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     form 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
September 30, 2000




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.)		















1400 Toastmaster Drive, Elgin, Illinois
(Address of Principal Executive Offices)		
60120
(Zip Code)
















Registrant’s Telephone No.,
including Area Code (847) 741-3300  





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, 2000,
there were 10,132,000 shares of the registrant’s common stock outstanding. 



























THE MIDDLEBY
CORPORATION AND SUBSIDIARIES




QUARTER ENDED
SEPTEMBER 30, 2000






INDEX 














     DESCRIPTION
     
     PAGE



     PART I. FINANCIAL INFORMATION



      
      
       
      
      
         



              Item 1 
     Consolidated Financial Statements 
       
         



      



                
     BALANCE SHEETS 
     1
         



                
         September 30, 2000 and January 1, 2000 
       
         



      




                
     STATEMENTS OF EARNINGS 
     2
         



                
         September 30, 2000 and October 2, 1999   
       
         




      



                
     STATEMENTS OF CASH FLOWS 
     3
         



                
         September 30, 2000 and October 2, 1999   
       
         



      



                
     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 
     14
         



      



     PART II. OTHER INFORMATION16
      
         
























PART
I. FINANCIAL INFORMATION 





THE MIDDLEBY
CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In
Thousands, Except Share Amounts)












     
     (Unaudited)
Sept. 30, 2000

     Jan. 1, 2000



     ASSETS
      
     
         
     
         



     Cash and cash equivalents 
     $7,812
         
     $14,536
         



     Accounts receivable, net 
     20,024
         
     24,919
         



     Inventories, net 
     16,832
         
     16,884
         



     Prepaid expenses and other 
     1,096
         
     689
         



     Current deferred taxes 
     2,849
         
     3,350
         



     



          Total current assets 
     48,613
         
     60,378
         



     Property, plant and equipment, net of 



       accumulated depreciation of 



       $19,605 and $17,827 
     19,214
         
     21,281
         



     Excess purchase price over net assets 



       acquired, net of accumulated 



       amortization of $7,164 and $6,485 
     13,283
         
     13,962
         



     Deferred taxes 
     176
         
     2,332
         



     Other assets 
     911
         
     1,095
         



     



                 Total assets 

     $82,197
         
     $99,048
         



     



     LIABILITIES AND SHAREHOLDERS’ EQUITY 



     Current maturities of long-term debt . 
     2,882
         
     $7,131
         



     Accounts payable 
     7,148
         
     8,861
         



     Accrued expenses 
     17,100
         
     16,291
         



     



          Total current liabilities 
     27,130
         
     32,283
         



     Long-term debt 
     7,122
         
     21,004
         



     Retirement benefits and other 



       non-current liabilities 
     3,195
         
     2,593
         



     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; 



         11,008,771 issued in 2000 and 



         1999 
     110
         
     110
         



       Paid-in capital 
     53,347
         
     54,220
         



       Treasury stock at cost; 880,050 and 



         837,800 shares in 2000 and 1999, 



         respectively 
     (3,659
        )
     (3,309
        )



       Accumulated deficit 
     (3,058
        )
     (5,297
        )



       Accumulated other comprehensive 



         income 
     (1,990
        )
     (2,556
        )



     



          Total shareholders’ equity 
     44,750
         
     43,168
         



     



                 Total liabilities and 




                   shareholders’ equity 
     $82,197
         
     $99,048
         



     













See accompanying notes 




-1- 

























PART
I. FINANCIAL INFORMATION 






THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EARNINGS
(In
Thousands, Except Per Share Amounts)
(Unaudited)
















     
     Three Months Ended

     Nine Months Ended



     
     Sept. 30, 2000

     Oct. 2, 1999

     Sept. 30, 2000

     Oct. 2, 1999



     Net sales
      
     $31,051
         
     $ 31,988
         
     $95,899
         
     $ 100,953
         



     Cost of sales 
     20,154
         
     21,810
         
     63,764
         
     70,426
         



     



         Gross profit 
     10,897
         
     10,178
         
     32,135
         
     30,527
         



     Selling and distribution expenses 
     3,880
         
     4,817
         
     12,135
         
     14,158
         



     General and administrative expenses 
     3,035
         
     3,356
         
     11,089
         
     10,181
         



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



     



