The Middleby Corporation (MIDD) 10-Q 2001 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the period ended September 29, 2001

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 9, 2001, there were 8,971,922 shares of the registrant’s common stock outstanding.

THE MIDDLEBY CORPORATION AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 29, 2001

INDEX

DESCRIPTION PAGE

PART I.	FINANCIAL INFORMATION
	Item 1.   Consolidated Financial Statements
	BALANCE SHEETS                      September 29, 2001 and December 30, 2000	1
	STATEMENTS OF EARNINGS                      September 29, 2001 and September 30, 2000	2
	STATEMENTS OF CASH FLOWS                      September 29, 2001 and September 30, 2000	3
	NOTES TO FINANCIAL STATEMENTS	4
	Item 2.   Management’s Discussion and Analysis                of Financial Condition and Results of                Operations	9
	Item 3.   Quantitative and Qualitative Disclosures                About Market Risk	14
PART II.	OTHER INFORMATION	16

PART I. FINANCIAL INFORMATION

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

	(Unaudited) Sep. 29, 2001		Dec. 30, 2000
ASSETS
Cash and cash equivalents	$   2,687		$   2,094
Accounts receivable, net	14,514		18,879
Inventories, net	17,204		18,372
Prepaid expenses and other	2,145		976
Current deferred taxes	3,119		4,141
Total current assets	39,669		44,462
Property, plant and equipment, net of
accumulated depreciation of $22,202 and $20,189	17,259		18,968
Excess purchase price over net assets
acquired, net of accumulated amortization of $8,069 and $7,391	12,378		13,056
Deferred taxes	—		1,224
Other assets	617		600
Total assets	$ 69,923		$ 78,310
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current maturities of long-term debt	10		$      249
Accounts payable	5,496		7,211
Accrued expenses	13,659		17,918
Total current liabilities	19,165		25,378
Long-term debt	4,791		8,290
Retirement benefits and other non-current liabilities	6,125		7,181
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;
11,024,396 issued in 2001 and 11,021,896 in 2000, respectively	110		110
Paid-in capital	53,781		53,585
Treasury stock at cost; 2,052,474 and 2,015,409 shares in 2001 and
2000, respectively	(11,997	)	(11,777	)
Accumulated deficit	(350	)	(2,665	)
Accumulated other comprehensive
income	(1,702	)	(1,792	)
Total shareholders’ equity	39,842		37,461
Total liabilities and shareholders’ equity	$ 69,923		$ 78,310

See accompanying notes

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

	Three Months Ended			Nine Months Ended
	Sept 29, 2001		Sept 30, 2000	Sept 29, 2001	Sept 30, 2000
Net sales	$ 25,714		$31,051	$75,754	$95,899
Cost of sales	17,227		20,154	50,862	63,764
Gross profit	8,487		10,897	24,892	32,135
Selling and distribution expenses	3,173		3,880	10,351	12,135
General and administrative expenses	2,879		3,035	8,022	11,089
Income from operations	2,435		3,982	6,519	8,911
Interest expense and deferred
financing amortization	128		192	460	1,151
Other (income) expense, net	(86	)	435	509	976
Earnings before income taxes	2,393		3,355	5,550	6,784
Provision for income taxes	1,301		2,012	3,233	4,310
Net earnings before
extraordinary item	$   1,092		$  1,343	$  2,317	$  2,474
Extraordinary item (net of tax)	—		235	—	235
Net earnings	$   1,092		$  1,108	$  2,317	$  2,239
Net earnings before extraordinary item
per share:
Basic	$     0.12		$    0.13	$    0.26	$    0.24
Diluted	$     0.12		$    0.13	$    0.26	$    0.24
Net earnings per share:
Basic	$     0.12		$    0.11	$    0.26	$    0.22
Diluted	$     0.12		$    0.11	$    0.26	$    0.22
Weighted average number of shares:
Basic	8,981		10,144	8,987	10,168
Diluted	8,994		10,309	9,003	10,339

