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THE MIDDLEBY CORPORATION AND SUBSIDIARIES QUARTER ENDED JUNE 28, 2003 INDEX

PART I.     FINANCIAL INFORMATION

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

THE MIDDLEBY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)

THE MIDDLEBY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 28, 2003 (Unaudited)

	In June 2002, the FASB issued Statement No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement requires recording costs associated with exit or disposal activities at their fair values when a liability has been incurred. Under previous guidance, certain exit costs were accrued upon management’s commitment to an exit plan, which is generally before an actual liability has been incurred.  This statement is effective for financial statements issued for fiscal years beginning after December 31, 2002.  The adoption of this statement did not have a material impact to the financial statements.
	In April 2003, the FASB issued Statement No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.”  This statement requires that contracts with comparable characteristics be accounted for similarly.  This statement is effective for contracts entered into or modified after June 30, 2003.  The company will apply this guidance prospectively.
	In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.”  This statement establishes standards for classifying and measuring certain financial instruments with characteristics of both liabilities and equity.  This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The company does not expect the adoption of this statement to have a material impact to the financial statements.
3)	Other 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 SFAS No. 130, “Reporting Comprehensive Income.”
	Components of other comprehensive income were as follows (in thousands):

	Three Months Ended								Six Months Ended
	Jun. 28, 2003				Jun. 29, 2002				Jun. 28, 2003				Jun. 29, 2002
Net earnings	$	4,597			$	2,814			$	7,206			$	3,854
Cumulative translation                adjustment		115				(55	)			148				15
Unrealized loss on            interest rate swap		(184	)			—				(282	)			—
Comprehensive income	$	4,528			$	2,759			$	7,072			$	3,869

	Accumulated other comprehensive income is comprised of minimum pension liability of $1.5 million as of June 28, 2003 and December 28, 2002, foreign currency translation adjustments of $0.4 million as of June 28, 2003 and $0.5 million at December 28, 2002 and an unrealized loss on a interest rate swap of $0.8 million at June 28, 2003 and $0.5 million at December 28, 2002.

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4)	Inventories
	Inventories are composed of material, labor and overhead and are stated at the lower of cost or market.  Costs for Blodgett inventory have been determined using the last-in, first-out (“LIFO”) method.  Had the inventories been valued using the first-in, first-out (“FIFO”) method, the amount would not have differed materially from the amounts as determined using the LIFO method.  Costs for Middleby inventory have been determined using the FIFO method.  The company estimates reserves for inventory obsolescence and shrinkage based on its judgment of future realization.  Inventories at June 28, 2003 and December 28, 2002 are as follows:

		Jun. 28, 2003				Dec. 28, 2002
		(In thousands)
	Raw materials and     parts	$	7,134			$	6,178
	Work-in-process		4,093				5,849
	Finished goods		16,588				15,179
		$	27,815			$	27,206

5)	Accrued Expenses
	Accrued expenses consist of the following:

A rollforward of the warranty reserve is as follows:

		Jun. 28, 2003				Jun. 29, 2002
		(dollars in thousands)
	Beginning balance	$	10,447			$	9,179
	Warranty expense		5,706				4,841
	Warranty claims		(4,521	)			(3,951	)
	Ending balance	$	11,632			$	10,069

7)	Acquisition Integration

On December 21, 2001 the company established reserves through purchase accounting associated with severance related obligations and facility exit costs related to the acquired Blodgett business operations.

Reserves for estimated severance obligations were established in conjunction with reorganization initiatives established during 2001 and completed during the first half of 2002.  During the first quarter of 2002, the company reduced headcount at the acquired Blodgett operations by 123 employees.  This headcount reduction included most functional areas of the company and included a reorganization of the executive management structure.  During the second quarter of 2002, the company further reduced headcount at the Blodgett operations by 30 employees in conjunction with the consolidation and exit of two manufacturing facilities.  Production for the Blodgett combi-oven, conveyor oven, and deck oven lines were moved from two facilities located in Williston and Shelburne, Vermont into existing manufacturing facilities in Burlington, Vermont and Elgin, Illinois.  The second quarter headcount reductions predominately related to the manufacturing function. The remaining reserve balance at June 28, 2003 is primarily associated with continuing medical benefits associated with employees terminated in 2002.

Reserves for facility closure costs predominately relate to lease obligations for three manufacturing facilities that were exited in 2001 and 2002.  During the second quarter of 2001, prior to the acquisition, reserves were established for lease obligations associated with a manufacturing facility in Quakertown, Pennsylvania that was exited when production at this facility was relocated to an existing facility in Bow, New Hampshire.  The lease associated with the exited facility extends through December 11, 2014.  The facility is currently subleased for a portion of the lease term through July 2006.  During the second quarter of 2002, the company exited leased facilities in Williston and Shelburne, Vermont in conjunction with the company’s manufacturing consolidation initiatives.  The Williston lease extends through June 30, 2005 and the Shelburne lease extends through December 11, 2014.  Neither of these facilities has been subleased although the company is performing an active search for subtenants.  Future lease obligations under these three facilities are anticipated to amount to approximately $13.5 million.  The remaining reserve balance is reflected net of anticipated sublease income.

