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 SEPTEMBER 28, 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
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1400 TOASTMASTER DRIVE, ELGIN, ILLINOIS 60120
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (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 12, 1996, there were 8,421,743 shares of the registrant's common
stock outstanding.
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
QUARTER ENDED SEPTEMBER 28, 1996
INDEX
DESCRIPTION PAGE
- ----------- ----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
BALANCE SHEETS
September 28, 1996 and December 30, 1995 1
STATEMENTS OF EARNINGS
September 28, 1996 and September 30, 1995 2
STATEMENTS OF CASH FLOWS
September 28, 1996 and September 30, 1995 3
NOTES TO FINANCIAL STATEMENTS 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION
PART I. FINANCIAL INFORMATION
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS SEPT. 28, 1996 DEC. 30, 1995
- --------------------------------------------- ------------- -------------
Cash and Cash Equivalents.................... $ 958 $ 972
Accounts Receivable, net..................... 19,115 14,058
Inventories, net............................. 21,062 18,320
Prepaid Expenses and Other................... 1,271 879
Current Deferred Taxes....................... 2,086 2,086
Net Assets of Discontinued
Operations (see Note 2).................... 10,149 12,803
-------- --------
Total Current Assets..................... 54,641 49,118
Property, Plant and Equipment, net of
accumulated depreciation of
$11,478 and $10,642........................ 18,480 17,081
Excess Purchase Price Over Net Assets
Acquired, net of accumulated
amortization of $3,550 and $3,341.......... 7,568 7,777
Deferred Taxes............................... 2,930 2,930
Other Assets................................. 1,939 2,014
-------- --------
Total Assets............................. $ 85,558 $ 78,920
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------
Current Maturities of Long-Term Debt......... $ 2,556 $ 1,710
Accounts Payable............................. 12,184 10,587
Accrued Expenses............................. 7,830 8,075
-------- --------
Total Current Liabilities................ 22,570 20,372
Long-Term Debt............................... 45,132 41,318
Minority Interest and Other
Non-current Liabilities.................... 1,900 1,782
Shareholders' Equity:
Preferred Stock, $.01 par value;
nonvoting; 2,000 shares
authorized; none issued.................. -- --
Common Stock, $.01 par value;
20,000 shares authorized;
8,422 and 8,388 issued and
outstanding in 1996 and 1995,
respectively............................. 84 84
Paid-in Capital............................ 28,606 27,934
Cumulative Translation Adjustment.......... (275) (228)
Accumulated Deficit........................ (12,459) (12,342)
-------- --------
Total Shareholders' Equity............... 15,956 15,448
-------- --------
Total Liabilities and Shareholders'
Equity............................... $ 85,558 $ 78,920
-------- --------
-------- --------
See accompanying notes
- 1 -
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 28, SEPT. 30, SEPT. 28, SEPT. 30,
1996 1995 1996 1995
--------- --------- ---------- ---------
Net Sales.................... $31,400 $27,558 $89,571 $78,947
Cost of Sales................ 22,020 19,160 63,080 55,377
------- ------- ------- -------
Gross Profit............... 9,380 8,398 26,491 23,570
Selling and Distribution
Expenses................... 4,796 3,982 13,280 11,613
General and Administrative
Expenses................... 2,371 2,137 6,735 6,040
------- ------- ------- -------
Income from Operations..... 2,213 2,279 6,476 5,917
Interest Expense and Deferred
Financing Costs............ 1,122 982 3,277 3,090
Other (Income) Expense, Net.. (9) 117 132 5
------- ------- ------- -------
Earnings Before Income Taxes. 1,100 1,180 3,067 2,822
Provision for Income Taxes
(See Note 3)............... 408 362 1,069 917
------- ------- ------- -------
Net Earnings from
Continuing Operations.... 692 818 1,998 1,905
------- ------- ------- -------
Discontinued Operations, Net
of Income Tax (See Note 2):
(Loss) Earnings from
Discontinued Operations.. (232) 142 (744) 492
Estimated Loss on Disposal
Including Provision for
Operating Losses During
the Phase-Out Period... (1,371) -- (1,371) --
------- ------- ------- -------
Net (Loss) Earnings....... $ (911) $ 960 $ (117) $ 2,397
------- ------- ------- -------
------- ------- ------- -------
Earnings Per Share from
Continuing Operations..... $ 0.08 $ 0.09 $ 0.24 $ 0.22
(Loss) Earnings Per Share
from Discontinued
Operations................ (0.19) 0.02 (0.25) 0.06
------- ------- ------- -------
Net (Loss) Earnings Per Share $ (0.11) $ 0.11 $ (0.01) $ 0.28
------- ------- ------- -------
------- ------- ------- -------
See accompanying notes
-2-
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
