FORM 10-QSECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2000or |
[_] | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File No. 1-9973 THE MIDDLEBY CORPORATION |
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) |
Registrants 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 registrants common stock outstanding. |
THE MIDDLEBY CORPORATION AND SUBSIDIARIESQUARTER ENDED SEPTEMBER 30, 2000INDEX |
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 | Managements Discussion and Analysis | 8 | ||||
of Financial Condition and Results of | ||||||
Operations | ||||||
Item 3 | Quantitative and Qualitative Disclosures | |||||
About Market Risk | 14 | |||||
PART II. OTHER INFORMATION | 16 |
PART I. FINANCIAL INFORMATION THE MIDDLEBY
CORPORATION AND SUBSIDIARIES
|
(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
|
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
|
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 NOLs | 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 SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSSEPTEMBER 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 Companys 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 Companys 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 Companys 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 |
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 | |||||
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. |
(2) | Consists primarily of the elimination of sales to the Companys International Distribution Division from Cooking Systems Group. |
Results of Operations
The following table sets forth certain consolidated statements of earnings items as a percentage of net sales for the periods. |
Three Months Ended |
Nine Months Ended |
||||||||
---|---|---|---|---|---|---|---|---|---|
Sept. 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, 1999NET 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 Divisions 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 Companys 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 years 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 Companys 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 Companys 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 Divisions 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 Companys operations in Asia and Europe. INCOME TAXES. A tax provision of $4.3 million was recorded associated with taxable income reported at the Companys 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 Companys multi-currency revolving line of credit. -13- |
Derivative Financial InstrumentsThe 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 Companys 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 RiskThe Company is exposed to market risk related to changes in interest rates. The following table summarizes the maturity of the Companys 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 | ||||||
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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 Companys 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. |
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SIGNATUREPursuant 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 |
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