 
     3.9
        %
     4.5
        %
     2.2
        %
     1.5
        %



     



        Income (loss) from operations 
     2.4
        %
     (0.3
        %)
     3.9
        %
     3.6
        %



     Interest expense and deferred 



        financing amortization, net 
     2.1
        %
     2.0
        %
     2.0
        %
     2.2
        %



     



     Other (income) expense, net 
     0.7
        %
     0.5
        %
     0.6
        %
     0.4
        %



        (Loss) earnings before 



           income taxes 
     (0.4
        %)
     (2.8
        %)
     1.3
        %
     1.0
        %



     Provision for income taxes 
     1.7
        %
     (0.1
        %)
     1.9
        %
     0.6
        %



     



        Net (loss) earnings 
     (2.1
        %)
     (2.7
        %)
     (0.6
        %)
     0.4
        %



     



















Three Months Ended October 2, 1999 Compared to Three Months
Ended October 3, 1998 




NET SALES. Net sales in the three-month period ended October 2,
1999 decreased 6% to $32.0 million as compared to $33.9 million in the
three-month period ended October 3, 1998. 



Sales of the Cooking Systems Group for the three-month period
ended October 2, 1999 decreased 2% to $25.9 million from $26.5 million in the
prior year. Sales of conveyor oven equipment remained consistent with the prior
year period. Core cooking equipment sales increased 2% with continued success
of new product introductions and market penetration. Sales of counterline
equipment decreased 18% due to the replacement of certain product offerings, as
the Company continues to strengthen the Toastmaster brand. 



Sales of the international divisions decreased 13% to $9.7
million from $11.1 million in the previous year period. Net sales of the
International Distribution Division decreased by 2%. The lower sales level
reflects the discontinuance of certain distributed product for third-party
manufacturers, which was offset by increased sales of the Company’s
manufactured product during the quarter. Continued sales growth in Europe and
Mexico were offset by unfavorable sales in Latin America and Asia. Sales of the
International Specialty Equipment Division decreased by $1.2 million, or 68%,
reflecting continued sluggishness of restaurant, hotel and resort development
within the region. 



GROSS PROFIT. Gross profit increased 8% to $10.2 million from
$9.4 million in the prior year period. As a percentage of sales, gross margins
increased from 27.8% in the prior year to 31.8% principally due to cost
reduction initiatives that commenced in the first quarter. However, margins for
the International Distribution business were slightly lower due to costs
associated with inventory reduction programs, which have resulted in a 33%
decrease in inventory levels predominately within Asia and Europe since
year-end. Additionally, gross margins at the International Speciality Equipment
division were adversely impacted by the reduced sales volume during the period. 



SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general
and administrative expenses increased to $8.2 million as compared to $8.0
million in the prior year period. As a percentage of net sales, expenses
increased to 25.5% as compared to 23.6%. Expenses for the quarter included
approximately $0.3 million related to a bi-annual trade show. Expenses were
also comparatively higher due in part to increased advertising, depreciation
and incentive compensation. 
























NON-RECURRING EXPENSES. The Company recorded restructuring
charges of approximately $1.2 million during the third quarter. The charge
provided for $1.0 million related to cost reduction actions at the Company’s
International Distribution business. These actions include the closure of the
division headquarters located in Florida and employee reduction efforts at the
Florida headquarters office and the Japanese distribution operation. The
headquarters for the International Distribution business has been integrated
within the Company’s existing Corporate office. Distribution operations
previously existing at the Florida facility have been integrated within
regional distribution operations in Asia, Europe, and Latin America. The
recorded charge pertains to lease exit costs, the disposal of fixed assets, and
severance benefits. Additional charges of $0.2 million were recorded
principally for severance benefits related to headcount reductions within the
International Specialty Equipment division. 



INCOME FROM OPERATIONS. Income from operations increased to
$0.8 million from $(0.1) million in the prior year. The net increase in
earnings reflects improved gross margins and slightly lower operating expenses. 



NON-OPERATING EXPENSES. Non-operating expenses increased to
$0.9 million from $0.8 million in the prior year due in part to exchange losses
resulting from weakening of the Philippine Peso at the end of the quarter. 



INCOME TAXES. A tax provision of $0.5 million was recorded
during the quarter primarily associated with taxable income reported at the
Company’s operations in Mexico, Europe and the United States, while no benefit
was recognized for losses at its international subsidiaries within Asia. 



Nine Months Ended October 2, 1999 Compared to Nine Months Ended
October 3, 1998 



NET SALES. Net sales in the nine-month period ended October 2,
1999 increased 2% to $101.0 million as compared to $98.6 million in the
nine-month period ended October 3, 1998. 



Sales of the Cooking Systems Group for the nine-month period
ended October 2, 1999 increased 4% to $79.5 million from $76.7 million in the
prior year. Sales of conveyor oven equipment increased 8% due to improved sales
to major restaurant chains. Core cooking equipment sales increased 7% largely
due to continued market penetration and success with new product introductions.
Counterline equipment sales decreased 15% due to product replacement activities
as the Company continues with efforts to strengthen the Toastmaster product
offering. 



