MIDDLEBY CORP
10-Q, 2000-08-10
REFRIGERATION & SERVICE INDUSTRY MACHINERY
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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 period ended July 1, 2000

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
(State or Other Jurisdiction of
Incorporation or Organization)		 36-3352497
(I.R.S. Employer
Identification No.)

1400 Toastmaster Drive, Elgin, Illinois
(Address of Principal Executive Offices)		 60120
(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 August 4, 2000, there were 10,157,521 shares of the registrant’s common stock outstanding.



THE MIDDLEBY CORPORATION AND SUBSIDIARIES

QUARTER ENDED JULY 1, 2000

INDEX

DESCRIPTION

PAGE
PART I.     FINANCIAL INFORMATION      

  Item 1.   Consolidated Financial Statements    

    BALANCE SHEETS   1  
         July 1, 2000 and January 1, 2000    

    STATEMENTS OF EARNINGS   2  
         July 1, 2000 and July 3, 1999     

    STATEMENTS OF CASH FLOWS   3  
         July 1, 2000 and July 3, 1999    

    NOTES TO FINANCIAL STATEMENTS   4  

    Item 2.   Management’s Discussion and Analysis   7  
      of Financial Condition and Results of    
      Operations    

  Item 3.   Quantitative and Qualitative Disclosures   14  
          About Market Risk    

PART II.   OTHER INFORMATION     15   


PART I. FINANCIAL INFORMATION

THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
(Unaudited)
July 1, 2000
 January 1, 2000
ASSETS      
Cash and cash equivalents  $17,583   $14,536  
Accounts receivable, net  22,039   24,919  
Inventories, net  16,620   16,884  
Prepaid expenses and other  849   689  
Current deferred taxes  3,389   3,350  
     Total current assets  60,480   60,378  
Property, plant and equipment, net of 
  accumulated depreciation of 
  $19,274 and $17,827  20,116   21,281  
Excess purchase price over net assets 
  acquired, net of accumulated 
  amortization of $6,938 and $6,485  13,509   13,962  
Deferred taxes  1,229   2,332  
Other assets  979   1,095  
            Total assets  $96,313   $99,048  
LIABILITIES AND SHAREHOLDERS’ EQUITY 
Current maturities of long-term debt   $7,829   $7,131  
Accounts payable  7,723   8,861  
Accrued expenses  15,877   16,291  
     Total current liabilities  31,429   32,283  
Long-term debt  17,514   21,004  
Retirement benefits and other 
  non-current liabilities  3,110   2,593  
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; 
    11,008,771 issued in 2000 and 
    1999  110   110  
  Paid-in capital  54,220   54,220  
  Treasury stock at cost; 846,250 
     and 837,800 shares in 2000 and 
     1999, respectively  (3,431 ) (3,309 )
  Accumulated Deficit  (4,165 ) (5,297 )
  Accumulated other comprehensive 
    income  (2,474 ) (2,556 )
     Total shareholders’ equity  44,260   43,168  
            Total liabilities and 
              shareholders’ equity  $96,313   $99,048  

See accompanying notes



THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands, Except Per Share Amounts)

(Unaudited)
Three Months Ended
Six Months Ended
July 1, 2000
 July 3, 1999
 July 1, 2000
 July 3, 1999
Net sales   $32,375   $36,527   $64,849   $68,965  
Cost of sales  22,350   25,801   43,610   48,616  
        Gross profit  10,025   10,726   21,239   20,349  
Selling and distribution expenses  4,227   4,675   8,256   9,341  
General and administrative expenses  3,513   3,605   8,054   6,825  
Non-recurring expense  —   210   —   960  
        Income from operations  2,285   2,236   4,929   3,223  
Interest expense and deferred 
  financing amortization  482   696   959   1,387  
Other expense, net  255   93   541   352  
        Earnings before income taxes   1,548   1,447   3,429   1,484  
Provision for income taxes  907   1,046   2,298   1,432  
        Net earnings  $641   $401   $1,131   $52  
Net earnings per share: 
              Basic  $0.06   $0.04   $0.11   $0.01  
              Diluted  $0.06   $0.04   $0.11   $0.01  
 
Weighted average number of 
shares: 
          Basic  10,177   10,158   10,181   10,158  
          Diluted  10,338   10,258   10,348   10,251  