SEPT. 28, 1996 SEPT. 30, 1995
-------------- --------------
Cash Flows From Operating Activities--
Net (loss) earnings.......................... $ (117) $ 2,397
Adjustments to reconcile net earnings
to cash provided by operating activities--
Depreciation and amortization.............. 1,418 1,496
Utilization of Subsidiary NOL's credited
to paid-in capital (See Note 3)......... 972 753
Discontinued operations.................... 2,830 (2,750)
Changes in assets and liabilities--
Accounts receivable...................... (5,057) (604)
Inventories.............................. (2,742) (1,689)
Prepaid expenses and other assets........ (553) 299
Accounts payable and other liabilities... 1,352 2,050
------- --------
Net Cash (Used in) Provided by Operating
Activities................................. (1,897) 1,952
------- --------
Cash Flows From Investing Activities--
Additions to property and equipment.......... (2,564) (1,427)
Proceeds from sale of investment............. -- 1,337
Discontinued Operations...................... (176) (304)
------- --------
Net Cash Used in Investing Activities........ (2,740) (394)
------- --------
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....... 2,993 243
Other financing activities, net.............. 1,180 (1,734)
Cost of financing activities................. -- (1,717)
Proceeds from capital expenditure loan, net.. 450 --
------- --------
Net Cash Provided by (Used in) Financing
Activities................................. 4,623 (1,263)
------- --------
Changes in Cash and Cash Equivalents--
Net increase (decrease) in cash and cash
equivalents................................ (14) 295
Cash and cash equivalents at beginning of
year....................................... 972 653
------- --------
Cash and cash equivalents at end of
period..................................... $ 958 $ 948
------- --------
------- --------
Interest paid.................................. $ 3,434 $ 2,938
------- --------
------- --------
Income taxes paid.............................. $ 96 $ 286
------- --------
------- --------
See accompanying notes
- 3 -
THE MIDDLEBY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 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 September 28, 1996 and December 30, 1995, and the results of
operations for the three and nine months ended September 28, 1996 and
September 30, 1995, respectively, and cash flows for the nine months ended
September 28, 1996 and September 30, 1995.
2) DISCONTINUED OPERATION
On November 1, 1996, the Company announced that it had entered into a
letter of intent to sell its Victory Refrigeration Company subsidiary for
approximately $6,500,000, subject to closing date balance sheet
adjustments. The Company has also entered into a sale and leaseback
agreement for its Cherry Hill, New Jersey facility which the Victory
Refrigeration Company occupies. The Company will receive net proceeds of
approximately $4,500,000 from this sale and leaseback transaction and,
pursuant to the November 1, 1996 letter of intent, the purchasers of the
Victory Refrigeration Company assets will assume the lease obligation. Net
proceeds from these transactions will be used to pay down debt.
The results of the Victory Refrigeration Company subsidiary have been
reported separately as a discontinued operation in the consolidated
financial statements for all periods presented. Summarized results of the
Victory Refrigeration Company are as follows:
- 4 -
(IN THOUSANDS)
THREE MONTHS NINE MONTHS
SEPT. 28, 1996 SEPT. 30, 1995 SEPT. 28, 1996 SEPT. 30, 1995
-------------- -------------- -------------- --------------
Net Sales.................... $ 9,876 $ 7,679 $27,261 $25,843
Costs and Expenses .......... 10,032 7,201 27,719 24,313
------- ------- ------- -------
Operating (Loss) Income...... (156) 478 (458) 1,530
Allocated Interest........... 190 266 653 771
Other Costs.................. -- -- -- 25
------- ------- ------- -------
(Loss) Earnings Before Taxes. (346) 212 (1,111) 734
Provision for Taxes.......... (114) 70 (367) 242
------- ------- ------- -------
(Loss) Earnings from
Discontinued Operations.... (232) 142 (744) 492
Estimated Loss on Disposal
Including Provision for
Operating Losses During
the Phase-Out Period....... (1,371) -- (1,371) --
------- ------- ------- -------
Total (Loss) Earnings
Related to Discontinued
Operations................. $(1,603) $ 142 $(2,115) $ 492
------- ------- ------- -------
------- ------- ------- -------
Interest expense has been allocated based upon the ratio of the net assets
of the discontinued operations to the consolidated capitalization of the
Company. Continuing operations and discontinued operations reflect the net
tax expense or tax benefit generated by the respective operations, limited
however by the income tax benefit recognized in the Company's historical
financial statements. No general corporate expenses have been allocated to
the discontinued operations.