         Income from operations 
     3,982
         
     757
         
     8,911
         
     3,980
         



     Interest expense and deferred 



       financing amortization 
     192
         
     665
         
     1,151
         
     2,052
         



     Other expense, net 
     435
         
     218
         
     976
         
     570
         



     



         Earnings (loss) before 



           income taxes 
     3,355
         
     (126
        )
     6,784
         
     1,358
         



     Provision for income taxes 
     2,012
         
     531
         
     4,310
         
     1,963
         



     



         Net earnings (loss) before 



           extraordinary item 
     1,343
         
     $    (657
        )
     $  2,474
         
     $      (605
        )



     



     Extraordinary item (net of tax) 
     235
         
     —
         
     235
         
     —
         



     



         Net earnings (loss) 
     $  1,108
         
     $    (657
        )
     $  2,239
         
     $      (605
        )



     



     Net earnings (loss) before 



        extraordinary item per share: 



         Basic 
     $    0.13
         
     $  (0.06
        )
     $    0.24
         
     $    (0.06
        )



         Diluted 
     $    0.13
         
     $  (0.06
        )
     $    0.24
         
     $    (0.06
        )



     Net earnings (loss) per share: 



         Basic 
     $    0.11
         
     $  (0.06
        )
     $    0.22
         
     $    (0.06
        )



         Diluted 
     $    0.11
         
     $  (0.06
        )
     $    0.22
         
     $    (0.06
        )



     Weighted average number of shares: 



         Basic 
     10,144
         
     10,158
         
     10,168
         
     10,158
         



         Diluted 
     10,309
         
     10,316
         
     10,339
         
     10,275
         

















See accompanying notes 




-2- 






























THE MIDDLEBY
CORPORATION AND SUBSIDIARIESCONSOLIDATED 
STATEMENTS OF CASH FLOWS
(In
Thousands)
(Unaudited)












     
     Nine Months Ended



     
     Sept. 30, 2000

     Oct. 2, 1999



     Cash flows from operating activities-
      
     
         
     
         



         Net earnings (loss) 
     $   2,239
         
     $    (605
        )



         Adjustments to reconcile net earnings 



           (loss) to cash provided by 



           continuing operating activities 



           Depreciation and amortization 
     2,811
         
     2,855
         



           Utilization of NOL’s 
     2,657
         
     1,650
         



           Non-cash portion of non-recurring 



             charges 
     —
         
     1,248
         



         Changes in assets and liabilities- 



           Accounts receivable 
     5,095
         
     (2,612
        )



           Inventories 
     152
         
     3,032
         



           Prepaid expenses and other assets 
     (222
        )
     (2,407
        )



           Accounts payable 
     (1,669
        )
     (2,753
        )



           Accrued expenses and other 



             liabilities 
     1,887
         
     3,042
         



     



         Net cash provided by operating 



           activities 
     12,950
         
     3,450
         



     



       Cash flows from investing activities- 



       Net additions to property and equipment 
     (366
        )
     (1,106
        )



     



         Net cash used in investing activities 
     (366
        )
     (1,106
        )



     



       Cash flows from financing activities- 



         Repayment of senior note obligation 
     (15,000
        )
     —
         



         Proceeds (repayments) under 



           intellectual property lease 
     (1,908
        )
     290
         



         Increase (decrease) in revolving 



           credit line, net 
     (894
        )
     811
         



         Purchase of treasury stock and 



           stock warrants 
     (1,272
        )
     —
         



         Other financing activities, net 
     (139
        )
     (310
        )



     



         Net cash (used in) provided by 



           financing activities 
     (19,213
        )
     791
         



       Effect of exchange rates on cash 
     (95
        )
     224
         



       Changes in cash and cash equivalents- 



         Net (decrease) increase in cash and 



           cash equivalents 
     (6,724
        )
     3,359
         



         Cash and cash equivalents at 



           beginning of year 
     14,536
         
     6,768
         



     



         Cash and cash equivalents at end 



           of quarter 
     7,812
         
     $ 10,127
         



     



       Interest paid 
     1,946
         
     $   1,695
         



     



       Income taxes paid 
     373
         
     $      176
         



     















See accompanying notes 




-3- 





























THE MIDDLEBY
CORPORATION AND SUBSIDIARIES





NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS




SEPTEMBER 30, 2000
(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 1999 Annual Report. Other than as indicated
herein, there have been no significant changes from the data presented in said Report.