See accompanying notes

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

	Nine Months Ended
	Sept. 29, 2001		Sept. 30, 2000
Cash flows from operating activities-
Net earnings	$ 2,317		$   2,239
Adjustments to reconcile net earnings
to cash provided by operating activities:
Depreciation and amortization	2,741		2,811
Utilization of NOL’s	2,246		2,657
Changes in assets and liabilities-
Accounts receivable	4,505		5,095
Inventories	1,317		152
Prepaid expenses and other assets	(1,186	)	(222	)
Accounts payable	(1,918	)	(1,669	)
Accrued expenses and other liabilities	(5,156	)	1,887
Net cash provided by operating
activities	4,866		12,950
Cash flows from investing activities-
Net additions to property and equipment	(325	)	(366	)
Net cash (used in) investing activities	(325	)	(366	)
Cash flows from financing activities-
Repayment of senior note obligation	—		(15,000	)
Proceeds (repayments) under intellectual property lease	—		(1,908	)
Increase (decrease) in revolving credit line, net	(3,360	)	(894	)
Repurchase of treasury stock and stock warrants	(220	)	(1,272	)
Other financing activities, net	(276	)	(139	)
Net cash (used in) financing activities	(3,856	)	(19,213	)
Effect of exchange rates on cash	(92	)	(95	)
Changes in cash and cash equivalents-
Net increase (decrease) in cash and cash equivalents	593		(6,724	)
Cash and cash equivalents at beginning of year	2,094		14,536
Cash and cash equivalents at end of quarter	$ 2,687		$   7,812
Interest paid	$    375		$   1,946
Income taxes paid	$    325		$      373

See accompanying notes

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THE MIDDLEBY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 29, 2001
(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 2000 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 29, 2001 and December 30, 2000, and the results of operations for the nine months ended September 29, 2001 and September 30, 2000 and cash flows for the nine months ended September 29, 2001 and September 30, 2000.

2) New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities.”This standard requires that an entity recognize derivatives as either assets or liabilities on its balance sheet and measure those instruments at fair value. SFAS No. 137 amended the effective date of SFAS No. 133 to being effective for fiscal years beginning after June 15, 2000. As a result, the company has adopted the requirements of SFAS No. 133 in the first quarter of the fiscal year 2001. Based on current circumstances, the adoption of SFAS No. 133 did not have a material effect on the financial position or results of operations for the company in the first three quarters of 2001.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141 “Business Combinations”. This statement addresses financial accounting and reporting for business combinations initiated after June 30, 2001, superceding APB Opinion No. 16 “Business Combinations” and SFAS

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No. 38 “Accounting for Preacquisition Contingencies of Purchased Enterprises”. All business combinations in the scope of this statement are to be accounted for using the purchase method of accounting. In August 2001, Middleby announced it had entered into an agreement to purchase Maytag Corporation’s Blodgett commercial cooking products business (“Blodgett”). This acquisition is expected to be completed in the fourth quarter of 2001 and will be accounted for in accordance with SFAS No. 141.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 142 “Goodwill and Other Intangible Assets”, superceding APB Opinion No. 17, “Intangible Assets”. This statement addresses how intangible assets that are acquired individually or with a group of other assets (excluding assets acquired in a business combination) should be accounted for in financial statements upon their acquisition. This statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. In accordance with this statement, goodwill and certain other intangible assets will no longer be amortized, but evaluated for impairment based upon financial tests related to the current value for the related assets. As a result there may be more volatility in reported income than under the previous standards because impairment losses are likely to occur irregularly and in varying amounts. The company will adopt this statement in the first quarter of fiscal 2002 and any impairment losses that arise due to the initial application of this statement will be reported as a change in accounting principle. The net book value of goodwill and other intangible assets of the company as of September 29, 2001 amounted to $12.4 million. Additionally, goodwill and intangible assets acquired in connection with Middleby’s announced acquisition of Blodgett will be subject to the nonamortization provisions of this statement immediately upon completion of the transaction.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143 “Accounting for Asset Retirement Obligations”. This statement addresses financial accounting and reporting obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs, and requires that such costs be recognized as a liability when the recognition criteria in FASB Concepts Statement No. 5 “Recognition and Measurement in the Financial Statements of Business Enterprises”are met. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The company does not expect the adoption of this statement to have a material impact to the financial statements.

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3) 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. 29, 2001		Sept. 30, 2000	Sept. 29, 2001	Sept. 30, 2000
Net earnings	$ 1,092		$1,108	$2,317	$2,239
Cumulative translation
adjustment	(290	)	484	90	566
Comprehensive income	$    802		$1,592	$2,407	$2,805

4) Inventories

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

Inventories consist of the following:

	Sept. 29, 2001	Dec. 30, 2000
	(In thousands)
Raw materials and
parts	$  4,063	$  5,515
Work-in-process	3,248	3,985
Finished goods	9,893	8,872
	$17,204	$18,372

5) Accrued Expenses

Accrued expenses consist of the following:

	Sept. 29, 2001	Dec. 30, 2000
	(In thousands)
Accrued payroll and
related expenses	$  3,886	$  6,253
Accrued customer rebates	2,223	3,479
Accrued commissions	844	925
Accrued warranty	1,381	1,449
Other accrued expenses	5,325	5,812
	$13,659	$17,918

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6) Segment Information

The company operates in two reportable business segments defined by management reporting structure and operating activities.

