Middleby: 4th Quarter Earnings News Release THE MIDDLEBY CORPORATION REPORTS FOURTH QUARTER RESULTS AND RESTRUCTURING PROGRAMS Weakness in International Markets and Non-recurring Charges Result in a Net Loss Rolling Meadows, IL, February 22, 1999 - The Middleby Corporation (NASDAQ: MIDD), a global supplier of equipment to the foodservice industry, today reported lower net sales and earnings for the fiscal fourth quarter and full year ended January 2, 1999 compared to the same periods of fiscal 1997. For the fourth quarter, net sales decreased 10% to $33,687,000 from $37,623,000 for the prior year period. The Company reported a net loss of $4,107,000, or $.40 per diluted share, including non-recurring pre- tax charges of $1,932,000, compared to net earnings of $1,600,000, or $.16 per share, in the prior year fourth quarter. As explained below, non-recurring charges were recorded associated with the exit of certain manufactured and distributed product lines within the Company's U.S. operations. Fourth quarter results were also negatively impacted by other one-time adjustments from write-downs of consignment and display inventories, provision for inventories in Asian markets, and receivable write-downs for delayed Indonesian and Philippine hotel projects. For the fiscal year ended January 2, 1999, Middleby reported a net loss of $3,684,000, or $.34 per diluted share on net sales of $132,320,000, compared to net earnings of $5,240,000, or $.58 per share, on net sales of $148,253,000 for the fiscal year ended January 3, 1998. The fiscal 1998 results included the previously mentioned fourth quarter charges and an additional charge of $1,525,000 recorded in the third quarter for costs to restructure the Company's international organization and to write-down capitalized system software and implementation costs due to the impairment and abandonment of an enterprise-wide resource planning system. During the fourth quarter, the Company focused on several strategic initiatives: - The elimination of non-core product lines not aligned with the Company's strategic focus on cooking equipment and its established distribution channels. - The restructuring of the international distribution organization to reduce costs in line with lower international sales levels. - Integration of the Company's U.S. manufacturing operations to form the Middleby Cooking Systems Group. During the fourth quarter, the Company decided to discontinue the distribution of all non-manufactured products within the U.S. markets. Additionally, the Company exited a certain manufactured product line not critical to the Company's cooking and warming equipment strategy. Accordingly, the Titan mixer line was sold and the Company is ending distribution activities for the Ro-Fry oil- less fryer, rotisserie ovens, display cases and combi-ovens. These product lines accounted for approximately 2.5% of overall net sales in fiscal 1998. In conjunction with these actions, the Company recorded pre-tax charges of $1,932,000 for the disposition of inventories and related exit costs. The Company restructured its international organization by decentralizing operations from the U.S. to international-based regional centers, resulting in a lower cost structure and a more streamlined order fulfillment process. As a result, 18 management and administrative positions were eliminated within the international distribution division's U.S. office in October 1998. Also, the Company has significantly cut costs and improved processes at its manufacturing locations impacted by reduced unit demand from international customers. The Company's Middleby Marshall, Southbend and Toastmaster operations have been merged to form the Middleby Cooking Systems Group. Selim Bassoul, President of Southbend, has been named Group President. Middleby expects the combined business to benefit from enhanced distribution capabilities and a more efficient cost structure. The Company reduced management and administrative staff levels at these U.S. manufacturing locations by 12 positions in November 1998 and a further 33 positions in early 1999. Discussion of Operations Net Sales (in $000's) 4th Quarter 4th Quarter Fiscal Fiscal 1998 % 1997 % 1998 % 1997 % ------------- ------------- ------------ ------------ BUSINESS DIVISIONS Conveyor oven equipment $12,000 36% $12,769 34% $45,605 34% $53,948 36% Counterline cooking equipment and specialty products 3,725 11% 4,170 11% 16,270 12% 16,527 11% Core cooking equipment 9,182 27% 9,046 24% 39,348 30% 34,282 23% TOTAL COOKING AND WARMING EQUIPMENT DIVISIONS 24,907 74% 25,985 69% 101,223 76% 104,757 71% International specialty equipment 927 3% 1,734 4% 5,239 4% 7,627 5% International distribution 10,801 32% 13,039 35% 39,096 30% 47,668 32% TOTAL INTERNATIONAL DIVISIONS 11,728 35% 14,773 39% 44,335 34% 55,295 37% Intercompany sales (3,213)-10% (4,482)-12% (14,678)-11% (16,216)-11% Other 265 1% 1,347 4% 1,440 1% 4,417 3% TOTAL $33,687 100% $37,623 100% $132,320 100% $148,253 100% Sales declined 10% from the prior year fourth quarter due primarily to a 21% decrease in international sales and lower orders from certain major restaurant chain customers. Business conditions in international markets that have been negatively affected by economic factors, such as Asia and the Middle East, remained difficult in the fourth quarter. Decreased restaurant, hotel and resort development led to a 47% decline in net sales of Middleby