 

In
the opinion of management, the financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of September 30, 2000 and January
1, 2000, and the results of operations for the three and nine months ended September 30,
2000 and October 2, 1999 and cash flows for the nine months ended September 30, 2000 and
October 2, 1999. Certain prior year amounts have been reclassified to be consistent with
the current year presentation.













2)  
Comprehensive
Income 












 

The
Company reports changes in equity during a period, except those resulting from investment
by owners and distribution to owners, in accordance with Statement of Financial
Accounting Standards No. 130, “Reporting Comprehensive Income” (SFAS No. 130).











 

Components
of comprehensive income were as follows (in thousands):











     
     Three Months Ended 
     Nine Months Ended 



     
     Sept. 30, 2000

     Oct. 2, 1999

     Sept. 30, 2000

     Oct. 2, 1999



     Net earnings
      
     $1,108
         
     $(657
        )
     $2,239
         
     $(605
        )



     Cumulative translation 



        adjustment 
     484
         
     300
         
     566
         
     152
         



     



        Comprehensive (loss) income  
     $1,592
         
     $(357
        )
     $2,805
         
     $(453
        )



     














-4- 

































3)  
Inventories 












 

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











 

Inventories
consist of the following:











     
     
     Sept. 30, 2000

     Jan. 1, 2000



     
     
     (In thousands)



      



      
      
     Raw materials and parts
      
     $  5,633
         
     $  4,738
         



       
     Work-in-process 
     2,981
         
     3,904
         



       
     Finished goods 
     8,218
         
     8,242
         



     



       
       
     $16,832
         
     $16,884
         



     












4)  
Accrued
Expenses 












 

Accrued
expenses consist of the following:










     
     
     Sept. 30, 2000

     Jan. 1, 2000



     
     
     (In thousands)



      
      
     Accrued payroll and
      
     
         
     
         



       
     related expenses 
     $  5,963
         
     $  4,820
         



       
     Accrued customer rebates 
     2,992
         
     3,472
         



       
     Accrued commissions 
     1,036
         
     1,074
         



       
     Accrued warranty 
     1,609
         
     1,628
         



       
     Other accrued expenses 
     5,500
         
     5,297
         



     



       
       
     $17,100
         
     $16,291
         



     











5)  
Non-recurring
Expenses 












 

During
the third quarter of 1999, the Company recorded a restructuring charge 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 included 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 consists of lease exit costs of $360,000, the disposal of
fixed assets of $300,000, and severance benefits of $360,000 for 11 employees. An
additional charge of $228,000 was recorded principally for severance benefits for 87
employees within the Philippines manufacturing operations of the Cooking Systems Group.
All actions associated with these restructuring efforts were completed the first half of
fiscal 2000.
















-5-






































 

During
the first and second quarters of 1999, the Company recorded non-recurring expenses in the
amount of $750,000 and $210,000, respectively. These charges principally related to
severance benefits for 52 terminated employees at the Cooking Systems Group and the
International Distribution Division. Actions associated with these changes have been
fully completed.












6)  
Segment
Information 












 

The
Company operates in two reportable business segments defined by management reporting
structure and operating activities. The International Specialty Equipment Division was
merged into the Cooking Systems Group in the fourth quarter of 1999 as a result of
changes in Company management and the organizational reporting structure. Prior year
amounts have been restated to present information on a consistent basis.











 

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.















