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 QUARTERLY PERIOD ENDED JUNE 29, 1996
or
-- Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 1-9973
THE MIDDLEBY CORPORATION
--------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3352497
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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 Number, 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 June 29, 1996, there were 8,402,488 shares of the registrant's common
stock outstanding.
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
QUARTER ENDED JUNE 29, 1996
INDEX
DESCRIPTION PAGE
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
BALANCE SHEETS 1
June 29, 1996 and December 30, 1995
STATEMENTS OF EARNINGS 2
June 29, 1996 and July 1, 1995
STATEMENTS OF CASH FLOWS 3
June 29, 1996 and July 1, 1995
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
PART I. FINANCIAL INFORMATION
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THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
ASSETS JUNE 29, 1996 DEC. 30, 1995
- ---------------------------------------------- -------------- -------------
Cash and Cash Equivalents..................... $1,092 $981
Accounts Receivable, net...................... 21,953 16,236
Inventories, net.............................. 28,853 26,584
Prepaid Expenses and Other.................... 1,986 980
Current Deferred Taxes........................ 2,086 2,086
----- -----
Total Current Assets..................... 55,970 46,867
Property, Plant and Equipment, net of
accumulated depreciation of
$15,213,000 and $14,475,000................ 25,424 24,273
Excess Purchase Price Over Net Assets
Acquired, net of accumulated amortization
of $3,481,000 and $3,341,000............... 7,637 7,777
Deferred Taxes................................ 2,930 2,930
Other Assets.................................. 1,904 2,193
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Total Assets........................ $93,865 $84,040
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Maturities of Long-Term Debt.......... $ 2,482 $ 1,710
Accounts Payable.............................. 16,080 14,026
Accrued Expenses.............................. 9,197 9,756
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Total Current Liabilities................ 27,759 25,492
Long-Term Debt................................ 47,541 41,318
Minority Interest and Other
Non-current Liabilities.................... 1,918 1,782
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; 8,402,000 and
8,388,000 issued and outstanding in
1996 and 1995, respectively............. 84 84
Paid-in Capital............................ 28,299 27,934
Cumulative Translation Adjustment.......... (188) (228)
Accumulated Deficit........................ (11,548) (12,342)
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Total Shareholders' Equity................. 16,647 15,448
Total Liabilities and Shareholders' ------- -------
Equity.......................... $93,865 $84,040
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------- -------
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 SIX MONTHS ENDED
--------------------------- ---------------------------
JUNE 29, 1996 JULY 1, 1995 JUNE 29, 1996 JULY 1, 1995
------------- ------------ ------------- ------------
Net Sales................................... $37,233 $34,559 $75,556 $69,553
Cost of Sales............................... 27,344 25,092 55,485 50,368
-------- -------- -------- -------
Gross Margin.................... 9,889 9,467 20,071 19,185
Selling and Distribution Expenses........... 5,752 4,936 10,829 9,787
General and Administrative Expenses......... 2,739 2,355 5,281 4,708
-------- -------- -------- -------
Income from Operations.......... 1,398 2,176 3,961 4,690
Interest Expense and Deferred
Financing Costs.......................... 1,322 1,346 2,618 2,612
Other Expense (Income), Net................. 39 (202) 142 (86)
-------- -------- -------- -------
Earnings before Income Taxes.... 37 1,032 1,201 2,164
Provision for Income Taxes.................. - 338 407 727
--- --- ---
Net Earnings.................... $37 $694 $794 $1,437
-------- -------- -------- -------
-------- -------- -------- -------
Earnings per Common and Common
Equivalent Share......................... $.00 $.08 $.09 $.17
-------- -------- -------- -------
-------- -------- -------- -------
See accompanying notes
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THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
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JUNE 29, 1996 JULY 1, 1995
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Cash Flows From Operating Activities-
Net Earnings.................................... $794 $1,437
Adjustments to reconcile net earnings to
cash provided by operating activities-
Depreciation and amortization................ 1,236 1,464
Utilization of Subsidiary NOL's credited to
paid-in capital (See Note 2).............. 325 580
Changes in assets and liabilities-
Accounts receivable.......................... (5,717) (322)
Inventories.................................. (2,269) (4,308)