The Cooking Systems Group manufactures commercial kitchen equipment for the worldwide market. This business division has manufacturing facilities in Illinois, North Carolina and the Philippines. This division supports four major product groups, including conveyor oven equipment, core cooking equipment, counterline cooking equipment, and international specialty equipment. Principal product lines of the conveyor oven product group include Middleby Marshall ovens and CTX ovens. Principal product lines of the core cooking equipment product group include the Southbend product line of ranges, steamers, convection ovens, broilers, fryers and griddles. The counterline cooking and warming equipment product group includes toasters, hot food servers, foodwarmers, griddles and ranges distributed under the Toastmaster brand name. The international specialty equipment product group is primarily comprised of food preparation tables, undercounter refrigeration systems, ventilation systems and other fabricated equipment used in commercial kitchens.

The International Distribution Division provides integrated design, export management, distribution and installation services through its operations in Canada, China, France, India, Japan, Korea, Mexico, the Philippines, Spain, and Taiwan. The division sells the company’s product lines and certain non-competing complementary product lines throughout the world. For a local country distributor or dealer, the company is able to provide a centralized source of foodservice equipment with complete export management and product support services.

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.

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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 29, 2001
Net sales	$23,748	$   4,767		$        —		$(2,801	)	$25,714
Operating income (loss)	3,722	(208	)	(1,079	)	—		2,435
Depreciation expense	572	43		44		—		659
Capital expenditures	43	7		4		—		54
Nine months ended September 29, 2001
Net sales	$71,194	$ 14,951		$        —		$(10,391	)	$75,754
Operating income (loss)	9,285	(740	)	(2,076	)	50		6,519
Depreciation expense	1,795	125		142		—		2,062
Capital expenditures	165	13		147		—		325
Total assets	49,950	13,117		17,838		(10,982	)	69,923
Long-lived assets	17,841	416		11,997		—		30,254
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

(1) Includes 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.

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. 29, 2001	Sept. 30, 2000	Sept. 29, 2001	Sept. 30, 2000
United States	$19,010	$23,204	$53,633	$70,794
Asia	2,157	2,296	8,609	7,793
Europe and Middle East	2,321	2,786	6,863	8,105
Latin America	1,431	2,144	3,941	6,695
Canada	795	621	2,708	2,512
Total International	6,704	7,847	22,121	25,105
Net Sales	$25,714	$31,051	$75,754	$95,899

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Unaudited).

Pending Acquisition

On August 31, 2001, the Middleby Corporation announced its agreement to purchase Maytag Corporation's Blodgett commercial cooking products business, a copy of which is attached as exhibit 2.1.

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.

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	Net Sales Summary
	Three Months Ended								Nine Months Ended
	Sept. 29, 2001				Sept. 30, 2000				Sept. 29, 2001				Sept. 30, 2000
	Sales		Percent		Sales		Percent		Sales		Percent		Sales		Percent
Product Groups
Conveyor oven
equipment	$ 11,388		44.3		$ 12,965		41.8		$ 30,448		40.2		$ 39,134		40.8
Counterline cooking
equipment	2,777		10.8		3,080		9.9		8,523		11.3		9,457		9.9
Core cooking
equipment	8,773		34.1		11,572		37.3		28,580		37.7		35,204		36.7
International specialty
equipment	810		3.2		927		2.9		3,643		4.8		3,145		3.3
Total Cooking Systems
Group	23,748		92.4		28,544		91.9		71,194		94.0		86,940		90.7
International
Distribution (1)	4,767		18.5		8,196		26.4		14,951		19.7		24,880		25.9
Intercompany
sales (2)	(2,801	)	(10.9	)	(5,689	)	(18.3	)	(10,391	)	(13.7	)	(15,921	)	(16.6	)
Other	—		—		—		—		—		—		—		—
Total	$ 25,714		100.0		$ 31,051		100.0		$ 75,754		100.0		$ 95,899		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 company’s 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. 29, 2001		Sept. 30, 2000		Sept. 29, 2001		Sept. 30, 2000
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales	67.0	%	64.9	%	67.1	%	66.5	%
Gross profit	33.0	%	35.1	%	32.9	%	33.5	%
Selling, general and administrative
expenses	23.5	%	22.3	%	24.3	%	24.2	%
Income from operations	9.5	%	12.8	%	8.6	%	9.3	%
Interest expense and deferred
financing amortization, net	0.5	%	0.6	%	0.6	%	1.2	%
Other (income) expense, net	(0.3	%)	1.4	%	0.7	%	1.0	%
Earnings before income taxes	9.3	%	10.8	%	7.3	%	7.1	%
Provision for income taxes	5.1	%	6.5	%	4.2	%	4.5	%
Net earnings before
Extraordinary item	4.2	%	4.3	%	3.1	%	2.6	%
Extraordinary item	—		0.7	%	—		0.3	%
Net earnings	4.2	%	3.6	%	3.1	%	2.3	%

