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 4, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 1-9973
THE MIDDLEBY CORPORATION
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3352497
------------------------------ ----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2850 W. GOLF ROAD, SUITE 405, ROLLING MEADOWS, ILLINOIS 60008
- ------------------------------------------------------- --------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No., including Area Code (847) 758-3880
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. YES X NO
--- ---
As of July 6, 1998, there were 10,982,021 shares of the Registrant's common
stock outstanding.
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
QUARTER ENDED JULY 4, 1998
INDEX
DESCRIPTION PAGE
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
BALANCE SHEETS 1
July 4, 1998 and January 3, 1998
STATEMENTS OF EARNINGS 2
July 4, 1998 and June 28, 1997
STATEMENTS OF CASH FLOWS 3
July 4, 1998 and June 28, 1997
NOTES TO FINANCIAL STATEMENTS 4
Item 2. Management's Discussion and Analysis 8
of Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 13
PART II. OTHER INFORMATION 14
PART I. FINANCIAL INFORMATION
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
JULY 4, 1998 JAN. 3, 1998
------------ ------------
ASSETS
- --------------------------------------
Cash and cash equivalents............. $ 1,533 $ 12,321
Accounts receivable, net.............. 26,182 22,251
Inventories, net...................... 26,636 24,072
Prepaid expenses and other............ 1,779 1,248
Current deferred taxes................ 2,462 3,000
-------- --------
Total current assets............. 58,592 62,892
Property, plant and equipment, net of
accumulated depreciation of
$14,659 and $13,534................. 22,876 21,790
Excess purchase price over net assets
acquired, net of accumulated
amortization of $4,907 and
$4,673.............................. 13,782 12,882
Deferred taxes........................ 3,835 3,779
Other assets.......................... 2,322 2,135
-------- --------
Total assets..................... $101,407 $103,478
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------
Current maturities of long-term debt.. $ 2,757 $ 3,595
Accounts payable...................... 8,888 11,600
Accrued expenses...................... 9,287 9,255
-------- --------
Total current liabilities........ 20,932 24,450
Long-term debt........................ 24,287 24,318
Other non-current liabilities......... 1,934 2,109
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;
10,982,000 and 10,895,000 issued
and outstanding in 1998 and
1997, respectively................ 110 109
Paid-in capital..................... 54,583 53,984
Cumulative translation adjustment... (1,431) (1,173)
Accumulated earnings (deficit)...... 992 (319)
-------- --------
Total shareholders' equity....... 54,254 52,601
-------- --------
Total liabilities and
shareholders' equity.... $101,407 $103,478
-------- --------
-------- --------
See accompanying notes
- 1 -
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Six Months Ended
-------------------- ---------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
---- ---- ---- ----
Net sales. . . . . . . . . . . . . . . . $ 33,641 $ 42,082 $ 64,742 $ 74,780
Cost of sales. . . . . . . . . . . . . . 22,969 29,268 44,632 51,492
-------- -------- -------- --------
Gross profit . . . . . . . . . . . . 10,672 12,814 20,110 23,288
Selling and distribution expenses. . . . 5,417 6,035 10,518 10,716
General and administrative expenses. . . 3,193 3,044 5,909 5,719
-------- -------- -------- --------
Income from operations . . . . . . . 2,062 3,735 3,683 6,853
Interest expense and deferred
financing amortization . . . . . . . . 759 1,257 1,496 2,338
Other expense(income), net . . . . . . . 141 18 253 (20)
-------- -------- -------- --------
Earnings before income taxes . . . . 1,162 2,460 1,934 4,535
Provision for income taxes.... . . . . . 371 873 623 1,562
-------- -------- -------- --------
Earnings from continuing
operations . . . . . . . . . . . . 791 1,587 1,311 2,973
-------- -------- -------- --------
Loss from discontinued operations,
net of tax . . . . . . . . . . . . . - (564) - (564)
-------- -------- -------- --------
Net earnings . . . . . . . . . . . . $ 791 $ 1,023 $ 1,311 $ 2,409
-------- -------- -------- --------
-------- -------- -------- --------
Basic earnings (loss) per share:
Continuing operations. . . . . . . . $ 0.07 $ 0.18 $ 0.12 $ 0.34
Discontinued operations. . . . . . . 0.00 (0.06) 0.00 (0.06)
-------- -------- -------- --------
Net earnings per share . . . . . . . $ 0.07 $ 0.12 $ 0.12 $ 0.28
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of shares. . 11,007 8,481 10,972 8,476
Diluted earnings (loss) per share:
Continuing operations. . . . . . . . $ 0.07 $ 0.18 $ 0.12 $ 0.34
Discontinued operations. . . . . . . 0.00 (0.06) 0.00 (0.06)
-------- -------- -------- --------
Net earnings per share . . . . . . . $ 0.07 $ 0.12 $ 0.12 $ 0.28