Prepaid expenses and other assets............ (503) 393
Accounts payable and other liabilities....... 1,495 1,756
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Net Cash (Used In)/ Provided by
Operating Activities......................... (4,639) 1,000
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Cash Flows From Investing Activities-
Additions to property and equipment............. (2,218) (1,133)
Proceeds from sale of investment................ 0 1,337
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Net Cash (Used In)/Provided by
Investing Activities......................... (2,218) 204
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Cash Flows From Financing Activities-
Proceeds from senior secured note............... - 15,000
Proceeds from credit facility................... - 31,000
Extinguishment of bank debt..................... - (44,055)
Increase in revolving credit line, net.......... 4,735 1,161
Other financing activities, net................. 1,758 (1,573)
Cost of financing activities.................... (1,717)
Proceeds from capital expenditure loan, net..... 475 -
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Net Cash Provided by (Used in) Financing
Activities................................... 6,968 (184)
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Changes in Cash and Cash Equivalents-
Net increase in cash and cash equivalents....... 111 1,020
Cash and cash equivalents at beginning
of year...................................... 981 667
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Cash and Cash Equivalents at End of Period...... $1,092 $1,687
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Interest paid...................................... $2,264 $1,767
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Income taxes paid.................................. $61 $236
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See accompanying notes
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THE MIDDLEBY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 1996
(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
1995 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 June 29, 1996 and December 30, 1995, and the results of
operations for the three and six months ended June 29, 1996 and July 1,
1995, respectively, and cash flows for the six months ended June 29, 1996
and July 1, 1995, 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 $407,000 for the fiscal
six months ended June 29, 1996. Although the Company is not a Federal
taxpayer due to its NOL carry-forwards, a tax provision is still required
to be recorded. The majority of the NOL carry-forwards relate to an old
quasi-reorganization and are not recorded as a credit to the tax provision,
but are directly credited to paid-in-capital.
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The utilization of the net operating loss and credit carry-forwards depend
on future taxable income during the applicable carry-forward periods.
Management evaluates and adjusts the valuation allowance, based on the
Company's expected taxable income, as part of the annual budgeting
process. These adjustments reflect management's judgment as to the
Company's ability to generate taxable income which will, more likely than
not, be sufficient to recognize these tax assets.
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 include 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, which
have been met, 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 8,715,000 and
8,693,000 for the fiscal quarters ended June 29, 1996 and July 1, 1995,
respectively, and 8,707,000 and 8,678,000 for the fiscal year-to-date
periods ended June 29, 1996 and July 1, 1995, respectively.
4) Inventories
Inventories are valued using the first-in, first-out method.
Inventories consist of the following:
(In Thousands)
June 29, 1996 December 30, 1995
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Raw Materials and Parts $10,408 $10,356
Work-in-Process 6,169 6,688
Finished Goods 12,276 9,540
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$28,853 $26,584
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5) Accrued Expenses
Accrued expenses consist of the following:
(In Thousands)
June 29, 1996 December 30, 1995
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Accrued payroll and related expenses $3,074 $3,838
Accrued commissions 1,662 1,567
Accrued warranty 1,532 1,382
Other accrued expenses 2,929 2,969
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$9,197 $9,756
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6) Certain amounts have been reclassified in 1995 to be consistent with the
1996 presentation.
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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 estimates of future performance and
are highly dependent upon a variety of important factors which could cause
actual results 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 risks affecting
international sales; and other risks detailed herein and from time-to-time in
the Company's Securities and Exchange Commission filings.
