(Mark One)
or
Commission File No. 1-9973
THE MIDDLEBY CORPORATION (Exact Name of Registrant as Specified in its Charter)
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 May 10, 2002, there were 8,973,547 shares of the registrant’s common stock outstanding.
INDEX
See accompanying notes
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Net sales by major geographic region, including those sales from the Cooking Systems Group direct to international customers, were as follows (in thousands):
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On December 21, 2001, the company completed its acquisition of Blodgett Holdings, Inc. (“Blodgett”) from Maytag Corporation.
The company has accounted for this business combination using the purchase method to record a new cost basis for the assets acquired and liabilities assumed. The allocation of the purchase price and acquisition costs to the assets acquired and liabilities assumed is subject to change pending finalization of studies of fair value and the settlement of post-close adjustments to the purchase price with the seller. The difference between the purchase price and the fair value of the assets acquired and liabilities assumed was recorded as goodwill. Under SFAS 142, goodwill and certain other intangible assets in conjunction with the Blodgett acquisition will be subject to the nonamortization provisions of this statement from the date of acquisition.
The consolidated financial statements include the operating results and the financial position of Blodgett for the period subsequent to its acquisition on December 21, 2001. The results of operations prior to and including December 21, 2001 are not reflected in the consolidated statements of earnings as they have been reported in the financial statements of the seller, Maytag Corporation.
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; the ability to timely and cost effectively integrate acquisitions and other risks detailed herein and from time-to-time in the company’s Securities and Exchange Commission filings.
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The following table sets forth certain consolidated statements of earnings items as a percentage of net sales for the periods.
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NET SALES. Net sales for the first quarter of fiscal 2002 were $54.5 million as compared to $24.7 million in the first quarter of 2001. The increase in net sales resulted from the incremental business associated with the acquired Blodgett operations. On a proforma basis in the first quarter of 2001 net sales for combined Middleby and Blodgett amounted to $54.4 million. Net sales in the first quarter of 2002 increased slightly over the combined net sales of the prior year quarter, while the incoming order rate for the combined company increased approximately 4% as compared to the prior year period.
Net sales at the cooking Systems Group amounted to $52.3 million in the first quarter of 2002 as compared to $23.7 million in the prior year quarter. Core cooking equipment sales amounted to $36.6 million as compared to $10.2 million, primarily due to the addition of Blodgett product lines which amounted to $27.9 million in the first quarter. Conveyor oven equipment sales amounted to $12.1 million as compared to $9.2 million in the prior year quarter. The increase in conveyor oven sales resulted from the addition of $1.6 million in Blodgett conveyor ovens and $1.3 million of increased sales of Middleby Marshall conveyor ovens resulting from sales of new product and increased demand from certain major pizza chains. Counterline cooking equipment sales decreased to $2.5 million from $2.8 million in the prior year. International specialty equipment sales decreased from $1.5 million to $1.1 million as a result of lower sales into the Philippines which has been impacted by a slowed economy and reduced foreign investment due in part to the political environment in that country.
Net sales at the International Distribution Division increased by $1.5 million to $6.8 million, due to the addition of Frialator International — a distribution operation in the United Kingdom, which was acquired as part of the Blodgett purchase. Net sales of Frialator International amounted to $1.9 million.
GROSS PROFIT.Gross profit increased to $17.9 million from $8.2 million in the prior year period as a result of the increased sales volumes resulting from the acquisition. The gross margin rate was 32.8% in the quarter as compared to 33.0% in the prior year quarter. The acquired Blodgett operations’gross margin rate was approximately 32.4% as compared to 33.3% for the Middleby operations, excluding Blodgett. Significant cost reduction measures were completed at the acquired Blodgett operations during the first quarter to achieve the 32.4% margin rate.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general, and administrative expenses increased from $6.3 million in the first quarter of 2001 to $13.2 million in the first quarter of 2002. The increased expense reflects the incremental cost associated with the acquired Blodgett operations. As a percentage of net sales operating expenses amounted to 24.2% in the first quarter of 2002 versus 25.6% in the prior year reflecting improved leverage on the greater combined sales base.