The results of the discontinued operations are not necessarily indicative
of the results which may have been obtained had the continuing and
discontinuing operations been operating independently.
The net assets of discontinued operations included in the Consolidated
Balance Sheets at September 28, 1996 and September 30, 1995 amounted to
$10,149,000 and $12,803,000 respectively, and consist primarily of
receivables, inventory, and property, plant and equipment related to the
discontinued operations, net of accounts payable, accrued liabilities and
closing costs associated with the sale.
- 5 -
3) 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 $1,069,000 for the
fiscal nine months ended September 28, 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.
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.
4) EARNINGS PER SHARE
Earnings per share of common stock are based upon the weighted average
number of outstanding shares of common stock, and where required, common
stock equivalents. The treasury stock method used in computing earnings
per share provides that common stock equivalents are excluded when their
effect is anti-dilutive. Consequently, common stock equivalents were
excluded for the quarter and nine months ended September 28, 1996. Earnings
per share were computed based upon common shares outstanding of 8,417,000
and 8,680,000 for the fiscal quarters ended September 28, 1996 and
September 30, 1995, respectively, and 8,406,000 and 8,679,000 for the
fiscal year-to-date periods ended September 28, 1996 and September 30,
1995, respectively.
5) INVENTORIES
Inventories are valued using the first-in, first-out method.
Inventories consist of the following:
(IN THOUSANDS)
SEPT. 28, 1996 DEC. 30, 1995
-------------- -------------
Raw Materials and Parts $10,043 $ 6,337
Work in Process 3,519 4,652
Finished Goods 7,500 7,331
------- -------
$21,062 $18,320
------- -------
------- -------
-6-
6) ACCRUED EXPENSES
Accrued expenses consist of the following:
(IN THOUSANDS)
SEPT. 28, 1996 DEC. 30, 1995
-------------- -------------
Accrued payroll and
related expenses $2,848 $3,200
Accrued commissions 1,426 1,190
Accrued warranty 1,148 879
Accrued interest 626 636
Other 1,782 2,170
------ ------
$7,830 $8,075
------ ------
------ ------
7) RECLASSIFICATION
Certain amounts have been reclassified in 1995 to be consistent with the
1996 presentation.
- 7 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (UNAUDITED).
INFORMATIONAL NOTE
This report contains forward-looking statements subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. The Company
cautions readers that these projections are based upon future results or
events and are highly dependent upon a variety of important factors which
could cause such results or events to differ materially from any
forward-looking statements which may be deemed to have been made in this
report, or which are otherwise made by or on behalf of the Company. Such
factors include, but are not limited to, changing market conditions; the
availability and cost of raw materials; the impact of competitive products and
pricing; the timely development and market acceptance of the Company's
products; foreign exchange risks affecting international sales; and other risks
detailed herein and from time-to-time in the Company's Securities and Exchange
Commission filings. Additionally, there can be no assurance that the proposed
sale of the Victory Refrigeration Company subsidiary will ever be consummated
or will be consummated on the terms described in this report.
RESULTS OF OPERATIONS
CONTINUING OPERATIONS:
Net sales for the quarter ended September 28, 1996 increased by $3,842,000
(13.9%) to $31,400,000 compared to $27,558,000 in the prior year's quarter
ended September 30, 1995. Net sales for the nine month period ended September
28, 1996 increased $10,624,000 (13.5%) to $89,571,000, compared to $78,947,000
in the prior year's nine-month period ended September 30, 1995. The overall
sales increase was largely due to unit volume increases (rather than price
increases). Cooking and warming manufacturing divisions reported a sales
increase of 9%. Conveyor oven sales increased 5% during the quarter. Counter
line cooking and warming equipment increased 22% in the quarter. Sales in the
core cooking and steaming equipment line increased 17% in the quarter.
International sales, including sales of distributed product lines, increased 22%
in the third quarter over the prior year's quarter. International sales
represented 38% of total sales for the quarter as compared to 35% in the 1995
quarter.
Gross profit increased $982,000 (11.7%) to $9,380,000 for the quarter compared
to $8,398,000 in the prior year's quarter. Gross profit for the nine-month
period increased $2,921,000 (12.4%) to $26,491,000 compared to $23,570,000 in
the prior year's nine-month period. This increase in gross profit is consistent
with the overall increase in sales. As a percentage of net sales, gross margin
decreased 0.6% to 29.9% for the quarter compared to 30.5% in the prior year's
quarter. Gross margin for the nine month period decreased 0.3% to 29.6%
compared to 29.9% in the prior nine month period. The decline in gross margin
percentage was primarily related to product mix and operational inefficiencies
associated with the start-up and move to the Company's new Philippine
manufacturing facility.