See accompanying notes



THE MIDDLEBY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
July 1, 2000
 July 3, 1999
Cash flows from operating activities-      
  Net earnings  $1,131   $52  
  Adjustments to reconcile net earnings 
    to cash provided by continuing 
    operating activities- 
    Depreciation and amortization  1,888   1,961  
    Utilization of NOL’s  1,065   1,349  
    Non-cash portion of non-recurring 
      expenses  —   428  
  Changes in assets and liabilities- 
    Accounts receivable  2,881   (3,018 )
    Inventories  264   2,278  
    Prepaid expenses and other assets  15   (2,456 )
    Accounts payable  (1,139 ) (2,109 )
    Accrued expenses and other 
      liabilities  103   930  
  Net cash provided by (used in) 
    operating activities  6,208   (585 )
Cash flows from investing activities- 
    Additions to property and equipment  (271 ) (871 )
  Net cash used in investing activities   (271 ) (871 )
Cash flows from financing activities- 
  Proceeds (repayments) under 
    intellectual property lease  (1,931 ) 319  
  Decrease in revolving credit line, net  (861 ) (915 )
  Purchase of Treasury Stock  (122 ) —  
  Other financing activities, net  —   (93 )
  Net cash used in financing activities   (2,914 ) (689 )
Effect of exchange rates on cash  24   (212 )
Changes in cash and cash equivalents- 
  Net increase (decrease) in cash 
    and cash equivalents  3,047   (2,357 )
  Cash and cash equivalents at 
    beginning of year  14,536   6,768  
  Cash and cash equivalents at end 
    of quarter  $17,583   $4,411  
Interest paid  $1,243   $1,346  
Income taxes paid  $256   $83  

See accompanying notes



THE MIDDLEBY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JULY 1, 2000
(Unaudited)

1) Summary of Significant Accounting Policies

  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 1999 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 July 1, 2000 and January 1, 2000, and the results of operations for the three and six month periods ended July 1, 2000 and July 3, 1999 and cash flows for the six months ended July 1, 2000 and July 3, 1999. Certain prior year amounts have been reclassified to be consistent with the current year presentation.

2) Comprehensive Income

The Company reports changes in equity during a period, except those resulting from investment by owners and distribution to owners, in accordance with Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” (SFAS No. 130.)

Components of comprehensive income were as follows (in thousands):

Three Months Ended
Six Months Ended
July 1, 2000
 July 3, 1999
 July 1, 2000
 July 3, 1999
Net earnings   $641   $401   $1,131   $52  
Cumulative translation 
  adjustment  (316 ) (201 ) 82   (148 )
  Comprehensive income (loss)   $325   $200   $1,213   $(96 )


3) Inventories

Inventories are valued using the first-in, first-out method. Inventories consist of the following:

July 1, 2000
 January 1, 2000
(In thousands)
 
Raw materials and parts   $4,881   $4,738  
Work-in-process  3,473   3,904  
Finished goods  8,266   8,242  
   $16,620   $16,884  

4) Accrued Expenses

  Accrued expenses consist of the following:

July 1, 2000
 January 1, 2000
(In thousands)
Accrued payroll and      
  related expenses  $4,940   $4,820  
Accrued customer rebates  2,142   3,472  
Accrued commissions  1,269   1,074  
Accrued warranty  1,602   1,628  
Other accrued expenses  5,924   5,297  
   $15,877   $16,291  

5) Non-recurring Expenses

  During the third quarter of 1999, the Company recorded restructuring charges aggregating to $1,248,000. The charge provided for $1,020,000 related to cost reduction actions at the Company’s International Distribution business. These actions included the closure of the division headquarters located in Florida and employee reduction efforts at the Florida headquarters office and the Japanese distribution operation. The headquarters for the International Distribution business has been integrated within the Company’s existing Corporate office. Distribution operations previously existing at the Florida facility have been integrated within regional distribution operations in Asia, Europe and Latin America. The recorded charge consists of lease exit costs of $360,000, the disposal of fixed assets of $300,000, and severance benefits of $360,000 for 11 employees. Additional charges of $228,000 were recorded principally for severance benefits for 87 employees within the Philippines manufacturing operations of the Cooking Systems Group. As of July 1, 2000, all actions associated with these restructuring efforts have been completed.

  During the first and second quarters of 1999, the Company recorded non-recurring expenses in the amount of $750,000 and $210,000, respectively. These charges principally related to severance benefits for 52 terminated employees at the Cooking Systems Group and the International Distribution Division. Actions associated with these changes have been fully completed.