-6- 




























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














     
     Cooking
Systems
Group 

     International
Distribution 

     Corporate
and
Other(1) 

     Eliminations(2) 

     Total 



     Three months ended September 30, 2000
      
     
         
     
         
     
         
     
         
     
         



     Net sales 
     $28,544
         
     $   8,196
         
     $        —
         
     $(5,689
        )
     $  31,051
         



     Operating income (loss) 
     4,802
         
     77
         
     (1,209
        )
     312
         
     3,982
         



     Depreciation expense 
     587
         
     49
         
     59
         
     —
         
     695
         



     Capital expenditures 
     66
         
     25
         
     4
         
     —
         
     95
         



      



     Nine months ended September 30, 2000 



     Net sales 
     $86,940
         
     $ 24,880
         
     $        —
         
     $(15,921
        )
     $  95,899
         



     Operating income (loss) 
     12,913
         
     136
         
     (4,580
        )
     442
         
     8,911
         



     Depreciation expense 
     1,814
         
     141
         
     176
         
     —
         
     2,131
         



     Capital expenditures 
     293
         
     64
         
     9
         
     —
         
     366
         



      



     Total assets 
     55,039
         
     18,275
         
     19,865
         
     (10,982
        )
     82,197
         



     Long-lived assets 
     19,546
         
     676
         
     13,362
         
     —
         
     33,584
         



      



     Three months ended October 2, 1999 



     Net sales 
     $26,813
         
     $   8,894
         
     $        —
         
     $(3,719
        )
     $  31,988
         



     Operating income (loss) 
     3,679
         
     (362
        )
     (2,154
        )
     (406
        )
     757
         



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



     Depreciation expense 
     614
         
     66
         
     41
         
     —
         
     721
         



     Capital expenditures 
     128
         
     68
         
     39
         
     —
         
     235
         



      



     Nine months ended October 2, 1999 



     Net sales 
     $83,740
         
     $ 27,886
         
     $        —
         
     $(10,673
        )
     $100,953
         



     Operating income (loss) 
     9,655
         
     (1,368
        )
     (3,986
        )
     (321
        )
     3,980
         



     Non-recurring expense 
     626
         
     378
         
     1,204
         
     —
         
     2,208
         



     Depreciation expense 
     2,013
         
     203
         
     132
         
     —
         
     2,348
         



     Capital expenditures 
     868
         
     142
         
     96
         
     —
         
     1,106
         



      



     Total assets 
     58,575
         
     17,753
         
     36,683
         
     (10,982
        )
     102,029
         



     Long-lived assets 
     21,288
         
     1,066
         
     21,301
         
     —
         
     43,655
         











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












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














-7- 

























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

     Nine Months Ended





     
     Sept. 30, 2000

     Oct. 2, 1999

     Sept. 30, 2000

     Oct, 2, 1999



     United States
      
     $23,204
         
     $22,104
         
     $70,794
         
     $  68,922
         



     



     Asia 
     2,296
         
     2,509
         
     7,793
         
     9,512
         



     Europe and Middle East 
     2,786
         
     2,948
         
     8,105
         
     9,773
         



        Latin America 
     2,144
         
     3,462
         
     6,695
         
     9,247
         



     Canada 
     621
         
     965
         
     2,512
         
     3,499
         



     



          Total International 
     7,847
         
     9,884
         
     25,105
         
     32,031
         



     



     Net Sales 
     $31,051
         
     $31,988
         
     $95,899
         
     $100,953
         



     














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;
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. 






-8- 








































     
     Net Sales Summary



     
     Three Months Ended

     Nine Months Ended





     
     Sept. 30, 2000

     Oct. 2, 1999

     Sept. 30, 2000

     Oct. 2, 1999





     
     Sales

     Percent

     Sales

     Percent

     Sales

     Percent

     Sales

     Percent



     Business Divisions
      
     
         
     
         
     
         
     
         
     
         
     
         
     
         
     
         



     Conveyor oven 



       equipment 
     $ 12,965
         
     41.8
         
     $ 11,521
         
     36.0
         
     $ 39,134
         
     40.8
         
     $   36,330
         
     36.0
         



     Counterline cooking 



       equipment 
     3,080
         
     9.9
         
     3,705
         
     11.6
         
     9,457
         
     9.9
         
     10,904
         
     10.8
         



     Core cooking 



       equipment 
     11,572
         
     37.3
         
     10,721
         
     33.5
         
     35,204
         
     36.7
         
     32,267
         
     32.0
         



     International Specialty 



       Equipment 
     927
         
     2.9
         
     825
         
     2.6
         
     3,145
         
     3.3
         
     3,891
         
     3.9
         



     