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of shares. . . . 11,202 8,757 11,170 8,739
See accompanying notes
- 2 -
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
--------------------------
JULY 4, 1998 JUNE 28, 1997
------------ -------------
Cash flows from operating activities-
Net earnings............................ $ 1,311 $ 2,409
Adjustments to reconcile net earnings
to cash provided by continuing
operating activities-
Depreciation and amortization......... 1,395 1,500
Utilization of NOL's.................. 604 1,416
Discontinued operations............... - 564
Changes in assets and liabilities-
Accounts receivable................. (3,931) (6,525)
Inventories......................... (2,564) (3,725)
Prepaid expenses and other assets... (750) (914)
Accounts payable and other
liabilities....................... (2,681) 3,407
--------- ---------
Net cash used in continuing
operating activities.................. (6,616) (1,868)
Net cash used in
discontinued operations............... - (2,963)
--------- ---------
Net cash used in operating activities... (6,616) (4,831)
--------- ---------
Cash flows from investing activities-
Purchase of subsidiary minority
interest.............................. (1,134) -
Proceeds from sale of discontinued
operations............................ - 5,081
Additions to property and equipment..... (2,211) (1,702)
--------- ---------
Net cash (used in) provided by
investing activities.................. (3,345) 3,379
--------- ---------
Cash flows from financing activities-
Increase in revolving credit line, net.. - 2,687
Reduction in term loans................. - (2,595)
Reduction in capital expenditure loan... - (50)
Reduction in intellectual property lease (451) -
Reduction in proceeds from
foreign bank debt..................... (419) 1,142
Other financing activities, net......... 43 188
--------- ---------
Net cash (used in) provided by
financing activities.................. (827) 1,372
--------- ---------
Changes in cash and cash equivalents-
Net decrease in cash
and cash equivalents.................. (10,788) (80)
Cash and cash equivalents at
beginning of year..................... 12,321 1,410
--------- ---------
Cash and cash equivalents at end
of quarter............................ $ 1,533 $ 1,330
--------- ---------
--------- ---------
Interest paid............................. $ 1,152 $ 2,011
--------- ---------
--------- ---------
Income taxes paid......................... $ 558 $ 120
--------- ---------
--------- ---------
See accompanying notes
- 3 -
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 4, 1998
(UNAUDITED)
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
The financial statements have been prepared by The Middleby
Corporation (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information not misleading. These financial
statements should be read in conjunction with the financial statements
and related notes contained in the Company's 1997 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 4, 1998 and January 3, 1998, and the results of
operations for the three and six months ended July 4, 1998 and June
28, 1997 and cash flows for the six months ended July 4, 1998 and June
28, 1997.
B. COMPREHENSIVE INCOME
During the first quarter of 1998, the Company adopted Statement
of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", 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 4, 1998 June 28, 1997
------------ -------------
(In thousands)
Net earnings.................. $ 1,311 $ 2,409
Cumulative translation
adjustment................. (258) 8
------- -------
Comprehensive Income $ 1,053 $ 2,417
------- -------
------- -------
- 4 -
C. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded
in the balance sheet as either an asset or liability measured at
its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document,
designate, and assesses the effectiveness of transactions that
receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June
15, 1999 and may be adopted earlier at the Company's election.
Statement 133 cannot be applied retroactively. Statement 133
must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31,
1997 (and, at the company's election, before January 1, 1998).
The Company does not utilize derivative instruments or hedge any
transactions and therefore adoption of Statement 133 would not
materially affect the financial statements as reported. However,
the Company may elect to enter into such transactions in the
future. Accordingly, adoption of Statement 133 could increase
volatility in future earnings and other comprehensive income.
2) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
The Company has recorded an income tax provision of $623,000 for the fiscal
six months ended July 4, 1998. The Company has significant tax loss
carry-forwards, and although a tax provision is recorded, the Company makes
no payment of federal tax other than AMT amounts.