6) Segment Information

  The Company operates in two reportable business segments defined by management reporting structure and operating activities. The International Specialty Equipment Division was merged into the Cooking Systems Group in the fourth quarter of 1999 as a result of changes in Company management and the organizational reporting structure. Prior year amounts have been restated to present information on a consistent basis.

  The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates individual segment performance based on operating income. Intersegment sales are made at established arms-length transfer prices.


The following table summarizes the results of operations for the Company’s business segments (in thousands):


Cooking
Systems
Group
International
Distribution
Corporate
and
Other(1)
Eliminations(2)
Total
Three Months Ended July 1, 2000            
Net sales  $29,450   $7,910   $   —   $(4,985 ) $32,375  
Operating income (loss)  3,626   (30 ) (1,475 ) 164   2,285  
Depreciation expense  602   53   59   —   714  
Capital expenditures  124   24   —   —   148  
                      
Six Months Ended July 1, 2000 
Net sales  $58,406   $16,685   $(11 ) $(10,231 ) $64,849  
Operating income (loss)  8,112   58   (3,371 ) 130   4,929  
Depreciation expense  1,226   93   117   —   1,436  
Capital expenditures  227   39   5   —   271  
                      
Total assets  56,366   16,746   34,183   (10,982 ) 96,313  
Long-lived assets  20,075   597   15,161   —   35,833  
                      
Three Months Ended July 3, 1999 
Net sales  $29,651   $10,116   $65   $(3,305 ) $36,527  
Operating income (loss)  3,697   (481 ) (1,063 ) 83   2,236  
Non-recurring expense  86   124   —   —   210  
Depreciation expense  740   65   41   —   846  
Capital expenditures  514   12   47   —   573  
                      
Six Months Ended July 3, 1999 
Net sales  $56,622   $18,990   $307   $(6,954 ) $68,965  
Operating income (loss)  5,976   (1,005 ) (1,832 ) 84   3,223  
Non-recurring expense  582   378   —   —   960  
Depreciation expense  1,406   130   91   —   1,627  
Capital expenditures  734   80   57   —   871  
                      
Total assets  60,152   19,414   29,521   (10,982 ) 98,105  
Long-lived assets  21,683   1,009   19,816   —   42,508  

(1) Includes sales of certain discontinued product lines in addition to corporate and other general Company assets and operations.

(2) Includes elimination of intercompany sales, profit in inventory and intercompany receivables. Intercompany sale transactions are predominantly from the Cooking Systems Group to the International Distribution Division.


Net sales by major geographic region, including those sales from the Cooking Systems Group direct to international customers, were as follows (in thousands):


Three Months Ended
 Six Months Ended
July 1, 2000
 July 3, 1999
 July 1, 2000
 July 3, 1999
United States   $23,862   $24,765   $47,591   $46,818  
Asia  3,050   3,669   5,497   7,003  
Europe and Middle East  2,435   3,696   5,319   6,825  
Latin America  2,022   3,123   4,551   5,785  
Canada  1,006   1,274   1,891   2,534  
  Total International  8,513   11,762   17,258   22,147  
Net Sales  $32,375   $36,527   $64,849   $68,965  

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 and political risks affecting international sales; and other risks detailed herein and from time to time in the Company’s Securities and Exchange Commission filings, including those discussed under “Risk Factors” in the Company’s Registration Statement on Form S-2 (Reg. No. 333-35397). Any forward looking statements contained in this report speak only as of the date of this filing. The Company undertakes no obligation to update publicly any forward looking information, whether as a result of new information, future events or otherwise.