Philippines Corporation, a leading specialty equipment manufacturer for the Asian markets. Net sales of the international distribution business declined by 17%, as significantly lower sales in the troubled Asian and Middle East markets were partly offset by increased sales in Mexico. The Southbend cooking equipment division increased sales by 2% compared to the fourth quarter of 1997, though sales of the conveyor oven equipment division declined 6%, due to lower international sales in Asia, offset by increased sales in Mexico and Canada. The counterline cooking equipment division reported net sales 11% below the year ago quarter due primarily to lower sales to a chain customer and less international sales. Sales for the full year 1998 were 11% lower than 1997 with a 20% decrease in international sales. A 49% increase in sales in Latin America was more than offset by 37% and 17% decreases in sales in the Asia and Europe/Middle East regions, respectively. The Southbend cooking equipment division reported a net sales increase of 15% compared to 1997 resulting from new products and increased market penetration in the U.S. Net sales of the conveyor oven equipment division decreased 15% due to lower order levels from major chain customers and the impact of a $5.2 million non-recurring service and parts order in 1997. Gross margins of 20.2% in the fourth quarter were lower than the 30.4% reported in the fourth quarter of 1997. Gross margins were negatively affected by lower volume and labor inefficiencies, both at the Philippines and U.S. factories. For the full year, gross margins declined from 30.8% to 27.5%, as operations were primarily affected by lower volume and currency fluctuations, which in turn caused erratic order flow from customers. In addition, gross profit in the fourth quarter was impacted by write-downs of consignment and demo equipment inventories of $611,000, write-downs and liquidation of slow-moving inventories, primarily in international markets of $357,000, incremental costs associated with the outsourcing of fabrication of $293,000 and other inventory adjustments of $475,000. Operating expenses, excluding non-recurring charges, increased from $8,289,000 during the fourth quarter of 1997 to $8,686,000 in the fourth quarter of 1998. The increased expense reflects severance and facility closure costs, provisions for receivables related to deferred Indonesian and Philippine hotel projects, and other one-time costs aggregating to $428,000 recorded during the quarter. The Company recorded a net tax benefit during the quarter of $784,000 at an effective rate of 16.0%. During the fourth quarter the Company established valuation allowances of $958,000 associated with tax credits which are more likely than not to expire unutilized. Perspective on 1998 and 1999 David Riley, President and Chief Executive Officer, said: "Poor operating performance in our international companies and the recording of one-time adjustments led to disappointing results in the fourth quarter. 1998 was a difficult year for Middleby due to the economic turmoil in Asia and other international markets. However, we have made some difficult decisions in restructuring our operations during the past few months. We have aggressively cut costs and expect to realize annual savings of $2.5 million from these efforts. The elimination of certain non-core product lines will allow our sales and operations teams to focus on our premier cooking equipment brands- Middleby Marshall, Southbend and Toastmaster. Selim Bassoul will lead the Cooking Systems Group in taking advantage of the strengths and synergies of our brands through the various sales channels within the U.S. foodservice industry. During early 1999, we will continue to assess our operations and product lines and expect to implement further cost reduction initiatives and operational improvements. We are disappointed to announce the termination of our distribution and marketing agreement for the Ro-Fry oil-less fryer, manufactured by Ubert Gastrotechnik GmbH, a German company. Despite our significant efforts and investment during the past four years, we believe the eventual acceptance of this revolutionary product by U.S. foodservice operators is still several years away. Our ability to control the design changes required for broad acceptance by major restaurant chains has been limited under the distribution arrangement. Also, we have concluded that our financial and operating resources are best focused on our core brands at this time." Mr. Riley continued, "While 1998 proved to be a challenging year, we are excited about Middleby's prospects for 1999. Our major chain customers appear well positioned for continued or renewed growth in restaurant development. Our engineering groups are focused upon bringing to market a pipeline of new and innovative products. We expect our restructuring initiatives to provide a lower cost base and more focused strategy from which to capitalize on the growth opportunities in the global foodservice markets and to help attain our expected levels of profitability and return on investment." Financing Activities The Company has repurchased 838,000 shares in open market purchases under the 1,800,000 share repurchase authorizations approved by the Company's Board of Directors. Middleby currently has 10,157,000 shares outstanding. The Company is not in compliance with existing covenants under its revolving credit line and senior note as a result of the fourth quarter loss and treasury sock purchases noted above. Further share repurchases have been discontinued until financing arrangements are amended with the Company's lenders. The Company is in discussion with its lenders in order to obtain waivers of the defaults and amend the financial covenants, which the Company expects to obtain. 