- 5 -
3) EARNINGS PER SHARE
During the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share"
which specifies modifications to the calculation of earnings per share from
that historically used by the Company. Under SFAS 128, "basic earnings per
share" is calculated based upon the weighted average number of common
shares actually outstanding, and "diluted earnings per share" is calculated
based upon the weighted average number of common shares outstanding,
warrants and other potential common shares, if they are dilutive. The
Company's common share equivalents consist of shares issuable on exercise
of outstanding options computed using the treasury method and amounted to
195,000 and 276,000 for the three-month period and 198,000 and 263,000 for
the six-month period ended July 4, 1998 and June 28, 1997, respectively.
All prior periods have been restated to present all earnings per share data
on a consistent basis.
4) INVENTORIES
Inventories are valued using the first-in, first-out method.
Inventories consist of the following:
July 4, 1998 Jan. 3, 1998
------------ ------------
(In thousands)
Raw materials and parts.......... $ 7,052 $ 6,073
Work-in-process.................. 7,456 6,804
Finished goods................... 12,128 11,195
-------- --------
$ 26,636 $ 24,072
-------- --------
-------- --------
5) ACCRUED EXPENSES
Accrued expenses consist of the following:
July 4, 1998 Jan. 3, 1998
------------ ------------
(In thousands)
Accrued payroll and
related expenses............... $ 2,871 $ 3,601
Accrued commissions.............. 1,683 1,510
Accrued warranty................. 1,341 1,172
Other accrued expenses........... 3,392 2,972
-------- --------
$ 9,287 $ 9,255
-------- --------
-------- --------
- 6 -
6) ACQUISITION OF SUBSIDIARY MINORITY INTEREST
During the first quarter of 1998, the Company acquired the remaining
minority interest in Asbury Associates, Inc. and the Middleby
Philippines Corporation, from the founder and president of Asbury
Associates, Inc. The remaining interest was acquired for $500,000 in
cash, 50,000 shares of common stock with a market value of $387,000 at
the date of issuance, and forgiveness of certain minority interest
liabilities owed by the minority shareholder. This transaction
increased the Company's ownership interest in these subsidiaries to
100%. The excess purchase price over the value of assets acquired of
$1.1 million was allocated to goodwill, and is to be amortized over a
period of 15 years.
- 7 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (UNAUDITED).
INFORMATIONAL NOTE
This report contains forward-looking statements subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. The Company
cautions readers that these statements are highly dependent upon a variety of
important factors which could cause such results or events to differ
materially from such statements. Such factors include, but are not limited
to, changing market conditions; the availability and cost of raw materials;
the impact of competitive products and pricing; the timely development and
market acceptance of the Company's products; foreign exchange and political
risks affecting international sales, including the current economic crisis in
certain Asian countries; and other risks detailed herein and from
time-to-time in the Company's Securities and Exchange Commission filings,
including those discussed under the heading "Risk Factors" in the Company's
Registration Statement on Form S-2 (No. 333-35397) filed with the Securities
and Exchange Commission.
NET SALES SUMMARY
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 4, 1998 JUNE 28, 1997 JULY 4, 1998 JUNE 28, 1997
Sales Percent Sales Percent Sales Percent Sales Percent
BUSINESS DIVISIONS
Conveyor oven
equipment............. $12,601 37.5% $17,008 40.4% $22,142 34.2% $29,438 39.4%
Counterline cooking
equipment and
specialty products... 4,391 13.1% 4,580 10.9% 8,395 13.0% 8,812 11.8%
Core cooking
equipment............. 10,129 30.1% 8,574 20.4% 19,649 30.3% 16,005 21.4%
------- ----- ------- ----- ------- ----- ------- -----
TOTAL COOKING AND
WARMING EQUIPMENT
DIVISIONS......... 27,121 80.6% 30,162 71.7% 50,186 77.5% 54,255 72.6%
International specialty
equipment............. 1,248 3.7% 1,763 4.2% 2,613 4.0% 3,739 5.0%
International
distribution (1)...... 9,710 28.9% 14,203 33.8% 18,991 29.3% 23,673 31.7%
------- ----- ------- ----- ------- ----- ------- -----
TOTAL INTERNATIONAL
DIVISIONS......... 10,958 32.6% 15,966 37.9% 21,604 33.4% 27,412 36.7%
Intercompany
sales (2)............. (4,687) (13.9%) (4,920) (11.7%) (7,777) (12.0%) (8,502) (11.4%)
Other................... 249 0.7% 874 2.1% 729 1.1% 1,615 2.2%
------- ----- ------- ----- ------- ----- ------- -----
TOTAL................ $33,641 100.0% $42,082 100.0% $64,742 100.0% $74,780 100.0%
------- ----- ------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- ----- ------- -----
(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.