     Total Cooking Systems 



       Group 
     28,544
         
     91.9
         
     26,772
         
     83.7
         
     86,940
         
     90.7
         
     83,392
         
     82.7
         



     International 



       Distribution (1) . 
     8,196
         
     26.4
         
     8,894
         
     27.8
         
     24,880
         
     25.9
         
     27,886
         
     27.6
         



     Intercompany 



       sales (2) 
     (5,689
        )
     (18.3
        )
     (3,719
        )
     (11.6
        )
     (15,921
        )
     (16.6
        )
     (10,673
        )
     (10.6
        )



     Other 
     —
         
     —
         
     41
         
     0.1
         
     —
         
     —
         
     348
         
     0.3
         



     



       Total 
     $ 31,051
         
     100.0
         
     $ 31,988
         
     100.0
         
     $ 95,899
         
     100.0
         
     $ 100,953
         
     100.0
         



     










(1) 
Consists
of sales of products manufactured by Middleby and products manufactured by third parties.









Results of Operations



(2) 
Consists
primarily of the elimination of sales to the Company’s International Distribution
Division from Cooking Systems Group.
















 

The
following table sets forth certain consolidated statements of earnings items as a
percentage of net sales for the periods.










     
     Three Months Ended

     Nine Months Ended

    



     
     Sept. 30, 2000

     Oct. 2, 1999

     Sept. 30, 2000

     Oct. 2, 1999



     Net sales
      
     100.0
        %
     100.0
        %
     100.0
        %
     100.0
        %



     Cost of sales 
     64.9
        %
     68.2
        %
     66.5
        %
     69.8
        %



     



        Gross profit 
     35.1
        %
     31.8
        %
     33.5
        %
     30.2
        %



     Selling, general and administrative 



        expenses 
     22.3
        %
     25.5
        %
     24.2
        %
     24.1
        %



     Non-recurring expense 
     —
         
     3.9
        %
     —
         
     2.2
        %



     



        Income from operations 
     12.8
        %
     2.4
        %
     9.3
        %
     3.9
        %



     Interest expense and deferred 



        financing amortization, net 
     0.6
        %
     2.1
        %
     1.2
        %
     2.0
        %



     Other expense, net 
     1.4
        %
     0.7
        %
     1.0
        %
     0.6
        %



     



        Earnings (loss) before 



           income taxes 
     10.8
        %
     (0.4
        %)
     7.1
        %
     1.3
        %



     Provision for income taxes 
     6.5
        %
     1.7
        %
     4.5
        %
     1.9
        %



     



     Net earnings (loss) before 



        extraordinary item 
     4.3
        %
     (2.1
        %)
     2.6
        %
     (0.6
        %)



     



     Extraordinary item 
     0.7
        %
     —
         
     0.3
        %
     —
         



     



     Net earnings (loss) 
     3.6
        %
     (2.1
        %)
     2.3
        %
     (0.6
        %)



     














-9- 





























Three Months Ended
September 30, 2000 Compared to Three Months Ended October 2, 1999





NET SALES. Net sales in the
three-month period ended September 30, 2000 decreased 3% to $31.1 million as compared to
$32.0 million in the three-month period ended October 2, 1999. 




Sales of the Cooking Systems Group
for the three-month period ended September 30, 2000 increased 7% to $28.5 million from
$26.8 million in the prior year. Sales of conveyor oven equipment increased 13% due to
greater sales volume to major restaurant chains. Core cooking equipment sales increased
8% due to sales of new products introduced during the last twelve months. Sales of
counterline equipment decreased 17% due to the discontinuance of certain unprofitable
product offerings. Sales of international specialty equipment increased slightly from the
prior year. 




Sales of the International
Distribution Division decreased 8% to $8.2 million from $8.9 million in the previous year
period. The lower sales level reflects the streamlining of the Division’s product
offerings. The division has redirected its efforts to support a focused group of
foodservice equipment, including those products which are manufactured by the Company. As
a result, a number of third party products were discontinued during the last eighteen
months. 