Net Sales Summary
Three Months Ended
Six Months Ended
July 1, 2000
 July 3, 1999
 July 1, 2000
 July 3,1999
Sales
 Percent
 Sales
 Percent
 Sales
 Percent
 Sales
 Percent
Business Divisions                  
Conveyor oven 
  equipment  $12,774   39.5 % $13,374   36.6 % $26,340   40.6 % $24,809   36.0 %
Counterline cooking 
  equipment  3,053   9.4 % 3,667   10.0 % 6,217   9.6 % 7,199   10.4 %
Core cooking 
  equipment  12,259   37.9 % 11,071   30.3 % 23,632   36.4 % 21,546   31.3 %
International Specialty 
  Equipment  1,364   4.2 % 1,539   4.2 % 2,217   3.4 % 3,068   4.4 %
Total Cooking Systems 
  Group  29,450   91.0 % 29,651   81.1 % 58,406   90.0 % 56,622   82.1 %
International 
  Distribution (1)   7,910   24.4 % 10,116   27.7 % 16,685   25.7 % 18,990   27.5 %
Intercompany 
  sales (2)  (4,985 ) (15.4 )% (3,305 ) (9.0 )% (10,231 ) (15.7 )% (6,954 ) (10.0 )%
Other  —   —%   65   0.2 % (11 ) — % 307   0.4 %
  Total  $32,375   100.0 % $36,527   100.0 % $64,849   100.0 % $68,965   100.0 %

(1) Consists of sales of products manufactured by Middleby and products manufactured by third parties.

(2) Represents the elimination of sales to the Company’s International Distribution Division from Cooking Systems Group.

Results of Operations

The following table sets forth certain consolidated statements of earnings items as a percentage of net sales for the periods.

Three Months Ended
 Six Months Ended
July 1, 2000
 July 3, 1999
 July 1, 2000
 July 3, 1999
Net sales   100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales  69.0 % 70.6 % 67.2 % 70.5 %
   Gross profit  31.0 % 29.4 % 32.8 % 29.5 %
Selling, general and administrative 
   expenses  23.9 % 22.7 % 25.2 % 23.4 %
Non-recurring expense  — % 0.6 % — % 1.4 %
   Income from operations  7.1 % 6.1 % 7.6 % 4.7 %
Interest expense and deferred 
   financing amortization, net  1.5 % 1.9 % 1.5 % 2.0 %
Other (income) expense, net  0.8 % 0.2 % 0.8 % 0.5 %
   Earnings before income taxes  4.8 % 4.0 % 5.3 % 2.2 %
Provision for income taxes  2.8 % 2.9 % 3.6 % 2.1 %
   Net earnings  2.0 % 1.1 % 1.7 % 0.1 %


Three Months Ended July 1, 2000 Compared to Three Months Ended July 3, 1999

NET SALES. Net sales in the three-month period ended July 1, 2000 decreased 11% to $32.4 million as compared to $36.5 million in the three-month period ended July 3, 1999.

Sales of the Cooking Systems Group for the three-month period ended July 1, 2000 decreased slightly to $29.5 million from $29.7 million in the prior year. Sales of conveyor oven equipment decreased 4% due to lower sales volume to major restaurant chains. The prior year sales in the second quarter were unusually strong. Additionally, the Company experienced delays in certain orders resulting from new product introductions, as existing customers were delaying orders awaiting shipments of a new conveyor oven, which will begin shipment in the third quarter of 2000. Core cooking equipment sales increased 11% as sales of new products, including a new line of fryers, continue to increase. Sales of counterline equipment decreased 17% due to the discontinuance of certain low volume and unprofitable product offerings. Sales of international specialty equipment decreased 11% as a result of lower sales volume from a major restaurant chain and the refocusing of activities to the manufacture of low cost component parts to supplement the U.S. based production operations.

Sales of the International Distribution Division decreased 22% to $7.9 million from $10.1 million in the previous year period. The lower sales level reflects the discontinuance of certain distributed product of third-party manufacturers that occurred in the third quarter of 1999. The division has redirected its efforts to support a focused group of foodservice equipment manufacturers.

GROSS PROFIT. Gross profit decreased to $10.0 million from $10.7 million in the prior year period. However, as a percentage of sales, gross margins increased from 29.4% in the prior year to 31.0%. Gross margins at the Cooking Systems Group declined slightly as a result of increased manufacturing costs associated with new product introductions within the core cooking equipment product group. This decrease was offset by gross margin improvement within the conveyor oven equipment and international specialty equipment product groups as a result of cost control efforts and the transfer of production to the Company’s lower cost manufacturing facility in the Philippines. Gross margins at the International Distribution Division improved due to the more favorable product mix resulting from the Company’s product refocusing efforts.



SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased 7% to $7.7 million as compared to $8.3 million in the prior year period. The decrease in expense was largely attributable to reduced costs within the International Distribution Division resulting from the closure of the division headquarters office which took place in the fourth quarter of 1999.