- 8 -
RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of earnings
items as a percentage of net sales for the periods presented.
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 4, 1998 JUNE 28, 1997 JULY 4, 1998 JUNE 28, 1997
Net Sales .................................... 100.0% 100.0% 100.0% 100.0%
Cost of Sales ................................ 68.3% 69.6% 68.9% 68.9%
----- ----- ----- -----
Gross Profit. .............................. 31.7% 30.4% 31.1% 31.1%
Selling, general and administrative expenses.. 25.6% 21.5% 25.4% 21.9%
----- ----- ----- -----
Income from operations...................... 6.1% 8.9% 5.7% 9.2%
Interest expense and deferred financing
amortization, net............................ 2.2% 3.0% 2.3% 3.2%
Other (income) expense, net................... 0.4% 0.1% 0.4% (0.0%)
----- ----- ----- -----
Earnings before income taxes................ 3.5% 5.8% 3.0% 6.0%
Provision (benefit) for income taxes.......... 1.1% 2.1% 1.0% 2.1%
----- ----- ----- -----
Net earnings from continuing operations..... 2.4% 3.7% 2.0% 3.9%
----- ----- ----- -----
----- ----- ----- -----
THREE MONTHS ENDED JULY 4, 1998 COMPARED TO THREE MONTHS ENDED JUNE 28, 1997
NET SALES. Net sales in the three-month period ended July 4, 1998 decreased
$8.5 million or 20% to $33.6 million as compared to $42.1 million in the
three-month period ended June 28, 1997. The prior year's second quarter
included $3.3 million in non-recurring parts sales for equipment upgrades and
field service revenue for a major chain customer. In addition, the company
experienced lower unit volume in the Company's cooking and warming equipment
divisions and international divisions.
Sales of the Company's cooking and warming equipment divisions decreased 10%
for the three-month period ended July 4,1998 compared to the prior
three-month period. Sales of the core cooking equipment division increased
18% from continued market penetration and new products. However, these gains
were more than offset by a 26% decrease in sales of the conveyor oven
equipment division in the three-month period due primarily to the
non-recurring parts and field service revenue discussed above. Sales of the
counterline cooking equipment and specialty products division decreased 4%
due to lower international sales.
- 9 -
Sales of the international divisions represented 33% of total sales in the
three-month period compared to 38% in the prior year period, and decreased
31% as compared to the prior year. Sales of the Company's international
specialty equipment division decreased 29% primarily due to deferred new
store openings by a major chain customer directly related to the ongoing
currency and economic crisis in Asia. Sales of the Company's international
distribution division decreased 32% primarily due to lower sales in certain
Asian and Middle Eastern markets. Sales to certain other international
markets, such as Latin America, were higher as compared to the prior year.
GROSS PROFIT. Gross profit decreased $2.1 million or 17% in the three-month
period to $10.7 million as compared to $12.8 million in the prior year
period. The decrease in gross profit was due to the lower sales volume. As
a percentage of net sales, gross profit margin increased 1.3% to 31.7% from
30.4%. The increase in gross margin percent was primarily due to a more
favorable product mix, principally a higher percentage of manufactured
product versus distributed product. Additionally, the prior year period
included revenue from a non-recurring parts sales and field service upgrade
program that carried a lower margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.5 million or 5% in the three-month
period to $8.6 million as compared to $9.1 million in the prior year's second
quarter. The decrease was primarily due to lower variable selling expenses
associated with the lower sales volume. As a percentage of sales, selling,
general and administrative expenses increased to 25.6% from 21.5% as a higher
expense base to support the Company's expanded international infrastructure
was spread over lower sales.
INCOME FROM OPERATIONS. Income from operations decreased $1.6 million or 43%
to $2.1 million for the three-month period ended July 4, 1998 from $3.7
million in the prior year's second quarter. The lower sales volume and gross
profit resulted in the lower income from operations.