RESULTS OF OPERATIONS
Net sales for the quarter ended June 29, 1996 increased $2,674,000 (7.7%) to
$37,233,000, compared to $34,559,000 in the prior year's quarter ended July 1,
1995. Net sales for the six-month period ended June 29, 1996 increased
$6,003,000 (8.6%) to $75,556,000, compared to $69,553,000 in the prior year's
six-month period ended July 1, 1995. The overall sales increase was largely due
to unit volume increases (rather than price). Cooking and warming equipment
manufacturing divisions reported a sales increase of 5%, while sales of the
refrigeration equipment division decreased 2%. Within the cooking and warming
equipment manufacturing divisions, sales of the Company's core cooking and
steaming equipment line increased substantially, while sales of conveyor oven
equipment decreased slightly as certain major customers deferred store openings
in overseas markets. Within the refrigeration equipment division, sales to the
foodservice market increased 23%, while sales of merchandisers to the soft drink
bottler industry declined significantly. International sales increased 17%
overall and accounted for 29% of total sales for the quarter compared to 27% in
the 1995 fiscal second quarter. Sales of the Company's international-based
fabricated equipment division increased 24% during the quarter.
Gross margin increased $422,000 (4.5%) to $9,889,000 for the quarter compared to
the prior year's quarter. Gross margin for the six-month period increased
$886,000 (4.6%) to $20,071,000 compared to the prior year's six-month period.
The increase in gross margin is primarily due to higher sales. As a percentage
of net sales, gross margin decreased 0.8% to 26.6% for the quarter compared to
27.4% in the prior year's quarter, while year-to-date gross margins have
decreased 1.0% to 26.6%. The decline in gross margin percentage was primarily
related to product mix, operational inefficiencies at the
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Company's refrigeration unit, a decline in sales of merchandisers to the soft
drink bottler industry, and start-up/move costs associated with the Company's
new Philippine manufacturing facility.
Selling, general and administrative expenses increased $1,200,000 (16.5%) and
$1,615,000 (11.1%) for the three and six-month periods, respectively. Increased
expenses reflect promotional expenses for new products and dealer programs and
the expansion of international sales and service capabilities. During the
second quarter, the Company opened a sales and distribution office in Taiwan and
completed the move of its Philippine based fabrication equipment division into
a newly constructed manufacturing facility. As a percentage of sales, selling,
general and administrative expenses increased to 22.8% for the quarter ended
June 29, 1996, compared to 21.1% for the prior year's quarter, and to 21.3% for
the six-month period ended June 29, 1996 compared to 20.8% for the prior year's
six-month period.
Other income for the prior year quarter ended July 1, 1995 included a gain from
the sale of a discontinued product line and proceeds from a value-added tax
settlement in Canada.
Interest expense and amortization of deferred financing costs for the fiscal
quarter ended June 29, 1996 increased $24,000 (1.8%) compared to the prior year
quarter, and was only slightly higher at $2,618,000 in the year-to-date period
compared to $2,612,000 in the prior year-to-date period. Increases in the
amortization of deferred financing costs have been offset by lower interest
costs in both the quarter and year-to-date periods compared to the prior year.
The Company recorded net earnings of $37,000 for the fiscal quarter ended
June 29, 1996 compared to net earnings of $694,000 for the prior year
quarter. Year-to-date earnings were $794,000 for the six-month period ended
June 29, 1996 compared to net earnings of $1,437,000 for the six months ended
July 1, 1995. The second quarter results reflect lower operating results at
the Company's refrigeration unit due to a decline in sales, operational
inefficiencies, and organizational restructuring and at the Philippine
fabricated equipment division due to start-up/move costs.
FINANCIAL CONDITION AND LIQUIDITY
For the six months ended June 29, 1996, net cash provided by operating
activities before changes in assets and liabilities was $2,355,000, as compared
to $3,481,000 for the six months ended July 1, 1995. Net cash used by operating
activities after changes in assets and liabilities was $4,639,000 as compared to
net cash provided of $1,000,000 in the prior year-to-date period. Receivables
and inventories have increased $5,717,000 and $2,269,000 respectively, due to
the increase in sales
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volume, expansion of international manufacturing and distribution operations,
timing of orders with certain larger customers and the introduction of new
products. These increases were partly offset by increased accounts payable.