GROSS PROFIT. Gross profit increased
to $10.9 million from $10.2 million in the prior year period. As a percentage of sales,
gross margins increased from 31.8% in the prior year to 35.1%. Gross margins at the
Cooking Systems Group increased slightly as a result of more favorable sales mix of high
margin products. This net margin increase includes a decline in gross margin within the
core cooking equipment product group due to pricing competition and increased material
costs. Gross margins at the International Distribution Division improved due to the more
favorable product mix resulting from the Company’s product refocusing efforts. 





SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES. Selling, general and administrative expenses decreased 15% to $6.9 million as
compared to $8.2 million in the prior year period. The decrease in expense was largely
attributable to reduced costs within the International Distribution Division resulting
from the closure of the division headquarters office which took place in the fourth
quarter of 1999. The Company also had lower trade advertising costs, as the prior year’s
expense included a major trade show which takes place every other year. 





-10- 



























NON-RECURRING EXPENSES. The Company
recorded restructuring expenses of approximately $1.2 million during the third quarter of
1999 for severance and benefit costs associated with employee reduction efforts and the
closure of the division headquarters for the International Distribution Division. There
were no non-recurring charges recorded during 2000. 





INTEREST AND DEFERRED FINANCING AMORTIZATION.
Net financing costs decreased to $0.2 million from $0.7 million in the
prior year as a result of lower interest expense on reduced outstanding debt. 





OTHER EXPENSE. Other expenses were
$0.4 million in the current year and $0.2 million in the prior year. The increase from
the prior year largely relates to exchange losses at the Company’s operations in Asia and
Europe. 





INCOME TAXES. A tax provision of
$2.0 million, at an effective rate of 60%, was recorded during the quarter, primarily
associated with taxable income reported at the Company’s operations in the United States,
Latin America and Europe. No benefit was recognized for losses at international
subsidiaries within Asia. Approximately $1.6 million of tax loss carry-forward will be
utilized to offset the liability associated with the recorded tax provision. 





EXTRAORDINARY ITEM (NET OF TAX). An
extraordinary charge of $0.4 million, or $0.2 million net of tax, was recorded related to
a prepayment penalty for the early retirement of an unsecured senior note obligation. The
senior note was at a 10.99% rate of interest and due to mature over a period ending
January 10, 2003. 



















Nine Months Ended September 30, 2000
Compared to Nine Months Ended October 2, 1999  




NET SALES. Net sales in the
nine-month period ended September 30, 2000 decreased 5% to $95.9 million as compared to
$101.0 million in the nine-month period ended October 2, 1999. 




Sales of the Cooking Systems Group
for the nine-month period ended September 30, 2000 increased 4% to $86.9 million from
$83.4 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 9%
largely due to the success of new product introductions. Counterline equipment sales
decreased 13% due to the discontinuation of certain unprofitable products. Sales of
international specialty equipment decreased 19% as a result of lower sales volume from a
major restaurant chain and the refocusing of
activities to the manufacture of low cost component parts to supplement the U.S. based
production operations. 




Net sales of the International
Distribution Division decreased by 11% as a result of the Division’s product refocusing
efforts leading to the discontinuance of certain distributed third party product lines. 





-11- 




























GROSS PROFIT. Gross profit increased
to $32.1 million from $30.5 million. As a percentage of sales, gross margins increased
from 30.2% to 33.5%. For the nine months, gross margins have improved at both the Cooking
Systems Group and the International Distribution Division. The improvement is a result of
an improved product mix resulting from the product refocusing efforts at both divisions,
in addition to reduced manufacturing costs at the Cooking Systems Group. 





SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES. Selling, general and administrative expenses decreased to $23.2 million from
$24.3 million. As a percentage of net sales, selling, general and administrative expenses
increased slightly to 24.2% as compared to 24.1% in the prior year. Expenses were lower
than the prior year due in part to reduced expenses associated with the International
Distribution Division resulting from the closure of the headquarters office in the fourth
quarter of 1999. 





NON-RECURRING EXPENSES. The Company
recorded restructuring charges of approximately $2.2 million during the nine months ended
October 2, 1999 for severance and benefit costs associated with employee reduction
efforts and the closure of the division headquarters for the International Distribution
Division. There were no non-recurring charges recorded during the nine months ended
September 30, 2000. 