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The forecast of sublease income could differ from actual amounts, which are subject to the occupancy by a subtenant and a negotiated sublease rental rate.  If the company’s estimates or underlying assumptions change in the future, the company would be required to adjust the reserve amount accordingly.

A summary of the reserve balance activity is as follows (in thousands):

		Balance Dec. 28, 2002			Cash Payments				Balance Jun. 28, 2003
	Severance obligations	$	271		$	(113	)		$	158
	Facility closure and lease obligations		9,493			(557	)			8,936
	Total	$	9,764		$	(670	)		$	9,094

All actions pertaining to the company’s integration initiatives have been completed. At this time, management believes the remaining reserve balance is adequate to cover the remaining costs identified at June 28, 2003.

8)	Financial Instruments

In June 1998, the FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”.  SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments. The statement requires an entity to recognize all derivatives as either assets or liabilities and measure those instruments at fair value.  Derivatives that do not qualify as a hedge must be adjusted to fair value in earnings.  If the derivative does qualify as a hedge under SFAS No. 133, changes in the fair value will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments or recognized in other accumulated comprehensive income until the hedged item is recognized in earnings.  The ineffective portion of a hedge’s change in fair value will be immediately recognized in earnings.

Foreign Exchange: The company has entered into derivative instruments, principally forward contracts to reduce exposures pertaining to fluctuations in foreign exchange rates.  As of June 28, 2003 the company had forward contracts to purchase $6.5 million U.S. Dollars with various foreign currencies, all of which mature in the next fiscal quarter.  The fair value of these forward contracts was ($0.1) million at the end of the quarter.

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Interest rate swap: On January 11, 2002, in accordance with the senior bank agreement, the company entered into an interest rate swap agreement with a notional amount of $20.0 million to fix the interest rate applicable to certain of its variable-rate debt.  The agreement swaps one-month LIBOR for a fixed rate of 4.03% and is in effect through December 31, 2004.  A loss of $0.3 million was recorded in earnings for the six-month period ended June 29, 2002 as the interest rate swap was marked-to-market (not specifically designated as a hedge).  At June 30, 2002 the company designated the swap as a cash flow hedge.  Accordingly, changes in the fair value of the swap subsequent to June 30, 2002 are recognized in accumulated other comprehensive income and any hedge ineffectiveness is recorded in current-period earnings as a component of gains and losses on acquisition financing derivatives.  The change in fair value of this swap agreement in the first six months of 2003 was $0.1 million.  The ineffective portion of the interest rate hedge recorded in earnings during the first six months amounted to $0.1 million.

On February 9, 2003 in accordance with the senior bank agreement, the company entered into another interest rate swap agreement with a notional amount of $10.0 million to fix the interest rate applicable to certain of its variable-rate debt. The agreement swaps one-month LIBOR for a fixed rate of 2.36% and is in effect through December 30, 2005.  The company designated the swap as a cash flow hedge at its inception and all changes in the fair value of the swap are recognized in accumulated other comprehensive income.  The change in fair value of this swap agreement in the first six months of 2003 was ($0.2) million.

Stock warrant rights: In conjunction with subordinated senior notes issued in connection with the financing for the Blodgett acquisition, the company issued 358,346 stock warrant rights and 445,100 conditional stock warrant rights to the subordinated senior noteholder.   These stock warrant rights were repurchased and retired in December 2002 in conjunction with the company’s debt refinancing.  Prior to the retirement of the warrant rights, the company had recorded a liability pertaining to an obligation that required the company to repurchase these warrant rights at the fair market value in circumstances defined by the subordinated senior note agreement.  The obligation pertaining to the repurchase of the warrant rights was recorded in Other Non-Current Liabilities at fair market value utilizing a Black-Scholes valuation model. The change in the fair value of the stock warrant rights during the first six months of 2002 amounted to $0.3 million and was recorded as a gain in the income statement for the six month period ended June 29, 2002.  No such amount was incurred in 2003.

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9)	Stock-Based Compensation

As permitted under SFAS No. 123: “Accounting for Stock-Based Compensation” , the company has elected to follow APB Opinion No. 25: “Accounting for Stock Issued to Employees” in accounting for stock-based awards to employees and directors. Under APB No. 25, because the exercise price of the company’s stock options is equal to or greater than the market price of the underlying stock on the date of grant, no compensation expense is recognized in the company’s financial statements for all periods presented.

Pro forma information regarding net earnings and earnings per share is required by SFAS No. 123.  This information is required to be determined as if the company had accounted for its employee and director stock options granted subsequent to December 31, 1994 under the fair value method of that statement.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable.  In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility.  Because the company’s options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single measure of the fair value of its options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period.  The company’s pro forma net earnings and per share data utilizing a fair value based method is as follows:

Three Months Ended

Six Months Ended

Jun. 28, 2003

Jun. 29, 2002

Jun. 28, 2003