INTEREST EXPENSE AND DEFERRED FINANCING AMORTIZATION. Interest expense and
deferred financing amortization for the three months ended July 4, 1998
decreased 38% to $0.8 million as compared to $1.3 million in the prior year's
second quarter. The decrease was due to a lower average outstanding debt
balance as a result of the Company's stock offering completed during the
fourth quarter of 1997.
INCOME TAXES. The Company recorded a net tax provision of $0.3 million for
the three-month period ended July 4, 1998 as compared to a net tax provision
of $0.9 million in the prior year's second quarter.
NET EARNINGS. As a result of the above factors, for the three-month period
ended July 4, 1998, the Company recorded net earnings of $0.8 million as
compared to $1.6 million in the prior year's second quarter.
- 10 -
SIX MONTHS ENDED JULY 4, 1998 COMPARED TO SIX MONTHS ENDED JUNE 28, 1997
NET SALES. Net sales in the six-month period ended July 4, 1998 decreased
$10.4 million or 13% to $64.7 million as compared to $74.8 million in the
six-month period ended June 28, 1997, reflecting lower unit volume in the
Company's cooking and warming equipment divisions and international
divisions. The Asia currency and economic crisis, slowed purchases by two
major customers and a non-recurring equipment upgrade program during the
prior year's period were the primary causes.
Sales of the Company's cooking and warming equipment divisions decreased 8%
for the six-month period ended July 4,1998. Sales of the core cooking
equipment division increased 23% from continued market penetration and new
products. These gains were more than offset by a 25% decrease in sales of the
conveyor oven equipment division in the six-month period as one major chain
customer slowed purchases during the first two months of the year to reduce
inventory in its system and another major chain embarked on a store
restructuring program. Additionally, the 1997 six-month period included
conveyor oven service and equipment upgrade billings for a major chain
customer that was not repeated in 1998. Sales of the counterline cooking
equipment and specialty products division decreased 5% due to lower
international sales.
Sales of the international divisions represented 33% of total sales in the
six-month period and decreased 21% as compared to the prior year period.
Sales of the Company's international specialty equipment division decreased
30% due to deferred new store openings in Asia by a major chain customer.
Sales of the Company's international distribution division decreased 20%
primarily due to lower sales in certain Asian and Middle Eastern markets.
Sales to certain other international markets, such as Latin America, were
higher as compared to the prior year.
GROSS PROFIT. Gross profit decreased $3.2 million or 14% in the six-month
period to $20.1 million as compared to $23.3 million in the prior year
period. As a percentage of net sales, gross profit margin stayed at 31.1%.
Favorable product mix was offset by the decreased volume and increased
warranty expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained unchanged for the six-month period at $16.4
million. Lower variable selling expenses were offset by increases due to
expansion of the Company's international sales and service capabilities,
including the establishment of sales and distribution offices in Japan, Korea
and Mexico during the second quarter of 1997. As a percentage of sales,
selling, general and administrative expenses increased to 25.3% from 21.9% as
the higher expense base to support the expanded international infrastructure
was spread over lower sales.
- 11 -
INCOME FROM OPERATIONS. Income from operations decreased $3.2 million or 46%
to $3.7 million for the six-month period ended July 4, 1998 from $6.9 million
in the prior year period. The lower sales volume and increased expense base
resulted in the lower income from operations.
INTEREST EXPENSE AND DEFERRED FINANCING AMORTIZATION. Interest expense and
deferred financing amortization for the six months ended July 4, 1998
decreased 35% to $0.8 million as compared to $1.5 million in the prior year
period. The decrease was due to a lower average outstanding debt balance as a
result of the Company's stock offering completed during the fourth quarter of
1997.
INCOME TAXES. The Company recorded a net tax provision of $0.6 million for
the six-month period ended July 4, 1998 as compared to a net tax provision of
$1.6 million in the prior year period.
NET EARNINGS. As a result of the above factors, for the six-month period
ended July 4, 1998, the Company recorded net earnings of $1.3 million as
compared to $3.0 million in the prior year period.
FINANCIAL CONDITION AND LIQUIDITY
For the six months ended July 4, 1998, net cash provided by operating
activities before changes in assets and liabilities was $3.3 million as
compared to $5.9 million for the six months ended June 28, 1997. The decline
is largely due to the lower profits. Net cash used by continuing operating
activities after changes in assets and liabilities was $6.6 million as
compared to net cash used of $1.9 million in the prior year six-month period.
Historically, the Company has been a net cash user during the first half of
the year and a net cash generator during the second half of the year.