During the second quarter of 2000, the Company closed its former corporate headquarters and relocated its offices to the Cooking Systems Group headquarters in Elgin, IL. No significant costs were incurred as a result of this relocation.

NON-RECURRING EXPENSES. The Company recorded restructuring expenses of approximately $0.2 million during the second quarter of 1999 for severance and benefit costs associated with employee reduction efforts. There were no non-recurring charges recorded during the second quarter of 2000.

INTEREST AND DEFERRED FINANCING AMORTIZATION. Net financing costs decreased to $0.5 million from $0.7 million in the prior year as a result of increased interest income on higher cash balances and lower interest expense on reduced outstanding debt.

OTHER EXPENSE. Other expenses were $0.3 million in the current year and $0.1 million in the prior year. The increase from the prior year largely relates to exchange losses at the Company’s operations in Asia and Europe.

INCOME TAXES. A tax provision of $0.9 million, at an effective rate of 59%, was recorded during the quarter, primarily associated with taxable income reported at the Company’s operations in the United States, Latin America and Europe. No benefit was recognized for losses at international subsidiaries within Asia. Approximately $0.7 million of tax loss carry-forwards will be utilized to offset the liability associated with the recorded tax provision.

Six Months Ended July 1, 2000 Compared to Six Months Ended July 3, 1999

NET SALES. Net sales in the six-month period ended July 1, 2000 decreased 6% to $64.8 million as compared to $69.0 million in the six-month period ended July 3, 1999.

Sales of the Cooking Systems Group for the six-month period ended July 1, 2000 increased 3% to $58.4 million from $56.6 million in the prior year. Sales of conveyor oven equipment increased 6% due to improved sales to major restaurant chains. Core cooking equipment sales increased 10% largely due to success with new product introductions. Counterline equipment sales decreased 14% due to the discontinuation of certain low volume and unprofitable products. Sales of international specialty equipment decreased 28% as a result of lower sales volume from a major restaurant chain and the refocusing of activities to the manufacture of low cost component parts to supplement the U.S. based production operations.



Net sales of the International Distribution Division decreased by 12% as a result of the discontinuance of certain distributed products of third party manufacturers. Sales of products manufactured by the Company have increased from the prior year.

GROSS PROFIT. Gross profit increased 4% to $21.2 million from $20.3 million. As a percentage of sales, gross margins increased from 29.5% to 32.8%. For the first six months, gross margins have improved at both the Cooking Systems Group and the International Distribution Division. The improvement is a result of an improved product mix resulting from the product refocusing efforts at both divisions and reduced manufacturing costs at the Cooking Systems Group due to the transfer of production to the Company’s Philippine based operation and other cost control efforts.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased to $16.3 million from $16.2 million. As a percentage of net sales, selling, general and administrative expenses increased to 25.2% as compared to 23.4%. Expenses were slightly higher than the prior year as a result of increased provision for bad debts and higher incentive compensation associated with the improved financial results.

NON-RECURRING EXPENSES. The Company recorded restructuring charges of approximately $1.0 million during the first and second quarters of 1999 for severance and benefit costs associated with employee reduction efforts. There were no non-recurring charges recorded during the first and second quarters of 2000.

INTEREST AND DEFERRED FINANCING AMORTIZATION. Net financing costs decreased to $1.0 million from $1.4 million in the prior year as a result of increased interest income on higher cash balances and lower interest expense on reduced outstanding debt.

OTHER EXPENSE. Other expenses were $0.5 million in the current year and $0.4 million in the prior year. The increase in expense from the prior year is largely a result of exchanges losses at the Company’s operations in Asia and Europe.

INCOME TAXES. A tax provision of $2.3 million was recorded associated with taxable income reported at the Company’s operations in the United States, Latin America and Europe while no benefit was recognized for losses at certain international subsidiaries within Asia. Approximately $1.6 million of tax loss carry-forwards will be utilized to offset the liability associated with the recorded tax provision.



Financial Condition and Liquidity

Total cash and cash equivalents increased by $3.1 million to $17.6 million at July 1, 2000 from $14.5 million at January 1, 2000. Net borrowings declined from $28.1 million at January 1, 2000 to $25.3 million at July 1, 2000.

OPERATING ACTIVITIES. Net cash provided by operating activities before changes in assets and liabilities was $4.1 million in the six months ended July 1, 2000 as compared to $3.8 million in the prior year period. Net cash provided by operating activities after changes in assets and liabilities was $6.2 million as compared to net cash used of $0.6 million in the prior year period.

