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
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Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 1, 1995
or
Transition Report Pursuant to Section 13 or 15(d) of the
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Securities Exchange Act of 1934
Commission File No. 1-9973
THE MIDDLEBY CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3352497
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1400 TOASTMASTER DRIVE, ELGIN, ILLINOIS 60120
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone No., including Area Code (708) 741-3300
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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
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As of April 28, 1995, there were 8,385,363 shares of the registrant's
common stock outstanding.
THE MIDDLEBY CORPORATION
QUARTER ENDED APRIL 1, 1995
INDEX
DESCRIPTION PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
BALANCE SHEETS 1
April 1, 1995 and December 31, 1994
STATEMENTS OF EARNINGS 2
April 1, 1995 and April 2, 1994
STATEMENTS OF CASH FLOWS 3
April 1, 1995 and April 2, 1994
NOTES TO FINANCIAL STATEMENTS 4
Item 2. Management's Discussion and Analysis 7
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION 9
THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
April 1, 1995 Dec. 31, 1994
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Cash and Cash Equivalents............. $ 1,556,000 $ 667,000
Accounts Receivable, net.............. 18,411,000 18,064,000
Inventories, net...................... 25,017,000 21,116,000
Prepaid Expenses and Other............ 941,000 1,394,000
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Total Current Assets............. 45,925,000 41,241,000
Property, Plant and Equipment, net of
accumulated depreciation of
$12,879,000 and $12,310,000.......... 23,260,000 23,260,000
Excess Purchase Price Over Net Assets
Acquired, net of accumulated
amortization of $3,133,000 and
$3,063,000.......................... 7,985,000 8,055,000
Other Assets.......................... 4,506,000 2,818,000
Investment in Affiliated Companies.... 1,203,000 1,248,000
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Total Assets.............. $ 82,879,000 $ 76,622,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Maturities of Long-Term Debt.. $ 1,896,000 $ 1,822,000
Accounts Payable...................... 14,938,000 11,252,000
Accrued Expenses...................... 9,673,000 11,079,000
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Total Current Liabilities........ 26,507,000 24,153,000
Long-Term Debt........................ 45,119,000 42,650,000
Minority Interest and Other
Non-current Liabilities............. 1,837,000 1,782,000
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;
8,378,000 and 8,366,000 issued
and outstanding in 1995 and
1994, respectively................ 83,000 83,000
Paid-in Capital..................... 24,822,000 24,154,000
Cumulative Translation Adjustment... (416,000) (384,000)
Accumulated Deficit................. (15,073,000) (15,816,000)
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Total Shareholders' Equity........ 9,416,000 8,037,000
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Total Liabilities and
Shareholders' Equity.... $ 82,879,000 $ 76,622,000
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See accompanying notes
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THE MIDDLEBY CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
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April 1, 1995 April 2, 1994
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Net Sales........................... $34,994,000 $31,020,000
Cost of Sales....................... 25,276,000 23,023,000
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Gross Margin................... 9,718,000 7,997,000
Selling and Distribution Expenses... 4,851,000 4,497,000
General and Administrative Expenses. 2,353,000 2,220,000
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Income from Operations......... 2,514,000 1,280,000
Interest Expense.................... 1,184,000 904,000
Other Expense, Net.................. 198,000 177,000
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Earnings before Income
Taxes........................ 1,132,000 199,000
Provision for Income Taxes.......... 389,000 66,000
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Net Earnings................... $ 743,000 $ 133,000
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Earnings Per Common and Common
Equivalent Share.................. $ .09 $ .01
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See accompanying notes
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THE MIDDLEBY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
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April 1, 1995 April 2, 1994
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Cash Flows From Operating Activities-
Net earnings........................... $ 743,000 $ 133,000
Adjustments to reconcile net
earnings to cash provided by
operating activities-
Depreciation and amortization........ 724,000 641,000
Utilization of Subsidiary NOL's
credited to paid-in capital
(See Note 2)....................... 320,000 56,000
Changes in assets and liabilities-
Accounts receivable.................. (348,000) 467,000
Inventories.......................... (3,902,000) (1,265,000)
Prepaid expenses and other assets.... 814,000 (373,000)
Accounts payable and other
liabilities........................ 2,281,000 935,000
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Net Cash Provided by Operating
Activities........................... 632,000 594,000
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Cash Flows from Investing Activities-
Additions to property and equipment.... (569,000) (320,000)