Accounts receivables have increased $3.9 million due to the timing of
shipments during the second quarter, the timing of collections at the end of
the prior fiscal year and the application of dealer rebates. Inventories
have increased $2.6 million, due to difficulties in forecasting demand in
Asian markets and the timing of orders and shipments during the quarter.
Accounts payables have decreased $2.6 million due to timing of payments at
the prior fiscal year-end.
During the first six months of 1998, the Company decreased its overall
outstanding debt by $0.9 million under various facilities. The Company
decreased its borrowings under the Middleby Philippines subsidiary's credit
facility by $1.9 million and reduced the amount outstanding under its
intellectual property lease by $0.5 million. The Company entered into a $1.5
million yen-denominated loan at its Japanese subsidiary, under the unsecured
multi-currency revolving credit line discussed in the following paragraph.
During this same period the Company decreased its cash and cash equivalents
to $1.5 million from $12.3 million at January 3, 1998. The cash was used
primarily to fund the working capital needs discussed above, capital
expenditures of $2.2 million, and other investing activities of $1.1 million.
In July 1998, the Company's board of directors adopted a stock repurchase
program and authorized the purchase of up to 300,000 common shares from time
to time in open market purchases. As of August 14, 1998 no shares have been
purchased under this program.
- 12 -
In March 1998, the Company entered into a $20.0 million unsecured
multi-currency revolving credit line with a major international bank. This
new credit facility enhances the Company's ability to manage its financing
activities related to its international operations. Concurrently with the
initiation of the unsecured revolving line of credit, the $15.0 million
senior secured note became unsecured. The note's maturity and interest rate
remain unchanged. The Company continues to remain in compliance with debt
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 our systems to process
critical financial and operational information incorrectly.
The Company is currently implementing new information systems to enhance its
current transaction processing and information reporting capabilities. These
systems are Year 2000 compliant. Costs to modify existing computer systems
and applications are not material. The Company is also in the process of
contacting its major third-party relationships. Thus far, these parties have
stated they intend to be Year 2000 compliant by January 1, 2000.
If the Company's systems implementation plan is not successful, there could
be a significant disruption of the Company's ability to transact business
with its major customers and suppliers.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
- 13 -
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 April 4, 1998,
except as follows:
ITEM 2. CHANGES IN SECURITIES
c) During the second quarter of fiscal 1998, the Company issued 375 shares to
a division executive pursuant to the exercise of stock options, for $1,969.
Such options were granted at an exercise price of $5.25 per share. The
issuance of such shares was exempt under the Securities Act of 1933, as
amended, pursuant to section 4(2) thereof, as a transaction not involving a
public offering.
ITEM 5. OTHER INFORMATION
The Securities and Exchange Commission has recently amended Rules 14a-4 and
14a-5 promulgated under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), in respect of the Company's exercise of discretionary voting
authority in connection with annual shareholder meetings, and in particular
with respect to matters not submitted under the Shareholder Proposal rule set
forth in Rule 14a-8 under the 1934 Act.
Under the amended Rules, a company is permitted discretionary voting
authority in those instances in which the company did not have notice of the
matter by a date more than 45 days before the month and day in the current
year corresponding to the date on which the company first mailed its proxy
materials for the prior year's annual meeting of shareholders, or by a date
established by an overriding advance notice provision in a company's articles
of incorporation or bylaws. The Company has not implemented such an advance
notice provision. Accordingly, in connection with the 1999 Annual Meeting of
Stockholders of the Company, the date after which notice of a stockholder
proposal submitted outside the processes of Rule 14a-8 under the 1934 Act is
considered untimely is February 21, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - The following Exhibits are filed herewith:
Exhibit (27) - Financial Data Schedule (EDGAR only)
- 14 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MIDDLEBY CORPORATION
(Registrant)
Date: August 17, 1998 By: /s/ John J. Hastings
---------------------------- -----------------------------------
John J. Hastings, Executive
Vice President, Chief
Financial Officer and
Secretary
(Principal Financial and
Accounting Officer)
- 15 -
5
1,000
6-MOS
JAN-02-1999
JAN-04-1998
JUL-04-1998
1,533
0
26,182
0
26,636
58,592
27,783
4,907
101,407
20,932
24,287
0
0
110
54,144
101,407
64,742
64,742
44,632
44,632
16,427
0
1,496
1,934
623
1,311
0
0
0
1,311
0.12
0.12