During the first six months of 2000, accounts receivable decreased $2.9 million due to lower sales and to the improvement in receivable collections. Inventories decreased by $0.3 million as a result of the Company’s inventory reduction efforts, particularly at the international operations. Accounts payable decreased $1.1 million due to the timing of payments. Accrued expenses and other liabilities increased $0.1 million.

INVESTING ACTIVITIES. During the first half of 2000, the Company had capital expenditures of $0.3 million primarily to purchase production related equipment.

FINANCING ACTIVITIES. Net borrowings under financing arrangements decreased from $28.1 million to $25.3 million during the first half of 2000. The net decrease is primarily due to net payments of $2.0 million under the intellectual property lease and repayments of $0.9 million against borrowings of a peseta-denominated loan under the Company’s multi-currency revolving line of credit.

As of July 1, 2000, the Company was in compliance with covenants pursuant to the multi-currency revolving credit facility and its $15.0 million senior note. Management believes that the Company will have sufficient financial resources available to meet its anticipated requirements for working capital, growth strategies, capital expenditures and debt amortization for the foreseeable future.

In July, 1998, the Company’s Board of Directors adopted a stock repurchase program and during 1998 authorized the purchase of up to 1,800,000 common shares in open market purchases. As of January 1, 2000, 837,800 shares had been purchased for $3.3 million. During the first quarter of 2000, the Company issued 19,750 shares out of treasury stock pursuant to the exercise of stock options for a former officer. During the second quarter, the Company acquired 28,200 shares in open market purchases at an aggregate purchase price of $191,432. As of July 1, 2000, the Company had 846,250 shares of treasury stock.



Item 3. Quantitative and Qualitative Disclosures About Market Risk

International Exposure

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.

Countries within Asia and certain other regions continue to be impacted by adverse economic conditions which have affected the Company’s sales volumes into these markets. 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.

Derivative Financial Instruments

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 exposure to changes in foreign currency rates results from intercompany loans made between Middleby affiliates to minimize the need for borrowings from third parties. Additionally, the Company enters into foreign currency forward and sale contracts 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 exposures. The following table summarizes the forward purchase contracts outstanding at July 1, 2000:



                   Sell
         Purchase
       Maturity
394,240,000  South Korean Won   $350,000 US Dollars   September 15, 2000  
392,875,000  South Korean Won  $350,000 US Dollars  December 15, 2000 
  13,200,500  Taiwan Dollar  $425,000 US Dollars  September 15, 2000 
  13,323,750  Taiwan Dollar  $425,000 US Dollars  December 15, 2000 
    7,817,500  Taiwan Dollar  $250,000 US Dollars  September 22, 2000 
    2,000,000  Euro  $1,830,800 US Dollars  August 2, 2000 
       400,000  Euro  $359,120 US Dollars  August 10, 2000 
       600,000  Euro  $549,000 US Dollars  August 10, 2000 

Interest Rate Risk

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:

Twelve Month
Period Ending
Fixed
Rate
Debt
Variable
Rate
Debt
(dollars in thousands)
June 30, 2001   $  7,829   $     —  
June 30, 2002  9,605   2,909  
June 30, 2003  5,000   —  
    $22,434   $2,909  

Fixed rate debt is comprised of a $15.0 million unsecured senior note and $7.4 million due under lease arrangements. The senior note bears interest at a rate of 10.99% and the lease arrangements bear interest at an average implicit interest rate of 10.3%. Variable rate debt is comprised of borrowings under the Company’s $10.0 million revolving credit line, which includes a $2.7 million Yen denominated loan and a $0.2 million Euro denominated loan. Interest under the unsecured revolving credit facility is assessed based upon the bank’s reference rate in each respective country. The interest rate assessed to the Yen and Euro denominated loans at July 1, 2000 were 1.14% and 5.40%, respectively.

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 the three months ended July 1, 2000, except as follows:

Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - The following Exhibits are filed herewith:

  Exhibit (27) - Financial Data Schedules (EDGAR only)

b) Reports on Form 8-K:

None.


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 10, 2000   By:/s/ David B. Baker
————————————		  
    David B. Baker, 
      Vice President, Chief 
      Financial Officer and 
      Secretary 
      (Principal Financial and 
     Accounting Officer) 


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