Sales of the international divisions decreased 3% to $31.8
million from $32.7 million in the previous year period. Net sales of the
International Distribution division increased by 2% with greater sales in
Mexico, Europe and Canada, offset by decreased sales in Asia. Sales of the
International Specialty Equipment division decreased 33% 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 $30.5 million from
$29.5 million. As a percentage of sales, gross margins increased from 29.9% to
30.2%. Gross margins at the Cooking Systems Group reflect continued improvement
throughout the year as a result of cost reduction efforts implemented during
the first and second quarters of 1999. Favorable sales mix with increased sales
of conveyor oven equipment also contributed to the improved margins. This
improvement was offset in part by lower margins at the Philippines
manufacturing operation resulting from lower volume and production
inefficiencies during union labor negotiations. 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 to $24.3 million from $24.4 million in
the prior year. As a percentage of net sales, selling, general and
administrative expenses decreased to 24.1% as compared to 24.8%. Expenses for
the first nine months of the year reflect higher advertising costs,
depreciation expense, legal expense and incentive compensation offset by the
partial benefit of cost reduction measures implemented during the first nine
months of 1999. 



NON-RECURRING EXPENSES. Non-recurring expenses of approximately
$2.2 million were recorded during the nine months ended October 2, 1999 for
severance and benefit costs associated with employee reduction efforts for all
operating units and facility integration efforts at the International
Distribution division. Employee headcount has been reduced as a result of the
cost reduction measures to 844 at the end of the quarter as compared to 994 at
the fiscal year-end of 1998. 



INCOME FROM OPERATIONS. Income from operations increased to
$4.0 million from $3.6 million in the prior year, principally due to increased
sales volume and improved margin rate. Excluding non-recurring expenses, income
from operations increased by $1.1 million. 



NON-OPERATING EXPENSES. Non-operating expenses increased to
$2.6 million from $2.5 million in the prior year period. Interest expense of
$2.1 million was slightly less than 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 $2.0 million was recorded
during the nine months ended October 2, 1999. A provision has been recorded for
income associated with the Company’s operations in Mexico, Europe and the
United States, while no benefit has been recorded for losses at its
international subsidiaries within Asia. 




Financial Condition and Liquidity 




Total cash and cash equivalents increased by $3.4 million to
$10.1 million at October 2, 1999 from $6.8 million at January 2, 1999. Net
borrowings increased from $27.8 million at January 2, 1999 to $29.0 million at
October 2, 1999. The net increase in liquidity was provided by cash from
operating activities of $2.5 million and increased borrowings of $0.8 million
offset by capital expenditures of $1.1 million. 



OPERATING ACTIVITIES. Net cash provided by operating activities
before changes in assets and liabilities was $5.1 million in the nine months
ended October 2, 1999 as compared to $4.3 million in the prior year period. Net
cash provided by operating activities after changes in assets and liabilities
was $3.5 million as compared to net cash used of $4.6 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
nine months of 1999, representing a $3.0 million improvement in cash flow from
the prior year period. 



During the first nine months of 1999, accounts receivables
increased $2.6 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 $3.0 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
$2.4 million was principally due to the establishment of a trust to fund
retirement benefits under executive employment agreements. Accounts payable
decreased $2.8 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 $3.0 million due to increased reserve
levels associated with severance requirements and an increase in liabilities
under certain sales related programs. 



INVESTING ACTIVITIES. During the nine months of 1999, the
Company had capital expenditures of $1.1 million primarily to enhance
manufacturing capabilities and upgrade computer systems at the Cooking Systems
Group. 

























FINANCING ACTIVITIES. Net borrowings under financing
arrangements increased from $27.8 million to $29.0 million during the first
nine months of 1999. The net increase is primarily due to net borrowings of
$0.8 million in a foreign currency denominated loan under its unsecured
multi-currency revolving credit line. 



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 October 2, 1999, the Company was not in compliance with the amended
covenants. The Company is obtaining waivers for these covenant violations.
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 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 has
contacted equipment vendors and service providers to assess the potential risk
associated with these systems. Non-compliant systems have been replaced or
modified. Based upon internal evaluations and assurances provided by equipment
and service vendors, the Company does not believe further 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 has been
completed 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 an interruption with a
service provider or other vendor occurs, the Company will 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 does not anticipate any future costs to address the Year 2000 issue
will be incurred. 



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, certain foreign currency exposures, typically of
a long-term nature, are 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
         
     3,960
         



     2002 
     5,000
         
     —
         



     2003 
     2,500
         
     —
         



       
     $24,576
         
     $3,960
         



     










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 and a $1.7 million Euro 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 in the first three quarters of 1999 was 0.9% for the Yen
denominated loan and 3.6% in the third quarter for the Euro denominated loan. 



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 October
2, 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.




















SIGNATURE



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 16, 1999
 
By: /s/ Timothy J. FitzGerald

      Timothy J. FitzGerald

      Corporate Controller

      (Principal Financial and

      Accounting Officer)








 



                     5

                             
                   3-MOS
                    JAN-01-2000
                       JUL-04-1999
                         OCT-02-1999
                                    10,127
                                   0
                             26,942
                                   0
                               17,424
                          58,374
                                    21,497
                            17,241
                           102,029
                     26,003
                                        0
                          0
                                    0
                                     110
                                44,333
             102,029
                                   31,988
                          31,988
                                     21,810
                             21,810
                           9,421
                               0
                           665
                             (126)
                                 531
                         (657)
                                 0
                                0
                                      0
                                (657)
                                (0.06)
                              (0.06)