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Net Cash Used by Investing
Activities........................... (569,000) (320,000)
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Cash Flows From Financing Activities-
Proceeds from note..................... 15,000,000 -
Proceeds from bank debt................ 31,000,000 -
Repayment of debt...................... (44,055,000) -
Payments of long-term debt............. (5,000) (4,000)
Increase in revolving credit, net...... 603,000 (200,000)
Cost of financing activities........... (1,717,000) -
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Net Cash Provided/(Used) by Financing
Activities........................... 826,000 (204,000)
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Changes in Cash and Cash Equivalents-
Net increase in cash and cash
equivalents.......................... 889,000 70,000
Cash and cash equivalents at
beginning of year.................... 667,000 425,000
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Cash and Cash Equivalents at End
of Quarter........................... $ 1,556,000 $ 495,000
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Interest paid............................ $ 527,000 $ 875,000
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Income taxes paid........................ $ 128,000 $ 23,000
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See accompanying notes
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THE MIDDLEBY CORPORATION
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 1, 1995
(Unaudited)
1) Basis of Presentation
The financial statements have been prepared by The Middleby Corporation
(the "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
not misleading. These financial statements should be read in conjunction
with the financial statements and related notes contained in the Company's
1994 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 April 1, 1995 and December 31, 1994, and the results of
operations and cash flows for the three months ended April 1, 1995 and
April 2, 1994, respectively.
2) Income Taxes
The Company files a consolidated Federal income tax return. In January,
1993, the Company adopted Statement of Financial Accounting Standards No.
109 ("SFAS 109"), Accounting for Income Taxes. SFAS 109 requires the
recognition of deferred tax assets and liabilities for expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. Adoption of SFAS 109 was effected through the
cumulative catch-up method.
The Company has recorded an income tax provision of $389,000 for the fiscal
three months ended April 1, 1995. Although the Company is not a Federal
taxpayer due to its NOL carry-forwards, a tax provision is still required
to be recorded. As a majority of the NOL carry-forwards relate to an old
quasi-reorganization, utilization of the NOL carry-forwards is recorded
as a credit to the tax provision, but is directly credited to paid-in
capital. The utilization of the net operating loss carry-forwards depends
on future taxable income during the applicable carry-forward periods. In
adopting SFAS 109 in 1993, the
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Company recorded a valuation allowance equal to the net deferred tax assets
to reflect the inherent uncertainty in being able to predict future events.
A tax asset of $1,350,000 was established as of December 31, 1994 with a
credit to provision for income taxes of $339,000 and a credit directly to
paid-in capital of $1,011,000. An additional $320,000 of the fiscal first
quarter 1995 tax provision has been credited to paid-in capital. The
reduction in the valuation allowance and increase in shareholders' equity
of $1,350,000 reflects management's judgment as to the Company's ability to
generate taxable income during the carry-forward periods. The remaining
net operating loss and tax credit carry-forwards available to the Company
will be recorded into income and equity at a future date.
3) Earnings Per Share
Earnings per share of common stock are based upon the weighted average
number of outstanding shares of common stock and common stock equivalents.
The treasury stock method is used in computing common stock equivalents,
which included stock options and a warrant issued in conjunction with the
senior secured note. The terms of the warrant provide for the purchase of
250,000 shares at $3 per share, however, under certain conditions, the
warrant terms provide for the purchase of 200,000 shares at $.01 per share.
Earnings per share were computed based upon the weighted average number of
common shares outstanding of 8,661,000 and 8,397,000 for the fiscal
quarters ended April 1, 1995 and April 2, 1994, respectively.
4) Inventories
Inventories are valued using the first-in, first-out method.
Inventories consist of the following:
Apr. 1, 1995 Dec. 31, 1994
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Raw Materials and Parts $11,030,000 $ 8,404,000
Work in Process 6,268,000 5,866,000
Finished Goods 7,719,000 6,846,000
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$25,017,000 $21,116,000
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5) Accrued Expenses
Accrued expenses consist of the following:
Apr. 1, 1995 Dec. 31, 1994
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Accrued payroll and
related expenses......... $ 3,710,000 $ 4,800,000
Accrued commissions........ 2,047,000 2,191,000
Accrued warranty........... 1,420,000 1,365,000
Accrued interest........... 719,000 62,000
Other...................... 1,777,000 2,661,000
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$ 9,673,000 $11,079,000
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6) Certain amounts have been reclassified in 1994 to be consistent with the
1995 presentation.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited).