INTEREST AND DEFERRED FINANCING
AMORTIZATION. Net financing costs decreased to $1.2 million from $2.1 million in the
prior year as a result of increased interest income on higher cash balances and lower
interest expense on reduced outstanding debt. 





OTHER EXPENSE. Other expenses were
$1.0 million in the current year and $0.6 million in the prior year. The increase in
expense from the prior year is largely a result of exchanges losses at the Company’s
operations in Asia and Europe. 





INCOME TAXES. A tax provision of
$4.3 million was recorded associated with taxable income reported at the Company’s
operations in the United States, Latin America and Europe, while no benefit was
recognized for losses at certain international subsidiaries within Asia. Approximately
$2.7 million of tax loss carry-forwards will be utilized to offset the liability
associated with the recorded tax provision. 






-12- 
































Financial Condition and Liquidity 




During the nine months ended
September 30, 2000, cash and cash equivalents decreased by $6.7 million to $7.8 million
at September 30, 2000 from $14.5 million at January 1, 2000. Net borrowings declined from
$28.1 million at January 1, 2000 to $10.0 million at September 30, 2000. 





OPERATING ACTIVITIES. Net cash
provided by operating activities before changes in assets and liabilities was $7.7
million in the nine months ended September 30, 2000 as compared to $5.1 million in the
prior year period. Net cash provided by operating activities after changes in assets and
liabilities was $13.0 million as compared to $3.5 million in the prior year period. 




During the nine months ended
September 30, 2000, accounts receivable decreased $5.1 million due to lower sales and to
the improvement in receivable collections. Accounts payable decreased $1.7 million due to
the timing of payments and lower cost of goods sold. Accrued expenses and other
liabilities increased $1.9 million as a result of provisions related to retirement
benefit obligations, payroll related liabilities, and foreign income taxes. 





INVESTING ACTIVITIES. During the
nine months ending September 30, 2000, the Company had capital expenditures of $0.4
million primarily to purchase production related equipment. 





FINANCING ACTIVITIES. Net borrowings
under financing arrangements decreased from $28.1 million to $10.0 million during the
nine months ending September 30, 2000. The net decrease includes the repayment in full of
a $15.0 million unsecured senior note obligation, scheduled payments of $1.9 million
related to an intellectual property lease and repayments of $0.9 million against
borrowings of a peseta-denominated loan under the Company’s multi-currency revolving line
of credit. 







-13- 


























The unsecured senior note obligation
was repaid in full with a $2.5 million scheduled payment on July 10 and a $12.5 million
early retirement payment on August 9. The note obligation was at a 10.99% rate of
interest and was due to mature over a period ending January 10, 2003. In conjunction with
the early debt retirement, the Company repurchased a warrant that gave the noteholder the
right to purchase 250,000 shares of common stock at an exercise price of $3 per share,
for $0.9 million. 




In July, 1998, the Company’s Board
of Directors adopted a stock repurchase program and during 1998 authorized the purchase
of up to 1,800,000 common shares in open market purchases. As of January 1, 2000, 837,800
shares had been purchased for $3.3 million. During the first quarter of 2000, the Company
issued 19,750 shares out of treasury stock pursuant to the exercise of stock options for
a former officer. During the second and third quarter, the Company acquired 62,000 shares
in open market purchases at an aggregate purchase price of $419,426. As of September 30,
2000, the Company had 880,050 shares of treasury stock. 




On October 23, 2000 the Company
announced its intent to commence a self tender offer to purchase for cash up to 1,500,000
shares of its common stock. This tender offer represents 15% of the issued and
outstanding stock. The Company will obtain all necessary funds to make payment for
tendered shares from existing cash balances and, if necessary, from borrowings under its
multicurrency revolving credit facility. 




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. 






Item 3. Quantitative and
Qualitative Disclosures About Market Risk




International Exposure




The Company has manufacturing
operations located in Asia and distribution operations in Asia, Europe and Latin America.
The Company’s operations are subject to the impact of economic downturns, political
instability, and foreign trade restrictions, which may adversely affect the financial
results. 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 not fully hedged and there can be
no assurances that the Company’s future results of operations will not be adversely
affected by currency fluctuations.





