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 - --------------------------------------- ------------------------------------ (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 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 - --------------------------------------------------- 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 ----- ----- Total Assets........................ $93,865 $84,040 ------- ------- 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 ----- ----- 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) ------- ------- Total Shareholders' Equity................. 16,647 15,448 Total Liabilities and Shareholders' ------- ------- Equity.......................... $93,865 $84,040 ------- ------- ------- ------- See accompanying notes - 1 -
THE MIDDLEBY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED --------------------------- --------------------------- JUNE 29, 1996 JULY 1, 1995 JUNE 29, 1996 JULY 1, 1995 ------------- ------------ ------------- ------------ <S> <C> <C> <C> <C> 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 -------- -------- -------- ------- -------- -------- -------- ------- </TABLE> See accompanying notes - 2 -
THE MIDDLEBY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) SIX MONTHS ENDED --------------------------- JUNE 29, 1996 JULY 1, 1995 ------------- ------------ 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 ------- ------- Net Cash (Used In)/ Provided by Operating Activities......................... (4,639) 1,000 ------- ------- Cash Flows From Investing Activities- Additions to property and equipment............. (2,218) (1,133) Proceeds from sale of investment................ 0 1,337 ------- ------- Net Cash (Used In)/Provided by Investing Activities......................... (2,218) 204 ------- ------- 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 - ------- ------- Net Cash Provided by (Used in) Financing Activities................................... 6,968 (184) ------- ------- 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 ------- ------- Cash and Cash Equivalents at End of Period...... $1,092 $1,687 ------- ------- ------- ------- Interest paid...................................... $2,264 $1,767 ------- ------- ------- ------- Income taxes paid.................................. $61 $236 ------- ------- ------- ------- See accompanying notes - 3 -
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. - 4 -
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 ------------- ----------------- Raw Materials and Parts $10,408 $10,356 Work-in-Process 6,169 6,688 Finished Goods 12,276 9,540 ------- ------- $28,853 $26,584 ------- ------- ------- ------- - 5 -
5) Accrued Expenses Accrued expenses consist of the following: (In Thousands) June 29, 1996 December 30, 1995 ------------- ----------------- 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 ------- ------- $9,197 $9,756 ------- ------- ------- ------- 6) Certain amounts have been reclassified in 1995 to be consistent with the 1996 presentation. - 6 -
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 - 7 -
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 - 8 -
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 ------- --------- -------- --------- 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 - 9 -
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. - 10 -
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 ------------------------ (Registrant) Date: August 13, 1996 By: /s/ John J. Hastings -------------------- --------------------------- John J. Hastings, Executive Vice President, Chief Financial Officer and Secretary - 11 -