NON-OPERATING EXPENSES. Interest and deferred financing amortization costs increased to $3.1 million from $0.2 million in the prior year as a result of increased interest expense associated with the debt incurred to finance the Blodgett acquisition. Other expense of $0.2 million in the current year remained consistent with the prior year quarter.
INCOME TAXES. A tax provision of $0.7 million, at an effective rate of 50%, 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.
During the three months ended March 30, 2002, cash and cash equivalents decreased by $2.4 million to $1.4 million at March 30, 2002 from $3.8 million at December 29, 2001. Net borrowings decreased from $97.0 million at December 29, 2001 to $92.2 million at March 30, 2002.
OPERATING ACTIVITIES. Net cash provided by operating activities before changes in assets and liabilities was $2.2 million in the three months ended March 30, 2002 as compared to $1.9 million in the prior year period. Net cash provided by operating activities after changes in assets and liabilities was $2.7 million as compared to net cash used of $4.1 million in the prior year period.
During the three months ended March 30, 2002, accounts receivable increased $1.6 million due to increased sales. Inventories decreased $1.5 million due to inventory reduction measures. Accounts payable increased $1.5 million as vendor payments were managed to enhance cash flow. Accrued expenses and other liabilities decreased $1.5 million primarily due to the payment of accrued customer rebates and accrued severance obligations associated with headcount reductions completed during the first quarter.
INVESTING ACTIVITIES. During the three months ending March 30, 2002, the company had capital expenditures of $0.2 million associated with enhancements to existing manufacturing facilities.
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FINANCING ACTIVITIES. Net borrowings decreased by $4.8 million during the three months ending March 30, 2002. The repayment of debt included a $1.5 million scheduled payment.
At March 30, 2002, the company was in compliance with all covenants pursuant to its borrowing agreements. Management believes that the company will have sufficient financial resources available to meet its anticipated requirements for working capital, capital expenditures and debt amortization for the foreseeable future.
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.
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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 hedging activities are to mitigate its exposure to changes in exchange rates on intercompany and third party trade receivables and payables. 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 balance sheet exposures. The following table summarizes the forward and option purchase contracts outstanding at March 30, 2002:
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.
Fixed rate debt due in 2002 is comprised of capital lease obligations, which bear interest rates approximating 10%. Fixed rate obligations of $43.4 million due in the twelve month period ending March 30, 2007 include $22.7 million of subordinated senior notes which bear an interest rate of 15.5%, of which 2% is payable in kind, for which the unpaid interest will be added to the principal balance of the notes. The subordinated senior notes are reflected net of a debt discount of $2.5 million, representing the prescribed value of warrants issued in connection with the notes. Additional fixed rate debt consists of approximately $20.7 million of notes due to Maytag arising from the acquisition of Blodgett. The notes bear interest of 12% if paid in cash or 13.5% if interest is paid in kind. The amount of notes due to Maytag is subject to change pending post closing purchase price adjustments as provided for under provisions of the purchase agreement.
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Variable rate debt consists of $9.8 million of borrowings under a $27.5 million revolving credit facility, which becomes due in December 2005, and $39.0 million in senior bank notes. The secured senior bank notes are comprised of two separate tranches of debt. The first tranche of debt for $36.0 million is repaid on a quarterly basis over the four year term ending December 2005. The second tranche of debt for $3.0 million matures with a single payment in December 2006. The secured revolving credit facility and $36.0 million senior bank note bear interest at a rate of 3.25% above LIBOR, or 5.1 % as of March 30, 2002. The $3.0 million senior bank note accrues interest at a rate of 4.5% above LIBOR, or 6.3% as of March 30, 2002. In January 2002, the company entered into an interest rate swap agreement which swapped $20 million of the floating rate senior debt for fixed rate debt. The agreement swaps LIBOR for a fixed rate of 4.03% and is in effect through December 31, 2004. The borrowing rate on the swapped debt at the end of the quarter was 7.28%.
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 March 30, 2002, except as follows:
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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.
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