-14- 



























Derivative Financial
Instruments




The Company uses derivative
financial instruments, principally foreign currency forward purchase and sale contracts
with terms of less than one year, to hedge its exposure to changes in foreign currency
exchange rates. The Company’s primary exposure to changes in foreign currency rates
results from intercompany loans made between Middleby affiliates to minimize the need for
borrowings from third parties. The Company does not currently enter into derivative
financial instruments for speculative purposes. In managing its foreign currency
exposures, the Company identifies and aggregates naturally occurring offsetting positions
and then hedges residual exposures. The following table summarizes the forward purchase
contracts outstanding at September 30, 2000: 


















     Sell

     Purchase

     Maturity



     2,000,000
         
     Euro 
     $1,849,000
         
     U.S. Dollars 
     November 16, 2000 



     600,000
         
     Euro
      
     $543,780
         
     U.S. Dollars
      
     November 16, 2000
      



     600,000
         
     Euro 
     $515,520
         
     U.S. Dollars 
     December 7, 2000 



     392,875,000
         
     South Korean Won 
     $350,000
         
     U.S. Dollars 
     December 15, 2000 



     388,920,000
         
     South Korean Won 
     $350,000
         
     U.S. Dollars 
     December 15, 2000 



     9,444,000
         
     Taiwan Dollar 
     $300,000
         
     U.S. Dollars 
     December 4, 2000 



     13,323,750
         
     Taiwan Dollar 
     $425,000
         
     U.S. Dollars 
     December 15, 2000 



     13,391,750
         
     Taiwan Dollar 
     $425,000
         
     U.S. Dollars 
     December 15, 2000 



     













Interest Rate 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. 

















     
                      Twelve Month

                       Period Ending 

     Fixed
Rate
Debt 

     Variable
Rate
Debt 



     
     
     (dollars in thousands)
 



      



      
      
     September 30, 2001
      
     $2,882
         
     $      —
         



       
     September 30, 2002 
     4,510
         
     2,612
         



     



       
       
     $7,392
         
     $2,612
         



     













-15- 

























Fixed rate debt is comprised of $7.4
million due under lease arrangements. The lease arrangements bear interest at an average
implicit interest rate of 10.3%. Variable rate debt is comprised of borrowings under the
Company’s $10.0 million revolving credit line, which includes a $2.6 million Yen
denominated loan. Interest under the unsecured revolving credit facility is assessed
based upon the bank’s reference rate in each respective country. The interest rate
assessed to the Yen denominated loans at September 30, 2000 was 1.3%. 





PART II. OTHER
INFORMATION




The Company was not required to
report the information pursuant to Items 1 through 6 of Part II of Form 10-Q for the
three months ended September 30, 2000, 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)











 

Exhibit
99 - Fourth Amendment and Waiver dated as of October 16, 2000 to Multi-currency Credit
Agreement dated as of March 18, 1998, incorporated by reference to the Company’s Schedule
T0-1 filed on October 23, 2000.











b) 
Reports
on Form 8-K:












 

On
August 18, 2000, the Company filed an 8-K report dated August 9, 2000, reporting under Item 5, the
repayment of the unsecured senior note obligation.

















-16- 


































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 14, 2000
 
By: /s/ David B. Baker
——————————————

 David B. Baker

 Vice President,

 Chief Financial Officer

 and Secretary		








  



                     5
                                   1000

                             
                   3-MOS
                              DEC-30-2000
                                 JUL-02-2000
                                   SEP-30-2000
                                         7,812
                                   0
                                  20,024
                                    2,376
                                    16,832
                               48,613
                                         19,214
                                 19,605
                                 82,197
                          27,130
                                        0
                          0
                                    0
                                       110
                                     44,750
                   82,197
                                        31,051
                               31,051
                                          20,154
                                  20,154
                               6,915
                               0
                             192
                                3,355
                                   2,012
                            1,343
                                 0
                                235
                                      0
                                   1,108
                                    0.11
                                  0.11














- 17 -