RESULTS OF OPERATIONS
Net sales for the fiscal three months ended April 1, 1995 increased by
$3,974,000 (12.8%) compared to the prior year's three month period ended April
2, 1994. International sales increased 29% in the first quarter over 1994 and
represented 26% of total sales versus 22% in 1994. The increase in sales from
the prior year resulted from the success of several new product programs and
continued recognition by the foodservice industry of the Company's extensive
international sales and service network.
Gross profit increased $1,721,000 (21.5%) for the quarter compared to the prior
year's quarter. As a percentage of net sales, gross margin increased 2.0% to
27.8% for the quarter from the prior year's quarter. The increase in gross
margin is attributable primarily to increased sales volume, the success of new
product programs, improved product mix and operating efficiencies.
Selling, distribution, general and administrative expenses increased $487,000
(7.3%) for the three month period. As a percentage of sales, selling, general
and administrative expenses decreased to 20.6% for the three months ended April
1, 1995, compared to 21.7% for the prior year's three month period. The
improved results reflect leverage of expenses on a higher sales volume.
Interest expense for the fiscal quarter ended April 1, 1995 increased $280,000
(30.9%) compared to the prior year's quarter ended April 2, 1994. The increase
is primarily due to higher prevailing interest rates during the first quarter of
1995 compared to the first quarter of 1994.
The Company recorded net earnings of $743,000 or $.09 per share for the three
month period ended April 1, 1995. This compared to net earnings of $133,000 or
$.01 per share for the three month period ended April 2, 1994. The first
quarter increase in net earnings is attributable to the success of several new
product programs, increased demand in international markets, improved operating
efficiencies, and leverage of operating expenses.
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FINANCIAL CONDITION AND LIQUIDITY
For the three months ended April 1, 1995, net cash provided by operating
activities before changes in assets and liabilities was $1,787,000 as compared
to $830,000 for the three months ended April 2, 1994. Net cash provided by
operating activities after changes in assets and liabilities was $632,000 as
compared to $594,000 in the prior year-to-date period. Increased operating
earnings and accounts payables were partially offset by increases in receivables
and inventories due to increasing volume.
On January 10, 1995, the Company's subsidiaries consummated a $57,500,000
financing package to replace existing bank debt of $44,000,000 and provide
working capital for future growth. The financing includes a $42,500,000 senior
secured credit facility from a group of lenders led by an affiliate of a major
international bank and a $15,000,000 senior secured note placement with a major
insurance company. The credit facility includes a $15,000,000 five-year term
loan, a $2,500,000 capital expenditure facility, and a $25,000,000 revolving
credit line. The senior secured notes have an eight-year term with payments
beginning in the sixth year and bear interest at 10.99%. A warrant for the
purchase of 250,000 shares of common stock at an exercise price of $3 per share
was issued in conjunction with the notes; however, under certain conditions, the
terms of the warrant provide for the purchase of 200,000 shares at $.01 per
share.
The Company incurred financing costs of $1,717,000 which will be amortized over
the average life of the note and bank debt's term. During the fiscal quarter,
the Company increased its borrowings under the revolving credit agreement by
$2,548,000 for payment of the financing costs and funding of operations.
Management believes the Company has sufficient financial resources available to
meet its anticipated requirements for funds for operations in the current fiscal
year and can satisfy the obligations under its credit and note agreements.
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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 any of the three months ended April 1,
1995, except as follows:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - The following Exhibits are filed herewith:
Exhibit (10)(iii)(a) - Amended and Restated Employment Agreement of
William F. Whitman, Jr., dated January 1,
1995.
Exhibit (10)(iii)(b) - Amended and Restated Employment Agreement of
David P. Riley dated January 1, 1995.
Exhibit (10)(iii)(c) - The Middleby Corporation Retirement Plan for
Independent Directors adopted as of January
1, 1995.
Exhibit (10)(iii)(d) - 1995 Management Incentive Plan.
Exhibit (27) - Financial Data Schedule
b) Reports on Form 8-K - No such reports were filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MIDDLEBY CORPORATION
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(Registrant)
Date May 15, 1995 By: /s/ John J. Hastings
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John J. Hastings, Executive
Vice President, Chief
Financial Officer and
Secretary
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