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Three Months Ended September 29, 2001 Compared to Three Months Ended September 30, 2000

NET SALES.Net sales in the three-month period ended September 29, 2001 decreased 17% to $25.7 million as compared to $31.1 million in the three-month period ended September 30, 2000.

Sales of the Cooking Systems Group for the three-month period ended September 29, 2001 decreased to $23.7 million from $28.5 million in the prior year. The decrease was primarily driven by reduced sales of conveyor oven equipment and core cooking equipment. Sales of conveyor oven equipment were impacted by slowed store openings of certain major chain customers, while core cooking equipment sales were lower due to the slowdown in the U.S. economy.

Sales of the International Distribution Division decreased 42% to $4.8 million from $8.2 million in the previous year period. The lower sales level reflects the slowdown of international expansion of major restaurant chains, the impact of the strengthened U.S. dollar and the slowdown of certain international economies.

GROSS PROFIT.Gross profit decreased to $8.5 million from $10.9 million in the prior year period as a result of the reduced sales volumes. Gross margin rate decreased to 33.0% in the quarter from 35.1% in the prior year quarter. The decrease in the gross margin rate reflects lesser production efficiencies and overhead absorption at the domestic manufacturing operations resulting from the lower sales volumes.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.Selling, general and administrative expenses decreased 12% to $6.1 million as compared to $6.9 million in the prior year period. The reduction in expenses reflects a combination of savings from a lower cost structure resulting from actions to reduce costs during the current economic slowdown, tightened controls on discretionary spending, and lower variable expenses such as commissions and incentive compensation.

NON-OPERATING EXPENSES.Interest and deferred financing amortization costs decreased to $0.1 million from $0.2 million in the prior year as a result of reduced interest expense on lower outstanding debt. Other income was $0.1 million in the current year and $0.4 million of expense in the prior year. The improvement from the prior year reflects foreign exchange gains related to the company’s operations in Europe and Asia during the quarter.

INCOME TAXES.A tax provision of $1.3 million, at an effective rate of 54%, was recorded during the quarter, primarily associated with taxable income reported at the company’s operations in the United States and Europe. No benefit was recognized for losses at international subsidiaries within Asia.

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Nine Months Ended September 29, 2001 Compared to Nine Months Ended September 30, 2000

NET SALES.Net sales for the nine months ended September 29, 2001 decreased by 21.0% to $75.8 million as compared to $95.9 million for the same period in the prior year.

Net sales of the Cooking Systems Group for the nine-month period ended September 29, 2001 decreased to $71.2 million from $86.9 million in the prior year. Sales of all product groups were impacted by the slowdown in the U.S. and international economies. Additionally, sales of conveyor oven equipment were adversely impacted by the slowdown in store openings of certain major chain customers, particularly during the first half of 2001. Sales of international specialty equipment increased for the nine months ended September 29, 2001, due to the development of new products for the Asian market and increased sales to a major Philippine based restaurant chain.

Sales of the International Distribution Division decreased to $15.0 million from $24.9 million in the previous year period. The lower sales level reflects the slowdown of international expansion of major restaurant chains during the first half of fiscal 2001. Sales were also impacted by the general slowdown of the international economies and the impact of the strengthened U.S. dollar.