-8-
Selling, general and administrative expenses increased $1,048,000 (17.1%) and
$2,362,000 (13.4%) for the three- and nine-month periods, respectively.
Increased expenses reflected the increased sales level as well as promotional
expenses for new products and dealer programs, and expansion of international
sales and service capabilities. As a percentage of sales, selling, general and
administrative expenses increased to 22.9% for the fiscal quarter ended
September 28, 1996, compared to 22.2% for the prior year's quarter, and
decreased to 22.3% for the nine-month period ended September 28, 1996 compared
to 22.4% for the prior year's nine month period.
Interest expense and deferred financing costs for the fiscal quarter ended
September 28, 1996 increased $140,000 (14.3%) compared to the prior year fiscal
quarter and $187,000 (6.1%) year-to-date. The increase was primarily due to
increased amortization of deferred financing costs. In the fourth quarter of
1995, the Company accelerated the amortization of the financing costs associated
with the January 10, 1995 refinancing.
The Company recorded earnings from continuing operations of $692,000 for the
fiscal quarter ended September 28, 1996 compared to $818,000 for the prior year
fiscal quarter. Year-to-date earnings from continuing operations were
$1,998,000 for the nine-month period ended September 28, 1996 compared to net
earnings of $1,905,000 for the nine months ended September 30, 1995.
DISCONTINUED OPERATIONS:
(Loss) earnings from discontinued operations was a $232,000 loss for the quarter
ended September 28, 1996 as compared to earnings of $142,000 in the prior year
quarter ended September 30, 1995. (Loss) earnings from discontinued operations
was a loss of $744,000 for the nine months ended September 28, 1996 as compared
to earnings of $492,000 for the prior nine month period. This decline in
earnings is primarily attributable to product mix, promotional expenses for new
products and dealer programs, and operational inefficiencies. The Company also
recorded an estimated loss on disposal of the Victory Refrigeration Company
subsidiary of $1,371,000. This provision includes an estimate of $902,000 of
operating losses during the phase-out period and certain other costs to complete
the sale of the subsidiary and the building sale and leaseback transactions.
FINANCIAL CONDITION AND LIQUIDITY
For the nine months ended September 28, 1996, net cash provided by operating
activities before changes in assets and liabilities was $5,103,000, as compared
to $1,896,000 for the nine months ended September 30, 1995. Net cash used in
operating activities after changes in assets and liabilities was $1,897,000 as
compared to $1,952,000 provided by operating activities in the prior year-to-
date period. The increase in accounts receivable of $5,057,000 was due to
increased sales level and the timing of cash receipts from certain large
customers. The increase in inventories of $2,742,000 was due to the
introduction of new products, expansion of international manufacturing, and
timing of orders with certain large customers. This increase was partly offset
by increased accounts payable.
-9-
During the fiscal quarter, the Company decreased its borrowings under its credit
agreements by $2,369,000 primarily by using cash provided by operations. For
the fiscal year-to-date, the Company increased its borrowings by $4,623,000,
principally to finance an increase in accounts receivables, inventories and
capital expenditures related to international expansion. The Company maintains
a revolving credit facility which, as of September 28, 1996 provided $23,921,000
of total borrowing availability. There was $17,993,000 outstanding under this
facility at September 28, 1996. The Company has executed letters of credit of
$632,000 against this facility, leaving an available line of credit of
$5,296,000 at September 28, 1996. Subsequent to the end of the third quarter,
the Company and its lenders, under both the senior secured credit facility and
the senior secured note, agreed to amend certain borrowing covenants to reflect
the impact of the discontinued operations.
The Company believes that its cash flow from operations, together with
available financing and cash on hand, will be sufficient to fund its working
capital needs, capital expenditure program, and debt amortization. Assuming
the successful completion of the sale of the Victory Refrigeration Company
subsidiary and the building sale and leaseback of the Victory Refrigeration
Company facility, the Company will utilize the net proceeds from these
transactions to pay down debt.
-10-
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 September
28, 1996, except as follows:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - The following Exhibits are filed herewith:
Exhibit (10) (iii) (j) - Agreement of Purchase and Sale of the
Company's Cherry Hill, New Jersey
Facility, with attached lease.
Exhibit (27) - Financial Data Schedules (EDGAR only)
b) Reports on Form 8-K: None.
- 11 -
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
------------------------
(Registrant)
Date November 12, 1996 By: /s/ John J. Hastings
------------------ ---------------------------
John J. Hastings, Executive
Vice President, Chief
Financial Officer and
Secretary
(Principal Financial and
Accounting Officer)
- 12 -