The Middleby Corporation, manufacturer of restaurant and foodservice cooking equipment, reported results for the fourth quarter and year ended Jan.1, 2005.
As previously reported on Dec.23, 2004, the company repurchased 1,808,774 shares of stock and 271,000 stock options from its retiring chairman of the board, members of his family, and trusts controlled by his family for an aggregate purchase price of U.S. $83.97 million. The repurchased shares represented approximately 20 percent of the outstanding common stock of the company. In conjunction with this transaction, the company recorded a pre-tax charge of $13.80 million or $8.25 million on an after tax basis. The net charge amounted to $(0.90) per share after taxes in the fourth quarter and $(0.83) for the full year.
Inclusive of this charge, the company reported a net loss of $660,000 or $(0.07) per share on sales of $65.12 million for the fourth quarter ended Jan. 1, 2005 compared to income of $5.84 million, or $0.60 per share, on sales of $59.51 million for the fourth quarter ended Jan. 3, 2004.
Due to the net loss reported in the fourth quarter, the weighted average number of diluted shares used to calculate per share amounts for the quarter excludes common stock equivalents in accordance with generally accepted accounting principles. Net earnings for the year ended Jan. 1, 2005 were $23.59 million, or $2.38 per share, on net sales of $271.12 million as compared to net earnings of $18.70 million, or $1.99 per share, on net sales of $242.20 million in the prior year.
Excluding the charge related to the stock repurchase, net earnings were $7.59 million, or $0.83 per share, for the fourth quarter and $31.84 million, or $3.21 per share, for the year ended Jan. 1, 2005.
Net sales rose 9.4 percent in the fourth quarter and 11.9 percent for the year, reflecting the impact of new product introductions and favorable industry conditions.
Gross margin increased to 37.3 percent for the fourth quarter and 37.9 percent for the year as compared to 36.2 percent and 35.4 percent in the prior year respective periods, reflecting the benefits of increased volumes and higher margins on new products.
Operating income margins improved to 17.9 percent for the fourth quarter and 18.1 percent for the full year from 15.1 percent and 14.5 percent, in the fourth quarter and fiscal year 2003, respectively.
Stock repurchase transaction related expenses of $13.8 million were recorded in the fourth quarter. Expenses included $8.0 million of costs associated with the repurchase of the 271,000 stock options, $1.9 million of reserve adjustments related to a pension settlement with the former chairman, $1.2 million pertaining to the write-off of deferred financing costs related to the company's previous bank agreement which was refinanced as a result of the transaction, and $2.7 million of investment banking, legal, and various other costs associated with the transaction.
Fourth quarter non-operating benefit reflected in other income of $1.9 million or $0.12 per share after taxes is associated with adjustments to reserves for lease obligations related to closed manufacturing facilities, which includes a gain resulting from an early lease termination caused by the sale of the leased property to an independent third party.
Full year results include a $3.2-million tax benefit recorded during the third quarter associated with an adjustment to tax reserves for a closed year.
Total debt as of Jan. 1, 2005 amounted to $123.7 million after giving effect to the borrowings incurred to fund the share repurchase. Subsequent to year-end, the company also funded $12.0 million for the acquisition of Nu-Vu Foodservice Systems and $7.6 million for the settlement of the pension due to the retired Chairman.
"2004 was a successful year," said Selim A. Bassoul, chairman and CEO. "We concluded the year with positive sales momentum driven in part by the impact of our new products. We will continue our initiatives to develop products focused on energy savings, speed of cooking, and automation as we move into 2005. We also made progress in improving our profit margins, which reflect the benefit of production efficiencies resulting from higher sales volumes and generally higher margins on new product introductions. The company continues to execute initiatives to improve operating efficiencies and address the rising cost of steel which will impact Middleby in 2005 due to the expiration of a favorable steel contract at the end of 2004."
Mr. Bassoul continued, "We are excited to start the year on a positive note with the acquisition of Nu-Vu Foodservice Systems. This acquisition will enable Middleby to expand its product offerings to address the fast growing trend of on-premise baking."
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