GROSS PROFIT.Gross profit decreased to $24.9 million from $32.1 million in the prior year period. As a percentage of sales, the gross margin rate was 32.9% as compared to 33.5% in the prior year. The reduction in gross margin dollars and rate is a direct result of the reduced sales volumes. Cost reduction measures implemented in response to the reduced volumes and improved product mix have had a favorable impact on the gross margins, partly offsetting the effect of the volume reduction.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.Selling, general and administrative expenses decreased 21% to $18.4 million as compared to $23.2 million in the prior year period. The reduction in expenses reflects a combination of savings from a lower cost structure resulting from prior year restructuring efforts, tightened controls on discretionary spending implemented during the current economic slowdown, and lower variable expenses such as sales commissions and incentive compensation. The company reduced headcount by approximately 10% in the first half of 2001 in reaction to the lower sales levels.

NON-OPERATING EXPENSES. Interest and other financing costs decreased to $0.5 million from $1.2 million in the prior year as a result of reduced interest expense on lower outstanding debt. Other expenses were $0.5 million in the current year as compared to $1.0 million in the prior year. The expense largely relates to unrealized exchange losses at the company’s operations in Asia and Europe, which was favorable to the prior year due to greater stability in the Philippine Peso.

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INCOME TAXES.A tax provision of $3.2 million, at an effective rate of 58%, was recorded during the quarter, primarily associated with taxable income reported at the company’s operations in the United States and Europe. No benefit was recognized for losses at international subsidiaries within Asia.

Financial Condition and Liquidity

During the nine months ended September 29, 2001, cash and cash equivalents increased by $0.6 million to $2.7 million at September 29, 2001 from $2.1 million at December 30, 2000. Net borrowings decreased from $8.5 million at December 30, 2000 to $4.8 million at September 29, 2001.

OPERATING ACTIVITIES. Net cash provided by operating activities before changes in assets and liabilities was $7.3 million in the nine months ended September 29, 2001 as compared to $7.7 million in the prior year period. Net cash provided by operating activities after changes in assets and liabilities was $4.9 million as compared to net cash provided of $13.0 million in the prior year period.

During the nine months ended September 29, 2001, accounts receivable decreased $4.5 million due to lower sales. Inventories decreased $1.3 million due to lower demand levels. Prepaid expenses and other assets increased $1.2 million due to transaction fees related to the Blodgett acquisition. Accounts payable decreased $1.9 million due to lower inventory purchases. Accrued expenses and other liabilities decreased $5.2 million primarily as a result of payments for annual customer rebate programs, annual incentive compensation obligations and settlement of pension obligations to a former company officer in the second quarter.

INVESTING ACTIVITIES. During the nine months ending September 29, 2001, the company had capital expenditures of $0.3 million.

FINANCING ACTIVITIES.Net borrowings under the revolving line of credit decreased by $3.4 million during the nine months ending September 29, 2001.

At September 29, 2001, the company was in compliance with covenants pursuant to its 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.

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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. 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.

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 and option purchase contracts outstanding at September 29, 2001 entered into to hedge the aforementioned exposures:

Sell	Purchase	Maturity
1,000,000 Euro              1,000,000 Euro          464,100,000 South Korean Won          600,000,000 South Korean Won            54,800,000 Taiwan Dollar            25,000,000 Taiwan Dollar	$899,000 U.S. Dollars $917,400 U.S. Dollars $350,000 U.S. Dollars $456,274 U.S. Dollars $1,576,978 U.S. Dollars $717,566 U.S. Dollars	December 18, 2001 December 18, 2001 October 18, 2001 October 26, 2001 October 24, 2001 October 26, 2001

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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
	(In thousands)
September 29, 2002	$     10	$     —
September 29, 2003	—	—
September 29, 2004	—	4,791
	$     10	$4,791

Variable rate debt is comprised of borrowings under the company’s $20.0 million revolving credit line, which includes a $2.1 million Yen denominated loan and a $2.7 million U.S. dollar 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 and U.S. denominated loans at September 29, 2001 were 0.8% and 4.4%, respectively.

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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 29, 2001, except as follows:

Item 6. Exhibits and Reports on Form 8-K

a) Exhibits — The following exhibit is filed herewith:

Exhibit 2.1 — Stock Purchase Agreement between The Middleby Corporation and Maytag Corporation, dated August 30, 2001. The company agrees to furnish supplementally a copy of any omitted schedules or similar attachments to the Purchase Agreement to the Commission upon request.

b) There were no reports filed on Form 8-K during the third quarter of 2001.

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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 13, 2001	By: /s/ David B. Baker       David B. Baker        Vice President,        Chief Financial Officer        and Secretary

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