During the fiscal quarter, the Company increased its borrowings under its credit
agreements by $1,569,000 primarily to finance an increase in inventories and
capital expenditures. For the fiscal year-to-date period, the Company increased
its borrowings by $6,968,000, principally to finance increases in accounts
receivables, inventories and capital expenditures related to the international
expansion. On June 29, 1996, there was $23,180,000 available to borrow under
the revolving credit facility, of which $19,735,000 was outstanding.
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.
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 June 29,
1996, except as follows:
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 16, 1996, the Company held its 1996 Annual Meeting of Stockholders. The
following persons were elected as directors to hold office until the 1997 Annual
Meeting of Stockholders: Newell Garfield, Jr., A. Don Lummus, John R. Miller,
III, Philip G. Putnam, David P. Riley, Sabin C. Streeter, William F. Whitman,
Jr., Joseph G. Tompkins, Laura B. Whitman, Robert L. Yohe and Robert R. Henry.
The number of shares cast for, withheld and abstained with respect to each of
the nominees were as follows:
Nominee For Withheld Abstained
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Garfield 7,482,885 30,218 0
Lummus 7,483,485 29,618 0
Miller 7,478,285 34,818 0
Putnam 7,478,285 34,818 0
Riley 7,483,485 29,618 0
Streeter 7,483,385 29,718 0
Whitman, W. 7,481,260 31,843 0
Tompkins 7,476,968 36,118 0
Whitman, L. 7,477,997 35,106 0
Yohe 7,477,360 35,743 0
Henry 7,482,185 30,918 0
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The stockholders also voted to approve the ratification of the selection of
Arthur Andersen LLP as independent auditors for the Company for the fiscal year
ending December 28, 1996. 7,502,062 shares were cast for such selection, 9,390
shares were cast against such selection, and 1,651 shares abstained.
No broker nonvotes were received in connection with the 1996 Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - The following Exhibits are filed herewith:
Exhibit (4)(b)(i) - First Amendment to Loan and Security
Agreement dated January 9, 1995, by and among
Middleby Marshall Inc. and Asbury Associates,
Inc., as Borrowers, certain lenders named
therein, as Lenders, and Sanwa Business
Credit Corporation, as Agent and Lender.
Exhibit (4)(c)(i) - Amendment Number One to Note Agreement dated
as of January 1, 1995, among Middleby
Marshall Inc. and Asbury Associates, Inc. as
Obligers.
Exhibit (4)(c)(ii) - Amendment Number Two to Note Agreement dated
as of January 1, 1995, among Middleby
Marshall Inc. and Asbury Associates, Inc. as
Obliger.
Exhibit (4)(e)(i) - Amendment One to the Intercreditor Agreement
dated as of January 10, 1995, by and among
Sanwa Business Credit Corporation, as Agent,
The Northwestern Mutual Life Insurance
Company, as the Senior Noteholder, and First
Security Bank of Utah, National Association,
as Security Trustee and Collateral Agent.
Exhibit (4)(e)(ii) - Amendment Two to the Intercreditor Agreement
dated as of January 10, 1995, by and among
Sanwa Business Credit Corporation, as Agent,
The Northwestern Mutual Life Insurance
Company, as the Senior Noteholder, and First
Security Bank of Utah, National Association,
as Security Trustee and Collateral Agent.
Exhibit (10)(iii)(d) - The Middleby Corporation Amended and Restated
1989 Stock Incentive Plan, as amended.
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Exhibit (10)(iii)(f) - 1996 Management Incentive Plan (Corporate
Vice Presidents).
Exhibit (22) - List of Subsidiaries.
Exhibit (27) - Financial Data Schedule (EDGAR only)
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: August 13, 1996 By: /s/ John J. Hastings
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John J. Hastings, Executive
Vice President, Chief
Financial Officer and
Secretary
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