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. Statements in this press release or otherwise attributable to the Company regarding the Company's business which are not historical fact are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company cautions investors that such statements are estimates of future performance and are highly dependent upon a variety of important factors that could cause actual results to differ materially from such statements. Such factors include, but are not limited to, quarterly variations in operating results; dependence on key customers; international exposure; foreign exchange risks affecting international sales; changing market conditions; the impact of competitive products and pricing; the timely development and market acceptance of the Company's products; the availability and cost of raw materials; and other risks detailed herein and from time-to-time in the Company's SEC filings, including those discussed under the heading entitled "Risk Factors" in the Company's Registration Statement on Form S-2 (No. 333- 35397) filed with the Securities and Exchange Commission. The Middleby Corporation is a leader in the design, manufacture, marketing and service of a broad line of equipment used for cooking and preparation of food in commercial and institutional kitchens and restaurants throughout the world. The Company's leading equipment brands include Middleby Marshall(R) (conveyor cooking equipment), Southbend (R) (core cooking and steam cooking equipment), and Toastmaster (R) (counterline cooking and warming equipment). Middleby's international subsidiary, Asbury Associates, Inc., is a leading exporter and distributor of foodservice equipment in the global marketplace and its international fabrication subsidiary, Middleby Philippines Corporation, is a leading supplier of specialty equipment in the Asian markets. For further information about Middleby, visit the Company's World Wide Web site, http://www.middleby.com. Contact: John J. Hastings, The Middleby Corporation 847-758-3885 THE MIDDLEBY CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in 000's, Except Per Share Information) (Unaudited) Three Months Ended Year Ended Jan 2, Jan 3, Jan 2, Jan 3, 1999 1998 1999 1998 -------- -------- --------- --------- Net sales $ 33,687 $ 37,623 $ 132,320 $ 148,253 Cost of sales 26,877 26,183 95,982 102,523 -------- ------- -------- -------- Gross profit 6,810 11,440 36,338 45,730 Selling & distribution expense 5,283 5,984 20,817 22,150 General & administrative Expense 3,403 2,305 12,304 10,689 Non-recurring expense 1,932 0 3,457 0 ------- ------- -------- -------- (Loss) income from operations (3,808) 3,151 (240) 12,891 Interest expense and deferred financing amortization, net 755 768 2,916 4,136 Other expense (income), Net 328 426 739 413 ------- ------- -------- -------- (Loss) earnings before income taxes (4,891) 1,957 (3,895) 8,342 (Benefit) provision for income taxes (784) 357 (211) 2,538 ------- ------- -------- -------- (Loss) earnings from continuing operations (4,107) 1,600 (3,684) 5,804 Loss from discontinued operations, net of tax 0 0 0 (564) ---------- --------- ----------- --------- Net (loss) earnings $ (4,107) $ 1,600 $ (3,684) $ 5,240 ========== ========= =========== ========= Basic earnings per share ------------------------ (Loss) earnings from continuing operations $ (0.40) $ 0.17 $ (0.34) $ 0.65 Loss from discontinued operations, net of tax 0.00 0.00 0.00 (0.06) Net (loss) earnings ------ ------ ------ --------- per share $ (0.40) $ 0.17 $ (0.34) $ 0.59 ========== ========= ========= ========= Weighted average shares Outstanding 10,390 9,649 10,761 8,863 Diluted earnings per share -------------------------- (Loss) earnings from continuing operations $ (0.40) $ 0.16 $ (0.34) $ 0.64 Loss from discontinued operations, net of tax 0.00 0.00 0.00 (0.06) Net (loss) earnings ------ ------ ------ ------ per share $ (0.40) $ 0.16 $ (0.34) $ 0.58 ========== ========= ========= ========= Weighted average shares Outstanding 10,390 9,914 10,872 9,104 THE MIDDLEBY CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (Amounts in 000's) (Unaudited) As of As of Jan 2, Jan. 3, 1999 1998 ASSETS Cash and cash equivalents $ 6,768 $ 12,321 Accounts receivable, net 21,242 22,251 Inventories, net 20,456 24,072 Other current assets 3,836 4,248 ---------- ---------- Total current assets 52,302 62,892 Property, plant and equipment, net 22,896 21,790 Excess purchase price over net assets acquired, net 13,617 12,882 Other assets 7,359 5,914 --------- --------- Total assets $ 96,174 $ 103,478 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current maturities of long- term debt $ 1,893 $ 3,595 Accounts payable 10,945 11,600 Accrued expenses 9,436 9,255 ---------- ---------- Total current liabilities 22,274 24,450 Long-term debt 25,932 24,318 Minority interest & other non-current liabilities 2,249 2,109 Shareholders' equity 45,719 52,601 ---------- ---------- Total liabilities and shareholders' equity $ 96,174 $ 103,478 ========== ========== Ends.